Category: Voyage Charter

BIMCO. Three new Emissions Transfer Scheme Clauses for Voyage Charters.

To complement its 2022 Emissions Trading Scheme Allowances Clause for time charterers, on 8 December 2023, BIMCO released three ETS clauses for voyage charters.

As with the 2022 time charter clause, the clauses seek to place all the costs of incurring liability for emissions allowances onto the voyage charterer.  This can be done as follows: 

– by including them in the freight rate, under the ETS – Emission Scheme Freight Clause for Voyage Charter Parties 2023, or

– by requiring payment of a surcharge for payment of emission allowances under the voyage with owners remaining responsible for surrendering the appropriate number of emissions allowances under the ETS – Emission Scheme Surcharge Clause for Voyage Charter Parties 2023, or

– by the voyage charterer transferring emission allowances to the owners for the voyage and the owners remaining contractually responsible for surrendering the appropriate number of emission allowances in accordance with the applicable Emission Scheme. ETS – Emission Scheme Transfer of Allowances Clause for Voyage Charter Parties 2023.

Of course, charterers may not be willing to accept a transfer of emissions allowance costs in their fixtures. In the case of a time charter, account needs to be taken of the ‘pass-through’ in Directive 2023/959, amending the ETS Directive, and Regulation 2023/957.

Article 3gc of the 2023 ETS Directive, requires Member States to
“take the necessary measures to ensure that when the ultimate responsibility for the purchase of the fuel and/or the operation of the ship is assumed by a different entity than the shipping company pursuant to a contractual arrangement, the shipping company is entitled to reimbursement from that entity for the costs arising from the surrender of allowances.”.

Unless the time charter incorporates a clause such as  BIMCO’s  Emission Trading Scheme Allowances for Time Charterparties Clause 2022 which places all emissions costs on the time charterer, time charterers planning to employ the vessel in the EU may want to include a  form of “circular indemnity” clause in their fixture. The owner would warrant that the ‘shipping company’ under Directive 2023/959 will not make a claim against the time charterer under any legislation of a Member State providing for reimbursement of costs arising from the surrender of allowances, pursuant to Article 3gc of Directive 2023/959. Further, in the event of any judgment in favour of the shipping company that is made against the time charterer in respect of the costs arising from the surrender of emissions allowances by the courts of any EU Member State, the shipowner will indemnify the time charterer in respect of all resulting costs of such a judgment.

Port Nominations Final and Irrevocable And What About the Role of the BIMCO Calendar in Laytime Calculations?

London Arbitration 1/24

The vessel was chartered on an amended Norgrain form for carriage of 60,000mt (10% more or less in owners’ option) HSS (heavy grains, soya beans, and sorghums) in bulk from a range of ports in Brazil to 1 2/ ports in China. After loading the cargo in accordance with the charterparty terms in Paranagua the chartered vessel sailed on 6 June. 

On 20 June, the receivers nominated Zhoushan (where the vessel was to lighten) and Taixing (to discharge the balance of the cargo) as discharge ports. On 26 June, owners submitted an invoice to the charterers for US$ 131, 154.90 calculating the freight on the rates agreed in the charterparty for Zhoushan and Taixing. On 3 July, the receivers changed the discharge ports and declared Tianjin instead of Zhoushan and Taixing.  

The owners insisted that the freight had to be paid in accordance with the original nomination. The charterers argued that they were entitled to nominate Tianjin and pay the freight according to the rate specified in the charterparty for that port (which was lower than the freight allocated for ports originally nominated). The owners agreed to proceed to Tianjin following mutual consent to set up an escrow account held by the charterers’ lawyers in Hong Kong into which the charterers paid the disputed freight on 19 July.           

The charterers raised two arguments:

  1. Given that the charterparty required the nomination of discharge port(s) before passing Singapore and the bills of lading issued identified discharge ports merely as “China Port(s)”, it was reasonable and foreseeable to expect changes prior to the time and point at which the final port(s) were to be declared; and
  2. If they were wrong on (a), the owners in any event agreed to vary the charterparty to permit discharge at Tianjin and therefore had waived the charterers’ breach, and were, accordingly, estopped from claiming the freight held in escrow.       

The tribunal rejected both of the arguments of the charterer. On (a) the tribunal referred to the well-known judgment of Judge Diamond QC in The Jasmine B [1992] 2 Lloyd’s Rep 39, where he said:

In the absence of any special provisions in the charterparty, the effect of the nomination of the loading or discharging port by the charterer is that the charterparty must thereafter be treated as if the nominated port had originally been written into the charterparty and the charterer has neither the right nor the obligation to change that nomination.

