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Performance warranties & cancellation of C/P

Updated: Apr 10, 2022

Charterparties usually allow charterers to deduct hire for vessel’s underperformance, but are they entitled to cancel a C/P for misdescription of performance warranties by owners? Question was up for appeal in The C Challenger [2022]. Performance warranties is a topic which will get more attention as we get closer to IMO’s new GHG regulations.

Here, the commercial team provided information on speed and consumption to the market basis their own limited understanding of vessel’s performance. There was lack of communication with the technical team here. Vessel, alongwith 3 other sister vessels were taken on a 2 yr charter. Problems with over-consumption of bunkers did not take long to emerge. One time the vessel even ran out of bunkers during discharging leading to ops being halted. Charterers ultimately stopped paying hire and cancelled the C/Ps. They said that vessels were misdescribed. Lower court had found against charterers. They were now appealing.

The Appeal court agreed with the lower court, which had said:

- The representations were made negligently, but not fraudulently.

- Charterers were not induced to enter into the C/P. C/Ps would have been concluded on the same terms had the performance warranties been different.

- Inspite of complaining about the misrepresentation, charterers gave voyage orders. The court construed as charterers having affirmed the contract. Although charterers had reserved their rights, they had also laid down an unconditional demand for future performance. These two were incompatible with each other.

In summary, “if an owner does "over-promise" a vessel's speed and consumption performance, it will face deductions from hire” and that is the contractual protection available to charterers in such cases.

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