The fundamentals of FONAR: Guidance on fuel oil non-availability reporting

Date: 24/06/2019

The 74th session of the IMO’s Marine Environment Protection Committee (MEPC 74) took place on 13-17 May 2019 at the IMO headquarters in London. 

A key area of interest for shipowners preparing for IMO’s 2020 global sulphur cap is  fuel oil non-availability reporting (FONAR) which may be necessary if, despite best efforts, a ship is unable to obtain compliant fuel.

What is a FONAR?

The starting point is that individual Member States will implement their own regulations and penalties in order to implement the global sulphur cap.

Regulation 18 of Annex VI of the MARPOL Convention sets out factors to be taken into consideration by a Member State Party in situations where a ship is found not to be compliant with the sulphur limits. Factors to consider include steps taken by the ship to mitigate the risk of non-compliance. Specifically, a ship may provide records of its attempts to achieve compliance with the limits, and evidence of its best efforts to obtain compliant fuel.

If, despite best efforts, a ship is unable to obtain compliant fuel, the ship’s Flag State as well as the competent authority of the port of destination should be notified . This notification is commonly referred to as a Fuel Oil Non-Availability Report (FONAR).

The submission of a FONAR is not expected to result in waiver or an exemption from compliance with the global sulphur cap.  However, it will be a key document or piece of evidence in assessing whether, in the eyes of the authorities, the unavailability of compliant fuel is reason for a ship not having compliant fuel.  It will also be a key document for the IMO (as Member States are required to upload a FONAR to an online system for the IMO) to monitor the availability of compliant fuel.

This FONAR system is not new for shipowners. A FONAR system is already in use in the North American ECA which came into force on 1 August 2012. Accordingly, there is already about 7 years of experience with the application of such a system and the United States Environmental Protection Agency (US EPA) has issued useful guidance to assist shipowners and operators which may be found at,

https://www.epa.gov/sites/production/files/documents/finalfuelavailabilityguidance-0626.pdf

What should a FONAR contain?

The FONAR should present a record of actions taken by the ship in her attempts to bunker compliant fuel oil and provide evidence of attempts to purchase compliant fuel oil in accordance with her voyage plan.  Further, if compliant fuel was not made available at the point or location stipulated in the voyage plan, the FONAR should record evidence of attempts to locate alternative sources of such fuel oil.

For more detailed guidance on what should be included in a FONAR, this will be up to each individual Member State.  However, the US EPA model does provide helpful guidance on how authorities might approach FONAR from 2020. Adapting the useful guidance provided by the US EPA to a global sulphur cap, it could reasonably be expected that a FONAR should contain:

1.      the ship’s name, flag, and IMO number.

2.      copy of the ship’s voyage plan in place at the time of  the relevant voyage in question the date/time and location of the ship when it first received notice of the proposed voyage

3.      a description of the actions taken to attempt to achieve compliance with sulphur regulations

4.      a description of why compliant fuel oil was not available

In cases of fuel oil supply disruption, the name of the port at which the ship was scheduled to receive compliant fuel oil and the name of the fuel oil supplier that is now reporting the non-availability of compliant fuel oil.

If applicable, identify and describe any operational constraints that prevented the ship from using available compliant fuel oil, for example with respect to viscosity or other fuel oil parameters. Specify steps the ship has taken, or is taking, to resolve these operational constraints that will allow the ship to use all commercially available residual fuel oil blends and any operational constraints preventing the use of compliant fuel oil.  This is a possibility as some ships may have operational constraints with very low viscosity compliant blended fuel availability of compliant fuel oil at first port of call and plans to obtain that fuel oil if compliant oil is not available at the relevant port of call, then the sulphur content of any alternative fuel oil available.

Details of any calls to the subject Member State ports in the prior 12 months including whether the ship used compliant fuel oil details of any previous FONARs submitted in the last 12 months.  It is not clear whether a ship owner could be required to submit FONARs previously submitted anywhere in the world or just previous FONARs submitted to the Member state in question.
 

Key contact information for the master, ship operator, ship agent and ship owner.  Further, the designation of a corporate official authorized to answer additional questions in the event of investigations by the relevant authorities. 

