Logjam - NOR, freight and demurrage - London Arbitration 22/19
London Arbitration 22/19 [(2019) 1040 LMLN 1] involved a log carrier chartered for a part cargo. Owners agreed to change the original disport in return for increased freight, and later claimed about $89,000. Charterers countered for over $55,000, and demurrage was central amid many issues arising from a seeming straightforward fixture.
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1. Additional freight
This was routine application of the well known rule in the "ARIES"  1 Lloyd’s Rep 334 - when freight is payable, it is almost impossible for charterers to make a valid deduction.
Freight was payable within five banking days of completion of loading, and the Tribunal unsurprisingly applied that to the additional freight, too.
For some reason charterers had argued that such was not in fact payable, because delivery had not been made - after discharge the logs were held by owners, in continuing exercise of a lien for non-payment of the (presumably) additional freight.
The Tribunal ruled that valid exercise of a lien for unpaid freight did not prevent delivery occurring, and awarded owners $32,520.81 for additional freight and accrued interest.
2. Loadport demurrage
The issues were whether the vessel had (a) reached her specified destination and (b) otherwise tendered a valid NOR.
Clause 35 said that NOR:
“ …. shall not be given before the vessel is in all respects ready to receive ... the cargo [and when tendering loadport NOR] the Vessel [must] advise that the … holds [comply with] Clause 66.”
Clause 66 said:
“On delivery, the Vessel shall be fully ... suitable for [handling the] cargo both under … and on deck … .
… on arrival ... the Vessel’s holds will be clean, dry and free of cargo residues and loose rust material in excess of normal log trading ... and [likewise for] the deck except the word ‘dry’.
Where any residual cargo ... affects the loading [in any way] ... Owners shall be responsible for all costs/expenses incurred by Charterers ...
[If] removal of contamination ... from the Vessel’s hold [means that] the Vessel [vacates] its loading berth [for any reason] ... Owners [are] responsible for all extra [resulting] costs … [until] the Vessel is [again] alongside … and ready in all respects for loading.”
The holds failed the loadport authorities’ inspection. Fumigation was needed, and likewise for the deck, after which the vessel unberthed, and further fumigation was carried out at the anchorage.
NOR was first tendered on arrival at the roads, and then on three further occasions.
Noting the accepted wisdom of tendering a series of NORs, the Tribunal nevertheless ruled that all were invalid.
NOR (1) had been tendered while the vessel was still under way, so she had plainly not reached her specified destination.
Moreover, she was not “in all respects ready to receive … the cargo”, under clause 35, because of infestation.
Owners had urged that “infestation” was not mentioned in clause 66, but the Tribunal accepted charterers’ submission that the presence of insects meant that owners had breached their common law duty as to the condition of the holds, and the vessel was not ready until fumigation had been completed.
NORs (2) and (3) were tendered during fumigation, and though (4) was tendered afterwards it was before the holds had been passed for loading.
Local agents said it took ten days for fumigation to be effective, though the Master had reckoned only five, hence NORs (2) to (4), but the Tribunal found that the authorities would not have allowed loading before satisfactory re-inspection, and only then could a valid NOR have been tendered, which limited owners’ claim here to US$19,751.20.
3. Charterers’ counterclaim
Due to the fumigation, charterers sought the additional costs and expenses arising from “contamination” under clause 66.
However, the Tribunal ruled that this was confined to contamination caused by matters referred to in the second paragraph, i.e. here “cargo residues”. But the origin of the infestation was another cargo, which had been loaded earlier, at a different port. This could not be described as “cargo residues”, so charterers’ counterclaim failed.
Alongside rote application of the “ARIES” rule, this Award is a very good example of the need for care with fixture wording and also with time-dependant matters like fumigation, whose proven effect will often need to be shown before a valid NOR can be (re) tendered.
Also, as to the extra outlay relating to a period when the vessel was ruled not to have been on demurrage, in persuading the Tribunal to restrict contamination to that caused by “cargo residues”, when the reported wording presents no particular reason for that, owners were probably fortunate in defeating charterers’ counterclaim.
C Solutions and TCI to merge Greek activities
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C Solutions are pleased to announce that we are to merge our Greek activities with Piraeus based marine claims consultant Transport Counsellors International (TCI). Marine casualty specialist Jim Allsworth, who established C Solutions Greece in January 2018, will join TCI's office Piraeus. The team will be supported by Senior Legal Advisor Ben Horn as well as our London office, with further expansion planned locally in the near future.
TCI was set up in 1976 by Roger Moisey who was joined by senior legal advisor Sally Saudek in 1991. It is headquartered in Piraeus, with representative offices in Glyfada and Istanbul. C Solutions was set up in 2000 by Chris Beesley. Headquartered in the City of London, we also have offices in Athens, Cyprus, Hamburg, Hong Kong, Singapore, Papua New Guinea and Sydney.
Better to be compliant then reliant - tendering NOR and demurrage
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Tender of a valid NOR is usually vital in order to trigger the start of laytime, and those who fail often resort to notions of estoppel and ostensible agency, matters which also arose in “Who Is Whose Broker?”, posted on 14th December 2018.
