Offshore Supply Vessels Mitigating Maritime Risks

1. Offshore Supply VesselsMitigating Maritime Risks Presented By Jeremy M Joseph

2. Offshore Supply Vessel Contracts • Offshore contracts include BIMCO Supplytime 89 and revised 2005 version, as well as Towcon and Towhire • Supplytime has a reputation in the market as being favourable to Owners rather than Charterers • Negotiation stage critical to mitigating risks

3. Property Damage • What if the vessel under contract to an oil major comes into collision with another vessel in the same field? • Clause 14 of Supplytime 2005 defines “Owners Group” and “Charterer's Group” • Protects Owners from claims for damage to all property and equipment provided that party is a member of “charterer's group”

4. Property Damage • Clause also goes on to say that if one of the charterer’s contractors claims from the vessel owner then such costs can be claimed back from the charterers • Clause also applies if loss or damage is caused by neglect or default of Owner’s group including un-seaworthiness of the vessel • Clause is critical to the “knock for knock” concept in OSV contracts

5. Property Damage • Sometimes the words “even if caused by..” is changed to “unless is caused by…”which changes the knock for knock rule • “knock for knock” intended to provide clear allocation of liabilities between operators and charterers

6. Right to Limit Liability • Clause 12(d) of Supplytime 89 and Clause 14(d) of Supplytime 2005 are right to limit clauses • Charterers sometimes request that the right to limit is waived. It may be possible to agree to a fixed limit and buy contractual liability insurance up to that amount

7. Personal Injury • Personal Injury claims can be expensive • Clause 12(b) of Supplytime 89 and Clause 14(b) of Supplytime 2005 state that Owners shall not be responsible for personal injury or death of the employees of the Charterers or of their contractors and sub-contractors • Sometimes negotiated to include other people apart from Charterer’s personnel

8. Vessel not working? • Normal position under English Law that off-hire is a no fault regime but if owners are at fault or in breach of CP charterers can recover damages in addition to putting the Vessel off-hire. • Clause 11(b) of Supplytime 89 and Clause 13 (b) appears to cancel this out. If the vessel is “prevented from working” the Charterers to get only the suspension of hire and no more.

9. Vessel not working? • Clause 11(b) of Supplytime 89 and Clause 13 (b) of Supplytime 2005 is a one way exclusion limitation clause in favour of Owners. • Clauses will apply even to cases where owners had negligently failed to exercise due diligence to maintain the vessel.

10. Early Termination • Under Clause 26 of Supplytime 89 and Clause 31 of Supplytime 2005 Layout of early termination provision would involve three steps :- • Parties to give factual information to the other • Party wishing to terminate would have to first give a warning to the other party; • If the occurrence had not ceased three days after the warning party can terminate the CP

11. Early Termination • The point of the phrase “in any case within three days “at line 680 is not just about the prompt exchange of factual information but the phase also requires a prompt decision whether to give a warning or invoke the procedure to terminate.

12. Early Termination • For example, if your counterparty has appointed a receiver you cannot wait 3 months and decide you do not like what is going on and then terminate. You have to decide within 3 days after you hear of the appointment of the receiver whether you are going to start the procedure to terminate. • Warning is to give the other party an opportunity to rectify the situation before the first party terminates the CP. Also known as “cooling-off” period.

13. Vessel Breakdown • Clause 26 (v) should be read with Clause 11(c ) – Will a day which is a “maintenance day” under Clause 11(c) count also as a day of “breakdown” under Clause 26(b)? • Charterers must decide once and for all whether to terminate or not

14. Knock for Knock • Clause 12 (a) and (b) Supplytime 89 and Clause 14 (b) of Supplytime 2005 – “knock for knock” • Printed form does not exclude Owner’s liability for damage to the property of Charterer’s client, except in cases where the client’s property is being carried on the vessel or towed by it.

15. Consequential Damages • Clause 12 (c) – “Consequential Damages” – The phrase “each party agrees to protect the other against any consequential damages” could be read as, precisely, negating the initial part that “neither party shall be liable to the other for consequential damages.” • Consequential damage are those losses which are not foreseen and not normal or usual losses and can be foreseen (eg. Direct losses like Loss of use)

16. Consequential Damages • What is excluded? For example, if Owner are entitled to cost of repairs of the vessel, perhaps they are entitled only to the physical cost of the work. If the vessel is still under charter, then she may be on-hire for the time taken by repairs. However, Owner may not be entitled to recover the time taken for repairs as damages (as this would be “loss of use”).

17. Consequential Damages • If Charterer keeps the vessel too long, then presumably she may still be on-hire under the CP. However, the Owner may not be entitled to recover damages if the market rate for the vessel is higher than the charter rate (for this would be “loss of profit”) nor a loss of a specific fixture (which would be a “consequential loss”). • On the other hand, if Owner have failed to exercise due diligence to maintain the vessel and as a result she cannot work for Charterer, and Charterer incur extra hire in respect of other equipment, then this is excluded as “loss of use” of the other equipment.

18. Law and Arbitration • Default Clause in Supplytime 2005 for example provides for London Arbitration and LMAA Rules and English law • Costs, Time and Awards • Box 34 must provide clearly for law, rules of procedure and venue for arbitration • KLRCA Fast Track Rules 2010 as a good alternative

19. Thank You for Listening Contact Details Jeremy M Joseph Joseph & Partners Mobile : +60123955594 Website : www.jnplaw.my E-mail : jeremy@jnplaw.my