The extent of the loss of time

The calculation of the time during which the vessel has been deprived of income is one of the most important factors to the assured.  Neither Chapter 16 generally, nor Cl. 16-4 in particular, give any guidelines for determining the period the vessel has been deprived of income due to the casualty. Before commenting on Cl. 16-4, and although Chapter 16 contains other provisions relevant to the calculation of loss of time (e.g. Clauses 16-12, 16-13 and 16-14), we elaborate below on some typical charter clauses in calculating the extent of loss of time. Such a calculation will depend upon whether the vessel is on a time charterparty, a voyage charterparty or is unchartered.

Loss of hire insurance was previously aimed mostly at time chartered vessels.  Indeed, this explains the close connection between the term "off-hire" in time charters and the insurance term "loss of hire". If the vessel is off-hire, the shipowner loses hire during such period (the loss of time). Time chartered vessels are still the vessels most frequently entered for loss of hire insurance, but this insurance is also frequently used by shipowners who trade their vessels in the spot market, as well as for various vessels which are usually not fixed under any charters (e.g. fishing vessels). As stated above, the calculation method for the extent of the loss of time will vary depending upon the vessel's type of employment. 

  1. Time charters

    First, if the vessel is employed under a time charter, the assured may not receive hire for the periods during which the vessel does not, wholly or partly, provide the agreed services as per the relevant time charter. Following certain circumstances specified in the charter, the vessel will be considered off-hire and no hire shall be payable to the assured during such off-hire periods. The off-hire clause thereby operates as an exemption to the charterer’s primary obligation to pay hire continuously throughout the charter period. Thus the burden is on the charterer to show that the off hire clause operates in the relevant circumstances.[12]

    The calculation of the off-hire periods is usually fairly well described in the charter. There are several circumstances which may render the vessel off-hire but which do not fall within the scope of Cl. 16-1. On the other hand, if the assured is “wholly or partially deprived of income as a consequence of damage to the ship which is recoverable under the conditions of the Plan”, this will almost always result in the vessel becoming off-hire under the most frequently used time charters. While an off-hire calculation under a charter will be of interest to a loss of hire insurer, the two calculations are not necessarily co-extensive; see also 5.2.2below.

    Typically, off-hire clauses are described as ‘net loss of time’ or ‘period’ clauses depending upon whether they provide for the vessel to be off-hire during the time actually lost or for the whole of a defined period. Also, within that broad division, off-hire clauses differ from charter form to charter form both as regards what is an off-hire event and the period during which the vessel will be off-hire. Set out below are the off-hire clauses from some of the main charter forms and a brief description of how those provisions are applied. The below is based upon English law and therefore another reason as to why an off-hire calculation will be interesting to but not binding upon an insurer under the Plan.


    NYPE

    The NYPE 1946 and NYPE 1993 differ regarding both the off-hire events that will trigger the vessel being off-hire and also as regards the period during which the vessel  off-hire. The NYPE 1946 provides:

    “…in the event of the loss of time…..or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost..”

    NYPE 1993 contains “similar” before “cause” and also provides that overtime, if any, shall not be payable. Reference can be made to the clauses for the differing hire events and which are not material to the present discussion.

    Both are referred to as ‘net loss of time’ clauses though, if it is the full working of the vessel that is affected, rather than partial, the vessel will be off-hire for the same period as if the clause were a ‘period’ clause. The NYPE off-hire clauses are consistent with section 392, subparagraph 1, of the Norwegian Maritime Act (1994) in providing a logical and reasonable calculation of the time lost. There are essentially three separate components to the vessel being off-hire and the obligation to pay hire ceasing:

    1. the full working of the vessel must be prevented by an off-hire cause;
    2. there must be an interruption or delay in the service immediately required; and
    3. as soon as full working is resumed, the vessel goes back on hire.

    The vessel is thus off-hire for the net loss of time. The effect of, for example, one crane out of four being ineffective is that a complicated analysis needs to be carried out to calculate the actual loss of time. This would need to take into account, for example, whether all four cranes were needed at all times, which holds were being worked and whether the damaged crane worked those holds or not etc. The courts approach may be seen from the judgment of Lord Halsbury, L.C. in Hogarth v. Miller [1891] A.C. 48 (HL) in which he stated:

    “…an off-hire clause in the terms of [clause 15] is concerned with the service immediately required of the vessel, and not with ‘the chartered service’ as a whole or the entire maritime adventure or adventures which may be undertaken in the course of the chartered service. The clause concentrates on the period during that which the full working of the vessel is prevented…”

    The NYPE 1993 off-hire clause also provides:

    “Should the Vessel deviate or put back during a voyage, contrary to the orders or directions of the Charterers, for any reason other than accident to the cargo or where permitted in lines 257 to 258 hereunder, the hire is to be suspended from the time of her deviating or putting back until she is again in the same or equidistant position from the destination and the voyage resumed therefrom.”

