Incorporation of Bulk Terminal Terms into Charter. Effect on Laytime and Demurrage Regime.

In London Arbitration 15/21 the Tribunal considered the effect, if any, of the incorporation into the fixture of what were referred to as UBT (United Bulk Terminal) Rules, which were rules imposed contractually by the berth operators on users of the berth. These provided:

 “2.2 NOTICE OF READINESS

In the case of an Ocean Vessel to be loaded, issuance of the Notice of Readiness shall mean that the Ocean Vessel (1) has obtained all requisite governmental approvals, inspections and clearances, including, but not limited to, those required by the US Customs Service and the Immigration and Naturalization Service; and (2) is located at the Berth or Closest Available Anchorage (as defined in section 2.5 below); and (3) is ready and suitable in all respects to receive the Cargo in all holds to be loaded; and (4) has confirmed with the Terminal that the Cargo is to be loaded to Vessel is in storage at the Terminal or, if Cargo is to be direct transferred, is in barges in the Terminal’s fleet; and (5) has determined that the Cargo is in a condition satisfactory to the Vessel Party and all regulatory authorities for shipment. Notice of Readiness shall be considered invalid unless the aforementioned five conditions are met…”

By contrast the recap setting out the fixture provided

“- SHOULD THE BERTH BE OCCUPIED OR SHOULD THE VESSEL BE PREVENTED FROM PROCEEDING TO THE BERTH AFTER HER ARRIVAL AT OR OFF THE PORT NOTICE OF READINESS MAY BE TENDERED BY TELEX, FAX WWWW (an acronym for “wibon, wccon, wifpon, wipon”, ie “whether in berth or not, whether customs cleared or not, whether in free pratique or not, whether in port or not”).

– AT BOTH ENDS PORT LAYTIME SHALL COMMENCE TO  COUNT 12 HRS AFTER VALID NOR IS TENDERED UNLESS OPERATIONS SOONER COMMENCED.  IN CASE SOONER COMMENCED, ACTUAL TIME USED TO COUNT.”

Clause 6 of the charter in effect confirmed what was agreed in the recap.

Owners gave notice of readiness at the port of Davant on the Mississippi on arrival at the South West Anchorage, having to wait there due to congestion at the berths. The tribunal held that there was no requirement in the contract for the vessel to have passed any inspections, etc before giving a valid notice of readiness. Nor was there any requirement in the contract that notice be accepted by the charterers or their agents. Similarly it contained no requirement that notice be given within the laycan.

Under English law was that where an incorporated document conflicted with the terms of the primary agreement entered into by parties, the conflicting terms had to give way to those in that primary agreement with which they were inconsistent, as had been held in a similar case The Linardos [1994] 1 Lloyd’s Rep 28.

Accordingly the aspects of the UBT Rules relied on by the charterers conflicted with the terms of the fundamental agreement as found in the recap, and reinforced by the incorporated charter terms. As in The Linardos, the UBT Rules were designed to govern contractual relationships between the terminal and users of the berth so, when reading them into a charterparty, great caution had to be exercised in interpreting them in the charterparty context so as to ensure that only those provisions in the Rules that were truly relevant to and compatible with the charter agreement were given effect to.

In the light of the charter provisions agreed in the recap, the vessel was entitled to give notice of readiness at the Southwest Pass as that was the nearest available anchorage off the port at the time she arrived there, and the UBT Rules did not affect that position. Accordingly the owners’ demurrage claim succeeded, and they would be awarded the claimed amount of US$109,495.83 plus interest and costs.

INTERNATIONAL DAY FOR THE SEAFARER. “SAILING” IS HERE!!

Today Ince & Co’s Global Choir for Seafarers release a global choir version of Rod Stewart’s 1975 song ‘Sailing’. We are pleased to announce that at least one member of the IISTL contributed to the global choir.

‘Sailing’ is available from all the usual download platforms – iTunes link HERE – and its aim is to highlight the role of seafarers as keyworkers during this continuing pandemic. There is a donations page HERE. All monies donated through the page are split four ways and go directly to the seafaring charities from Virgin.

There is also a music video (HERE) and a series of testimonials which underline the struggles our seafarers face and have faced throughout the pandemic – ONE / TWO / THREE / FOUR / FIVE / SIX / SEVEN / EIGHT / NINE.

