Law Of The Carriage Of Goods By Sea (PART 5)

Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series, the basis and elements of the Law Of The Carriage Of Goods By Sea will be explored.

Laytime And Demurrage

1. Notice Of Readiness I: An Arrived Ship

   Unless the charter party contains special provision to the contrary notice of readiness (hereafter referred to as NOR) may only be given when the ship is ‘an arrived ship’.

   In the case of a berth charter party (e.g. one that calls for the shipowner to proceed to ‘1 safe berth, 1 safe port US Gulf’) (Bulk Transport Group Shipping v Seacrystal Shipping Ltd. (The Kyzikos)), the ship only arrives when she is at the nominated berth.

   If she has to wait outside the berth (because of congestion or bad weather or whatever) it is clear that she is not yet an arrived ship. The voyage stage has not yet been completed and the risk of delay is on the shipowner, because NOR cannot yet be given. However, in the case of a port charter party (e.g. ‘1 safe port, Bordeaux–Hamburg range’), the voyage stage is completed when the ship reaches the port. The question then arises whether NOR can be given while the ship is waiting for a berth, if she cannot move immediately into a berth. ( This question could not arise on a berth charter party.)

   The two House of Lords’ decisions in The Johanna Oldendorff and The Maratha Envoy settled the principles to be applied in this case. Known as ‘the Reid test’, a ship is an arrived ship under a port charter party if all of the following conditions are met:

   1. she is at the usual waiting area within geographical limits of the port
   2. she counts for turn if berths are allotted in order of arrival
   3. she is at the immediate and effective disposition of the charterer, so that she can proceed immediately to a berth when notified by the charterer that a berth is available.

   If the waiting area is outside the port (The Maratha Envoy), NOR cannot be given unless the charter party makes special provision for NOR to be given on reaching the waiting area.

   If the vessel cannot become an arrived ship because of the charterer’s failure to obtain the necessary permissions from the customs authorities, the charterer can be liable for damages for detention (The Aello and The Atlantic Sunbeam).

2. Notice Of Readiness II: Special Clauses Shifting Risk Of Delay To Charterer

   You need to be familiar with five types of clause permitting NOR to be given, and laytime to start running, before the ship is an arrived ship.

   1. First, a berth charter party may include a ‘wibon’ clause (i.e. permitting NOR to be given on reaching the port whether in berth or not’). For practical purposes this converts the berth charter party to a port charter party. The most common reason for delay between reaching the port and moving in to the berth is congestion: if the berth is vacant, but the ship cannot move into it because of bad weather, the wipon clause does not shift the risk of this delay to the charterer. In The Kyzikos, the clause also included the related provisions ‘wifpon’, ‘wccon’, and ‘wipon’. Wibon clauses have no effect (and are thus redundant) on the allocation of the risk of delay in port charter parties (see The Maratha Envoy).
   2. Second, since the choice of port and berth is governed by the commercial interests of the charterer, the charter party may require the charterer to nominate a berth ‘reachable on arrival’. By this clause the charterer warrants that the ship will be able to berth as soon as the voyage stage is completed: if the ship has to wait – even outside the port – because no berth is available, NOR can be given so that laytime starts to run (The Laura Prima). In Fjordaas, it was further held that the words ‘reachable on Arrival’ are not interpreted as ‘reachable on arrival without delay due to physical causes’.
      Hence, the words were held to cover both physical and non-physical obstructions such as a strike by tug officers. On this issue see also the decision in The Acongagua Bay. The case was concerned with a charter party clause which provided:“10. Loading port or place (Cl.1)
      1 good safe berth always afloat always accessible 1–2 good
      safe ports in the USG in Charterers’ option…”During loading, a bridge and lock were damaged. For this reason, it was not possible for the vessel to leave the berth until 14 days after the vessel had completed loading. The court held that the ‘always accessible’ warranty was applicable to both arrival and departure of the vessel.
   3. Third, the charter party may provide ‘time lost in waiting for berth to count as laytime’. In The Darrah, the time spent waiting included a Friday and a public holiday, and the House of Lords held, overruling earlier authority, that only those days were counted as time lost which would have been lay days if the ship had been in berth, thus giving the charterers the benefit of the exceptions to laytime in the charter party.
   4. Fourth, in the case of a port charter party containing a wipon clause, the vessel becomes an arrived ship where she reaches a usual waiting area for the port in question and where she is at the immediate and effective disposition of the charterers. Thus, the vessel becomes an arrived ship in the case of such a clause even if the usual waiting area is outside the geographical limits of the port (The Adolph Leonhardt).
   5. Fifth, a charter party may provide that laytime will commence when the vessel reaches a particular anchorage outside the limits of the port (see for instance clause 17 in The Ante Topic). If the charter party also goes on to provide that the time used in shifting from such anchorage to a loading or discharging berth will not count as laytime, this exception to the running of laytime will be interpreted narrowly. Thus, only the time used for shifting will not count as laytime, not the time lost as a result of insufficiency of depth of
      water before shifting (The Ante Topic).
   6. Sixth, a charter party may give the charterers liberty to give a positive order to the vessel to stop and wait for orders and that time taken was to count as laytime / demurrage. In The Zali v Baikal, the charter party contained such a provision (clause 11). It also provided that any waiting time in excess of five days was to be treated as storage time giving rise to increasing rates of demurrage. The vessel was instructed to sail to Rotterdam, where she gave a NOR. Thereafter, no berthing instructions were given for 64 days. The charterer’s passive failure to give orders did not fall within the meaning of the words used in clause 11. Consequently, the ordinary laytime regime applied and demurrage at the ordinary contractual rate was payable.
      In The Arundel Castle, the charter party was on Gencon 94 form. The definition of ‘port’ in the laytime definitions was not taken to provide a definition of ‘port limits’, as the parties did not deliberately choose it as their definition.

