Background
Worldwide, maritime transportation is the single most popular medium of movement that is commonly used in international trade; in fact, it is estimated to account for as much as 85% of all trade that takes place globally as far as international trade is concerned (Christiansen, Fagerholt, Nygreen and Ronen, 2007). In a rapidly modernizing world where industrialization is becoming a major sector of both the developing and developed world, international trade is set to reach even new heights. Over the last three decades, the volume of international trade that is directly attributed to maritime transportation has consistently been increasing up to 67% more than was the case in the early 1980s (Christiansen et al, 2007). Current figures indicate that tanker cargo accounts for the largest proportion of commodities that are transported via water while dry cargo has more than doubled in volume over the same period in the last three decades (Christiansen et al, 2007).
As the level of international trade has been increasing, so has been the sea trade which has expanded proportionally; as of 2003, the volume of cargo that is directly attributed to the shipping industry alone is 857 million tons which continues to increase every year (Christiansen et al, 2007). The implication of these figures indicates that maritime transport plays an integral function in the world trade arena which would emphasize its importance and impact on international trade. Indeed, maritime transportation accounts for the largest proportion of international goods that are moved internationally and is still the cheapest mode of transport globally besides pipeline transportation (Cho and Perakis, 2001).
As such, maritime transport will continue to be an important area of interest to the policymakers in the sector of international trade which is the major reason that makes it a subject of interest in general not excluding the contentious issues of laytime and demurrage as far as maritime law is concerned.
In general, the shipping industry is the least regulated industry when compared to other global industries that play such an important role in international trade; this is despite its influence on the world economy. In contrast, there are very few international treaties that have been enacted to regulate the operation modalities of maritime transport in the shipping industry. From a general perspective we can also determine that the shipping industry is like a logistical minefield because of the complicated operating environment, complicated schedule plans and high cost of operations that make maritime transport very hard to operate and manage (Cho and Perakis, 2001). This is also part of the reason why such issues of laytime and demurrage in shipping have always been contentious, very obscure and unlikely to get any better. It is on this backdrop that this paper will discuss the issues of laytime and demurrage claims which as we shall see are important elements that deserve serious consideration as far as maritime transport is concerned.
Introduction
In maritime law, laytime refers to the duration of time that is provided to cater for the time taken in unloading and loading of cargo as originally outlined between the parties within the stipulated laws and regulations of the charter party used for this purpose to serve as the framework of agreement (Summerskill, 1989). It is the duration of time in hours or days which is provided to the charterer to have finished both loading and loading processes, or whichever the case and which should not be exceeded (Summerskill, 1989). In the Law of Admiralty, laytime is defined as “the days which parties have stipulated for the loading or discharge of the cargo and, if they are exceeded, the charterers are in breach” (Grant, 1975). Perhaps a more fitting legal definition that is taken as the standard legal definition in maritime law is the one given by Lord Esher in the case of Nielsen v. Wait which was referred to the court of appeal to be clarified as pertain the issue of what constitutes working days inter alia. During this ruling Lord Esher described lay days as the period which is given “either to load or to unload without paying for the use of the ship as lay days” (Summerskill, 1989).
Another way to look at laytime is to consider it as the grace period that is provided by the shipowner to the charterer to cover for the time taken by the charterer to load and also unload the cargo of voyage and thereby not have the charterer incur any costs during this duration which would be demurrage. It is when this period of time is breached by the charter by going beyond what was previously agreed in the charter party that the shipowner is entitled to claim demurrage (Summerskill, 1989). Demurrage is thus a form of financial loss that the charterer is obligated to pay to the shipowners for continual usage of their ships beyond the duration of time that is allowed of them to have completed loading or unloading activities. More accurately demurrage is described by Force and Yiannapoulos as “an agreed amount payable to the owner in respect of delay to the vessel beyond the laytime, for which the owner is not responsible” (2003).
However as we shall see, demurrage is subject to exemption as well as what can be termed as half-exemption when it is paid at half rate. Later on, in this paper, we shall also see laytime is also subject to exemptions that are stipulated in the charter party used as the agreement. The purpose of this paper is thus to critically evaluate the concept of laytime as it applies to maritime law as well as to discuss the major issues of law on demurrage and the resulting legal implications as far as demurrage and laytime are concerned.
