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

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

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

Smart claims for bill of lading freight by owners.

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


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

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

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

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

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

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

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

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

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

Demurrage time bar. Equivalence of requisite documents.

In London Arbitration 1/21 a vessel was chartered on amended Asbatankvoy for a voyage between two Italian port. An addition clause required the claim and supporting documents to be received by Charterers in writing within ninety days of completion of discharge, failing which any claims by owners would be waived and absolutely barred. The clause went on to specify the supporting documents for a demurrage claim. “Insofar as demurrage claims are concerned the supporting documents to be received by Charterers must include a Laytime and Demurrage calculation issued in accordance with the allowances and exceptions provided in this Charter Party. Owners’ invoice, Notices of Readiness and Statements of Facts issued at loading and discharging ports, duly signed in accordance with Clause 17 above. If other Time Sheets or Statements of Facts are separately issued for other cargoes handled at the same port or berth, these documents should also be attached to Owners Laytime and Demurrage calculation.”

Owners sent documents and the claim to charterers within the ninety days, but charterers claimed three documents were invalid.

1. Owners’ demurrage invoice. Owners had submitted their invoice at the bottom of the document headed ‘Time Sheet’ but had not stated on the face of the document that it was an invoice. The Tribunal followed Lia Oil SA v ERG Petroli SpA [2007] 2 Lloyd’s Rep 509 and found that a single document could be both a laytime and demurrage calculation and an invoice.

2. Statement of facts at discharge port. Owners submitted an unsigned Statement of Facts, and a Time Sheet which had all the information expected of a statement of facts which was signed by receivers. The Tribunal accepted the second document as the Statement of Facts for the purposes of the time bar.

3. Port log, discharging log, and pumping log for discharge port. Owners had provided a detailed signed time sheet which was functionally equivalent to a port log and the unsigned statement of fact. They also provided a manifolds pressure log, which provided inter alia, the average discharge rate, the manifold pressure and number of pumps used for each hour of the discharge operation. That document was functionally equivalent to a discharging log and a pumping log.

Owners were obliged to present all supporting documents but Charterers had failed to identify any specific document owners had failed to produce or to produce an equivalent. That part of the challenge failed. Owners’ demurrage claim was not time barred.

War Risks and Kidnap & Ransom in charter do not exclude GA claim for piracy under bills of lading.

The Polar [2020] EWHC 3318 (Comm) – HERCULITO MARITIME LIMITED v. GUNVOR INTERNATIONAL BV – involved an appeal pursuant to section 69 of the Arbitration Act 1996, in respect of a claim by shipowners against cargo owners under six bills of lading for general average  in respect of ransom payments made by owners to pirates. under the relevant bills of lading. The general average expenditure was the payment of a ransom to pirates to enable the release of the vessel so that she could complete her voyage.  Cargo owners contended that the GA claim was barred because the bills of lading incorporated the terms of the relevant charterparty under which the shipowners’ only remedy in the event of having to pay a ransom to pirates was to recover the same under the terms of a Kidnap and Ransom insurance policy and a War Risks policy taken out by the shipowners, the premium for which was, pursuant to the charterparty, payable by the charterers. Previous cases on incorporation had involved demurrage clauses and jurisdiction and arbitration clause. Incorporation of insurance terms and their possible constitution of a complete code excluding other remedies, such as claiming in GA, was a novelty.

The clauses were incorporated as directly germane to the loading, carriage and discharge of the cargo, but they provided  for payment of the premiums

by charterers and this language would not be manipulated so as to include bills of lading holders. Sir Nigel Teare, acting as a Judge of the High Court, held that “to substitute “bill of lading holders” for “Charterers” when reading clause 39 into the bills would be inconsistent with the obligation of the bill of lading holders to pay freight as per the charterparty as the price for the performance by the Owners of the contract of carriage. It would mean that the holders of the bills of lading, in the event that certain liberties were exercised by the Owners, had to pay may more than the agreed freight for the performance of the contract of carriage. Moreover, such additional sums would be unknown and unlimited.”  Similar provisions applied as regards kidnap and ransom insurance premiums payable under the Gulf of Aden clause.

