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Off-Hire Clause:

Balancing Two Competing Interests


IN THIS ISSUE:

1
2
3
4

Off Hire Clauses

Specific Features of
Off Hire Clauses

Conclusions

Written by Max Korndoerfer and Valentins Abasins


harterparty disputes can be daunting for both, the shipowner and the charterer.
As much as both parties would want to settle a dispute amicably there is always
a lesson to be learned for either party.
The off-hire clause operates independently of fault or breach on the part of the shipowner.
Once the respective event occurs the vessel should be put off-hire, and the charterer
should be relieved from his obligation to pay hire as long as he cannot use a given vessel.
This article endeavours to explain one of the main areas of concern or to say areas of
dispute - off-hire clauses.

Types of Off-Hire Clauses


There are two types of off-hire clauses which are used in time charters, net loss of time
clauses and period clauses.

Contact Details

New York Produce Exchange Form 1946 (NYPE 1946) and Baltime forms contain net
loss of time off-hire clauses. This means that charterer may deduct from the payable hire
only if, following the occurrence of a qualifying off-hire event, the charterer has actually
suffered a loss of time in view of the whole duration of the time charter 1 . Even if the event
falls within the wording of an off-hire clause, there is normally no off-hire unless time has
been lost.
For example, Clause 21 (a) of Shelltime 4 form provides: on each and every occasion
that there is loss of time... due to...
That means that the charterer is only able to declare the vessel to be off-hire when the
vessels service is immediately delayed or interrupted, e.g., if the vessel is able to continue
to load despite an engine breakdown there is no loss of time.

No. 2013/08

1.2 Specific Changes to Structure


In contrast, a period off-hire clause provides that the
charterer can treat the whole of the period during which
1.2.1. Rearrangement of Clauses Relating to Risks Covered under
the qualifying event is in existence as off-hire irrespective
ofthe P&I Cover:
whether a loss of time has actually been suffered. Such
clauses
provide
an element
certainty
in that
thethe
existence
The Clauses
relating
to theof
risks
covered
under
P&I Cover have
ofbeen
the collectively
qualifying event
is a question
fact 11
which,
on the
put together
betweenofRules
30 (both
inclusive).
whole, is easy to define. Net loss of time clauses present
difficulties because they require proof of loss of time. If a

Rule 14 (Liability in Respect of Death or Injury of Third Parties)
crane breakdown occurs, one can only make a reasonable
merges previous Clause 14 (Ship Owners - Liability towards
calculation as to how long it would have taken to complete
the cargo
operations had the crane not broken down.
other Persons) and Clause 15 (Charterers Liability Liability to
persons other than employees).

Examples of Net Loss of Time Clauses


Rule 15 (Owners P&I Cover Liability in Respect of Supernuthe


payment
hire shall cease for the time thereby
meraries)
newlyofadded.
lost (NYPE 1946 Line 99)

Rule 28 (Sue and Labour and Legal Costs) previously Clause


no
hire to be paid in respect of any time lost
37.
thereby
(Baltime Line 84)

Rule 29 (Contracts of Indemnity or Guarantee) newly added.

Rule 30 (Special Compensation for Salvors) previously Clause


Capture, Seizure Arrest
46.

Example of Period Clause

Should the vessel be capturedthe payment of hire shall


1.2.2. Merged/Split Clauses(Other than those Relating to Risks
be
suspended until the time of her release.2
Covered under Section 1.2.1)

Comparison
of Net Loss of Time and Period

Rule 8.7 contains the contents of previous Clause 41 (Exclusion
Clauses
of Set-Off).

Vessel
has a breakdown and is towed to discharge
Rule 32.16 contains the contents of previous Clause 30 (Negliport.
gence of the Assured), which as a result has been deleted.

Rule 33 (Obligations prior to Occurrence of the Event Insured

Planned Voyage

Against) merges previous Clause 31 (Ship Owners Obligations

prior to Occurrence of the Event insured against) and Clause 32


Charterers Liability - Obligations prior to Occurrence of the Event

Ainsured against).

