Exceptions to the Running of Laytime- “Wording” is the Key (Bad Weather?)- London Arbitration 21/19

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In commercial contracts, exclusion clauses are often construed narrowly. In the context of voyage charterparties, this could create significant difficulties for charterers who attempt to rely on an exclusion clause to stop the running of laytime or demurrage.

In the contract in question, it was expressly stipulated that … if … loading… [was] … suspended: [a] due to bad weather (including… storms, high winds…) or [b] for other reasons not attributable to charterers or their shippers/receivers, laytime and demurrage would not count.

At the port of loading, the laytime period started on 25 August. A tropical storm was approaching to the loading port but loading continued and the terminal indicated at 13.00 hours on 26 August that there was no present intention to shut-down due to the fact that the approaching hurricane’s land fall remained uncertain. However, at 15.30 hours on the same day, the terminal stopped loading and the vessel was advised to leave for anchorage. The terminal informed the vessel that they had no alternative but to vacate the vessel as weather conditions would make anchorages scarce and they had to consider the safety of their docks, fleet and terminal. The port remained closed for the next few days and on 29 August the vessel re-berthed and completed loading. The main legal issue was whether laytime stopped when the vessel was ordered off the berth.

It was held that the laytime was not suspended when the vessel left the berth on 26 August as for laytime to be suspended under a clause of this nature it was necessary to show that time was lost due to bad weather. The tribunal observed that it was impossible to calibrate the imminence and nature of bad weather when the vessel sailed away on 26 August but was adamant that the facts did not suggest that loading as suspended due to bad weather. What led tribunal to this conclusion was the fact that the hurricane was still at least 2 days away and there was no immediate danger to shipping. The terminal’s decision to close the facility was based on its desire to ensure the safety of its barges and there was also concern that vessels would find it difficult to find anchorages if they stayed any longer in the terminal.

However, the charterers managed to convince the tribunal that the running of laytime was suspended for “reasons not attributable to charterers or their shippers/receivers”. They got the decision of the tribunal in their favour on this point as they successfully argued that they had no connection with the terminal so the actions of the terminal were not attributable to them. It was stressed by the tribunal that shippers and the terminal were separate legal entities with no agency relationship.

The first part of the decision is in line with the precedent set in a number of authorities most notably Compania Crystal de Vapores v. Herman [1958] 2 QB 196 where the chartered vessel ordered from the berth by harbour master due to threat of bad weather. There, it was held that time lost as a result of measures taken for safety of the ship as a result of bad weather does not count. It is vital that bad weather should potentially prevent the loading/discharge. Therefore, to suspend the running of laytime in a case like this, charterers would need to show that the relevant clause refers not only to “bad weather” but also to “steps taken due to bad weather”. The finding on the second part of the clause was fact based and the decision went in favour of the charterer as the owner failed to show that there was any organic relationship between the charterers/shippers and the terminal. However, it is evident that the wording adopted makes this a very broad exception and could potentially provide relief to charters in most instances.

Demurrage time bar. Do documents and claim have to come together?

 

Following a recent decision on a time charter time bar clause, we now have another time bar decision, this time by Peter MacDonald Eggers QC, in The Amelie Essberger [2019] EWHC 3402 (Comm). The vessel was chartered on amended Asbatankvoy form for a voyage from Rotterdam to Castellon in Spain. At Castellon the receiver refused to accept delivery of part of the cargo carried in one of the vessel’s tanks (tank 5S), because that cargo was contaminated with mono ethylene glycol. After discharge of the remainder of the cargo at Castellon the vessel then shifted to an anchorage off Castellon, remaining there for nine days before sailing to Valencia for discharge of the cargo in tank 5S.

The charter contained a demurrage time bar clause in the rider.

5) TIME BAR

Any claim for demurrage, deadfreight, shifting expenses or other charges or invoices shall be considered waived unless received by the Charterer or Charterer’s broker in writing with all supporting calculations and documents, within sixty (60) 90 days after completion of discharge of the last parcel of Charterer’s cargo (es). Demurrage, if any, must be submitted in a single claim at that time, and the claim must be supported by the following documents:

  1. Vessel and/or terminal time logs; B. Notices of Readiness; C. Pumping Logs; and D. Letters of Protest …

The Charterers applied for summary judgment pursuant to CPR rule 24.2 on the ground that the Owners had no real prospect of succeeding in their claim for demurrage because of the time bar defence. The demurrage claim was submitted in time but did not include two of the specified documents – (a) the Vessel’s pumping log at Rotterdam and (b) a letter of protest issued by the Master of the Vessel dated 30th November 2017, noting that the Charterers’ and the shippers’ surveyor had not supplied the Vessel with sealed samples of the cargo upon completion of loading. Owners had already provided the charterers with these documents before submitting their demurrage claim.