As regards, the argument that the charter provisions on payment of the premiums constituted a ‘complete code’ excluding owners’ remedies in the event of piracy, this was certainly the position as regards the charterers. On the true construction of the charter the parties had agreed to look to the additional policies for the recovery of relevant losses and so the Owners were precluded by that agreement from seeking to recover that loss by way of a contribution in general average. However, as regards the position under the bill of lading, the only parts of the clauses in question which have been incorporated into the bills so as to bind the holders of the bills were the liberties conferred on the Owners not to complete the voyage or to depart from the usual or expected route. There was an important difference between the position under the Charter and the position under the bills of lading –  it could not be said of the bill of lading holders, as Lord Roskill said of the charterers in the Evia No.2, that theyhad paid the premiums not only for no benefit for themselves but without shedding any of their liability to contribute in general average in respect of losses caused by the additional insured perils. The point was not that the Owners had agreed to transit the Gulf of Aden at no cost to themselves, but that the charterers had agreed to pay for the insurance.

For these reasons the contract of carriage contained in or evidenced by the bills of lading did not contain an agreement by the Owners not to seek a contribution in general average from the holders of the bills from liability in respect of losses covered by the additional insurance taken out by the Owners.

One breach, two losses. Does demurrage cover both?

Andrew Baker J today has said that it does not. In K Line PTE Ltd v Priminds Shipping (HK) Co, Ltd [2020] EWHC 2373 (Comm) the vessel was kept at the anchorage for some 31 days due to port congestion and lack of storage space ashore for the cargo. In consequence when the cargo of soyabeans was discharged it exhibited substantial mould and caking. This led to a cargo claim against owners who then settled and sought to recover from voyage charterers by way of damages for breach of their obligation to discharge within the laydays.

 Dicta of Sargant LJ in Reidar v Arcos [1927] KB 352, not the easiest of cases from which to extract a ratio, suggested that demurrage was the sole remedy for breach of that obligation, but that the case before him involved a breach of a separate obligation, a proposition applied by Potter J in The Bonde [1991] 1 Lloyd’s Rep 136). By contrast, Webster J in The Altus [1985] 1 Lloyd’s Rep 423 held that demurrage only had the effect of providing liquidated damages for a specific type of loss, the economic loss suffered by owners in the charterers exceeding the laydays for which they had paid in the freight. It did not cover other types of loss flowing from this breach. This was the view of Bankes LJ in Reidar. The contentious point was whether Atkin LJ had been with Sargant LJ or with Bankes LJ.

The academic writings were divided: Carver on Charterparties , Voyage Charters, and Shipping Law for the view of Sargant LJ; Scrutton contra for that of Bankes LJ; Schofield undecided; and Summerskill nowhere to be seen. After a long discussion as to whether precedent required him to follow The Bonde – it did not – Andrew Baker J held that damages could be claimed for the cargo claim resulting from the delayed discharge, notwithstanding the demurrage provision. He added that had he come to a different conclusion, there would have been no scope for implying an indemnity -owners’ second string to their bow.

One suspects this will come as an unpleasant surprise to charterers, but perhaps the bigger surprise is what owners were doing settling a claim which under the Hague Rules they would have had a good chance of resisting under Art IV (2)(q)  which provides an exemption as follows: “Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.”  Deterioration of the cargo due to delay in discharge due to congestion would very likely constitute such a cause.

This looks like one for the Court of Appeal, and, maybe, the Supreme Court.

Commencement of Laytime- Covid 19 and “Free Practique” Rears Its Face Again

“Free pratique” is essentially the licence given to a vessel by authorities to enter a port on the assurance that she is free from contagious diseases. In normal times, obtaining this certificate is regarded as a mere formality and this led some judges to comment in some cases, like Longmore, LJ did in The Eagle Valencia [2010] EWCA 713, that lack of this certificate will not prevent a valid notice of readiness (NOR) essential for the commencement of laytime. However, it should not be disregarded that the decision in this case was the result of judicial construction of various contradictory terms incorporated into the relevant charterparty. So, it will be ambitious to suggest that this case establishes a principle to the effect that obtaining free pratique is not essential for a vessel to be ready in legal sense!