On that premise, the crux of the matter was whether there was any special provision in the charter conferring any right on the parties to change a nomination validly made. The tribunal was of the view that charter terms that required characters to declare discharge port(s) as soon as they know of them and in any event 10 days before passing Singapore, were standard nomination clauses and they were not in any way “special” in the sense contemplated by Judge Diamond QC. 

The alternative argument of the charterers (b) also failed as it was clear from the exchanges between the parties that owners at all times expressly insisted that the charterers had no right to nominate Tainjing and they would proceed there under protest, reserving all rights to receive freight on the basis that Zhoushan and Taixing were discharging ports. The escrow agreement eventually concluded was a clear indication that owners had no intention to waive their rights to freight being calculated on the basis that discharge ports were Zhoushan and Taixing.

There was also a dispute as to the amount that charterers were entitled to as despatch at Paranagua. On the statement of facts, 31 May was identified as a public holiday (Corpus Christi Day). The owners submitted that 31 May was not a public holiday in Brazil as it did not appear as such in the BIMCO Calendar. The charterers responded by providing evidence from the website of the Brazilian Embassy in London which described Corpus Christi as one of the “public holidays observed throughout Brazil”. The tribunal accepted this evidence put forward by the charterers and held that it made no difference that the holiday was not listed in the BIMCO Calendar. 

The decision illustrates once again that port nominations are normally final and irrevocable and once a nomination is validly made, all consequences stipulated in the charterparty would follow including the calculation of freight based on the original nomination. It makes no difference that the voyage for which additional freight was claimed was never performed. This would not give rise to any unjust enrichment of the owners at the expense of the charterers. It is simply the result of treating the contract existing on the premise of the original nomination. 

The decision also confirms that the BIMCO Holiday calendar is a very useful tool that can assist parties in fixing a charterparty, but it is simply guidance and in the absence of the charterparty declaring the dates in the calendar as final and conclusive for laytime calculations, the information provided in the calendar can always be challenged. 

Owners’ GA claim against cargo not ousted by incorporation into bills of lading of the charterparty and its Gulf of Aden clause

The case of The Polar (Herculito Maritime Ltd and others v Gunvor International BV and others) [2024] UKSC 2,involved a general average claim by shipowners against the cargo owners under the bills of lading, which incorporated the terms of the charter, arising out of the payment of ransom following the detention of the vessel by pirates in the Gulf of Aden. Clause 39 of the charter was a Gulf of Aden clause and provided that charterers were to make a contribution to the cost of additional war risks and Kidnap & Ransom (K&R) insurance up to a maximum of US $40,000. Cargo interests disputed the shipowner’s claim in general average against them on the basis that on the true construction of the bills of lading and/or by implication, agree to look solely to its insurance cover under the war risks and/or K&R insurance in the event of a loss covered by that insurance.

Teare J found that that the part of the Gulf of Aden clause which referred to payment of additional premium, although incorporated into the bills of lading, did not impose any liability on the bill of lading holders and found that the parties had agreed that the shipowner would look to the insurers for indemnification in respect of such losses and not to the charterer. Accordingly, the shipowner was precluded by that agreement from seeking to recover the loss by way of a contribution in general average from the charterer. However, there was no proper basis for concluding that, in the event of general average arising from payment of a ransom to pirates, the shipowner had agreed not to look to the cargo owners for a contribution. It was not appropriate to substitute the “bills of lading holders” for “charterers” so as to impose a liability on them to pay the premium.

The Court of Appeal appeal upheld the judgment, finding that the contractual obligation of charterers to contribute to the costs of the war risk and kidnap and ransom insurances did not amount to a complete code excluding charterer’s liability in general average. Neither the bills nor the charterparty suggested that the bill of lading holders were intended to be liable for the premium, although the incorporation of these terms did serve a useful purpose as the basis on which the shipowner had agreed in the bill of lading contract that the voyage was to be via Suez and the Gulf of Aden, without which there would be uncertainty as to the vessel’s route.

Today the Supreme Court has dismissed the cargo interests’ appeal against the finding that they remain liable for general average contributions arising out of the piracy and ransom of the vessel. The appeal gave rise to four issues.

