Read The TANKVOYager - Vol. 16 No. 3 text version


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Chartering, Demurrage, and Voyage Analysis

Houston, TX ~ Tel: +1 (713) 229-0059 Vol. 16, No. 3

July / September 2010


1 2 10 Demurrage Is Not An Indemnity N.Y. Arbitration Awards London Arbitration & English Court Rulings 14 15 16 Industry News HC Training Course Schedule Market Trends


ftentimes, demurrage claims issued by commercial trading partners under contracts of sale are disputed and a copy of the ship owner's demurrage claim is requested, allegedly to support the merit of the claimant's invoice. However, unless the stipulation to provide the Owner's claim is expressly required within the contract terms, it is unnecessary to be disclosed as demurrage is not considered an indemnity (compensation for a loss suffered). Contrary to popular belief that a party cannot benefit by demurrage, English law holds that there is an absolute obligation to pay demurrage incurred under the terms of a sales contract. There is nothing to prevent a profit from being made on a legitimate demurrage claim [Houlder Brothers Co. Ltd. v. Commissioner of Public Works [1908] AC 276]. Naturally, in instances where a sales contract expressly incorporates laytime and demurrage terms, a means by which demurrage can be quantified, the Owner's invoice is irrelevant. For example, if the governing contract stipulates that laytime and demurrage are "As per Vessel nomination" which further incorporates "Laytime: 36 hrs ttl shinc; Demurrage Rate: $15,000 pdpr; and, ASBATANKVOY Charter Party" there is no need or contractual requirement whatsoever to support said claim with Owner's invoice as it is governed by a distinctly separate contract between different partners. A caveat to this scenario would be if the sales contract simply sets forth, "Demurrage as per charter party rate, terms and conditions," in which case full disclosure of the charter party terms is necessary to validate the demurrage. Does that infer that the Owner's claim is a requisite supporting document? No. Keeping in mind that demurrage is not an indemnity, unless there is an express clause mandating that the Owner's claim has to be provided, it is not required to substantiate the claim. In fact, provided that the Vessel's documents needed to support a demurrage claim as stipulated within the charter terms are available, a demurrage claim under a sales contract may be filed with the commercial trading partner before a claim is filed (if ever) by the Owner. Taking it a step further, if the sales contract is silent regarding laytime and demurrage then compensation for delays falls within the scope of a damages claim, rather than a demurrage claim, for which the party attempting to be indemnified would provide Owner's invoice to substantiate the damages1. Blackburn J in Ford and others v. Cotesworth and another: ...whenever a party to a contract undertakes to do some particular act, the performance of which depends entirely on himself, so that he may choose his own mode of fulfilling his undertaking, and the contract is silent as to time, the law implies a contract to do it within a reasonable time under the circumstances. And if some unforeseen cause, over which he has no control, prevents him from performing what he has undertaken within that time, he is responsible for the damage. Further supporting that demurrage is not an indemnity and that the sales contract terms between a buyer and seller stand on their own, we cite Establissements Soules et Cie v Interbradex SA, QBD (Comm Ct) [1989]: The purpose of damages is to restore an injured party to the position the party was in before being harmed. As a result, damages are generally regarded as remedial.





July / September 2010

It is conceded by the Buyers that they impose an obligation upon the buyer as against the seller to discharge the vessel at the rate stated and that, if he fails to discharge it at that rate, then he must pay demurrage, that is, liquidated damages for breach of that obligation; likewise he is entitled to dispatch if he discharges the vessel more expeditiously. It is common ground on both sides that it is not an indemnity provision, and indeed it makes no reference to any charterparty. So, as was discussed in Malozzi v Carapelli [1975] 1 Lloyd's Rep 229, which was upheld by the Court of Appeal, there is a distinction between CIF contracts which contain references to charterparties and contracts which are independent of any charterparty provisions. This is a contract which is independent of any charterparty provision and neither I nor the arbitrators were concerned with any charterparty provision. It is simply a provision of contract of sale which applies as between a buyer and a seller which imposes certain obligations on the buyer and provides for payment of liquidated damages if that obligation is broken. If this contract, or this demurrage provision, was drafted on some basis of indemnity, then there would be either an implied or express cross-reference to a charterparty which would justify the introduction of such concepts because there would be need to refer to the charterparty and therefore to consider what were the terms of the charterparty. But that is not the case here. It is common ground that there is no cross-reference to a charterparty and the provisions of this contract stand on their own as between seller and buyer. Thus, it is entirely possible for a demurrage claim to be issued under a sales contract even if there was no demurrage incurred whatsoever under the charter party. Is this ethical? Yes, based on the premise that contracting parties negotiate and enter into agreements freely then it is ethical, however, if the contracting parties are forced to agree to terms under duress then it is a different matter. In conclusion, although demurrage is not an indemnity, if parties want to turn a demurrage obligation into an indemnity it can be achieved by the inclusion of a clearly worded clause; and, the wording of such a clause has to be very clear and unambiguous if it is to be effective.



Borkum, SMA No. 4065, 31 Jan 10 (Baltimore Berth Grain) ­ DESPATCH - DETENTION - EXPIRATION OF LAYTIME -- Charterer Award After loading, Charterer gave the Vessel orders to wait at the loadport until ordered to sail. The Vessel waited 22 days. At the heart of the dispute was the time at which laytime expired and detention began. The arbitrator held that Charterer is entitled to the benefit of the total load laytime allowance (calculated basis the maximum cargo volume negotiated for the freight paid) prior to accruing detention2. Riceland Food, Inc. (hereinafter "Charterer") entered into a charter party with BBC Chartering and Logistic GmbH, K.G. (hereinafter "Owner") on 3 February 2009, in which the M/V Borkum (hereinafter "Borkum" or "Vessel") was chartered to carry a shipment of about 17,400 MT milled rice in bulk and 45-50 MT of empty bags from the Darrow, Detention is the principle whereby the Owner can assess damages when the Vessel is delayed, outside the scope of laytime and demurrage, due to fault of the Charterer.


Louisiana (part of the Port of New Orleans) to Port au Prince, Haiti. The charter party set the laydays as 20-28 February 2009, and the relevant terms state that the freight was to be "lumpsum US$ 420,000 free in and out, spout trimmed", the demurrage rate was USD $9,500 PDPR, and the despatch rate was USD $4,750 PDPR. The Vessel was to be loaded at a rate of 4,000 MT per weather working day and to discharge at 1,200 MT per weather working day. "SSHEX EIU" terms applied: Saturday, Sunday, and Holidays were excluded from counting as used laytime, even if used, as reiterated in Clause 30 of the charter party: Vessel to be loaded at the average rate of 4,000 metric tons per weather working day of twenty-four (24) consecutive hours, time from Friday 5 PM through Monday 0800 including official Holidays till next working day 0800 hours not to count, even if used. The Borkum arrived and tendered NOR at the New Orleans General Anchorage at 2348 on 24 Feb. Charterer


accepted the NOR on 26 Feb at 1200, and ordered the Vessel to the Cooper T. Smith facility for loading. Borkum arrived at the berth on 27 Feb and completed loading at 1700 the following day. During the loading operation, Charterer's broker advised Owner that "Charterers request that vessel after completion of loading, not sail foreign from Miss. River until Riceland authorizes." After loading completed, the Vessel returned to the anchorage on 01 March and remained there awaiting further orders. On 22 March, Charterer finally ordered the Vessel to proceed to Haiti and discharge. The Vessel arrived in Port au Prince just before Easter, and was delayed 3.5 days during the holiday. Owner asserts that Charterer owes USD $18,584 for detention at the loadport and $24,453 for detention at the discharge port. Owner's loadport calculation subtracted despatch and an advance payment made by Charterer. In the discharge port detention calculation, Owner includes time used over the Easter holidays. Owner argued that because of the 22 day delay departing New Orleans, the Vessel arrived at the discharge port just prior to Easter, losing 3.5 days due to the holidays. Owner contends that this unexpected delay would not have occurred had the Vessel sailed promptly from the loadport. Owner asserts that laytime stopped at 1730 on 28 February, when loading operations completed. After loading, Owner contends, the Vessel would have commenced her voyage to the discharge port, except for Charterer's order not to sail. Accordingly, Owner argues, the delay waiting for Charterer's further instructions constitutes detention. Charterer refutes Owner's calculation for detention at the loadport, arguing that in agreeing to a lumpsum freight rate, it has paid for the full extent of allowed laytime under the charter party. Charterer contends that time on detention can only begin once all of the allowed laytime has expired. According to the charter party terms, the laytime allowance was to be determined by dividing the maximum expected cargo quantity by the agreed loading rate of 4,000 MT per day. By this calculation, the laytime allowance was 4 days 8 hours 50 minutes. Following its contention that detention can only begin once all of the allowed laytime has expired, Charterer argues that the time from the completion of loading until the expiration of laytime should not be considered detention. Thus, as no time was saved at the loadport, Charterer rejects Owner's despatch assessment accordingly. Charterer also rejects Owner's claim for detention at the discharge port as speculative. Additionally, Charterer presented a counter claim for an outstanding accounting balance, and claims it is owed despatch at Port au Prince, and presents a calculation for same. Charterer also seeks to recover attorney fees. The sole arbitrator considered the principal issue to be when laytime at loading ceased and time on detention began. In doing so, he concluded that Owner's claim for additional detention at the load port should be denied, stating: By agreeing to a lumpsum freight based on an anticipated cargo quantity of 17,400 MT, but