The Judge was inclined to adopt either a construction of the time-bar clause that requires the Owners to submit documents on which they relied in support of their demurrage claim or one that required the submission of documents which taken at face value established the validity of the demurrage claim. The clause required the submission of “all” such supporting documents. Furthermore, the four listed documents had to be supplied whether or not the listed documents might be said to be “supporting documents”  as this was clear from the mandatory language of the second sentence (“must be supported”).

However, there was no express requirement that the supporting documents must be provided at one time and at the same time as the demurrage claim. The word “Demurrage” at the beginning of the second sentence was to be construed as a reference to the demurrage claimed and not as a reference to the demurrage claim and supporting documents The requirement that the demurrage claim “with” all supporting documentation must be received by the Charterers within 90 days after the completion of discharge meant no more than that the claim and supporting documents must be received before the expiry of the 90 day period. The reference to a “single claim” means that only one claim may be submitted. In other words, separate demurrage claims, for example at loadport or at each discharge port, were not permitted.  The commercial purpose of Clause 5 did not require the simultaneous submission of the demurrage claim and the supporting documents, but merely the submission of the claim and the supporting documents before the end of the 90 day period.

Accordingly, the claim was not time barred. Had supporting documents not been supplied to charterers within 90 days, the entire demurrage claim would have been barred and not just that part to which those documents related. The clause did not provide that only a part of the demurrage claim will be waived if anything less than “all supporting … documents” are provided and contemplated only a “single claim”. However, the Judge could see the sense of “an approach that if there are two parts of the demurrage claim which are unrelated and if a supporting document is relevant for one part of the demurrage claim, but not the other, there is no pressing reason why the unaffected part of the claim should be time-barred [62].”

 

 

New year, new sulphur cap.

The Sulphur cap is here. If you’re a shipowner still running on High Sulphur Fuel Oil (HSFO) you need to trust to your Fuel Oil Non-Availability Report (FONAR), unless you are fitted with scrubbers. If you’re running on Low Sulphur Fuel Oil (LSFO) now you still need to get any HSFO off your vessel by 1 March 2020 due to the Carriage Ban. Apart from increasing the cost of running a vessel, the IMO’s two regulation are likely to see various additional costs being incurred by shipowners: costs of disposal of remaining onboard HSFO including costs of tank and line cleaning to avoid residual HSFO mingling with LSFO and pushing the Sulphur level over 0.5%; time lost in performing such operations; effect of LSFO on owners’ performance warranties under time charters; fines and detention due to inability to get remaining HSFO off the vessel by 1.3.2020 (there is no equivalent of a FONAR to cover this eventuality). A report from S&P Global Platts last week reveals that a lot of debunkering is going to have take place between now and 1.3.2020. https://www.spglobal.com/platts/en/market-insights/latest-news/shipping/122719-shipowners-rush-to-de-bunker-hsfo-as-imo-2020-looms

Added to that there is the greater risk of engine damage due to use of LSFO. Today Reuters carries a report that testing companies examining newer, low-sulphur marine blends acquired in Antwerp, Belgium, Houston and Singapore have found sediment at levels that could damage the engines of ocean-going vessels. Depressing news with which to welcome in the new year. https://uk.reuters.com/article/uk-shipping-imo-fueloil/tests-raise-alarms-over-fuel-blends-coming-for-ocean-going-vessels-idUKKBN1YZ1ED

It is likely that the new decade will see a spate of claims arising out of the sulphur cap and the carriage ban, particularly under time charters, with renewed interest by owners in the indemnity as a means of clawing back costs from time charterers.

“All supporting documents” in time charter time bar clause means what it says.

 

Mur Shipping BV v Louis Dreyfus Company Suisse SA [2019] EWHC 3240 (The Tiger Shanghai) concerned the construction of the following time bar in additional clause 119 of a time charter on NYPE form.