Issue (1) – Whether on the proper interpretation of the charter, and in particular the war risk clauses and the additional Gulf of Aden clause and/or by implication the shipowner was precluded from claiming against the charterer in respect of losses arising out of risks for which additional insurance had been obtained pursuant to those clauses.

The Supreme Court held that this was not the case. Most cases in which there has been held to be an insurance code or fund have involved joint names’ insurance. Although the agreement to joint names insurance was clearly a powerful factor in favour of there being an insurance code or fund, in The Ocean Victory [2017] UKSC 35 it was not treated as being decisive. Various other factors were taken into account and relied upon such as the fact that charterers were to effect all insured repairs and pay for them, and then be reimbursed by insurers; time used for repairs was to remain on hire and form part of the charter period, and, if the vessel was to become a total loss, the insurance monies were to be split between the mortgagee, owners, and charterers, in accordance with their interests. Further, clause 13 of the Barecon 89 form, which allowed for owners’ insurances to be carried on if the bareboat charter was for a short period, expressly excluded rights of recovery or subrogation for loss or damage covered by the insurance.

The Evia (No 2) [1983] 1 AC 736 [HL] remains the only time charter case in which there has in effect been held to be an insurance code or fund. In all other reported cases in which such an argument has been raised it has been rejected – see The Helen Miller, [1980] 2 Lloyd’s Rep 95 (Mustill J); The Concordia Fjord, [1984] 1 Lloyd’s Rep 385 (Bingham J) and) [1993] 1 Lloyd’s Rep 508 (Gatehouse J). These cases make it very clear that the mere fact that charterers pay an extra insurance premium is not enough to create an insurance code or fund. The present case was distinguishable from The Evia (no 2) in that cl.39 contained no “absolute veto” comparable to that of clause 21 of the Baltime form. Clause 39 had to be construed in its contractual context and against the background of the circumstances existing at the date of the charter  In the present case the shipowner, in the context of well-known piracy risks, had agreed to pass through the Gulf of Aden on the terms set out in the Gulf of Aden clause. It would be inconsistent with that express agreement to construe clause 39 in such a way as to permit the shipowner to refuse to transit the Gulf of Aden on account of such piracy risks.

Issue (2) – whether all material parts of those clauses were incorporated into the bills of lading

The answer was ‘yes’. There was a prima facie case that cl.39 of the charter and the liberties given to the shipowner thereunder were incorporated. These provide an important protection to the shipowner in relation to voyage war risks and were clearly relevant to carriage. That being the case, it was equally important that charter provisions which limit or qualify the wide liberties given under clause 39 were also incorporated. The intention must surely be to incorporate the entirety of the relevant contractual regime set out in the charter rather than to do so partially or incompletely. The Gulf of Aden clause and the War Risk clause both bore on the liberties conferred under clause 39 and meant that they could not be relied upon in relation to the known piracy risk of transiting the Gulf of Aden. The charterer’s obligation to pay insurance premia was an important element of the agreement of the shipowner to accept that risk. To give effect in the bills of lading to the agreed allocation of risk in relation, in particular, to transiting the Gulf of Aden, the entirety of the Gulf of Aden clause and the War Risk clause should be regarded as incorporated in the bills of lading so as to be read alongside clause 39, as they would be in the charter.

Issue (3) – Whether on the proper interpretation of those clauses in the bill of lading and/or by implication the shipowner was similarly precluded from claiming for such losses against the bill of lading holders

This issue proceeded on the assumption that the charter contained an insurance code or fund, contrary to what was decided on issue one. If there were no manipulation of the wording of the incorporated clauses, then the obligation to pay the insurance premia rested on the charterer alone. There was no such obligation on the bill of lading holder. If so, then an essential reason for holding there was an insurance code or fund was inapplicable. The obligation was that of the charterer who had its own interest in ensuring proper performance of the charter. Moreover, there was no insurance code or fund case which extends any understanding to that effect beyond the parties to the relevant contract. The bargain made is that the parties will not look to each other to make good an insured loss. That is a bilateral agreement.

Issue (4) – If necessary, whether the wording of those clauses should be manipulated so as to substitute the words “the Charterers” with “the holders of the bill of lading” in the parts of those clauses allocating responsibility for the payment of the additional insurance premia.

Manipulation of charter clauses incorporated by general words of incorporation may be permissible if it is necessary to do so in order to make the wording fit the bill of lading. There was no such need in this case. The Gulf of Aden and the War Risk clause made perfectly good sense in the context of the bills of lading as a record of the terms upon which the shipowner had agreed to transit the Gulf of Aden. They were both relevant and sensible in the bill of lading context in the terms set out in the charter, referring as they did to the charterer rather than the holders of the bill of lading. There was therefore no justification for manipulation.

