Charterparty
is an agreement between a shipowner and a charterer, wherein a ship or part of
a vessel is hired or lease, for the carriage of goods by sea for a specific
period. One of the most
frequent challenges in the contract of carriage by sea
is the issue of bearer of liability for delay in loading or unloading of the
goods from the chartered ship. Despite the introduction of several uniform
forms to address the challenge of accurately construing time, the problem
remain unabated as the sailing of vessels on sea are delayed or impeded by various unprecedented
and often times uncontrollable factors. Faced with unanticipated delay either
in the loading or unloading of the cargo, the crisis of who as between the
shipowner or charterer bears the liability thereof becomes inevitable. It is
the position of this paper that the introduction of an extension of time
clause, good knowledge of the ports concerned and an elegance drafting of the
agreement would reduce the friction of liability for delay in carriage at sea.
INTRODUCTION
Layday
otherwise called, Laytime is the period agreed between the parties to a
charterparty for the loading and unloading of a cargo without penalty to the
parties chartering the vessel.
If more time than agreed is used to load or unload the vessel, the vessel’s
owner (shipowner) is generally entitled to compensation for the delay. The
compensation is called Demurrage. Laydays have also been described as the time
allowed to the cargo-owner to remove the goods after arrival of the ship at the
port of destination, after which, if he does not do so, he would have to pay
rent called “demurrage” for the space his goods occupied on the ship during the
extra days.
In
charterparties agreements, laydays may be calculated by days,
time and or tonnage. Laytimes are described in different ways and may also be
stipulated and variously calculated. Laydays may also be called working days
and what is a working day is determines by the port of destination and the
country in question.
But one of the duties of the charterer is to nominate within a reasonable time,
a port or berth, where appropriate, for loading or discharge of his goods from
the chartered vessel.
The charterer also has a duty to load and discharge the cargo at that berth or
port within a reasonable time, on completion of the approached or the carrying
voyage. If the charterer fails to perform either obligation, he would be liable
to the shipowner in damages for detention. What is known and called Laytime is
thus the agreeable time for the discharge of the vessel that is now stipulated
by a set period of timing.
Generally, if
loading or discharge takes longer than the permitted laytime, the charterer would
be made liable for “demurrage”. Demurrage is a pre-agreed daily rate liquidated
damages which replaces the common law liability for detention, assessed at the
market rate. The laytime and demurrage calculations will cease with the
completion of loading or discharge as the case may be. This is however a
general rule with rooms for exceptions. A charterparty agreement will usually
contain an exception clause, which provides for the suspension of laytime on
the occurrence of various unanticipated incidence interfering with loading or
discharging. Such events may be sudden war, bad weather, etc.
Lay days may
use such expressions as “running days”, “weather working days” and “working
days”. Such expressions answer such questions as to what is the normal number of days required for a ship
for instance to sail from Apapa port in Lagos Nigeria to Leiden in Netherland?
Is it inclusive of night or only day? Is it 24 hours per day? Is it every day
including Sundays and public holidays?
In the case of
a “weather working days”, the correct definition is a day on which the weather
permits the relevant work to be done, whether or not any person avails himself
of that ‘permission’. The status of a day as being a weather working day,
wholly or in part or not at all, is determined solely by its own weather, and
not by extraneous factors. In Reardon
Smith Line Ltd. Vs Ministry of Agriculture Fisheries and Food, the court
held that where the weather is bad only for a fraction of the day, the whole
day would not be written off, but only that fraction.
This is understandable because the whole essence of a laytime is to ensure
speedy completion of the charter for commercial expediency. It is equally for
the same reason that many charterparty agreements contain a “dispatch clause”
under which charterers become entitled to payment by the shipowner in the event
that they finish those operations before the expiration of their allotted
laytime.
The difference
between charters in which a specific time is allowed, whether for loading and
unloading, and those in which laydays are wholly unidentified, is of great
importance[8].
It is therefore pivotal to identify the type of voyage for the purposes of
calculating time. A voyage may be port charter or berth charter. The laytime
provision of the charter is also expected to determine the point at which the
approach and carrying voyages end. If it is when the vessel reaches the port,
then the charter will be a “port charter”. But if at the point the vessel
reaches a berth within the port, then it is called a “berth6 charter”.
