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Published: Fri, 02 Feb 2018
International Carriage of Goods by Sea
The object of this task is to advise the party to whom the party was chartered, Andrea Ltd, (the charterer) as to their rights with regard to the action against them by the ship owner of the vessel, ‘Democritos’.
A.The Proper Law of the Contract
1.Common Law rules for inference of the law of the contract
There are no specific instructions that the applicable law is that of England and Wales, which means that certain steps must be carried out in order to ascertain this. In general, Lord Wright established in the case of Mount Albert Borough Council v Australasian Temperance and General Mutual Life Assurance Society Ltd that the English courts will not accept as trite law the principles of lex loci contractis (the applicable law is that of the location of the carrying out of the contract) or lex loci solutionis (the applicable law is that of the chosen jurisdiction for the settlement of disputes).
The position therefore is that the law is either expressed by the parties or must be inferred by the courts. In the present case no indication has been given as to the presence of a ‘choice of law’ clause within the charterparty contract. This therefore means that. Here the principle, as stated in the case of Bonython v Commonwealth of Australia whereby:
“…the system of law by reference to which the contract was made or that with which the transaction had its closest and most real connection.”
Ackner J established in the case of Offshore International SA v Banco Central SA that the law of the contract was to be inferred from the payment method as, in this case, payment was made in American Dollars through a New York bank against documents that were to be presented in New York.
In the present case, no such details are known other than the fact that the vessel is chartered to Andrea Ltd from Jeddah to London and that it is Andrea Ltd who is being sued.
2.European Law and UK ratification
The 1980 Rome Convention on the Law Applicable to Contractual Obligations regulates the position of law between parties that consist of a non-EU Member State and a Member State as well as where both parties are EU Member States. The provisions of this Convention were ratified in 1991 under the Contacts (Applicable Law) Act 1990. In the present case, it can be assumed that Andrea Ltd, by virtue of the ‘Ltd’ after the company name, is a UK incorporated company with its central administration within the UK. This is also strengthened by the fact that the destination port is London. The nationality of the ship owner is unknown.
This convention has adopted the above common law rules on ‘most closest connection’ although there are subtle differences that could lead to a different result. For the present purposes, the main difference is that of the presumption under Article 4(2) of the Convention, which states that a rebuttable presumption exists whereby the applicable law is that of the ‘characteristic performance’ of the contract. This means that the contract is deemed to be most closely connected with the party that is to effect performance. Therefore, at the time of completion of the contract, the location of the central administration of the company is key.
While there is further provision provided by the Regulation on Jurisdiction and the Recognition and Enforcement of Judgements in Civil and Commercial Matters 2000, which, as a regulation, has direct effect, it is not relevant for the current purposes. Article 2 of the Convention does stipulate that the applicable law is that of the defendant but this only applies where the contract is carried out within the EU.
Despite this setback, this is a charterparty, which means that the charterer gives effect to performance as it is this party that makes the specific request for the stated voyage. Therefore, as the charterer is Andrea Ltd, the assumption under the Rome Convention is that the applicable law of the contract is that of England and Wales.
B.Charter Shipping – Ascertaining the applicable charter
1.Bare Boat or Demise Charters
The 1974 Report on Charter Parties by the Secretariat of UNCTAD states under Part A(1), paragraph 22 that a bare boat charter is an arrangement whereby the charterer takes over possession of the boat for a specified time in return for hire remuneration to the ship owner. This means that questions of demurrage are not considered under such charters. However, in the current case there is nomination of a safe port, which means that the ship owner is in control of the vessel for the voyage and the charterer will provide the cargo at a given time at the safe port. This therefore cannot be a Bare Boat or Demise charter.
In accordance with the 1974 Report, a time charterparty is the undertaking of the ship owner to provide a vessel for a period of time during which the charterer is free to utilise this vessel for his or her own purposes. The only obligation of this kind of charter is to carry out lawful trade of lawful goods to safe ports. The result is that, as with the Bare Boat Charter, issues of demurrage are not considered. It is however unlikely that the current contract is for a time charter, as ‘lays days’ have been stipulated.
The facts therefore clearly indicate that is a voyage charterparty whereby the ship owner has agreed to provide his or her vessel at a designated port on a stated date. This type of charter is also defined under the 1974 Report on Charter Parties by the Secretariat of UNCTAD In the current case, this is the port of Jeddah on March 10, 2003 and will carry the cargo to London on behalf of the charterer, Andrea Ltd.
