London Arbitration-redelivery bunker quantities and prices to apply

One of the disputes in this reference concerned damages due to charterers’ breach of the bunker clause. The disputes came before three arbitrators that conducted the reference under the LMAA Terms.

The redelivery bunker quantities dispute

The vessel was delivered with 330 mt IFO and 79 mt MDO. Bunkers ROB at redelivery at Chittagong were reported to be IFO 43.00 mt and MDO 5.6 mt. Owners claimed the difference between delivery and redelivery quantities at prices paid at Chittagong on different dates after redelivery. The amounts finally claimed were US$40,563.70 for 287 mt IFO and US$5,209.54 for 73.40 mt MDO.

The bunker clause

“bunker cls: bor to be same as bod same prices to apply bends Prices usd500/700 pmt for ifo and mdo resp. Bod abt 320 ifo and abt 65 mt mdo……. Any small discrepancies on del/redel qties to be settled as per cp prices…….”

The charterers defence

Charterers argued that the inclusion of the word “abt” in the Owners’ estimate of the bunkers on delivery indicated an intention that the redelivery quantities should also be qualified by “abt” and that Charterers should therefore have an allowance of 5%.

The decision

Bunker quantities

The tribunal was surprised that Owners conceded this point. The tribunal held that based on their reading of this provision, the word “about” is intended only to reflect the fact that, at the date of the fixture, Owners could only estimate the quantity of bunkers on delivery, which was information Charterers would need to have for their voyage planning. Therefore, it is not permissible simply to imply an intention to apply “about” to redelivery quantities when the parties have chosen not to use the word when describing such quantities, despite using it twice to qualify delivery quantities in the next sentence, as well as in numerous other parts of the recap.

The provision that bunkers on redelivery match the quantity on delivery seems to be inserted essentially for accounting certainty. It is implicitly accepted by the clause?(“Any small discrepancies…”) that in practice, redelivery quantities can never precisely match the same figure as on delivery. However, that does not mean that the parties did not intend to base their financial rights and obligations on the principle that delivery and redelivery quantities would be the same. The advantage of such an arrangement is that there is no room for argument as to quite what is meant by “about”.

Although Owners said in their Reply and Defence to Counterclaim that they have revised their calculations to reflect Charterers’ point concerning “about” being applied also to redelivery quantities, thereby reducing them by?5%,?the Hire Statement attached to those submissions still shows shortfalls of 287 mt IFO and 73.40 mt MDO. The same quantities were also used in Owners’ further revised Final Hire Statement.

The tribunal has assumed that the Owners overlooked the concession they made and accordingly the tribunal reduced the shortfall quantities as follows:

Actual bunker quantities on delivery

IFO 330.00 mt

MDO 79.00 mt

Contractual redelivery quantities with 5% allowance

IFO 330.00 mt +/- 5% = Min 313.50 mt – Max 346.50 mt

MDO 79.00 mt +/- 5% = Min 75.05 mt – Max 82.95 mt

Actual redelivery quantities

IFO 43.00 mt

MDO 5.60 mt

Shortfalls

IFO 313.50 mt less 43.00 mt = 270.50 mt

MDO 75.05 mt less 5.60 mt = 69.45 mt

Bunker prices to apply

Both parties considered that the proper measure of damages for the shortage of hunkers on redelivery was the difference between the charter party prices (USD500 and 700 for IFO and MDO respectively) and the market prices at Chittagong. The charter party prices are intended to measure the value of bunkers physically on board at delivery and redelivery, which is a different function to measuring a party’s loss in the event of a breach, although such prices will determine whether any claim exists in the first place. One member of the tribunal was troubled by the issue of redelivery bunkers, quantities and prices, but on reflection, he was wrong, and the tribunal has therefore accepted the parties’ submissions, in principle at least.

Held, that the average price paid by Owners for IFO at Chittagong was US$641.34 and US$770.97 for MDO and that such prices represented market prices at the time.

Redelivery bunker claim

Difference between Chittagong prices and charterparty prices

IFO US$641.34 less US$500 = US$141.34 per mt

MDO US$770.97 less US$700 = US$70.97 per mt

Owners’ loss

IFO 270.50 mt x US$141.34 = US$38,232.47

MDO 69.45 mt x US$70.97 =?US$4,928.87

Total bunker redelivery claim = US$43,161.34

Final Award, 31 January 2014