Thus the character of the charter is determined by the laytime clause in the
charterparty agreement.
Having
identified the general nature of the concept of laytime, it is pivotal to this
discourse to know the appropriate ways of calculating loading and unloading
times in charterparty agreements.
HOW TO CALCULATE LAYTIME
Subject to the
agreement of the parties, Laytimes may be calculated by a fixed number of days
or by daily rate or exact quantity of loading and unloading.
Fixed Number
of Days.
One way to
calculate the duration of laytime is by reference to a fixed number of days.
The presumption is that days mean “calendar days”. Thus where only part of a
day is worked, that is counted as a whole day in laytime. This rebuttable
presumption has however now given way to the more normal conventional day of 24
hours running from the start of laytime. For instance, if time starts at
0500hrs on a Tuesday and loading is completed at 11.00hrs on a Friday, under a
“Calendar” day, four laydays is deemed to have been used. But under a
“conventional day” only three and a quarter laydays would be used.
Some learned authors are of the view that Laytime
could also be calculated according to running
working days. Normally, a
charterparty specifies the number of “laydays”, i.e. the number of days allowed
for loading and discharging the cargo. Where they are referred to as “running
working days”, it means days on which work is usually done in the particular port in question. Unless there are
exemption clauses in the charter, the charterer is liable to load and unload
within the agreed time.
Daily rate or
quantity of Loading or offloading:
Laytime may
also be calculated by reference to a daily rate of loading and or discharge.
For example, 500 tons daily. In the case of General Capinpin,
the House of Lords held that a variant of the clause which read “at the average
rate of 1,000 metric tons basis five or more available workable hatches pro rata,
if less number of hatches fixed an overall discharge rate of 1,000 tons per
day.
Sometimes the
rate will be expressed as one being “per working/available hatch”. In most
cases, the hatch which is to take the largest quantity of cargo will be the “critical hatch” and
the laydays will be the result of dividing the cargo for that hatch by the
average rate specified by the charter. Therefore if the average rate is 500
tons per day and the charterer loads 1,000 tons into hatch one and 800 into
hatch two and 200 into hatch three, the charterer will have available a total
of two laydays, calculated by dividing cargo loaded into hatch one by the daily
rate.
COMPLETION OF LOADING / UNLOADING BEFORE THE
EXPIRATION OF LAYTIME
A charterer
will usually wish to complete loading before the expiration of laytime so as to
avoid liability for demurrage. Where loading is completed before the
expiration of laydays, the charterer is obligated to present bill of lading immediately and enable the ship to proceed. The
charterer need not delay the departure of the ship only to complete laytime, otherwise
he would be liable.
But the charterer is entitled to delay the ship up to the expiration of
laydays. He cannot be held liable for using the whole time only by showing that
he could have conveniently completed the loading earlier.
In return however, the charterer may subject to the charterparty be entitled to
a rebate called “dispatch money” if he loads or unloads the ship earlier than the time to which he is entitled
under the charterparty.
It should be
noted however that the completion of loading before expiration of the laydays
may sometimes cause problems to the charterer if it means that bills of lading
are dated earlier than the date specified on their sale contract. What the
charterer cannot do is to delay the presentation of the bills for signature.
Bills of lading must be presented within a reasonable time of completion of
loading. Any delay caused by charterer’s failure to comply with this obligation
will be compensated by damages for detention, and not at the demurrage rate.
In Nolisement vs Bunge,
a vessel completed loading 19 days prior to the expiration of laydays. Bills of
lading were not presented until three days after completion of loading, whereas
on the facts a reasonable time for presenting bills of lading for signature
would have been not more than one day. The charterer was held liable. However,
it is quite legitimate to spin out the loading operation so that the bill of
lading eventually issued bears the date that is in accordance with the
charter’s sale contract. In the case of Margaronis
Navigation Agency London Ltd. v. Henry W. Reabody and Co. of London Ltd. (The
Vrontados), the charterer
delayed the loading of the final 1% of the cargo so that a January bill of
lading could be issued in respect of the whole cargo. It was held that the
charterer was entitled to have the fixed time to load and was under no duty to
accelerate the rate of loading to shorten the time to which it was otherwise
entitled.
