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NYPE Performance Claims: Proving Breach and Quantifying Loss

gavel

Published Jul 18, 2021 2:18 PM by Dr. Arun Kasi

The speed-consumption claims under NYPE 1946 form can be a tricky one. It is a warranty of the vessel’s ‘capability’ at the time of delivery and not a continuing one. At the same time, there is an obligation on the owner to maintain the vessel and on the master to prosecute with utmost dispatch. The standard warranty is usually modified.

The standard warranty is on fully laden basis, but usually parties add ballast basis. The words ‘fully laden’ may be modified to ‘laden’, as seldom a vessel is fully laden. Usually, rider clause 29 (Vessel’s Description) is added, frequently pulled from Baltic Questionnaire, which will set out the warranty in more detail.

The standard warranty comes with double ‘about’, attached to the speed and consumption, which usually means an allowance of one half knot reduction in speed and five percent increase in consumption. The warranty is about the vessel’s capability in times of ‘good weather’. Usually, parties define ‘good weather’ as code 4 (or less) in Beaufort wind force scale and code 3 (or less) in Douglas sea state scale, and no swell or adverse current.

Proving Breach and Quantifying Loss

First, the charterer must prove the vessel was less capable than warranted at the time of delivery. Typically, the charterer will rely on the vessel’s performance during service to prove the capability at the time of delivery. First, the charterer will identify the periods of good weather on sea passages during service. The periods must be sufficiently long, though they do not have to be one full good weather day, so that they can safely represent the vessel’s performance capability. If the vessel has underperformed during such good weather periods, then a breach is established.

Second, the charterer must quantify the loss. It is impractical to calculate the loss with any precision, but some hypothetical methodology has been accepted. It essentially assumes that the underperformance established during the good weather periods will be extrapolated to all the sea passages under the charter service.

Suppose that the vessel was warranted capable of a speed of 15 knots on 30 metric tons of IFO (380 CST) per day in good weather. The vessel performed a total of 50 days of sea passages under the charterparty. Bad weather was experienced on all sea passage days except one day. Now, this one day will be taken to measure the vessel’s performance capability. It is found that on this one day, she achieved only a speed of 14 knots on 31 metric tons of IFO per day. This means the warranty has been breached, both by under-speed and overconsumption, as the performance on this one day of good weather shows that the vessel was indeed capable only of this performance when she was delivered.

It does not matter that the assumption of good weather both on the warranted performance calculation and the actual performance calculation was not true for most of the voyage. The vessel in this example would have taken, in actual fact, more time and consumed more fuel than even the actual performance scenario used in the above calculation. That does not matter. This methodology will give the probable loss and, though hypothetical, has been accepted.

Suppose that the vessel achieved a lower speed at lower consumption. Then there is a loss to the charterer by the lower speed and a gain to the charterer by the lower consumption. The gain must be offset against the loss in the charterer’s claim. There is no offset if the claim could fit within the off-hire clause, which is seldom the case.

There are some limitations in both stages. On the first stage, the nearer the sample period is to the time of delivery, the better its value as representative of the vessel’s capability on delivery. A sample period will be more easily representative of the vessel’s capability on delivery in short trip charterers than in long charters. Similarly, a sample taken after the bottom was fouled during service is no good representative.

If bad weather is encountered throughout the service, the warranty is still applicable, and the hypothetical question then arising is what the vessel would have achieved had the weather been good. This can be impractical to assess, and it can be fatal to an underperformance claim in short trip charters. The charterer may resort to proving the vessel’s capability by the experience in previous charter. However, the previous data will not be easily available to the subject charterer.

On the second stage, there may be periods of sea passages where the weather is extreme, hence the vessel can only go at low speed irrespective of her capability. Such periods must be excluded from extrapolation.

Dr. Arun Kasi is an advocate and solicitor in Malaysia. He is an arbitrator with the AIAC and THAC panels, and he is a member of LMAA. He accepts appointment as an arbitrator under LMAA terms. For more information, visit https://arunkasico.com.

Dr. Kasi extends his thanks to Mr. Prokopis Krikris, Claims Manager, Meadway Bulkers for reviewing a previous version of this article.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.