Tuesday, December 5, 2023

Repudiation due to lack of cargo- calculation of demurrage and damages

The vessel was chartered on an amended GENCON 1994 form to carry coal from Norfolk, USA to Gdansk or Swinoujscie, Poland. Disputes arose between the Claimant and the First and Second Respondents in respect of delays at the loadport and failure to load a cargo. Consequently, the disputes came before two LMAA Arbitrators that applied to this reference the LMAA Terms 2017. The parties were represented by solicitors.

The second respondents raised a jurisdictional challenge but since the first respondent withdrew its claim against the second Respondents, the tribunal did not consider the parties’ position on their Jurisdiction over the Second Respondent.

Factual background

The Vessel was fixed on 4 November 2021 with a laycan of 5-15 December. After that, the parties agreed to the Vessel [X] with a laycan 30 December -6 January, making it clear that the ship should be in port by the 7th. The Vessel tendered NOR at 2035 LT on 3 January on arrival at Cape Henry sea pilot station, picked up a pilot there and subsequently anchored at Cape Charles anchorage, where NOR was re-tendered at 2240 the same day. The SOF recorded that the Vessel remained at Cape Charles anchorage from 3 January, “awaiting cargo availability and terminal berthing instructions”.

It was common ground that the cargo was not in the port or available to load on the Vessel’s arrival, despite the previously anticipated urgency by the First Respondent for the Vessel to arrive without delay. Instead, the cargo was at a third-party location, where it needed to be loaded onto trains to be brought to the port for loading. Despite assurances received through various channels, the cargo never arrived at the port. In the meantime, because of the length of time the Vessel had remained idle at port, the USCG notified the Claimant on 29 January that the Vessel must leave port by 12 February.

On 11 February , the First Respondent sent a message to the Claimant (“the Cancellation Message”), which stated, “we officially release[s] you today from the charter vessel of our cargo”.  Then, the Vessel departed the load port without loading the intended coal or any other cargo. The Vessel was subsequently fixed for the carriage of another coal cargo from Norfolk, USA, to Rotterdam, Netherlands, with a laycan of 9-18 March.

Meantime, on 5 March, the Claimant accepted the Cancellation Message as a wrongful repudiation of the Charter.

The claimant’s claims

Given the alleged repudiation of the Charter, the Claimant claimed (i) demurrage for the time lost between the date of the Vessel’s arrival under the Charterparty on 3 January until its alleged termination of the Charter on 5 March , alternatively until the date of the Vessel’s delivery into the Substitute Fixture on 9 March , (ii) damages for wrongful termination and (iii) recovery of related expenses.

Issues to be Determined

(i) What was the legal effect of the Cancellation Message?

(ii) When did the Charter come to an end?

(iii) Is the Claimant entitled to demurrage ? If yes, over what period and in what amount?

(iv)What was the legal effect of the demurrage invoices issued and the nature of the demurrage payments made to the Claimant?

(v)Is the Claimant entitled to damages for wrongful termination? If yes, how are damages to be calculated and to what amount is the Claimant entitled?

(vi)Is the Claimant entitled to recover its related expenses incurred at the loadport?

For this post, the questions (i), (ii),(iv),(v), and (vi) are answered shortly. Point (iii) is mainly considered.

Held,

(i) What was the legal effect of the Cancellation Message?

The First Respondent’s message evinced an intention not to perform its obligations under the Charterparty terms, in repudiatory breach, entitling the Claimant to accept that breach and terminate the Charter.

(ii) When did the Charter come to an end?

The Charter was terminated at 0723 on 5 March, when the claimant accepted the Cancellation Message as a repudiatory breach of charter and brought the Charter to an end.

(iii) Is the Claimant entitled to demurrage? If yes, over what period and in what amount?

It was the claimant’s case that, the Vessel having tendered NOR at 2035 on 3 January , laytime commenced at 0835 the following day and that, taking into account the allowed laytime of 2.4 days, the Vessel came on demurrage at 1811 on 6 January . Terminating the Charter at 0723 on 5 March resulted in a total period of demurrage of 57.55 days which the Claimant claimed in the total amount of USD 920,800. Alternatively, the Claimant claimed demurrage from tendering NOR on 3 January until delivery of the Vessel into the Substitute Charter on 9 March , which it calculated resulted in damages of USD 1,026,288.80. After allowance was made for the received payments of USD 199,980, the Claimant’s total claim for demurrage for USD 720,820, alternatively, damages of USD 826,308.80.

The Respondent denied that the Claimant terminated the charterparty on 5 March or that it was liable for demurrage beyond 11 February.

Determination

Clause 31 of the Rider set out the provisions agreed in relation to tender of NOR, commencement and allowed laytime as follows : “... Vessel to be loaded at the rate of 20,000 Metric Tons per weather working day of 24 consecutive hours, Saturdays, Sundays and holidays included, Charterers option to load at 25,000 Metric Tons….. Laytime shall commence 12 hours after the vessel tenders notice…..If the berth is not available on the Vessel’s arrival, the Master may tender said notice from a lay berth or anchorage within the port limits.”