In fact, the “free pratique” forms an important part of the ship’s papers and has the potential to cause problems for owners in today’s climate especially if the charterparty in question does not expressly state otherwise. It has been doubted in a number of old authorities (e.g. The Delian Spirit [1971] Lloyd’s Rep 64) whether incorporation of a “WIFPON” clause (Whether in free pratique or not) removes the need for obtaining a “free patique” certificate so a vessel which is physically ready becomes an “arrived ship” in legal sense of the word. To say that WIFPON clause does not have this effect clearly contradicts plain meaning of such a clause. And, it is hoped that this point receives some judicial attention soon.

aerial photo of cargo ships on pier
Photo by Tom Fisk on Pexels.com

However, in the absence of a specialized clauses (e.g.  BIMCO’s Infectious or Contagious Diseases Clause for Voyage Charterparties) and in  today’s world hit by the Covid-19 pandemic, it is very likely that not being able to obtain free pratique will have grave consequences for the owners and time lost in a loading or discharging port as a result will be on their account. Reports are suggesting that in many ports around the world, vessels are asked to remain in quarantine for 14 days before authorities grant the free pratique certificate. For example, recently Argentinian Ministry of Transport and the Ministry of Health have instructed the maritime authorities in the country to compel specific vessels- under certain circumstances- to remain in quarantine for 14 days.

When entering into charterparties, shipowners need to be aware of the so-called “new normal” and it is advisable to insist on incorporating specialized clauses to deal with such problems.  BIMCO’s Infectious or Contagious Diseases Clause, mentioned above, or INTERKANKO’s Covid-19 Clause, (discussed in an earlier blog) offers protection to owners as under such clauses any time lost in a port of loading or discharge due to reasons associated with Covid-19 pandemic will count as laytime  (or demurrage).

INTERTANKO Covid-19 Clause- Tailor Made Solution to the Pandemic in Voyage Charters

One of the main legal challenges emerging from the ongoing Covid-19 pandemic for shipowners in the context of voyage charterparties is whether a valid NOR can be tendered to enable the running of laytime clock before a “free pratique” certificate is obtained from authorities. Reports suggest that there are significant delays in some ports in obtaining this certificate. Some charterparties might include a “WIFPON” clause (Whether in free pratique or not) and some commentators believe that such a clause removes the need for obtaining a “free patique” certificate so a vessel which is physically ready becomes an “arrived ship” in legal sense of the word. However, as discussed by my colleague Professor Simon Baughen (https://www.youtube.com/watch?v=1wcjbGYwW7o&t=52s) this position has been doubted in a number of authorities (e.g. The Delian Spirit [1971] Lloyd’s Rep 64) although such a finding seems to contradict plain meaning of a “WIFPON” clause.

The most recent clause released by INTERTANKO seems to offer a clarification and much needed certainty for shipowners. If incorporated into the contract, under Clause 2© of the INTERTANKO Covid-19 Clause for Voyage Charterparties, ship owners are able to serve a valid and effective NOR whether or not free pratique certificate has been granted, thereby passing the risk of any delay on to charterers who ordered the chartered vessel to that particular port.

covid
It needs to be noted that the Clause deals with other issues that can arise in ports that are affected from the current situation. Clause 1 enables the shipowner to refuse an order to proceed to a port affected from the pandemic. An interesting point here is that the right to refuse to proceed is left to the reasonable judgment of the owners or master by taking into account whether there is a risk of exposure of the crew or other personnel on board to Codivid-19. From legal perspective, this subjective test means that owners and masters are likely to be given the benefit of any doubt as to the state and condition of the port in question if the matter becomes the subject of litigation at a later stage. Clause 2 is designed to protect the interest of the owners further. For example, by virtue of Clause 2(a) if the chartered vessel sails towards a Coronavirus-affected port, the master can request fresh orders should the level of risk become unacceptable prior to arrival at the load or discharge port. Similarly, Clause 2(b) provides that the chartered vessel may still depart and proceed to a safe waiting place if the risk escalates after the arrival of the chartered vessel at the port and even after the tendering of NOR. Clause 2(d) addresses the issues which arise due to the Coronavirus risk, e.g. quarantine and any delay thereby caused, and indicates that such expenses are passed to charterers.

In addition to risks associated in a port that has been directed by the charterer, the clause goes on to allocate the risk of losses that the vessel might suffer after the completion of the voyage (i.e. in the course of its future employment). Clause 3, therefore, provides:

“Should the Vessel be boycotted, refused admission to port, quarantined, or otherwise delayed in any manner whatsoever by reason of having proceeded to a Coronavirus Affected Area, for all time lost Owners to be compensated by Charterers at the demurrage rate and all direct losses, damages and/or expenses incurred by Owners shall be paid by Charterers. In the event that the Vessel is boycotted, refused admission, or otherwise delayed as stated above within 30 days after having completed discharge under this charterparty, then Charterers are to compensate Owners for all time lost as a result at the demurrage rate in addition to compensating Owners for all direct losses, damages, and or expenses which may arise as a result of the above.”