Though concerning a sale contract rather than a charterparty, London Arbitration 10/19 again suggests that such arguments seldom succeed, and highlights the importance of meeting all prerequisites to valid tender.
A coal contract contained provisions on laytime and demurrage.
By Clause 18.1 each side could “by Notice in Writing ...” appoint an agent, and under Special Condition 3 the sellers had to provide the buyers with a loadport analysis before the vessel tendered NOR:
“failing which [it was] deemed not to have been tendered until [the analysis was] received by [the buyers]”.
The B/L was based on wording provided by the buyers, and named port agents X as the notify party.
The vessel anchored at the disport on 17 March but the only berth was occupied, and the master emailed X to say that the vessel had arrived and was ready for discharge.
However, it could only do so on 29 March, after the prior vessel had sailed. The buyers then pointed out that the sellers had not provided the loadport analysis - which had been available from 13 March - and the sellers immediately did so.
Sum in dispute
More than $273,000 was at stake.
The sellers said laytime had started on 17 March, and claimed over $264,000 in demurrage.
Relying on Special Condition 3, the buyers countered that laytime did not begin until 29 March, and sought over $9,000 as despatch.
The sellers argued that:
1. the buyers’ request that X was inserted as the B/L notify party was a notice in writing under Clause 18.1 that X was appointed as their agent; thus
2. X had actual (i.e. in fact) or at least ostensible (i.e. they had been held out) authority to receive the emailed NOR; and
3. in that capacity X did so and unconditionally accepted it on behalf of the buyers and laytime started; and also
4. as the buyers had said nothing about the lack of the loadport analysis for over 12 days, they were estopped from relying on that - it was unfair for them to cite a requirement that they had not raised at the time.
The buyers replied that there had been no appointment under Clause 18.1, X was not their agent on any basis and had not received the NOR - which anyway they never saw - on their behalf.
The Tribunal rejected the sellers’ demurrage claim and awarded the buyers $9,160.07 as despatch.
There had been no appointment under Clause 18.1. Rather, X was acting as port agent on behalf of the vessel’s disponent owners. As between the buyers and sellers, X as notify party was just an intermediary through whom messaging flowed, and was not the agent of either.
Much as noted in “Who Is Whose Broker?”, as referred to above, the Tribunal likened the situation to the common chartering broker chain, where there can be different types of intermediary - one an agent and the other just a route for communications.
X was the latter here. Being the B/L notify party did not change that, the buyers had never held out X as their agent and nothing sent to X had been received on their behalf.
The sellers’ estoppel argument also failed.
The buyers had said nothing, but (the Tribunal said) one party could not be blamed for not pointing out the other’s failure.
Estoppel by silence could only arise where the silent party was under a duty to respond or, at the very least, was specifically asked to and misled the other party by not doing.
Here, though, any duty to speak that the buyers had only arose on 29 March, when in actual fact they had received the NOR, and they had pointed out the lack of loadport analysis at that time. They had neither done, nor omitted, anything that now made it unfair to rely on what the contract said.
This Award is another example of the need to comply with all contractual requirements, especially those that activate time-sensitive laytime and demurrage, and of the likely difficulties in seeking to establish agency and estoppel.
The report does not say whether NOR was re-tendered after provision of the loadport analysis. Probably it was, or further issues, like those in the “HAPPY DAY” ( EWCA Civ 1068) might have arisen.
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C Solutions launches a new claims resourcing and legal fee support scheme
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C Solutions Group is pleased to announce a new claims resourcing and legal fee support scheme to be managed through its C Support subsidiary (www.csupportlimited.com)
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Incorporation, indemnity and implied term - charterparties and demurrage
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A court decision, only recently reported, in July last year considers all of these concepts in relation to a very large demurrage claim.
In previous commentaries, such as our 19 March 2018 posts Drafting is better than disputing and Rights and responsibilities - freight payable BBB and demurrage, we have discussed linkage between the sale contract and the charterparty as regards demurrage liability. This came up again in Gunvor SA v CruGas Yemen Ltd  EWHC 2061 (Comm), which examines two established points and one wholly novel one.
The parties had concluded a term contract for the sale of gasoline by twelve monthly consignments, CIF Hodeidah, and amid detailed terms the buyer had to pay the seller demurrage “as C/P rules.”
The seller fixed vessels under a COA, by which a related company chartered in tonnage as required. After several liftings the buyer was in default as regards demurrage (USD5.5m) and several other large payments, such that the term contract came to an end and the seller sought to recover substantial losses.
The buyer raised three defences to the demurrage part of the claim:
1. Time bar, based on such a provision in the COA;
2. The seller must prove that it had previously paid the claimed demurrage to its own counterparty, i.e. the buyer’s liability here was to provide an indemnity; and
3. There was an implied term that the rates claimed were “in line with the market rate” (the demurrage rate contained in the COA was USD30k PDPR for the first seven days, rising to USD32.5k PDPR thereafter).
The court, however, rejected all of these.
