Saturday, June 22, 2024

Speed & Consumption- in good faith- deductions from hire

London Arbitrations 1/22,2/22 & 3/22 provide helpful guidance on procedural rules regarding Partial Final Awards (deductions from hire based on The Kostas Melas [1981] 1 Lloyd’s Rep. 18), tribunal’s orders, security for costs and awarding costs.

This practice area only discusses how the market reacted to the published summary and some general observations. To read the published summaries, visit the Lloyds Maritime Law Newsletter website.

General comments and observations

It serves as a good reminder that Charterers should carefully evaluate their case before making deductions from hire or bringing a counter-claim, thus avoiding exposure to costs even sometimes disproportional to the claimed amount. Likewise, a party could lose its case by failing to comply with procedural rules. For example, the tribunal may dismiss the Charterers’ counterclaim upon failing to comply with a peremptory order to provide security for costs [s. 41 (6), Arbitration Act 1996 “AA 1996”] and stay the party’s claim or such part of it as the tribunal thinks fit. This discretional power is given under para 17 (c) of the LMAA Terms 2021. Again, even if the claim succeeds, but the basis of the claim is flawed, e.g. a performance report that applies the wrong methodology, the Charterers could be exposed to costs (See London Arbitration 23/21). Lastly, a party’s expert relying solely on attacking the other expert’s comments and offering no assistance to the tribunal in deciding the issue may adversely affect the party’s case(see Expert opinion evidence- Speed – Consumption claim – Charter Party Disputes).

Therefore, a performance report (or WRC’s comments) is not the end of the matter. It requires much more to pursue a claim in arbitration successfully.

“In good faith”

Regarding the words” in good faith”, in some previously settled cases, the parties referred to London Arbitration 1/22; charterers argued that these words have no effect in the context of a speed and consumption warranty. Alternatively, the words “in good faith” have not the effect of negating any warranty, as happens with the words “without guarantee” (see The Lipa). However, Owners may rely on The Lendoudis Evangelos II to assert that only significant discrepancies justify that the description was not given in good faith. In a recent case, the tribunal did not have to decide this issue as the Charterers’ claims failed for other reasons. Further, it is unclear whether the Charterers made any submissions on this point when pursuing their counterclaim later in London Arbitration 2/22. However, the tribunal likely accepted the Owners’ application for security of costs because they had a strong defence or Charterers a weak case on the merits.

Turning to the assessment of costs, para. 8 of LMAA SCP 2017 states that “the arbitrator shall assess and award costs on a commercial basis having regard to the nature of the reference…” And s. 61(2) “AA 1996” provides that “Unless the parties otherwise agree, the tribunal shall award costs on the general principle that costs should follow the event except where it appears to the tribunal that in the circumstances this is not appropriate in relation to the whole or part of the costs.”

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