3. Notice Of Readiness III: Other Requirements

   How NOR is given and how much time must elapse before laytime begins depend on the wording of the particular charter party. In the Gencon, clause 6(c), it is provided : laytime commences at 13.00 if NOR is given by 12.00, or at 06.00 next working day if notice of readiness is given during office hours after 12.00. See also The Petr Schmidt, which was concerned with a voyage charter party containing a provision that read ‘NOR is to be tendered within 06.00 and 17.00 local time’. It was held that the notice tendered outside the period is not wholly ineffectual but would take effect at the hour of 06.00 following their original receipt by the office telex or fax machine.

   In the most unlikely event of the charter party not making provision for the giving of NOR, the common law implies a requirement of reasonable NOR for loading (but, strangely, not for discharge).

   For the NOR to be valid, not only must it comply with the charter party requirements, but the ship must also be:

   1. an arrived ship (The Mass Glory)
   2. ready in fact. This means that everything which needs to be done to enable loading or discharge to commence has been done at the time when NOR is given. There are two aspects of readiness that need to be satisfied: physical readiness (The Tres Flores) and legal readiness (The Delian Spirit).

   It is not open to the master to give notice of ‘prospective’ readiness (i.e. to say ‘The ship will be ready by the time you (the charterer) need to start loading’: The Tres Flores). However, normal and usual preliminaries, routine matters or mere formalities may properly be left to be completed after NOR (The Delian Spirit). Examples of this are removal of hatch covers, obtaining free pratique or a police permit. However, if the holds need to be fumigated, the ship is not ready and NOR cannot be validly given (The Tres Flores).

4. Effect Of An Invalid Notice Of Readiness

   Problems arise if NOR is given prematurely. For example, notice may have been given before the ship has ‘arrived’ (e.g. because she is lying at a waiting area outside the port and the charter party does not contain special provision for this situation), or at a time when the ship is not in fact ready to load or discharge (e.g. because the presence in the hold of other cargo renders the charterer’s cargo inaccessible). If the cargo is later loaded or discharged without the giving of a (further) valid NOR, when does laytime begin?

   The shipowners in The Mexico I argued that the defective NOR nevertheless had an inchoate effect (i.e. that it was an anticipatory notice and took effect as soon as the ship became ready to discharge so that the initial defect in the notice was cured), but this technical approach was rejected by the Court of Appeal. Having lost on that point, the shipowners conceded that laytime began when discharge actually commenced.

   The Mexico I was applied in The Agamemnon, where the same concession was made, but the question was re-opened in The Happy Day. The view now taken by the Court of Appeal is that the commencement of laytime following invalid NOR depends on waiver by the charterers of the requirement of a valid NOR, or estoppel. In The Happy Day, the charterer was deemed to have waived their right to object to the invalidity of the NOR served, when they started discharge operations without rejection of or reservation regarding the NOR.

5. Calculating The Amount Of Laytime I: The Basic Period

   The common law implies an obligation on the charterer to load and discharge within a reasonable time. The invariable practice in the present day, however, is to state a defined amount of laytime. This may be in days or hours or be calculated by reference to the quantity of cargo (e.g. ‘6 weather working days’, ‘72 running hours’, ‘750 tonnes per weather working day of 24 hours’).

   As the last example shows, the basic meaning of ‘day’ (i.e. the calendar day from midnight to midnight) may be replaced by the so-called ‘conventional’ day of a period of 24 consecutive hours starting at any time. The laytime may be stated separately for loading and discharge or may be a total figure for the two operations together (Gencon, Box 16 and clause 6(a) and (b)). A quantity-related formula may be modified to refer to quantities ‘per available workable hatch’, meaning that the number of laydays is found by dividing the amount of cargo which the largest hold can take by the stated daily rate.

6. Calculating The Amount Of Laytime II: The Standard Exclusions

   All charter parties exclude certain periods from the calculation of laytime. Sundays (Fridays in Muslim countries) and holidays are invariably excluded. If cargo is loaded or discharged on such days, the days do not count (Nelson v Nelson), unless the charter party provides that they shall (Gencon clause 6). The exclusion often extends to part of the preceding working day. For the meaning of holiday, see The Mosfield, where it was held that whether a day was a holiday depended on local law and custom.