The COA time-barring provision was not incorporated into the term contract. It was well established that, in a sales contract, words of general incorporation of the demurrage provisions of a separate charterparty - here, simply that demurrage was payable “as C/P rules” - only bring in terms as to the rate and accrual mechanism.
General words like this did not carry across terms which have been described as ancillary, such as a time bar on presentation of a claim. This was clearly set out in the 1995 decision in OK Petroleum AB v Vitol Energy SA, where the sale contract contained the very common brief wording “ … Demurrage As per Charter Party”. Such words did not “clearly express a mutual intention to incorporate into [the sale contract a CP provision] which is not part of the demurrage subject-matter … but is merely ancillary to it”.
The nature of the buyer’s liability was “free-standing and not an indemnity”, such that the seller did not have to prove that it had paid the demurrage claimed. In Glencore Energy (UK) Ltd v Sonol Israel Ltd in 2011, the judge said it was clear that:
“ … where a sale contract incorporates the terms of a charterparty relating to demurrage … the obligation in the sale contract is generally to be construed as an independent demurrage obligation and not as an indemnity”.
There was nothing in the term contract that suggested anything different, so the buyer was liable to pay, rather than merely to indemnify the seller as regards prior payments.
Finally, in dealing with the novel argument as to an implied term, there was no justification for a provision that demurrage rates should be “in line with the market rate”, whatever that might be. (The judge rightly recorded that there is no such thing as a demurrage market rate, in the sense of published figures, unlike for example freight rates or commodity prices.)
According to the test established nearly 130 years ago, such wording was not necessary for the business efficacy of the term contract. Nor was it needed to initiate the obvious but unexpressed intentions of the parties when that contract was made.
Plainly a debtor will struggle to imply a term that a demurrage rate is other than that provided, whether under a primary charterparty or a sale contract that incorporates its related provisions. There will seldom if ever be any basis on which a court or tribunal can alter that.
Also, clear words will be needed to change the general position that a buyer under a sale contract must pay the seller demurrage as provided, rather than being allowed to get the seller to prove what he has paid, as part of an indemnity claim.
Finally, the discussion of the effect of the commonplace “demurrage as per charterparty”, or similar, reminds parties that something more than this contract shorthand will usually be needed if demurrage time bar provisions are to be reliably transposed from one contract to another.
Men of straw? Breach of charterparty and exercise of lien
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The award in London Arbitration 20/18 [(2018) 1012 LMLN 2] is a reminder on several often related matters, as it considers demurrage amid breach of charterparty, non payment of freight, tender of NOR and later valid exercise of lien.
On an amended GENCON 94 form Owners had first chartered the vessel to X, who were the buyers of the cargo of baled straw, for carriage from Varna to Izmir. However, both those contracts ended as X paid neither the freight nor the sale price, and owners re-fixed to alternative charterers (who were also the substitute purchasers) on the same terms. Charterers signed the initial recap and in essence took over where X had left off.
By that time though the vessel had been loaded and was nearing Izmir. However no NOR had been tendered, and on owners’ instructions the vessel drifted some 38 miles away, pending remittance of freight. The Tribunal later had to consider who should pay for various periods of delay, under specific wording that sought to protect owners in respect of non payment of freight and also demurrage.
1. The key charterparty provisions were:
2. “NOR to be tendered upon arrival first pilot station …”;
3. “ … vessel berthing and/or discharging to be permitted by the owners upon the freight receipt in full only, otherwise all time after the vessel arrival at disch port, … waiting for freight crediting, to be counted as laytime.”
4. “[disport demurrage] ... to be settled day by day before vessel completed discharging [failing which owners have the] right to stop ... discharging ... till the amount is settled ... . All time for waiting to count as laytime and to be for charterers’ account.”
So owners could delay or pause discharge in respect of any unpaid freight and also as regards any demurrage that might have accrued, such to include time passing while those rights were exercised.
A right to secure the cargo like that is called a lien, and (as the Tribunal observed) the standard wording in Part II of the GENCON 94 form is very similar:
“8. Lien Clause
The Owners shall have a lien on the cargo … for freight, deadfreight, demurrage, claims for damages and all other amounts due under this Charter Party including costs of recovering same.”
Charterers did not dispute owners’ right to hold on to the cargo for unpaid freight and demurrage, but said that (a) they could not claim for time running from when the vessel began drifting off Izmir (b) part of the delay was due to owners’ wrongful exercise of lien, in that they should not have refused orders to start the pre-discharge procedures, such as berthing and fumigation.
The first issue depended on the meaning of “vessel arrival at disch port” in (2) above. Owners said that operated independently of the other time provisions, either under (1) above as to where NOR was to be given or Clause 6 (c) of GENCON 94 as to when laytime started.
But the Tribunal ruled that under (2) rights as to laytime depended on the vessel having become an arrived ship. So “vessel arrival at disch port” meant that the vessel had to have reached a place where NOR could validly be tendered, and could not trigger laytime when the vessel was still nearly 40 miles away.
On the second issue, charterers were correct that a right to lien did not mean that owners could refuse to do things which did not conflict with their continuing to hold on to the cargo, i.e. they could not decline things which were consistent with that right. Thus, on payment of the freight - which of course meant that was no longer a valid basis for not berthing - owners could not refuse to berth, or indeed to fumigate. Both were consistent with owners retaining control of the cargo and could happen independently of that.