Objectives of the Study
Objective 1: Analysis of the NOR with Respect to Commencement of laytime
Throughout this paper, our focus will be limited to a discussion of three pertinent areas on this subject of maritime law. One of the main objectives of this paper will be to undertake an in-depth analysis of the principle of Notice of Readiness (NOR) which is part of the framework that the concept of laytime is derived from, and also discuss the validity of NOR in general. In maritime studies NOR is a form of official notification that is specifically addressed to both parties of the shipping contract, but particularly of importance to the charterer informing them that “..the ship has arrived at the port or berth as the case may be and ready to load and discharge” (MaritimeGuide.com, 2010). Thus, we can determine that the Notice of Readiness is an important element in the determination of laytime in maritime law for two reasons; one, it notifies the main parties to the contract of affreightment, usually the shipowner and the charterer of the readiness of the vessel to load or unload (MaritimeGuide.com, 2010). Secondly, the NOR signals the moment from when the laytime should ideally commence and thereby an important aspect as far as demurrage claims are concerned (MaritimeGuide.com, 2010).
Objective 2: Analysis of laws on Demurrage Claims
The second objective of this paper is to discuss the maritime principles on laytimes that are normally applied in arbitration of demurrage claims disputes. On this objective, this paper will review various court rulings in the determination of demurrage claims with a view of establishing the legal precedents on laytime arbitration that currently exist in the field of maritime law. The purpose of this objective is to enable us to summarize the important concepts on maritime law that are relevant in arbitration of demurrage claims, current trends and determination of the way forward.
Objective 3: Exempting Circumstances to laytime and Demurrage
In maritime law like most other common laws, there are exceptional circumstances that would make the strict application of laytime as originally agreed between the shipowners and the charterer not enforceable. This is the third objective of this paper; the intention is to review a set of circumstances that are permissible in maritime law and which have been upheld in the various court ruling as issues that would exempt a charterer from paying demurrage claims or counting lay days to the benefit of the shipowner.
The Concept of Contracts
In this section, I intend to provide a brief overview of what the common law stipulates as far as contract agreements are concerned for two major reasons. One, because the essence of laytime itself as well as all other provisions that outline the responsibility of each party throughout the engagement of leasing the ship is governed by the articles of the charter party agreement which is itself a form of contract.
Secondly and most importantly is because of the fact that the court would always strive to uphold the terms of agreement outlined in the charter party. This is because in the determination of whether demurrage claims should be paid to the shipowner at all including whether lay days should be waived the court will always rely on the specific terms and conditions of the contract agreement as entered between the parties. For these reasons a brief background on the principles that govern all forms of contract is very much warranted, especially so because one of the objectives of this paper is to analyze the legal framework upon which the issues of laytime and demurrage claims are instituted and arbitrated.
In general terms, there are two ways in which the various forms of law can be divided: procedural law and substantive law (Friedman, 2005). Procedural law is concerned with the legal formalities that dictate the process of legal cases and the role of the court in enforcing that code. On the other hand, substantive law involves the type of laws that describes the specific nature of legal matters that are enforceable under the law which encompass all forms of rights and obligations that a person might have a basis to claim. Under this form of law, there are three other categories of law namely criminal law, tort law and contract law our focus will be on contract law (Friedman, 2005).
A contract is an agreement that outlines specific details of an issue between different parties regarding a certain matter; in this case, it is the terms of leasing a vessel for shipment purposes between the owner and the charterer which takes the form of a charter party (Sterzhantov, 2011). Most often it is usually a written document, although it can also be verbal and is enforceable in a court of law (Turner, 2008). For a contract to be considered valid it must contain seven important elements: consideration, form, intention to create legal relations, agreement, genuine consent and capacity to implement the contract (Meiners, Ringleb and Edwards, 2006). When a contract has been broken a breach is said to have occurred, breach of contract in legal terms is used to describe actions that have been undertaken by one of the parties in contravention to the binding agreement as originally agreed between the parties. It is when the terms of an agreement as entered between various parties are not honored according to the articles of the agreement.
