Failure to consider off-hire provision proves costly for ship manager

An indication of how parties to shipping contracts can incur substantial losses in a fluctuating market, as a result of insufficient attention to contractual detail, is provided in the latest Claims Review from the International Transport Intermediaries Club (ITIC).

ITIC reports a case involving the technical and commercial manager of a vessel operating under time charter for three years at a daily hire rate of $15,250. The charter party contained a clause stipulating that, if the vessel was off hire for a minimum of twenty days (consecutive or otherwise) in any period of sixty consecutive days, the charterer had the option of cancelling the remaining period of the charter and redelivering the vessel to the owner.

In the event, the vessel suffered engine damage on three occasions during one such sixty-day period. The total off-hire period was more than three days in excess of the twenty days allowed under the charter. The charterer took the opportunity to cancel the remainder of the charter, but offered to take the vessel back at a rate which was roughly $2,000 a day below the original daily rate. Over the course of a three-year charter, that equated to a loss to the owner of roughly $2m.

Since the market had fallen since the original charter was agreed, the owner had little option but to accept the offer. Subsequently, it claimed its loss from the ship manager, arguing that the manager had failed to notify it that the repairs would take longer than anticipated and that the twenty-day off-hire limit would be breached. The owner maintained that, if it had been made aware of the position, it would have taken action to speed matters up and/or delay some of the work, to prevent the right of cancellation occurring.

ITIC reports that the manager’s liability to the owner for negligence under the terms of the BIMCO Shipman 98 Agreement was limited to ten times the annual management fee for the vessel.

ITIC is managed by ITIM Co Ltd, a Thomas Miller company. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com.

28th March 2008
ITIC Press Release PR0108