CMA Shipping 2012 — Arbitration Game Changers

March 23, 2012

Due to conflicts, it’s been three years since I last attended this hallmark shipping conference in Stamford, Connecticut, and I was happy to be back this week after my hiatus.   It’s tough to beat this annual opportunity to meet and reunite with the drivers of the global shipping community in one spot.  The venue, Stamford Hilton Hotel, is conveniently located in the tri-state region of New York, New Jersey, and Connecticut with train service only two blocks away; and, given its proximity to New York, that’s sufficient incentive for me to schedule a visit to the Big Apple too!

The topics covered at the Shipping 2012 Conference fell under the umbrella theme entitled “Game Changers” with speakers covering a variety of topics throughout each day in two conference rooms.  In light of the fact that I can’t be in two places at the same time I had to make a difficult decision as to which presentations to attend. Although all topics are relevant to our business, given that my work predominantly entails consulting on shipping contracts, demurrage claims management and dispute resolution, I opted to attend the presentations given by admiralty lawyers and arbitrators.

The New York Society of Maritime Arbitrators discussed recent awards and the points that their decisions turned on.  In one case, an arbitrator involved in the recent SMA No. 4116 award dated March 19, 2012 spoke about the key points considered therein.

In that dispute, a problem arose for the Time Charterer when the Owner scheduled the Vessel for a special class survey in drydock.  In particular, the Vessel would be in drydock for twenty days causing the last of their four sub-chartered COA voyages to be in jeopardy due to the Vessel’s redelivery date requirement.   The Time Charterer objected to the drydocking and contemporaneously argued with the Owner that they were in breach of the charter party.  The Owner, denying the alleged breach, proposed an extension of the charter at a significantly higher daily rate and with a “take it or leave it” attitude.  It was a rising market and the Charterer unsuccessfully countered the rate several times and ultimately accepted it in order to fulfill their last voyage requirement under the sub-charter.

The Panel held that the Owner breached their obligation to maintain a suitably classed vessel throughout the charter.  Owner should have advised and negotiated the need for the special class survey at the time of the fixture.  Owner’s breach notwithstanding, the ultimate award was for the Owner wherein it was decided that the contract extension was negotiated without undue duress thereby disallowing the Charterer to recover damages.  In rendering its decision the Panel stressed the fact that the parties freely negotiated the extension and Charterer did not show that they attempted to find alternative tonnage.    Furthermore, during the negotiations there was no inclusion of legalistic phrases such as “without prejudice” or “under protest”.

Despite the $1.3M loss incurred by the Time Charterer as a result of Owner’s breach, this award hinged on the Time Charterer’s inability to adequately prove that they agreed to the extension under duress.   The Panel also placed weight on the fact that, when negotiating, the Charterer did not reserve their right to claim for damages at a future date.

The game changer in this scenario is the increasing weight that the SMA is placing on the express terms, or lack thereof, with apparent little regard for the commercial reality of the Charterer’s inherent duress in this scenario.  London arbitrators, comprised of attorneys, typically weigh the express written terms of the contract in its most literal legal context, whereas the SMA, mostly comprised of “commercial men,” can use leeway to apply commercial consideration when rendering an award.   Given this recent award, brokers and chartering personnel need to be aware of the importance of the aforementioned terms when negotiating a compromise.  The devil is in the details!