Towage Contracts

Towage contracts

1. The contract and basic terms

Various standard forms of towage contracts are available. However, the arrangements under these forms are not restrictive and parties can agree on any terms they wish subject to restrictions imposed by statute, for example, by the Unfair Contract Terms Act 1977. However, towage is excluded from this Act save for circumstances in which there has been liability for death or personal injury and where the towage contract concerns a private yacht, in which case the Act will apply in full. the employment of one vessel to expedite the voyage of another when nothing more is required than the accelerating of her progress (The Princess Alice). 

Towage services in a port are in many cases monopolised by tugowners working as a group offering exactly the same contractual terms. In addition, standard forms are convenient because they are supposedly better thought out and tested in practice than new arrangements, the parties are used to them and it would be impractical to negotiate a different contract every time a ship enters or leaves a port.

While in general a written contract is available it is instructive to start by considering the position where the terms of the contract are not expressed in writing by the parties. In the absence of a written contract the courts would imply certain terms and conditions. The contract of towage is one for the provision of services, and the Supply of Goods and Services Act 1982 (SGSA 1982) would apply to such contracts. 

The SGSA 1982 implies an obligation to perform the service with reasonable care and skill (s.13) and within a reasonable time (s.14). However, these implied terms can be excluded under s.16(1) by express contractual agreement, or by a course of dealing or a usage binding between the tug and the tow. They are also very similar if not identical to the requirements under earlier case-law stipulating for the use of ‘best endeavours’ (The Minnehaha)or the exercise of ‘proper skill and diligence’ (The Julia). These obligations have been detailed to involve a tug appropriately fitted and manned, acting with reasonable and proper skill, and an obligation to stay with the tow if the towing line breaks and use at least the appropriate skill or possibly best endeavours to reconnect with it. Several examples of application of these obligations exist in case-law.

Obligations are not only imposed on the tug but on the tow as well. Thus, the tow is also under an obligation to be fit for towage and appropriately manned. In addition, the persons on board the tow must demonstrate proper skill and diligence in respect of the tow’s actions during towage (The Julia). Accordingly, where the tow collides and sinks the tug because of negligence in its navigation, the tow is liable for breach of the towage contract.

The law is unclear as to whether the standard of the duty imposed in respect of the fitness of the tug is an absolute one, akin to the obligation of a common carrier to provide a seaworthy vessel or one of due care to provide a tug fitted to the service. It appears that the stronger view under the English system is the latter, while other legal systems favour the former. The implied duties, or indeed the contractual obligations, come into play when towage starts. In the absence of express contractual stipulation towing starts at the time the towing line is passed and ends when the towing line is slipped. 

All contractual and pre-contractual remedies available under English law are applicable to a contract of towage. For example the contract can be frustrated, and remedies for misrepresentation under the Misrepresentation Act 1967 are available. Issues related to the parties to the contract and the authority of the tug’s and tow’s masters to bind their principals are also dealt with on the basis of general contract law. 

Thus the master usually has an express or implied actual authority to bind their principal to a reasonable contract of towage.

2. Duties and liability of the contractual parties under standard forms

Special forms of contract have been developed reflecting the needs of the towage industry. Exclusions of liability and indemnities are routinely introduced in towage contracts. Under English law such exclusion and indemnity terms are valid if clearly drafted.

The inclusion of wide exclusion and indemnity clauses has led to attempts by shipowners to avoid their consequences by disputing that they are operative in respect of a particular incident because towage has either not started or has already finished. This in turn depends on the construction of the contract and will be discussed in detail when the most common contracts are outlined. The parties to these standard forms are usually termed the ‘Tugowner’ and the ‘Hirer’.

The second term is an indication that it is not necessarily the owner of the tow who is a party to the contract but probably a charterer, demise charterer or some other entity. To avoid the risk that the person signing the contract has no authority to bind the owner of the tow to the towage contract, most standard forms include a ‘warranty of authority’ clause. Below we will use the terms ‘tug’ and ‘tow’ to refer to the parties to the contract. However, this should not be misunderstood as an assumption that the Hirer is always the tow owner.

i)UK Standard Conditions for Towage and Other Services 1986 (UKSTC)

From the variety of forms available worldwide the UKSTC are probably the most favourable to tugowners. The UKSTC include English law and exclusive English jurisdiction, except in Scotland where local courts have jurisdiction.

The UKSTC can be incorporated into the towage contract where there is an express incorporation, for example on fixture communication, or where the conduct of past dealing between the parties indicates an intention to be bound by the standard conditions, or because they habitually apply to such contracts and this fact is known and expected. 

The terms provide for two different types of services: towing and other services. Towing is defined as:

“any operation in connection with the holding, pushing, pulling, moving, escorting or guiding of or standing by the Hirer’s vessel”

and the contract applies ‘whilst towing’. This covers the period from when the tug is in position to receive orders or to pick up ropes or when the towing line has passed, whichever occurred first, until the final orders have been performed or the lines have slipped (whichever is later) and the tug or any other assisting vessel is safely clear of the tow.