Contracts reached upon between parties are governed by the principle of pacta sunt servanda and are legally enforced as long such contracts are not illegal, trifling, indeterminate or impossible to implement (Gibson, Rigby, and Tamsitt, 2005). As pertains to the breach of contract there are four categories that list all the types of contract breach between parties: minor breach, material breach, fundamental breach and anticipatory breach (LectricLaw.com, 2008). In maritime transport determination of issues that pertains to laytime and demurrage claims are not so much involved with breach of contract, but rather with a fair assessment of when laytime is considered to have commenced. An accurate determination of laytime would be impossible without having to refer to the validity of the contract in general and more specifically to the pertinent articles that elaborate on laytime and payment of demurrage as contained in the contract. The importance of these concepts on contracts will become even more apparent in later sections of this paper when we get to discuss the legal issues that are involved in the arbitration of lay days and demurrage claims.
laytime
In theory, the issues that involve laytime and the rate of payment of demurrage by the charterer in case of a contractual breach is usually straightforward matter that can easily be arbitrated between the parties. This is because the articles of the contract that is agreed between the parties beforehand usually contain detailed clauses that articulately clarifies on the duration of time that has been agreed between the parties as well as the rate of demurrage claim that would be incurred in the event that the contract is breached. However, in a real sense as we shall see the issues of laytime and demurrage claim are not so straightforward after all when it comes to real cases for several reasons. Among the major factor that is responsible for complicating the process of arbitration of issues pertaining to laytime and demurrage is the nature of the charter party.
The charter party is the official document in which the party’s to a shipping contract is undertaken under the maritime law; it encompasses all the issues that are involved between the parties throughout the engagement of the voyage. The problem in this is that the language and the wording of phrases as used in the charter party usually complicate the understanding and clarity of the issues which makes them ambiguous. The result is that determination of issues concerning laytime such as its commencement becomes impossible to accurately verify and consequently the determination of demurrage claims as well. Another factor that complicates the process of demurrage claim arbitration is the determination of exceptional circumstances that qualify the extension of laytime which would also mean that demurrage cannot be accurately determined. In a later section of this paper, both of these factors will be discussed in detail among other issues that are integral to the determination of demurrage claims.
In theory, the events that precede the commencement of laytime originate from the preparation of the Notice of Readiness (NOR); the ASBATANKVOY form that is routinely used to regulate maritime transport stipulates that laytime should commence immediately after 6 hours from the time that the NOR was rendered (Lax, 1992). The NOR is only issued by the shipmaster after it has been satisfactorily ascertained that all issues have been taken care of meaning that what remains is for the ship to start loading or unloading, whichever the case. Nevertheless, the major intention of laytime provisions in the charter party contract is to shift all the responsibilities associated with a delay at the time of loading from the shipowner to the charterer (Lax, 1992). Even though maritime laws originally stipulated the Notice of Readiness to be given only at the port of loading, it has become the standard procedure to issue the same even at the time of loading.
The six-hour head start is necessary to ensure the charter is aware of the upcoming laytime which is the standard duration of notification between the shipowner and the charterer in most charter party agreements. However, there are other circumstances that would make the six-hour duration after rendering of NOR not to be applicable because of several reasons; this is where the intricacies of determination of laytime usually start. In addition, the factors that can result in interruption of laytime once it has started elapsing are also as obscure as the circumstances that would delay the commencement of laytime after the six hours are over.
Because as we have seen NOR is an integral element in the determination of laytime, let us briefly discuss the validity of NOR since without the issuance of a valid NOR then laytime cannot commence, practically speaking. Besides this, there are two other factors that directly impact the determination of laytime which we shall also discuss separately, these are arrival and readiness.
Validity of NOR
In this section, we shall discuss the factors and circumstances that can make the issuance of NOR to be regarded as invalid or premature. Normally there are several forms that are routinely used as a charter party when entering into a contract between shipowners and charterers which all have slightly different wording as far as their stipulated clauses are concerned. Depending on the type of form that is used by the charter parties there are usually two or three conditions that are outlined in the contract that must be met before NOR can be certified and accepted as valid. One, it is usually the condition that before NOR can be issued the ship must have been processed by the customs i.e. “the vessel has to be entered in the customs’ house” (Cartwright, 2009). This is for good reasons when you consider that one of the purposes of NOR is to signal to the charterer that the vessel is ready for loading and that the goods have arrived safely.
