How a lack of class can be costly

Having recently ourselves settled a case involving a tug that had fallen out of class shortly before the incident in question, it was interesting to see that such a case has recently found its way from an arbitration award to the Court of Appeal in London.

It is seldom the case (and was not in either of these cases) that the actual reason for the lapse of class is relevant. For example, the failure to obtain a class extension to deal with a recommendation that a defective anchor windlass be repaired may not be causative of, say, a collision, grounding or a contractual failure to perform the job. It can, however, provide a potential opportunity for a party to consider whether it might be able to wriggle out of its obligations.

In the reported case, owners relied upon a bareboat charterer’s failure to keep the vessel in class to terminate the contract. The vessel had put into port to undertake special survey related maintenance and repairs but before entering dry dock its class certificates expired. The owners gave notice of termination and when this was refused, commenced arbitration seeking the redelivery of their vessel.

From a commercial standpoint one could sympathise with, for example, the charterer obliged to repair and maintain a barge. The class surveyor might soon be attending the works and when all recommendations are complied with and inspections completed, clean certificates can be expected in good time before trading is resumed.

However that is a risky game to play because charterparties invariably require insurances to be maintained and marine insurance contracts invariably also require class to be maintained. If not maintained, cover automatically ceases. Should an incident then occur, the insurer is entitled to deny cover. There will be other serious consequences resulting from a vessel being both out of class and uninsured.

Overlooking the obligation to maintain class is therefore a dangerous trap for the unwary.

If works cannot be done within time, a class extension must be obtained. But what if the classification society receives a late request just before a public holiday or simply decides that this operator has pushed matters to the limit and the granting of yet another extension is a step too far?

Strictly speaking the vessel should of course cease trading. In an offshore or harbour tug environment owners might be able to achieve that by relying upon their right to bring in a substitute vessel at short notice, albeit at a cost. That is unlikely to be feasible if the offending vessel is on passage with a cargo on board or in the course of a towage operation.

Whether or not ceasing operations is feasible, no responsible owner will wish to be uninsured and so it is obvious that contact needs to be made with insurers to be ‘held covered’, pending reinstatement of class. Provided a good case can be made out, this is likely to be granted, although best done in anticipation of rather than in response to a suspension of class.

Charterers (or, as the case may be, owners in a bareboat situation) should also be notified, but it would be wishful thinking to expect them to be as sympathetic as an insurer. More likely the notification will be answered by a terse reservation of rights coupled with the sort of legal threats that most shipping lawyers will take great pleasure in drafting.

In the recent Court of Appeal case (The Arctic [2019] EWCA Civ 1161), the vessel had been on a long term BARECON 89 which required that “Owners shall keep the vessel with unexpired classification in force at all times during the Charter period”. The question for the court was whether this obligation, in the context of the particular charter, was a condition of the contract as opposed to what is known as an innominate term. If the latter, such breach might simply give rise to a right to claim damages (if any were suffered), but not termination.

Fortunately for charterers the court held for a good number of reasons, set out at quite some length, in their favour: namely that the term was not a condition. It also followed that owners’ termination was unlawful. This is useful guidance for future cases.

The provision in question is slightly different in the current BARECON 2017 and it is interesting to observe, if you have nothing better to do, that in the current BARGECON, TOWCON and SUPPLYTIME as well as the venerable UK Standard Conditions for Towage, all regimes vary in this respect. Irrespective, owners (or as the case may be charterers) would be well advised to keep their vessel maintenance programmes up to date and to start leaning on class in good time if extensions are required rather than risk an expensive trip to the Strand, London WC2.