Redelivery bunkers – a windfall profit for the Owners
A recent London arbitration award (17/19) provides useful guidance in two important issues pertaining to bunkers on redelivery of a vessel under time charter.
First the Tribunal considered the meaning of the word “about “ in connection with the quantity of bunkers on redelivery. The charterparty provided that the vessel was to be redelivered with “about the same IFO quantity as on delivery.” There was a shortfall of IFO on redelivery which was not disputed by the Charterers.
It is very common to include the word about in order to allow flexibility in redelivery bunker quantities in circumstances where it can be difficult to calculate accurate figures.
Charterers asserted that the margin to be allowed was 5% whereas Owners contended that this was not always the case and that the margin to be allowed in this instance should be 2% instead.
In holding for Charterers, the Tribunal ruled that the usual rule of thumb was to imply a 5% margin for the word about in connection with redelivery bunkers. This was in line with the authorities.
A different margin would however be considered if special circumstances applied to the particular case. There were no such special circumstances here.
An example of what special circumstances may mean can be found in London Arbitration 15/13, as relied on by Owners. In that arbitration, it was held that the allowance for about should be 2%. In that case, Charterers were advised 12 days before redelivery that at least 133mt of IFO would be needed to redeliver with about the same quantities as on delivery. Charterers however consciously decided to stem less bunkers. The Tribunal in 15/13 held that, given the vessel was in a position to stem shortly before redelivery, a larger tolerance for unexpected weather conditions would be less justifiable than if the vessel’s last bunkering port was a considerable distance from the place of redelivery.
Returning to arbitration 17/19 the second issue for the Tribunal to decide was the price that should be applied to calculate Owners’ damages in the event of a shortfall on redelivery. This is a very common dispute on redelivery. The charter provided for bunker prices to be the same both ends. Owners sought damages based on the market price at the port of redelivery. Charterers, whilst content to pay the market price for the bunkers in fact stemmed, argued that as Owners had not actually bought any bunkers at the redelivery port, that (higher) price would give Owners a windfall profit.
The Tribunal found in favour of the Owners, holding that the correct measure of damages, in accordance with English law, was in fact the price at the redelivery port at the time of redelivery, notwithstanding the fact that no bunkers had been stemmed.
Charterers should be wary of a higher exposure to Owners when they breach their obligations to replenishing bunkers on redelivery.
Marta de Leon
Claims Executive, London office