LONDON ARBITRATION 3/18
In this recent arbitration, a London tribunal has given some helpful guidance on the validity of notices of readiness, the interpretation of a demurrage time-bar provision, and the recoverability of damages for repudiatory breach of contract.
The charterers kept the vessel waiting at the load port before eventually confirming they were unable to provide a cargo and purporting to cancel the charter. The owners claimed damages from the charterers comprising demurrage for the time spent waiting together with additional damages arising out of the repudiatory breach of charter party.
The vessel, a tanker, was chartered on amended Asbatankvoy terms for a voyage from Sri Racha to China carrying a part cargo of “A) 2000 MTS MOLCO 1-2 GRADES BASE OIL OR IN CHARTERERS’ OPTION B) MIN 2850 MTS CHOPTN UP TO MAX LOADABLE (3202 CBM @ 98%)”. Charterers declared their intended quantity on 4 December 2012 as “Base oil BS 150: 1900-2000 mt, Base Oil SN 500: 900-1000 mt.”
The vessel arrived at Sri Racha at 18.25 on 4 December 2012 and tendered NOR. If the NOR was valid, laytime would commence at 00.25 on 5 December 2012, six hours later. The charterers were unable to provide a cargo and on 19 December they notified the owners that they were cancelling the fixture.
On 20 December 2012, the owners sent the following email in response:
“It is clear … that [the Charterers] have no intention of complying with their obligations under the charterparty. Charterers’ conduct is therefore to be treated as repudiatory insofar as Charterers have evinced an intention no longer to be bound by the charterparty.
Owners, thus, treat Charterers’ conduct as repudiatory and will terminate the charterparty with reservation of all of our rights in respect of costs, losses, expenses and damages arising from such repudiation.”
Owners then mitigated their losses by securing an alternative cargo of 2,094.70 mt for discharge in Nantong, mid China, at a rate of USD 65 per mt.
The owners claimed USD 145,209.35 demurrage for the 12.6269 days at Sri Racha and damages for the charterers’ repudiatory breach of contract.
The Arbitrators’ decision
The charterers argued that the demurrage claim was time-barred because a clause incorporated into the charter discharged the charterer from all liability “unless Charterer receives Owners’ claim or invoice in writing, together with all supporting documents, duly signed by shipper(s) and receiver(s) if obtainable within 90 days after completion of discharge at last discharging port.”
The arbitrators held that this provision was predicated on the charter being performed and there being an actual completion date at the last discharge port. As this was not the case, the tribunal was not willing to imply a term providing for an alternative date, such as a date when discharge would have been completed if the charter had not been terminated or the completion date of a substitute charter. Consideration was given to the one-year time-bar in the Hague/Hague-Visby Rules which expressly discharges the carrier from liability if suit is not brought within one year of the delivery of the goods or the “date when they should have been delivered”. The tribunal was of the view that similarly clear wording was necessary for the charter clause to achieve the same result.
Regardless, it was held that the owners had done all they could to provide the charterers with documentation within any possible 90-day period. The NOR was provided on 20 December 2012 and further documentation requested by charterers was provided on 3 January 2013. As the charter was not performed, the tribunal was of the view that there was little documentation that would be both available and relevant, perhaps only a laytime/demurrage calculation and a valid NOR.
However, the charterers also challenged the validity of the NOR on grounds that: (i) the vessel could have been tank cleaning on arrival at Sri Racha; (ii) tender of the NOR was not recorded in the vessel’s logbook; and (iii) the vessel could not have loaded the minimum quantity of 2,850 mt.
The tribunal rejected all three arguments. There was no evidence that the vessel had been tank cleaning on 4 December 2012. The vessel’s tank cleaning plan and cargo record book confirmed that the relevant cleaning was completed on 28 November 2012. Any suggestion to the contrary was speculative and inconsistent with the evidence. The tender of the NOR was not recorded in the vessel’s logbook but in the tribunal’s experience it was not an invariable practice to record this. Consequently, the lack of any reference to the NOR was not significant.
The question of whether the vessel could have loaded the full contractual cargo did not affect the validity of the NOR. While the inability of the vessel to load a complete cargo would be a breach of charter resulting in a potential damages liability to the charterers, it did not affect the validity of the NOR. In any event, this argument failed on the facts, as the stowage plan showed that tanks 2P, 6S and 6P were all empty, thereby providing enough space to load the cargo.
Accordingly, the owners succeeded in their claim for demurrage.
The charterers also argued that the owners had not accepted the charterers’ repudiatory breach but had affirmed the charterparty. They pointed to a number of communications following the charterers’ cancellation notice on 19 December 2012 but before the owners sent their formal message accepting the charterers’ conduct as repudiatory.
In light of owners’ formal acceptance of the repudiatory conduct as terminating the contract, the tribunal concluded that an initial response sent earlier on 20 December 2012 stating that “all time delayed beyond this point shall increase the amount of demurrage”, and reserving all of owners’ rights could not amount to an affirmation of the contract. The charterers had also referred to an earlier brokers’ message sent on 19 December 2012 stating “We’ll onpass to Owners accordingly. But would like to inform that Chrts will incur deadfreight and demm for cancelling this shipment.”
The tribunal held that a broker response to the termination in language which was clearly not affirmatory also could not amount to an affirmation of the charterparty. The owners were therefore entitled to recover damages arising from the repudiatory breach provided they could establish loss.
The charterers said that the owners had suffered no loss. The charterers argued that where a defendant had the option of performing a contract in alternative ways, damages for breach had to be based on the assumption that he would perform the contract in the way most beneficial to the defendant and not in the way most beneficial to the claimant. The charter gave the charterers the option to choose from a range of discharge ports and provided for a lower freight rate of USD 48 per mt for the South China ports. The charterers had never waived this option and so they were entitled to have any losses claimed from them calculated by reference to such lower rates.
The tribunal held that the charterers were correct on this point. They had never formally exercised their option with regards to discharging range/port and were entitled to have their liability for damages assessed by reference to their least onerous obligation. The owners’ submission that the vessel was due to sail on “a fixed itinerary”, including discharge at Tianjin in North China was rejected, as the itinerary was described in the fixture recap as “tentative”. The freight earned for the substitute voyage was greater than that which would have been earned for a contractual voyage to the South China range of ports. The owners had therefore suffered no loss as a result of the charterers’ repudiation.
Accordingly, the owners were entitled to recover USD 145,209.35 demurrage together with interest but their claim for additional damages failed.
The case raises several interesting observations, not least that charterers ought not to have refused to pay demurrage and owners ought not to have pursued their repudiatory breach claim when they had suffered no loss.
A 90-day demurrage time-bar provision requiring “any and all supporting documents” to be provided to charterers is a common feature of tanker charter parties. The English Court has interpreted such clauses strictly with the result that owners may come under a potentially onerous obligation to provide significant quantities of documents, particularly for complex disputes. It is interesting to see a strict approach to such clauses working in owners’ favour on this occasion.
Plainly, charterers wishing to benefit from the protection of such time-bar provisions should ensure that the clause is comprehensively worded. In light of this decision, charterers may wish to add a wording to the effect that time may also run from the date when the goods should have been delivered.
Charterers’ arguments against the validity of the NOR and owners’ acceptance of charterers’ repudiatory breach were clearly not strong and it may be noteworthy that the owners were awarded 80% of their costs even though their repudiatory breach claim was unsuccessful. The expense of pursuing a London arbitration and engaging lawyers is significant and parties should be encouraged to only pursue arguments which have reasonable prospects of success.