It must be
stressed that the charterer’s duty is to load within the laytime allowed. The
charterer owes no further duty to load or discharge with reasonable dispatch.
But the shipowner will bear liability where he is responsible for the delay in
the loading or discharge.
WHEN LAYDAYS BEGINS TO RUN
Subject to the
terms of the charterparty agreement laytime will begin to run upon the arrival
and readiness of the vessel couple with notice of the arrival of the ship to
the charterer.
Upon Arrival
of the Vessel.
Laydays
generally begins to run after the arrival of the ship and its availability for
loading or unloading.
The charterparty agreement determines when a ship would be deemed to be
available for the purpose of laytime. The question as to whether or not a ship
is an “arrived ship” depends on whether a charterparty is a berth charter or a
port charter. In a berth charter, the ship does not become an arrived ship
unless it is at the particular berth, and therefore laytime begins to run once
she is ready to load.
In Sociedad
Financiera De Bienes Raices S.A vs. Agrimpex Hungarian Trading Co (The Aello),the vessel
under a port charterparty, was held not to be an “arrived ship” until she was
within the commercial area of the port. The ship was anchored at a point and
not allowed to go further unless there was a certificate that a cargo had been
allocated to her. The House of Lords held that the charterers were in breach in
failing to provide cargo in time to enable the ship to perform its obligation
of becoming an arrived ship.
The readiness
of the vessel also means the actual readiness of the ship and not anticipated
readiness. By readiness, the cargo gear, cranes, cleanliness, cargo space
accessibility, fumigation etcetera must be intact requiring no further work or
checking. Legally, it also means the vessel has fulfilled all port formalities
for loading and or unloading before laytime can start running. The implication
of this assertion is that under a berth charter party any time lost before the
vessel can get to the berth where loading or discharging can be done falls upon
the owner of the ship or on the charterer if he fails to provide cargo except
it is expressly provided otherwise. Conversely, in a port charterparty, the
moment a ship arrives at the port, any subsequent delay in berthing would
normally be at the risk of the charterer.
TENDERING
OF VALID NOTICE OF READINESS
If the vessel has arrived and is ready
to load or unload, the shipowner is required to serve a valid Notice of
Readiness (NOR) of the vessel on the charterer before laytime could commence.
The tendering of the Notice of Readiness (NOR) on the charter must be
subsequent to the arrival and readiness of the vessel for it to be valid.
Anything short of this, the notice would be invalid except, otherwise expressly
agreed.
Laytime start running after a valid
Notice of Readiness (NOR) has been given to the charterer. In The Mexico 1, a
failure to give a valid Notice of Readiness was held to prevent laytime from
running until the actual start of discharge. But notice for the
purpose of discharge is not necessary. What is paramount is
that the notice tendered is not defective. It is generally immaterial if the
notice though valid does not fully conform to the requirements of the
charterparty agreement. If loading in fact
starts before the earliest time specified for giving of Notice of Readiness,
laytime will not commence until that time has passed.
Laytime may not run in the absence of
notice. In the case of Fairbridge V Pace[26], the ship entered at the custom
house but no notice of readiness was given to the charterer, it was held that
the charterer was not liable for failure to provide a cargo for the purposes of
loading because they were not aware of the arrival of the ship.
LEGAL READINESS OF THE SHIP.
Apart
from being physically available to the charterer, the ship must be legally
available. This means that all the necessary permits have been obtained and no
laws or regulations prevent his having access to the ship for his work. She
must have free pratique, be free from any quarantine (disease) restrictions
and be fully documented. The documentation may be stipulated by national or
local laws, or established at the discretion of the authorities. The documents
include in the case of most ports, the certificate of registry, bills of
lading, charter-party, manifest, official log-book, ship's articles, lists of
dutiable stores, trade line and wireless installation inspection certificates
and in some ports a bill of health. In Nigeria, the ship before proceeding to
the sea for loading must have obtained a LoadLine Certificate. In the Nigerian case of ISC
Services Ltd. V. G. C Ltd, the appellate court held that the
Pre-Shipment Inspection of goods is a pre-requisite for the commencement of
carriage by sea.
