The payments and receipts
of money as demurrage, or post fixture claims being recognized well both by
tanker owners and charterers not only as devices encouraging efficient usage of
time in loading and discharging operations but also as hedges against
fluctuating freight markets.
The Maritime Law reports
and the literature are replete with decisions and guidance on the application
and construction of the Laytime and Demurrage (L&D) clauses in charter
parties.
These have attracted much
attention and analysis in their original base contracts, ie charter parties.
They also exist in International Sales Contracts where two issues are raised.
Ø First, what is the link
between an L&D clause in a sales contract and its relevant charter party?
Ø Second, when the interpretation
of the clauses is applied, are we guided by charter parties or court decisions?
A new approach is been
taken towards the drafting of such clauses separately in the contracts, keeping
the verbiage, precise and accurate. Charter parties are concluded in most cases
in order to
perform obligations under
sale contracts and charterers find themselves liable under charter parties for
delays caused by their counterparties under their sales contracts.
This brings us to the two
points of discussion, both of which related to the link between L&D clauses
in sales contracts and charter parties.
Tanker owners have a vested
interested in ensuring that their voyage charterer do not delay their asset -
the tanker. Time delays caused have a direct impact of prolonging the duration
of the voyage beyond the profit margins allowed by the tanker owner in settling
of the final freight. Tanker owners
enforce this interest by
stipulating for L&D in the agreed charter party.
Where the charterer is also
a CIF or CFR seller of the commodity, demurrage might be paid on account of a
delay caused by the buyer during the discharge operation. This is co-relation
of capital cash flow in the oil trading market. The reverse may occur where the
charterer is the FOB buyer.
The very purpose of the
L&D clause in the sales contract is the ability to pass on to the
counterparty, the cost of demurrage paid to the ship owner by the charterer,
which has been in the first place, caused by the counter party.
Financial link
The financial link between
the two clauses – is the L&D clause in the sales contract intended simply
to indemnify the party to the sales contract against losses suffered under the
counterpart clause in the charter party or, does the clause in the sales contract
stand quite independently of the liability under the charter party?
What is the legal link
between these clauses: when applying and construing the L&D clause in a
sales contract, do we need to transplant in the sales contract all the law surrounding
similar clauses created in the context of charter parties?
The L&D clause in a
sales contract stands free and independent from their counterparties’ charter party.
L&D clauses in sales contracts should be construed and applied as clauses
in sales contracts, not as adjuncts to charter parties. Their interpretation
should therefore be colored not by direction of the charter parties but by their
relationship to the contractual duties of being an FOB or a CIF buyer or
seller.
Of specific interest here
is the start of laytime. A valid Notice of Readiness (NOR) may not necessarily
be the same of what the charterers have been charged by the tanker owners,
compared to what can
be onward charged to the
counterparty.
The commencement of laytime
in the charter party or a valid NOR may depend on various factors, which the
charterers can use to accept as a valid NOR.
A valid NOR from tanker
owners to charterers may not necessarily be the same valid NOR from charterers
to their buyers.
Also worth a mention is the
commencement of laytime is relevant at the first discharge port but not at the
second and third port, where the laytime is to start immediately upon arrival
at the port.
FOB loading duties
While we are aware that the
CIF buyer is under no obligation to discharge the cargo, it is impossible to
suggest that an FOB seller is under no implied obligations to lead – and, if
the FOB seller is obliged to
load, he must be under the
obligation to do so within a specific time.
It is of the essence in the
FOB sales contract that the seller performs his obligation to deliver by
loading the goods free on board. The obligation is also of the essence in the
sense that the seller must
deliver the goods within
the shipment period stipulated in the sales contract subject to of course the
buyer making the arrangements for the engagement of shipping space allowing the
seller to ship
within the shipping period
where the sales contract leave such arrangements to the buyer.
However, to say that the
FOB seller is under an implied duty to place the cargo free on board the vessel
within the period stipulated in the sales contract does not mean so necessarily
that the FOB seller is bound to load within the stipulated time to avoid the
buyer’s potential liability to the tanker owner for demurrage.
Laytime starts
Where the charterparty
names a port as the terminal for loading or discharging operation, then subject
to any term in the charterparty stipulating for the giving of a NOR, laytime
starts as soon as the vessel reaches the named terminal. ie once the tanker has
‘arrived’ at the port. The precise ambit of the port consequently becomes an
issue between owner and charterer i.e. any time spent idle between ‘arrival’
and berthing for the benefit of the charterers eats into the laytime agreed in
the charterparty and brings closer the moment at which the owner starts earning
demurrage.
It is interesting to
identify who bears the risk of congestion between the arrival and berthing of
the vessel. Who bears this risk?
Is it between tanker owner and charterer or between buyer and
seller in the sales contract?
To undertake a liability
for demurrage while the vessel is in port but waiting for berth would be an
open-ended commitment in a contract for the purchase of what must probably be a
part cargo. In fixing the start of laytime in a sales contract, overriding regard
should be had to the nature of the sales contract rather than to the charter party
origins of laytime.
Valid NOR
In the case where there is
ambiguity towards start of laytime, this runs from the moment the seller places
the cargo at the disposal of the buyer. Even when the contract provides for a
NOR to be provided, laytime still runs from the moment when a valid NOR has been
provided, such that the risk of congestion remains with the CIF seller or
charterer.
In conclusion, although the
points of reference discussed above are all interlinked and related, the
ultimate interest is the ability to dissect and clarify the risk to which any
particular party is exposed because all of this translates into a dollar value
which makes the L&D industry worth billions of dollars annually.
Traders and execution
officers responsible for carrying out the trade deal are to be familiar with the
interstices of the law of L&D in the charterparty, as it has been evolving
and developing in the commercial courts and beyond.
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