The US EPA regime guidance provides that ships are not required to deviate from their intended voyage in order to obtain compliant fuel although a ship operator is expected to make “any adjustments that can be made” to allow the purchases of compliant fuel.  Further, it is not expected that a ship is to subject itself to undue delays in order to achieve compliance. Member States are obliged to take reasonable steps to promote the availability of compliant fuel oils. It is not unforeseeable however that disputes could arise as to whether a delay to a ship is to be considered undue or unreasonable in the context of achieving compliance.

However, it must be stressed that individual Member States may develop more detailed guidance for the consistent use and acceptance of these reports, including what evidence is needed to accompany a report. Accordingly, whilst the current guidance from the US EPA is useful in planning for the global sulphur cap, this should be further reviewed on a country by country basis as Member States issue their own regulations and guidance.

When should a FONAR be submitted?

A FONAR should be submitted as soon as it is determined, or when the ship becomes aware, that compliant fuel oil will not be available. A copy of the FONAR should be kept on board for inspection for at least 36 months.

There have been discussions regarding the types of situations in which a FONAR should be submitted. The paradigm example of where there is a genuine lack of supply of compliant fuel is a clear scenario where a FONAR would be required.  It is less clear however whether a FONAR should be submitted in other situations such as, where, following delivery, bunkers represented in the BDN to be compliant have, according to Owner’s analysis, a non-compliant level of sulphur. Another example could be a breakdown of a scrubber system on a ship with limited reserves of LSMGO. According to the PSC Guidelines approved at MEPC74, such situations should be notified in writing to the ship’s flag state, the relevant port of destination and the authorities where the bunkering took place.  It seems that the FONAR format may not to be used in such situations.  It should be borne in mind that FONAR is a reporting format; the main concern following any non-compliance is to get the information out to the flag state/port state. On a practical level, subject to further developments and guidance, if the circumstances are not clear, the safest approach would be to issue a FONAR and also to inform the flag state, port of destination and place of bunkering of the situation by email. In real terms, ship managers should also be calling the flag state over the phone or meeting the local representatives to make necessary representations.

Charterparty Implications

Under a voyage charter party, Owners are responsible for fuel.  It therefore follows that compliance with the sulphur regulations and the FONAR procedure are all comfortably within the Owners’ sphere of responsibility.

However, in the case of a time charter party, it is the charterers who supply fuel to the ship whilst the Owners remain responsible for compliance with the sulphur regulations.  The regulations include requirements to use “best efforts” to supply compliant fuel and the FONAR requirements. However, a tension exists as the evidence required for the FONAR will be in the control of the charterers as it is the charterers who are in communication with bunker suppliers and brokers. It follows that Owners will be entirely dependent on charterers to provide the paper trail to demonstrate that “best efforts” have been made to find compliant fuel.

BIMCO and INTERTANKO have both released clauses dealing with the respective obligations between Owners and Charterers in relation to compliance with the global sulphur cap.  However, these were drafted prior to the IMO Guidelines with respect to FONAR and Owners should consider whether the existing clauses are sufficient to deal with issues which might arise in this area.

For example, it is not yet known how authorities will interpret the requirement to use “best efforts” to find compliant fuel.  Is this a requirement that can be delegated to charterers? To what extent are the Owners required to make their own enquiries to find compliant fuel?

Another potential issue could arise if it proves necessary to deviate from the intended route for the purpose of bunkering the ship with compliant fuel (where, for instance, no fuel is available on the intended route).

There is a strong argument that the parties’ respective obligations with regard to “best efforts” to supply compliant fuel and FONAR are within the scope of the BIMCO clause.  So, a shipowner should be able to establish liability and enforce the indemnity requiring charterers to supply evidence of “best efforts” to supply compliant fuel for the purpose of submitting a FONAR.  That said, in the absence of express wording dealing with “best efforts” and FONAR, there is scope for argument that the BIMCO clause would not apply to that situation.  Similar issues arise under the Intertanko clause.  Additional wording to the charterparty and bills of lading might also be required to allow for a deviation in order to bunker with compliant fuel.  In order that parties better know where they stand, it would be preferable to include express wording to the BIMCO/Intertanko clauses specifically addressing these issues.  Please contact your usual claims contact who can assist you in this regard.