However, on the evidence the Tribunal concluded that the aggregate delay from when laytime had restarted was not due to any impediment by owners, but to charterers’ own failure to make arrangements for the vessel to berth and for discharge immediately after fumigation.
It is not uncommon for owners to promptly re-fix after charterers’ default. Sometimes, though, instead of simply offering out the recap wording, owners might pause to consider whether changes are needed, especially in view of operational steps taken immediately beforehand and related precautionary wording. Owners should ensure that all provisions - in particular those as to freight, NOR, laytime and demurrage - suitably address the situation that has developed. They should always be alive to (a) interaction between intended protective clauses, NOR provisions and the notion of an arrived ship and (b) possible later challenge to exercise of a lien over the cargo.
Who is whose broker?
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At first it looks like just another time limitation wrangle, but London Arbitration 19/18 [(2018) 1010 LMLN 3] also offers insight into differing roles within a familiar broking structure and a brief look at some of the law of agency.
A contract of affreightment (”COA”) on an amended Asbatankvoy form had been fixed through brokers A, B, C and D. In this particular chain, A were Owners’ in-house broker, while B were independent they were also Owners’ broker, C's position was unclear, D was Charterer's broker.
The COA contained:
(a) a barring provision which said that Owners’ demurrage claims had to be presented with documents “within 21 days of discharging completion”; and
(b) additional clause 49 under which “Broker commission 1.25 pct total to [C was] payable by Owners on F/D/D.”
Many of 87 voyages had given rise to demurrage. Most claims were settled but seven (with an aggregate value of nearly $315,000) were resisted under the above clause.
Each side said C was the other’s broker and therefore agent.
Owners said they had sent all seven documented claims to C before the deadline and so, while none had likewise been passed on by C, they had nevertheless reached Charterers in time, by that agency. Owners had in fact submitted all their demurrage claims to C.
Owners also argued that:
(a) if not Charterers’ actual agents, C were ostensibly so because Charterers had held them out as such, i.e. they had behaved so as to make Owners think C were their agents; and
(b) as Charterers had paid many of the claims that had been sent to C, they were now estopped (prevented) from denying that C were their agents. It was not fair for them to pay other claims that had been submitted by that route and then contest the validity of it when it suited them.
The Tribunal first reviewed common formation in a broking chain, observing that it can involve several parties, some of whom (as here) plainly represent one side or the other. Sometimes, though, there is also an intermediate broker, who does not act for either. Such a broker has no relationship of principal and agent under contract with Owners or Charterers. The role is simply a channel for negotiations - a two-way road between each side’s brokers.
Unless the charterparty or COA says otherwise, each party as principal pays its own broker’s (i.e. its agent’s) commission, and the fixture terms will often have to cover who pays any intermediate broker.
Contrary to Owners’ assertion, there was no evidence that Charterers had held C out as acting for them, and equally clause 49 above did not suggest that C was Owners’ broker. It would not have been necessary if they were, and itself supported the conclusion that C was an intermediate broker.
On that basis the seven claims were time-barred, as none had reached Charterers, or their broker, D, in time. Sending them to a go-between who was not Charterers’ agent was not enough.
Owners’ other arguments were also rejected.
In paying other claims that had come via C, Charterers were not saying that C had their general authority. It was just that Charterers had addressed all claims that C had sent to their agent, D. Also, Charterers were not prevented from raising a time bar defence, because the evidence indicated that Charterers responded to claims that had been passed on in time by C, not simply to those that had been submitted to C.
Owners might have succeeded if they had shown that Charterers had paid a series of claims sent to C before the deadline but received (by D from C) only afterwards. However, there was only one such instance, and even then payment had been made under reservation.
The report strongly suggests that in the seven claims that Charterers said were time-barred, that was the only issue. So Owners lost almost $315,000 because they had fallen into the habit of sending their claims to an entity that was not Charterers’ agent and had no authority to receive them.
That did not matter where claims had been processed in good time and settled, but it did when the deadline came and the intermediary had not passed them to Charterers’ agent.
Thus it is very important to know from the outset who is acting for who in a broking chain, and to identify anyone who (albeit with an entirely valid role) is not actually representing either side. Otherwise, whether in a long-term COA, a lengthy course of dealing or a single spot fixture, a late claim submitted to the wrong party may prove time-barred. Broking arrangements vary greatly, it may be difficult in some cases to determine roles and the law of agency is a huge topic.
NOR, port congestion and demurrage - the cost of congestion
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The main parts of a laden charterparty transit are the carrying voyage and the discharge. Owners take the cost risk of the first of these and (with aggregate laytime for all cargo operations) the second is charterers’ concern. To see who pays for what, the parties must identify when one ends and the other begins, and to signpost this the parties use NOR and agree restrictions on how, when and where that may be given.
The related notions of port or berth charterparties, an arrived ship and WIPON and other such shorthands all concern who pays when a vessel is delayed by congestion in reaching the berth, and the straightforward London Arbitration 16/18 [(2018) 1007 LMLN 3] prompts this quick review.
