In the recent decision in the Ocean Victory1, the English Commercial Court held charterers liable for US$138 million for breach of a safe port warranty in their charterparty. Offshore charterparties typically also include such warranties, but to what extent can shipowners rely on these where liabilities are allocated on a “knock-for-knock” basis?
The safe port warranties
The Supplytime forms provide: The vessel shall be employed “between any good and safe port or place and any place or offshore unit where the Vessel can safely lie always afloat”2.
Towcon 20083 and Towhire 20084 provide: “The place of connection and departure shall always be safe and accessible for the Tug to enter, to operate in and for the Tug and Tow to leave…”
The knock-for-knock regime
Under Supplytime5, charterers are not responsible for loss of or damage to the vessel, or other property of owners’ group “even if such loss [or] damage … is caused wholly or partially by the act, neglect or default of the Charterers’ Group”.
Under Towcon 20086 and Towhire 20087, the tugowner is responsible for damage to its tug “whether or not the same is due to any breach of contract…”.
The responsible party also agrees to indemnify the other party against claims or liabilities arising out of the loss or damage for which the indemnifying party has agreed to be responsible.
Which clause prevails?
The knock-for-knock wording in Towcon 2008 and Towhire 2008 makes it clear that the arrangement applies irrespective of any breach of contract, which would include breach of the safe port warranty. TheSupplytime terms do not refer expressly to breach of contract, but it is clear that the words “act, neglect or default” are intended to include breaches of contract.
So why go to the trouble of negotiating the parties’ contractual obligations in the first place, if these are irrelevant when it comes to allocation of liabilities?
The Commercial Court does not consider the two types of clauses incompatible. In the Super Scorpio II8, the company was held responsible for the cost of repairing an ROV, despite the contractor’s breach of a contractual obligation to “take all necessary care of Company’s Items as required by good oil and gas industry practices and return them to the Company in their original condition…” The Court explained that the knock-for-knock provision was concerned with damage or loss, whilst the safekeeping obligations were in force even though no loss or damage had actually occurred.
Unless the safe port warranties in Supplytime, Towcon 2008 and Towhire 2008 are excluded from the knock-for-knock regime, owners need to be aware that if their vessel is damaged due to charterers’ breach, they will have no right of indemnity. With recoverable losses in the Ocean Victory of US$138 million, the comparison for owners is stark.
For more information, please contact Paul Dean, Partner on +44 (0)20 7264 8363 or firstname.lastname@example.org, or Emilie Bokor-Ingram, Associate, on +44 (0)20 7264 8463 or email@example.com, or your usual HFW contact.