Club Cover

Members will be aware that the UK P&I Club provides broad cover for ship-sourced pollution liabilities. This not only includes liabilities relating to ship-sourced oil pollution but also pollution caused by cargoes onboard ships, hazardous and noxious substances, garbage, sewage, ballast water and exhaust emissions.

P&I cover for claims arising under the 2020 global sulphur cap is still under discussions between the International Group of P&I Clubs.  These discussions are to ensure consistency of cover across the IG Clubs for liabilities which might arise non-compliance.  The UK P&I Club expects to be able to report further to members in this regard soon.

Additional useful links at,

https://www.ukpandi.com/knowledge-publications/article/circular-8-19-marpol-annex-vi-the-2020-global-sulphur-cap-149047/

https://shipandbunker.com/news/world/814657-imo2020-the-reality-of-dealing-with-fonars?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter-07/15/19

IMO standard reporting FONAR format may be found at,

https://www.ukpandi.com/fileadmin/uploads/uk-pi/2019/fuel_oil_non-availability_report_fonar.pdf

Survey shows bridge alarms and warnings can adversely affect safety

15 July 2019

Frequently sounding bridge warnings, especially false ones, can create ‘alarm fatigue’ and hinder watch keepers in carrying out their vital role, a new survey supported by shipping body InterManager has revealed.

The findings have been released this week by P&I Club, Shipowners Club, which conducted the survey in conjunction with the Department of Psychology at Royal Holloway, University of London, ISWAN and Inter-Manager, in order to investigate whether alarms on the bridge may affect the attention and focus of bridge watch keepers.

The survey was largely responded to by Masters and senior officers, which demonstrates that the concerns are apparent to experienced and well-qualified seafarers. Respondents came from a wide variety of vessel types.

Inter-Manager is now calling for manufacturers to work with ship operators to address seafarers concerns and develop better ways of communicating bridge warnings.

Respondents highlighted there is a problem with too many similar sounding alarms and revealed a need for alarms to be easily identifiable so that urgent warnings can be recognized over simple notification bells.

Key findings include:

·         89% of participants thought false alarms were a problem.

·         66% said the alarms were not easily detectable.

·         57% of respondents disagreed that alarms are graded by sound.

·         50% of participants reported some frustration with the format of the alarms themselves. Of particular concern was the fact that sounds are frequently the same tone for all alarms with no distinguishing factors between alarm systems.

·         77% of crew do not want to be disturbed from their watch keeping duties.

·         24% of participants reported that they never or seldom engaged the Bridge Navigational Watch Alarm System due to their concerns at frequent false alarms.

The main issue raised was frequent alarm fatigue, followed by the fact that alarms are hard to identify, and then concerns over the design of alarm system or the bridge itself. The results present a reoccurring theme regarding the grading of alarms to assist the watch keeper.

Another factor that emerged from the answers was the crew’s readiness to silence alarms without investigation due to ‘alarm fatigue’ caused by repeated alarm soundings for no apparent reason. Some 85% of participants reported they were aware of the alarms, the systems they represent and their location. However, 45% of the respondents agreed that frequent alarms are often silenced, and when this was analysed by the level of role, 44% of Masters, 41% of Chief Officers, 48% of Second Officers and 60% of Third Officers agreed, showing that this practice was prevalent among all ranks.

The report concludes: "It is evident from the feedback of these seafarers that the current regulations and arrangements relating to bridge alarm monitoring and systems can be improved upon. Doing so will improve the working environment of seafarers and assist with the reduction of related claims.”

Captain Kuba Szymanski, InterManager Secretary General, said: “At present, as an industry we are creating an environment for failure and then we are surprised when our seafarers fail! We can and must break this vicious circle. Look at the findings – 50% of our seafarers are frustrated by frequent alarms! 77% want alarms to be useful alarms and not a nuisance. They are extremely busy people, because we ask them to be ‘jacks of many trades’. Therefore, in my opinion, quite rightly they expect alarms to be useful and effective.”