July / September 2010 leaving the actual quantity to be loaded fully at Charterer's discretion, Owner also agreed to the corresponding laytime, determined by the application of Cls.30, in this instant the 4 days 8 hours 50 minutes. In other words laytime is to be based on the tonnage for which freight was paid. To do otherwise would be inequitable. Had freight been payable on a per-ton of loaded cargo basis, Owner's argument would have had merit. Here Charterer was entitled to the full 4 days 8 hours 50 minutes, whether used fully or partly for loading purposes or not. The time saved, from completion of loading to the expiration of the agreed laytime, therefore, is Charterer's time, for which no despatch is due, and which cannot be applied to the subsequent time on detention. The arbitrator further denies Owner's claim for additional detention at Port au Prince. While the arbitrator agrees that the delay departing the loadport caused some "excluded time" due to the Easter holidays, Owner has already been compensated for that delay in the form of detention. The arbitrator dismisses Owner's "what if" argument. Owner's claim for the outstanding balance of detention is allowed. The arbitrator directed Owner to pay Charterer the despatch owed, less the balance of detention due Owner, plus interest and a USD $3500 allowance towards legal fees. The full $3,000 arbitrator's fee was assessed against Owner.

Nova Caledonia, SMA No. 4066, 16 Feb 10 (GENCON) ­ RIGHT TO CANCEL - VALID NOTICE OF READINESS - "ARRIVED SHIP" - WHETHER AGENT WAS SERVANT OF CHARTERER OR OWNER -CALCULATION OF DAMAGES -- Charterer Award Due to miscommunications with the Agent, the Vessel did not file a timely Notice of Arrival to the loadport and was precluded from berthing when ordered to do so. As the Vessel did not gain clearance until after the cancelling date, Charterer cancelled the fixture. In determining that the Vessel agent's responsibility rests with the Owner and that the Vessel's NOR was invalid as the Vessel was not "in all respects" ready to load, the Charterer was awarded damages arising from Owner's breach. Southeastern Export Corp. (hereinafter "Charterer") entered into a 27 September 2005 charter party with Seatrade Group N.V. (hereinafter "Owner"), wherein the Nova Caledonia (hereinafter "Vessel") was chartered to carry a full cargo of frozen chicken products, loading in Houston, Texas for delivery to Poti, Republic of Georgia. Laydays canceling date was 4 October 2005. The relevant charter party terms are: Clause 9. Cancelling Clause. a) Should the Vessel not be ready to load (whether in berth or not) on the cancelling date indicated in Box 21 [i.e. October 4,


2005], the Charterers shall have the option of cancelling this Charter Party. Rider Clause 20. Should the vessel on berthing not be in all respects ready to load or discharge, Owners to be responsible for any direct consequential expense arising therefrom and the time thereby lost not to count as laytime. Rider Clause 31. Charterers' nominated agents at both loadport and discharge port, vessel paying customary port charges and agency fee (provided competitive). Rider Clause 45. (a)(i) The Owners shall comply with the requirements of the International Code for the Security of Ships and Port Facilities and the relevant amendments to Chapter XI of SOLAS (ISPS Code) relating to the vessel and "the Company" (as defined by the ISPS Code). If trading to or from the United States waters, the Owners shall also comply with the requirements of the US Maritime Transportation Security Act of 2002 (MTSA) relating to the vessel and the "Owner" (as defined by the MTSA). (a)(iii) Loss, damages, expenses or delay (excluding consequential loss, damages, expenses or delay) caused by the failure on the part of the Owners or "the Company"/"Owner" to comply with the requirements of the ISPS Code/ MTSA or the Clause shall be for the Owners' account, except as otherwise provided for in this Charter Party. On 28 September, the Master advised the agent in Houston that the Vessel would be arriving on 30 September and asked for assistance filing the 96 hour notice of arrival/departure (NOA/D) as required by the U.S. Coast Guard. Upon receipt of the Vessel's NOA/D form, the agent advised both the Master and Owner that the NOA/D form used was outdated and gave instructions to the Master to contact agent's e-filing department for the proper filing procedure with the up-to-date version of the NOA/D form. The Master resubmitted a completed NOA/D that same day, unfortunately still on the outdated form. Owner did not respond to the agent's advice, presumably because the operations person was out of the office. After the Master's second submission, nothing further happened with the NOA/D. On 29 September, the agent contacted the Master and gave preliminary berthing instructions for 6 October. The next day, 30 September, the Vessel arrived and anchored in Houston and gave her Notice of Readiness at 1645 hours. On 7 October, when the Vessel was ordered to berth, the U.S. Coast Guard did not permit her to do so as no valid NOA/D was ever filed with the National Vessel Movement Center ("NVMC"). The agent resubmitted an electronic NOA/D and notified Master, Owner and Charterer that the Vessel could not be cleared for another 96 hours with the earliest estimated date for berthing now being 12 October.


July / September 2010 Charterer, fearing that their Receiver might cancel the sales contract, agreed to a price reduction with Receiver in order to secure Receiver's acceptance of the late cargo. On 8 October, Charterer cancelled the charter party with Owner as Charterer had arranged for shipment on another vessel. Owner's Claim Owner argues that Charterer wrongfully cancelled the charter party and seeks damages of USD $129,856 plus interest and attorney fees. Owner contends that as the agent was selected, appointed and instructed by Charterer, any failure of the agent to carry out its duties must be Charterer's responsibility. Owner further asserts that the Master acted in good faith in attempting to comply with U.S. arrival procedures and having not heard anything from the agent to the contrary, believed that the NOA/D had been submitted properly once the Master had provided all the required information. Owner maintains that the Vessel, having arrived before the cancelling date, was at all times "ready to load" and was an arrived ship at the time of her NOR. As such, and because the agent's failure to submit the NOA/D only became apparent on 7 October, Owner argues that the Charterer's cancellation on 8 October was belated and wrongful. Owner asserts that the NOA/D issue cannot be considered a fundamental or material breach of the charter. Charterer's Rebuttal Charterer rejects Owner's claim and counterclaims for damages of $368,302 plus expenses for what it calls Owner's failure to present a Vessel "ready in all respects to load" prior to the cancelling date. Charterer contends that it had every right to cancel the charter party as per Clause 9. In short, Charterer insists that the Vessel was not in compliance with Clause 45, having not obtained clearance to enter the Port of Houston, and therefore was not "in all respects ready to load" when ordered to berth. Charterer also argues that, although nominated by Charterer, the agent was paid for and instructed by Owner. Accordingly, Charterer asserts that whether the failure to submit a valid NOA/D lay with the Master, Owner or agent, it is not Charterer's responsibility. Panel's Decision The Panel considered two threshold issues: the role of the agent and whether or not the Vessel was an arrived ship when she tendered NOR at 1645 on 30 September. In concluding that the agent is a servant of the Owner, the Panel points out that the while nominated by the Charterer, the agent is appointed by and acts on behalf of the Owner. The Charterer has no responsibility for communications between Owner and its agent with regards to the Vessel's business in port; whether it be for tendering NOR, orders to berth, arranging pilots or tugs, etc. As to whether or not the Vessel was an arrived ship at the time of tender, the Panel majority finds that she was not.