Under an amended GENCON 94 form the vessel carried corn from South America to civil war-torn Yemen, with the disport of Hodeidah later changed to Saleef, entry to which involved waiting at a holding area some 110 nm away.
It was said to be a port charterparty, so before owners could validly tender NOR the vessel would ordinarily have had to reach at least the place within the port where vessels usually wait. By contrast, a berth charterparty generally means that a vessel must first actually reach the berth. So under port charterparties charterers usually take the risk of congestion and owners do so under berth fixtures.
Here, though, clause 6 (c) of Part II of GENCON 94 had been replaced by:
“AT DISCHARGE PORT NOR TO BE TENDERED DURING OFFICE HRS WIPON/WIBON/WIFPON/WCCON [AND WITHIN OTHER TIME/DAY RESTRICTIONS].”
Having first tendered a (later, agreed ineffective) NOR on arrival at the distant holding area, the vessel twice re-tendered from the Saleef outer anchorage, while awaiting the required military approval to move in and berth. In rejecting each such tender, charterers said that the vessel had not arrived at the port because (the Tribunal presumed they had meant) the outer anchorage was outside port limits.
The issue was as to the validity of those later NORs.
These and similar terms are often inserted to let the vessel tender valid NOR before attaining a place (WIPON and WIBON) or a situation (WIFPON and WCCON) which might otherwise be needed. It depends on the exact wording in each case, but for example WIBON (whether in berth or not) can sometimes mean that what may have seemed a berth charterparty is instead a port charterparty, and as here these terms generally shift the cost risk from owners to charterers.
The Tribunal said that the WIPON (whether in port or not) provision allowed owners to tender NOR when the vessel had reached the usual waiting place for the port, even if that was outside the port limits. While it was uncertain whether the outer anchorage was inside or outside, it was definitely the usual waiting place, so NOR tendered there was valid and owners’ demurrage claim succeeded.
“Always accessible” - again
In an April 2018 entry we discussed the meaning given to this phrase in the “ACONCAGUA BAY”, and in March under London Arbitration 23/17 we noted owners’ unsuccessful attempt to distil a “reachable on arrival” warranty from amended safe berth provisions.
A similar issue arose here, as the disport change included the wording “always afloat always accessible to vessel’s draft”.
The Tribunal rejected owners’ argument that charterers had thus agreed to procure a berth to which the vessel could always proceed without delay. It was confined to draft issues, which had not arisen.
The brief report of a seeming routine decision offers the following pointers.
Firstly, the key context is allocation of the risk of the cost of delay. Always keeping that in mind will make it easier to consider these various matters, their individual significance and their relationship.
Secondly, as ever the proposed fixture wording should be examined as a whole. Thus owners could become aware, for example, that port option text and any related clausing might confine valid NOR tender more narrowly than perhaps intended. Owners might be content that they have a port charterparty on subjects, but small changes could have made it a berth charter - what does it say overall about where NOR could be given?
Thirdly, care is needed when citing the above common form abbreviations. They are often used as a complete set when some are inappropriate and might cause difficulty.
Lastly, beware wording on safe port or berth, or on draft or perhaps under-keel clearance issues. Such will not readily be construed as “reachable on arrival” or similar warranties. It is usually easy to achieve that by specific wording.
Demurrage disputes and bills of lading - the Sea Master
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Taking it to the bank …?
Demurrage can be extensive and is usually unsecured, and if charterers default owners will look elsewhere. Rights of lien often mean trouble, and it is sometimes better to target a solvent alternative. The recent decision in Sea Master Shipping v Arab Bank (Switzerland) Limited  EWHC 1902 (Comm) (the “SEA MASTER”) brings trade financing banks into focus.
A B/L will frequently incorporate a CP, including what will often be its arbitration provisions, provided suitable clausing is used.
Sometimes a charterer FOB buyer will lose his CFR or CIF sale, and will therefore need to find a new on-buyer, perhaps at a different disport. That might mean CP renegotiation, and will ordinarily require a fresh B/L. A bank providing funding will frequently have the B/L, and any new one (a switch Bill, as it is generally known) will be issued under the bank’s control, so its security is safeguarded. The first B/L is cancelled and the bank holds the switch Bill instead.
That is what happened here. The switch Bill showed the new buyer as the notify party and was made out to the bank’s order. As before it validly incorporated the CP and its arbitration clause.
Major delay caused substantial demurrage. Charterers could not pay, and when the bank later claimed (under some different Bs/L) in respect of other cargo shipped on the same vessel, owners counterclaimed for their demurrage under the switch Bill.
The 1992 Carriage of Goods by Sea Act concerns the transfer of rights and also liabilities under Bs/L. Key triggers are the notions of “lawful holder” of a B/L, and “making [a] claim” (or seeking delivery) under one.
Banks are often the first of these but are wary of the second, as it can bring about responsibility for unpaid freight, for shipment of what may later be ruled to be dangerous goods and also perhaps, as here, demurrage. Understandably, banks seek to preserve the rights of a lawful holder of a B/L and to avoid the liabilities that might accompany claiming under it.