“[Owners] shall be discharged and released from all liability in respect of any claim or claims which [Charterers] may have under Charter Party and such claims shall be totally extinguished unless such claims have been notified in detail to [Owners] in writing accompanied by all available supporting documents (whether relating to liability or quantum or both) and arbitrator appointed within 12 months from completion of charter”.”

The charter was terminated due to a problem with the feeder holes in the hatch covers which were positioned so that the loading crane at the loading port, Carbenaros, was not quite long enough to reach those on the starboard side of the Vessels. To solve this problem the Charterers wanted to cut new cement feeder holes into the hatch covers. Disponent owners refused permission for the work to be done. Shortly after the vessel arrived at the load port, a survey was conducted at charterer’s request by CSS on the cutting of new cement holes in the hatch covers. The following day disponent owners stated that their refusal was final and non-negotiable and  charterers terminated the charter.

The express basis for that termination was that the cutting of additional feeder holes fell within the ambit of Clause 46 which provided “The Charterers, subject to the Owners’ and Master’s approval which is not to be unreasonably withheld, shall be at liberty to fit/weld any additional equipment and fittings for loading … cargo. Such work shall be done at the Charterer’s expense and time, and the Charterers shall remove such equipment and fittings at their expense and time prior to redelivery, if so required by the Owners …” Charterers argued that Owners’ refusal for permission to cut such holes had been unreasonably withheld, so that Owners were in repudiatory breach and Charterers were entitled to terminate.

Charterers appointed their arbitrator within 12 months of the termination of the charter and claimed in respect of “all disputes connected with the Charterparty” which was stated to include claims for:

  1. i) The return of hire and value of delivery bunkers paid in advance,
  2. ii) costs incurred on the Owners’ behalf;

iii) damages in respect of claim from the sub Charters for the termination of the Charter; and

  1. iv) the Owners’ failure to obey instructions/ breach of Clause 46 of the Charter.

Nearly a year later charterers served claim submissions to which was attached the CSS Report dealing with the feasibility of drilling cement holes in the hatch covers, and relied on it to allege that disponent owners had unreasonably withheld consent to the works

The submission of the CSS report led disponent owners to take the timebar point, arguing that it went to the heart of the issue of liability and that had it been presented it was likely that the parties could have resolved the dispute without the need for arbitration. Charterers argued that the CSS Report was a document compiled for the purposes of the arbitration in the light of the dispute and that expert reports and other arbitration documents fell outside the category of “supporting documents” that are to be provided and Clause 119

The majority of the Tribunal found that this document was a “supporting document”, that it was not privileged; and that the claim was consequently time barred. On appeal two issues arose.

i) Is a document which would otherwise be a supporting document one which should not be counted as such if it was arguably privileged?

This point concerned arguably privileged documents as opposed to actually privileged documents. This was because: (i) Charterers accepted that the document was not privileged and (ii) Owners are prepared to proceed on the assumption that the clause does not require provision of a privileged document. Charterers submitted that if a document is reasonably arguable to be privileged, then its disclosure is not required by an “all supporting documents” time bar clause and it does not matter even if, in the final analysis, it is held not to be privileged. Cockerill J rejected this submission as the argument was “profoundly uncommercial”. Such an approach would sit very ill with the requirements of certainty which underpin clauses of this sort

ii) Is a document which is not at least at the time of commencement of the arbitration of relevance to either the identification of or support for a relevant claim as referred to arbitration, a “supporting document”.

Cockerill J held that the CSS report was a supporting document and it could not be the case that simply because a document emerges later it cannot give rise to a time bar argument. An “all documents” clause is naturally geared to the provision of more than the bare essentials; and even in the simpler cases it may be the case that the party receiving the documents may not know the full extent of the documentation available.

The question of “supporting documents” had to look to the claim being advanced. If for some reason the claim somehow changed in essence at a later stage, for example, if a timing point not previously apprehended was made, or a correction needed to be made, this should not mean that documents later relied on became retrospectively relevant at the point of the time bar. However, here, there was no change in the case or correction. Charterers’ claim was predicated on the refusal by disponent owners having been wrongful, because unreasonable. Without that, the termination was not valid. The material in the CSS Report went to this question of reasonableness.

