Interruption or Exception

London arbitration tribunals continue to provide helpful illustrations of principles applying to laytime and demurrage cases and we have a new example in London Arbitration 12/19 as reported in Lloyds Maritime Law Newsletter- May 2019

This Award doesn’t establish any new law but the report provides a good work-out on points that frequently crop-up in such disputes, and illustrates some of the particular issues that can arise with the type of loading here, which was at the Kavkaz OPL, an open-water loading place in the Kerch Strait, between the Black Sea and the Sea of Azov, where barges bringing agricultural cargoes from the rich farmlands in the region are loaded by floating cranes onto bulk carriers for export abroad. As can be imagined, these operations are subject to substantial delay risks from the combined effects of location (with indistinct waiting places and anchorages) , weather (high wind, wave, swell, fog and snow) and means of loading (barges and floating cranes to a mother ship), occasional military operations and supply issues.  A combination of these can generate very serious delays leading to serious demurrage disputes.  Exposure to large demurrage bills for waiting time for cargo barges and cranes can lead to charterers taking an imaginative approach to laytime calculation, and the case is a good example of this, albeit also of how it can sometimes lead to nothing more for charterers than an increased legal costs liability, both for their own costs and those of owners.

The four-corners of the arbitration – like with all laytime disputes – are when laytime started, when its running was “interrupted” (by the occurrence of periods outside its charter definition), when periods did not count (being “excepted” from counting under charter “exceptions”) and when it ended. Charterers followed the usual approach of trying to find sufficient interrupted or excepted periods to demonstrate they did not exceed the laytime they had bought within their voyage charter freight. If they couldn’t do so – they would be paying demurrage and potentially making their voyage or purchase a losing transaction. If they were not able to avoid a demurrage liability by using such arguments – then they might serve to reduce it as much as possible.

The arbitration concerned a voyage charter on amended Synacomex 90 terms, for a shipment of bulk wheat from Kavkaz OPL to Chittagong, Bangladesh.

The first point of interest related to the commencement of laytime.  The factual situation was that the vessel tendered her notice of readiness (“NOR”) from a place outside the port, allegedly a usual waiting place, while waiting for her intended loading anchorage to be available. The charter (under the standard Synacomex 90 terms, which in this respect are similar to certain other standard voyage charter forms, such as the Gencon 1994 and the Richards Bay Coal Charter) allowed a NOR to be tendered from there WIBON/WIPON (i.e. if the intended loading anchorage was unavailable, but not otherwise) provided the Master warranted the vessel was fully ready to load. In this case, after serving a NOR in this manner, the vessel failed a hold inspection.

Given that the vessel had waited for a couple of weeks at the waiting place, Charterers had a significant interest in disproving the validity of the NOR, so that the time in question would fall to Owners’ account. They did try and take advantage of the “novelty” of the Kavkaz OPL loading place to challenge whether the vessel was in fact at the required usual waiting place, and whether the intended loading anchorage was unavailable (given doubts as to what was the usual waiting place and the intended anchorage). Where there are real doubts of this kind – which may be so where procedures are not well-established at a given place – Charterers may be able to secure demurrage reductions by such arguments. In this case, the points went to the Tribunal’s decision and it seems Owners put forward convincing factual and expert evidence from local agents to prove their right to tender the NOR where and when they did, and in consequence there was no demurrage reduction for Charterers for them.

Charterers also challenged the NOR on the basis that the vessel was not ready when NOR was tendered (since after this her holds failed a hold cleanliness inspection). The report is not clear on the arguments. We can say that where a challenge is made to a NOR served in the past, based on facts in it as to readiness being incorrect, any argument about their truth/falsity can only be retrospective, and derived from factual and expert witness evidence as to what was likely at the date of the NOR or, as here, warranty relied on.  So far as the legal test for when an NOR can be invalidated on the basis that the vessel was not ready at the time of the NOR and warranty, we can say (see also the Mexico I case) that (i) this cannot be done simply by showing on the balance of probabilities the vessel was not clean and ready at such time; (ii)  it can be done if it can be demonstrated that the warranty was not given in good faith; and (iii) it is possible, but not certain, that it can be done where the warranty is given negligently, albeit in good faith (this is discussed as a possibility in the text books but no case authority clearly states this).  In similar cases, this uncertainty would seem to make it worth Charterers running the alternative argument that negligence is enough to invalidate a  NOR/warranty (which is shown to represent incorrect facts) since a Tribunal may well be attracted by the argument that it was not the parties’ intention, in using the subject words, that Owners should be able to count time (the ship not otherwise being ready for cargo service) in reliance on a warranty of readiness that a Master acting with normal care would not have given. Such an argument would at the least normally justify a settlement reduction.