At the time of tender the key issue was if the Vessel was available when called to berth by Charterer. Because the Vessel was not able to comply, the Panel deemed her not to be "at the ready disposal of the Charterer" and as the Vessel's was unavailable beyond the 4 October cancelling date, the Panel majority finds that Charterer was within its rights per Clause 9 to cancel the charter. In short, the Vessel was not in all respects ready to load and would not be at Charterer's disposal until after the cancelling date. The Panel then considered whether or not the Charterer was entitled to damages. In typical situations where the Vessel doesn't tender a valid NOR within the laydays, such as when the Vessel is delayed by bad weather, cancellation of the charter is the only remedy available to Charterer. However, in situations where the Vessel's failure to do so is the result of a breach of another clause under the charter party, the Charterer is entitled to damages stemming from that breach. The Panel quoted SMA Award No. 3984 (Norgas Pilot), which stated: The Panel disagrees with the vessel interests' contention that once Chemium [the Charterer] cancelled the Charter, it gave up, and had no right to claim, any damages for Carib's [the Owner] breach(es) of the Charter. Charterer has the option to cancel the charter, and charterer may also have a right to damages if owner breached its obligation to proceed 'with all convenient dispatch' or its conduct was unreasonable or deceptive. (Voyage Charters, 3rd Ed., 2007, at 798). The same result should certainly follow if the vessel arrives at her load port within the laycan period; tenders her notice of readiness but cannot load within the laycan period; and she cannot load, and the charterer cancels, because the condition of the vessel is in breach of the condition she was warranted she would be in for the voyage. This is entirely consistent with the position... that charterer may be entitled to claim damages if it can demonstrate that the vessel's failure to arrive by the cancelling date is the result of the owner's breach of its obligations to present the vessel in fit condition by the cancelling date... (Berg, "Lateness at Loadport", The Arbitrator (October 2003) The Panel also draws on SMA Award No. 368 (Captain Leonidas), in which the arbitrators agreed in principle with the Charterer's right to cancel and claim damages where the vessel did not comply with "all certificates current and valid" before the cancelling date. To quote that award: ... having said that, we also find Owners' [sic] argument that they are not liable for damage for vessel's delay in tendering, erroneous. In the instant case the vessel was not merely late. The vessel arrived at Montreal on August 9th, and would have been able to tender a valid NOR timely, with all the required


July / September 2010 grain passes except for the deficiencies observed during Port Control Inspection. Vessel therefore was not just late. Vessel was in breach of charter, as she was not fit to carry the cargo to its destination. In the instant award, the Panel majority reaches a similar conclusion. Because the Nova Caledonia could not enter the Port of Houston until after the canceling date, Owner was in breach of the charter party. In addition to its right to cancel, this breach also entitles Charterer to recover foreseeable damages. For the damages claim, Charterer presented an excerpt from the USDA Poultry Market News showing the price difference between when the Nova Caledonia should have arrived at the discharge port and when the replacement vessel arrived. Charterer then deducted the savings received when the replacement vessel was fixed at a lower freight rate. The Panel finds that Charterer's calculation is not commercially or legally correct, stating that the correct comparison should be the difference in price from Nova Caledonia's laycan and the price at the time of the replacement vessel's arrival at the load port. The Panel ruled that "Owner is responsible for damages that are reasonably foreseeable at the time the Charter was fixed and is presumed to know that market prices of commodities will fluctuate, so that a late arrival of a vessel at a load port may well cause a charterer to lose money." Using its own comparison of market values, the Panel calculated Charterer's damages and deducted the savings from the replacement vessel's lower freight rate. Additionally, the Panel granted Charterer interest and a $45,000 allowance for attorney fees.

Chang Han Tan Suo, SMA No. 4070, 2 Apr 10 (EXXONMOBILVOY 2000) ­ DRAFT RESTRICTIONS - LIGHTERAGE EXPENSES -- PROMISE TO PAY -SAFE BERTH -- TIME BAR -- Charterer Award The Master was instructed to load the Vessel to meet a brackish water draft to safely transit the channel in the discharge port, but used an incorrect factor to make his calculations. On arrival, the Vessel's draft was too deep and she had to be lightered in order to proceed to the discharge berth. The Panel upholds that it is a safe berth and that Owner is responsible for lighterage delays and costs. While on time charter to Westport Petroleum, Inc. (hereinafter "Owner"), Chang Han Tan Suo (hereinafter "Vessel") was chartered in a 28 February 2008 fixture by Tesoro Far East Maritime Company (hereinafter "Charterer") to carry a full cargo of crude oil from Chirique Grande, Panama to San Francisco, California; with both parties being very knowledgeable in this trade. Relevant to this dispute is Clause 36 of the ExxonMobilvoy 2000 charter party: Any claim for freight, deadfreight, demurrage and/or charges or expenses under this Charter shall be


deemed waived, extinguished and absolutely barred if such claim is not received by Charterer or Owner, as the case may be, in writing with supporting documentation within 90 days from the date of final discharge of the cargo on the voyage with respect to which said claim arises. This Clause shall not apply with respect to claims for damage, loss or shortage of cargo. Charterer issued voyage orders on 29 February 2008, the day after the fixture, which included the instruction: Vessel is to nominate to terminal and to load the maximum volume of crude consistent with a BRACKISH WATER ARRIVAL DRAFT in San Francisco 38.0 feet. Disport/Berth: San Francisco, CA - Tesoro Golden Eagle Refinery Amorco followed by Kaneb Terminals Martinez. Later that same day, Charterer amended its voyages orders to read "...BRACKISH WATER ARRIVAL DRAFT in San Francisco 38.3 feet." Following these voyage orders, the Vessel was ordered to load about 90-95% of its capacity in order to transit the Pinnacle Shoal Channel to reach the discharge berth. The loading operations and sea voyage were uneventful. On 17 March, while the Vessel was en-route to San Francisco, Charterer advised the Owner that the proper density factor for transiting Pinnacle Shoal Channel was 1.010, not 1.0125 as previously disclosed on the Master's pre-load stowage plan. The Master recalculated, and subsequently advised that the Vessel's draft would be too deep. Owner instructed the Master to strip ballast tanks and remove liquids, which the Master did. The Vessel arrived in the discharge port on 20 March and tendered NOR. The San Francisco Pilot boarded the Vessel and advised that the Vessel's draft of 38 feet 7 inches was too deep to safely transit the Channel to reach the discharge berth. Charterer's Marine Superintendent, along with the Chief Mate, measured the Vessel's port and starboard fore, amidships and aft drafts and found the Vessel sagging, with the deepest draft amidship at 38.5 feet. Because the Master was unable to adjust the draft, Owner and Charterer discussed lightering the Vessel with the costs being for Owner's account. Owner agreed stating "we agree in principle and expect Tesoro to minimize all costs involved." Charterer advised Owner that the lighterage expenses would be about USD $120,000, and subsequently chartered the Jovalon to perform the lightering operation. The Vessel waited at anchorage from 21 March until 26 March for the lighter. After transferring about 12,000 barrels of cargo, Chang Han Tan Suo met the required draft and shifted to the discharge berth. Discharging operations completed at the berth on 27 March. On 31 March, Owner issued a demurrage claim to Charterer for $246,024. On 19 November, Charterer issued a


July / September 2010 lighterage invoice for $135,995. In late March of the following year Charterer paid $94,069 for undisputed demurrage. Owner commenced arbitration to recover interest on the late-paid undisputed demurrage; and, to recover unpaid demurrage for the Vessel's time at anchorage while awaiting lighterage operations asserting that it complied with Charterer's voyage orders and that Charterer should have included the specific brackish water density at San Francisco but did not do so. Charterer was aware of the Master's preload stowage calculation using a density factor of 1.0125 and although Charterer knew the salinity factor in the Pinnacle Shoal Channel was 1.010, Charterer did not contemporaneously advise the Master to correct his calculation. Finally, Owner presents the Master's testimony in which he states that he was aware that the discharge port was San Francisco but did not know the specific berth. In contrast, Charterer contends that the Master did know the exact discharge berth and argued that the Master would have been able to determine the correct brackish water density and subsequently been able to calculate the correct load quantity via access to the port's website, the port agent or within their own company, a U.S. West Coast oil company familiar with these terminals. Charterer also points out that the Master did not, for some reason, record the Vessel's draft on arrival at the discharge port. Additionally, the Master testified that the Vessel's arrival drafts were not recorded in the deck logs, and that he does not normally record arrival drafts. As neither the Vessel's computer records at the discharge port nor the contemporaneous draft readings were preserved, Charterer asks the Panel to draw an adverse inference owing to their absence. Charterer also reiterates that the joint survey proves that the Vessel arrived over the draft limit. In refuting Charterer's lighterage claim, Owner cites ExxonMobilvoy 2000's Clause 36, which contains a time-bar requiring all claims to be presented within 90 days of discharge. As Charterer's claim came some eight months after discharge, Owner requests that it be dismissed. Conversely, Charterer states that a commercial agreement for Owner to reimburse Charterer for the lighterage expenses was in place prior to the time bar and, as such, the Owner is estopped from using the time-bar clause. In a unanimous decision, the Panel denies Owner's demurrage claim, allows Owner interest on the undisputed demurrage amount already paid and awards Charterer its lighterage claim along with interest. The Panel noted that Owner, as a petroleum company that has had a longstanding U.S. West Coast presence, is familiar with petroleum terminals on the West Coast including the ones in the East Bay. At the arbitration hearing, Owner's Scheduling Manager testified that he was familiar with the terminals and that at the time of fixture Owner knew the specific discharge berth and that the Vessel would have to transit the Pinnacle Shoal Channel to reach the berth. The Panel points out that Charterer's voyage orders on 29 February were clear and unambiguous and in the Panel's opinion the Owner and the Master knew the intended discharge terminal prior to loading.