Welcoming the report, he said: “This is brilliant – I cannot praise Shipowners’ enough for undertaking this ground-breaking research and drawing excellent conclusions. In particular I am pleased that they checked with the end users – that is very proactive and, I would say, pioneering. Honestly, this is one of very, very few surveys which actually asks seafarers themselves.”

Szymanski said action is now needed to address seafarers concerns and called on manufacturers to work with ship operators and crew representatives to identify which alarms are particular problems and to produce more effective methods of alert. “Seafarers are tired of being blamed for everything,” he said. “It is important that we take a human-centric approach to this and find solutions that benefit our crews in the workplace rather than hinder them when carrying out vital tasks.”

Ship owners’ Club said: “As vessels and the equipment on board become increasingly smarter, seafarers are required to learn additional skills for the ongoing operation and maintenance of these pieces of technology and equipment. However, where more equipment is fitted it naturally increases the possibility of a higher number of alarms. From a Club perspective, we believe that when fitting additional and new technology on board it should always be done with the intention to enhance the seafarer’s ability to safely and efficiently navigate and operate the vessel.

“It is evident from the feedback of these seafarers that the current regulations and arrangements relating to bridge alarm monitoring and systems can be improved upon, which will allow for crew to fully utilise the benefits of the technology being made available to them. Doing so will improve the working environment of seafarers and may assist with the reduction of related claims experienced by Members and the wider maritime industry. The Club is sharing this information to help facilitate further discussion of the topic in the industry with the hope of finding a method to provide a solution which improves bridge alarm management on board.”

The survey was conducted during 2017 and 2018 by a questionnaire, which was circulated widely throughout many maritime sectors, via Intermanager, ISWAN and UK Chamber of Shipping. After careful collation, the findings are now being made available to Club Members, the survey participants and the wider industry.

When is a Charter party not a Charter party? A Salutary Tale for Negotiating Parties

This is a case dealing primarily with the validity of a contract and, specifically, whether the contract in question actually existed. While the case is of general interest to all parties conducting business, it will be of particular interest to the shipping community because the issue of concluding an agreement by way of recap was examined. As Beatson J points out (at paragraph 27): “it is common for charterparties to be concluded by an exchange of emails or faxes, with the terms being recapitulated in a “fixture recap”, and they can be concluded orally and recapitulated”.

The underlying dispute involved a claim by disponent owners, TTMI, against charterers, Statoil, for unpaid demurrage following a voyage from Norway to Texas on the basis of a fixture recap email dated 17 October. Arbitration was commenced. Statoil rejected the claim, stating that there was no contract in existence with TTMI because on drawing up the recap, the brokers had mistakenly identified the parent company as the vessel’s time chartering owner, rather than the tanker chartering arm of the company who were actually the disponent owners with whom the charterers would do business. 

The case came before the Commercial Court. TTMI applied under s.67 Arbitration Act, to strike out the decision of the arbitrator: as there was no valid contract, there was, therefore, no arbitration clause incorporated and, as such, the dispute was not within his jurisdiction to determine. Beatson J was asked to determine whether a contract had been validly formed and considered, inter alia: (i) the effect of the error in naming the parties (ii) conclusion of a contract by performance and (iii) in the event that a contract was concluded, the inclusion of terms.

1. Was the error in naming the correct parties fatal to the validity of the contract?

In the circumstances, Beatson J was unable to conclude that there was a contract formed between TTMI and Statoil on 17 October. At para 31 he states:

“In the present case, it is not possible to say that the bargain had been made in all its essentials prior to 17 October and at a time when “Sempra” was named as the time-chartering owner. Even where a written recap is preceded by an oral agreement, the importance of the terms of the written recap should not be underplayed.”

The “Rhodian River” and The “Rhodian Sailor” [1984] 1 Lloyd’s Rep. 373 and The “Double Happiness” [2007] 2 Lloyd’s Rep. 131 could also be distinguished because in these cases the charter-party had been agreed or substantially agreed before the mistake as to the name the time-chartering owner.