See the inside story HERE from Tradewinds.

Climate Change and International Shipping. Life in the slow lane, and life in the fast(er) lane.

The IMO’s Marine Environment Protection Committee (MEPC 76), meeting from 10 to 17 June 2021, adopted amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI that will require ships to reduce their greenhouse gas emissions.

All ships will be required to calculate their Energy Efficiency Existing Ship Index (EEXI) following technical means to improve their energy efficiency and to establish their annual operational carbon intensity indicator (CII) and CII rating. Carbon intensity links the GHG emissions to the amount of cargo carried over distance travelled.

Ships will get a rating of their energy efficiency (A, B, C, D, E – where A is the best).  A ship rated D for three consecutive years, or E, is required to submit a corrective action plan, to show how the required index (C or above) would be achieved.

The amendments to MARPOL Annex VI (adopted in a consolidated revised Annex VI) are expected to enter into force on 1 November 2022, with the requirements for EEXI and CII certification coming into effect from 1 January 2023. The first annual reporting will be completed in 2023, with the first rating given in 2024.

A review clause requires the IMO to review the effectiveness of the implementation of the CII and EEXI requirements, by 1 January 2026 at the latest, and, if necessary, develop and adopt further amendments. 

The MEPC also adopted related guidelines to support the implementation of the amendments. 

The guidelines include the 2021 Guidelines on the operational carbon intensity reduction factors relative to reference lines (CII Reduction factor Guidelines, G3). This includes the required reduction (Z) factor, which is set at a rate, relative to 2019, of 11% by 2026 (about a 1.5% annual reduction, as opposed to the 7% annual reduction that would be needed for shipping to meet the goals of the Paris Agreement 2015). This would  be further strengthened after that date, taking into account the review of the measure and latest climate science.

These combined technical and operational measures, referred to as short term carbon intensity measures, are stated as being in line with the ambition of the Initial IMO GHG Strategy, which aims to reduce carbon intensity of international shipping by 40% by 2030, compared to 2008.

The MEPC adopted a work plan on the concrete way forward to make progress with candidate mid- and long-term measures including measures to incentivize the move away from fossil fuels to low- and zero-carbon fuels to achieve decarbonization of international shipping.

A proposal initially considered by MEPC suggested a mandatory levy of $100 per tonne carbon dioxide equivalent on heavy fuel oil will be further considered at the intersessional working group meeting in the context of the adopted workplan along with other proposals for mid-term measures. A proposal to establish an International Maritime Research Board, funded by a tax on oil fuel used by shipping and discussion will resume at the Committee’s next session.

The MEPC also adopted amendments to MARPOL Annex I (addition of a new regulation 43A) to introduce a prohibition on the use and carriage for use as fuel of heavy fuel oil (HFO) by ships in Arctic waters on and after 1 July 2024.

The prohibition will cover the use and carriage for use as fuel of oils having a density at 15°C higher than 900 kg/m3 or a kinematic viscosity at 50°C higher than 180 mm2/s. Ships engaged in securing the safety of ships, or in search and rescue operations, and ships dedicated to oil spill preparedness and response would be exempted. Ships which meet certain construction standards with regard to oil fuel tank protection would need to comply on and after 1 July 2029.

A Party to MARPOL with a coastline bordering Arctic waters may temporarily waive the requirements for ships flying its flag while operating in waters subject to that Party’s sovereignty or jurisdiction, up to 1 July 2029.

Meanwhile the EU is also active with plans regarding the reduction of carbon emissions from international shipping. Its plans for inclusion of international shipping in the emissions trading scheme were due to have been announced this month but will now be announced on July 14, Bastille Day, as part of its ‘Fit for 55’ package.

Ever Given latest.

Yesterday, 23 May, the appeals chamber of the Ismailia Economic Court upheld a ruling issued by the Ismailia Court of First Instance on May 4, rejecting the appeal made by the owners of the ship (Shoei Kisen Kaisha) against keeping the ship under arrest. In a second case that was filed by the Suez Canal Authority (SCA) to keep the seizure of the ship valid, the Court recused itself and referred this case back to the Economic Court of First Instance to be considered on May 29.

The Suez Canal Authority initially demanded $916 million in compensation, which it later lowered to $600 million which would cover the salvage operation, costs of stalled canal traffic and lost transit fees for the week the Ever Given blocked the canal. It seems the claim for reputational damage totalling $300 million may have been jettisoned.

