By Vedanta Vishwakarma
Introduction.
In a time-charterparty, the charterer is entitled to direct the vessel where to go, and which ports to call at. In return, the shipowner is paid a daily hire. “Within the framework of such a contract, the charterer decides the voyages to be made and the cargoes to be carried.”[i]
Giving directions, is a key right with regards to employment of the vessel, under a timer charter, as that will be for a predefined time period during which it is likely that multiple voyages will be undertaken, so the oddities of obeying the directions of the charterer will not automatically be known. So implied indemnities need to be contractually incorporated in the charter party to address the commercial bargain effectively.
This is distinct from a voyage charter party wherein shipowners exercise greater control and incorporate express indemnities relevant to the voyage.
Shipowners’ right to claim an express indemnity.
A Shipowner is entitled to an indemnity from the charterer, when it incurs a loss resulting from the master complying with an ‘employment’ order.[ii] As observed by Devlin J, ‘if the owner is to surrender his freedom of choice and put his master under the orders of the charterer, there is nothing unreasonable in his stipulating for a complete indemnity in return.’[iii] In the NYPE, this obligation is not made explicit, but becomes an implied duty.[iv] However, charter parties like the Baltime 1939 (2001 rev)[v] and the Shelltime 4 (v 1.2)[vi], make it explicit.
Scope of the express indemnity.
Applying the indemnity clause and the scope to which it can expand, also ‘depends upon its precise terms read in the context of the contract as a whole’.[vii] It excludes those matters wherein the shipowner has assumed risk or matter such as those of navigation. Regardless, the extent of the wording routinely relates to the repercussions of the master signing bills of lading given by the charterer, covering various matters accepted by the agency and employment of the vessel. If a vessel is arrested, as a consequence of loading a specific kind of cargo based on the charterer’s orders[viii], the same would be shielded by indemnity. Similarly, if the ship is steered to an unsafe port by the charterer, indemnity acts as a bulwark.
Overlap with the off-hire clause.
There are instances wherein there might be an overlap between the indemnity clause with the off-hire clause. For instance, in Royal Greek Government v Minister of Transport[ix], there were multiple explosions on board a vessel, spawned by a spark emerging from a cargo of coal which was loaded as per the time charterer’s directions.
The hull and superstructure were damaged and necessitated repairs. The owner of the vessel paid for the repairs and claimed indemnification for the same from the vessel’s charterer. He contended that the vessel was never off hire during the duration of the repairs. It was held by the court that the order to load a specific cargo was an order as to the employment of the vessel, and thus any repercussions stemming from it would be shielded by indemnity.
The indemnity clause is limited to those losses caused by the compliance with the charterer’s orders.
It is pertinent to understand the extent of the charterer’s liability under this clause.
In the case of Portsmouth Steamship Co Ltd v Liverpool and Glasgow Salvage Association[x], the vessel endured substantial damage from semi-congealed or wholly congealed palm oil, mahogany logs, and crude oil taken on from a salved vessel that ran ashore. The owner of the vessel argued that the indemnity clause was applicable here and claimed indemnification for the repercussions of obeying the charterer’s directions. It was held that the shipowner was covered in ‘respect of consequences that arise directly from the charterers’ instructions namely, the damage caused by the palm oil and the logs, and that it won’t be entitled to recovery in the context of fuel oil leaking from the forepeak tank of the vessel. This is because the same was attributed to an ensuing marine casualty, which did not arise due to the charterer’s actions.
The Causation principle.
In The Kos[xi], the issue arose that whether or not he could claim, pursuant to an express indemnity, for the use or detention of the ship between the notice of withdrawal and discharge of the cargo, for fuel consumed during that time and used to unload the cargo, and for other costs. The Shelltime 3 indemnity provision was called into question. The Supreme Court held that the Shipowner was entitled to be indemnified as the loss sustained by the shipowner was a result of the charterer’s order to load the cargo on board the vessel ‘because the charterers has put it there’. Further, the holding of the lower courts that the act of the shipowner in withdrawing the vessel operated as a break in the chain of causation, was succinctly distinguished by Lord Sumption JSC, who held that, the timing of the withdrawal and location of the discharge were ‘irrelevant to the owners’ loss’, and rather, were the ‘very reason why the detention of the vessel falls within the indemnity’, not being an ‘ordinary incident of the chartered service and was not a risk that the owners assumed under the contract’.
Thus, it is pertinent to understand that the charterer’s obligation to indemnify the shipowner is limited only to the ‘proximate’ or ‘determining’ cause,[xii] of the master obeying its orders regarding the employment or agency.[xiii]
The indemnity will not be availed to the shipowner where the chain of causation has been broken, for example by a member of the crew. The shipowner must prove a direct unbroken chain of causation between the instructions of the charterer and the loss suffered.[xiv]
In The White Rose[xv], a ship was commanded to load grain at Duluth on Baltime terms, which included an express indemnity provision. In accordance with its obligations, the charterer appointed Stevedores, a firm of average competence by local standards. One of the stevedores fell through an unfenced ‘tween deck hatch and he sued the shipowner for damages. The shipowner claimed an indemnity from the charterer, but this was rejected by Donaldson J because the accident was caused by the lack of fencing, for which the charterer was not responsible, rather it was the injured man’s own negligence. But it is crucial to understand that if the shipowner proves incompetence of the stevedores appointed/engaged by the charterer, the charterer remains liable for damages arising from the stevedore’s negligence, notwithstanding that the charter may exclude the charterer’s liability for the same.
Scope of the implied indemnity for employment orders.