If the reasonableness of the refusal was in play at the time when the claim was made, this document was relevant and supportive. It was significant that the clause combined both specific reference to “all” and specific reference to “liability and quantum”, while not confining itself to any particular sort of claim. The parties intended the clause to cover all disputes under the Charterparty, including inferentially claims arising out of wrongful termination. While the case had not refined itself so far as it had done at the time of the hearing, the claim (at least as to quantum) in fact depended on the date of termination and the date of termination depended on being entitled to terminate, which itself depended on unreasonable refusal on the part of the Owners. Therefore, the report was on its face within the ambit of the claim that charterers advanced and supportive of it.

The appeal against the Award was therefore dismissed.

BIMCO withdrawal clause. No withdrawal for underpayment of previous hire instalment.  

 

Quiana Navigation SA v Pacific Gulf Shipping (Singapore) PTE Ltd “Caravos Liberty” [2019] EWHC 3171 (Comm) involved  a time charter under which the charterers made an underpayment of the fourth instalment of hire but owners did not exercise their right to withdraw under the BIMCO withdrawal clause incorporated into the time charter. However, the shortfall remained and at the time of the sixth instalment, which was paid in full, the owners decided to withdraw the vessel on account of the remaining shortfall in hire under the fourth instalment. The key words in the BIMCO Clause are “If the hire is not received by the Owners by midnight on the due date, the Owners may immediately following such non-payment suspend the performance of any or all of their obligations under this Charter Party (and if they so suspend, inform the Charterers accordingly) until such time as the payment due is received by the Owners.” In the context of the right to withdraw, what constitutes ‘the hire’? The tribunal found that it referred to the hire for that particular instalment and did not encompass previous underpayments. Cockerill J upheld that decision. The question “What is the hire?” question could only sensibly be answered and one single date produced if the charterers’ approach were preferred.  Cockerill J stated [42]:

“[i]t is artificial to ignore the temporal dimension inherent in the reference to a “due date” in (a); and equally artificial to say that the sum outstanding from the fourth instalment was due “on” 10 August. Owners’ argument also, either (as Charterers would put it) impermissibly elides the very real distinction between the continuing entitlement to recover hire as a debt and on the other the independent contractual entitlement to withdraw or at least attempts to draw focus from the existence of other remedies.”

Accordingly, owners’ withdrawal was unjustified and amounted to a repudiation of the charter.

Demurrage due to delays in discharge due to damaged condition of cargo.

Alianca Navegacao E Logistica LTDA v Ameropa SA (The Santa Isabella) [2019] EWHC 3152 (Comm)

A vessel carried a cargo of white corn/maize from Mexico to South African Ports under a Synacomex form charter incorporating the Hague Rules.  On arrival the cargo was found to have suffered extensive damage and that led to a delay in discharge resulting in demurrage becoming due. Voyage charterers claimed that they were not liable for demurrage due to delays resulting from fault of the disponent owners. They alleged that the damage to the Cargo, and the delays at Durban and Richards Bay, were caused by (a) the Vessel taking the Cape Horn route rather than the Panama Canal route from Topolobampo to Durban, (b) failure by the Vessel to ventilate the Cargo in accordance with a sound system, (c) failure by the Vessel to disinfest areas of the Vessel outside of the cargo holds following loading at Topolobampo and/or (d) the Vessel proceeding to Durban at less than her warranted speed.

Andrew Henshaw QC (sitting as a Judge of the High Court) found that the owners’ obligation was to proceed on the usual and reasonable route to the discharge port and that where there were more than one such routes they were entitled to choose one rather than the other and that choice did not require owners to calculate the effect of taking that route on the cargo being carried. Both the Cape Horn route and the Panama Canal routes were usual routes to Durban and the owners committed no deviation, nor breach of art. III(2) of the Hague Rules, in taking the former. In determining which route to take the judge stated[91]:

“cargo considerations may be relevant in the elementary sense that a much longer voyage is likely to be detrimental to a perishable cargo. However, the case law does not in my view require shipowners to undertake the far more refined analysis urged by Ameropa, which would involve (in the present case) considering in detail how predictable climactic conditions on the Cape Horn and Panama Canal routes would impact on the need to ventilate the cargo and the vessel’s ability to do so.

