Vessel performance warranty claims are considered by many in the maritime industry to be extremely difficult to analyze.
Over the past 20 years, maritime arbitrators in New york have resolved 93 disputes over vessel speed and fuel consumption performance
The most recent dispute involved the tanker Konkar Dinso arbitration (S.M.A. 2631), in which a timecharterer was awarded $106,519 for its excess bunker fuel consumption claim and denied its slow speed claim of $122,017.
That award illustrates the monumental and grueling task that arbitrators face when resolving performance disputes. This is so even though arbitrators generally agree upon the laws and principles to be applied in these cases.
The economic principles upon which speed and consumption claims are based are simple. The timecharterer essentially charters (rents) the ship for a specific time period at a specified hire (rent). The charterer pays for the fuel to run the ship. The charterer is interested in making the maximum number of voyages in the allotted time at the lowest possible fuel cost. The easiest way to maximize the number of voyages is to have the vessel cruise at full sea speed. Unfortunately this greatly increases fuel consumption.
The problem is theoretically solved by guaranteeing that the vessel will be capable of maintaining a certain speed in specified weather and draft conditions on a stated bunker consumption. If the ship fails to comply with the warranty requirements, the charterer will claim for time lost or for the cost of extra fuel consumed.
Conversely, if the shipowner maintains the vessel in an efficient state, he may be entitled to compensation for exceeding the speed warranty or for reducing fuel consumption.
The legal principle upon which performance claims are premised is also simple. One should receive what one bargains for. It is the arbitrator’s duty to determine if the warranty has been met and to compensate the aggrieved party for warranty breaches.
Generally, arbitrators will analyze the vessel’s performance for the period the ship is sailing in good weather (force 4 or less) and in open seaways. Numerous sea and vessel conditions are factored into the performance equation. These include such variables as currents, wind directions, slow steaming rates attributed to fog, fouled bottoms, mechanical failures, low quality bunkers and a multitude of other factors.
Oil tanker charter parties also address specific weather conditions, consumption rates for cargo heating, tank cleaning, as well as for ballast (empty) voyages and variable sea speeds.
In the Konkar Dinos charter party, the charterer was entitled to recover damages if the tanker failed to meet its guaranteed speed and/or fuel consumption. Likewise, the shipowner was entitled to additional hire for better performance.
At the arbitration hearings, the charterer’s expert reviewed, analyzed and critiqued the ship’s logs and log abstracts and concluded that these documents contained errors and inconsistencies.
Furthermore, the log abstracts only reflected weather observations at noon and not at other periods of the day. The charterer further alleged that on certain days the vessel’s recorded positions did not correspond with the ship’s actual course. Also, the ship’s documents showed daily fuel consumptions as per charter warranty on good weather days, but on bad weather days, when the warranty did not apply, consumption increased without any increase in engine revolutions. The owner’s expert testified that no allowances had been made for fuel used in heating and transferring bunkers and for ballasting.
In order for the arbitrators to evaluate the claims, it was first necessary to scrutinize 597 days of sea performance as recorded in the vessel’s deck and engine logs and compare this information with the log abstracts. Differences were found, but they were minimal. Furthermore, the arbitrators determined the ship’s records were sufficiently accurate to determine speed performance.
The arbitrators decided that they could not fully accept the charterer’s analysis of consumption, as it failed to account for fuel consumed for vessel operations and the ship’s records contained insufficent data on which to base a determination.
After completing their own detailed study, the arbitrators concluded, based upon their own experiences, that the vessel did not perform in accordance with the charter party fuel consumption warranty.
The Konkar Dinos arbitration illustrates that vessel records must be accurately maintained. Furthermore, performance clauses must be fine-tuned to cover a multitude of variables. Otherwise needless and costly man-hours will continue to be expended by arbitrators and experts when dealing with future performance disputes.