This definition is not free from difficulty. Consider the situation where the tug arrives early on site and the vessel has not yet finished loading or discharging the cargo. If the tug runs into the prospective tow and damages itself and the tow, could it then be protected by the UKSTC? In The Apollon it was held that for the tug to be ‘in a position to receive orders direct from the Hirer’s vessel … to pick up lines … etc’ three conditions must be fulfilled:

a) that the situation is such that those on board can reasonably expect the tow to give the tug orders or to pick up ropes or lines

b) that the tug is ready to respond to such orders

c) that the tug can receive these orders directly, that is, the tug is within hailing distance. The protection of the tug under the UKSTC is based on the following contractual arrangements:

i) Under clause 3, all employees of the tugowner are deemed to be servants of the tow for the duration of the service.

ii) Under clause 4, the liability of the tugowner is expressly exempted. This exemption covers any liability for damage caused either by the tug or the tow and it is effected by use of very wide terms.

iii) Clause 4 also expressly imposes an obligation on the tow owner to indemnify the tugowner for any damages sustained or paid out to third parties. The indemnity provision in clause 4(b) is wide enough to cover even the loss of the tug caused by the negligence of the tugowner or the tug’s crew, or even cases where the tug is unseaworthy.

iv)In additional exemption under clause 8 excludes any liability of the tug in respect of losses suffered by the tow and caused by war, riots, civil commotions, acts of terrorism or sabotage, strikes, lockouts, disputes, stoppages or labour disturbances, etc.

The liability of the tug is not exempted in three situations:

a) Where there is personal want of due diligence by the tugowner to provide a seaworthy tug and that has caused the damage.

b) Where the services have been interrupted and the tug has moved away from the tow.

c) Where loss of life or personal injury is caused by the tug’s

ii)Liability allocation under TOWHIRE 2008 and TOWCON 2008

The TOWHIRE and TOWCON forms resemble in many aspects time and voyage charterparties and attempt to provide a more balanced solution to the need for standardised contractual forms for open ocean towage.

TOWHIRE is a daily hire towage contract. Clause 17 of TOWHIRE 2008 imposes an obligation of due diligence on the tugowner to provide a seaworthy ship at the place of delivery of the tug. A similar obligation of tow-worthiness is placed on the tow owner under clause 16. In addition the tow owner has to provide a certificate issued by the appropriate marine surveyors stating that the vessel is tow-worthy. 

However, even after such a certificate has been provided the tugowner can still refuse to start the towage if they are not satisfied that the tow is indeed tow-worthy. 

Allocation of liabilities under TOWHIRE is on a ‘knock for knock’ basis (clause 23). Under this arrangement some liabilities are allocated to the tug or the tow in relation to which they arose, irrespective of whether liability would normally attach to the owner of the tug or the tow respectively.

There are three parts of clause 23, each working in a slightly different way:

a) Clause 23(a)(i) provides that the tugowner will indemnify the tow owner for liability arising from loss of life or personal injury of the tug’s employees or happenings on board the tug.

b) Clause 23(b)(i) similarly provides indemnification to the tugowner for loss of life or personal injury of the tow’s employees or people on board the tow.

c) Clause 23(b)(ii) provides that the tugowner will pay, without having a right of recourse against the tow owner, for:

i) loss or damage to the tug or property on board the tug and consequential loss

ii) loss or damage to any other property caused by contact with the tug and consequential loss

iii) wreck removal

iv) pollution liability for the tug.

This is coupled with an obligation imposed on the tugowner to indemnify the tow owner for any such liability imposed on the tow owner by a court or an arbitration award. The reverse arrangement applies for the tow (clause 23(b)).

Notably, the division of damages under clause 23(b) is stated to be applicable whether or not the damages are ‘due to breach of contract, negligence or any other fault on the part’ of the party to whom liability to pay attaches. Such a statement is not present in the arrangement under clause 23(a). Note that clause 23(c) further restricts the general rights of recovery of the parties against each other.

Difficulty arises when the division of financial liability under the knock-for-knock agreement is considered together with the respective obligations of the tug and the tow to provide a seaworthy and tow-worthy ship (clauses 16 and 17). The question of which clause prevails would then arise.

If the duty of seaworthiness or tow-worthiness is considered as the primary obligation that needs to be fulfilled, this would then mean that when this obligation is breached the knock-for-knock arrangement can be avoided. The alternative interpretation is that the knock-for-knock agreement applies in spite of the breach of the seaworthiness or tow-worthiness obligation.

In Smit v Mobius the tow was not entitled to introduce arguments concerning the seaworthiness of the tug in respect of liability arising from a collision between the tow and another vessel, because the ‘knock-for-knock’ agreement was a workable allocation of risk and responsibility. Consequently, under a knock-for-knock agreement the significance of the obligation of seaworthiness and tow-worthiness is restricted in respect of the liabilities specified in the knock-for-knock agreement under clause 23.