However, the owners were found to have been in breach of art III(2) of the Hague Rules in failing properly to ventilate the cargo on the voyage and this had resulted in the delays experienced at Durban and Richards Bay. It was common ground that as owners were not bailees the legal burden of proof in showing breach of art III(2) fell on charterers. Charterers argued that the arrival of the cargo in a damaged condition  gave rise to an inference of breach. The judge rejected this, stating [52]:

“As a matter of common sense, the arrival in a seriously damaged condition of a cargo loaded in apparent good order and condition calls for an explanation, and a want of care on the part of the shipowner is a possible inference. In the present case, Alianca’s explanation is that the length and/or route of the Voyage made damage inevitable. On that basis, I am inclined to the view that it is for Ameropa to show, on the balance of probabilities, that the damage suffered in fact arose from a breach of contract by Alianca.”

Ameropa succeeded in showing that the damage did arise from a breach of contract by disponent owners.

The owners were also in breach of their obligation to proceed at the warranted speed but it was not possible to identify any particular element of damage or loss caused by that breach.

Different treatment of NOR for cancellation and for laytime purposes. Fine, if that’s what the parties agree.

 

The “strange result” condemned by Roskill J. in The Madeleine [1967] 2 Lloyd’s Rep. 224, namely, that a notice of readiness may be valid for one purpose (avoiding the option to cancel) but invalid for another purpose (the commencement of laytime), can arise if the parties choose to agree upon different regimes. This is what happened in Bilgent Shipping PTE Ltd.and ADM International SARL v. Oldendorff Carriers (The Alpha Harmony) [2019] EWHC 2522 (Comm) – a tale of a chain of two voyage charters, with the same provisions for tender of NOR to commence laytime but with different cancellation clauses. The laycan period under both initially ended on 31 May 2015 but was narrowed to end on 10 May 2015. The vessel tendered notice of readiness by email at 0704 on 10 May 2015 which was a Sunday. The email stated that the vessel had arrived at 0250 – outside normal working hours. Both charters provided for notice of readiness to be delivered between 0800 and 1700 on a weekday and between 0800 and 1100 on a Saturday, with laytime to commence at 0800 on the next working day after a valid notice of readiness had been tendered.  No express provision was made for delivery of a notice of readiness on a Sunday. However, the head charter contained an additional clause dealing with service of NOR that made no reference to service within working hours.

The vessel tendered notice of readiness by email at 0704 on  Sunday10 May 2015. The email stated that the vessel had arrived at 0250. Sub charterers cancelled at 2047 on Sunday 10 May 2015 and head charters followed suit at 0555 on Monday 11 May 2015. The question was whether the cancellations were lawful in circumstances where, although notice of readiness had been tendered before the relevant time on the cancelling date, it had not been tendered during the permitted hours. The arbitration panel in both arbitrations held that the cancellations were not valid.

Teare J allowed the appeal under the sub charter, but dismissed that under the head charter.

Under the sub charter cl16, the cancellation clause  provided: “Should the Notice of Readiness at loading port not be delivered as per Clause 14 by twelve o’clock noon on the 31st day of May 2015, the Charterers or their Agents shall at said hour and at any time thereafter, but not later than the presentation of Notice of Readiness together with the required certificates at said office, have the option of cancelling this Charter Party…” Teare J held that  the words “as per clause 14” meant that the Notice of Readiness must be in accordance with the requirements of clause 14 which required NOR to be served within stated office hours.

By contrast the cancellation clause in the head charter cl.4 provided as follows:

“… Should the vessel’s notice of readiness not be tendered and accepted as per Clause 17 before 2359 on the 30th/31st day of April/May of 2015, the Charterers or their Agents shall at any time thereafter, but not later than one hour after the notice of readiness is tendered, have the option of cancelling this Charterparty. … ”

There were two charter provisions relating to NOR. Clause 17 provided:

“(a) Notice of readiness and Commencement of Laytime See also Clause 70

Notice of vessel’s readiness to load and/or discharge at the first or sole loading and/or discharging port, shall be delivered in writing or by cable/telex/email to Charterers/Receivers (or their Agents). See also Clause 70. Such notice of readiness shall be delivered when vessel is in the loading or discharging port and is in all respects ready to load/discharge in case loading/discharging berth is occupied vessel to be allowed to tender Notice of readiness whether in port or not, whether in berth or not, whether customs cleared to not, whether in free pratique or not.”