Here the bank said that owners could not claim against them in arbitration - on the evidence they were not a party to the switch Bill and (though they had been its lawful holder) they had not made any claim under it, so there was no means by which the Tribunal had jurisdiction.
The Tribunal agreed, but the Court overturned that. It said that, while just being a lawful holder of a B/L did not activate its various obligations, it nevertheless made the bank subject to the arbitration clause. That remained so even where, as here, the bank no longer held the B/L.
The incorporated agreement to arbitrate was separate from the B/L contract. It stood alone. So, even a bank that has made no claim under a B/L is nevertheless - and always - subject to its arbitration clause if it has once been its lawful holder.
The “SEA MASTER” considers many issues, some of which are far outside the scope of this article.
On this one it has caused concern among trade financing banks and has received much commentary from those who advise them. However, it simply means that owners will often be able to invoke a B/L arbitration clause against a bank. It does not mean they are bound to succeed. Indeed, in this very case the bank is going to address the matter through the resulting arbitration process - the ruling itself is not going to appeal.
Nevertheless, the decision highlights that, when faced with defaulting and perhaps insolvent charterers, owners might have at least the possibility of remedy against a bank that has held the B/L, whether or not the bank has itself made any claim.
For unpaid demurrage, owners will want to consider all possible recovery routes. However, just as for lien clauses, this one gives rise to difficult issues and it will be important to seek advice at an early stage.
If you would like to discuss any point or topic in this article please contact firstname.lastname@example.org.
Malacca Strait Medley - Demurrage and DA Disputes
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Singapore Arbitration 2/18 [(2018) 1008 LMLN 4] probably does not greatly develop the law or offer novel interpretation of common fixture wording. It does however illustrate some of the less familiar demurrage and also DA disputes that arise, and the wider problems that can result.
A heavily redacted account reveals only that under an amended GENCON 94 form the vessel was chartered to carry bulk iron briquettes which were loaded at a river port, and that disputes arose as outlined below and decided under agreed Singapore (SCMA) Arbitration and English law.
These were a miscellany concerning (a) what disport time counted for first opening the hatches (b) whether owners delayed cargo operations there by not providing a written undertaking to the port authority (c) liability for loadport pilotage and other amounts and (d) whether charterers should indemnify owners for resulting losses.
Charterparties often provide for who pays for the time taken to open and/or close hatches, and here an additional clause said:
“TIME LOST BY [FIRST OPENING … OF HATCHES] SHALL NOT COUNT AS LAYTIME BENDS, EVEN WHEN VSL ON DEMURRAGE”.
But the disport agent’s SOF simply recorded an aggregate 50 minutes for this and other activities. There was no evidence of how long it took just to open the hatches. Owners said it was five minutes and charterers urged an hour. However, following a London Arbitration Award in 2002, the Tribunal refused to entertain theory or estimate and ruled that it was for charterers to prove the claimed deduction. As they could not, the whole disputed period counted as laytime.
The strictness of this is highlighted by the facts that (i) it must have taken at least some time to open multiple hatches (ii) owners were anyway given countervailing credit within a far longer, unclaimed period (where time would have counted for them) for a similar mix of activity, but where there was likewise no evidence of how long the hatch opening took.
Delay for lack of undertaking
Before allowing the vessel to berth the disport authorities had demanded their standard undertaking as to damages. Charterers sought to deduct about 25.5 hours, alleging that owners’ delay in providing that had hampered cargo operations.
With nothing in the fixture to cover these circumstances, charterers had to show that owners’ culpable delay had prevented the vessel from berthing and this had the legal effect of interrupting laytime. In essence they had to show that the vessel was unavailable for cargo operations due to owners’ fault.
Charterers failed because:
1. owners did not have to provide the undertaking - it was anyway largely a formality and something from charterers themselves would have done; moreover
2. charterers had not given owners reasonable notice; and
3. the vessel could not have berthed at the time as the designated berth was occupied.
Pilotage and other amounts
Loadport disbursements were for owners’ account up to a maximum based on $4 per tonne of cargo shipped, with charterers paying anything above that, failing which owners could clause the Bs/L accordingly.
Amid a wider dispute on loadport sums, and after the vessel had sailed, charterers undertook to pay the loadport agent whatever was due and owners then released the (presumably non claused) Bs/L. However, charterers later generally denied liability and alleged that the Master had ordered additional pilotage which owners should pay for.
The Tribunal rejected that and ruled that charterers had breached both their obligation and their undertaking to pay their share of the loadport DA, which included pilotage, none of which was additional or otherwise for owners alone.
Indemnity for resulting claims
Because of charterers’ failure to settle the account, the loadport agent had threatened to bar owners from the relevant port and perhaps others nearby.
Owners sought an indemnity from charterers for any resulting losses and the Tribunal agreed, ordering charterers to indemnify owners in respect of whatever loss and damage they may incur due to charterers’ failure to make these payments, and as regards any such payments made by owners.
As well as underlining the importance of accurate contemporary records, even for something as routine as opening hatches, this Award shows that demurrage issues can arise when charterers seek to divert formal operational responsibilities to owners, and (where possible) wording agreed in advance should address this.