Further, as held by both the judge and the Court of Appeal, there were positive reasons why there should be no manipulation. The Miramar [1984] AC 676, involving a demurrage clause, referred to the implausibility of bill of lading holders accepting a potential liability to pay unknown and unpredictable amounts. Similar considerations applied here.  If the holders of the bills of lading are liable to pay the insurance premia the basis of that liability vis a vis the shipowner and each other would be wholly unclear, particularly as the bill of lading holders might be holders for different parcels of cargo for different lengths of time and only for a period if the cargo were traded afloat.

Accordingly, the Supreme Court dismissed the appeal of the bill of lading holders, finding that [99]:

“(1) on the proper interpretation of the voyage charter, and in particular the war risk clauses and the additional Gulf of Aden clause, the shipowner was not precluded from claiming against the charterer in respect of losses arising out of risks for which additional insurance had been obtained pursuant to those clauses;

(2) all material parts of those clauses were incorporated into the bills of lading;

(3) on the proper interpretation of those clauses in the bill of lading the shipowner was not precluded from claiming for such losses against the bill of lading holders;

(4) the wording of those clauses should not be manipulated so as to substitute the words “the Charterers” with “the holders of the bill of lading” in the parts of those clauses allocating responsibility for the payment of the additional insurance premia.”

BIMCO releases CII Clause for Voyage Charters

On 13 October 2023 BIMCO released its CII clause for voyage charters. Considerably shorter and simpler that its CII clause for time charters, the clause allows owners/master with a view to reducing the vessel’s carbon intensity, to adjust course and reduce speed or RPM provided that vessels’s speed in good weather conditions (to be defined by parties) shall not fall below a knot rate (to be defined by the parties) during any voyages under the charter.

When doing so this will constitute compliance with the owners’ obligation to proceed on the usual/customary route with utmost/due despatch.

The charterers are to ensure that the terms of the transport documents issued by or on behalf of owners evidencing contracts of carriage provide that Owners’ exercise of their rights under the clause does not  constitute a breach of that contract. Charterers are to indemnify owners in respect of any liabilities under such contracts of carriage that result in more onerous liabilities for Owners than those assumed under the clause.

The clause is without prejudice to any express or implied rights under the charter entitling Owners to proceeds at speeds below the minimum speed stated in the clause.

Within a specified period of days ( if none, the default is seven days) of completion of final discharge of the cargo under the charter, Owners shall make available to the Charterers: (i) details of the types and quantities of fuels consumed under the Charter Party; and (ii) distance travelled with respect to both the ballast and laden voyages.

The clause does not affect the agreed laycan under the voyage charter.

The clause will also benefit Owners trading into and out and within the EU  in reducing carbon emissions and so reduce the cost to the ‘shipping company’ of acquiring and surrendering allowances in respect of those allowances.

Interruption of demurrage due to ‘fault’ of shipowner?

London Arbitration 6/23 involved potential interruption to demurrage due to what charterers claimed was the fault of the shipowner. The vessel was chartered for a voyage from Turkey to Futuna Island in the French Pacific Ocean carrying  part cargo of steel pipes. Other cargo was loaded and discharged at additional ports as part of the same voyage but under different fixture arrangements. Five months after loading in Turkey the vessel reached Port Louis in Mauritius. Shortly after sailing, the main engine had to be shut down due to excessive exhaust temperatures and the activation of the oil mist detector alarm. The high exhaust temperatures caused defects to the exhaust valve seat surfaces, which were beyond the capability of the crew to repair. The vessel was towed to Reunion for repair. These took four months, which was longer than expected. The Covid-19 pandemic, which affected the availability of spares and labour at the time, was offered as an explanation.

In the meantime new regulations had been introduced at Futuna under which the vessel’s dimensions would not allow it to meet the new requirements. The receivers were forced to agree that the vessel would discharge at an alternative port in Fiji. However, the short space of time between the decision to change discharge ports and the vessel’s arrival at the actual discharge port presented problems to the receivers and contributed to discharge not starting more promptly. Charterers raised a defence to owners’ demurrage claim saying that the delay in discharge that this problem could be traced back to the engine failure and was exacerbated by a failure by the owners to keep them and the receivers more closely advised about progress of the repairs.