Thus, this notification cannot be taken as valid when this is not the case which would be so if NOR was allowed to be issued before it was cleared by the customs. Secondly, the vessel must have obtained a free pratique to the port or berth for the same reasons as above (Cartwright, 2009).
Three, the parties can agree among themselves to have the NOR issued within a certain time period or to certify other terms and conditions as they wish which would make the NOR invalid if such conditions were not met (Cartwright, 2009). Now, based on these circumstances which we have outlined above there are several scenarios that can result from each of them. When NOR for instance is issued before the vessel is actually ready for loading or arrived at the port of loading or unloading, such notice is regarded to be premature and is called an inchoate notice (Sterzhantov, 2011). The implication is that the commencement of laytime cannot be ascertained and is taken not to have started unless the shipmaster gets to issue another valid NOR that meets the stipulated terms and conditions. When the shipmaster fails to issue another valid NOR, maritime law requires that “something” must happen to make a determination of laytime commencement possible Sterzhantov, 2011).
This in practice usually means that loading or unloading activity must then proceed to happen with the full knowledge of the charterer and without any reservations being raised as pertains thereof. This now becomes the point in time at which laytime is determined to commence and is a fact that has been upheld in several legal cases concerning demurrage claims as we shall see shortly. Another scenario that would make a determination of when laytime commences being problematic is when the issuance of NOR is given outside the time window that is stipulated by the charter party contract. A NOR issued under such circumstances is invalid by the virtue of the fact that it is in breach of the provisions of the contract (Sterzhantov, 2011). This would mean that any resulting demurrage claims cannot be undertaken against the charterer because of the fact that some elements of the contract have been breached.
This is because the issuance of a NOR that contravenes the terms of the articles cannot be legally binding or enforceable in a court of law or even the resulting demurrage claims (Summerskill, M. 1989).
Arrival
The arrival of the vessel at the port or berth of destination is an important element in the determination of laytime basically because it is one of the conditions that must be met before the NOR can be issued. Most wording of various charter parties’ contract forms indicates that “once the vessel has arrived at the agreed destination it will be an ‘arrived ship’ for the purposes of calculating when the laytime should start to run” (Sumpton and Bradley, 2010). As in most other clauses that are contained in charter party contracts there are additional factors that apply to this condition such as the nature of destination which could either be port or berth or whether WIBON or WIPON is applicable. This is because additional provisions as pertains ship arrival such as Whether in Port or Not, referred to as WIPON, or Whether in Berth or Not (WIBON) would usually alter the actual meaning of arrival and the resulting ship destination (Sumpton and Bradley, 2010). Various agreements from different charter parties usually modify the wording of this provision with the intention of clarifying what constitutes ship arrival. As we can see from the above provision, what is regarded by the charter party as the time of ship arrival is not yet clear because in a real sense the mere act of arriving at the destination does not automatically imply that arrival has taken place in the most strict terms that are necessary for the calculation of laytime. Most often there are a number of factors that interfere with the accurate determination of when the ship arrival can reliably be described to have precisely occurred.
Such one example is when there is no berth available at the port despite the arrival of the ship at the agreed destination or when there is a need for routine clearance procedures before the vessel can be permitted to load or unload. As such, strictly speaking, arrival cannot be taken to have occurred since the charterer does not immediately take over the ship for purposes of loading or unloading which means the issuance of NOR at this time would be considered by the charterer to be invalid and therefore not lead to the commencement of laytime (Schofield, 2000). This is because if it was allowed to be so commencement of laytime may just well start ticking even before loading or unloading activities have started taking place. It is for this reason for instance that has resulted in the current legal precedent that involves issues of arrival to be stated that “a ship can only be said to have arrived when it is at the ‘immediate and effective disposition of the charterer” (Sumpton and Bradley, 2010)
Readiness
The third factor that is essential in the determination of laytime is the shipping status of preparedness as far as loading or unloading is concerned what is referred to as readiness. Like arrival, readiness is an important component that is necessary for the determination of laytime since it is what will determine at which point the NOR will be issued, and if so whether it will be valid or not (Sumpton and Bradley, 2010). This is because NOR will not be valid when issued unless the vessel has been determined to be available to the charterer in three major respects; readiness of the holds, compliance with legal documents and readiness of the equipment (Sumpton and Bradley, 2010). Readiness of the holds refers to the preparation of the vessel’s carriages that are expected to be loaded with the cargo which must be adequately prepared in every way as to have the charterer commence loading immediately after the NOR is issued.
