Supplytime 2017. Pay now, counterclaim later.

Boskalis Offshore Marine Contracting BV v Atlantic Marine and Aviation LLP (The “Atlantic Tonjer”) [2019] EWHC 1213 (Comm) is the first case to consider Supplytime 2017. A multi-purpose support vessel was chartered by disponent owners, Atlantic Marine, to Boskalis for 21 days on Supplytime 2017 form. Atlantic Marine rendered invoices for hire, accommodation, meals and other services which Boskalis did not pay on the grounds that the largest item in dispute was not due because the vessel was offhire throughout.

Clause 12(e) of Supplytime 2017 provides:
“Payments – Payments of hire, fuel invoices and disbursements for the Charterers’ account shall be received within the number of days stated in Box 24 from the date of receipt of the invoice. Payment shall be received in the currency stated in Box 20(i) in full without discount or set-off to the account stated in Box 23… If payment is not received by the Owners within five (5) Banking Days following the due date the Owners are entitled to charge interest at the rate stated in Box 25 on the amount outstanding from and including the due date until payment is received.
If the Charterers reasonably believe an incorrect invoice has been issued, they shall notify the Owners promptly, but in no event no later than the due date, specifying the reason for disputing the invoice. The Charterers shall pay the undisputed portion of the invoice but shall be entitled to withhold payment of the disputed amount…”
In this case the due date was 21 days.
Sir Ross Cranston, acting as a judge of the High Court has held that clause 12(e) does debar charterers from raising defences against owners’ invoices if and to the extent that they have failed to notify owners that they believed those invoices to be incorrect because of those defences by the due date of those invoices. Clause 12(e) is not a time bar provision. It gave Boskalis a relatively short period of 21 days within which to dispute an invoice and once that period has expired, Boskalis came under an obligation to pay any undisputed sum to Atlantic Marine, whether they were liable for such sums or not, with disputed sums left over to be subsequently resolved. Boskalis’s obligation to pay any undisputed sum to Atlantic Marine was also subject to their right subsequently to challenge their liability for such sums either by requiring an audit under clause 12(g) and a credit (if appropriate) or by way of a counterclaim.

The clause was clear and unambiguous. “A reasonable person with the background knowledge available to the parties at the time of the contract would understand that invoices had to be paid within 21 days of their being received. namely, that charterers are barred from disputing the payment of invoices unless done within the 21 days referred to in the contract.”

If charterers reasonably believed that there was an error in the invoice they could withhold payment of the disputed amount by notifying the owners under the clause within the period agreed in the contract. Charterers also had the audit rights under clause 12 (g) to reclaim amounts paid through accounting-type errors (wrong hire rate, wrong number of meals and so) up to four years ahead, as well as the right bring a counterclaim, for breach of contract or for unjust enrichment, if they had paid sums which they later believed were not properly payable.

“My wife may capture my heart”. Off hire and capture by pirates.

 

Owners time chartered the “Eleni P” on an amended NYPE 1946 form and during a voyage from Ukraine to China the vessel was routed via the Suez Canal and the Gulf of Aden. After transiting the Gulf of Aden without incident she was attacked and captured by pirates in the Arabian sea and released some seven months later.

Owners claimed US$ 4.5 million hire for this period. The Tribunal rejected the claim on the grounds that two additional typed clauses, clauses 49 and 101, excluded it. Owners appealed in respect of the correct construction of each pursuant to s69 of the Arbitration Act 1996. In Eleni Shipping Limited v Transgrain Shipping BV (“The ELENI P”) [2019] EWHC 910 (Comm) Popplewell J held that the appeal succeeded in respect of clause 49, but failed in respect of clause 101.

Clause 49 – Capture, Seizure and ArrestShould the vessel be captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended for the actual time lost […]

Owners contended before Popplewell J that Clause 49 only applied when the Vessel was captured, seized, detained or arrested by any authority or any legal process – it therefore did not apply to capture by pirates. Charterers argued that only the word “arrested” was qualified by the phrase “by any authority or by any legal process” andnot  the word “captured” , and therefore as a matter of ordinary language, the Vessel had been captured.

Popplewell J held that the clause only applied to capture by an authority or legal process, and therefore not to capture by pirates. The words “any authority or any legal process” applied to the whole preceding list of events. To limit it to arrest would be superfluous. The tribunal had stated that ‘capture’ was not something that an ‘authority’ could be involved with. Not so, Popplewell J stating “capture does not necessarily connote the use of force. Unoccupied land or undefended goods may be captured. My wife may capture my heart. I see no difficulty as a matter of the ordinary use of language in the concept of a governmental authority or ruler capturing a vessel.”