As well as these commencement of laytime issues, the case determined some interesting points about “interruptions” and “exceptions”. To recapitulate the law on these: periods which constitute “interruptions” never count for laytime, because the definition of laytime is such that they simply never qualify as laytime, for example, where laytime is defined as a certain number of “weather working days” days when cargo could not be worked owing to the weather simply cannot be counted as they are not “weather working days”, and it does not matter whether any other reason would have stopped cargo work in that period. Owners can’t make these periods counts as laytime by saying eg that cargo wasn’t available since causation is irrelevant.  In contrast to this, where Charterers seek to “except” periods of time, by applying a clause that says eg a weather, force majeure or war period “shall not count” or “shall be excepted” or similar, this is an “exception” and needs to pass another hurdle before the time isn’t counted as laytime: Charterers must show they would have been loading at the time “but for” the cause, which means they had everything (cargo and cranes, for instance) ready to load then. If they can’t prove this, time will count even though the excepted cause would of itself have prevented the cargo operations.

In trying to deduct for an “interruption” Charterers here took days which the Statement of Facts recorded as affected by a “storm warning”, saying these were outside the defined weather working days that were to count.  They failed on this, since the appropriate test looked to the fact of whether loading was prevented by the weather, and not to whether there was  a warning of an expectation that it would be prevented (but was not). An attempt to bring the same point within an “exception” failed during periods the vessel was waiting for a loading position, since – obviously – the required “causation test” described in the previous paragraph was not met.

There was another “exception” argued in relation to periods when the Kerch strait was closed, an event excepted by the charter. There was no doubt of the fact of this. However, there were a number of other apparent reasons why the vessel did not load during this period, some of which were not excepted, and the Award demonstrates how a Charterer seeking to rely on an exception must – in order to do so – prove that the excepted event was the only reason why there was no loading in that period. Where there are other possible concurrently-operating causes preventing loading, that are not excepted, Charterers must prove to the civil standard they did not do prevent loading, so as to leave the excepted cause the “last man standing”, and thus show it caused the lost time. Charterers were unable to do so here.

Having finally managed to get the wheat to Bangladesh Charterers had another problem of expensive delay when weather prevented lighters from reaching the vessel to discharge the wheat cargo, at a time this discharge would have been possible had they reached it (i.e. conditions would have allowed the physical operation of craning cargo aboard them to proceed). Such time was not an “interruption” because days do count as “weather working days” if the loading/discharge from the ship is itself possible, but ancillary matters required to make this effective (such as the approach of the lighters here) are not.  For the same reason the time was not “excepted” under a clause which stated that time was not to count (i.e. an “exception”) when weather affected “cargo operations”, which was limited in a similar way to the interruption above.  Case authority for this is derived from the Maria G (1958) court decision. In that case time lost when the vessel had to leave berth because of bore tide conditions was not outside “weather working days” since that definition addressed whether cargo operations would be possible if the vessel was at berth, not issues that meant she wasn’t at berth. This kind of approach will be taken in analagous situations, as it was in this arbitration.

So – the Award allows a further scrutiny of common themes and points Charterers to areas where doubt can be cast on the correctness of Owners’ laytime calculation with a view to negotiating deductions, provided always that Charterers have credible factual and expert evidence in support of matters they are required to prove. In drafting new fixtures, Charterers and their brokers can take guidance from the Award of “danger areas” where laytime may accrue to Charterers cost and draft accordingly, where commercial considerations permit. For instance, further proof requirements might be imposed where hold inspections are failed after a NOR with a warranty before time counts, specific bespoke exceptions might be imposed for laytime where eg weather frustrates cargo operations at a distance from the ship and the charter bargain can generally be adjusted to assign these various risks as far as price and other commercial matters can take them. Meanwhile, we await many similar disputes in the future, from developing loading areas like Kavkaz!