The vessel’s owners have denied that the accident was their fault and are claiming fault on the part of the SCA in allowing the vessel the ship to enter the canal amid bad weather, and claim that at least two tugs suitable for the vessel’s size should have been supplied. Owners are claiming $100,000 in initial compensation for losses related to the vessel’s seizure.

Charterers orders to wait off berth not an extra contractual service; time falls within the laytime and demurrage regime.

London Arbitration 14-21 involved a claim by owners that time spent waiting on charterer’s orders following tender of NOR at the discharge port was a non-contractual service which should be remunerated by way of quantum meruit. This would be at the demurrage rate and would include bunkers consumed while waiting.

The Tribunal rejected the claim. Laytime had already started to run when the charterers ordered the vessel to wait off berth. This was not a non-contractual order as in The Saronikos [1986] 2 Lloyd’s Rep 277 and Glencore Energy UK Ltd v OMV Supply & Trading Ltd [2018] 2 Lloyd’s Rep 223. The charterers were entitled to use the whole of the agreed laytime, whether  by holding the ship off the berth, or by berthing her and not working her for some time, or by berthing her and working her immediately. Once laytime had started to count the charterers were entitled to use it in full. Even if owners had been right, they would not have been entitled to anything for bunker consumption. Assuming the demurrage rate was to be taken as a genuine pre-estimate of damages for detention, it had to follow that running expenses, including bunker costs, were to be taken as included in the agreed rate.

Smart claims for bill of lading freight by owners.

If an owner’s bill of lading incorporates the freight provisions of a time charterer’s voyage charter, can owners intervene to require payment of the freight to themselves rather than to the time charterer? That was the issue recently before Butcher J in Alpha Marine Corp v Minmetals Logistics Zhejiang Co Ltd (MV Smart) [2021] EWHC 1157 (Comm) (05 May 2021).


Claim were made by owners against charterers in respect of the loss of the vessel for breach of the safe port warranty. the Tribunal found that the Charterers had provided a safe port warranty in respect of Richards Bay and that there were some shortcomings in the running of the port. However, the Master had been negligent in his handling of the Vessel and it was this that caused the grounding of the Vessel. Owners had issued bills of lading which stated ‘freight as per charter’.  After the vessel was lost the Owners gave notice to the bill of lading holder, the voyage charterer to pay full freight to them. At that time only a sum in respect of bunkers was due to Owners.  Charterers claimed damages in respect of losses sustained as a result of owners’ intervention in respect of freight due under the bill of lading through the incorporation of the terms of the voyage charter. They also claimed in tort on the basis of procuring breach of contract by the voyage charterer and/or knowingly and/or unlawfully interfering with the Voyage Charter. The Tribunal found that Owners were not entitled to revoke Charterers’ right to obtain the bill of lading freight or to direct it be paid to the Owners. This is because the Charterparty contained an implied obligation that Owners would not revoke unless hire and/or sums were due to them under the Charterparty

On appeal, Butcher J considered three possible terms constraining owners’ exercise of their rights to intervene to claim freight under the bill of lading. First, the “all freight” implied term whereby if the Charterers were in default of their obligations under the Charterparty, then the Owners would be entitled to collect the entirety of the freight, even if it exceeded the amount of the Owners’ claim against the Charterers arising out of their default. Second, “All Freight (Sum Identified) Implied Term”) by which the Owners were not entitled to revoke the Charterers’ authority to collect any freight unless a sum was due to the Owners under the Charterparty and the relevant sum was identified at the time of any revocation of the Charterers’ authority; and (3) the “Dollar for Dollar” Implied Term whereby the Owners were only entitled, in the event of a default by the Charterers, to revoke the Charterers’ authority to collect freight in respect to an amount up to, but no more than, the amount due from the Charterers under the Charterparty.

Butcher J rejected the implication of any term.  Owners’ duty to account to the charterer for any excess in the amount of freight collected over the amount due under the charterparty meant that the present charterparty, or other time charters in similar form, did not lack commercial or practical coherence without an implied term restricting the owners’ right to intervene.  If owners claimed freight in excess of sums due to them under the time charter the owners would have to account for the balance to the time charterers, and that was the charterers’ protection.

