Saturday, June 22, 2024

Underperformance- extrapolation is not allowed?

Everyone that has access to the circulated vessel’s position list in the market, containing the vessel’s description clause, will observe that more or less the clause includes one of the following terms about “extrapolation”. In the parties’ minds, each term is precise and serves the same purpose: restrict any performance claim (loss suffered by the charterers) to the good weather periods, i.e. any variation of speed and/or consumption from the warranted charter party speed and/ or consumption under good weather conditions should not be applied with all necessary adjustments and extrapolated to all sea passages and in all weather conditions (2nd stage of the Didymi).

  1. EXTRAPOLATION OF “GOOD WEATHER” PERFORMANCE FOR “BAD WEATHER” PERIODS IS NOT ALLOWED.
  2. NO EXTRAPOLATION IS ALLOWED.
  3. EXTRAPOLATION FROM GOOD WEATHER TO ALL WEATHER IS NOT ALLOWED.
  4. NO EXTRAPOLATION OF GOOD WEATHER PERFORMANCE OVER THE ENTIRE VOYAGE OR FOR PERIODS OF BAD WEATHER.
  5. DAYS EXCEEDING THE AGREED ABOVE-MENTIONED GOOD WEATHER CONDITIONS ARE TO BE EXPRESSLY EXCLUDED WHEN THE VESSEL’S SPEED EVALUATION IS CONDUCTED, NO OTHER EXTRAPOLATION WILL BE ALLOWED.

When a dispute arises over the vessel’s performance, some weather routing companies will argue that the above wording is not clear enough to change the standard position adopted in the Didymi and recently applied in the Ocean Virgo and the Divinegate. Therefore, they submit a report with extrapolation to all weather and support their position on the following grounds:

  1. Owners focus on the word “extrapolation” but ignore the full clause or what is missing from the wording of the clause.
  2. The wording supports that only extrapolation is not allowed from bad weather periods.
  3. The report does not extrapolate using unknown values, based on the meaning of extrapolation in mathematics “Graph, curve or range of values by inferring un-known values.”
  4. The CP refers only to the first step in establishing a claim, whereas establishing the damages is another step that the CP says nothing about.
  5. Under English Law (The Didymi, as reaffirmed in the Ocean Virgo and recently applied in the Divinegate), it is a fundamental principle that any deficiency of underperformance in good weather to be measured against the entire voyage.
  6. To change a very established legal precedent the parties should have used very clear wording stipulating that the Didymi principle is not to apply, much less any wording no extrapolation of a good weather deficiency against the overall voyage is allowed, which could be challenged.
  7. Owners’ contrary approach raises questions about whether they had described their vessel’s performance in good faith.

As observed, the owners defended these contentions saying that the WRC has mistaken their role and function under the charter party terms. Over-elaboration was unnecessary: the meaning of this word in mathematics was irrelevant, and words should be construed in their context. The purpose of these words was to remove any doubt concerning what was agreed upon. Whether this is now clear or not in the minds of the WRC is neither here nor there.

From the words used by the parties, one had to try to ascertain their mutual intention (not what the WRC thought the terms to mean). Commercial parties, such as the owners and charterers, would understand the words “no extrapolation” in this sense without any room for argument. To argue as the WRC has done, it was to stretch the language beyond its limits to breathe life into this dead claim.

Note: The WRC expressed the view that the wording “the Didymi principle is not to apply” was missing from the CP. However, the parties rarely use this proposed wording in charter parties (as a matter of practice), and if you exclude the Didymi in general, how do you establish a claim? (the 1st stage will not apply as well).

The commercial parties feel confident with simple language, as cited above. Still, there are some instances that the parties later dispute the meaning of the words used after receiving some feedback from a weather routing company. For example, would that require including something like “any variation of speed and/or consumption from the warranted charter party speed and/ or consumption under good weather conditions should not be applied with all necessary adjustments and extrapolated to all sea passages and in all weather conditions (the 2nd stage of the Didymi does not apply)”? Or would that be a linguistic overkill, and the market has not yet shown any need for such detailed wording in the charter parties?

The above is only a brief reference to the parties’ arguments based on my observations in handling claims for owners and charterers.

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