The arbitrator found that the fault alleged by the charterers could not have been the engine condition prior to loading in Turkey as there were no engine problems for a further five months into the voyage. The repairs took an unusually long time but took place in the middle of the pandemic which affected availability of spares and personnel. By the time the discharge port had been changed to Lautoka, it seemed that all the vessel’s faults had ceased to exist and the owners were able to tender a valid notice of readiness. Discharge was able to commence reasonably shortly thereafter and the charterers accepted that it did until laytime ran out. It followed that if laytime could run, there was no reason why demurrage should not commence once it expired and consequential loss of time was not recoverable under the doctrine of “fault”. Owners were therefore able to recover their demurrage in full.

Voyage charter. Liability of disponent owner for delays caused by arrests of bunkers on board pursuant to arbitrations unconnected with the vessel.

Rhine Shipping DMCC v Vitol SA [2023] EWHC 1265 (Comm) involved a counterclaim by Vitol under a voyage charter with Rhine for breach of the charter by way of delay to the Vessel in proceeding to one of the load ports resulting from an arrest by third parties of the bunkers and stores on board at one of the loading ports, in Ghana. The vessel was on bareboat charter to Al-Iraquia who had time chartered it to Rhine with whom it was connected. Delay  resulted from the detention of the vessel for some days as security which was alleged to have led to delays in loading the vessel at its next load port in Congo with the result that Vital had to pay an increased price of US$3,692,106.72 to the seller of the cargo loaded there. The arrest in Ghana did not concern the vessel in the voyage charter between Rhine and Vitol. It concerned claims by six vessel owners under other charters with Al-Iraquia.  Vitol claimed under an indemnity clause in the charter and also for breach of warranty that at the date of the charter the vessel was free of encumbrances and legal issues that could affect the performance of the charter.

(1) The indemnity.

Clause 13 provided: “Third Party Arrest

In the event of arrest/detention or other sanction levied against the vessel through no fault of Charterer, Owner shall indemnify Charterer for any damages, penalties, costs and consequences and any time vessel is under arrest/detained and/or limited in her performance is fully for Owner’s account and/or such time shall not count as laytime or if on demurrage, as time on demurrage.”

Although the arrest was of the property on board, not of the Vessel, the vessel was detained as the inevitable consequence of the property on board being arrested, in the sense of being constrained or prevented from freely continuing on its voyage. Clause 13 imposed no additional requirement that the detention be “levied against” the vessel in any sense other than that the vessel was detained.

A further issue arose as to whether the indemnity was subject to the rules on remoteness of loss

that apply to a claim in damages. Given his finding in relation to the breach of warranty claims, that the losses claimed by Vitol were not too remote to be recoverable as damages for breach of contract, the amount recoverable here did not turn on this issue. However, Simon Birt KC set out his view that nothing in the terms of the indemnity to suggested that it intended to incorporate the rules on remoteness of damage for breach of contract. If, as a result of a detention, for example, the charterer had suffered a penalty, there would be no reason to conclude that fell outside the scope of the indemnity, even if unforeseeable. He emphasised  that his conclusions were based on the terms of clause 13 and the facts and circumstances of this case and did suggest that an express indemnity in any contract will always be interpreted to include losses that would fall outside the remoteness rules for breach of contract, nor did they deal with anything in relation to the scope of the implied indemnity under a time charter.

(2). The breach of warranty.

Vitol could also claim their losses by way of a breach of a warranty in the charter  that “at the time of and immediately prior to fixing the charter, the vessel, owners, managers and disponent owners are free of any encumbrances and legal issues that may affect vessel’s approvals or the performance of the charter. Al-Iraqia were held to fall within the warranty by virtue of their description as “managers” within the clause, and, had it been necessary to determine, whether they also fell within the clause as “owners” or “disponent owners” Simon Birt KC would have held that they did fall within that description. At the time of and immediately prior to fixing the charter, Al-Iraqia was not “free of any encumbrances and legal issues that may affect the Vessel’s approvals or the performance of the charter.” When the charter was agreed on 27 March 2020, London arbitration was already on foot in relation to vessels other than the one subsequently arrested in Ghana. The word ‘may’ imposed a low bar and the London arbitration was a legal issue affecting Al-Iraqia at the relevant and it was possible that issue could affect the performance of the Charter, and indeed did so.