Front-Shanghai

This is a very bold provision and it essentially offers a protection for owners for a period of 30 days after the completion of discharge under a previous fixture so that any delays or expense under a subsequent fixture will fall to the previous charterer.

Needless to say, the INTERTANKO Covid-19 Clause is rather owner friendly and is designed to apply to this particular pandemic unlike BIMCO Infectious or Contagious Disease Clause for Voyage Charter Parties 2015 which has a much wider application, i.e. the latter can apply in any instance when there is “a highly infectious or contagious disease that is seriously harmful to humans”. That said, the INTERTANKO Covid-19 Clause offers a tailor made solution to the legal and practical problems facing the sector at the moment and no doubt some owners might be able to slip it in their charter agreements!

Security clauses in charters — by hook or by crook they will be enforced

Behind Teare J’s decision today in Trafigura Maritime Logistics PTE Ltd v Clearlake Shipping PTE Ltd (Rev 1) [2020] EWHC 995 (Comm) lies a fairly standard series of shipping lawyer’s nightmares.

Trafigura time-chartered the Miracle Hope, a big (320,000 dwt) VLCC, from Ocean Light. They voyage-chartered her to Clearlake and Clearlake sub-voyage-chartered to Petrobras, both charters being back-to-back under Shellvoy 6. Petrobras demanded that the cargo be delivered without production of the bill of lading; the demand was passed up the chain and the cargo (worth, before the recent oil debacle, something over $70 million) released.

Thereupon Natixis, a Dutch bank which had financed Petrobras’s buyers, emerged brandishing a bill of lading apparently issued by Ocean Light, demanded the value of the cargo, and arrested the ship in Singapore. Ocean Light immediately demanded an indemnity from Trafigura: Trafigura, relying on a duty in the charterer in such cases to “provide an LOI as per Owners’ P&I Club wording”, demanded an LOI from Clearlake and Clearlake did the same from Petrobras. Following clear practice (e.g. The Laemthong Glory [2004] EWHC 2738 (Comm); [2005] 1 Lloyd’s Rep. 632), Henshaw J granted mandatory orders down the line requiring the charterers to provide such bail or other security required to secure the release of the vessel.

Unfortunately at this point problems arose. Clearlake and Petrobras negotiated with Natixis; the result was deadlock. Furthermore, owing to the worldwide contagion the Singapore courts could not break the deadlock for some weeks. And, of course, all the time the Miracle Hope was mewed up in Singapore: something which, with tanker hire rates now sky-high, would not do.

In other words, Henshaw J’s order was unworkable. As a result the matter came back to the Commercial Court. To order the provision of a guarantee satisfactory to Natixis would be unsatisfactory: furthermore, since the matter was likely eventually to reach the Singapore courts, it risked prejudging the issue in that forum.

The solution reached was workmanlike. The court had to do something. Security to obtain the release of a vessel could take the form of a payment into court; and, faute de mieux, Teare J ordered just that. Clearlake and Petrobras were ordered to arrange for payment into the Singapore court of $76 million within 8 days, no doubt with Petrobras bound to indemnify Clearlake, who in the circumstances were little more than piggy-in-the-middle. If this was necessary to secure the release of the vessel, this would be what was ordered.

And rightly so, in our view. As the title of this blogpost implies, an obligation to secure the release of a vessel has to be given effect. As with Coronavirus, so with the release of a ship: it is a case of doing all that it takes. Even if that takes a slightly unorthodox form.

Fixture recap “otherwise as clean Gencon 94 charterparty to be amended/altered as per above main terms agreed”. Are Gencon 94 law and arbitration provisions brought into the charter?

 

In London Arbitration 2/20 a fixture recap set out detailed provisions and concluded “otherwise as clean Gencon 94 charterparty to be amended/altered as per above main terms agreed”. The charterers argued that the law and arbitration provisions in cl. 19(a) of Gencon 94 was not a “main term” agreed in the recap email and was not incorporated into the charter. The tribunal rejected this argument and held that the  concluding words of the recap meant that one should take a clean Gencon 94 form and write into it what “main terms” had been agreed. The parties  had agreed considerable details as set out in the recap email, and then incorporated the terms of the Gencon 94 charter, which were to be adjusted to reflect the detail agreed. The tribunal accordingly had jurisdiction