The overriding problem in this case was that it was not possible to infer that an oral contract had been made prior to the recap of the 17 October because there was no evidence as to when such a contract could have been concluded. There was simply no reference in the documents to the parties’ negotiations and, since the recap was the charterparty and it named the wrong party, it was not possible to conclude that Statoil had contracted with the vessel’s disponent owner.

He also held that TTMI were not able to bring the claim against the charterers as “undisclosed” principal of the parent company actually named in the recap, because there was no evidence that the parent company had any such authority to enter the charterparty as agent for TTMI. Furthermore, in the absence of any evidence to the contrary, Beatson J was unable accept the arguments of TTMI that a contract between TTMI and Statoil was in existence where such assertion was fundamentally at odds with, and undermined by, the express terms of the recap email before him.

2. Was the contract concluded by performance?

Notwithstanding his decision that there was no written contract between the parties to the dispute, Beatson J held that a contract had been concluded by the performance of the voyage. The documents clearly demonstrated the essential elements of performance; the lifting of the cargo by TTMI, the Notices of readiness tendered on behalf of TTMI, the payment by Statoil of the freight and the invoicing of the transactions as between TTMI and Statoil. In particular, the payment of the freight by Statoil to TTMI was considered a ‘relevant factor’ by the Judge, and he stated at para 43:

“It is common ground between the parties that courts have regarded the fact that services are rendered, work undertaken, or payment is made as “a very relevant factor” in deciding whether a binding contract is made.”

3. If a contract is in existence, does it incorporate an arbitration clause?

Counsel for the Charterers had submitted that in respect of any contract which came into existence by performance there could be no arbitration agreement in writing entitling TTMI to seek to rely on the relief provided under section 67 of the Act but Beatson J rejected this assertion (as set out at para 49): “…both parties proceeded on the basis that the terms recorded in the recapping emails applied and that they were performing the transaction reflected in them.”

The recapping email stated that the vessel was to be chartered on Shellvoy5 terms, which contained at clause 43 a provision for disputes to be resolved in London arbitration, and the Navion amendments to Shellvoy July 2002 which, against the clause which provided for London arbitration, stated “ok”.

The difficulty though was Statoil’s argument that the recap mistakenly referred to the parent company of the disponent owner and not TTMI. 

However, the Notices of Readiness tendered referred to “the terms and conditions of the recap email dated 17 October 2005”. Those terms made express reference to the arbitration clause in the standard Shellvoy 5 form and that clause was expressly agreed in the recap. Counsel for TTMI was thus successful in arguing that it was not necessary to have the arbitration agreement in writing. Rather, there could be a wide concept of “agreement in writing”.

Thus the Judge held that TTMI’s application to set aside the Award would be upheld and the claim would be referred back to the arbitrator for review. The case demonstrates the need for accurate recording and conclusion of charterparties. This is a statement which one might consider obvious, but in an industry in which there are intense time pressures and which often relies on email recaps, perhaps it is a statement which bears repeating.

More details at,

https://www.swedishclub.com/upload/12/Extract%20from%20TSCL%202004-1.pdf

Back to formalities: recap fixture held insufficient evidence of charter contract

03 July 2019 

Introduction

The Tribunal of Milan recently published a judgment analysing a common occurrence in shipping matters where a contract of charter is not incorporated into an agreement duly executed by both parties, but instead is contained in a recap fixture exchanged via email.

The decision was issued in the context of an insolvency procedure to which an important Italian steel plant and charterer was recently admitted and is noteworthy as it reaches conclusions (significantly different from prevailing Italian case law) which deserve to be carefully considered when concluding charter parties.

Facts

The case concerned a recap fixture contained in an email exchange between a broker and a shipowner.

The recap was quite concise, as it only stated:

• the vessel's name and main characteristics;
• the charterers' names (by using the expression "account of"); and
• a few specific provisions of particular importance regarding the voyage charter stipulated thereby (eg, the loading and discharge ports, type of cargo and amount of freight).

The full regulation of the charter was instead contained in another charter party (duly executed), enclosed in the email reporting the fixture, to which reference was made through a specific clause in the recap (i.e., "otherwise as per c/p dated").

Decision

The Tribunal of Milan held that the recap fixture was insufficient evidence of the charter concluded between the parties. As a result, its terms and conditions were considered inapplicable.