In this respect clause 23 (b) of Agios Dimitrios form states “at loading ports when tendering notice of readiness, vessels cargo holds and hatch covers shall be clean, dry of loose rust and otherwise ready and suitable to receive the intended cargo” (Honan and Knight, 2007). If this is not the case it would mean the NOR is invalid and laytime would not start until the time when the actual loading starts to take place. Secondly, the vessel must be ready in respect to equipment; readiness of the equipment applies to both loading and unloading activities because it refers to the preparation of equipment such as pumps or cranes that would be necessary for the process of loading or unloading cargo (Honan and Knight, 2007). Clause 25 of the same form states in this respect “ crew and mechanical failure – time lost at loading and/discharging ports which can be reasonably attributed to crew/ship mechanical failure shall not count as laytime” (Honan and Knight, 2007).
Finally, it must be ensured that the necessary paperwork is in order and that the legal documents that are required by the authorities are in place so as to avoid unnecessary delay in clearance of the vessel which would interfere with the commencement of laytime (Honan and Knight, 2007). Combining these three factors are what entails the concept of vessel readiness as far as maritime transport is concerned. Now that we have discussed the concept of lay days and all the factors that affect it, let us now take a critical analysis of demurrage claims that result when laytime is exceeded by the charterer.
Demurrage
As we mentioned before, demurrage refers to financial compensation that is claimed and payable to the shipowner by the charterer to cater for financial losses that the shipowner incurs as a result of the charterer exceeding the duration of laytime specified in the charter party. Demurrage is usually calculated at daily rates that have been previously pre-agreed between the parties for the length of period that has been outlined in the charter party as the demurrage days. In maritime transport, demurrage could be taken to mean two things, either the number of days exceeded by the charterer beyond the laytime that was previously agreed or the financial amount payable to the shipowner resulting from demurrage usually referred to as demurrage claims or just demurrage (Force and Yiannapoulos, 2003).
A closely related term to demurrage and which is often confused is referred to as detention; detention is defined as the financial “penalty imposed on a charterer for a wrongful or unreasonable delay in redelivery of the vessel to its owner” (Force and Yiannapoulos, 2003). What this means is that once the demurrage days are over the charter party usually provides for detention to be charged to the charterer for what is now referred to as “unreasonable delay” and which usually attracts a higher financial penalty.
Legal Issues on Demurrage and laytime
In general, the court of laws will always rely on the general principles of common law to arbitrate on issues of contract where the content matter of arbitration has to do with the nature of the charter party.
In addition, the court also relies on the code of maritime law to arbitrate on specific issues that are only limited to maritime transport and the interpretation of the charter party. Because the charter party is usually a very complicated and obscure document that is not even standardized across the board, it becomes very common that one of the issues that the court needs to rule on is whether all the clauses of the charter party are enforceable.
To determine this, the court usually relies on general principles of the common law because the charter party is essentially a form of contract. One of the most commonly encountered contentious issues in maritime law that is widely encountered in maritime transport has to do with what is referred to as a fraud in contract law. Fraud is one of the conditions that would normally nullify a contract agreement between parties when it is determined to be present in the charter party. When the charter party is designed and worded in such a manner that would make it very difficult for the chatterer to understand it or even contain clauses that the charterer is unaware of at the time of signing it, the law does not consider this to be a fraud and would normally uphold the contract in all respects as valid regardless of what any party might have thought it implied (Morizin, 1996). Unless one of the parties deliberately misinformed the other party regarding the provisions of the contract, the law as a matter of fact does not require any of the party’s during the process of entering into a contract to inform the other party about a fact that they are aware even if it is important for them (Elias and Levinkind, 2005).
