Do Ship Owners Still Have Control?

City Pride Limited (CPL) will be hoping to prove that the vessel was on demurrage when it left the port of Belfast on the 16th of June while Sarkozy International will want to prove that the laytime provided in the charter was not exceeded so they are not liable for demurrage.

The failure by the charterer to load within the agreed time is a breach of contract which entitles the ship owner to the damages for the deprivation of the use of his ship. [1] Demurrage is an amount payable under a charterparty as agreed damages for each day or part of a day that a vessel is detained by the charterer in excess of the provided laytime. [2] As the issue to be considered is whether the vessel is on demurrage and demurrage does not start to accrue unless laydays have expired, the concept of laytime will be considered first. Laytime is the period of time agreed between the parties in which the vessel will be available for loading and discharging cargo without payment of additional freight. [3] For laytime to commence the vessel must be an arrived ship, the notice of readiness to load must be given to the charterers or their agents and the vessel must in fact be ready to load [4]

The type of voyage charterparty involved in this case is a berth charter. A berth charter is ‘… a charter which requires the vessel to proceed for loading to a particular berth either specified in the charter or by the express terms of the charter to be specified by the charterer…’. [5] The charter in this case makes provision for the charterer to nominate one safe berth in the port of Belfast.

A vessel becomes an arrived ship when it has reached the destination specified in the charter [6] . Where the berth at which a vessel is to load is specified or as in this case is to be nominated by the charterer, the ship will not become an arrived ship until she arrives at that berth. [7] There were no berths available when the vessel reached the port of Belfast on the 31st of May as a result of congestion, in the absence of specific terms in the charter to the contrary, the risk of delay in reaching a specified berth has to be borne by the ship owner. [8] The vessel will be at the voyage stage of journey whilst waiting for a berth to become available so the shipowner should bear the expense of the time spent waiting.

The risk of resulting delay from port congestion is to be borne by CPL unless there is a clause in the charter which shifts the risk of delay to the charterer, [9] as there is no such clause in the charter in this case, it may be argued that the ship was not an arrived ship until it berthed on June 5. The vessel however anchored on the instructions of the port authority, at a place where vessels normally wait for a berth and tendered a notice of readiness. In The Johanna Oldenhorff case [10] , it was held that unless the charterer can prove otherwise, a vessel anchored at a place where vessels normally wait is at the immediate and effective disposition of the charterer and is therefore an arrived ship and the waiting area is taken to be a part of the commercial area of the port. [11] This case can be distinguished from the present one because it was a port charterparty so there was a larger area involved.

CPL tendered a notice of readiness when the vessel arrived in Belfast on Sunday the 31st of May. A notice of readiness is a notice to the charterer that the vessel has arrived at the place specified in the charter and is ready to load or discharge. [12] Its purpose is to inform the charterer that loading or discharge may commence and also to start the calculation of laytime. [13] It is not clear on the facts of this case if there was a requirement for the notice to be given in a specific form but usually, a notice or readiness may be given orally or in writing [14] so the tender of notice by fax is probably acceptable.

The place the notice was tendered is an issue in this case because although it may be argued that the vessel was ready to load when it tendered the notice; it had not arrived at the place required by the charter. It was held in The Agamemnon [15] that a notice tendered at a time when the vessel had not reached the place specified in the charter had not complied with the terms of the charter for giving notice and was invalid, it could therefore not trigger the commencement of laytime.

Another issue to consider is whether this was an invalid notice as it was tendered outside the hours specified in the charter and whether a fresh notice will have to be tendered within the specified hours for laytime to commence. The charter provided for notice to be tendered during office hours but the notice was tendered at 1430 hours on a Sunday. In The Petr Schmidt [16] , the Court of Appeal agreed that notices tendered outside the time specified in the charter may take effect when office hours began the next day, the notice will however be invalid if the statements it makes are in fact incorrect at the time of the tender. It may be argued that laytime was to commence at 1300 hours on Monday 1st of June, this however can only happen if the other requirements are met or can be circumvented. There is an argument that the notice makes an incorrect statement as to the readiness of the vessel to load as it was still at the place where vessels normally wait, outside the commercial area of the port.

