Saturday, June 22, 2024

Tankers: Slow pumping claims 1984 – (?) , Prokopios Krikris

London Maritime arbitrators frequently determine issues related to slow pumping[i] claims. So, this raises an important question: why slow pumping claims provoke debate in the shipping industry?

Because this is a perennial problem that results to financial exposure[ii]; one can refer to the arbitration awards published between 1984-2017 and to the leading law textbooks. Pulling the arbitration decisions and the commentaries together, it requires technical; operational; and legal knowledge in order to efficiently handle such claims.

The technical & operational experience assists the parties to act pro-actively and to minimize disputes. In particular, Owners satisfy their due diligence or absolute- subject to the de minimis rule- obligations:

  1. proper maintenance of pumps- as per PMS & makers’ guidelines- as to sustain a plea of latent defect or possible defence under exception or limitation liability clauses or shift the evidential burden in the proceedings or to avoid breaching the ISM clause (if incorporated) etc.; and
  2. proper operational use of cargo pumps i.e., act with reasonable care and skill to prevent defects or breakdowns that will prolong the discharging operation (accrued demurrage claims). Owners cannot succeed if their actions break the chain of causation and result to loss or delay. Because a party cannot take advantage of its own wrongdoing[iii]
  3. While Charterers act in such a manner as not to concurrently produce loss or delay. Doing so, it will complicate their defence & counterclaim submissions on issues of burden – liability and quantum. Unless there is a clear-cut liability issue (i.e., damaged pumps- patent defects), then the facts will be balanced- in the efforts of doing justice on limited evidence; leaving also Charterers exposed to costs.

Therefore, this experience assists a party to increase the prospects of successfully defending its position by shifting the evidential burden in the arbitration proceedings -without ignoring where the distinct legal (or persuasive) burden primarily lies; or increase its bargaining power during the settlement negotiations; therefore reaching to a digestible amount[iv] of settlement.

Whereas from a legal perspective, it is important to:

  1. Apply the separate rules of ‘two logically distinct exercises’ of contractual construction or interpretation to establish a breach of the express or the implied pumping warranty (time or pressure element or both) and quantify the loss or delay (demurrage); and
  2. Consider the nature of the dispute. Slow pumping disputes continue to be a topic of constant debate because of their fact-sensitive nature. This makes each case readily distinguishable and results to lack of precedent[v]. In a slow pumping claim, owners allege terminal restrictions, and Charterers allege defective pumps or improper use. Any success of the dispute will depend on the quality of evidence.

Accordingly, it requires (i) expert opinion to establish a causal nexus between breach and loss inflicted by concurrent causes that effectively operate to produce the same- at the risk of becoming highly theoretical or technical; and (ii) factual evidence or expert opinion to discharge the legal burden or shift the evidential burden & rebut any presumptions. But if the scales are evenly balanced, the burden cannot be easily discharged. And some cases –depending on the procedural rules- will be pleaded with conspicuous lack of success given the restricted expert evidence and opinion or admissibility, i.e. what if the opinion is highly speculative or imprecise?- This affects the outcome of the case: it will either encourage the parties to compromise or discourage them from commencing proceedings because of (i) the disproportionate costs to the claim; (ii) the uncertainty on the findings of facts on limited evidence or improbable explanations; or (iii) the prevailing source between conflicting evidence or explanations submitted by the parties–the crux of all factual cases.

Further, Owners face another high hurdle, which may potentially encourage settlement before commencing proceedings. This is whether a complex factual issue -or dressed up as a question of law or a mixed question of fact and law- can be:

  1. properly pleaded to establish a proper defence (Owners’ reply and Defence to Counterclaim submissions) to an alleged breach of the pumping warranty (Charterers’ Defence & Counterclaim), especially when other issues included in the reference; and
  2. properly determined-when it falls under the SCP rules- since the submissions must be kept short and with minimum expert evidence or opinion available.

However, it is worth bearing in mind that experienced arbitrators can 1) determine factual points even with limited evidence put before them without requiring “to be spoon-fed with detailed arguments”; or 2) decide the issue “based on the balance of probabilities without having regard to the somewhat technical questions that arose when the burden of proof had to be considered”. Besides, in the last century, there has been an abundance of maritime cases proving that Judges support arbitrators’ sound commercial sense and experience to determine questions of fact and law; this has also been codified in Arbitration Act 1996.

Conclusion

Although there are no published London Arbitration awards dealing with breach of pumping warranties after 2017, this is insufficient to establish a proper benchmark or mark the beginning of a new era absent such disputes. Slow pumping claims will undoubtedly continue to provoke concern in the shipping industry because of their complex factual nature. However, given the risk and costs involved compared to the claimed amount, this may encourage settlement and result in fewer awards in the future; depending on the freight market conditions.


[i] This refers to the pumping clause agreed in the tanker charter-parties; which usually provides that the ship will either discharge the cargo in certain time i.e. 24 hours or maintain a certain pressure i.e. 100 psi or 7.0 kg/cm2. Pumping warranty clauses have changed over the years as evidenced from the various forms of charter-parties or published arbitration awards.

[ii] Either hard negotiation- compromise or commence arbitration in order to recover accrued demurrage amount.

[iii] Alghussein v Eton College [1988] 1 WLR 587; as a general principle of construction with wider application.

[iv] Or even possibly making a reasonable WPSATC offer that will determine later on issues of costs, if the case proceeds to arbitration. However, if the amount in dispute is moderate, then a reasonable compromise may be desirable.

[v] But, at this stage, the published arbitral decisions form the legal background against which the parties are contracting and same will be helpful to a next tribunal to decide similar points of law (construction of pumping warranties), but probably will be unhelpful to decide pure questions of facts- when raised in slow pumping disputes(evidential burden).

[vi] Arising out mostly under amended standard forms time charter-parties.

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