Introduction
Oil pollution is a problem faced by owners and charterers on a regular basis, either from the perspective of the polluter or the affected party. One of the most dramatic examples of a recent spill is the Deepwater Horizon disaster earlier this year.
From a CLH perspective, third-party oil pollution raises a number of significant issues regarding charterers’ obligations to owners arising from oil pollution generally. Charterers should bear these in mind both when entering into a charterparty and when giving voyage orders. We examine these matters from an English law perspective.
If a vessel proceeds into waters which are contaminated with oil, owners’ immediate obligation is to ensure that their vessel does not exacerbate the extent of the damage by spreading the oil into clean waters. The movements of vessels may be restricted or the port to which the vessel has been ordered may be unreachable as a result of the pollution incident.
Direct claim against polluter and the Fund or recourse against Charterers?
The fouling of the hull constitutes “physical damage to the vessel” and, as such claims for other losses directly resulting from the damage, should be recoverable by owners. The simplest and often most effective method of reclaiming expenses is by pursuing the polluter, who is strictly liable to indemnify affected parties. Often, where a major oil spill has occurred, the cleaning facilities will also be provided by the polluter. In case of claims in the US which are not dealt with swiftly (i.e. within 90 days) by the polluting party, owners may claim against the Oil Spill Liability Trust Fund.
Due to the aforementioned indemnity from the polluter, in most cases any claim between the parties to a charterparty will be limited to loss of time issues resulting from a breach of the charterparty by the charterers or owners’ compliance with the charterers’ orders. As we discuss below, there are several other considerations which may affect the accounting position between owners and charterers when these issues arise.
In order for a claim to be successfully made against charterers, owners must either identify a breach of the charterparty for which charterers may be held liable or rely on an indemnity provided by charterers. The clauses explored in more detail below are the employment clause and the safe port warranty. If a breach is established, or an indemnity is triggered, all losses directly flowing from the breach (subject to the rules on remoteness in the case of a breach) will ultimately be for charterers’ account.
Safe Port Warranty
One of the limitations on the charterers’ use of a time-chartered vessel is that the vessel must only be ordered to safe ports. It is customary for charterers to warrant that they will only order the vessel to safe ports. However, the precise terms of that warranty vary depending on the charterparty in place.
In some forms, the warranty is limited, for instance: “Charterers shall use due diligence to ensure that the vessel is only employed between and at safe places” (Shelltime, clause 4). Nevertheless, most charterparty forms contain a fairly wide clause which has been recognised to be an absolute warranty.
Safety in terms of ports means that, at the time the charterers’ voyage orders are given, the port must be “prospectively safe”. The accepted definition of a safe port comes from the 1958 case, The Eastern City [1958] 2 Lloyd’s Rep. 127, in which Lord Justice Sellers stated: “a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship.”
There is no jurisprudence directly on the issue as to whether or not a port is unsafe if affected by oil pollution. Nevertheless, it seems clear to us that, dependent on the timing of the voyage orders and the precise location of the oil, oil pollution would be capable of rendering a port unsafe.
In relation to the geographical limits of the safe port warranty, it was stated in The Hermine [1979] 1 Lloyd’s Rep. 212 that, if a ship departed a port safely and without delay, but then encountered a danger 100 miles down river from the port, it was unlikely that the port could be described as “unsafe”. However, in practice it is probable that if there is no other route by which to reach or depart from the relevant port, irrespective of the distance of the danger from the port, the port would fall within The Eastern City definition and it is difficult to imagine an arbitration tribunal finding, as a question of fact, to the contrary.
The timing of the voyage orders must be looked at carefully. As discussed above, at the time the voyage orders are given, the port must, be prospectively safe. Where an “abnormal occurrence” (such occurrences are hazards which are not inherent characteristics of the port) causes the danger, the port will not be unsafe. If it becomes clear whilst a vessel is steaming toward a port that the port has become unsafe due to a change in circumstances, charterers are under an obligation to give new orders in order for the vessel to avoid the danger.
If owners themselves know that the nominated port is unsafe, they may refuse to obey the order. If they fail to do so and it can later be proved (this in itself may be very difficult) that the owners could and should have refused, then this may break the chain of causation, meaning that owners themselves may be liable for any damage occurring as a result.
Employment Clause
Even in situations in which the port is deemed not to be unsafe as discussed above, it may be that charterers are still liable to owners under an indemnity in the employment clause.
Charterers are under an obligation to give lawful orders and, to the extent that lawful orders are given, owners are obliged to follow them. Even where the charterers provide lawful orders, they may still be obliged to indemnify owners for any losses suffered which are outside the charterparty terms.
Owners can recover damages for their costs and expenses directly incurred in following charterers’ orders. This is a result of either an express indemnity (such as clause 9 of the Baltime form) or an implied indemnity (such as in NYPE 46) and is subject to owners demonstrating that the loss complained of, i.e. hire or cleaning costs in this scenario, was a direct consequence of charterers’ orders and that the costs were not a result of “ordinary expenses” which owners should expect to incur. Owners will also probably have to demonstrate that the losses were not too remote, that is to say that they must be of a type which was in the reasonable contemplation of the parties at the time that the relevant voyage order was given. However, the law on this point is not settled. The losses discussed here would usually, therefore, be recoverable by owners in damages. The indemnity is not dependent on charterers being at fault, even where the Hague Rules are incorporated into the charterparty (The Athanasia Comninos [1990] 1 Lloyd’s Rep.277).
Other considerations
Charterers should be aware that they will normally be unable to place the vessel off-hire for time lost as a result of an oil pollution incident (subject to causation and remoteness issues). Such time loss would include reasonable deviation time, reductions in speed to avoid oil affected areas and time spent waiting for the hull to be cleaned. Even if the vessel could be placed off-hire on a proper construction of the relevant off-hire clause, but owners could demonstrate that the reason for the full working of the vessel being prevented was due to charterers’ voyage orders, following the decision in Leolga & Glynn [1953] 2 Ll R 47, owners would be able to claim back the unpaid hire in damages.
From a practical perspective, it will often be very difficult to contemporaneously determine what the effective cause of the time loss was. We would, therefore, advise charterers that when making hire payments for the disputed time periods, they ensure that such payments are expressed as being made under protest and with a reservation of all charterers’ rights under the charterparty.
CLH Cover
Since the oil staining of a vessel’s hull constitutes damage to the vessel, it will bring claims between owners and charterers in respect of time loss and cleaning costs under the remit of CLH cover as per the Association’s Rules. Due to the extensive effects of the recent oil pollution resulting from Deepwater Horizon, we had expected a significant number of CLH claims to be reported. Presumably owing to the quick provision of cleaning stations, the number of claims arising was lower than anticipated. Unfortunately, we do not believe that this will always be the case with future oil spills. We therefore expect that the way in which such incidents are governed by the charterparty may be under more intense scrutiny. Even though no major claims were reported this time, we received many enquiries about the extent of CLH cover and requests for advice on custom-drafted indemnity clauses.
A number of the indemnity clauses which have been brought to our attention purported to shift some of owners’ liabilities in relation to navigation of the vessel to the charterers. This kind of indemnity clause extends charterers’ liability towards owners. Such extended liability may fall outside CLH cover. If owners approach charterers with clauses specifically drafted for major oil pollution events (or generally), we therefore recommend that, charterers approach Skuld before agreeing to those terms.
Conclusion
To summarise the above, the most common disputes between owners and charterers as the result of third party oil pollution would be in relation to time lost. The basis for such claims would be a breach of a safe port warranty or a claim for indemnity under the employment clause. Such charterers’ liability would usually fall under CLH cover.