The actual readiness of a vessel to load cargo is assessed by looking at factors such as the physical position of the vessel, whether the vessel is capable of receiving the specific cargo and whether it has complied with legal requirements at the port such as health requirements and obtaining necessary documentation from customs and immigration authorities [17] ; these port requirements are however usually regarded as mere formalities and ship owners have been allowed to give notices of readiness where they have not yet complied so far the vessel has an apparent clean bill of health. [18] On the facts of this case there does not seem to be anything that prevents the vessel physically from being ready to load. For example, there is no requirement for fumigation [19] and there is nothing that shows the vessel is not ready in all her holds to receive the specific cargo of scrap iron. [20]

In relation to the physical position of the vessel, this ties in to the place the notice was given as discussed above, a notice of readiness may be given even though the vessel is not in berth but only where the charter has made provision for this by inserting a clause to the effect that laytime will begin to run whether vessel is in berth or not. [21] As the charter in this case did not provide for this, it may be argued that laytime cannot commence until the vessel was berthed. It is the law that the vessel has to be at the place nominated by the charterer when the notice was tendered for it to be effective. [22]

However, although the commencement of laytime is dependent on a valid notice of readiness being tendered and it was held that laytime will not run even where the loading operation has taken place until a valid notice has been given [23] , the fact that the agents of the shippers acknowledged the notice of readiness tendered when the office opened the next day is an issue to be considered. It was held in The Happy Day [24] that laytime can commence under a voyage charterparty where no valid notice of readiness has been tendered so far a valid notice has been served on the charterers as required by the charterparty, the vessel has thereafter arrived and is ready to load [25] to the knowledge of the charterers and the loading commenced without any indication of rejection by the charterers or an intimation that a further notice of readiness was required, the charterers may be taken to have waived any reliance on the invalidity of the notice already tendered. The doctrine of waiver may be invoked and the requirement for something other than mere awareness of the vessel’s readiness needed in The Mexico 1 case [26] may be taken to be satisfied, ‘…laytime will commence in accordance with the regime provided for in the charterparty , as if a valid notice of readiness had been served at that time…’. [27]

If the doctrine of waiver is invoked, it may be argued that the invalidity of the notice of readiness as a result of the physical position of the vessel at the time the notice was tendered has been circumvented. The facts of The Happy Day are similar to this case so if it is applied, it may be argued that the invalid notice tendered previously will be treated as accepted by the commencement of loading at 1400 hours on the 5th of June and will operate as if a valid notice of readiness has been served at that time and laytime will commence according to the regime provided by the charter. The result is that laytime will commence 0600 hours on the 6th of June.

CALCULATION OF LAYTIME

Where a specific laytime is agreed, the charterer is under a strict obligation to load and discharge within the prescribed time and will be responsible for any risk arising out of an intervening obstruction unless they are covered by exception clauses in the charter party or arise through the fault of the ship owner. [28]

The charter provides a total of ten running days, weather permitting but excludes Sundays and holidays unless used for laytime. Where laydays are stated as running days, this is construed by the courts as meaning consecutive periods of 24 hours without interruption except as in this case, where specific days are excluded. [29] Periods of 24 hours used to be considered as calendar days running from midnight but are now treated under modern forms of charterparties as conventional days of 24 hours running from the time the notice of readiness to load expires. [30] In this case, laydays will prima facie start running from 0600 hours on the 6th of June to 0600 hours on the 16th of June and demurrage will only be payable for the time the vessel is detained after the 16th. However charter provides that Sundays will not count unless used so the 7th of June is excepted but not the 14th which will count as a layday, the Sunday excepted gives the charterer laytime till the 17th of June.

The fact that the ship owner performed some bunkering operations for 3 hours on the 3rd of June is irrelevant as laytime did not commence yet and the time used in moving from the place of waiting to the loading berth is not relevant either; laytime had not started running and even if it had clause 6 (d) provides that it shall not count as laytime. No work is done after 1400 on the 11th as result of an emergency meeting attended by workers. It may be argued that this day is excluded from laytime because clause 23 of the charter provides that stoppage of labour from whatever cause and whether it is partial or general is to be excepted. For an exception clause to be relied on it as to have an impact on cargo operations [31] there has been an impact as work stopped three hours earlier so the charterers can rely on the clause to exclude the day from laytime. It can be argued that this gives the charterers laydays till the 18th of June. The fact that there was torrential rain on the 13th of June is an issue to be considered as the charter provides for laydays to run only if the weather permits.