In particular, the tribunal stated that:

• since the recap was contained in an email exchange between a broker and a ship owner, the expression used therein (i.e., "account of") was incapable of demonstrating the charterers' intention to be bound by said recap; and
• the other charter party, to which reference was made for the remaining provisions, had no value at all as it concerned different parties and a different ship.

In conclusion, the tribunal found that the recap fixture had failed to demonstrate a valid and enforceable contract between the parties.

Comment

The Tribunal of Milan's judgment is questionable, as it contradicts prevailing Italian case law, which generally considers a recap fixture contained in an exchange of emails as sufficient evidence of the conclusion and the terms and conditions of a contract of charter, especially where the charter was subsequently performed, at least to a certain extent.

In fact, while Article 420 of the Code of Navigation simply requires that a contract be proven in writing, the wider interpretation mentioned above is based on a general favour to the business transactions and the opportunity to affirm the validity of all such agreements which, even if not specifically executed, demonstrate that a charter contract was concluded in accordance with business customs and practice.

Instead, the Tribunal of Milan followed the opposite reasoning by referring to the need that in insolvency procedure cases, there should be a higher level of certainty and evidence.

In any case, the tribunal's decision is significant, as it illustrates the revival of a formalistic approach in the shipping industry and can be taken as a warning, especially for shipowners or charterers that have dealings with Italian companies in financial distress.

In such circumstances, apart from the obvious risk assessment relating to the capability of a counterparty to perform in general, it should be considered that in the event that a dispute matter ends up in court by applying such a formalistic approach, any contract of charter not incorporated into an executed contractual document may not be considered sufficient evidence of the relevant charter.

The "PACIFIC VOYAGER" - Court of Appeal decision

12 February 2019

In November last year the Court of Appeal handed down judgment in the PACIFIC VOYAGER [1], a case concerning the circumstances in which an owner under a voyage charter is under an absolute obligation to proceed to the loadport by a certain date. The Club has previously reported on the earlier High Court decision.

To recap the facts

•        The parties entered into a charter on amended Shellvoy 5 terms for loading in Rotterdam and with a laycan that expired about a month after the charter was fixed.

·   At the time the fixture was entered into, the vessel was carrying out a voyage for the previous charterers from Egypt to Antifer, France.

·     Part 1(B) of the Shellvoy 5 form has a box headed "Position/Readiness" to be filled in under two entries, one under "Now" and the other under "Expected ready to load" (ERTL). No ERTL was given, but an itinerary for completion of the current voyage including an ETA at the disport Antifer.

·    While transiting the Suez Canal on the way to the disport, the vessel struck a submerged object and repairs were needed.

·       The vessel missed the laycan and the charterers terminated the charter.

The Law

It's settled law that where a charterparty contains

1.    an obligation on the owner to proceed to the loadport with "utmost despatch" (as in clause 3 of Shellvoy 5) or "with all convenient speed", and

2.   an ERTL or ETA at the loadport there is an "absolute" obligation to start the approach voyage by a date when it is reasonably sure that the vessel will arrive at the loadport on time.

It's important to keep in mind that both parties accepted that the charterers were allowed to cancel the charter due to the vessel missing the laycan. The dispute was about whether the charterers could also claim damages: the additional costs of a substitute fixture, which in this case were considerable. To succeed with that it was necessary to show a breach of an absolute obligation to commence the voyage to the loadport by a certain date.

In the first instance judgment the High Court found in favour of the charterers by extending the rule mentioned above and applying it to the facts of the current case, where there was no ERTL or ETA at the loadport, but there was an ETA for the completion of the prior voyage.

The Court of Appeal Decision

The Court of Appeal agreed with the High Court's decision.

In short, there is (as the Court put it) "no particular magic" in the concept of an ERTL or an ETA at the loadport. An ETA set out in the recap for completion of the prior voyage was equally valid as a point from which to determine the date by which the approach voyage to the loadport had to be commenced.

The decision emphasises that where the parties have agreed that the vessel must proceed to the loadport with "utmost despatch" (or, by analogy, "with all convenient speed"), the obligation is an important one, intended to give comfort to the charterer. To give it meaning, there needs to be a date by which the approach voyage must be commenced, and that will be determined by looking at all relevant terms of the charter- not only by reference to an ETRL or an ETA at the loadport.