The Congo bills of lading were dated 12 May 2020 and Vitol claimed a loss of on the basis that had there been no delay due to the arrest Congo bills of lading would have been dated 6 May 2020 and Vitol would have paid its seller a lower price for the cargo. Rhine put forward three arguments as to why it should not be liable. First, it put Vitol to proof that, even without the arrest in Ghana, the vessel would have loaded at the Congo port in sufficient time to obtain bills of lading dated 6 May 2020 for the cargo loaded there. Second, any loss Vitol had suffered had been reduced by Vitol’s hedging arrangement and so insofar as so reduced it was not recoverable from Rhine. Third, even if Vitol’s loss had not been so reduced in fact, the only loss that was recoverable as not too remote was loss that would still have been suffered if those hedging arrangements had so reduced the loss.

Simon Birt KC rejected all three arguments. First, had there been no delay due to the arrest in Ghana, there was certainly a real or substantial chance that Vitol’s Congo seller or the Congo terminal would have acted in such a way as to lead to the issue of  a bill of lading dated 6 May. There would be no discount to be applied for any “chance” that the bills of lading might not have been dated 6 May. Second, the transactions by which the Swaps were rolled were not external transactions, but were internal to Vitol. The rolling of the internal Swaps by which the pricing risk on the Congo sale contract arising from the delay was transferred between Vitol portfolios, did not make good any loss to Vitol. Unlike an external hedge, one transaction would not have been entered into for the purpose of managing the specific pricing risk arising from an identified risk from an existing transaction. Third, the loss claimed by Vitol was of a type that was usual in respect of a charter such as this, and was reasonably within the contemplation of the parties at the time of contracting. there was no evidence to the effect that there was a “general expectation” in the market that shipowners would not expect to bear this type of loss, such as had been the case in The Achilleas [2009]1 AC 61 (HL).

Coming soon to the UK Supreme Court, and not coming.

UKSC 2022/0009 Herculito Maritime Ltd and others (Respondents) v Gunvor International BV and others (Appellants) “The Polar”      

What is the proper interpretation of a charter agreement and bills of landing (sic) for a vessel, in respect of losses arising out the seizure of the vessel by pirates.

The Court of Appeal decision in December 2021 is noted here. https://iistl.blog/category/admiralty-law-2/general-average/

UKSC 2022/0064       R (on the application of Finch on behalf of the Weald Action Group) (Appellant) v Surrey County Council and others (Respondents)    

Under Directive 2011/92 EU of the European Parliament and of the Council and the Town and Country Planning (Environmental Impact Assessment) Regulations 2017, was it unlawful for the Council not to require the environmental impact assessment for a project of crude oil extraction for commercial purposes to include an assessment of the impacts of downstream greenhouse gas emissions resulting from the eventual use of the refined products of the extracted oil?

Hearing on 21 June 2023

The case raises similar issues on scope 3 emissions to that in Greenpeace Ltd v (1) Secretary of State for Business, Energy and Industrial Strategy and (2) the Oil and Gas Authority; and Uplift v (1) SSBEIS and (2) the OGA (North Sea oil and gas licensing)

On 26 April 2023 permission was granted to proceed with a Judicial Review of the Government’s decision to launch a new licensing oil and gas round, without taking into account the environmental effects of consuming the oil and gas to be extracted. In the new licensing round fossil fuel companies have submitted submitting more than 100 licences to explore for new oil and gas.

And not coming,

The hearing was fixed for 19/20 June but it was announced earlier this week that the case has now settled. https://www.quadrantchambers.com/news/settlement-reached-eternal-bliss

UKSC 2021/0231       Priminds Shipping (HK) Co Ltd (Respondent) v K Line PTE Ltd (Appellant) The Eternal Bliss    

Whether the Charterers are liable to compensate or indemnify the Owners for the cost of settling the cargo claim by way of (a) damages for the Charterers’ breach of contract in not completing discharge within the permitted laytime; and/or (b) an indemnity in respect of the consequences of complying with the Charterers’ orders to load, carry and discharge the cargo.

The answer given by the Court of Appeal was ‘no’. This is now definitive.

The Gencon 2022 Charterparty: Striking A Balance

Clause 2 of Gencon 1994 first saw light of day in the 1922 charter and is the product of the thinking of an era that predates the Hague Rules when freedom of contract reigned supreme and carriers were able to include in contracts of carriage clauses that exempted them from liability for practically anything. Consequently, many people and certainly most charterers, now consider the clause to be completely out of touch with modern industry practices and current legislation. By way of contrast, and perhaps not surprisingly, many owners continue to value the wide protection that they believe it affords against liability. However, the reality is that the clause does not really meet the needs of either party and can give rise to some unforeseen and highly unwelcome surprises. Consequently, it is not really satisfactory for either the charterers or the shipowners.

