The Saldanha: Piracy and off-hire

Ravi Aswani and James Shirley look at the recent case of The Saldanha. This article was first published in Lloyd's List (4 Aug 2010)

From the Gulf of Aden to the Commercial Court, piracy is in vogue.

In February, Mr Justice David Steel handed down judgment in The Bunga Melati Dua, deciding that a vessel's capture by pirates did not render cargo on board an actual or constructive total loss in the context of marine insurance.

The decision of Mr Justice Gross in The Saldanha, handed down on 11 June, addresses the effect of capture by pirates on the charterer's duty to pay hire under a charterparty on the NYPE form, and in particular the question of whether the charters are entitled to rely on cl. 15 of NYPE (the off hire clause) in such circumstances. The matter came before Mr Justice Gross by way of an appeal on a point of law from the award of an arbitration tribunal that decided that they were not so entitled.

The ship was seized by Somali pirates in the Gulf of Aden on 22 February 2009 during a coal-laden voyage from Indonesia to Koper, Slovenia, via the Suez Canal. The ship was not released until 25 April 2009 and did not reach an equivalent position to the place of capture until 2 May. Charterers refused to pay hire for the whole of the period of capture.

Charterer relied on three off hire events in cl. 15: (i) "detention by average accidents to ship or cargo"; (ii) "default and/or deficiency of men"; and (iii) "any other cause". Charterers bore the burden of persuading the court that capture by pirates fell within the ambit of one or more of these events, failing which the risk of delay would fall on them.

The judge, like the tribunal, could not accept that capture by pirates was an ‘average accident'. Firstly, because such a construction of the term would have been contrary to the view of Mr Justice Kerr in The Mareva AS, that a accident causing damage was required. That view had been accepted as correct for almost 30 years. Commercial certainty was of great importance and innumerable charterparties would have been made on the basis of that understanding of ‘average accident'. Secondly, capture by pirates could not be regarded as an ‘accident': when the ship's master contacted Owners with news of the capture, he would not have said that there had been an ‘accident'.

The judge's conclusion on this point was not affected by the presence of an independent clause referring to "damages to hull, machinery or equipment": the off hire clause was riddled with potential overlap, so the fact that one interpretation might entail the presence of surplus words was not persuasive.

Nor was there any default or deficiency of men within the meaning of the off hire clause. In context, ‘deficiency' required a lack of numbers and ‘default' bore an unorthodox meaning, which excluded transient acts of negligence (such as were assumed, for the purposes of these submissions, to have been committed). In this context, ‘default' required a refusal by the ship's workforce to perform their duties. Any other construction of the clause would have altered the typical allocation of the risk of delay under a time charter, where the risk of errors or negligence in navigation normally fell on the charterer.

The words ‘any other cause' did not take the charterers any further. In the absence of the additional word ‘whatsoever', the words ‘any other cause' referred only to causes of the same kind as those mentioned elsewhere in the off hire clause. That meant that they did not extend to the crew's failure to carry out their duties where that failure resulted from duress from pirates. The delay in this case had not arisen out of the condition or efficiency of the vessel, its crew, or cargo; it had arisen as the result of a matter that was of a materially different kind to those set out in the off hire clause.

The judge concluded by noting that there was a simple way for owners and charterers to avoid disputes such as this: by expressly providing for the risk of delay due to piracy when agreeing charterparties.

It is respectfully submitted that there is nothing surprising or controversial about Gross J's decision, which accords with fairly settled jurisprudence on off-hire. In order to avoid that analysis, charterers will need to try and agree specific detention provisions, or at least modify existing off hire clauses. For contracting parties wishing to agree a compromise provision, BIMCO's Piracy Clause for Time Charter Parties 2009 now provides a further option.

Paragraph (d) of the BIMCO clause addresses the costs of piracy and seeks to strike a balance between the parties. It provides that the charterers must bear the cost of reasonable preventative measures and time lost in taking them, and that if the ship is seized by pirates, hire will remain payable for 90 days after seizure. However, thereafter hire payments cease, and resume only once the vessel is released. Furthermore, charterers will not be liable for late delivery resulting from the seizure.

The BIMCO clause provides a clear allocation of the costs of piracy which otherwise clearly have the potential for giving rise to disputes even where the law is fairly settled.

One of these has now been resolved by Mr Justice Gross, but others will no doubt come before arbitrators and the courts in due course.