Also, care must be taken with charterers’ liabilities, to owners or otherwise. A proposed undertaking in return for release of the Bs/L or other waiver should always be examined and considered carefully, as later default could mean difficulty with third parties.
Going in and Getting Out - "always accessible" and the Aconcagua Bay
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In an appeal from a 2017 Award, the 26 March ruling in Seatrade Group NV v Hakan Agro DMCC (The “Aconcagua Bay”) 2018 is the first English High Court decision on an important question.
The issue was whether the common “always accessible” warranty in a voyage charterparty meant that a vessel must be able not only to reach the berth, but also to leave it, without delay.
Just looking at the word “accessible”, as a matter of impression to many people it seems confined to reaching a location, and does not include coming away again. To most, access suggests getting to, rather than from, somewhere. If a place is accessible, you can get there. Leaving probably does not readily come into the thinking.
The vessel had been fixed for carriage from the US Gulf to the DRC and Angola under an amended Gencon 1994 form which included the following:
“Loading port or place ... 1 good safe berth always afloat always accessible 1-2 good safe ports in the USG in Charterers’ option …”
Damage to a bridge and lock during loading meant that the vessel could not leave the berth afterwards, and owners claimed damages for detention.
(Many charterparties provide for delay to be counted as half laytime or at half the demurrage rate in respect for example of “failure of equipment, plant or machinery in or about any loading or discharge port”, but it seems that none such applied here.)
The judge observed that:
Many decisions on “always accessible” have considered a vessel’s arrival but not its departure; however
London Arbitration 11/97 (1997) LMLN 463 said this warranty did not extend to leaving the berth, and this might have influenced thinking on this during the last two decades;
While the textbooks offered little assistance and dictionary definitions were not decisive, there was some slight inference that this term does not apply to leaving the berth; however
In several editions, the Baltic Code provides that by using it the charterer promises that the vessel will also be able to depart from the berth without delay, and similarly a 2013 BIMCO circular.
The judge said that the core point was whether the parties intended to provide for departure, and ruled (as decisive) that reasonable commercial parties looking at berthing would bear all aspects in mind and not restrict themselves to simply reaching the berth.
So this common voyage charterparty phrase was not confined here to the approach to the berth, and charterers had thus warranted also that the vessel could leave it without delay. The vessel had been trapped for about a fortnight and charterers were liable.
The Tribunal’s decision had been in charterers’ favour. It is notoriously difficult to get permission to challenge Arbitration Awards, so appeals are uncommon and successful ones are rare.
The judge refused to allow charterers to go to the Court of Appeal with this, but perhaps on a very narrow ground they might be able to get that permission from the Court of Appeal itself. We will provide an update if this matter goes further.
The Present Position
As the judge noted, the term “reachable on arrival” is also common, perhaps especially so in tanker fixtures.
Owners had here submitted that this plainly applies to arrival only, although some textbook commentators have treated it and “always accessible” as meaning the same thing.
As things stand, charterers who want to confine an accessibility warranty to the approach or arrival need to use “reachable on arrival” or similar wording, though the entire fixture text should always be considered as a whole. The ruling here is a decision on one charterparty, and will not necessarily determine this issue amid other provisions where perhaps importantly different wording has been used.
The vital thing is what the parties intended by their wording, and they should always first consider what they want and then set about choosing the words to achieve that. This decision has come as a surprise to many, and it is a reminder now to carefully re-examine an issue that may have become dormant, perhaps considered long settled, or even thought not to arise.
These matters are already causing pre-fixture queries, as parties review spot wording or consider what might be long-standing “last done” terms, especially amid options on calls at ports where difficulties have occurred or might be expected.
C Solutions opens new office in Greece
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Jim Allsworth has relocated to establish our new office in Greece where clients have welcomed the news of a full time presence.
Until recently Jim was head of our London admiralty shipping group activity, with a staunch following in salvage, wreck removal and collision matters.
The Zaliv Baikal - the need for careful drafting and broad consideration when giving options
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This article from our partners C Demurrage comments on the recent decision in the “ZALIV BAIKAL” and highlights the need for careful drafting and broad consideration when giving options.
Operational flexibility to match changing commercial requirements is very common in modern carriage contracts. So, in a voyage fixture from x to y, charterers might be allowed to call at one or more interim ports to load and/or discharge, to alter voyage instructions (so transit time similarly increases, and more bunkers are used), or simply to have the vessel stop somewhere and await orders.
Such things enable charterers to make the best use of the vessel, according to logistics like what cargo is to be sourced and delivered where, and wider considerations such as possible lack of port facilities, and even contractual transfer of cargo ownership when the vessel reaches a particular position. Subject to safety and scheduling issues, owners frequently agree options that allow charterers to move or stop the vessel pretty much as they wish, provided increased bunkers and other costs are paid for and additional time is covered at a suitable rate. Voyage charterparties sometimes contain elaborate terms saying what charterers can do and what it will cost them.