Conversely, the ship will be deemed not ready if the failure to meet these
requirements results in her not being available to the charterer to whatever
extent he requires her.
THE PHYSICAL READINESS OF A SHIP
The cargo charterer must be allowed
physical control of the ship including access to the holds, so far as that is
necessary for them to perform their part of the joint operation of loading or
discharging. This is known as the physical readiness of the ship to load. Such
control could include stopping the shipowner from loading the cargo.
Practically speaking, the readiness of
the ship at the loading port will usually be within the peculiar knowledge of
the shipowner, who must give notice of her arrival to the charterer. A
statement as to the position (location) of the ship will generally be construed
as a condition precedent, the falsity of which entitles the charterer to
rescind the contract.
It is also submitted that the master of
a ship when in doubt as to the place where notice should be given to just issue
the notice to avoid demurrage. This advice is predicated on the need to act on
the part of caution and surplusage than to pay high cost of demurrage.
If
the charterparty provides that notice shall be given in a particular form, then
mere notice or awareness of readiness is not enough. The master of the ship
must adhere to the method prescribed. For example, where the charterparty
agreed that notice should be given in office hours, failure to adopt the
prescribed method will prevent time from running. In Gordon V. Powis,
the charterparty provided that "captains or owners to telegraph
advising probable arrival, and at least eight clear days notice shall be given
previous to requiring cargo". The court held that it did not amount to a
notice requiring cargo where the Master telegraphed that he had left
Philadelphia, the last port on the previous voyage, for Quebec. According to Day J, that is something entirely
distinct from the telegraphic notice as to probable arrival and that is not a
notice requiring cargo as agreed by the parties. It is a provision precedent
that such notice should be given.
NOTICE REQUIRES AT
FIRST LOADING PORT ONLY
In
a charterparty agreement where the cargo are in more than one ports or the
vessel is passing through multiple ports, notice of readiness is mandatorily
requires at a sole loading port, even in the absence of an express stipulation
to that effect in the charterparty. Conversely notice of readiness is not
needed at the second and subsequent ports unless otherwise expressly agreed.
This rule is predicated on the ground that where there has already been a call
at the loading port, the charterer is aware that the ship has already begun to
fulfill its obligation. The presumption then is that the charterer is following
its course and making loading preparations accordingly. This position was
affirmed in the case of Burnett S.S.
Co. Ltd. V. Oliver & Co. Ltd.
It
submitted however that notice can be required at each loading port where it was
so agreed. In such cases, the charter- party should contain such clauses as "...laydays at each loading port
to commence on the day following notice of readiness to load..."
Under English law, there is generally
no requirements for issuance of notice at the port of discharge. Notice of the
readiness of a ship to discharge is to be given to the receiver where
the bill of loading or charterparty expressly provides or where it is customary
to the country in question[33]. Such notice would also
be given where there is custom to that effect. In the absence of these the
shipowner is not obliged
to give notice of readiness.
The presumption of the law is that the
consignee (charterer) must always be on the watch out for the arriving ship
while the shipowner must not make it difficult or impossible for the charterer
to locate the ship.
In modern charterparties agreements
however, the circumstances in which notice of readiness has to be given, and
the mode of giving the notice is often spelt out in more details.
Notice of readiness of a ship for the
purposes of loading and or unloading is a notice to the charterer of certain
facts, in whatever form it may have been prescribed. These facts include the
arrival of the ship at her contractual destination or so near thereto as she can safely
get and her readiness to load.
If
all the requirements of readiness, subject to minimal and insignificant
qualifications are not satisfied when the notice is given, the notice wholly is
ineffective. In this circumstance, notice would have to be given again upon the readiness requirements being out.
Similarly if there is an express "provision for a further waiting period
to elapse after notice and before laytime can begin” then that further waiting period will have also to elapse
after the requirements of readiness have been satisfied. It should be noted
however that this latter provision may be dispensed with so that laytime begins
when the readiness requirements are satisfied. This is a rare possibility but
has been acknowledged where some reciprocal concession had been made by
ship-owners delaying the beginning of the "time lost in waiting"
period and the charterer did not need the notice period.