Owner's final argument was that the East Bay Region and Pinnacle Shoal Channel were unsafe and that Charterer was in breach of its obligation to provide a safe berth. Reading the charter party and voyage orders together, the Panel concludes that Owner and Vessel personnel had actual knowledge of the specific discharge berth, not constructive knowledge. As per common practice in the petroleum industry, the Panel opines that Owner and Master were obligated to evaluate the safety of the nominated berth. The Panel cites SMA No. 2849 (Bahama Spirit) which stated: The arbitration awards, judicial decisions and texts uniformly and consistently hold that when a charter party names a specific port/berth, the owner is charged with the express or constructive knowledge of existing conditions at the named port/berth. In effect, the safe port/berth exposure shifts to the ship owner when a named port/berth exists. In light of the discharge port range in the charter party, Charterer's voyage orders and Owner's testimony in the arbitration proceeding, the Panel rejects Owner's unsafe berth argument. The Panel finds that the Master loaded the Vessel so that her draft was too deep to reach the discharge berth safely. Regarding the time bar on Charterer's claim for lighterage expenses, the Panel does find that based on a strict reading of Clause 36, it is time-barred and cites SMA 2823 (Sea Lady) and SMA 3868 (Chembulk New York) in support of Owner's time bar defense. However, the Panel noted precedent in both the U.S. Supreme Court and the Southern District of New York held that, as a matter of equity, a time bar defense may be denied due to a party's actions; such as where a party makes an agreement to pay. In the U.S. Supreme Court ruling, Glus v. Brooklyn Eastern Terminal (359 U.S. 231, 232-234, 70 S. Ct. 760, 3 L.Ed. 2d 770 (1959)), the Court applied this maxim of equity to deny a time bar defense, basis the principle that no man may profit by his own wrong. Considering the facts and the exchanges between Charterer and Owner regarding the lighterage, in particular that the Owner contemporaneously "agreed in principle" when Charterer advised that lighterage expenses would be for Owner's account, the Panel found the exchange to be unambiguous and denied Owner's time bar defense.


July / September 2010 Readiness (NOR) was invalid as the NOR was tendered prematurely (prior to the laydays) and Vessel was not legally ready to load without the COC. Upon consideration of the charter terms and facts, the arbitrator held that the NOR was valid, with laytime commencing six hours after laydays commenced. Interchem Logistics B.V. (hereinafter "Interchem" or "Charterer") and Chembulk Trading II LLC (hereinafter "Owner") fixed a voyage charter on an amended ASBATANKVOY charter party with the Chembulk Hong Kong (hereinafter "Vessel") for a voyage from St. Croix to the U.S. Gulf with laydays of 14-16 October 2008. The ASBATANKVOY clauses, in relevant part, pertaining to this dispute are as follows: 5. LAYDAYS. Laytime shall not commence before the date stipulated in Part I, except with the Charterer's sanction... 6. NOTICE OF READINESS. Upon arrival at the customary anchorage at each port of loading or discharge, the Master or his agent shall give the Charterer or his agent notice by letter, telegraph, wireless or telephone that the Vessel is ready to load or discharge cargo, berth or no berth, and laytime, as hereinafter provided, shall commence upon the expiration of six (6) hours after receipt of such notice, or upon the Vessel's arrival in berth (i.e., finished mooring when at a sealoading or discharge terminal and all fast when loading or discharging alongside a wharf), whichever occurs first. However, where delay is caused to Vessel getting into berth after giving notice of readiness for any reason over which Charterer has no control, such delay shall not count as used laytime. Also significant to this dispute are the following Interchem Terms incorporated in the fixture: Clause 2. Laytime and/or demurrage at each loading or discharging port shall commence to run 6 hours after the vessel is in all respects ready to load or discharge and written notice thereof has been tendered by the Master or Owners' agents to Charterer or their agents, unless used or vessel is all-fast. Shifting time from anchorage to loading or discharging berth/place not to count even if vessel is on demurrage. Notice of readiness shall not be tendered before commencement of laydays. Should the vessel be allowed by Charterer to load prior to the laydays then any time saved until 06.00 hours local time on the first day of the laycan will be credited to the Charterer should any demurrage occur. Clause 3. Owner warrants that the vessel is in all respects eligible for trading to the ports and places specified in part I and that at all necessary times she

Chembulk Hong Kong, SMA No. 4071, 26 Apr 10 (ASBATANKVOY) ­ NOTICE OF READINESS PRIOR COMMENCEMENT OF LAYDAYS -- USCG COC INSPECTION ­ CONTRACT CONSTRUCTION - Owner Award The Vessel arrived and tendered Notice of Readiness just prior to the commencement of laydays, but waited several days because the port was closed due to a hurricane. On berthing, the Vessel had to obtain a Certificate of Compliance (COC) before any loading operations could begin. Charterer refuted Owner's demurrage claim, declaring that the Notice of


shall have on board all valid certificates, records and other documents required for such service. Any delay caused by not complying with this shall be for Owners account. Clause 6. Vessel to comply with all U.S. Coast Guard regulations and competent authorities. Delays resulting from non-compliance with these regulations will be for owners account. Time used for inspections carried out in respect to the above will not count as used laytime or demurrage. Prior to fixing the charter party, the parties discussed the issue of the Vessel's expired COC as it had been over a year since the Chembulk Hong Kong had called a U.S. port and her certificate had expired the previous June. The Vessel arrived at St. Croix on 13 October at 0545 and tendered NOR at 0700. That same day at 1300 hrs, the port was closed due to a hurricane. The Vessel waited out the storm, and on 16 October, re-tendered NOR and ultimately berthed on 18 October. It is established that after the storm the terminal opted to berth vessels out of turn by taking vessels with feedstock deliveries first. Upon berthing, the Vessel was inspected and the certificate renewed by the U.S. Coast Guard (USCG). After the 3 hours 15 minutes inspection loading operations commenced. Using a sole arbitrator under the Society of Maritime Arbitrators' Shortened Arbitration Rules, Owner seeks to recover demurrage of $55,535 assessed by starting laytime six hours after the commencement of laydays. Owner's claim includes a 50% credit during the hurricane as per the weather clause and deducts the time used for the USCG inspection. Arguing four points the Charterer maintains that no demurrage is due: 1) NOR was not tendered on 10/13:0700 as Owner states; 2) the delay in berthing was due to the Vessel's lack of a COC; 3) if the NOR was tendered at 10/13:0700, it was invalid due to lack of a COC; and, 4) the charter party forbids tendering of the NOR prior to the commencement of laydays and as such, any NORs tendered prior to the laydays is invalid. Was NOR actually tendered on 13 October? Providing an email dated 16 October as evidence that the Supplier was not aware of any NOR having been tendered, Charterer disputes that an NOR was actually given on 13 October. Noting that the terminal representative signed it "without protest or reservation", the arbitrator felt that had there been any doubt to the validity of the NOR's date and time, the representative should not have signed it. The arbitrator gives Owner "the benefit of doubt" and finds that the Vessel did actually tender on 13 October at 0700 hours. Was the delay in berthing the result of Vessel's noncompliance with the USCG requirement?


