KNOWLEDGE TO ELEVATE
In a recent, published, London arbitration award the English tribunal has held that all time lost as a result of loading, and then discharging, a confiscated (unsafe) cargo will be for the charterer’s account.
Background facts
Under a contract of affreightment (CoA), the owner was required to carry eight shipments of nickel ore. The ship promptly arrived at the nominated load, with loading commencing the very next day. Loading stopped two weeks later, however, and the local navy issued a confiscation order, resulting in the ship being compounded in a nearby naval base. The confiscation order was issued due to the cargo being mined outside the parameters of the locally granted permits. Only three months later was the ship released to discharge the cargo already on board the ship, which took two more months to complete.
When the ship was released the charterer emailed the owner requiring it to organise the remaining discharge operation. In addition, the charterer advised that it would not provide any cargo for the next shipment. In response, the owner advised the charterer that it had wrongfully repudiated the CoA and claimed, through London arbitration, demurrage for the entire duration of delay.
The Tribunal’s decision
The arbitration tribunal would only consider the claim for demurrage, not the claim for possible wrongful termination.
The charterer’s primary defense to the demurrage claim was based upon the following CoA clause (our emphasis):
‘In case any acts of God, riots, civil commotions, fire or any other causes comprehend in the Force Majeure terms which may delay or prevent to provide the cargo at the port of loading and load/discharge of the cargo, such time lost is not to count as laytime as neither Charterers nor Shipper nor Suppliers nor Receivers shall be liable for any loss of demurrage, unless vessel already on demurrage. Once on demurrage always on demurrage.’
The tribunal found that the above clause did not aid the charterer in its defence. It was held that the confiscation of the ship by the local navy did not fall within the boundaries of ‘any acts of God, riots, civil commotions, fire or any other causes comprehend in force majeure terms’.
Also, the tribunal found that because the subject cargo had been illegally mined, the charterer had failed to meet its primary contractual obligation under the CoA to provide a safe cargo, which could not be ‘excused’ by other contractual defences.
Finally, as the intervention by the navy was after the ship fell on demurrage, it was found that as per the above wording, ‘once on demurrage always on demurrage’, the charterer remained liable for the entire period of detention and delay.
On the other hand, the tribunal refused to accept that the charterer should not be allowed load time. This was on the basis that cargo had been partially loaded. The charterer was therefore allowed laytime, on a pro rata basis, irrespective of it being considered an unsafe cargo.
Concluding remarks
Following the above decision, members acting in a charterer’s capacity should take all precautions to ensure that the cargo to be loaded on board a ship is safe, legal and that all applicable documentation is in order to best prevent similar situations from arising in the future. It should also be noted that if the subject charter includes the phrase ‘once on demurrage, always on demurrage’ the charterer will remain liable for all time used until the load or discharge operation is completed. Charterer members should, therefore, be proactive and continue to use their best efforts to minimize any time lost.
This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the authors of this article.
Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.
Source: The Standard Club