So according to common law which is applied in maritime arbitration, the mere act by party A of failing to state a fact to party B does not make them fraudulent since party B is expected to exercise reasonable cautiousness when entering on a contract. The implication of this principle is that a charterer for instance cannot request a waiver on demurrage claim or other exceptions based on reasons such as inability to comprehend or perhaps even locate the specific clauses that pertain to the above.
In such scenarios, the law places the responsibility to both parties to determine the terms of the contract in toto using all the facts that have been availed to them, which are outlined in the clauses of the contract (Atkinson, 1999). Whether these provisions of the charter party are clearly presented or even easily traceable is another matter altogether that would most likely not invalidate the charter party agreement between the shipowner and the charterer. This principle of this common law is well elaborated in the renowned case of Smith v. Hughes, 1871 in which the plaintiff who had entered an agreement with the defendant to buy oats sued the defendant for failing to inform him that the said oat was actually new oat and not old oat. In the ruling, the court upheld this principle by stating
“if one party has made a mistake about a fact on which he bases
his decision to enter into the contract, but that fact does not form a term of the
the contract itself, then, even if the other party knows that the first is mistaken as to
this fact, the contract will be binding” (Curzon, 2011).
However, the common law does point out the clear distinction that exists between the mistaken of the facts and mistake as to the terms of the contract; in this case, the ruling was made on the basis that these actions amounted to mistakes of the facts and thus the contract was determined to still be valid. Where mistakes of the terms are the result as we shall see shortly the remedy is to invalidate the contract and make it voidable since it is taken that such parties are certainly not in agreement.
In maritime law, this principle of common law is well applied in the case of Statoil A.S.A. v. Louis Dreyfus Energy Services L.P. were a mistake by the demurrage expert of the shipping Company resulted in significantly reduced demurrage claims being charged to the charterer than should have been the case because of the confusion of the actual day of unloading. In this case, the calculation of the demurrage claims amounted to $100,000 while it should have been much more than that which is a fact that the charterer was aware of but which they chose to leave as it is since it was to their advantage (Curzon, 2011).
Upon realization of the mistake by the demurrage expert, a notification was issued by the shipowner with the intention of collecting the full demurrage amount that had accrued during the period at which point the charterer chose to challenge the validity of the contract on the grounds that it had errors. In the ruling, judge Aikens held that “Statoil could not challenge the validity of the contract because such a mistake is not sufficient to render the contract void at common law” (Cartwright, 2009). The implication here is that because the error was not fundamental as to affect the terms of the contract there was not enough ground from which to challenge it as the mistake was one of the facts which were not even mutual to both parties.
Secondly, the judge held that “there is no equitable jurisdiction to rescind a contract for a mistake of this kind—but, even if there were, this was not a case in which such a jurisdiction should be exercised”; a statement that aptly summarized the reasoning of his ruling (Cartwright, 2009). I have chosen to discuss this particular case in detail for two reasons; because of the implications, it has as, as a ruling of precedent in maritime law in general.
And two, since it addresses the fundamental aspects of contracts that are most likely to be factors of contention in maritime law. Thus from this ruling, we can postulate several rules that are routinely applied in arbitration of maritime cases. As a general rule, the trend is that if there is a mistake as to the terms of the contract which both parties are aware of it is assumed that the “parties were not (in the eyes of the law) in agreement about what the terms of the contract were to be” and consequently the contract is made voidable (Bitner, 2010).
Another rule that is routinely applied by the judges is to exempt any party to a contract from being obliged to disclose an important fact to the other party of the contract even if they are aware that the other party is not aware of it. This is because the common law takes it as a matter of fact that there cannot be good faith in any form of negotiations where common interest is the main objective. Thus, it would be illogical to expect any party to a contract to act in good faith while at the same time ensuring that their self-interest is best represented in the contract; to prevent this dilemma the common law chooses to waive the standards of good faith for all parties in a contract. These two rules as we have seen in this case are uniformly and commonly applied to all arbitration cases with very few exceptions whenever demurrage claims and laytime becomes a question of clarifying the terms of the charter party.