Cl.70 contained provisions regarding the start of laytime and the requirement as to service of NOR within stated.

For cancellation purposes, it was cl.17 that was the relevant clause dealing with NOR and under that clause there was no time restriction on the service of NOR. The words in cl.17 “See also Clause 70”, were not sufficient to incorporate in clause 17, and hence in clause 4, the office hours requirement for the delivery of a notice of readiness. The combined effect of clauses 4 and 17 as amended showed, for the purposes of the cancelling clause, that there was no requirement that the notice of readiness be delivered within office hours. Accordingly, for cancellation purposes NOR had been served before the cancelling deadline of 2359 on 10 May 2015 and the head charterers had no option to cancel the charter.

Anti-suit injunction against owners’ third party proceedings against charterers and sub-charterers in Singapore.

 

The Chang Hang Guang Rong [2019] EWHC 2284 (Comm)  is an interesting, recent anti-suit injunction decision by Andrew Burrows QC, soon to become a Judge of the Supreme Court. Cargo claims arising out of the issue of switch bills were brought against the vessel’s owners in the Singapore High Court. Owners sought to pass these on to Clearlake, the charterer, and to Gunvor the sub charterers, through third party proceedings analogous to CPR Part 20 procedure in England. Both parties obtained anti-suit injunctions (ASI) from the High Court in London on the basis of an exclusive jurisdiction clause in the charter with Clearlake and in the bill of lading issued to Gunvor as shipper, although Gunvor denied being a party thereto.

Owners responded by amending their claims in the Singapore High Court, deleting all their contractual claims against Gunvor and relying on tort claims for misrepresentation, and deleting all their contractual claims against Clearlake, save for claims under a Letter of Indemnity, which contained a non-exclusive London High Court jurisdiction clause. Andrew Burrows QC held that there were two grounds for granting an ASI. First the foreign proceedings constituted a breach of the jurisdiction clause in the contract between the parties. An ASI would be granted unless there were strong reasons not to. Second, the foreign proceedings were otherwise vexatious and oppressive. The court would have to be satisfied that England was clearly the more appropriate forum for trial of the action. The ASI in respect of the proceedings against Clearlake fell within the first category and was maintained. Although the LOI provided for London arbitration for small claims this inconsistency was of no consequence as the claims here were not small.

The injunction was also maintained as regards Owners’ claims against Gunvor, now reframed solely as tort claims, which fell within the second category. The bringing of such claims was vexatious and oppressive, in that it circumvented the normal way of passing claims down a charter chain by leap-frogging Clearlake. Owners had manipulated their third party claims to avoid the exclusive jurisdiction clause in the charter. Clearlake, not Gunvor, dealt directly with the owners and the alleged misrepresentation was directly provided to them by Clearlake. There was a very good reason, so as to avoid forum-fragmentation on the same issues, to have all third party proceedings heard in the same jurisdiction (ie England). There was no obvious prejudice to owners in having all the third party proceedings heard in England rather than Singapore. It was not necessary to decide a further issue of whether Clearlake could restrain the tortious claims against Gunvor

Watch your email signature

The definition of what counts as a “signature” isn’t of enormous importance to shipping lawyers most of the time: they don’t tend to deal in real estate or declare themselves trustees of land. But in one case it does matter: guarantees, whether of charter obligations, settlements or any other obligation need to be signed under s.4 of the Statute of Frauds 1677. Imagine you send an email on a client’s instructions guaranteeing a debt. If you type in your name like so — “Best wishes, Barry” — no problem. But what if you just type “Agreed” under the terms of the guarantee, and your email program appends at the foot of the email: “From Barry X at ABC Solicitors LLP. This email is confidential etc etc …”? Signed or not? The Chancery Division last week said Yes in Neocleous v Rees [2019] EWHC 2462 (Ch). A settlement of a real estate dispute was held enforceable in these circumstances under the LP(MP) Act 1989; it seems pretty clear that s.4 cases will be decided the same way. Moral: good news for those wishing to uphold guarantees. And if you are thinking of raising the pettifogger’s defence under s.4, look carefully at your email settings. You have been warned.