July / September 2010 Charterer contends that the berth was available when the Vessel arrived at St. Croix. Had she possessed a valid Certificate of Compliance, and had Owners requested permission to berth early, Charterer asserts that the Vessel would have been called in to berth immediately. Using the actual times taken in shifting and connecting hoses, Charterer theorizes that if Owners had asked permission and the Vessel had a valid COC, loading operations could have been underway prior to the terminal's shutdown at 1300 hours on 13 October. Owner disagreed, arguing that the berth was occupied when the Vessel arrived and that at that time the loading terminal was anticipating suspending its operations in light of the coming storm. With the terminal closing shortly after the Vessel's tender Owner argues that no time was lost due to the Vessel's lack of a COC. As soon as the storm had passed and the berth was available, Chembulk Hong Kong berthed with the USCG inspection being conducted promptly with no deficiencies found. Loading operations began immediately thereafter. With respect to Charterer's argument that the Vessel could have berthed immediately on arrival if Owner had asked permission, the arbitrator states that tendering NOR prior to laydays is tantamount to asking permission to load early. The arbitrator reviewed several messages exchanged between the parties while the Vessel was waiting, but none of them suggest that the Vessel could have berthed, or was called to berth, in the short span of time between the tender of NOR and the closing of the port due to the hurricane. The arbitrator finds that the delay in berthing was due to adverse weather conditions and berth congestion or other terminal reasons; all of which are Charterer's responsibility. The arbitrator ruled that the only delay attributable to the required USCG inspection was the time used for the inspection. Did the lack of an up-to-date Certificate of Compliance invalidate the NOR? Owner contends that Chembulk Hong Kong's NOR was effective when it was tendered, pointing to Charterer's Rider Clauses 3 and 6, which specify that only the time actually lost as a result of non-compliance is excepted from time counting. Comparing the time which the Vessel waited for berthing (13-18 October) to the time taken for the USCG inspection (3 hours 15 minutes), Owner contends that the doctrine of substantial readiness applies as it would be unfair in a commercial sense to penalize Owner by invalidating all of the waiting time over a readily correctible deficiency. Charterer posits that if a Vessel is in any way unfit to load cargo, she cannot be regarded as substantially ready. And, since the Vessel lacked a valid COC, Charterer rejects both the Vessel's NOR on 13 October and re-tender on 16 October. Without the COC, Charterer argues that the NOR violated ASBATANKVOY Clause 6 as well as Rider Clauses 2, 3 and 6. Adding that there are no waiver clauses regarding compliance with the COC, Charterer contends that the only time the Vessel was in a position to tender a valid NOR was


after she had all of the required documentation to legally load the cargo. The arbitrator finds that the doctrine of substantial readiness applies, and states that the evidence for this is clearly present in the charter party in the form of Interchem's Clauses 3 and 6. The arbitrator notes that there was a discussion via email at fixing between Owner, Charterer and Supplier regarding the required inspection and the Certificate of Compliance. Stating " spite of it or as a result of it, the Charterer and the Owner still elected to fix the vessel and incorporate Rider Clauses 3 and 6...", the arbitrator points out that the remedy for the Vessel's non-compliance is defined in those clauses: delays caused by non-compliance are for Owner's account and do not count as used laytime or time on demurrage. The arbitrator finds nothing in those clauses which prevents the Master from tendering NOR, or which renders the NOR invalid. To the contrary, the arbitrator states, that "when the parties knowingly fix a vessel with the possibility of a correctable defect, they allow the NOR to be tendered with that defect, as long as it remained readily correctable, and in this case it was." The arbitrator adds that because Interchem's Clause 6 stipulates that time used for the inspection will not count as used laytime, it suggests that a NOR can be validly and effectively tendered prior to the inspection since the inspection is not to count as used laytime and laytime of course can only commence after NOR is tendered. Was the NOR invalid because it was tendered prior to the commencement of laydays? Owner contends that the purpose of a NOR is to let Charterer know that the Vessel has arrived and is at their disposal. Owner opines that six hours notice starts running after NOR, even if tendered prior to the commencement of laydays, unless the charter party states otherwise. For this reason Owner purports charterers add clauses which prohibit NORs from being tendered early, or which prohibit the six hours from starting prior to the commencement of laydays. In this case, Owner states Charterer has added Clause 2 to ensure that the notice time does not commence until the beginning of laydays. Pointing to ASBATANKVOY, Part II, Clause 6 and Rider Clause 2, Owner argues that there is tension between the two clauses. According to ASBATANKVOY, the Vessel is obliged to tender NOR on arrival. However, the Rider clause does not allow the six hour notice time to begin until laydays commence. Owner contends that any ambiguities in the charter party should be construed against Charterer using the doctrine of contra proferentem.3 Ambiguity in a contract will be construed against the draftor of the term(s) or the party insistent upon its inclusion.



July / September 2010 Charterer defines the Vessel's NOR as "impermissibly premature" arguing that an early tender contravenes Rider Clause 2 as well as ASBATANKVOY Clause 5. Charterer regards these two clauses as expressly prohibiting an early NOR from being tendered. Charterer sees no tension between ASBATANKVOY Clause 6 and Rider Clause 2. Per Charterer, even if the clauses were inconsistent it is an established rule of contract construction that clauses appended to a charter party form supersede clauses in the boilerplate. Although the arbitrator agrees that rider clauses supersede the boilerplate clauses should there be a conflict, in this matter the arbitrator failed to find any language that would invalidate an NOR tendered prior to laydays, stating: There is no question that at 1 minute past midnight on October 14, 2008, the first day of the laydays, the Supplier and the Charterer knew the exact location and condition of the Vessel. Thus, the overreaching purpose of the NOR was achieved and it need not be re-tendered. The arbitrator reiterates that the purpose of Rider Clause 2 is to preserve Charterer's benefit of 6 hours notice time, not to prevent the NOR from becoming effective as soon as the charter party allows. Nor does the clause prohibit the actual early tendering of NOR; in some situations the ability to call the Vessel in early would be to Charterer's benefit (for reasons of berth congestion, commodity pricing, etc.). Additionally, the arbitrator states that: The stipulation that NOR shall not be tendered prior to a specific point in time, is no different than the stipulation requiring NOR shall be tendered within a certain window of time, such as regular office hours. Cased cited here (SMA 1626, "the Achangelos Michail") allowed a NOR tender outside office hours to become effective during office hours the following day. This long and well established principle applies as well under the circumstances here." The arbitrator concludes Owner's claim is proper as the NOR was valid and effective as tendered causing laytime to begin at 0600 hrs on 14 October, the first day of laydays. The arbitrator awards Owner's claim plus interest accruing from 30 days after the claim was filed with the Charterer.



July / September 2010


London Arbitration 4/10 (NYPE) -- OFF-HIRE -SEAWORTHINESS -- WAITING TIME - Owner Award After waiting eight days at the loadport to berth, cracks were found in the Vessel's hull and she was rejected for loading. Charterer argues that the deficiency invalidates the waiting time and that the Vessel was off-hire or, alternatively, presents a claim for damages due to demurrage lost under a sub-charter. The tribunal dismissed these claims as the question of causation for the delay applies i.e. the root cause of the delay was berth congestion. Charterer took the Vessel on a NYPE time charter to perform a single voyage that Charterer had sub-chartered. Delivery occurred upon dropping the last outbound pilot at the previous port. The Vessel made a ballast voyage to the load port, tendered NOR and subsequently waited eight days at the anchorage for berthing. Just before loading cracks were discovered in the Vessel's hull which necessitated repairs as mandated by the port state control. As there was no repair facility in port, the Vessel departed and having completed repairs, returned two weeks later. The Vessel re-tendered NOR, loaded and conducted the rest of the voyage without incident. The parties do not disagree that the Vessel was offhire from the time she departed the loadport for repairs until returning and re-tendering NOR. In dispute is the initial eight days awaiting berthing after the first NOR. NYPE Clause 15 is pertinent to this arbitration: 15. That in the event of the loss of time from deficiency of men or stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, drydocking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost; and if upon the voyage the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost, and the cost of any extra fuel consumed in consequence thereof, and all extra expenses shall be deducted from the hire. It is important to note that under a time charter party the basic principles hold that hire is payable continuously unless the charterer can bring themselves within one of the exceptions, with the onus being on the charterer to do so; AND, time must have been lost to charterer's service as a result. Any doubt of these exceptions is to be resolved in favor of owners. Citing NYPE Clause 15, Charterer argues that the Vessel was off-hire for those eight days after the Vessel's first NOR. Owner counters that the Vessel could not have berthed due to congestion and that therefore no time was lost due to the Vessel's deficiency. Charterer refutes Owner's argument, stating that in this instance the concept of time lost and the concept of "full working" efficiency overlap. Charterer states that the test for efficiency is whether or not the Vessel was available immediately when called to service. In making a claim for damages, Charterer cites the NYPE Clause 1 requirement that the Vessel be delivered "in a thoroughly efficient and seaworthy state and in all respects fit to load". Owner did not dispute that the cracks were present when the Vessel was delivered. Charterer contends that if it had been aware of the cracks in the hull, it would have been entitled by the charter party to refuse delivery until the cracks were repaired, or could have canceled the charter altogether if the Vessel was not presentable by the cancelling date for delivery. In this view, Charterer opines that it lost eight days in wasted hire and bunker consumption because the Vessel was unfit for the voyage. In an alternative argument, Charterer claimed that damages could be determined basis the demurrage that it would have earned on the sub-charter for waiting time after the Vessel's first NOR, plus the despatch paid to its subcontract partner after the Vessel's return to the loadport and second tender. Owner counters that these damages are too remote, and claims it had no knowledge of the sub-charter or its terms. Owner argues that the seaworthiness warranty was qualified by due diligence. The Panel held that Charterer's off-hire argument was incorrect. Although the cracks in the hull prevented the Vessel from working, and that deficiency fell under Clause 15 as excepted time, the true question was whether the existence of the cracks caused a loss of time. The Panel found that they did not. Even had the cracks not existed, the Vessel would have still had to wait for her turn at berth. The Panel ruled that the Vessel remained on-hire for the eight days of waiting time. Regarding the unseaworthiness of the Vessel, the Panel dismissed Owner's argument of due diligence: the cracks should have been discovered prior to delivery and the record shows that at least one crack was known. Nonetheless, Charterer's claim for damages fails because the question of causation for the delay applies the same as for the off-hire period i.e. did Owner's breach cause a loss of time? No, the congestion at the loadport caused the eight days delay, not Owner's breach. Considering Charterer's alternative claim for damages based on demurrage it could have earned (for the previously mentioned eight days) on the sub-charter had the Vessel presented a valid NOR upon arrival, the Panel ruled that Owner knew Charterer's intention for the sub-charter at the time their time charter was fixed, and, "had they thought about