The Court did not give permission to appeal.

Utmost dispatch and utmost clarity

Seeking as ever to optimize scheduling, owners often voyage charter out while a vessel is still performing a previous fixture, and will sometimes enter into an intermediate charter, which they plan to complete beforehand.

Charterers’ and often sellers’ arrangements depend on valid arrival or loading dates, and owners must ensure that all such are genuine and reasonable. In giving them, they must allow for transit, cargo operations and all ancillary matters, and will sometimes be held to account under familiar provisions and well established principles.

Thus:

1) If a fixture says that owners will proceed with all convenient speed or, often, with the utmost dispatch to a load port, and also gives an ETA or ERTL ("Expected Ready To Load") , owners have an absolute obligation to start the approach voyage at a time when it is reasonably certain that the vessel will arrive on or around the given date;

2) Any charter party exceptions only apply once the approach voyage has begun. A vessel might be delayed, in port or transit, for many reasons, including congestion, bad weather, breakdown or even casualty. Which side bears the risk of operational difficulty depends on what has been promised, or excluded, by the fixture wording. MOL’s VLCC ‘Pacific Voyager’ is a good example of that.

Still laden under a prior charter party, the vessel was fixed on an amended Shellvoy5 form for carriage to the Far East and had to “perform her service with utmost dispatch and ... proceed to [Rotterdam] … and ... load ... “.

This fixture had no load port ETA or ERTL, but (by incorporating the previous charter itinerary for the Red Sea, eastern Mediterranean and English Channel) it gave an ETA at that final disport, near Le Havre.

During the Suez Canal transit and through no fault of owners, the vessel hit a submerged object.

She needed extensive repairs and charterers terminated and sought damages. Subject to liability, these were agreed at $1.2 mill.

Before this decision, it was unclear whether the absolute obligation at (1) above in fact arose where no load port ETA or ERTL had been given. So the question was whether, in those circumstances, such nevertheless existed, and by reference to (a) the previous itinerary or perhaps (b) the cancelling date.

It was agreed that (2) above meant that owners could not invoke any charter party exception.

Trial

The trial Judge ruled that the various ETAs under the prior fixture equated to estimates on which charterers could rely in identifying the commencement of their chartered service, and in order to make loading arrangements, and were thus meant to perform the same function as a load port ETA.

Owners were therefore under an absolute obligation to start the approach voyage to Rotterdam after a reasonable time for discharging at her final disport under the previous fixture.

Owners argued that:

(a) Wording that differed from that in the decided cases meant a different outcome - here there was no load port ETA or ERTL, and the utmost despatch obligation was expressly ‘subject to the terms of this charter’, so

(b) Such could only arise when the vessel left the final disport under her prior charter; but

(c) It never arose, as that never happened (charterers countered that, if this was right, the utmost despatch obligation would not apply even if failure to leave the last disport had been entirely owners’ fault);

(d) Just as for the common shorthand ‘bss iagw/ wp’, the itinerary was simply to highlight that the vessel was still performing under a prior charter party.

The Court of Appeal ruled that:

1) The itinerary was very important to charterers, and did not merely signpost that the vessel was still subject to a previous charter;

2) Nor did ‘bss iagw/wp’, which instead emphasized that (as anyway required) the estimates were honest and on reasonable grounds, and owners got no help from ‘subject to the provisions of this charter’;

3) Likewise, the utmost despatch obligation is important and is intended to assist a charterer. The prior itinerary plainly showed that the vessel was not to sail for the load port ‘forthwith’, and it could also be used to determine the alternative obligation, which was to start that approach voyage when the vessel would reasonably be supposed to have left her last disport after a reasonable time for discharging.

Owners were therefore in breach of their obligation, since they did not sail for Rotterdam, then or at any time, and were liable for $1.2 mill.

C Demurrage commented - This decision shows that, even if there is no ETA or ETRL, if owners want to make the beginning of a charter service contingent on the conclusion of the prior one, very clear words will be needed.