10 DAYS
Rule 38.1 contains the contents of previous Clause 39 (Limitation

SAILING
of Reimbursement)
01.01.12

Rule 32 (Exclusions) previously Clause 29.


Various specific issues also need to be addressed in order

Rule 34 (Duties and Obligations after Occurrence of the Event
to analyse the role of the off-hire clause in the contractual
Insured Against) previously Clause 33.
relationship between the shipowner and the charterer.
Rule 35 (Prohibition to Acknowledge Third Party Liability Claims)

previously Clause 34.

and the effect of Wording in


Importance
Rule 36 (Bails and Securities) previously Clause 35.

Rule 38 (Reimbursement)
B
A

Rule 427 (Club
DAYSNot Liable for Interest)
8 DAYS
Rule 43 (Indemnification)

SAILING

Rule
01.01.12

49 (Notices)

TOW
08.01.12

Rule 50 (Forbearance)


DISCHARGE
16.01.12

Rule 45 (Omnibus Rule) previously Clause 47.


Clause 15 of NYPE 1946 provides: That in the event
Rule 46 (Applicable Law, Arbitration Agreement and Jurisdiction)
of the loss of time from deficiency of men or stores,
previously
Clause 45.
fire, breakdown
or damages to hull, machinery or
equipment,
grounding,
detentionpreviously
by averageClause
accidents
Rule 47 (Exclusion
of Assignment)
42.
to ship or cargo, dry-docking for the purpose of
examination or painting bottom, or by any other cause
Rule 48 (Renewals/Ad Extremis Ratio Exitus) previously Clause
49.preventing the full working of the vessel, the payment
of hire shall cease for the time thereby lost; []

2. Changes to Substance
Thus the off-hire events of the above cited off-hire clause
are as follows:
2.1 Main Amendments
A) Specific Events
Wording of various Clauses has been amended in order to make
Deficiency
men
or stores
them more
detailedofand
clear.
Most substantial amendments are set

out below:
Fire

Rule 38.2 contains the contents of previous Clause 40 (Deduct-

General

Rule 37 (Claims Handling Provisions) previously Clause 36.


Wording of off-hire clauses of different charterparties vary

Rule 39 (Pay to be Paid) previously Clause 48.
substantially. Each clause must be looked at closely to
that the particular circumstances fall within the
ensure
Rule 40 (Subrogation) previously Clause 38.
particular clause. A minor addition to; or deletion from,
theRule
41 (Rejection
to Reimburse)
previously
Clause
printed
words can
have a dramatic
effect
on 44.
the
applicability of the clause.

Rule 44 (Limitation Period) previously Clause 43.

Breakdown or damage to hull, machinery or equipment


Rule 1 (Subject of P&I Cover) has been elaborated to set out
Detention by average accidents to vessel or cargo
general requirements for the P&I Cover to be in place, such as:
Drydocking for the purposes of examination or
Assureds interest in the Entered Ship; covered costs being
painting bottom
incurred in connection to the operation of the Entered Ship; such

costs having been incurred during the Policy Year, etc.


B) General Event

ibles) which as a result has been deleted.

Actual Voyage

Rule 31 (Warranties) previously Clause 28.


Specific
Features of Off-Hire Clauses

DISCHARGE

Covered under Section 1.2.1)

ously, caused
of previous
clauses
which aretow
set out
Period renumbering
off-hire = Actual
time taken
to perform
below: from B-C, i.e. 8 days.

which as a result has been


deleted.
11.01.12

1.2.3. Newly Added Clauses (Other than those Relating to Risks

1.2.4. Renumbering of Clauses(Other than those Relating to


Net loss of time = actual time from A-C (15 days)
Risks Covered under Section 1.2.1)
less time it would have taken if there had been no
breakdown (10 days), i.e. 5 days.
The above rearrangement/additions/mergers of Clauses have, obvi-