The obligation for the charterer is to provide the cargo at the same designated port and this must be loaded over a designated time, which is referred to as the ‘lay days’. In the present case, this amounts to four days. The charterparty contract will usually specify the amount of compensation payable for each day that the stipulated number of ‘lay days’ are exceeded. This is known as demurrage. It is also common to specify demurrage followed by the right to sue for damages for detention after a set number of days past laytime. In the present case, neither of these details are known other than the fact that the ship owner is suing for five days detention.
C.The significance of demurrage and the possibility of exceptions – ascertaining the level of fault and damages payable by the charterer
As stated above, demurrage will be payable for each day that ‘laytime’ is exceeded. The significance of this is that, in the current case, the extent of damages will be limited to the agreed rate for demurrage unless there is also a maximum demurrage period after which damages for detention may be claimed by the ship owner.
In order to ascertain the liability of the charterer it is therefore essential to ask the following questions of fact. Firstly, when did ‘laytime begin’ and on what date did it therefore expire. Secondly, what is the significance of the demurrage agreement and are there applicable circumstances where it would not be payable? Thirdly, where there is no demurrage agreement or extenuating circumstances, what sort of damages would be payable for detention.
1.When did ‘laytime’ begin?
In accordance with English common law, there are three requirements that must be satisfied before lay time may begin. The first is that the ship must have arrived at her destination. She must then be ready to load and thirdly, notice of readiness to load must have been given.
From the facts of the case, notice of readiness has been given but investigation into the common law is necessary in order to ascertain whether ‘laytime’ began on March 10th.
The case of…stipulates that the arrival is the docking of the ship in the ‘commercial area of the port’. This was elaborate on in… where the ship was required to arrive at the part of the port where she was to be loaded and not in a waiting area that is nevertheless within the port but miles away from the agreed location for loading. However, when dealing with waiting areas that are outside port limits, the case of El Oldendorf & Co GmbH v Tradax Export, SA, The Johanna Oldendorf in which Lord Reid stated that:
“Before a ship can be said to have arrived at a port she must, if she cannot proceed immediately to a berth, have reached a position within the port where she is at the immediate and effective disposition of the charterer.”
This therefore means that in the absence of an express, contrary agreement between the parties the risk of delay lies with the charterer where the ship is temporarily docked within port limits, and lies with the ship owner when docked outside port limits.
In the current case, the ship was outside port for three days from arrival on March 10th, which means that the earliest time for the commencement of ‘laytime’ will be March 13th.
(b)Readiness to Load
The common law states that where there is an express condition within the charterparty that requires for the cargo hold of a vessel to be clean and suitable for the reception of goods, readiness to load cannot take place unless this condition is satisfied. This occurred in the case of Compania de Naviera Nedelka SA v Tradax International SA, The Tres Flores where the charterparty stipulated that:
“Before tendering notice, master has to take necessary measures for holds to be clean, dry, without smell and in every way suitable to receive grain to shipper’s/charterer’s satisfaction.”
However, where there is no such express stipulation, Lord Denning provided dicta on this matter in the judgement of the above case. He firstly stated that readiness must be concurrent with the notice of readiness given by the ship’s master. Further to this, a ship can be said to be ready when notice is given, regardless of the need for further preliminaries. However such preliminaries must be of a nature that:
“…are not such as to give any reason to suppose that they will cause any delay…”
Lord Denning therefore distinguished the concept of mere preliminary from that of a major operation such fumigation:
“In the present case there were pests in the hold such as to make the ship unready to receive cargo. Fumigation was not a mere preliminary, nor a routine matter, nor a formality at all. It was an essential step which had to be taken before any cargo could be received at all. Until the vessel had been fumigated, notice of readiness could not be given”
This therefore means that the stipulation within the charterparty of the requirement for a clean cargo hold that is without smell and is suitable for the reception of grain can facilitate to create a stricter standard of readiness for the purpose of establishing the condition for which the vessel may be deemed to be ready. However, at common law, where there is a clear infestation, risk to hygiene or obvious danger of damage to the cargo, the vessel must be deemed to be unready for loading.
In the current case, the infestation of beetle is in point with the facts of Compania de Naviera Nedelka SA v Tradax International SA, The Tres Flores. Therefore, it is not necessary to establish whether the charterparty contains an express clause on readiness to load. It is clear that on the date on which the master gave readiness to load, the ship was not ready to receive cargo. As a result, fumigation must take place and notice of readiness must be given again once this has been completed.