In another case analyzed by C Demurrage, the question of an arbitration agreement arose again.

This familiar issue arose in a novel way in Sonact Group Ltd v Premuda SpA (the ‘FOUR ISLAND’) ([2018] EWHC 3820 (Comm)).

Most fixtures contain clauses that make disputes subject to, say, English law and High Court jurisdiction, or more often provide for arbitration, also detailing how the tribunal is formed and citing the governing rules, such as LMAA.

But very few demurrage disputes get that far. Commercial operators document, present, negotiate and settle in the great majority of cases.

This is mostly undertaken by correspondence but occasionally at a meeting, called to wrangle over a number of matters, with each side generally seeking one overall deal. Sometimes lawyers are involved, but even then the bargain is typically recorded just by email. Formal documents are sometimes drawn up, but

not usually.

An awkward problem?

But what if charterers do not pay the agreed sum? Owners will press them, perhaps then involving lawyers, but in most cases the only way to compel payment is by formal action. But that cannot be under the charter  party. It has to be under the settlement agreement that (for this purpose) has replaced it.

However, while the fixture may have stipulated arbitration in the clearest terms, the concluding deal may not have done, and that might enable charterers to challenge owners’ attempted arbitration, by urging lack of jurisdiction.

That is exactly what happened in the Aframax ‘Four Island’ case. Owners Premuda claimed almost $719,000 demurrage and about $190,000 heating costs under an amended Asbatankvoy charter that contained the usual arbitration clause.

The claim was settled by an email exchange, under which charterers Sonact Group agreed to pay $600,000 for all owners’ claims.

But they did not pay, and later challenged arbitration on the basis that the agreement did not provide for that, so the arbitrators had no jurisdiction over a claim for the agreed sum.

They said that owners’ claim was not under the charter   party. It was under the settlement agreement. That did not have an arbitration provision and no words had been used that could incorporate the charter party clause.

The Tribunal ruled that it did have jurisdiction, as there was an agreement to arbitrate anything arising under the settlement, and on appeal the

Judge agreed.

The Judge said that:

1. As mostly happens, the parties had traded views, in writing, and eventually reached an agreement;

2. That was likewise in correspondence, and not in a separate, self-contained document;

3. The parties’ unstated intention was that their agreement should have the same dispute resolution wording as the fixture under which the claims arose;

4. Claims handling like this is standard, and parties would be astonished to be told that the same mechanism did not apply;

5. Anything else would require the payee to establish court jurisdiction, probably where the defaulting party was based;

6. Parties can agree dispute resolution terms that differ from their charter party; however

7. Especially if there is no separate settlement agreement, but just an exchange of emails, any such would have to be expressly recorded, and could not simply be inferred;

8. It was obvious that the parties intended the arbitration clause to continue to apply if the settlement sum was not paid, and inconceivable that they had contemplated anything else;

9. There was no rule that, once parties enter into the new legal relationship of a settlement agreement, an arbitration clause in the underlying contract no longer applies; It was equally obvious that the parties intended that English law, as in the charter party, would likewise still apply.

Charterers also argued that, under owners’ notice commencing arbitration, the arbitrators had been appointed for disputes under the charter party not the settlement agreement.

The Judge rejected that, too. Applying the established “broad and flexible approach”, the notice here was effective to refer a claim for the agreed sum to arbitration.

Discussion

Charterers’ arguments were firmly rejected, but the Court did not lay down a general rule, and each case is different.

Where, as normal, a demurrage claim is made and settled in correspondence, it might be hard for a defaulter to argue that the charter party dispute resolution terms no longer apply.

But that will not always be so. It will depend on what the parties have said, and the exchanges might allow one side to argue that some other mechanism applies to the settlement.

This is perhaps especially so where the parties have captured their agreement in a separate document, or maybe under a different string of correspondence.

It may also be so where the parties have met to deal in aggregate with several claims, arising under fixtures with different disputes clauses, so it may be hard to say which was intended to apply.

Parties should take great care, and perhaps seek advice on this. It will generally be sensible to ensure that a settlement agreement, in whatever form, deals expressly with how any dispute under it will be determined, C Demurrage said.