Where a bill of lading is silent as to
the time within which the consignee is to discharge ship's cargo, the charterer
is obligated to discharge within a reasonable time. That obligation is performed if he discharges the cargo within a time which is
reasonable under the existing circumstances, assuming that those circumstances,
in so far as they involve delay, are not caused or contributed to by him. Thus
in the case of Hick V. Raymond and
Reid, a cargo was shipped for the port of
London under bills of lading which did not specify the time within which the
consignees were to take discharge of it. Upon arrival of the ship, the
consignees began to unload, but it was interrupted for several days by a strike
of the dock labourers. The consignees were held not liable to the shipowner for
the delay.
SOME CLAUSES THAT MAY MODIFY THE
GENERAL REQUIREMENTS ON COMMENCEMENT OF LAYTIME
There are certain express terms/clauses
which when included in a charterparty agreement may modify the usual conditions
for the commencement of laytime. Such clauses could be drafted thus:
1. "Time lost in
waiting for berth to count as loading time" and "time lost in waiting
for berth to count as discharging time".
2. "Whether
in berth or not"
3.
"Time... to commence on being
reported at custom house”
4. ”In regular turn”.
E.g. the cargo is to be loaded in regular turn as customary commencing when
notice is given of steamer being ready to load..."
5. "Demurrage
in respect of all times waiting”
6. "To
be loaded as per colliery Guarantee”
7. “Time
to count twenty-four hours after arrival at or off the port..."
In North River Freighters Ltd. V.
President of India,
the Radnor was chartered to
carry soya beans from "one safe berth Dairen (Manchuria)" to Mandras
and Calcutta. The charterparty provided, by clause 17, that laydays should
begin twenty-four hours after notice of readiness to load had been given by the
master. It also stated "Time lost in waiting for berth to count as loading
time". When the ship anchored in the quarantine anchorage at Dairen,
custom and port official sealed up the radio, took away a number of ships
documents and banned communication with the shore. Seven days later, the ship
was taken to berth (though not loaded there) and on the following day the
master was able to give notice of readiness. The court of appeal held that the
ship owner was entitled to count the eight days as time used although the
notice had not then been given.
It is equally pivotal to understand
that even in the case of a port charterparty, the beginning of laytime can be
postponed, in spite of the ship having arrived at the port, being ready, and
having given notice, if she must await her "regular turn". It is
possible for the notice and the regular turn provisions to be so closely linked
as to suggest that laytime begins when notice is given, but this may not be the
case. The consequence of this is avoidable confusion.
SUSPENSION OF LAYTIME.
A good drafter of charterparty
agreement must educate the parties thereto on the imperative to ensure the
charter agreement contains a laytime exception clause that will list certain
eventualities that can interrupt the running of laytime. The most important of
these circumstances is Bad Weather.
The Concise Oxfords Dictionary define
weather to include the atmospheric conditions prevailing at a place and time,
combination produced by heat or cold, clearness or cloudiness, dryness or
moisture, wind or calm, high or low pressure, electrical state of local air and
sky..." When any natural phenomenon falling within this definition has the
effect of preventing work from being done, or would have that effect if anyone
had been working (they having not worked for some reason other than the
weather), then laytime is interrupted if the laytime clause refers to 'weather
working days'.
Other natural phenomenon which may
constitute bad weather includes earthquakes, rain, snow, storms and ice surf.
In Dampskibsselskabet
Botnia A/S V C.P Bell and Co., the charterparty provided for the loading
of pit props in Finland in mid-November at a specified rate "per weather
working day". The ship was ordered to Mollersvik, Middle Finland, which
was normally blocked with ice from about the middle of November. At first cargo
could be towed out in the form of rafts but later in November ice formed and
loading was impossible. The ship sailed with a part cargo because the charterer
told the master that they could load no more. The port was then closed for the
winter. The court per Bateson J. held
that the shipowner was not entitled to any dead freight rejecting his argument
that ice was not weather.
Bad
Weather Before Laytime Begins
It is probable before the commencement
of laytime the ship may still be on her way to her destination in order to load
or discharge in which case bad weather can have no effect on laytime
calculations. If the ship is delayed at sea, any loss of time is on the account
of the ship owner. If the ship is delayed by bad weather immediately outside but
before reaching her contractual destination whether that be a berth, port or
other place, the charterer will not be responsible since he has not caused the
delay.