It was held that there is no material difference between clauses which fix laytime by referring to ‘working days weather permitting’ , ‘running days weather permitting’ and ‘running hours weather permitting’, any periods which the weather would have prevented loading has to be excluded from the computation of laytime. [32] It was held in The Vorras [33] that ‘72 running hours weather permitting’ meant 72 hours during which weather conditions were such that loading or discharging was possible, so far the weather would have prohibited any vessel of that type from loading it was irrelevant that the prohibition was not the operative cause which prevented the vessel from loading. If this is applied to this case it may be argued that the vessel may have been prevented from loading because of the torrential rain and the fact that the main reason loading did not take place was because it was outside the working hours of the port is irrelevant. The status of a day as a ‘weather day’ is determined by the weather and not factors such as the actions, intentions or plans of any person, so deductions should be made from laytime for periods of rain even though the charterers had no intention of doing work during that time and in fact did not work. [34] This case may however be distinguished on the ground that the vessel was already in berth and work had already finished for the day before it rained so the rain had no impact whatsoever on cargo operations. The Court of Appeal held [35] that a ‘working day’ has to do with the number of hours usually worked according to the custom of a port and the word ‘weather’ qualifies it so the amount of interference from the weather is to be deducted from the actual hours worked. There was no interference in this case as worked had actually finished by the time it rained, the Saturday may be counted as a layday.

So if the charterers had till the 18th of June but finished loading on the 15th, it should mean that there are extra days left and the vessel was not on demurrage when it left Belfast on the 16th and may be entitled to despatch money if so provided by the contract. However the vessel had finished loading on the 15th and the hold-up until the 16th was due to delay in the charterers or their agents in presenting the bills of lading for signature.

Although the charterer is free to use his laytime the way that suits him best so far it does not exceed the agreed period and the ship owner is not entitled to complain that the cargo could have been loaded within a shorter time [36] , the charterer has no right to detain the vessel after loading operations have been completed and that fact that laytime has not been exceeded does not matter. [37]

It may be argued that although the vessel is not on demurrage in the 16th of June, the charterer has committed a breach of contract and may be liable for damages for detention. This depends on whether the delay in the presentation of the bill of lading was within a reasonable time [38] , this scenario may be distinguished from the Nolisement case [39] because the parties in that case agreed that a reasonable time was 24 hours and the delay was for two days beyond that time. If there are damages to be awarded, they will be assessed in relation to the actual loss suffered by the ship owners by the detention. [40]

II

The ‘Time lost in waiting for berth to count as loading/discharging time’ clause shifts the risk of delay in reaching the specified destination before the vessel becomes an arrived ship, so it will cover the period where the vessel is waiting in the port for a berth to become available. [41] All time lost while the vessel is waiting for a berth is to be treated as laytime in the same way as if the vessel was an arrived ship [42] , so all the time which would have been excluded from laytime such as Sundays and holidays will not count during the period. The clause will operate so far the reason for the delay is the unavailability of the berth due to congestion and not weather or other causes. [43] If the charterparty contained this clause, the notice of readiness tendered on the 31st of May would have been valid when the office opened on the 1st of June [44] so laytime would have started to run from 1300 hours on June 1st. If Sunday the 7th is excluded this would have given the charterers till the 1300 hours on Thursday the 11th.

Although the charterer is under a strict duty to load and discharge within the agreed laytime and will bear the risk of any obstructions unless they are specifically covered by exception clauses in the charter, the charterer will not be responsible for any delay that can be attributed to the fault of the ship owner. [45]

On the 1st of June whilst laytime was running against the charterers, the ship owners carried out bunkering operations. According to The Stolt Spur [46] and Re Ropner [47] , the charterers should not have to pay for a period where the vessel is not available for cargo operations but is being used by the ship owner for his own purposes. It was also held that the unavailability of the vessel was a cause of delay in cargo operations even if it was not the operative cause. In application to this case it may be argued that the time spent bunkering on the 3rd of June should not count as laytime as it was for the ship owner’s purposes however this case may be distinguished on the ground that the vessel did not actually leave the anchorage and would have been ready to move had a berth become available. The question is whether it could be argued that the vessel was unavailable for cargo operations; it seems the vessel would have been available here so the time should count.

The charter provides that time spent moving from the place of waiting to the loading berth is not to count as laytime so the time used to move on the 5th of June should be deducted accordingly from laytime.

As stoppage of labour whether partial or general from whatever cause is excepted from laytime, Thursday the 11th will not count so this gives the charterers till 1300 hours on Friday the 12th of June. The rain on Saturday afternoon does not affect the computation of laytime as work had already finished before it started and laytime exceptions do not cover demurrage unless it is specifically worded to be so in the charter, so Saturday should count as a layday. [48] Sunday the 14th of June should count towards laytime as it was used. Loading finished at 1000 hours on the 15th of June, at this time the vessel is on demurrage for three days from the 13th of June till the 15th of June. A shipowner is entitled to a whole day’s demurrage even if only part of the day is used so unless the charterparty provides otherwise, although loading finished on the 15th of June at 1000 hours, the whole day will count. [49]

As the charter provides that demurrage should be paid on the basis of $10,000 per day or pro-rata, the charterers should be liable for $30,000 however deductions should be made for the 3 hours used in moving from the place of waiting which will leave the total amount of demurrage payable at about $27,250. (1 hour = 10,000 divided by 24 hours=416. 416 x 3 = 2,500)