The Award was set aside insofar as it awarded damages for breach of the implied term found by the Tribunal; and the matter was remitted to the Tribunal for reconsideration of the Charterers’ freight counterclaim on the alternative Tortious Basis, having regard to this judgment.

No-go Lugano?

The UK’s application, submitted on 8 April 2020, to join the Lugano Convention in its own right appears to be foundering on opposition from the EU. Although the three non-EU Members (Iceland, Norway and Switzerland) have expressed support for admitting the UK, the European Commission is less favourably disposed, and its consent is essential if the UK is to become a party to the convention. On 12 April the Commission stated.

“The Commission has conducted a thorough assessment of the request and has discussed it with Member States. It will come forward with a Communication in the coming weeks.

It is worth noting, however, that the Lugano Convention is a tool used within the EU-EFTA/EEA context. The UK has chosen to leave the EU, the Single Market and the Customs Union. It has chosen to have a more distant relationship with the EU than EEA-EFTA countries. These choices have to be taken into account when determining the EU’s position.”

The final decision, however, lies with the European Council, which comprises EU Member State heads of state or government and is expected soon. We wait with bated breath.

Deadfreight. Charterer’s nominated berth frustrates owner’s option as to quantity to load.

In London Arbitration 7/21 a vessel was chartered to carry coal. The owners were given the option to load between 27,000 and 33,000 mt of cargo, and the charterers were bound to provide a safe port/berth at the specified terminal. The owners exercised their option to load 33,000 mt

Prior to the fixture being concluded the owners had emailed the charterers’ agents at the loading port and had been advised that the maximum draft at the terminal was in excess of 13 m. The agents indicated that the vessel would berth at a specified berth where the vessel would have had no problem in loading 33,000 mt.

Charterers ordered vessel to load at a different berth where there was a lower maximum sailing draft and failed to change the berth nomination. There was a shortfall of 1,590 mt of cargo.

The tribunal held that the owners were entitled to exercise their option as to cargo quantity unfettered, and the charterers were bound to load whatever amount the owners opted for up to 33,000 mt. If, by their choice of berth, the charterers prevented the vessel from loading that quantity, they put themselves in breach of that obligation. By ordering the vessel to a berth where the draft was so limited as to stop the vessel loading 33,000 mt, the charterers frustrated the exercise of the owners’ option. Charterers were liable to owners in damages for the shortfall in cargo loaded

Off-hire and arrests unconnected with the vessel detained.

On 15 December 2018, while under time charter to Navision the “Mookda Naree” was arrested at Conakry in respect of a claim against sub-sub charterers Cerealis, and remained under arrest for nearly a month. The claim related to an alleged shortage claim against them by SMG in respect of cargo discharged at Conakry from a previous, unrelated vessel. The head charter and the sub-charter were time charters on the Asbatime form with additional clauses. In both cases, additional clause 47 put the ship off hire inter alia upon her being detained or arrested by any legal process, until the time of her release, “unless such … detention or arrest [was] occasioned by any act, omission or default of the Charterers and/or sub-Charterers and/or their servants or their Agents.” Additional clause 86 of the head charter, not included in the sub-charter, provided as follows:

“Trading Exclusions

When trading to West African ports Charterers to provide adequate security guards during port stays in these countries to protect the vessel her crew and cargo.

When trading to West African ports Charterers to accept responsibility for cargo claims from third parties in these countries (except those arising from unseaworthiness of vessel) including putting up security, if necessary, to prevent arrest/detention of the vessel or to release the vessel from arrest or detention and vessel to remain on hire.

…”

By cl.43 the Inter-Club Agreement was incorporated into the head charter.

Owners claimed that the vessel never went off-hire and that Navision was liable in damages for breach of cl.86. It was common ground that in the context of both time charters, Cerealis was a “sub-Charterer” within the clause 47 proviso.

The tribunal heard separate references by the sub charterer against the time charterer, and by the time charterer against the owners. They held that the clause 47 proviso applied, so that the vessel was not off hire after 12:00 hrs on 17 December 2018, because by that time her detention under arrest thereafter was occasioned by Cerealis’ failure promptly to deal with or secure SMG’s claim so as to procure her release.

In the head charter reference, the arbitrators held that the second paragraph of cl.86 applied, and was not limited to claims concerning cargo carried under the head charter. Therefore, the vessel was off -hire for the entire period under arrest.