The question of there being a precise date for the commencement of ‘laytime’ is therefore wholly dependent on full ascertainment of the date of completion of fumigation and the subsequent giving of new notice following this hygiene procedure. Both of these details are absent from the facts but it can be said that earliest possible date would be March 13th, which was the date of arrival at port. If this is to be held as the commencement date for ‘laytime’, this therefore means that the ‘laytime’ would have expired on March 17th.
2.Assuming that ‘laytime’ expired on March 17th, what is the significance of a demurrage agreement and can there be exceptions for payment?
The stated loading period of five days would result in a liability for demurrage of one day however there is no way of ascertaining whether there is a demurrage agreement. At the very least, consideration of expiration of a fixed demurrage period need not be taken into consideration as there is only a single day to consider and it is customary for demurrage to be payable as a daily rate as opposed to hourly. This means that a fixed demurrage of less than a single day is extremely unlikely.
If there is a demurrage agreement there will arise no liability for detention and the fixed daily rate of demurrage, as agreed in the charterparty will be payable by Andrea Ltd regardless of the reason for lateness but there are three principles of law which are the general principle, the fault of the ship owner and use of the waiting ship by the ship owner where demurrage is interrupted.
(a)The General Principle
Viscount Finlay pointed out in the case of William Alexander & Sons v A/S Hansa that:
“the charterer…is answerable for the non performance of that engagement whatever the nature of the impediments, unless they are covered by the exceptions in the charterparty or arise through the fault of the ship owner or those for whom he is responsible.”
This merely states that, in the absence of fault of the ship owner or a circumstance that is expressly accounted for in the charterparty agreement, there can be no interruption to demurrage, regardless of the reason for lateness. Therefore, in order for Andreas Ltd to avoid any demurrage incursions, a circumstance must exist that is the fault of the ship owner.
(b)‘Fault of the Ship Owner’
It was held in the case of Gem Shipping of Monrovia v Babanaft, The Fontevivo that a justified or involuntary act of the ship owner will not interrupt demurrage since such circumstances would not give rise to ‘fault’ of the ship owner. Donaldson J stated in the case that the obligation to load the vessel is:
“…subject to the qualification which applies to all contracts that a party is not liable for the commission of a breach if the breach arose because the other party prevented him from the performing the contract and did so without lawful excuse”
Such justifiable circumstances would include damage to the ship at the exclusive fault of a third party or a government decree. However, no such justification will exist for negligence such as running aground.
In the present case, there may well be circumstances that are not mentioned, which are the fault of the ship owner but further investigation is required. The only tangible reason may have been a need to fumigate should this have not taken place already, but as shown above, a delay caused by this reason would not only interrupt demurrage, it would also negate it as the ship would never have been ready to receive cargo.
(c)Use of the Waiting Ship by the ship owner
The facts of the current case point to the fact that the ship was never used by the ship owner for his own pursuits while laytime was running from March 13th. This date of laytime commencement is clearly proven in the above ascertainment that the earliest possible starting point for laytime had to have been March 13th and this is on account of the ‘Democritos’ being outside port until this time. Therefore, no question of interruption of demurrage can be raised in light of any use of the vessel for the shipowner’s own purposes.
3.Ascertaining damages if there is no demurrage agreement and no exemptions for payment
If there is no demurrage agreement, the ship owner is still only entitled to sue for detention for one day and assessment of such damages would be in accordance with the common law, which, in simple terms, is the right to seek restitution following breach of contract that will place the aggrieved party back in the position that they would have been in had there been no breach that resulted in the consequential loss. Here there are two rules that limit the scope of such losses, namely that the loss must not be too remote. The second is the rule in the case of Hadley v Baxendale which states that only losses that arise directly from a breach may be considered as part of the quantification of damages. The court stated that there is liability for losses:
“either arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.”
This does however mean that account would be taken of possible delays to future charterparties and is much less predictable than demurrage due to the fact that quantification is very much a lengthy settlement process, which could lead to litigation.
A great deal more information is required in order to fully ascertain the position of Andreas Ltd. As legal adviser, it is imperative that full scrutiny of the charterparty agreement is carried out in order to ascertain whether there are any express clauses that will rebut the above answers that have been provided on the basis of presumptions of law. The above presumptions take effect in the absence of express stipulations in the charterparty contract and include stipulations on the applicable law, the presence of agreements to effect the commencement of laytime, demurrage clauses (if any) concerning amounts payable and the duration of such liability prior to commencement of the right to sue for detention.
