UNILATERAL CHANGES IN SAILING ORDERS CAN RESULT IN LIABILITY FOR SHIPOWNERS

Master Petros, a recent New York arbitration (SMA 2784), focuses on sailing orders given to ships by time charterers. The arbitration also concerns a shipowner’s duty to properly care for cargoes carried for bill of lading holders.

On time-chartered voyages, the shipowner places his vessel at the charterer’s disposal for a stated time period. The shipowner retains possession, management and control of the vessel while remaining responsible for navigating and maintaining the ship. The shipowner also has a duty to properly care for the cargo carried. This duty is owed to the charterer and to the cargo bill of lading holder.

The time charterer provides the ship with sailing instructions regarding the cargoes to be carried and their destinations. The instructions, however, must comply with the geographical trading limits and cargo prohibitions in the charter.

In the Master Petros arbitration, a bulk carrier was time-chartered to Sovfracht, the chartering instrumentality of the Soviet Union, to carry 36,000 tons of corn for Exportkhleb, the Soviet grain-importing agency. Exportkheb was also the bill of lading holder.

The vessel loaded at New Orleans and was ordered by the charterer to sail for Odessa. Shortly after departing New Orleans, the vessel grounded and her rudder locked. The shipowner hoped to dry dock the disabled vessel in New Orleans, but the closest facility that would handle a loaded ship was in Virginia.

The shipowner, without consulting the charterer or the cargo owner, entered into a towing contract on Dec. 21, 1984, to tow the vessel to Virginia. On Dec. 27 and 31, the charterer telexed the shipowner for status and was advised that the cargo would remain aboard during dry docking. The charterer then advised the cargo owner of the shipowner’s plans. On Jan. 13, the shipowner’s agent received a telephone call from the charterer’s agent requesting that the vessel not sail.

Notwithstanding the telephone communication, the tow commenced on Jan. 14. Shortly thereafter, the tug lost control of the vessel, causing the vessel to swing about, sink the tug and ground. The vessel’s cargo was inspected the following week and found in deteriorated condition. The shipowner then declared the voyage abandoned and the cargo was sold at a $578,000 loss.

During the arbitration, the shipowner conceded that he was advised by the cargo owner not to tow and that the cargo was to be discharged and later reloaded for oncarriage. However, the shipowner claimed it never received similar instructions from the charterer. If it had, it would have complied. The cargo owner asserted that the shipowner did not properly care for the cargo by failing to consult with it to determine whether a prolonged voyage would damage the cargo.

The arbitrators found that the shipowner never obtained the charterer’s approval for the tow and that the shipowner’s local agent was aware that some interested party objected to the tow. Under these circumstances, the shipowner should have had reason to pause and should have verified the sailing orders with the charterer.

The arbitrators found that the shipowner breached the time charter and its obligation under the bill of lading when it commenced the unauthorized fateful tow. The vessel owner was not entitled to a #243,000 contribution in general average and was liable for the cargo loss.

The Master Petros arbitration should be a warning to shipowners not to unilaterally change charterer’s sailing orders. To do so can be a costly mistake.


[Back]