it", would have realized that the sub-charter was a voyage charter under which demurrage and despatch terms would have applied.


July / September 2010 independent surveyor at load port, vessel to be off-hire until ready to pass inspection. ... Clause 56: Paramount Clause. Clause Paramount, U.S. Clause Paramount, Canadian Clause Paramount, wherever applicable or any national legislation or convention as may mandatory [sic] apply to the Bills of Lading issued hereunder shall be deemed to form part of this Charter Party. Clause 124: Hold Cleaning Intermediate. All intermediate hold cleaning to be in Charterers' time, risk and expense, and vessel to remain always on hire, however crew to perform such cleaning with the same care as if they were acting on behalf of the Owners against payment by Charterers of US$ 500 per hold used only for steels excluding removal and disposal of dunnage/lashing etc and US$ 750 per hold used for clean cargoes ... Charterer commenced arbitration, declaring that Owner was in breach of lines 21-22, because the holds were not fit to carry the grain cargo when she was delivered at Haldia for the time charter. Alternately, Charterer argues that Owner is in breach of US COGSA Section 3(1), which Charterer argues is incorporated via the charter party's Clause Paramount, for failing to exercise due diligence to make the holds fit to receive and carry the grain prior to arrival at Vancouver. For the excess time cleaning the holds, Charterer claims it is owed five days' hire, plus bunkers, cleaning costs and other expenses. Owner refutes the claim and, citing The Bunga Saga Lima [2005] Lloyd's Rep 1, argues that Charterer unconditionally accepted the Vessel at Bangsaphan, waiving any breach. Charterer had the responsibility to verify that the holds were acceptable on delivery (as per Clause 54), and Charterer is responsible for intermediate hold cleaning (as per Clause 124). Even if COGSA was incorporated by the charter party, which Owner rejects, it did not have the effect to transfer those responsibilities to Owner. Owner contends that Charterer found the holds acceptable on delivery. Also, Owner points out that there was only seven hours' time between the discharge of steel at Kalama and the inspection at Vancouver during which time the crew exercised due diligence to make the holds ready for the grain cargo. Citing line 17 in the charter party, Charterer denies that it waived its rights to uphold Owner's obligations when accepting the Vessel at delivery. Relying on Staughton LJ's opinion in The Berge Sund [1993] 2 Lloyd's Rep 453, Charterer contends that Clause 124 applies only to cleaning required as a result of its own cargoes. The Panel first considered why the Vessel was rejected at Vancouver. Differentiating between coal "stains" and coal "residue", the Panel pointed out that the cleaning procedures would have removed the coal dust/particles ("residue") as supported by photographs, while the surveyors were concerned about the stains. The Panel held that Owner was not in breach of charter party lines 21-22 that required the Vessel be "...ready

London Arbitration 7/10 (NYPE) -- CLEANLINESS OF HOLDS -- VESSEL FIT FOR SERVICE ­ OFF-HIRE -Owner Award The Vessel was approved for the first voyage under a time charter and carried out the first voyage without incident. Prior to the second voyage, the holds were rejected due to stains from a cargo carried just prior to the commencement of the time charter. After five days of cleaning, the holds were approved. Charterer's claim for off-hire and expenses during the cleaning failed because the Vessel accepted on delivery. The Vessel was delivered in Haldia to carry out a NYPE time charter for 110-170 days. Charterer ordered the Vessel to Bangsaphan, Thailand, the first loadport. En route, the crew cleaned the cargo holds. On arrival in Bangsaphan, the surveyor approved the holds for loading, declaring them sound. However, the surveyor's report did make note of dark stains in the holds, which the Master advised were due to a cargo of coal that was discharged just prior to the Vessel's delivery under the time charter. The Vessel loaded a cargo of steel in Bangsaphan and discharged at Long Beach, California, and Kalama, Washington. While discharging at Kalama, the Vessel was pre-inspected for the next voyage which was fixed to load grain at Vancouver, Washington. The inspector found coal "stains" on the bulkheads which they insisted must be removed prior to loading grain. The Vessel immediately commenced cleaning operations and arrived at Vancouver where the subsequent inspection failed due to "coal residue". After another five days of cleaning by the Vessel crew and shore personnel, the holds were re-inspected and approved. Following are the charter provisions pertaining to this dispute, in relevant part: Lines 17-22: Acceptance of delivery by Charterers shall not constitute any waiver of Owners' obligations hereunder. Vessel to be placed at the disposal of the Charterers on dropping last outward sea pilot Haldia ... Vessel on her delivery to be ready to receive cargo with clean-swept holds and tight, staunch, strong and in every way fitted for the service... Clause 54: Hold Condition on Delivery/Redelivery. Vessel's holds condition on arrival at first loading port to be fresh water washed down, clean dry, free from loose rust flakes/scales and residues of previous cargo and in every way ready and suitable to load Charterers' intended cargo to the satisfaction of the independent surveyor. If vessel is rejected by the


to receive cargo with clean-swept holds...and in every way fitted for the service" upon delivery. Further, since the charter called for the Vessel to be delivered "DLOSP (dropping last outbound sea pilot) Haldia", where she had just completed a discharge of coal, it would have been impossible to clean the holds in that short interim between completion of discharge and delivery. Thus, the Panel held that Clause 54 was deemed to have been incorporated to address the commercial reality of this situation by mandating that the Vessel's condition be acceptable to the surveyor's satisfaction on arrival at the first loadport, thereby superseding lines 21-22. The transit from Haldia to Bangsaphan gave the crew time to clean the holds, and the holds did pass inspection on arrival at the first loadport. And, in rejecting that US COGSA was incorporated, the Panel stated that even if it could be applied to the time charter, Clause 54 would supersede it. As Owner had met its obligations under Clause 54, Charterer's US COGSA argument was moot. The Panel found that Clause 124 did not restrict cleaning to only cargoes carried by the Charterer (The Bunga Saga Lima) and that The Berge Sund was not relevant because there was no contract breach by Owner in the instant dispute. The Panel rules that Owner met its obligations with respect to both the delivery of the Vessel in a suitable condition and with cleaning operations between voyages. Charterer's claim was dismissed.