    To this extent therefor the NYPE 1993 differs from the NYPE 1946 in providing that the vessel will be off-hire for the entire period of deviation.


    Baltime 1939

    The Baltime 1939 form also contains a net loss of time off-hire provision:

    “In the event of….either hindering or preventing the working of the vessel and continuing for more than twenty-four consecutive hours, no hire shall be paid in respect of any time lost thereby during the period in which the Vessel is unable to perform the service immediately required.”

    By stating that no hire is to be paid during the period the vessel is unable to perform the service immediately required makes it clear that, as soon as full efficiency is resumed, the vessel will go back on  hire.

    Previous versions of the Baltime charter contained period off hire clauses.


    Shelltime

    The Shelltime 3 is an example of a period clause and provides:

    “In the event of loss of time (whether arising from….hire shall cease to be due or payable from the commencement of such loss of time until the vessel is again ready and in an efficient state to resume her service in a position not less favourable to Charterers than that at which the deviation commenced.”

    The clause is thus making it clear that hire will not be payable during a period defined by commencement of the loss of time and concluding with the vessel again being in an efficient state, irrespective of whether or not she was in a position to carry out the service immediately required. The vessel will be off-hire as long as any off-hire event persists regardless of whether the charterer or inded whether the vessel is in a position to resume the service required. In Smailes v. Evans [1917] 2 K.B. 54, the off-hire clause provided “in the event of loss of time from damage preventing the working of the vessel for more that twenty-four running hours, the payment of hire shall cease until she is again in an efficient state to resume her service”. The vessel grounded on the northern coast of Newfoundland. The vessel discharged part of her cargo in the vicinity and proceeded to St. John for repairs. Repairs were completed on 18 October, after which the vessel reloaded her cargo and, on 30 October, recommenced her voyage. The court found that the vessel resumed her service on 18 October, from which date hire again became payable.

    However, it would appear that, as with the earlier Baltime clauses, those who used the Shelltime 4 preferred the fairness of a net loss of time clause, as the Shelltime 4 states after listing those events which will result in a loss of time:

    “….provided, however, that any service given or distance made good by the vessel whilst off-hire shall be taken into account in assessing the amount to be deducted from hire”



    [12]The Mareva A.S. [1977] 1 Lloyd’s Rep. 368

  2. Voyage charters

    Unlike time charters, voyage charters do not contain off-hire provisions. Under a voyage charter, the freight is payable as a lump sum per voyage.  A claim for freight usually depends on the performance of the voyage. The main rule set out in § 344 of the Maritime Act is that freight is collectible only if the cargo arrives at the destination.   However, it is not unusual to have contractual stipulations requiring the freight to be prepaid, whether or not the ship and/or cargo is lost. In such a case, the assured will not have suffered any loss of income if the vessel is ready for resuming service within the estimated time for the voyage. Clause 3 No. 3, second sentence of the 1972 and 1993 conditions contained an express provision to the effect that even if such prepaid freight would give him compensation for the non-performed part of the voyage, this should not reduce his right to compensation under the loss of hire insurance. The 1996 Commentary to Cl. 16-4 stated that this provision was no longer necessary and hence it was not included in the Plan. The intention under the 1996 Plan was clearly that no such deduction should be made.

    If the vessel resumes the voyage under the charter (in ballast or loaded) after repair of damage to the vessel, the assured is entitled to compensation for the loss of time corresponding to the time with which the voyage has been prolonged due to the deviation to the repair facility, surveys, collecting of and considering tenders, slow steaming, if any, until the vessel is in a position at least as favourable to the assured, as the position at the time of the casualty.

    If a casualty causes cancellation of the charter, then the calculation of the loss of time becomes more complicated. Although the freight is paid for the transportation of the goods from the loading port to the discharging port, it also covers the owner's ballast voyage to the loading port, as well as the waiting and loading time spent there. A casualty during the loaded voyage may thus leave the assured with a claim for distance freight only, sometimes less. To the extent the vessel is unable to complete the voyage, one may argue that the vessel has been unserviceable throughout the whole period, including time spent during the ballast voyage. However, as described above under 5.1.2 in respect of Cl. 16-3, second sentence, any loss of time arising before the casualty (any event described in Cl. 16-1) shall not be taken into account. In other words, the freight at risk is not covered on a per voyage basis under a loss of hire insurance. Any time lost after the repairs will be covered as per Cl. 16-13,  see below under 7.4.2 

  3. Unemployed vessel

    The third and last scenario arises when the vessel is unemployed at the time of the repairs, either due to not having been fixed for employment at the time the casualty occurred or due to a cancellation of the employment because of the casualty. A similar situation arises if the repairs are deferred until after the vessel has completed performance of any existing charter.

    The loss of time must be calculated only to the extent that the vessel actually lost income. If the vessel would have been unserviceable regardless of the damage and related repairs (e.g. if the vessel would have been laid up in any event), the assured will have no claim under his loss of hire insurance, see the comments in 3.1 above.