Failure to consider off-hire provisions

Members acted as technical and commercial managers for a ship that was on a time charter. The fixture still had about three years to run at a daily hire rate of USD 15,250. The charterparty contained a clause which provided that “should the vessel be off hired for a minimum of 20 days (consecutive or not) within any period of 60 (sixty) consecutive days, or should an off hire be estimated to last a minimum of 20 (twenty) days the charterer has the option of cancelling the remaining period of charterparty redelivering the vessel to owners”.

The ship suffered engine damage on three occasions during one such sixty day period. Repairs were arranged on each occasion. Some of the repair work fell behind schedule. The total off hire period was 23 days 5 hours and 15 minutes, more than 3 days in excess of the 20 days that the time charter allowed. The charterer took the opportunity to cancel the remainder of the time charter and offered to take the ship back at a rate of around USD 2,000 a day less than the original daily rate.

Over the course of a three year charter, this would mean that the owner would lose an amount of about USD 2,200,000.

The market had fallen since the original charter had been agreed and the owners had no option but to accept the offer. Subsequently, they claimed their loss from the managers. They alleged that the manager had failed to notify them that the repairs would take longer than anticipated and that the 20 days off hire limit would be breached. The owners claimed that if they had been made aware of the position they would have had taken action to speed matters up and/or delay some of the work to prevent the right of cancellation accruing. The manager’s liability to the owners for negligence under the terms of the BIMCO Shipman 98 Agreement was limited to 10 times the annual ITIC management fee.