This was the case in Gard Shipping AS - v - Clearlake Shipping Pte Ltd  EWHC 1091 (Comm) (the “ZALIV BAIKAL”), where the English High Court gave a decision that should remind parties (a) to be clear in their drafting (b) to analyse the scope and possible effect of options and (c) that the courts will not easily help them avoid a result that they probably did not intend.
A recap with an amended BPVOY4 form provided for loading at Ust-Luga, additional port options and discharge in a range that included Rotterdam. After several interim calls the vessel arrived there on 26 January 2016, tendering NOR such that time started soon after. For their own reasons charterers gave no discharge instructions until 31 March, and owners’ claim for nearly $1m depended on what rate applied to 64.7 days of demurrage.
Ordinary demurrage was $32,500 PDPR, but owners claimed an enhanced rate under additional clause 11 (“AC 11”), which said:
“ …. Charterers [may], at any stage of the voyage, [instruct] the vessel to stop and wait for [orders] for max 3 days … within the ranges agreed. In particular … , Charterers [may] instruct the vessel not to tender [NOR] on arrival at or off any port or place or to delay arriving at any port [or] place until Charterers give the order .... Time to count as used laytime or time on demurrage, if vessel is on demurrage. [All] ... bunkers consumed to be for [Charterers’] account.”
AC 11 also said that after the first five (not three) days waiting for orders or discharge instructions “at sea” the vessel was to be considered as being used for storage, and the demurrage rate was uplifted by amounts which escalated as more time passed.
The judge identified various demurrage regimes, each covering different circumstances and with its own particular trigger. These included (a) the interim ports clause, which had been invoked by charterers’ orders to make additional calls (b) the standard regime, beginning with owners’ tender of NOR, and (c) AC 11, whose options could only be activated by a positive order from charterers - to stop and wait, not to tender NOR or to delay arrival. But no such order was ever given, so that clause could not apply. Instead, by tendering NOR, owners had themselves engaged the standard demurrage regime, so they could only recover the ordinary rate. The judge also rejected owners’ attempt to imply a term that would counter that result.
AC 11 provided what charterers could do, not what they had to do. It gave owners no corresponding alternative. Standard storage provisions had been deleted, and AC 11 was probably meant to allow charterers in some way to hold up discharge (if for whatever reason they had to), but on terms that if this exceeded a certain period they should pay for the time as if the vessel was being used for storage, and at a progressively increasing demurrage rate. Owners will generally tender NOR as soon as possible, and it is not likely that AC 11 was intended to allow charterers simply to let that happen and then hold up discharge for as long as they needed, paying only at the ordinary demurrage rate. That however was the result.
We understand that this decision might be appealed. Whatever happens, the case is a reminder to parties to examine, pre-charter, the scope and potential effect of options, especially those crafted specifically for the more unusual circumstances. It may sometimes be wise to consider a protective alternative in favour of the party who might otherwise unexpectedly be at a disadvantage if an option is not exercised.
C Demurrage is a demurrage factoring and outsourcing company providing a high level approach to demurrage claims handling, whilst maintaining the standards and personal approach expected of a leading services provider. Based in the Lloyd’s Building in London, C Demurrage has offices in Singapore, Hong Kong, Istanbul, Piraeus and Connecticut. For further information please contact C Demurrage here.
C Solutions opens new office in Papua New Guinea
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Cyber Security and the NIS Directive
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The increasing threat to states, organisations and individuals of cyber-attack is the source of much debate and concern to the insurance and maritime industries. Cyber-attacks can be swift and devastating to their victims as well as potentially to those they employ, interact with and do business with.
The issue is gaining traction at international governmental levels with the European Parliament adopting in July 2016 the Directive on security of network and information systems (NIS Directive). The aim of the NIS Directive is to bring cybersecurity capabilities to the same level of development across all EU Member States and ensure co-ordinated cooperation and exchange of information. The NIS Directive will enter into force in August 2016 and Member States will have 21 months to incorporate it into national law. It is therefore important that organisations are aware of the requirements set out in the directive.
Of particular relevance to those involved in the insurance and transportation sectors is the identification by the EU of operators of critical infrastructure which rely heavily on information and communications technology and that are vital economic or societal functions; included in this are the energy and transport sectors. Businesses in these sectors will be required to take appropriate security measures and to notify serious incidents to the relevant national authority.
Industry bodies have already developed guidelines for those involved in the marine transportation sector. In association with a number of trade organisations, BIMCO has produced a set of guidelines to help the industry prevent the potentially wide-ranging fallout out from a cyber-attack on a ship. The BIMCO guidelines can be accessed by clicking here.
Those involved in particular in the vital economical functions identified by the EU must act now to ensure that they comply with the requirements set out in the NIS Directive. It is equally important that buyers and providers of insurance give adequate consideration to the risks associated with cyber-crime and that precautions as well as plans to respond to a cyber-crime are developed. Insureds must review the insurance they have in place and ensure that it will respond should they fall victim to cyber-crime.
We are pleased to assist clients with:
Review and assessment of cyber security planning and response
Review of contractual liabilities
Review and advice on current insurance arrangements
Advice on policy wording and drafting
Legal advice, claims handling and recovery action following a cyber-attack