The time between the 15th and 16th of June will not count as demurrage because loading had finished and the delay is through the fault of the charterers, the charterers will have to pay for damages for detention of the vessel if there was no agreement as to a reasonable time for the presentation of bills of lading for signature and the court finds that 24 hours is not a reasonable time. [50]

B

The right to withdraw a vessel for late payment of hire must be expressly contracted for as it does not arise under common law. Under common law, time is not of the essence in a time charterparty so a shipowner cannot repudiate the charterparty and withdraw his vessel unless the delay is such as to frustrate the object of the contract. [51]

The right to withdraw a vessel for late payment of hire is therefore normally provided for in the charterparty, as it is in this case. The charterparty however provides an anti-technicality clause which gives the charterers a grace period of two banking days in which defaults or negligence resulting in non payment may be rectified. [52] The payment in this case was due on the 28th of April but was not paid due to negligence on the part of the charterer’s bankers.

Under a withdrawal clause, the right to withdraw only arises as soon as there is a default in the timely payment of an instalment of hire. [53] Default arises where there is a failure to pay hire on the due date without an excuse provided for under the charterparty [54] so there has been a default in this case. As a result it can be argued that the owners can exercise the right to withdraw the vessel however; there is provision for anti-technicality clause in the charter which requires the owners to give the charterers two banking days to rectify the default. The notice under the anti-technicality clause is to be given before the shipowner invokes the withdrawal clause. [55] The owners duly gave the notice at 1830 hours on the 28th of April.

Anti-technicality clauses have been strictly construed by courts so the notices given under the clause must clearly constitute an intention to exercise the right of withdrawal. [56] The notice in this case clearly expresses that intention so it may be stated that it complies with the requirement for clarity. However, the right to exercise the option of withdrawing the vessel must have accrued before the notice is given, this happens when hire is due and not received [57] . Hire does not become ‘due and not received’ until midnight on the date which the instalment is due [58] so in this case, the hire did not become due till midnight on the 28th of April so the notice could only be validly sent after that time. As the notice was sent earlier, it may be argued that the notice was invalid.

The payment was not effected within the time given by the shipowners under the anti-technicality clause as a result it may be argued that the shipowners now have the right to withdraw the vessel. Also, the shipowners should have waited till midnight to invoke the withdrawal clause on the 30th of April as the time given to the charterers to comply should have nothing to do with a bank’s working hours. [59]

The fact still remains that the owners gave a premature notice which is therefore invalid so it may be argued that the two clear banking days given by the charter has not been used so although the right to withdraw has arisen the notice given to the charterers was not effective, the charterers therefore have the right to treat the withdrawal as wrongful. The exercise of the right to withdraw the vessel for default in payment of hire has the effect of terminating the charterparty. [60] The contract is terminated from that point on and the owner is not entitled to hire for the remainder of the charter period.

Damages for the unexpired period of the charter may only be recovered where the conduct of the charterer amounts to a repudiation of the contact, as time is not of the essence in a time charterparty it will be rare for the courts to find that late payment of hire is a repudiation of the contract. [61]

Where, as may be argued in this case the withdrawal of the vessel is wrongful, the breach can be taken to be repudiation and charterers can determine the contract but as the effect of the withdrawal of the vessel is to terminate the contract, the charterers will be entitled to a claim for damages.

The normal measure of recovery in cases where the shipowner has wrongfully repudiated a time charter is the difference between the contract rate and the market rate for chartering a substitute vessel for the balance of the charterparty period, which is about nine months in this case. [62]

II

The charterers in this scenario sent the notice under the anti-technicality clause after the right to withdraw the vessel had accrued so the notice was sent at the right time. [63] It can be argued that communication of the notice at 0900 hours the following day was prompt [64] and the notice expressed the intention to withdraw the vessel clearly. [65] As no hire was received by the end of the notice period, the shipowners sent a notice of withdrawal to the charterers, although it was confirmed by the shipowner’s bank that payment had not been received before the notice was sent, the bank however informed the shipowners twenty minutes after that the hire was received overnight.

The issue to be considered is whether the shipowners were still entitled to withdraw the vessel with the knowledge that the hire was paid. This may depend on the time the hire was actually received by the bank; as the bank stated that the hire was received ‘overnight’. It is unclear whether this was before or after midnight, if it was after midnight then the hire was paid late [66] and the right to withdraw the vessel would have accrued before the notice to withdraw was sent therefore the notice would be valid and the knowledge of the late payment by the shipowners should not make a diff