Legal Issues on laytime
As far as laytime is concerned there are several issues that have been exemplified through various court rulings and which have now become precedent to arbitration of maritime cases. One of the issues that are often come across in laytime pertains to its commencement under circumstances where a vessel arrives well before the start of lay days and initiates loading. The question then becomes whether the vessel should have issued the NOR and if not whether laytime can be taken to have started at all. Another issue is whether the issuance of NOR can give the charterer the permission to start loading immediately without necessarily having to wait for the six-hour duration to elapse. These were some of the major issues that were central to one of the most controversial maritime cases to have occurred in the recent past, that of Glencore Grain Ltd v Flacker Shipping Ltd (Happy Day), 2001.
In this case, the charter party specifically stipulated that a valid NOR could only be given “once the vessel was securely moored at berth”; but this was not the case, the shipmaster according to the records gave the NOR when the ship at the vicinity of the port but not yet securely moored at berth as required (White, 2006). No further NOR was issued by the shipmaster even after the vessel was securely moored or even after the loading process has begun. The charterer in accordance with the terms of the charter party considered no valid NOR to have been served and consequently no commencement of laytime throughout the loading period which lasted for about 90 days and thus refused to pay for demurrage (White, 2006). Justice Langley concurred with the charterer and provided that no demurrage claim should be awarded to the shipowner which was a ruling that was based on two other cases that had earlier set the precedent on arbitration of cases that involved the validity of NOR.
In both cases which must have shaped Justice Langley holding in this case, that of Agamemnon (1998) 1 LLR 675 and Mexico 1 (1990) 1 LLR 507, the rulings were based on the fact that “an invalid notice of readiness would not take effect either when given or later when the vessel arrived and ready” (White, 2006).
Thus, in his ruling Justice Langley held that “laytime never started at all, with the consequence not only that the owners have earned no demurrage, but also that they are obliged to pay the charterers despatch money for the whole of the laytime” (White, 2006). This was based on the school of thought at the time that presupposed that an invalid NOR can only be corrected after a valid NOR has been served notwithstanding any action that would be undertaken by any of the parties such as the commencement of loading activities. In fact, the judge in the ruling made it clear that the fact that discharge of cargo went on and took place with full knowledge of the charterer could not in any way be considered as “sufficient happening to cause the commencement of laytime” (White, 2006).
The logic of this ruling is seen to be partly informed by the charter party clauses found in many forms; in the BPVOY 4 form, it is clearly stated on clause 7.3.2 that “..demurrage shall commence, at each loading and each discharge port, upon the expiry of six (6) hours after a valid NOR has become effective..” which would imply the issuance of a valid NOR as a precondition to the commencement of laytime (Shipinspection.net. 2010). When the NOR issued is not valid the charter party is unclear on whether the act of loading or unloading could themselves be taken to mean that demurrage should take place anyway. For a long time, this line of reasoning is what most court of law has chosen to interpret on the issues of laytime commencement where valid NOR was not issued. But this was until the new ruling on the same case that Justice Langley has arbitrated in which the court of appeal overturned the ruling and therefore set a new precedent on which similar future cases concerning laytime will be arbitrated. In overturning the previous ruling in the case of Glencore Grain Ltd v Flacker Shipping Ltd (Happy Day), the case of appeal summary of ruling stated that
“In the absence of a charterer’s express reservation of his rights or rejection of an invalid notice of readiness given under a charter party, the commencement of cargo operations can amount to a waiver of the notice of readiness invalidity by the charterers, thereby starting laytime” (White, 2006).
This has now become the new precedent in which laytime would be determined to have occurred where an invalid NOR has been issued; in fact, the court also provided for two other additional circumstances under which the charterer will be determined to have waived the invalidity of the NOR when it is wrongly issued. This is when the charterer fails to explicitly notify the shipmaster of rejection of the invalid NOR and make it clear of expectation of issuance of another valid NOR (White, 2006). The other circumstance is when the charterer also fails to object to the invalidity of the NOR but nevertheless proceeds to act as if business as usual and accepts the vessel to be prepared for loading or unloading, whichever is the case (White, 2006).