Further to this, more facts are required in order to ascertain whether laytime actually commenced and, if it did, whether there are in fact circumstances surrounding the delay, which can act to interrupt the demurrage.
Rome Convention on the Law Applicable to Contractual Obligations 1980
Regulation on Jurisdiction and the Recognition and Enforcement of Judgements in Civil and Commercial Matters 2000
Brussels Convention on Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters 1968
Civil Jurisdiction and Judgements Act 1982.
Contacts (Applicable Law) Act 1990
Mount Albert Borough Council v Australasian Temperance and General Mutual Life Assurance Society Ltd  AC 224
Bonython v Commonwealth of Australia  AC 201
Offshore International SA v Banco Central SA  3 All ER 749
El Oldendorf & Co GmbH v Tradax Export, SA, The Johanna Oldendorf  AC 479
Federal Commerce and Navigation Co Ltd v Tradax Export SA, the Maratha Envoy  AC 2
Compania de Naviera Nedelka SA v Tradax International SA, The Tres Flores  QB 264
Suisse Atlantique v NV Rotterdamsche Kolen Centrale  AC 361
Inverkip Steamship v Bunge  2 KB
William Alexander & Sons v A/S Hansa  AC 88
Gem Shipping of Monrovia v Babanaft, The Fontevivo  Lloyd’s Rep 399
Budget & Co v Binnington & Co  QB 35
Houlder v Weir  2 KB 267
Cantiere Navale Triestina v Soviet Naptha  2 KB 172
Blue Anchor Line v Toepfer, The Union Amsterdam  1 Lloyd’s Rep 432
Stolt Tankers Inc v Landmark Chemicals SA, The Stolt Spur  1 Lloyd’s Rep 786
Hadley v Baxendale (1854) 9 Exch 341
1974 Report on Charter Parties by the Secretariat of the United Nations Conference for Trade and Development
Dockray, M. 2004, Cases and Materials on the Carriage of Goods by Sea, 3rd edition Cavendish Publishing, London
Griffin, B & Day 2003, The Law of International Trade, 3rd edition, Butterworths, London
Bishop W.D. The contract-tort boundary and the economics of insurance, (1983) 12 JLS 241
  AC 224
 supra note 1 at p 740
 supra note 2
  AC 201
 supra note 4 at p 219
  3 All ER 749
 Rome Convention, Article 4
 This is the revised version of the Brussels Convention on Jurisdiction and Enforcement of Judgements in Civil and Commercial Matters 1968, which was ratified in the UK under the Civil Jurisdiction and Judgements Act 1982.
 In accordance with the EC Treaty, Article 249
 United Nations Conference for Trade and Development
 Part B(1) paragraph 26
  AC 479. This was followed by Lord Diplock in Federal Commerce and Navigation Co Ltd v Tradax Export SA, the Maratha Envoy  AC 2
 supra note 12, per Lord Reid at p 535
  QB 264
 supra note 14 at p 281
 supra note 15
 supra note 15
 supra note 14
 See Dockray, M. 2004, Cases and Materials on he Carriage of Goods by Sea, 3rd edition Cavendish Publishing, London, at p 261
 supra note 19 at p 262
 See, for example. Suisse Atlantique v NV Rotterdamsche Kolen Centrale  AC 361, for deliberate delay. See also: Inverkip Steamship v Bunge  2 KB 193 for failure to provide the cargo on time.
  AC 88
 supra note 22 at p 101
  Lloyd’s Rep 399
 supra note 24 at p 404, quoted from Lord Esher MR in Budget & Co v Binnington & Co  QB 35 at p 38
 Houlder v Weir  2 KB 267
 Cantiere Navale Triestina v Soviet Naptha  2 KB 172
 Blue Anchor Line v Toepfer, The Union Amsterdam  1 Lloyd’s Rep 432
 This therefore means that consideration of the controversial finding in the case of Stolt Tankers Inc v Landmark Chemicals SA, The Stolt Spur  1 Lloyd’s Rep 786 is not relevant for current purposes.
 For excellent commentary on this rule, see Bishop W.D. The contract-tort boundary and the economics of insurance, (1983) 12 JLS 241
 (1854) 9 Exch 341
 supra note 31 at p 354
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