TOWHIRE provides for the creation of a lien on the tow for any unpaid amounts under the contract. However, this will be enforceable only where the tow owner is bound by the towage contract (clause 29).

TOWCON 2008 is used for towage where payment by lump sum has been agreed. However, the form has flexibility in that it permits part payment to be made at particular times, for example, at the time when the contract is agreed, when lines are passed and when the towage is finished. It thus determines when the instalment is earned and when and how payment is to be effected.

The major differences from TOWHIRE concern the payment provisions under clause 2 and the place of departure, which is more complicated than that of TOWHIRE. As with TOWHIRE, obligations of due diligence to provide a seaworthy tug and a tow-worthy tow are imposed (clauses 18 and 19) as well as the knock-for-knock agreement under clause 25.

Because under TOWCON the risk of delay is on the tug, clause 27 provides for ‘Delay Payment’ if the delay is due to unsuitability of the tow for towage. The amount is agreed in advance in Box 30 of the form. 

What would render the tow unsuitable for towage is a question that is not necessarily answered in exactly the same way as under a time or voyage charterparty. 

In The A Turtle a drilling rig towed by the Mighty Deliverer from Brazil to Singapore via Cape Town ended up on the shores of Tristan da Cunha. The claim was put forward by the rig owners in respect of liability arising for the loss of the rig and the wreck removal costs, while the counterclaim put forward by the tugowners concerned entitlement to the outstanding 95 per cent of freight described in the contract to be ‘due and payable on arrival of tug and tow at the place of destination’ and ‘deemed earned whether the tug or rig was lost or not lost’. The A Turtle was intentionally released by the Mighty Deliverer because the latter was running out of fuel. It was held that the knock-for-knock arrangement protected the owners of the Mighty Deliverer in spite of the breach of the seaworthiness obligation under clause 13 because these were risks expressly accepted to be borne by the owners of the rig.

The freight arrangement was held to make the 5 per cent of the freight payable irrespective of the loss of the tug or the tow while the 95 per cent was only payable on arrival of the flotilla at the contractual destination, a precondition that was not fulfilled.

The decision in The A Turtle under the TOWCON contract confirms the view in Smit v Mobius under the 1985 TOWHIRE contract in respect of the coupling of the seaworthiness obligations for tug and tow with the knock-for-knock agreement.

3. Liabilities of the contractual parties to third parties and remedies

Towage law involves two different aspects which must not be confused. The first concerns the contractual relationship between the tug and the tow. This is a matter for the towage contract and any implied terms or statutory interventions relevant to this contract. 

The second aspect concerns tug and tow liability to third parties in collision or pollution cases. The legal basis for this and the liability vis-à-vis the third party are governed by the law of torts and any statutory regimes concerning pollution. The fact that the tug and the tow are physically connected or commanded by the same person can create problems when one tries to identify to which vessel liability attaches. 

The third party is not affected by the towage contract between the tug and the tow; thus even where the contract puts liability solely on one party this is not effective vis-à-vis the third party, which can recover in tort from whichever party has been negligent. However, because the limits of liability for the tug are many times smaller than those for the tow it is to the advantage of the third party to attempt to attach negligence and consequential liability to the tow, thus increasing the amount of recovery available to them.

For the purpose of the Collision Regulations, tug and tow are regarded as one vessel but that does not mean that one is necessarily responsible for the negligence of the other. Liability will in the end depend on whether the tug or the tow had acted negligently causing the damage, which is a question of fact (The Devonshire).

If both tug and tow are sued for their respective negligence, for example, in causing a collision with a third ship (which may also be to blame), the Collision Regulations and the rule of apportionment of liability under s.187 of the Merchant Shipping Act 1995 will apply.

If only the tug is liable, it will pay the third party and it may claim indemnity from the tow, if the towage contract so provides. In any event, the UKSTC provide for an indemnity to the tug, unless it can be proved that the damage caused to the third party by the negligence of the tug did not occur while towing.

If the tow is innocent and both the tug and the third ship are to blame, the tow can sue either; if it sues the third ship, like in The Devonshire, the third ship will join the tug as a third party in the proceedings and their liability will be apportioned as per s.187, or sue the tug later to claim contribution. The irony is that the tug would then claim indemnity from the tow as per the terms of the UKSTC contract for the liability caused to the tow by the negligence of the tug.

Like all shipowners, tugowners can also limit their liability to third parties under the Limitation of Liability Conventions 1957 or 1976, whichever is applicable under the law where suit is brought. The amount of the limit will depend on the tonnage of the limiting vessel. If the tug is liable but not the tow, the limitation fund is calculated on the tonnage of the tug alone (The Bramley Moore). 

If both are liable there will be aggregation of tonnage (The Smjeli).

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