July / September 2010 damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, drydocking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost... At arbitration, the Panel held that the Vessel, while detained by pirates, was not off-hire under Clause 15. Charterer appealed to the High Court, arguing that at least one of the three issues in Clause 15 applied: 1) "detention by average accidents", 2) "default and/or deficiency of men", and 3) "any other cause". The Judge addressed each issue in turn. "Detention by average accidents" In The Mareva AS [1977] 1 Lloyd's Rep 368, 381, an "average accident" was characterized as an "accident which causes damage". The Judge points out that as there was no damage to the ship, Charterer's argument falls short of the precedent. Also, the Judge felt that capture by pirates could not be considered "average" as it is not an event typically covered by maritime insurance. In any case, the Judge ruled, piracy could not be considered an "accident". "Default and/or deficiency of men" At arbitration, Charterer had argued that the crew had failed to take precautions against piracy before and/or during the incident, and asked the Panel to classify those alleged failures as "default of men" and to consider that the crew's inaction was a major factor in the Vessel's capture. Charterer contended that the natural meaning of "default of men" included the failure to perform duties. But the Judge disagreed, stating that Clause 15 required a narrower definition which he defined as a refusal to perform their duties, with negligence alone not being enough. "Any other cause" The Judge found it significant that the clause read "any other cause" and not "any other cause whatsoever" (The Laconian Confidence [1997] 1Lloyd's Rep 139, 150-151). Lacking the whatsoever modifier, the test for what other causes were covered by Clause 15 is in determining whether that cause fits eiusdem generis.4 Piracy did not fit, because it was not an issue that stemmed from the deficiency of the crew, the condition of the Vessel or the cargo. Piracy was an extraneous cause, therefore it was not a risk borne by the Owner under Clause 15. The Judge pointed to the presence of Clause 40 appended to the NYPE form:

Cosco Bulk Carrier Co Ltd v Team-Up Owning Co Ltd (The "Saldanha") - QBD (Comm Ct)(Gross J) [11 June 2010] (NYPE) -- APPEAL -- PIRACY -- OFF-HIRE -- Owner Award Charterer appealed to have all time that the Vessel was held by pirates count as off-hire. The High Court upheld the tribunal's award and reasoning in that Charterer failed to prove the Vessel was prevented from working due to any of the three causes in Clause 15: a) detention by average accidents to ship or cargo; b) default and/or deficiency of men; c) any other cause. Charterer had the Vessel on an amended NYPE time charter for a period of 47-50 months. While sailing in the Gulf of Aden with a cargo of coal, the Saldanha was boarded on 22 Feb 09 and captured by pirates. The pirates took the Vessel to Somalia and kept her until 25 April, at which time she was released. The Vessel then resumed the interrupted voyage and by 2 May 2009, had reached the position where the boarding occurred. Owner claims for hire, plus bunkers and premiums for war risk and crew war risk. Citing Clause 15 of the charter party, Charterer claimed off hire from 22 February until 2 May. Additionally, Charterer counterclaimed for damages, claiming that the Vessel was unseaworthy as she wasn't prepared to handle pirates. Clause 15 states, in relevant part: That in the event of the loss of time from default and/or deficiency of men including strike of Officers and/or crew or deficiency of... stores, fire, breakdown or

Eiusdem generis or ejusdem generis is Latin for "of the same kind". The ambiguity of "any other cause" cannot be interpreted in a manner inconsistent with the other qualifiers within the clause.



Clause 40 - Seizure/Arrest/Requisition/Detention Should the Vessel be seized, arrested, requisitioned or detained during the currency of this Charter Party by any authority or at the suit of any person having or purporting to have a claim against or any interest in the Vessel, the Charterers' liability to pay hire shall cease immediately from the time of her seizure, arrest, requisition or detention and all time so lost shall be treated as off-hire until the time of her release... Although this clause dealt specifically with seizure, the Judge ruled that it did not cover piracy, stating that had the parties wished to make seizure by pirates an off-hire event, this clause would have been the obvious place to do so. Charterer's appeal was dismissed.


July / September 2010

Emeraldian Limited Partnership v Wellmix Shipping Ltd and Anr (The "Vine") - QBD (Comm Ct)(Teare J) [17 June 2010] ­ DEMURRAGE -- SAFE BERTH - BEYOND CHARTERER'S CONTROL -- Owner Award After nominating the loadberth an accident occurred forcing its closure for repairs. Owner claimed demurrage for the time spent by the Vessel awaiting the repair of the berth, but Charterer refuted the claim basis the notion that the accident was beyond Charterer's control. In awarding Owner's demurrage claim, the Court ruled that the berth was unsafe at the time it was nominated because mooring required exercising more than ordinary seamanship in order for a vessel to safely berth. Wellmix Shipping Ltd. (hereinafter "Charterer") fixed the Vine (hereinafter "Vessel") with Emeraldian Limited Partnership (hereinafter "Owner") on "3 or 4 December 2007" for a single voyage carrying 120,000 MT iron ore, loading "1 or 2 safe berths, 1 safe port Itaguai, Brazil, always afloat" and discharging in China. The charter party incorporated SCALE terms which were drawn from a long term iron ore purchase contract used by Guangzhou Iron & Steel Corporation ("GIS") and Vale SA. GIS, having guaranteed the liabilities of the Charterer, was named by Owner as a second defendant. In addition to providing that laytime was to commence 6 hours after notice of readiness was tendered, the relevant SCALE terms are: Clause 4.1: Notice of Readiness (NOR) may be tendered after arrival of the vessel at Loading Port, at any time, ... provided that the vessel is... cleared by Port Authorities... Clause 5.10: Time lost as a result of all or any of the causes hereunder shall not be computed as laytime, unless vessel is already on demurrage: ... (viii) Partial or Total interruptions on railways or port; ... (ix) Any cause of whatsoever kind or nature, beyond the control of Seller, preventing cargo preparation, loading or berthing of the vessel.

The loadberth was operated by Companhia Portuaria Baia de Sepetiba ("CPBS"), a subsidiary of Vale SA and had three dolphins. In July 2007, a ship struck the forward most dolphin damaging it. In lieu of repairing the dolphin, a contingency berthing plan utilizing two dolphins was implemented and used by over 70 vessels without incident until 8 December 2007. On that date, a ship damaged the center dolphin rendering the berth unusable. Repairs began on the dolphins on 7 January 2008. The Vine arrived on 8 January 2008 but was unable to berth until 15 February because of the ongoing repairs. Owner claimed demurrage totaling USD $5 million for the waiting time against Charterer, and subsequently against GIS, which had guaranteed Charterer's performance. Citing Clause 4.1, Charterer disputed that waiting time commenced on 8 January as the Port Authorities did not clear the Vessel to berth until 12 January. Citing The Northgate [2008], Owner countered that CPBS had the authority to waive the requirement and had in fact done so. Although Charterer argued that there was no evidence to support Owner's assertion, the Court found it compelling that two representatives of CPBS signed the statements of facts which recorded the port clearance as given on January 12 but NOR was accepted on 8 January--constructively constituting a waiver by CPBS. Accordingly, the Court ruled that the NOR was effective and caused laytime to commence on 8 January. Charterer then contended that the delay in berthing was a "partial interruption of the port", an exception granted by Clause 5.10(viii). Owner refuted this argument, arguing that the same clause required the interruption to be "beyond the control of Seller". Since the Seller was Vale SA and since the berth was owned by Vale's subsidiary, CPBS, Owner contends that the timing of the repairs was under Seller's control. Charterer countered that the Clause did not require the interruption to be beyond Seller's control. Alternatively, Charterer argued that if the Clause does require it, then "Seller" should be read as "Charterer". Charterer further argued that in any case, the Court should consider Vale SA as a separate entity from CPBS; therefore the interruption was beyond Seller's control. Although it rejected Charterer's argument that "Seller" should be read as "Charterer", the Court ruled that the "beyond the control of Seller" provision in subclause ix did not apply to the other subclauses of Clause 5.10. However, the Court did rule it necessary for Charterer to show that there were no reasonable steps it could have taken to avoid or mitigate the effects of the berth closure. The Court opined that the charter party placed the duty to load the cargo within the laydays on the Charterer. Although the berth was managed by CPBS and Charterer had delegated its duty to load to CPBS, as far as the charter party with Owner is concerned, the berth was under Charterer's control. However, the Court found that the two prior incidents with other ships caused the delay to the Vine and that the berth was not under Charterer's control at those times. Accordingly, the Court ruled that the delay was caused by a "partial interruption... on port".


