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The shipping industry has seen a return to slow steaming since the credit crunch in 2008 and as a result of reduced freight and increased bunker rates. Together with the increased focus on environmental efficiency, this has thrown up a number of interesting legal and commercial issues, most notably from a legal perspective, in relation to the implied charterparty obligation of due despatch and deviation for delay under bills of lading.
There is an obvious conflict between an obligation to prosecute a voyage with utmost despatch and an obligation to slow steam. The new BIMCO fuel efficiency terms for time charters recognise this issue and provide that if the Master exercises due diligence in the performance of his/her instructions, he/she will not be in breach of the reasonable despatch obligation.
However, the problem does not end there. The utmost despatch obligation may also be on a contractual footing under the bill of lading. This exposes carriers to the risk of claims for deviation for delay. The BIMCO fuel efficiency terms seek to redress this by obliging charterers to ensure that the terms of the bill of lading, waybills and other documents evidencing the contract of carriage issued by or on behalf of owners state that compliance by owners with the fuel efficiency clause will not constitute a breach of the contract of carriage. The clause also requires charterers to indemnify owners against all consequences and liabilities arising under the bill of lading to the extent that they are a result of owners’ breach of the obligation to proceed with utmost despatch or are heldw to be a deviation. It is foreseeable that disputes will arise where there is a failure to incorporate the terms.
Owners attempting to slow steam under existing charters that do not incorporate the BIMCO terms, should pay particular attention to these dangers as they are exposing themselves to claims for breach of both the charterparty and bill of lading. Whilst it may be possible to obtain retrospective agreement from charterers, this will not be feasible under the bill of lading.
To date, there has not been any case law specifically on this point. However, issues relevant to slow steaming recently arose in the Commercial Court decision in Bulk Ship Union SA v Clipper Bulk Shipping Ltd (The “Pearl C”) [2012] 2 Lloyd’s Rep 533, which concerned an underperformance claim under the NYPE form. The key thing to come out of the decision was that the performance warranty will be used as a practical benchmark to assess whether the vessel has proceeded with utmost despatch and in circumstances where there is an absence of a good explanation for poor performance this may be sufficient to establish a claim for breach of clause 8 (utmost despatch) or a claim of off-hire. On a strict interpretation of the contractual wording, this may appear incorrect as it effectively extends the performance warranty into a continuing warranty, but from a commercial perspective is the easiest way of assessing whether a vessel has underperformed or slow steamed.
Despite these potential pitfalls, slow steaming remains an attractive option because of the economic benefits and increased environmental scrutiny. The benefits of fuel efficiency have long been recognised in the container industry. However, with the financial recession and bunker rates now exceeding US$700 per tonne, slow steaming has become more widespread, including in the dry bulk sector.
The BIMCO clauses are likely to solve the majority of slow speed claims which may arise between owners and charterers, although they would not have assisted the owners in the Pearl C because it was owners under the time charter who chose to slow steam. There is also likely to be litigation in instances where charterers fail to incorporate slow steaming terms into the bill of lading. Therefore, although the standard clauses are helpful, we recommend that owners and charterers carefully consider their individual needs to ensure that any necessary amendments are incorporated.
Daisy Rayner
Associate,Holman Fenwick Willan
A version of the article above first appeared in The Baltic, Winter 2012. It has been also published at HFW’s Green Shipping Bulletin – July 2013 and is reproduced here with the author’s kind permission
