Issue 25


We asked this question in News Update No. 22 when the High Court heard the case of Kronos Worldwide Ltd. v. Sempra Oil Trading (The “Spear 1”) [2003]. The judge considered that the answer was “yes”; laytime could run before the letter of credit had been opened. The l/c, which according to the FOB sales contract had to be opened promptly, had been opened on the same day the seller had requested it. This was 7 days after the vessel had arrived and tendered NOR at the loadport and 3 days before the cargo was available for loading. The sellers subsequently appealed against this judgment and the three judges of the Court of Appeal have now reversed the High Court decision. The answer to the original question is now “no”. The Court of Appeal was in no doubt that the buyer’s obligation to open a letter of credit was, as a matter of law, a condition precedent to the seller’s obligation to perform any part of the loading operation. Unless the seller had waived his rights, he was not required to berth the vessel and laytime did not run until the l/c had been opened. The buyer’s obligations under a sale contract were separate from his obligation under the charter party and there was no reason why laytime could not begin at different times. Buyers of FOB cargoes, take note!


In a recently published London arbitration, LMLN 7/04, the arbitrators had little difficulty in rejecting the charterers’ arguments either that the High Court decisions in The Linardos [1994] 1 Lloyd’s Rep 28 and The Jay Ganesh [1994] 2 Lloyd’s Rep 358 were no longer good law or that the facts in this arbitration were materially different. In both of these cases, the same judge, Coleman J, in confirming the awards of earlier LMAA arbitrations, had held that although the ships’ tanks had not initially been passed by the inspectors as clean for loading, the original Notice of Readiness could not be considered as invalid. This was because the charter parties contained provisions that any time subsequently lost by the vessel not fulfilling the requirements for readiness to load would not count as used laytime. In this recent arbitration, the fixture recap included the exception to laytime/demurrage of “all time lost” should the ship’s holds fail to pass independent inspection. This effectively meant that time from rejection to the time the holds were passed as ready for loading would not count as used laytime or demurrage. Clearly, the parties had contemplated that the tanks might fail an inspection and had set out a procedure to deal with such an eventuality. If the NOR was automatically invalid when the tanks were rejected, laytime /demurrage could not have commenced and this was not what the parties had intended. This, needless to say, assumed that the NOR had been tendered by the ship’s master in good faith.

Ship owners should consider including similar wording in their charter parties to ensure that time awaiting a berth prior to tank inspection always counted as used laytime or demurrage.


In News Update No.14 of September 2000, we highlighted the potential of the Late Payment of Commercial Debts (Interest) Act 1998. Although it was initially available only to “small” companies, the right to recover interest charges on overdue payments under the terms of this Act of Parliament is now available to all companies provided their contracts are governed by English law. The interest on outstanding debts is payable at 8% over the " UK clearing bank base lending rate" which, at the time of writing, is 4%. Where no specific payment date has previously been agreed, interest will be payable after 30 days from the date the debt was incurred or from the date the purchaser received notification of the amount due, whichever is the later.

Another cost-effective method of recovering debts can be found on the English County Court website, Money Claim Online:

To register your claim, you simply follow the on-line instructions and pay an £80 fee by credit card. There is no need to involve a lawyer and no legal expertise is required. Your claim will be entered for a County Court hearing and this will be processed without any need to attend in person. Unless the company owing the money can produce a convincing response, a court order will be issued against it requiring payment of your claim and the court fee. If the company does not pay up promptly, on payment of a further £50 fee, the court will issue a warrant which will be passed over to bailiffs employed by the court. The bailiffs will act swiftly to effect the necessary recovery. This service is remarkably efficient and can be used for claims up to £100,000. However, it only applies to companies that are operating in England and Wales (not Scotland ).


Most charter parties allow a fixed time for discharge plus an additional allowance for crude oil washing (COW). Stoppages during discharge are most commonly encountered when older tankers, having numerous tanks to drain without a dedicated washing pump, are required to complete a full COW and need to collect final tank drainings before pumping them ashore. If the vessel has discharged the cargo within the allotted time, there should be no deduction for excess pumping, even if the vessel has had to halt discharge for part of this time. However, disputes are likely to arise when the ship has pumped for more than the c/p time allowed, even though this may be due, at least in part, to inadequate shore facilities. As soon as the vessel stops discharging ashore, charterers will point to the c/p warranted back-pressure and claim that the ship has failed to maintain this throughout the discharge. This is certainly an area that is open to negotiation.

We can only recommend that ship owners should always try to agree pumping clauses that can be met by their vessels. If they agree to terms that are impossible to achieve, they should not be surprised that charterers will try to deduct all stoppages. For example, there are several charter parties, such as ExxonMobil VOY2000, that require the vessel to maintain a minimum of 100 psi throughout the entire period of the discharge (provided shore facilities permit). When an owner knows that his ship will need additional stripping time when the back pressure will be very low, he should try to include this in the pumping warranty. BPVOY4 allows up to 2 hours per grade for tank draining, provided the warranted pressure has been achieved during bulk discharge.


We were recently involved in an arbitration over the apportionment of costs arising from a previous arbitration award. It is not often the case that the successful party will be able to recover all his legal costs from the other side. When deciding how to divide costs, arbitrators are generally obliged to follow the same apportionment rules that apply to court cases. The parties to any arbitration should be aware of these rules, particularly when an oral hearing is required. If both sides are represented by senior counsel and lawyers, the costs can easily reach two or three hundred thousand dollars for each side.

The factors governing the Court’s discretion when awarding costs can be found in the Civil Procedure Rules, Part 44 and in particular 44.3 (4) (a) to (c). The court in deciding what order to make about costs, must have regard to all the circumstances including: (a) the conduct of the parties, (b) whether a party has succeeded on part of his case, even if he has not been wholly successful, and (c) any payment into Court or admissible offer to settle.

The consideration of the conduct of the parties is also an important part in determining the Court’s discretion. This is covered in CPR Part 44.3(5)(a) to (d) which defines conduct as follows:-

a) Conduct before as well as during the proceedings, including compliance with any relevant pre-action protocol.

b) Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue.

c) The manner in which a party has pursued or defended his case on a particular allegation or issue.

d) Whether a Claimant has exaggerated his claim in whole or in part.

In the case of Antonelli v Allen (2001) Lloyd’s Rep. PN487, Neuberger J stated, “In determining how to apportion costs between the losing litigant and his partially successful opponent, a number of factors were to be considered: (i) the successful party’s reasonableness in pursuing the issue on which he was defeated; (ii) his conduct in relation to that issue and the litigation generally; (iii) the extra costs incurred by running that issue in terms of preparation and court time; (iv) the extent to which the unsuccessful point was linked to the successful issues in the case and (iv) the fairness of disallowing the successful party some of his costs.

Asdem’s arbitration terms are specifically designed for disputes that may be settled on documents alone and are an attempt to reduce the adversarial nature of arbitration. Unless the parties agree otherwise, each side will pay its own legal costs and the fee for the arbitration will be split 50/50. Details can be found on our website.

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