External events, delay and who pays

Time Charters (and off-hire)

Under a standard time charter, a vessel remains on hire unless there is an “off-hire event” as defined by the charter: “the risk of delay is fundamentally on a time charterer, who remains liable to pay hire in all circumstances unless the charterer can bring himself within the plain words of an off-hire provision.” [Rix LJ, The Doric Pride [2006] 2 Lloyd’s Rep. 175].

The list of off-hire events preventing the full working of the vessel will vary between charterparties but will usually include events such as deficiency of men or stores, fire, breakdown or damages to hull or machinery or groundings and average accidents to ship or cargo. As such, it is unlikely that port closure or delay on a voyage caused by an external event would qualify as an off-hire event, unless specifically provided for in the charter. Therefore, provided the vessel remains fully efficient and able to follow charterers’ orders, charterers would likely be obliged to pay hire and pay for bunkers during the waiting period. 

If an off-hire clause includes the words “any other cause” at the end of the list of off-hire events, this will have the effect of widening the list of events to events similar in nature to those specifically listed in the off-hire clause. However, it is unlikely these words will extend to external events. The additional inclusion of the word “whatsoever” (after “any other cause”) will mean that the alleged off-hire event does not have to be of the same kind as those specifically mentioned in the off-hire clause, thereby widening the scope of the off-hire clause so that it is likely to cover a fortuitous, external event (provided that the event prevents the full working of the vessel for the service immediately required by charterers¹). 

A further consideration for time charterers will be whether any delay risks exceeding the maximum charter period. Again, the repercussions for this will depend on the specific wording of the charterparty. Some charterparties may allocate cost and responsibility for exceeding the maximum term with charterers, whereas other charterparties (for example, clause 19 of the Shelltime 4 form) may contain a “final voyage” provision, which gives leniency to charterers if the relevant delay leading to the maximum charter period being exceeded arises during the course of the voyage to the port of redelivery. 

Voyage Charters (and freight)

The position under a standard voyage charterparty is different. Freight is usually calculated in advance between owners and charterers to cover the agreed time to load a cargo, the voyage to the discharge port, and the time to discharge the cargo. The risk of delay on the voyage, therefore, depends on when it arises.²

If the agreed time to load a cargo (laytime) has been exceeded, the vessel’s charterer will (subject to any exceptions or interruptions to laytime or demurrage) be liable to pay for the extra time in the form of demurrage until loading has been completed.  However, thereafter delay is the owner’s risk and, if the vessel is prevented from sailing due to a port closure, the time lost will be at owners’ expense.

In contrast, if delays are suffered at the point of entering a port, the cost of any time loss will depend on whether the vessel is an arrived ship, such that NOR can be served and laytime begin to run.

Obligation to proceed with utmost / reasonable despatch

As mentioned above, a vessel under a time charter will remain on hire unless charterers can bring themselves within the off-hire clause. However, owners will usually be under an obligation to proceed with “utmost despatch”, a breach of which might enable charterers to recover hire paid. 

However, the obligation to proceed with utmost despatch is subject to the Master’s responsibility for the safety of ship, crew and cargo. In this respect, navigational considerations are the Master’s, as distinct from employment matters (which are the charterers’). Therefore, if a vessel is unable to proceed because of some external event that the Master reasonably believes might affect the safety of the vessel, the vessel is likely to remain on hire (a) while delayed, and (b) for the period of any alternative voyage, (should charterers give fresh orders to sail by a different route) - see FAQ 6 of www.steamshipmutual.com/israel-hamas-war-frequently-asked-questions. 

Furthermore, the obligation may be qualified by exceptions in the charterparty – for example, an “act of god” or “fire” exception. If owners can show that the delay was caused by an event covered by an exception clause, then they may be able to defend claims by charterers for an alleged breach.

By contrast, under a voyage charter, delay on a cargo carrying voyage is owners’ risk. There is unlikely to be a breach of an obligation to proceed to the load port with “reasonable despatch" in circumstances where the delay is caused by an external event.

Late arrival at the load port

Voyage charterparties will usually include express cancellation clauses, stipulating by when the vessel is to arrive at a particular place to be ready to commence loading, failing which charterers can cancel the charterparty.  If the vessel arrives after the cancelling date as a result of the occurrence an external event, charterers are again unlikely to have a claim in damages (for example and subject to question of remoteness, stemming from a failure to meet an agreed laycan under a sale contract) absent a breach of the owners’ obligation of reasonable despatch.  Charterers’ remedy will be limited to the exercise of their contractual right to cancel the charter in accordance with the cancelling date.

Time charterparties will also include cancellation clauses giving charterers the option to cancel if the vessel is not ready for delivery by the cancellation date. A cancelling clause imposes an implied obligation on owners to exercise reasonable diligence to tender the ship for delivery into the charterer’s service by the cancelling date. If a vessel owner is in breach of this obligation their charterers may be able to claim damages³. In cases where delivery of the vessel is delayed by a fortuitous, external event, it is unlikely that owners would be liable for damages.

Frustration

If the vessel is delayed by an extraneous event outside the control of the parties and the delay is sufficiently long to render performance radically different from that which the contract contemplated, the charter may be frustrated, depending on a wide range of factors.⁴ The threshold for demonstrating frustration is very high and the fact, for example, that the original route is not available, such that a vessel must proceed by an alternative and longer route, will not frustrate the charter.⁵  

Force Majeure

Unlike frustration, force majeure is not a recognised, stand-alone, concept under English law.  Its relevance will depend on whether or not there is a force majeure clause in the contract and whether the requirements of that clause have been met. Charterparties typically contain such clauses and these will list the events that give rise to force majeure and the consequences. For example, whether one or both parties are excused from performance of the charterparty in whole or in part, or are entitled to suspend or defer performance. 

There may be difficulties in invoking a force majeure clause in a time charter with a wide-ranging trading range because charterers may be able to issue alternative employment orders, depending on the external event delaying a vessel and the vessel's location. 

Events affecting loading

In extreme cases where a vessel is unable to enter a port to load, alternative loading arrangements may be necessary. However, where the delays are external, the likely impact will be to any underlying sales contracts if the price is determined by reference to the bill of lading dates.

Events affecting discharge

It is unusual for bills of lading or voyage charters to provide that a cargo is to be delivered by a particular date. The Hague and Hague-Visby Rules also provide that any reasonable deviation is not a breach of the contact of carriage (Art IV r4). Therefore, if a vessel is delayed during a voyage such that discharge at the port named in the bill of lading is delayed or the vessel is prevented from entering a port by an external event (and cargo is discharged at an alternative port), it is unlikely that claims for delayed delivery will succeed (Art IV r2(q)). Claims for damage to (perishable) cargo as a consequence of the prolonged voyage will be fact dependent and turn on whether any cargo damage was caused by a failure to properly care for the cargo while in the carriers’ custody and the availability of the normal Hague / Hague-Visby defences.  

Comment 

As discussed, many different disputes may arise if a vessel is prevented from entering or leaving a port or if prolonged delays are encountered during the voyage, following the occurrence of an external event. Ultimately the outcome of any such disputes will be fact specific and depend on the wording of the relevant charterparty clauses.  

If faced with these issues, members should carefully consider the terms of the charterparties and review their contractual rights and obligations and seek assistance from their usual Club contact where required.