   A clause in a voyage charter party providing for the payment of demurrage at a daily rate cannot be regarded as a penalty clause merely because it does not fix an express limit on the period of the charterer’s liability. Where appropriate, general principles of law (particularly the doctrine of frustration) can impose a limit on the scope of the charterer’s liability (MSC Mediterranean Shipping Co SA v Cottonex Anstalt). In this context, penalty clauses are no longer considered to be automatically unenforceable (El Makdessi v Cavendish Square Holdings). It is important to note that a clause that does not represent a genuine pre-estimate of loss may be enforceable if it has a commercial justification.

   1. Weather Working Days
      Laytime clauses also generally make some allowance for the effect of bad weather. The time-honoured phrase ‘weather working days’ was exhaustively considered by the House of Lords in Reardon Smith v Ministry of Agriculture. A working day is a day on which work is done, not a holiday, and a weather working day is a working day on which the weather is suitable for working (i.e. not wet). The test is whether the day is wet or fine, not whether loading or discharge was actually interrupted, nor indeed whether loading or discharge was even taking place. In The Maria G, the master moved the vessel from the loading berth in anticipation of a bore tide. It was held that, assuming (without deciding) that a bore tide was ‘weather’ the expression ‘weather working days’ could not be construed so widely as to cover the circumstances of the case. Hence, despite an expected bore tide, the days were considered to be ‘weather working days’.
   2. Weather Permitting
      A less artificial solution may be found in the phrase ‘weather permitting’. In The Vorras it was held that ‘weather permitting’ excluded from the calculation of laytime all periods when loading would have been interrupted by bad weather, including the time when the ship could not berth and begin loading anyway because of congestion. Laytime does not run if the interruption is due to the fault of the shipowner (The Fontevivo, where the ship left the berth because of fear of air attack, and Stolt v Landmark, where the ship left to deal with cargo under concurrent charters).General exclusion clauses (e.g. strike clauses) will not be interpreted so as to bring about an exclusion from laytime (The Johs Stove), but of course it is possible to draft exclusions in terms that apply to laytime: see Gencon, clause 16. Exclusion clauses applicable to laytime provisions are interpreted narrowly (The Notos and The Ante Topic).The Court of Appeal decision in The Ladytramp needs to be looked at, where the exclusion clauses provided that:“In the event that whilst at or off the loading place…the loading…of the vessel is prevented or delayed…mechanical breakdowns at mechanical loading plants, government interferences…time so lost shall not count as laytime.”Interpreting the exclusion clause narrowly, the Court of Appeal held that the nature of the malfunction had to be ‘mechanical’. Therefore, destruction of machinery by fire did not amount to mechanical breakdown for the purposes of the clause.The Amstelmolen was concerned with the interpretation of the Centrocon Strike Clause (amended), which provided that ‘if the cargo cannot be loaded by reason of “obstructions”…beyond the control of the Charterers…the time for loading or discharging shall not count’.
      It was held that the word ‘obstruction’ was apt to cover delays due to congestion. This clause enables the charterer to suspend the running of laytime in the case of a delay due to congestion, even in cases where the port chosen by the charterer is notoriously congested (The Radauti).Some charter parties also exclude the time lost as a result of a strike from the calculation of laytime. In The New Horizon, it was customary for crane drivers to do shift work, although there was no legal obligation for them to do so. At the time of the vessel’s arrival at the port, the drivers started an action designed to improve their working conditions. They were insisting on day work only, refusing to do shift work. It was held that the refusal of the drivers to work was a ‘strike’ even though it was not a breach of their contracts of employment. The motive behind their refusal was to improve their working conditions.
7. Demurrage
   At common law the consequence of exceeding laytime is that the charterer becomes liable in damages for detaining the ship. For practical convenience, the payment to be made is agreed in advance at a specified daily rate. Such agreements for the payment of demurrage are regarded in English law as valid liquidated damage clauses (Chandris v Isbrandtsen-Moller and Suisse Atlantique v Rotterdamsche Kolen Centrale), though they may in practice operate to reduce the charterer’s liability. Commercially, demurrage might more realistically be regarded as a form of additional freight (per Steyn J in The Ulyanovsk).

   The most striking feature of demurrage is expressed in the maxim ‘once on demurrage, always on demurrage’. The meaning may not be apparent at first sight, but is in fact well settled: once the laytime has been used up and the ship has gone on to demurrage, the laytime exclusions no longer apply.

   Demurrage accrues through Sundays, holidays, bad weather and any other exclusions in the charter party. Exclusion clauses will only be held to relieve the charterer of liability for demurrage if the intention is very clear and specific: Union of India v Compania Naviera Aeolus, where the exclusion of liability for demurrage where strikes prevented discharge was interpreted as applying only to strikes that began before laytime had expired, and The Lefthero, where a mutual exclusion of restraint of princes was held not to apply to liability for demurrage.

   On general principle, delay due to the fault of the shipowner is excluded from the demurrage period (The Union Amsterdam). If the charterer completes loading or discharge without using the whole laytime, the charter party may provide for payment to the charterer of so-called despatch (or despatch money), usually at half the demurrage rate, but without a special provision the saving is a windfall for the shipowner.

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This article is written by our Principal Associate, Chakaravarthi