Exceptional Circumstance that Applies to laytime and Demurrage
Voidable demurrage is when one party in the charter party reserves the right to exercise a certain contractual right that would result in alteration of terms of demurrage that were previously agreed between the parties but which would ordinarily not interfere with existing terms of the contract unless it was specifically raised by such party (Grant, 1975). In maritime law, this could happen when the charterer chooses for instance to challenge the validity of the NOR under circumstances that we have so far discussed which when raised would mean the shipowner has no obligation to collect the demurrage claim. Clause 6.3.3 of the BPVOY 4 form states that “Notwithstanding tender of a valid NOR by the vessel such NOR shall not be effective nor become effective, for the purposes of calculating laytime, or if the vessel is on demurrage, demurrage unless and until the following conditions have been met..” (Shipinspection.net, 2010). Thus, if the charterer was to challenge the legality of the demurrage claim from this angle provided that loading did not consequently take place, such claims would be regarded by a court of law as voidable demurrage.
In general, maritime law categorizes the circumstances that can be applied when waiving demurrage claims against a charterer as three; one, specific exonerating factors that must also appear in the specific charter party that was entered between the parties. Secondly, any circumstances that are either partly or wholly directly attributed to the shipowner and which cannot exclusively be said to be the fault of the charterer in delaying the vessel. Finally, any request of the waiver on demurrage claim must be based on sufficient evidence of circumstances that indicates unforeseen circumstances that directly affected the actual process of loading or unloading of the vessel which the charterer would not have anticipated (Shipinspection.net, 2010). These are the most common issues on exceptional demurrage which is seen to be enforced by the court of laws during the arbitration cases currently.
Generally what usually happens is that charter parties are always given the leeway to include whatever provisions that they wish to be bound to when it comes to issues that should be considered in exempting laytime and demurrage. This means that the particular clause that governs such circumstances will tend to change depending on the charter party used.
However, most circumstances are always found in every charter party albeit with small modifications. The GENCON charter party for instance has protective clauses for charterers where strikes interfere with the loading or unloading of the vessel, under such circumstances the charter party provides for half-rate payment of demurrage (Shipinspection.net, 2010). At the same time, most charter parties will exempt payment of demurrage all together where such strikes have taken place within the vessel. For instance, ASBATANKVOY charter party states that “the Charterer shall not be liable for any demurrage or delay caused by strike, lockout stoppage or restraint of labor for Master, officers and crew of the vessel or tugboat or pilots” Shipinspection.net, 2010). In addition, there are days of the week in which are specifically stipulated in the charter party used for which laytime would not be counted to be inclusive and also no demurrage payable on them if it happens to be the case.
TANKERVOY which is another form that is used in charter party agreements, contract provides for three instances in which the charterer is entitled to pay demurrage claims at half rates. It states “If however, any demurrage is incurred due to any of the events set out below the rate of such demurrage shall be reduced by half” and goes on to list bad weather, acts of God, war and machinery breakdown as some of the circumstances under which the shipowner should only collect half demurrage claims (Summerskill, 1989).
In summary, the circumstances under which the charterer could be exempted from laytime and consequently demurrage costs are as varied as the existence of charter party agreements themselves. In fact, part 87 of the TANKERVOY charter party list not less than ten possible circumstances that which when they interfere with laytime, demurrage should not be paid at all. They include strikes, labor restraints, time spent on awaiting high tide, mechanical breakdown, negligence and stoppages among others Summerskill, 1989).
On the other hand, ASBATANKVOY charter party for instance only waives payment of demurrage by half where delays in loading or unloading activities are as a result of factors such as lockout and strikes. This particular comparison is therefore a typical example of how terms of the charter party can drastically change depending on the charter party that was used by the parties. In many instances, the court has upheld waiver on demurrage claims where the wording in the charter party indicates that demurrage should not be enforced where “cause of delay is beyond the charterer’s control”, as is indeed very commonly found in many charter party agreements (Summerskill, 1989). Regardless of whether the delay was caused by the agents appointed by the charterer, the trend in maritime law is to uphold this principle and waive the demurrage claims accumulating from such a delay. For this reason, the determination of the charterer’s ability to control such events is central to having the arbitration on demurrage exemptions ruled in their favor.
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