A right to an implied indemnity for any repercussions arising as a result of following the charterer’s directions, is usually given to the shipowner, even if the charterer was authorized to give a particular order which the owner of the vessel was bound to obey. For instance, the shipowner may be allowed to claim an indemnification from the charterer for the costs arising out of the underwater cleaning of the vessel’s bottom arising from an extended stay at a port nominated by the charterer.[xvi]
In the case of The Island Archon[xvii], a vessel time-chartered on the NYPE form, had to sail from ports in Europe to the port of Basrah, in Iraq. The receivers of the cargo in Basrah, raised a legal demand in the form of certain freight claims. This necessitated the vessel owner to put up security before the State Enterprise for Maritime Agency (SEMA), before the vessel was allowed to pull out from the said port. Axiomatically, there was a delay, and it was held that the shipowner could claim an implied indemnity, for the losses arising out of the delay, although there wasn’t one laid out expressly.
In The Erechthion[xviii], where a vessel was instructed to discharge general cargo at Port Harcourt. Once the pilot embarked on the ship, it was determined that the vessel should lighten at the Dawes Island anchorage accruing to the draught of the ship. The vessel grounded and struck a submerged object, and consequently the engine room was flooded. Here, both parties accepted that there was an implied obligation to indemnify the shipowner against any reverberations which stemmed from following the charterer’s orders as to employment of the vessel. Staughton J further emphasized that since the manifest intention was for the vessel to lighten at Dawes Island anchorage, by discharging part of her cargo, it was nothing but a plain order as to employment.
Conclusion.
The intention of the charterers, being commercial men, will always be to seek engagement of the vessel in a manner which yields the highest profit. Frequently, this will result in situations wherein if the charterer’s orders are complied with, the ship can become exposed to certain situations which can lead to the damages or losses which the owners have to bear.
Therefore, as part of the commercial bargain, it just makes sense that the charterers need to bear the costs incurred by the shipowners, stemming from the vessel’s employment.[xix] But, the crux of the principle remains the same, that in implying an indemnity the situation must have been something that would never have been agreed as part of the commercial bargain.
For instance, in The Kitsa[xx], a vessel sat for 21 days at the port of Vishakhapatnam, on the Southeastern coast of India, and the owners claimed an implied indemnity for the hull fouling, contending that the same arose out of the charterer’s directions to take the vessel to the port of Vishakhapatnam. The court held this was an ordinary and foreseeable risk of trading and that the risk of hull fouling arising from the ship’s stay in a warm water port was reasonably foreseeable. Therefore, an implied indemnity from the charterers for the cleaning costs incurred by the owners, was not justified.[xxi]
Generally speaking, English law takes a more restrictive approach: construction consists of giving effect to the express wording of the contract and terms are implied only if they are necessary to make the contract work; to give it “business efficacy”, or in order to effectively satisfy the Officious bystander test.[xxii]
As far as the exact scope of a time charterparty is concerned, implied indemnities are the more common phenomenon juxtaposed against the express indemnities under voyage charters.
[i] Dr. Evi Plomaritou and Anthony Papadopoulos, Shipbroking and Chartering Practice 225 (8th ed. 2018).
[ii] David Foxton KC, ‘Indemnities in Time Charters’ in Rhidian Thomas (n 18) ch 6; Sir Nicholas Hamblen, ‘Under Charterers’ Orders – To Indemnify, or Not to Indemnify’ [2018] LMCLQ 200.
[iii] Royal Greek Government v Minister of Transport (1949) 83 L1 L Rep 228, 234.
[iv] Sig Bergesen DY & Co v Mobil Shipping & Transportation Co (The Berge Sund) [1993] 2 Lloyd’s Rep 453 (CA), 462.
[v] Clause 9, lines 123-8.
[vi] Clause 13 (a), lines 228-34.
[vii] Ene Kos I Ltd v Petroleo Brasileiro SA (The Kos) (No 2) [2012] UKSC 17.
[viii] London Arbitration 11/18 (2018) 1000 LMLN 2.
[ix] (1949) 83 L1 L Rep 228.
[x] (1929) 34 L1 L Rep 459.
[xi] ENE Kos I Ltd v Petroleo Brasileiro SA (The Kos) (No 2) [2012] UKSC 17.
[xii] Larrinaga Steamship Co Ltd v The King [1945] AC 246 (HL), 253 (Viscount Simon LC).
[xiii] London Arbitration 20/86 (1986) 184 LMLN 3(3).
[xiv] Whistler International Ltd v Kawasaki Kisen Kaisha Ltd (The Hill Harmony) [2001] 1 AC 638 (HL).
[xv] A/B Helsingfors Steamship Co Ltd. v Rederiaktiebolaget Rex (The White Rose) [1969] 1 WLR 1098.
[xvi] London Arbitration 24/05 (2005) 681 LMLN 2(2).
[xvii] Triad Shipping Co v Stellar Chartering & Brokerage Inc (The Island Archon) [1994] 2 Lloyd’s Rep 227 (CA).
[xviii] New A Line v Erechthion Shipping Co SA (The Erechtion) [1987] 2 Lloyd’s Rep 180.
[xix] Jamie Taylor, Charterparty Indemnities – Express or Implied? (Steamship Manual, 1st July, 2013) <https://www.steamshipmutual.com/publications/articles/kos0613> accessed March 9, 2023.
[xx] Action Navigation Inc.v.Bottigliere Di Navigazione S.p.A. (The “Kitsa ”) [2005] EWHC 177 (Comm).
[xxi] David Martin Clark, DMC’s Case Notes – Action Navigation v Bottiglieri, <https://archive.onlinedmc.co.uk/action_navigation_v__bottiglieri.htm> accessed March 9, 2023.
[xxii] Chitty on Contracts, Volume 1, 28th ed., London, 1999, p.634 et seq.
Centre for Maritime Law 