Hong Kong: Collisions And Reserve Ships: Liner Operators Beware!

Darya Bhakti [2013] 2 HKLRD 926

The quantification of damages for the loss of use of a ship damaged in collision where her owner maintains and substitutes a reserve ship for his damaged ship came up for determination recently in Hong Kong, and in the modern day setting of a liner operation run by a consortium of container ship owners. The case in question was The Darya Bhakti in the Hong Kong Court of Appeal.

Reserve ships

Liner operators of container ships are committed to providing regular services with scheduled sailing times and port rotations. In order to maintain such services, they must have similar, and ideally identical, ships available as replacements to provide cover for those occasions when one of the ships in service has to be withdrawn for repair. In earlier years, a suitable replacement ship would often be readily available in the market for short-term charter but the option of chartering-in has become considerably more difficult with the increasing specialization of container ships in terms of their carrying capacities, speeds and fuel efficiencies. An increasing number of liner operators today therefore are investing in reserve ships; that is, a sister ship that is kept deliberately idle in order to be readily available for use as a replacement when another of her sisters in service has to be withdrawn for any reason, such as after collision.

Loss of use

Where a ship is damaged in collision, her owner is entitled to claim damages for the loss of the use of that ship during the period it is out of service undergoing repair (the period of detention). Where the owner has no other ships available and charters in a replacement ship to substitute for his damaged ship during the period of detention, he can recover these chartering-in costs as damages. What is the position, however, where the owner keeps a reserve ship and elects not to charter in but to substitute the reserve ship for the damaged ship?

The authorities

Surprisingly, there are very few reported shipping cases that directly address this issue and such cases as there are date back to the early part of the last century and involve claims for loss of use by non-profit making organizations. These cases do suggest, however, that the owner of a reserve ship trading commercially for profit is entitled to recover loss of use based upon the market rate of hire for such a ship at the time of the collision. As the authors of the leading textbook on collisions note:

"The case where a sister ship otherwise idle takes the place of the damaged vessel must be distinguished from the situation where a stand-by or reserve vessel is specifically kept for that purpose. Here a claim will lie for substantial damages for detention...

There is no clear English authority on the measure of recovery, but US authority tends to give the reasonable rate of charter hire for the 'spare boat'."

The Darya Bhakti

OOCL's vessel, OOCL China, was damaged in collision with the Darya Bhakti whilst on time charter to MISC, following which MISC stopped paying hire to OOCL. The liner consortium of which both MISC and OOCL were then members – the Grand Alliance -substituted the OOCL Japan, another OOCL vessel and identical sister ship that the members of the Grand Alliance had been keeping in reserve. OOCL subsequently claimed damages for the loss of the use of the OOCL China based upon the lost time charter hire for the period that the OOCL China was out of service undergoing repair.

The owners of the Darya Bhakti argued that as OOCL had sub-chartered back some of the slots on the OOCL China from MISCand had not paid slot charter hire to MISC during the detention period, and as all of the containers on board the OOCL China were carried to destination by the OOCL Japan so that the collision did not cause OOCL to suffer any loss of freight income, OOCL's claim for loss of use had to be reduced accordingly to take account of the "saved" slot charter hire. The Court at first instance agreed, and this decision was upheld by the Court of Appeal.

In reaching this conclusion, the Court at first instance appears to have treated the OOCL Japan as an idle sister ship rather than as a reserve ship; and the Court of Appeal considered this approach to be correct, surprisingly concluding that if the OOCL Japan was a reserve ship, it was a reserve ship of the Grand Alliance and not a reserve ship of OOCL.

Comment

The decision in this case is a particularly disappointing one, not only for OOCL but for all liner operators. It is to be hoped that there will soon be another opportunity for the common law courts to re-visit this issue of reserve ships and the appropriate method for assessing loss of use following a collision, but until then...liner operators beware!

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