Owner's final argument was that Charterer had failed in its obligation to nominate a safe berth and was liable to compensate Owner at the demurrage rate for the extent of the delay caused by a breach of this safe berth warranty. The Court agreed. The CPBS berth was nominated on "3 or 4 December 2007", before the second incident, which damaged the berth as to be unusable, occurred. The Court stated that


July / September 2010 the berth was unsafe prior to the second incident as the contingency berthing plan required more than ordinary seamanship to safely berth a vessel. As such, the Court ruled that the berth was unsafe as nominated and Owner's demurrage claim succeeded. *****




DEEPWATER HORIZON . . . Despite this being the worst oil spill disaster in U.S. history, as containment efforts in the Gulf of Mexico continue, the Deepwater Horizon oil spill's effect on shipping has been negligible. Since the slick moved mainly to the east, there was little impact on shipping lanes to the west, requiring only a slight detour for ships to avoid the oil. Louisiana Offshore Oil Port (LOOP), just 100 miles to the west, remained operational until forced to close on 28 June due to the impending arrival of Hurricane Alex, and reopened again on 1 July. Although the U.S. Coast Guard (USCG) established several 'no wake' areas in shipping lanes around New Orleans for the deployment of containment booms, the Bar Pilots report "business as usual", as no other restrictions have been placed on vessel traffic entering or exiting the Mississippi River. Likewise, barge and vessel traffic on the River thus far remains unaffected. The USCG has made projection maps of the spill and self-assessment forms available to mariners, and has strongly urged vessels to avoid oily water. Seagoing tugs are putting their firefighting equipment to work at offshore decontamination stations, cleaning ships that are "sheening" with oil. Most of the vessels using the stations are those engaged in the recovery effort. To date, only three deep draft commercial vessels have required decontamination. In a Marine Safety Information Bulletin, it was advised that the Captain of the Port of New Orleans does not consider "a sheen created by a vessel smudged by Deepwater Horizon Oil to be a separate violation of the Federal Water Pollution Control Act, so Masters need not be concerned that a sheen emanating from their vessel as a result of sailing through Deepwater Horizon oil will result in a penalty for their vessel." USCG 2009 PORT STATE CONTROL REPORT. . . In the recently published report, the U.S. Coast Guard attributes an 8% drop in overall traffic to the global economic downturn. The good news however was that for 2008 detentions for safety and environmental protections were down from 176 to 162 while detentions for security reasons were down from 27 to 18. The report remarks that formal policies were put in place to ban vessels from U.S. waters "whenever a vessel is subject to three detentions within the previous twelve months and wherever failure to effectively implement the Safety Management System is a contributing factor for the substandard conditions that led to the detentions." PARIS MOU 2009 PORT STATE CONTROL REPORT. . . The recently published 2009 report highlights details of the New Inspection Regime which will go into force 1 January 2011, and will divide ships into three groups: Low, Standard and High Risk. Low risk vessels will have longer intervals of 24 to 36 months between inspections, while high risk ships will face rigorous inspections every six months. Detentions dating back as far as mid-June 2009 will be counted, and for the first time, company performance will make up part of each vessel's risk profile. CANADIAN COAST GUARD (CCG) . . . As of July 1, 2010, vessels over 3,000 tons traveling in Canadian arctic waters are required to register with CCG's NORDREG traffic system. The move from voluntary to mandatory reporting is to better enable the CCG to promote safe navigation and respond more quickly to accidents as well as to keep an eye on ships carrying pollutants and hazardous materials. Last year, Canada expanded its marine pollution regulations to cover Arctic seas within 200 nautical miles of its shore; an area which includes the Northwest Passage. BUREAU VERITAS' NEW VENTURE. . . The inspection and certification agency Bureau Veritas (based in France) has reportedly bought the survey company Inspectorate from Inspicio for USD $668 million. The purchase is Bureau Veritas' first foray into the oil and petrochemicals market. With Inspectorate's labs under its control, BV is now among the largest inspection companies in the world competing with Swiss-owned SGS and Great Britain's Intertek.



July / September 2010

KENYAN PIRACY COURT. . . Channeling funds through the United Nations Office on Drugs and Crime, several nations have assisted Kenya in establishing a court to deal with Somali pirates. Previously, because of the jurisdictional complications involved, most captured pirates have simply been disarmed and returned to their boats in a "catch-and-release" system. International aid will also help refurbish a prison to house the pirates and pay for repatriation of those acquitted. The Kenyan court system has a heavy backlog of cases. DUTCH SUBMARINE TO COMBAT PIRACY. . . In response to a NATO request, The Netherlands will dispatch one of its four Walrus-class submarines to the Gulf of Aden. The sub's mission will be to eavesdrop on communications between pirates and their shore bases as part of NATO's ongoing "Operation Ocean Shield". The submarine will deploy at the end of September and remain in the Gulf until the end of November. Rather than asking for a large nuclear-powered submarine, some of which displace over 9,000 tons of water when submerged, NATO specifically requested a 2,650 ton diesel-electric Walrus-class. The smaller size of the sub allows it to sneak closer to shore and remain undetected in shallower waters, thereby getting its sophisticated monitoring equipment closer to signals from pirate bases ashore. VENEZUELAN NATIONALIZATION . . . Venezuela has taken control of 11 oil rigs owned by the U.S. corporation Helmerich and Payne, which stopped drilling last January because of USD $143 million in unpaid debts owed to it by PDVSA, the Venezuelan state owned oil company. Oil Minister Rafael Ramirez stated that Helmerich and Payne would be paid the book value for the rigs. Although Venezuela says the move comes after a year of failed negotiations and characterized the company as "inflexible", Helmerich and Payne claims that it just wanted to be paid for work it had done. This follows on the heels of a similar case in January 2009 wherein U.S.-owned Ensco International had assets taken over due to similar non-payment issues by PDVSA to the tune of $35M. OPA 90 . . . The International Chamber of Shipping (ICS) has condemned a U.S. proposal to remove the liability limitations for ships set in the Oil Pollution Act of 1990 (OPA 90). According to the proposal, a shipper's liability would be determined in a similar manner to that now being applied to offshore drilling rigs. Under OPA 90, a vessel's liability is proportional to her size. The largest tanker currently has a liability cap of USD $525 million. According to ICS, removing the OPA 90 limitation and adopting the $10 billion cap suggested by the White House will place a disproportionate amount of costs on smaller ships, and will make many vessels uninsurable for trading in the United States. ICS also reiterated that the liability allowance in OPA 90 has been adequate to cover every incident since its adoption. SUPREME COURT REVERSAL . . . The Supreme Court of the United States (SCOTUS) reversed a U.S. District Court of Appeals decision against Stolt-Nielsen, which had ruled that AnimalFeeds International could commence a class action against Stolt for alleged anti-trust transgressions. The SCOTUS held that, under the Federal Arbitration Act, if an arbitration clause was silent on the issue of class arbitration, a party cannot be compelled to "submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."



AUGEN CONSULTING LLC, a leading independent demurrage consulting firm based in Lexington, Virginia, and Houston, Texas, presents the following practical business courses for the shipping industry. These information filled courses are designed in a concise format to increase knowledge, address commonly disputed issues and provide cost-effective solutions. The programs will further reinforce the fundamental aspects of shipping while delivering insightful new perspectives by giving participants a friendly forum for discussing specific problems. Additionally, course participation will broaden awareness of common pitfalls, best business practices to protect your company's interests, and will facilitate networking with industry contacts.


Intro to Tanker Operations Amsterdam ­ September 20, 2010, 9 a.m. ­ 4 p.m. New York ­ October 11, 2010, 9 a.m. ­ 4 p.m. Houston ­ November 15, 2010, 9 a.m. ­ 4 p.m. Singapore ­ January 17, 2011, 9 a.m. ­ 4 p.m. Intro to Demurrage Amsterdam ­ September 21-22, 2010, 9 a.m. ­ 4 p.m. New York ­ October 14-15, 2010, 9 a.m. ­ 4 p.m. Houston ­ November 16-17, 2010, 9 a.m. ­ 4 p.m. Singapore ­ January 18-19, 2011, 9 a.m. ­ 4 p.m. Advanced Demurrage Amsterdam ­ September 23-24, 2010, 9 a.m. ­ 4 p.m. New York ­ October 12-13, 2010, 9 a.m. ­ 4 p.m. Houston ­ November 18-19, 2010, 9 a.m. ­ 4 p.m. Singapore ­ January 20-21, 2011, 9 a.m. ­ 4 p.m.

For online registration to our courses, please click here.



July / September 2010


1,000 M.T. Lot Size Easy Chemicals

Source: New England Tanker Chartering, Inc. (NETCO).


Disclaimer: The materials and information contained in this newsletter do not purport to be comprehensive and do not constitute legal, or other, advice or opinion. Specific advice should be sought before any reliance is placed upon any information or materials contained in this newsletter. Haugen Consulting LLC does not accept any responsibility or liability for any loss which may arise from reliance on any information or materials contained herein.


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