Rule 8 (Payment of Premium and Other Sums Due) is an


Any other cause, however, such event must prevent
amended version of previous Clause 8 (Premium Payment)
the full working of the vessel.
and it deals with such additional issues as: offset of claims due

against next premium instalment, Clubs lien on the Entered


These
words must be of the same kind with the preceding
Shipof
forthe
premiums
other
sums
due, refund
premium,
words
clause. and
Only
those
causes
which of
are
similar etc.
in type to the specific and express causes itemised in
the clause will qualify as any other cause. However, the

Rule 9 (Period of P&I Cover and Termination of P&I Cover)
addition of the word whatsoever to any other cause,
has been
based
on previous
Clause
9 (Period
of Insurremoves
theredrafted
necessity
to read
the latter
words
ejusdem
generis
with
specific
causes
itemised
in the clause. clearly
ance).
Thethe
Rule
has been
made
more comprehensive,
stating the events that lead to termination of P&I Cover auto-

matically (events in relation to the Assured, such as, Assureds

to

Incidents Caused by Charterers


Employment Orders

vi-

Charterer cannot place a vessel off-hire if the incident is


not a fortuity but the direct result of its own employment
instructions. If the charterer orders the vessel to load coal
on one voyage and sugar in bulk on the next, he can hardly
expect the cleaning to be done in ship owners (i.e. off-hire)
time.

ut

Conclusions

nt

s)

Example:
voluntary dissolution, and events in relation to the Entered Ship,

such
as its constructive
loss) and
those,
in which
the P&I
A)
A vessel
is capturedtotal
by pirates
and
the crew
is forced
Cover is terminated with the Managers prior notice. The latter
to
sail her to Somalia where she is detained for 2 months.
group of events include, inter alia, non-payment by the Assured
B) The charterer refuses to pay hire for this period.
of premiums or other sums due and non-fulfilment of other As-

n)

se

ke

s:

ng

an

nt)

ue

ur-

rly

o-

ds

sociated exclusions are set out separately, basically aiming to


a) There was no average accident to vessel or cargo
makeb)the
Rulewas
easily
There
no comprehensible
default of men by the Assureds.
c) There was no deficiency of men
d) There was no other cause which
wasthe
ejusdem
Clause 20 (Wreck Liabilities) remains
largely
same in
generis the preceding causes since the piracy attack
termswas
of aspects
covered.
However,
3 it is expressly stated that
a wholly external event.
there shall be no recovery in respect of any liability incurred
Note: If the word whatsoever had been added
more than two years after the Entered Ship, Cargo, equipment
the vessel would have been off-hire!
or other property became a wreck, or was lost unless the Managers in their discretion decide otherwise.

ed

er)

The full working of the vessel was prevented


Rule 17 (Stowaways, Refugees and Deserted Seamen) has
However, for the vessel to be off-hire the full working
merged what was previously set out under two specific headings
must be prevented by a cause within the off-hire
i.e. Ship
Owners Insurance and Charterers Liability Insurance,
clause
as aspects
applicable
to Charterers
arethe
also
applicable
There was
no relevant
cause within
off-hire
clause to
Owners.
However, attributes relevant only for Owners and assince:

ut

tc.

sureds obligations under the P&I Cover.


C)
The charterparty off-hire clause reads as follows: That in
the event of the loss of time from default and/or deficiency
of men including strike of officers and/or crew or deficiency
Rule 11 (Cargo Liabilities) elaborates certain specific situations
of stores, fire, breakdown or damages to hull, machinery or
in which cargo
liabilities are
coveredbysuch
as collision,
damage
equipment,
grounding,
detention
average
accidents
to
ship
or
cargo,
dry-docking
for
the
purpose
of
examination
to fixed and floating objects, wash damage etc. Further, speor
painting bottom, or by any other cause preventing the
cific cargo exclusions in line with standard P&I insurance covers
full working of the vessel, the payment of hire shall cease
have
for
thebeen
time incorporated
thereby lost.such as cargo liabilities shall not be

covered for paperless trading, deck cargo, refrigerated cargo


D)
by the
etcHeld
on terms
setcourt:
out therein.

et

ch

Minerva Navigation Inc v Oceana Shipping AG (M/V Athena) [2012] EWHC


3608
(Comm).
Rule 21 (Liability under Towage Contracts) has
been elabo-

Hyundai Merchant Marine Co Ltd v Furness Withy (Australia) PTY Doric


rated upon specifically providing inter alia that in order for such
Pride
[2005] 2 Lloyds Rep. 470.