It does not meet the charterers’ needs since it provides the shipowners with a very wide defence for cargo claims. In a nutshell, the Owners are not liable unless there is personal negligence on the part of the higher management of the company [1]. Equally, it does not satisfy the shipowners because protection is limited to claims for physical loss or damage to the goods or for delay in delivering the goods, and the clause provides no defence for other claims relating to purely financial loss, such as a failure to load a full cargo or for delay in arriving at the loadport [2].

These deficiencies have been recognised for many years and the industry has tended to adopt a rough and ready solution by simply replacing Clause 2 with a Paramount Clause that is perceived to introduce greater balance in the form of the Hague or Hague-Visby Rules. However, the weakness of this “broad brush” solution has been repeatedly recognised by the English courts. For example, it has been said that:

“The courts have not found it easy to make sense of the Hague Rules in the context of a charter-party since clearly these rules were not designed to be incorporated in such a contract.”[3]

and

 “[A] very slapdash way of doing things.”[4]

Consequently, the BIMCO sub-committee concluded that the insertion of a Paramount Clause was really no more than a “sticking plaster” solution in that it papered over some of the fault but failed to provide a satisfactory balanced solution.

A Paramount Clause clearly improves the charterers’ chances of making a recovery from the shipowners but makes the shipowners’ duty to exercise due diligence to make the ship seaworthy a continuing one that could potentially extend to all time “before” the commencement of the voyage[5], and which could, therefore, cover a very substantial time before the arrival of the ship at the loadport. It is also unclear whether the Rules provide the owners with protection in all jurisdictions against purely financial loss such as delay either in arriving at the loadport or in performing the laden voyage.

Therefore, the more balanced remedy favoured by the sub-committee was for the new clause 2 of Gencon 2022 to mirror the general approach of the Hague-Visby Rules and

(1)       firstly, place on the shipowners duties that are the equivalent of the non-delegable ones that apply under the Hague-Visby Rules to exercise due diligence to provide a seaworthy ship and to properly and carefully care for the cargo, but to restrict the applicability of the seaworthiness obligation to the two points in time that matter for the charterers, namely, the loading of the cargo and the commencement of the laden voyage; and

(2)       secondly, enable the shipowners to rely on all those rights, defences, immunities, time bars and limitations of liability that are available to a “Carrier” under the Hague-Visby Rules and to make such protection applicable to claims for loss, damage, delay or failure in performance of whatsoever nature. As is the case under the Hague-Visby Rules, these various rights, defences, immunities, time bars and limitations of liability fall into two categories: those that are applicable in any event regardless of breach, such as the time limit for claims under Art III Rule 6, and those that are available only if the shipowner has satisfied his obligations as to seaworthiness, such as those listed under Art IV Rule 2.

Because this new approach is substantially different from that which has been adopted in prior versions of Gencon, the sub-committee thought it prudent to circulate its proposals to the shipping industry before proceeding to a conclusion and received a more or less unanimous approval of its proposals. It is also noteworthy that the International Group of P&I Clubs has confirmed that the new clause 2 should not prejudice Club cover.

Finally, since one of the criticisms of Gencon 1994 is that, unlike many other charters, it does not include an exception clause that protects the rights of charterers, the sub-committee recommended that the new charter should include such a clause. There was some discussion as to whether the charter should include the new BIMCO Force Majeure Clause 2022. However, the sub-committee concluded that such clause was more suited to a time charter than a voyage charter and the industry consultation process supported that view. Consequently, it was decided to include a General Exception Clause of the type that is commonly seen in other voyage charters, and such a clause is now found in Clause 18 of Gencon 2022 thereby ensuring that it is a more balanced charter party.

[1] See, for example, the “Brabant” (1965) 2 Lloyd’s Rep. 546

[2] See, for example, the “Dominator” (1959) 1 Lloyd’s Rep 125 and the discussion in para 11.68 of Voyage Charters (3rd ed)

[3] Per Saville J in the “Standard Ardour” (1988) 2 Lloyd’s Rep 159

[4] Per Devlin J in the “Saxon Star” (1957) 2 Lloyd’s Rep 271

[5] See Art III Rule of the Hague/Hague-Visby Rules

Representing the Institute of International Shipping and Trade Law, Professor Richard Williams was a member of the BIMCO Sub-committee that has produced the new Gencon 2022.

