Demurrage: Charterers Breached Obligation and Undertaking

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Singapore Arbitration 2/18 [(2018) 1008 LMLN 4] probably does not develop the law or offer a novel interpretation of common fixture wording. It does, however, illustrate some of the less familiar demurrage and also DA disputes that arise, and the wider problems that can result. 

Key facts

The account highlights that an amendment ‘GENCON 94’ from the vessel was chartered to carry bulk iron briquettes which were loaded at a river port and that disputes arose as outlined below and decided under agreed Singapore (SCMA) Arbitration and English law.

Issues

The following issues were highlighted as a result of the amendment:

  1. What disport time counted for first opening the hatches,
  2. Whether owners delayed cargo operations thereby not providing a written undertaking to the port authority,
  3. Liability for load port pilotage and other amounts and,
  4. Whether charterers should indemnify owners for resulting losses.

Opening hatches

When agreeing to a charter, the parties involved usually provides the details on payments made and for the time taken to open and/or close hatches.

Moreover an additional clause highlights:

“TIME LOST BY [FIRST OPENING … OF HATCHES] SHALL NOT COUNT AS LAYTIME BENDS, EVEN WHEN VSL ON DEMURRAGE”.

But the disport agent’s SOF simply recorded an aggregate 50 minutes for this and other activities. There was no evidence of how long it took just to open the hatches. Owners said it was five minutes and charterers urged an hour. However, following a London Arbitration Award in 2002, the Tribunal refused to entertain theory or estimate and ruled that it was for charterers to prove the claimed deduction. As they could not, the whole disputed period counted as laytime.

The strictness of this is highlighted by the facts that (i) it must have taken at least some time to open multiple hatches (ii) owners were anyway given countervailing credit within a far longer, unclaimed period (where time would have counted for them) for a similar mix of activity, but where there was likewise no evidence of how long the hatch opening took.

Delay for lack of undertaking

Before allowing the vessel to berth the disport authorities had demanded their standard undertaking as to damages. Charterers sought to deduct about 25.5 hours, alleging that owners’ delay in providing that had hampered cargo operations.

With nothing in the fixture to cover these circumstances, charterers had to show that owners’ culpable delay had prevented the vessel from berthing and this had the legal effect of interrupting laytime. In essence, they had to show that the vessel was unavailable for cargo operations due to owners’ fault.

Charterers failed because:

  1. Owners did not have to provide the undertaking – it was anyway largely a formality and something from charterers themselves would have done; moreover
  2. Charterers had not given owners reasonable notice; and
  3. The vessel could not have berthed at the time as the designated berth was occupied.

Pilotage and other amounts

Loadport disbursements were for owners’ account up to a maximum based on $4 per tonne of cargo shipped, with charterers paying anything above that, failing which owners could clause the Bs/L accordingly.

Amid a wider dispute on load port sums, and after the vessel had sailed, charterers undertook to pay the load port agent whatever was due and owners then released the (presumably non-claused) Bs/L. However, charterers later generally denied liability and alleged that the Master had ordered additional pilotage which owners should pay for.

The Tribunal rejected that and ruled that charterers had breached both their obligation and their undertaking to pay their share of the load port DA, which included pilotage, none of which was additional or otherwise for owners alone.

Indemnity for resulting claims

Because of charterers’ failure to settle the account, the load port agent had threatened to bar owners from the relevant port and perhaps others nearby.

Owners sought an indemnity from charterers for any resulting losses and the Tribunal agreed, ordering charterers to indemnify owners in respect of whatever loss and damage they may incur due to charterers’ failure to make these payments, and as regards any such payments made by owners.

Commentary

As well as underlining the importance of accurate contemporary records, even for something as routine as opening hatches, this Award shows that demurrage issues can arise when charterers seek to divert formal operational responsibilities to owners, and (where possible) wording agreed in advance should address this.

Also, care must be taken with charterers’ liabilities, to owners or otherwise. A proposed undertaking in return for the release of the Bs/L or other waivers should always be examined and considered carefully, as later default could mean difficulty with third parties.

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Source: C Demurrage Ltd

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