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Web Alert: “The Coral Seas” – Can an owner defend an underperformance claim on the basis that hull fouling arose out of the charterer’s orders?

03 August 2016

The following key question was heard by Mr Justice Phillips on appeal to the High Court:

"Where under a time charter the owner warrants to the time charterer that the vessel shall maintain a particular level of performance throughout the charter period, and the time charterer alleges underperformance in breach of that warranty, is it a defence for the owner to prove that the underperformance resulted from compliance with the time charterer's orders?"

The Facts

In accordance with the charterer’s instructions, the vessel waited in tropical waters near Rio de Janeiro for 26 days before loading operations were completed. Upon departure, it was immediately apparent that the vessel’s performance had fallen significantly and a subsequent underwater inspection at Singapore found that the propeller was heavily fouled by barnacles. The charterer subsequently made deductions from hire for the time lost on the voyage.

The Arbitrators’ Award

Whilst the tribunal agreed that the vessel had underperformed due to fouling caused by the lengthy stay in tropical waters, they concluded that the marine growth could not be regarded as unusual or unexpected, but constituted fair wear and tear incurred during the ordinary course of trading. The speed warranty applied to all voyages and the owner had assumed the risk of a fall-off in performance following the prolonged stay in tropical waters.

Referring to the related authorities on an owner’s right to an implied indemnity[1], the tribunal held the owner had assumed the risk resulting from marine fouling and therefore the indemnity principle had no application in this case.

The Appeal

The owner sought leave to appeal on the basis that the decision was directly in contrast to the principle of law stated in Time Charters 7th Ed. (2014) para 3.75 which included among other things the assertion that an owner should not be liable for underperformance occasioned by charterer’s orders.

The High Court Decision

The High Court undertook an extensive review of the principles surrounding an owner’s implied right of indemnity against a charterer in respect of the consequences of complying with the charterer’s orders; a principle which always has to be balanced with the equally well established principle that that such indemnity does not extend to losses arising out of the usual perils of the voyage.

The Court concluded that the passage in Time Charterers was drafted too widely. Although the Court accepted that an owner does have the right to an implied indemnity arising out of the charterer’s orders, they cannot avoid liability for risks which they have expressly assumed. In this case, the owner had not carved out their liability in respect of prolonged stays in tropical waters which they were entirely free to negotiate before entering into the charterparty.

This case therefore acts as a timely reminder that an owner should seek to insert an express term into their charterparties if they do not want to be held to the contractual performance warranties following periods of inactivity where hull fouling is likely to occur.

This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the authors of this article.

Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.

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[1] See The Rijin, The Island Archon and The Kitsa