Saturday, June 22, 2024

Just in time arrival: laytime and demurrage issues

It is common ground that the increasing GHG emissions have caused concern in the last years. An option to reduce the emissions could be optimizing shipping operations and the overall transport chain. So, the concept of just in time (JIT) arrival is one of the proposed solutions to the problem, without ignoring the barriers lying in the nature and complexity of this type of maritime adventure, requiring a higher level of co-operation between the parties involved in the trade.

Regulating the vessel’s speed

However, under a voyage charter party, the Owners and Charterers have conflicting interests in relation to contractual terms governing the timing of the vessel’s arrival. For example, a delayed arrival may be in the Charterers’ interests when no cargo is available, or the port is congested; waiting costs money. On the other hand, the Owners may order the ship to increase its speed to arrive earlier and within the agreed dates & hours stipulated in the ‘NOR clause’ or ‘laytime clause’, enabling the ‘laytime clock’ to start ticking. Notably, the Owners will consider the port costs, fuel costs, paid hire (if acting as disponent Owners), fuel prices, and other related expenses or factors affecting the commencement of laytime before deciding to vary the ship’s speed.

In fact, the ship will not always arrive timely as expected, and Owners (or disponent Owners in the charter chain) will suffer both costs and time on their account (time not to count as laytime or time on demurrage). Practically speaking, the vessel’s time of arrival may be affected by several factors (known or unknown): bad weather, shipping accidents, delays en route at intermediate ports to lift bunkers or receive spare parts or conduct crew changes (primarily due to COVID nowadays), technical or mechanical issues affecting the vessel’s performance (engine damages or defects, hull fouling, etc.), delays to follow a convoy (HRA or Canal transit etc.), pre-inspections conducted at adjacent ports or other operational issues en route(inspection by authorities), delays due to local regulations (pilotage in & out restricted areas-straits, navigation subject to weather conditions, deviation due to ballast exchange at open sea), delays occurred at intermediate voyages performed (i.e. before the present charter), a divergence that added extra time on the voyage, and some unforeseen events (See the Ever Given grounding at Suez etc.), etc.

Even if the ship arrives timely, laytime disputes may arise for many other reasons, e.g. invalid NOR as the pre-conditions to tender NOR were not fulfilled ( delayed attendance of the surveyor to conduct holds inspection or NOR not tendered at the agreed place), lack of information on the berthing schedule/congestion, or prevailing weather conditions (swell, ice, fog) at the port ‘obstructing’ the vessel’s berthing or arrival at a position to tender NOR, etc.

Division of responsibility

Therefore, it is suggested that making JIT arrival work requires rethinking the parties’ obligations on the charter party side and reconsidering several clauses. As the standard proposed JIT clauses remain untested in arbitration, this post only refers to past arbitration decisions and highlights some issues concerning the parties’ claims or defences to demurrage claims due to the vessel’s delayed arrival at the loading or discharging port.

For example, from the parties’ perspective in the trade (charter party and sale contract), the importance attached to the giving & receiving of proper notices of the estimated date and time of the vessel’s arrival (ETA) is fundamental.

Thus, a typical charter party clause stated “the master to give the discharging port agents and the charterers 15, 10, seven, five days and 72, 48 and 24 hours’ notice of the expected date and time of arrival at discharging port..”.

And “any failure to provide the required notices can allow the Charterers extra laytime of 24 hours for loading or discharging”.

Finally, suppose the masters’ failure to give the agreed notices caused a delay. Then, the charterers defend a demurrage claim based on a counterclaim for damages or claiming breach as a potential defence to the Owners’ demurrage claim.

However, is it sufficient to defend a demurrage claim or counterclaim damages?

The previous decisions

The below decisions offer some guidance and clarify this point:

1.It concerns an old issue with a line of authority stemming from The Monroe Bros Ltd v Ryan (1935) 51 Ll L Rep 179. In the present case, the parties agreed to amend the laycan dates, and the ship was engaged in an intermediate voyage. As a result, on her fixed voyage, the vessel’s berthing schedule was delayed at the discharging port for about 11 days and the Owners claimed demurrage. The issue was whether the Owners failed to prosecute the voyage with all reasonable despatch, and the Charterers could be liable for the demurrage claim. The Charterers’ defence was that the Owners’ claim for demurrage was that the amount claimed was the same as damages suffered by the Charterers by the Owners’ insertion of the intermediate voyage, thus failing to prosecute the voyage with the utmost despatch. Then, the parties relied on various authorities to support their position, but the present case was different because the parties had agreed to extend the laycan dates. The extension of the laycan agreement deferred the Owners’ obligations as to the expected readiness date. The tribunal observed that to rely on fault as a defence, the fault and loss of time had to be concurrent; here, the loss occurred before laytime started(draft limitations). Notably, when the parties agree to amend the laycan dates, there should be additional precise wording to allocate the rights & obligations due to delays at the ports of loading/ discharging.

