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].”

 

 

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.

 “Anchor aweigh”. No retrospective invalidity of NOR.

 

In London Arbitration 16/19 a vessel was chartered on Gencon form which was amended so that notice of readiness (NOR) could be tendered at any time after the ship’s arrival at an anchorage 150 km downriver from the discharge port with passage time from anchorage to discharge port not to count as laytime. The vessel arrived at anchorage and tendered NOR. When the pilot boarded the vessel was found to have only one anchor available which had not been notified in advance to the port authorities. The pilot would only proceed upriver if the owners would hire an escort tug. The owners declined on cost grounds and decided to replace the second anchor instead. The vessel was sent back to the anchorage to do this and then proceeded back to the pilot station with two anchors and from there proceeded to the discharge port and berthed the following day. The owners claimed laytime started with giving of NOR but as a good will gesture discounted the time from when the vessel first weighed anchor to proceed to the pilot station to when the vessel arrived at the discharge port.

The tribunal accepted charterer’s evidence that  two anchors was a normal requirement for river navigation, and that in a case of a missing anchor it was usual and reasonable for a standby tug to be required. However, when the vessel gave NOR, the absence of a second anchor was not an absolute bar, as the possibility existed of proceeding to the discharge port with tug assistance. When the vessel tendered NOR she was not, therefore, in a condition in itself that necessarily precluded her from completing the contractual voyage. It was owners’ later decision not to employ a standby tug that had that effect. Owners’ decision did not retrospectively invalidate the NOR tendered at a time when the vessel was able to proceed to the discharge port, albeit with tug assistance rather than by having two anchors on board.

Owners’ decision not to proceed with an escort tug, on cost grounds, was appropriately addressed by the exclusion of time in the manner adopted in their calculations.

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

 

 

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

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

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

To register immediately on-line, please click here.

 

 

 

 

 

“Government interference” and laytime under the  1999 Sugar Charterparty

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

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

 

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

 

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

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

When does a shipowner have to start the approach voyage under a voyage charter?

Yesterday the Court of Appeal upheld the first instance decision in CSSA Chartering and Shipping Services SA v Mitsui OSK Lines Ltd (The Pacific Voyager) [2018] EWCA Civ 2413 which we noted in this blog on 24 October 2017. The case involved a voyage charter on Shellvoy 5 form which contained no ‘estimated ready to load’ statement. Instead Part 1(b) contained estimated times of arrival for the itinerary on the previous charter. When did the owner’s absolute obligation to begin the approach voyage to the load port commence? Popplewell J held that the obligation began within a reasonable time of the completion of discharge at the final port in the previous charter as specified in the estimated itinerary for that voyage. The owners were in breach of that obligation and charterers were entitled to substantial damages.

The Court of Appeal have upheld this decision. Longmore LJ stated that this meant that there was no need to deal with charterer’s alternative argument that the cancellation date provided a further indication of the time at which it would be reasonable to say that the obligation of utmost despatch arises.  “If, for any reason, it were impermissible to rely on the expected date of arrival of 25th January at the last discharge port under the previous charter, I would have difficulty in saying that the cancellation date would do instead.  It would be necessary to know why it was that 25th January could not be relied on and, if it were because there was no ETA Rotterdam, that might apply equally to any argument about the cancelling date. If, however, there had been no itinerary given and the only guide was the cancelling date, that might be a different matter.  That can (and should) be left to another day for the (perhaps somewhat surprising) terms of such a charterparty to be considered.”

Force majeure and counterfactuals

A nice force majeure issue — and one of considerable importance — came up before Teare J yesterday in Classic Maritime v Limbungan [2018] EWHC 2389 (Comm), argued by IISTL stalwart Simon Rainey QC. Imagine you conclude a contract (in this case a CoA under which you have to provide a number of iron ore cargoes) which in the event you can’t and don’t perform, and never could have performed. An exemption clause in the contract says that if you could have performed it but a force majeure event X (inundations in Brazilian iron ore mines) then occurs that stops you performing it, you are not liable for breach. Event X occurs. Are you (a) in breach of contract, (b) on the hook for substantial damages?

On (a) the answer is Yes. You promised to perform, you haven’t performed, and because you never could have performed in any case you can’t shelter behind the exemption clause.

But what about (b)? There are two ways to look at this. One is to say: this is a simple case of unexcused non-performance, and hence you must be liable to the shipowner for his lost profits on the carriage, a figure amounting to many millions. The other point of view runs thus. If, counterfactually, you could have performed but for X, the shipowner would in the event have had no claim to performance because of the exemption clause. Hence hence it’s no skin off his nose that you didn’t perform, and damages are nominal only. Teare J plumped for the second: nominals only.

This view is highly plausible and for the moment clearly represents the law. It also dovetails quite nicely with the general rule in cases such as The Golden Victory [2007] UKHL 12, [2007] 2 A.C. 353 and Bunge v Nidera [2015] UKSC 43, [2015] 2 CLC 120, that in assessing damages we take into account later events that would have taken away the right to demand performance.

But this case, or the issue in it, may go further. There is a respectable argument, that certainly can’t be dismissed summarily, which suggests a different answer. In so far as the inability to rely on a force majeure clause is due to a party’s own default, which was the case in Classic Maritime, should it be open to that party to argue that if he had acted differently he would have been able to invoke that very same clause? Suppose a force majeure clause requires notice to be given within 7 days after the force majeure event; a party prevented by force majeure nevertheless fails to give notice for 10 days, and thus loses the protection of the clause. Is it really open to the party then to say that if he had given the proper contractual 7 days notice he would have been protected by the clause, the counterparty would have had no right to demand performance, and hence damages are nominal only? I’m doubtful. And I’m equally not sure that this scenario is that different from what happened in Classic Maritime.  It’s just a thought. Whether it’s a good one, only time will tell.