Clause 101 – Piracy ClauseCharterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by the vessel’s Underwriters, if any, will be reimbursed by Charterers. […] In case vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended. It’s remain understood [sic] that during transit of Gulf of Aden the vessel will follow all procedures as required for such transit including but not limited the instructions as received by the patrolling squad in the area for safe participating to the convoy west or east bound.

Did the suspension of hire only operate if the vessel were threatened or kidnapped by reason of piracy while transiting the Gulf of Aden, as owners argued, or did it operate wherever the Vessel was threatened in the Gulf of Aden or as an immediate consequence of her transiting or being about to transit the Gulf, a charterers argued? The Tribunal had accepted charterers’ argument and so did Popplewell J. The purpose of the Clause was to allocate the risks associated with such trade, not solely within a specifically defined geographical area. Its first sentence allocates the burden of an extra war risk premium and the sentence concerning hire suspension allocates the risk of delay from detention as a consequence of the transit which the first sentence requires.

Accordingly, owners were unable to claim hire for the seven months during which the vessel was held by the pirates.

IISTL Member to present paper at ASDEM’s 14th International Oil Industry Laytime and Demurrage Conference on 16/17 May

 

 

IISTL member Professor Simon Baughen will be presenting a paper “LEGAL ISSUES OF DEMURRAGE AND PUMPING WARRANTIES” at Asdem’s 14th International Oil Industry Laytime and Demurrage Conference on 16/17 May at the Le Meridien Piccadilly Hotel in London.

Pumping warranties are the norm in tanker charters and apply a separate laytime and demurrage regime to the period of discharge, and sometimes to the period of loading as well. They have also generated many disputes between owners and charterers as to how this separate regime operates and how it fits in with the demurrage time bar clauses that are invariably found in tanker charters. Professor Baughen will be looking at the pumping clauses found in oil charterparties from the wide range of additional clauses that are necessary for Asbatankvoy to the standard warranties in widely used modern forms and examining the legal issues they give rise to.

The full speaker line-up and topic list for this event, can be found in Asdem’s brochure which you can download by clicking here.

To register immediately on-line, please click here.

 

 

 

 

 

No deduction from hire clause in time charter means what it says.

In London Arbitration 7/19 the tribunal decided that a clause in a time charter stating ‘Charterers have no right to make any deduction from hire payments… Chrts do not have the right to deduct from hire payment any amounts on alleged under performance, except undisputed off hire” precluded charterers from making deductions from hire by way of equitable set off. The tribunal referred to the unreported decision in Marubeni v Sea Containers Ltd 17 May 1995, in which Waller J said:

“First, in the same way as the words ‘deduction or withholding’ are not terms of art which will always include‘set-off’, they are equally not terms of art which limit their meaning to only covering taxes, levies or duties. Second, the fact that clear words are necessary does not mean that the word ‘set-off’ must be used. The words can be clear from their context. Third, what is said in one contract between other parties in one context, cannot really assist in the construction of another contract between different parties in a quite different context.”

Charterers could not deduct their off hire claims either as these were not undisputed. The charterers had argued that they had not made deductions from hire,but that hire was simply suspended, but that was a distinction without a difference.

“Government interference” and laytime under the  1999 Sugar Charterparty

In Sucden Middle-East v Yagci Denizcilik Ve Ticaret Ltd Sirketi (The MV Muammer Yagci)[2018] EWHC 3873 (Comm) the Court heard an appeal from an arbitral decision  on the following point of law. “where a cargo is seized by the local customs authorities at the discharge port causing a delay to discharge, is the time so lost caused by ‘government interferences’ within the meaning of clause 28 of the Sugar Charter Party 1999 form?”. The case arose out of a substantial period of delay in the vessel’s discharge at Algiers due to the seizure of cargo by the authorities there following the identification of a discrepancy between the cargo and the relevant documents presented by the receivers. The cargo was eventually sold after a four and a half month delay in discharging the cargo.

Robin Knowles J found that delay fell within the laytime and demurrage exception in cl.28 of the Sugar Charterparty 1999 form as being caused by ‘government interferences’. The question put to the court was solely concerned with a seizure of cargo by local customs authorities at the discharge port. The ordinary meaning of the word “interference” was apt to include an intervention in this specific form, that is, by way of seizure. This action on the part of local customs authorities was, in this context, the action of government through its appropriate arm or agency. Seizure of cargo by the customs authorities was not a thing that could be treated as routine. The seizure caused the delay even if the submission of the false documents caused the seizure. The arbitrators had found that the key point would be that all the steps taken were in fact ordinary but that was incorrect. Seizure, of cargo, which is a significant exercise of executive power, cannot be regarded as “ordinary”.