2.The issue was whether the Charterers were entitled to extra 24 hours laytime when the master failed to signal some of the ETA notices of the expected date and time of the vessel’s arrival. The master gave all the notices but not the 15 days- notice, and the Owners gave the Charterers all but not the seven and five-day notices and 72 hours- notice.  Based on the proper construction of the clause, the omission of some of the notices was not sufficient to establish a breach of the relevant notice provision, as there was no substantial failure that could arguably have had some effect on the ship’s operations at the discharging port.  Accordingly, the Charterers were kept adequately informed and were not allowed 24 hours of extra laytime.

3.The parties agreed by an addendum to the charter party, the ship to load additional cargo (top off). Then, the Owners’ provided ETA for that port depended on how the despatch on the previous loading will run. The vessel arrived and was delayed due to port congestion. The Owners advanced a demurrage claim, and the Charterers denied liability on the ground that the vessel’s ETA was not honestly and reasonably given. The parties’ submissions centred on the proper calculation to substantiate the provided estimate. On the facts presented and the qualification of the ETA, the tribunal allowed the Owners’ claim.

4.As per the charter party, the ship must “proceed with all possible despatch” and “will be ordered to steam at about 12 knots service speed permitting”. The Charterers rejected part of the Owners’ demurrage claim, purporting an alleged breach of the Owners’ contractual obligation to perform the voyage at about 12 knots, resulting in delay at the discharging port—the word ‘about’ imported half a knot allowance. The vessel did not perform at 11.5 knots or anything like it. However, it was not permissible to establish a breach simply by dividing the duration of the voyage and the distance involved. The various incidents and stoppages on her voyage slowed her progress and for which the Owners were not responsible. Even if the Owners’ breach caused a delay, the damages would not be recoverable by counterclaim. Because the losses were not foreseeable when making the contract, and the Charterers’ objections failed.

5.Charterers sought to defend a demurrage claim under a tanker charter party because the Owners’ breach concerning the geographical rotation caused the relevant delay. However, the Charterers’ late nomination of the loading ports caused part of the delay and the nomination by the Owners of the geographical rotation. Then the Charterers relied on the ETA clause to defend their position that stipulated “ETA clause (if applicable) 14/10/7/5/2 days”. The Charterers asserted that the clause entitled them to declare the grades/ quantities seven days before the ship’s arrival at each port. The tribunal rejected the Charterers’ submission, and since the Charterers’ fault caused the delay, the Charterers were liable for demurrage.

6.The ship was delayed in departing from the loading port due to engine issues, consequently delaying her arrival at the discharge port. The Owners claimed demurrage, and the Charterers said that the consequent delay arose due to the Owners’ fault and time should not count. They relied on a particular clause that excluded delays from counting as laytime resulting from or connected with “any vessel equipment breakdown”. However, the clause did not extend to consequential delays later in the voyage. Also, the fault and delay had to be co-extensive to establish a culpable fault and time not to count. As a result, the Owners’ demurrage claim succeeded.

7.The Owners claimed demurrage, and the Charterers counterclaimed that the Owners were in breach of charter (ASBATANKVOY) by failing to give ETA required by the charter. Consequently, the receivers failed to make the proper arrangements and the vessel’s berthing was delayed. Therefore, the Charterers’ counterclaim in damages was in the amount of demurrage claimed by the Owners. However, the receivers knew the laycan, including the short voyage performed and a large number of the other ships waiting. Hence, there was no persuasive evidence of a causal connection between breach and delay. Further, there was no breach by the Owners because the ETA’s were provided, and it was not the Owners’ fault if the same were not received.

8. The master sent his ETA to all parties, which was the ship to arrive out of office hours, and NOR could not be tendered. The shippers / Charterers informed the master that if he could improve the ETA, the master would be allowed to tender NOR. However, the Shippers later decided to berth a competing vessel ahead of the subject vessel. The Owners claimed damages for detention because the Charterers failed to load the cargo timeously; an absolute obligation or an implied responsibility to act with reasonable despatch. The tribunal disagreed as there was no obligation on the Charterers to load or discharge a vessel in strict turn on her arrival without an express agreement. Yet, the Owners objected to latecomers jumping in the queue, but again the Owners had no claim for detention.

Conclusion

The above decisions illustrate that not always a breach of the notice provision, or the delayed vessel’s arrival, will provide a complete defence to a demurrage claim or a valid basis to counterclaim damages.

The decisions also provide that although the parties cannot control the unforeseen events on the voyage that might delay the vessel’s arrival, they maintain control over the language used to allocate their rights and obligations during the various stages of the voyage. This can be sufficient to avert or minimize disputes.

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