Shipowners successful in appeal following bunker discrepancy

Leon Corporation Atlantic Lines and Navigation Co Inc’

The events giving rise to the dispute in this case arose out of the charter of the vessel Leon for a period of about five years under a charterparty in the New York Produce Exchange form, which was due to expire in the first half of 1984. From the middle of 1981, the charterers had been asking the owners to provide the deck and engineroom log books. In August, 1982 at Antwerp, the master of the vessel and the chief engineer endeavoured to persuade the bunker supplier to deliver less oil to the vessel than had been ordered, to render the charterers an invoice for the full quantity and to pay the difference in cash to them; but this the suppliers refused to do and informed the charterers.

Court order. The charterers then began to press the shipowners to provide the log books but were unsuccessful and, on October 15, 1982, the charterers obtained a court order in Genoa for the logs to be produced. This was amplified by a further order on October 21 entitling the charterers to have photocopies of the relevant logs. The owners themselves were not informed of the Antwerp incident until November, 1982. Eventually the deck and engine log books covering the charter period to October, 1982 were supplied and were handed by the charterers to a Mr. Lugg of Caseboume, Leach and Co who then made a detailed analysis and report dated September 29,1983, to the charterers’ solicitors. The solicitors asked for a further assessment which Mr. Lugg gave in a second report dated January 30, 1984.

On January 27,1984, a hire payment in the sum of US$197,119.46 fell due. The charterers declined to pay, alleging that they had an adequate set-off in the discrepancies which had arisen over the vessel’s bunker consumption. On January 30, 1984. the charterers’ solicitors wrote to the shipowners’ solicitors enclosing copies of both of Mr Lugg’s reports and suggesting that the discrepancy could only be explained by the oil having been pumped overside and/or the charterers having been invoiced for quantities which in the event had not been delivered to the vessel. The set-off claimed by the charterers amounted to US$144,038.19 in respect of fuel oil and US$152,586.19 in respect of diesel oil, together amounting to US$296,624.38. The owners claimed for the amount of hire due on January 27 without equitable set-off, namely US$197,119.46.

Arbitration award. When the dispute was referred to arbitration the umpire held that the charterers had made aprima facie case concerning the discrepancy in the bunker figures throughout the period of the charter and that the charterers were entitled to deduct from the January hire, and from later hire, payments as and when they became due to the extent of and no more than US$296,624.38. In the award it was agreed that “entitled” meant that the charterers had a prima facie case that it was not a breach of the charterparty for them to retain an appropriate sum out of hire pending the determination of the issue on its merits.

The shipowners appealed against that award under the Arbitration Act, 1979 and, leave to appeal having been granted, the case came before Mr. Justice Hobhouse in the Queen’s Bench Division, Commercial Court, when it was held inter alia, that where an arbitrator had stated his conclusion in the concise way that the umpire had done in this present case, and had purported to apply the correct legal test, the party making the appeal had to satisfy the court that the conclusion was one which the arbitrator could only have arrived at by making an error in law in the application of that test. In this case the shipowners had satisfied the court that this was what must have occurred.

None of the three breaches affected the use of the vessel, the first being simply a matter of keeping accurate logs and the disclosure to the charterers. The second involved the master being a party to the creation of a false documentation by bunker suppliers in relation to the supply of bunkers, and the third involved a breach of duty as a bailee of the charterers’ bunkers.

Set aside. The court commented that all these matters did not relate to the use of the vessel, and there was no suggestion that the charterers even directly or indirectly lost even a minute of the ship’s time as a result, nor was there any suggestion that at any time the whole reach of the vessel’s holds etc was not at the charterers’ disposal or that the master did not prosecute the voyages with despatch to comply with the order of the charterers as regards the vessel’s employment. In the opinion of the court none of the three alleged breaches was capable in law of justifying a conclusion that they prejudiced the charterers of their use of the vessel. It was held that the conclusion of the umpire that there was a right of equitable set-off could not stand and would have to be set aside.

Case № 6