 

Prove it. No damages for redelivery with dirty holds

 

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London Arbitration 1/19 shows that owners need to substantiate a claim for cleaning dirty holds after redelivery under a time charter. The vessel was chartered on an amended NYPE 1946 form for “2–3 laden legs of minimum duration 40 days”. Line 22 of the charterparty provided for the carriage of “any ordinary cargo” with an additional clause containing various cargo exclusions and restrictions including a stipulation that coal was not to be the last cargo. The charter also provided “Charterers shall have the option of redelivering the Vessel without cleaning of holds against paying the Owners a lumpsum of USD5,000 lumpsum, including removal of dunnage/bark/debris.”

In breach of charter the final voyage was for a full cargo of anthracite, following which the vessel was redelivered to the owners without any cleaning of the holds. The owners then used the crew to clean the holds which took nine days. The vessel’s next employment commenced two days later.

The owners claimed to be compensated at the hire rate for the time spent cleaning the cargo holds following the redelivery of the vessel, some 9.3854 days. The charterers submitted that there was no legal basis for the owners’ method of assessment of their damages claim as being effectively an extended period of hire. The owners had not provided any evidence of any cleaning operations, or of losses or extra costs. There was no evidence of any possible follow-on fixture being missed. No details had been provided of the cleaning operation which was said to have occupied more than nine days. The charterers accepted that payment of US$5,000 for redelivery with unclean holds was due to the owners but denied that any further compensation was due.

The tribunal held that the only possible conclusion to be drawn from the absence of any evidence of losses or extra costs incurred by the owners as a result of their having to clean the cargo holds had to be that none were in fact incurred, and that the owners’ claim therefore had to fail. Owners’ claim was dismissed.

 

 

 

Bareboat charters — keep your paperwork up to date

Life can be demanding for bareboat charterers, whether they are simply chartering in, or using a bareboat charter from a bank as a financing device.

In Silverburn Shipping v Ark Shipping [2019] EWHC 376 (Comm) owners under a Barecon1989 charter had suspicions as to their Korean charterers’ ability and intention to look after the vessel properly, and terminated the charter. One reason they gave was that the charterer had allowed the BV classification to lapse a short time before the vessel went into dry dock, thus breaking its obligation under Clause 9 to “keep the Vessel with unexpired classification of the class … and with other required certificates in force at all times”. Arbitrators refused to order the immediate redelivery of the vessel, holding that the duty to maintain class was not absolute, but rather to renew any expired entry in a reasonable time, and in adition that the duty to maintain the vessel in class was an intermediate term and not a condition.

On a s.69 appeal, Carr J disagreed. She saw no reason to read the obligation to keep the vessel in class as anything other than an absolute duty. Further, while accepting that the oft-emphasised requirement of commercial certainty could be over-used and could not “be deployed as some trump card” (a bon mot at para.[53] that is likely to find its way quickly into textbooks and counsel’s argument), she decided that the duty to keep in class was a condition of the contract, Breach of it could be serious in respect of the tradeability of the ship, and affect insurance, ship mortgage and flag: entry in class was moreover a black-and-white criterion with no shades of grey which was redolent of the idea of a condition.

This is something that needs to be taken seriously by charterers. Although the wording of Clause 13 of Barecon2017 differs slightly from the 1989 version, any discrepancy is minor and Carr J’s reasoning would, we suggest, continue to apply. Moreover, the right to terminate a bareboat charter can have considerable effects, particularly in the case of a financing charter with a purchase option: once the charter goes, so does the option. True, if the grounds for termination were wholly technical, in theory the court would have a right to relieve a bareboat charterer from forfeiture (The Jotunheim [2005] 1 Lloyd’s Rep. 181); but this is a difficult jurisdiction to persuade it to exercise, particularly in the face of an agreement for termination entered into by commercially-savvy parties. Charterers and borrowers, you have been warned.

Bill of lading shipper liable for sums due under incorporated head charter.

 

In Singapore Arbitration 1/19 a fraudulent broker purported to charter to shipowners on behalf of X and then sub-chartered to Z. Under the charter to X 100% freight was to be paid within six days of signing and release of bills of lading. The cargo was loaded and a bill of lading was issued to Z as  Z, incorporating all the terms and conditions of the charter and stating ‘freight payable as per charterparty dated 9 November 2010’.  Both charters bore that date. The broker received 95% freight from Z and paid part of that to owners in respect of freight under the X head charter. Owners later claim the unpaid balance of freight, and loading port demurrage, under the X charter from Z as bill of lading shipper. The owners had discharged into a port authority warehouse but had lost their lien when receivers managed to take delivery without payment of sums due under the charter with X. Owners commenced arbitration in Singapore against Z under the bill of lading.

