Failure to follow Charterer’s orders under a Period Charter

Charterer      Period Charter
Form             NYPE
Type             FD&D Claim / Failure to Follow Charterers Orders

Class I          Defence (FD&D)

Failure of owners to follow charterers’ orders

Synopsis: This case highlights the exposure of a Charterer to an abusive Owner prepared to deviate from the contractual terms and to lien the cargo as security for an unwarranted claim in terms of quantum. It is only through the assistance of the Club’s experienced FD&D department and that of London solicitors retained by the Club in consultation with the Assured that swift steps are taken to obtain an injunction before the London High Court preventing the Owners from discharging the cargo in a port other than that shown on the bill of lading. The cost of solicitors and barristers (retained to lodge the Court application) amounts to USD 85,000 including the costs of supporting full blown arbitration proceedings. The FD&D claims department calculates more than 20 hours of work devoted to this dispute.

An Assured time-charters a vessel for a period of about 5-7 months. On the last voyage the vessel loads a cargo of steel at Constantza for carriage to various Chinese ports. Towards the end of the voyage, owners send a message to the Assured advising that a large amount of hire and expenses are due and calling upon him to pay this immediately. Before the Assured can respond, he is notified by the Master that the vessel has anchored in Hong Kong waters and will go no further until the alleged outstandings are paid. The Assured requests the Club’s assistance under the terms of his Defence cover.

The Assured legitimately disputes the amount owners claim as being due but remits a much smaller admitted sum and calls upon the owners to continue the voyage. The owners then purport to rely on their right to exercise a lien over the cargo pursuant to clause 18 of the NYPE charterparty to support their alleged right to halt the vessel en route to the discharge port. The Club advises that the owners’ right to exercise a lien cannot be lawfully exercised in the circumstances of the case en route and, following the Club’s advice, the Assured again calls upon owners to continue with the voyage. Unfortunately, shortly after this, a message is received from the Master stating that he has been instructed by the owners to proceed in the opposite direction to the discharge port and that owners are planning to sell the cargo. The Club advises the Assured that he may be able to apply to the High Court in London, since the charterparty is governed by English law, for an injunction restraining the owners from continuing with their current course of action. On the Club’s recommendation, outside legal advice is sought on the merits of such an application.

The Club, on behalf of the Assured, instructs solicitors who confirm the advice given so far and recommend the instruction of Counsel to make an application to Court. An application is quickly made to the High Court and an order is obtained restraining the owners from ordering the vessel to any ports other than those named in the bills of lading and from dealing with the cargo other than by delivering it up to those persons entitled to possession. This order is faxed and couriered to the owners who quickly review their position and resume the contractual voyage (which is completed without further incident). The disputes relating to hire and other matters are referred to arbitration in London in the usual way.

Under his Defence entry, the Assured has benefited from free legal advice from the Club as his problems with the owners have developed, and his legal costs incurred thereafter in obtaining the injunction and pursuing the owners in arbitration are covered by the Club.

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