But if the charterer has brought about
a delay, by for example, creating congestion through an unreasonable and
abnormal amount of chartering, he may be liable to pay detention damages to the
shipowner.
Bad Weather After
Laytime Begins
Whether bad
weather occurring after laytime has begun will suspense the running of laytime
or not is generally dependence on the terms of the laytime clause in the
charterparty agreement. For instance,
a. If the charter
clause reads "weather working days", the day where work is not done
due to weather will not be counted.
b. Where the bad
weather is for only part of a normal working hours, the hours (period) affected
by bad weather will generally be excluded in calculating laytime unless the
affected hours were substantial enough to affect almost the whole day. In the
latter case, the day would be excluded.
It must be noted that what determines a
working hours generally depend on the port, port area, trade, ship etcetera
including overtime which is more of a rule than an exception at ports.
Apart
from bad weather, laytime may be suspended or excluded on Sundays,
Saturday and holidays. Time will also not run
against the charterer where the inability to load or unload is due to a sudden
strained in the relationship of two affected countries or hostile government
policy. It may also be suspended
due to labour union strikes or strikes of shipowner. The holidays may be
general or local for example, Christmas day is general while October 1st
Independence Day celebration in Nigeria is local. Local holiday may also be a
day peculiar to a
particular port. It is however necessary to note that the general rule of
labour union strike suspending laytime will
not be applicable if by the time the strike started, the charterer was already
in breach of the laytime agreement. Similarly, the moment a vessel is on
demurrage, no other exceptions will operate to prevent the demurrage from
continuing to be payable unless the exclusion clause in the charterparty
agreement expressly provides otherwise. Where a ship is detained by relevant
government on ground of overloading or improper loading, time will generally
continue to run.
In addition, port congestions, lights
and customary shifting could also suspend the running of laytime. Some standard
charterparty form also contains situations when laytime may be suspended. Clause
6 of the Asbatankvoy Charterparty Form suspense laytime, where the delay is out
of the charterer’s control.
REMEDIES FOR BREACH
OF LAYTIME PROVISIONS
a. Demurrage:
This is the general and main remedy available to the shipowner when the
charterer fails to load or unload the ship within the agreed time. Demurrage is
primarily due from the charterer, but recovery may also be made from a bill of
lading holder provided the bill of lading incorporates the terms of the charter
and the demurrage clause is worded so as to encompass the liability of a bill
of lading holder. So long as the shipowner is desirous of continuing the
contract his entitlement for breach of laytime would be the agreed demurrage.
b. Right
to repudiate the contract: The shipowner will not generally be entitled to
terminate the charter and sail off at the expiration of laytime. His right to
terminate will arise only when the period of delay after the expiration of
laytime may either be express as a period of "unreasonable delay" or
of such delay so as to frustrate the commercial purposes of the contract.
Depending on the circumstances of the particular case, the shipowner is
entitled to terminate the contract at once without the need to wait till the
end of the period of the day[48].
c. Right to Sue for Damages for Detention:
Damages
for detention are the un-liquidated damages which accrue to a shipowner in
respect of the wrongful detention of his ship. Wrongful detention can result
from failure by the charterer to load or to give orders for a loading or a
discharging place or some other breach by him. Such damages for detention
become due either where there is no demurrage stipulation, the laytime (whether
fixed, calculable or reasonable) having been exhausted or where there is the
now rare stipulation that demurrage should run for a fixed time, that fixed
time having expired. Demurrage is liquidated damages but damage for detention
is generally un-liquidated having not been earlier agreed upon.
In
conclusion, what determines laytime, calculation of laytime and demurrage for
breach of laytime is generally dependence of the terms (clauses) of the
charterparty and to some extent the prevailing port policies. In
other to effectively reduce the challenges of calculating laytime, the agreed
period for loading the cargo should be separated from the period for the
discharge of same. A saving of time on one operation can be used to offset
demurrage incurred on the other. Laytime can be averaged in which case two
separate statements are drawn up and time saved on one operation can be
credited against the other. The introduction of an extension of time clause
into the charterparty agreement will enable the parties to regularize whatever
challenges they may have.