The tribunal held that it did have jurisdiction to determine which of two charters with the same date was incorporated into the bill of lading. Both charters were subject to English law. Applying the San Nicholas it was the head charter that was incorporated.  Notwithstanding the transfer of the bill of lading, the shipper’s liability remained due to section 3(3) COGSA 1992.  Owners did not have to give credit for what Z had paid, but only for what they had received. Owners could not be criticised for having failed to act with due diligence once the balance due under the charter with X came due and had not been received. Owners acted reasonably in discharging into a port authority warehouse. The unfortunate Z was liable for the sums claimed by owners.

Are fall in value claims due to delay and deviation “Cargo Claims” ?

 

 

This issue arose in London Arbitration 4/19 under a charter on NYPE form which incorporated the Inter-Club Agreement 1984 with any subsequent modification or replacement. The parties agreed to extend time for six months under an addendum which contained cl.6 providing that charterers would be fully liable for all cargo claims, howsoever caused, including seaworthiness. During the extended charter period the vessel diverted to Goa and spent 36 days there. Charterers then deducted $295,000 from hire being what they had paid receivers in respect of financial losses due to a fall in the sound arrived value of the cargo due to the deviation to and delay at Goa. Although “cargo claims” could as a matter of language be restricted to claims for physical loss or damage, clause 6 had to be interpreted in the light of the Inter-Club Agreement which was also part of the charter and in particular the definition of “cargo claims” contained in the 1996 Agreement as “claims for loss, damage, shortage…overcarriage of or delay to cargo.” Charterer’s claim therefore related to a “cargo claim” for which they were fully liable under the terms of cl.6.

BIMCO’s 2020 Marine Fuel Sulphur Content Clause for Time Charters and 2020 Fuel Transition Clause.

 

BIMCO have produced two clauses for inclusion in time charterparties to deal with the new Annex VI MARPOL requirements on sulphur content in fuel that come into force on 1 January 2020, and the ban on carriage of non-compliant fuel that comes into force on 1 March 2020.

  1. The Marine Fuel Sulphur Content Clause deals with owners obligation to comply with the sulphur content requirements of MARPOL Annex VI and also the sulphur content requirements of ECAs, and replaces BIMCO’s previous sulphur content clause of 2005.

The clause contains an express requirement for the fuel provided by the time charterers to meet the “specifications and grades” which are commonly set out elsewhere in a time charter party and to ensure compliance by their suppliers with applicable regulation relating to sulphur content. Charterers will also provide an indemnity to owners in relation to non-compliance with MARPOL requirements and the vessel will remain on hire throughout. Owners warrant that the ship will comply with the sulphur content requirements of MARPOL Annex VI which means that the ship is able to consume fuels that meet such requirements. Provided the charterers have supplied compliant fuel, they shall not otherwise be liable for any losses, damages, liabilities, delays, deviations, claims, fines, costs, expenses, actions, proceedings, suits, demands arising out of the owners’ failure to comply with their obligation to comply with the MARPOL requirements.

  1. 2020 Fuel Transition Clause for Time Charter Parties

This deals with the advance planning needed before 1 January 2020. “Compliant Fuel” is defined by reference to the requirements of MARPOL as of 1 January 2020.

“Non-Compliant Fuel” is defined in the context of use or removal of fuel with a sulphur content greater than 0.50%. Such fuel would be MARPOL compliant before 1 January 2020 but the clause is designed to deal with the use or removal of such fuel before that date.

Charterers will need to have supplied the ship with sufficient compliant fuel on board before 1 January 2020 to enable the ship to reach a bunkering port after that date to bunker with compliant fuel. No later than 1 March 2020 there must be no non-compliant fuel carried for use by the vessels. The parties are to cooperate and use reasonable endeavours to ensure no non-compliant fuel is carried by the vessel no later than  1 January 2020. This is to be done preferably by burning, with off-loading of any remaining fuel by 1 March 2020.

Charterers’ obligation is to pay to offload and dispose of any remaining non-compliant fuel they have been unable to burn. Disposal of non-compliant fuel  must be done in accordance with local regulations. Owners’ obligation is to ensure the ship is fit to receive compliant fuel “taking into account the type of Compliant Fuel that will be loaded…”

 

The two clauses are not intended for use by vessel fitted with and operating exhaust gas cleaning systems (i.e. scrubbers).