Cosco BulktoCarrier
Co Ltd vthe
Team-Up
Owning
Co Ltdbe
(The
Saldanha),
liabilities
be covered
Managers
should
aware
that the

Entered Ship carries out towage operations and approve the

as incorrect declaration of the Entered Ships provisions, illegal


fishing, infringement of safe navigation regulations etc.

Rule 31 (Warranties) has been categorised into three sets: Pre-

Rule 32 (Exclusions) in line with standard P&I insurance covers,

Osmium Shipping v Cargill International SA (The Captain Stefanos),


[2012] 2 Lloyds Rep. 46.

Entry Should
and Annual
Condition
Warranties,
Warranyou
have Survey
any queries
or Trading
require
any
further information on the above, please contact:
ties and those Warranties set out in the Certificate of Entry.

certain specialist risks have been excluded such as those liabilities, costs and expenses associated with operating salvage tugs,

semi-submersible heavy lift ships, drilling and exploration of oil/

gas, diving etc. Further the Rule expressly provides that recov-

ery from the Club is subject to the Assured having existing cover

with the Club for those specific risks in terms of which the Assured
seeks reimbursement.

Rule 44 (Limitation Period) has been simplified for the conve-

Notice of claims must be given immediately to the Managers but

Tanker
Bluethat
Card off-hire
and Pollution
from Contaminating
Substances.
Given
clauses
within charterparties
are
Theoften
Assured
be covered
for all the above
three owners
risks or any
themay
reason
of disagreements
between
and
charterers, DGS Marine Group will be pleased to assist its
one or more of them as expressly stated in the Certificate of
clients in negotiating or drafting a particular off-hire clause,
Entry. Further the Rule is linked to Rule 43 (Indemnification),
or assist if there is a dispute between a charterer and a
more
elaboratedLastly,
underfreight,
Sectiondemurrage
2.2 Rules Added.
shipowner.
and defence (FD&D)
cover offered by the BE&O FD&D Facility, in its turn, will
cover the assureds expenses for legal assistance and
Rule 26 (Penalties and Fines) has been extended to cover
court fees if incurred as a result of the dispute.
penalties and fines in relation to breach of immigration laws or
regulations yet expressly restricts cover in certain instances such

[2011] 1 Lloyds Rep. 187.

Andre & CIE S.A. v Orient Shipping (Rotterdam) B.V. (The Laconian
Confidence),
[1997] 1 Lloyds Rep. 139.
towage contract.

As it can be seen from recent case law it could be argued


that there are two main difficulties when construing off4/5
hire clauses. That is to say, the outcome of a particular
case largely depends on whether a given standard off-hire
clause is amended and includes the word whatsoever,
and whether a particular event will be qualified and
accepted by parties (or ultimately by court) as falling within
the natural meaning of a given off-hire clause. It is, of
course, for the charterer to prove that the particular event
Rule 25 (Pollution Liabilities) has been amended to suit the
falls within the off-hire clause, since it is drafted for the
commercial
requirements
of the
Assured;athree
types
of risks are
charterers
benefit only.
Hopefully
better
understanding
of the
clause
can assist
ourassociated
assured in
taking
covered
under
thisand
Ruleits
i.e.use
Bunker
Pollution
with
the
the
right
decisions.
Bunker Blue Card, Pollution from Tankers associated with the

nience of the Assured and provides:

no later than 12 months of occurrence of the particular incident


leading to the claim.

Notice of legal/arbitration proceedings must be given to the


Managers as soon as possible but in no case later than 30 days

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