The load port SOF recorded that the Vessel first tendered NOR at 2035 on 3 January. However, the SOF also recorded that the Vessel only stopped to pick up a pilot and ended it sea passage at this point, weighing anchor shortly afterwards at 2240, at which point NOR was re-tendered. It is trite law that tender of NOR at the end of sea passage, before a vessel anchors or berths, is premature and invalid. Accordingly, the NOR tendered at 2035 on 3 January was invalid and that the first validly tendered NOR at the load port was that tendered at 2240 the same day.

After allowance of the contractually agreed 12 hours turn time, the laytime at the load port started to run at 1040 on 4 January and, in the absence of any applicable interruptions or exceptions to laytime, time ran continuously thereafter as laytime and then demurrage for the First Respondent’s account.

In circumstances where the reduced cargo quantity of 60,000mt arose from the First Respondent’s instructions, this should be the cargo quantity on which allowed laytime is calculated. As to the contractual load rate on which allowed laytime should be calculated, in circumstances where the First Respondent did not elect to load at the faster rate of 25,000mt pwwd, the allowed laytime at the loadport should be calculated on the basis of the load rate of 20,000mt pwwd. On the cargo quantity of 60,000mt, this equates to allowed laytime of 3 days. Allowed laytime therefore expired at 1040 on 7 January, at which point time on demurrage began to run.

As to when time on demurrage stopped running, on the evidence, the Vessel left the loadport on the instructions of the USCG and returned on 9 March to enter into the Substitute Charter. Since the Charter had been terminated on 5 March , the demurrage continued to accrue until 0723 on 5 March . The Respondent is liable for demurrage for 54.86 days (57.86 days laytime minus 3 days allowed laytime). At the rate of USD 16,000 PDPR agreed on nomination, this equates to loadport demurrage of USD 877,760.

(iv) What was the legal effect of the demurrage invoices issued and the nature of the demurrage payments made to the Claimant?

The tribunal rejected the Respondent’s arguments for “negotiated demurrage” (due to lack of evidence) and waiver. Concerning the nature of the demurrage invoices issued, from their face, they constituted interim invoices in respect of demurrage falling due day by day.

In circumstances where there was no discharge or final freight invoice issued, paragraph 13 of the Recap and Clause 35 of the Rider meant that demurrage became payable within 30 days of the termination of the Charter, provided that supporting documents had been provided.

(v) Is the Claimant entitled to damages for wrongful termination? If yes, how are damages to be calculated and to what amount is the Claimant entitled?

As to how the quantum of its damages claim should be calculated, relying on The Concordia C [1985] 2 Lloyd’s Rep 55, The Noel Bay [1989] 1 Lloyd’s Rep 361 Odfifell Seachem v Continentale Des Petroles [2005] 1 Lloyd’s Rep 275, and Louis Dreyfus Commodities v MT Maritime Management [2015] 2 CLC 508, the Claimant calculated its entitlement to damages for wrongful termination on the basis of the difference between the net earnings it expected to achieve under the Charterparty, less those achieved under the Substitute Charter for the period the two overlapped.

The tribunal considered the authorities and accepted the basis in which damages were to be calculated in principle, namely by assuming the breached fixture would have been performed immediately upon termination of the Charterparty, entitling the innocent party to recovery of its expected net earnings under the terminated charter, less any net earnings achieved under a substitute charter for any period of overlap, comparative calculations being achieved by the net earnings under each fixture being converted into TCE daily rates. There was no suggestion that the Vessel was employed between 11 February and 9 March. So the overlap was related to the period 5 March up to 24 March, being the expected termination date of the initial voyage.

(vi) Is the Claimant entitled to recover its related expenses incurred at the loadport?

The claimant claimed reimbursement of wasted port disbursement account costs and underwater cleaning costs incurred due to the extended waiting period. For the underwater cleaning costs, the claimant submitted two invoices.

Since no freight ultimately fell due as a result of the First Respondent’s breach of Charter, the Claimant was out of pocket in relation to the port DA incurred as a result of the First Respondent’s breach of Charter. Therefore, the claimant was entitled to recover as damages these costs.

There was no contractual provision for the allocation of risk of hull fouling as between the Parties. Rather, the Charter contained demurrage provisions to compensate the Claimant for delay at port by means of liquidated damages. Therefore, the Claimant’s claim for related expenses arising out of delay should be limited to demurrage. The second invoiced hull cleaning costs related to delay under substitute charter and that was unrelated to the First Respondent’s breach.

Award in the claimant’s favour of USD 1,062,295.93, with an interest of 5% compounded at three monthly intervals and costs, following the usual rule that costs follow the event.

Final Award issued 20 Sept. 2022

Note: This website removes the names of the parties involved in this or other awards. The reader can find more details on Jus Mundihttps://jusmundi.com/en/.These awards mostly come into the public domain through enforcement under the NYC 1958.

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