On appeals by sub-charterers and time charteres against the awards, Andrew Baker J held, [2021] EWHC 558 (Comm) 10.3.21, that the tribunal had correctly concluded that the detention of “Mookda Naree” after 12:00 hrs on 17 December 2018 was occasioned by Cerealis’ failure to act. It ought reasonably to have acted to deal promptly with the claim being made against it by SMG, that being an “act or omission or default of … sub-Charterers” within the meaning of the proviso to clause 47 of both charters. As regards s.86 under the head charter which concerned the award of hire up to 12,00 on 17 December 2018 it was clear that clause 86 was intended to create a different regime to that generally applicable by reason of clause 47. The vessel never went off-hire during the period of the arrest.

The arbitrators had erred in their construction of clause 86 and should have said that SMG’s claim, though it related to a cargo that had been carried to a West African port, was not a cargo claim within clause 86 of the charter between the Owner and Navision because it did not concern “Mookda Naree’s” West African trading pursuant to that charter but a different ship altogether. It was therefore not a claim allocated to be Navision’s full responsibility by clause 86, any more than it would have been a claim to be dealt with under the Inter-Club Agreement pursuant to clause 43 in the absence of clause 86. Navision’s appeal against the award in the head charter reference succeeded to the extent that because the arbitrators misconstrued clause 86 they wrongly held that the ship never went off hire, whereas they should have held that when arrested she went off hire under clause 47 until the proviso bit from 12:00 hrs on 17 December 2018. They had also wrongly held that Navision had a liability for damages to be assessed for breach of clause 86.

Updated BIMCO versions of TOWCON, TOWHIRE and BARGEHIRE forms. Work in progress on new Force Majeure clause.

BIMCO have released new versions of their TOWCON, TOWHIRE and BARGEHIRE forms. New to TOWCON 2021 are a provision for mid-voyage bunkering on longer tows, and a mechanism for calculating compensation due to slow steaming or deviation. BARGEHIRE 2021 now contains clearer wording relating to off-hire surveys, repairs and redelivery. These have often been a source of dispute in the past.

BIMCO has also announced details of progress on its new Force Majeure clause. It takes the approach that neither party may terminate the contract while the vessel is carrying cargo. It notes that termination by owners with cargo on board will entail their continuing responsibility for the cargo as bailees, with no rights of recourse against charterers for discharge costs.

The new bolt-on to the clause sets out a number of liberties if force majeure prevents the completion of loading, or the departure from the load port, or discharge, for more than 21 days from when force majeure notice was declared. Extra costs incurred thereby should be allocated in accordance with the contract, in particular terms as to allocation of responsibility for loading or discharge, such as FIOST terms.

Any extra costs incurred in exercising any of the liberties should be allocated in accordance with the contract. This will require examining how the responsibility for loading and discharge has been allocated in the underlying contract, for example, if it is on FIOST (Free In Out Stowed and Trimmed) terms.

The BIMCO sub committee also considered how the draft clause would relate to other BIMCO clauses in the same contract such as the war, piracy and infectious or contagious diseases clauses. These allow owners to reject proceeding to a risk area, and if they do, to provide a cost allocation mechanism. By contrast the purpose of the Force Majeure clause is to protect a party from liability in damages in case of force majeure, and as a last resort to allow termination, something complementary to the other BIMCO clauses, and not in conflict with them.

The sub-committee noted that it is for the parties to decide whether a Force Majeure clause belongs in a period time charter, and the triggers for the clause have been set deliberately high. Firstly, the party claiming force majeure must prove the existence of the force majeure event; that the event was beyond its control; that it could not have been foreseen; and that its effects were unavoidable. Secondly, the right to terminate will only be available if performance becomes impossible, illegal or radically different, or substantially affects the whole contract during an agreed number of days.

This second aspect is similar to the doctrine of frustration but BIMCO state that “However, there is an important difference – if a party can bring itself within that termination provision, it will be able to terminate immediately, from day one. Under frustration, the contract would only be considered frustrated and terminated after a very long time compared to the overall contract period. There are two termination provisions in the clause and the other one provides a longstop right to terminate after an agreed amount of time has passed. The number of days will have to be negotiated depending on the contract in question.”

The BIMCO Force Majeure Clause and the additional bolt-on provision will be presented for adoption in May this year.