Running of laytime. Charterers’ order owners not to permit cargo sampling or to berth/discharge.

London Arbitration 31/22 is another reminder that once laytime starts it runs continuously unless interrupted by a laytime exception or a laytime definition or through delay due to the fault of the ship owner.

The vessel was chartered on an amended Gencon 94 form to carry wheat from Russia to Turkey. On Friday 17 September the vessel tendered NOR and was ordered by the harbour master to remain at anchor pending authorisation being given for cargo samples to be taken and analysed. The charterers’ agent then told owners’ operations manager not to send cargo documents to the discharge port agents and not to allow sampling, berthing and discharging as the receiver had not yet paid for the cargo. Eventually charterers permitted sampling and discharge on 29 September and discharge completed on 2 October.

As well as the laytime provisions, under which time would have started to run on 20 September, the voyage charter in question had two separate provisions dealing with time lost, and the question was which applied in the circumstances attending the vessel’s delay at the discharge port.

These two provisions were:

“TIME LOST WAITING FOR CARGO ANALYSES AND/OR LABORATORY TESTING AND/OR IMPORT AND/OR EXPORT FORMALITIES IF ANY TO COUNT AS LAYTIME OR TIME ON DEMURRAGE W/O WEATHER INTERRUPTIONS AND/OR ANY EXCEPTIONS.” (Provision 1.)

“TIME LOST DUE TO CHARTERERS’ INSTRUCTIONS AND/OR FAULT TO BE REIMBURSED BY CHARTERERS AS DAMAGES FOR DETENTION.” (Provision 2.)

The owners claimed damages for detention at the demurrage rate under Provision 2 for the period from tender of NOR on 17 September until 29 September when the charterers authorised the taking of samples. The tribunal held that this claim must fail because the time lost waiting for cargo sampling clearly fell under the express terms of Provision 1.  The arbitrator found that time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which fell within Provision 1. Provisions 1 and 2 appeared consecutively in the fixture recap and the parties could not have intended there to be any overlap between them, and time lost for reasons covered in Provision 1 could not come within the time lost in Provision 2.

Had the arbitrator found that Provision 2 applied, he would have been inclined to accept charterers’ argument that laytime would have started on 29 September and demurrage would have been unlikely to have accrued. Therefore, the arbitrator might have accepted that, given the evidence of lower demurrage rates in similar charters, damages for detention up to 29 September would have been assessed at a rate lower than the charter demurrage rate.

The owners also presented two alternative laytime statements and the arbitrator held that their second was correct. Under this laytime began at 08.00 on Monday 20 September and the vessel went on demurrage from 13.30 on 23 September until discharging was completed at 17.00 on Saturday 2 October.

The charterers argued that “cargo analyses and laboratory testing” did not include “cargo sampling” but the arbitrator considered that the wording in Provision 1 covered any delay in the import formalities after arrival at the discharge port, including the charterers authorising the taking of samples, analysis, communication of the results and allocation of a berth.

The arbitrator also rejected charterers’ claims that time did not count during ‘port congestion’ nor for ‘weather interruption’, alternatively was suspended by duty pilot due to bad weather. Time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which came within Provision 1 and the charterers were wrong to argue that congestion was a circumstance obstructing the sampling/berthing/discharging, which was beyond their control. Once a valid NOR was tendered and took effect, laytime ran continuously against the laytime allowed. Congestion was therefore a charterers’ risk.

Wireless transmission of NOR by email a valid tender under cl.6 Asbatankvoy.

In London Arbitration 30/22, the vessel was chartered on amended Asbatankvoy in which Clause 6 of the charterparty provides that the master was to give NOR “by letter, telegraph, wireless or telephone”. The master tendered NOR by email. Charterers argued that the tender was bad, relying on The Port Russel [2013] 2 Lloyd’s Rep 57 where an email tender was held to be not permitted under a charter on BPVOY3 which provided for NOR  to be given by “by letter, facsimile transmission, telegram, telex, radio or telephone”. Unlike cl.6 of Asbatankvoy the clause did not refer to tender by ‘wireless’. The tribunal accepted owners’ arguments that the reference to tender by “wireless” covered the email which was transmitted wirelessly using the vessel’s communication safety system. Owners also produced evidence, from Wikipedia, that email was around in the 1960s and early 1970s and so was in existence in 1977 the year of the Asbatankvoy form.