In News Update No. 23 we reported on the decision in the High Court case of Portolana Compania Naviera v. Vitol SA - “The Alfrapearl” [2003]. The judge, Mr Justice Tomlinson, had had to decide what constituted equipment and the circumstances where the charterers could rely on the half-rate provisions of Asbatankvoy Part II Clause 8 (as amended by Vitol’s additional chartering clauses). The charterers had instructed the vessel to discharge via the M’bao sealine at Dakar. Unfortunately, this pipeline was in poor condition and had leaked on several previous occasions. The judge had concluded that because the leak was a problem which had been allowed to continue unremedied for a considerable period of time, it should not be considered as a breakdown. We now have the judgement of the Court of Appeal which has overturned the High Court decision. The three judges concluded that the undersea pipeline used to convey the oil from the sealine berth to the terminal was indeed equipment as described in Clause 8 of Pt. II of Asbatankvoy. Additionally, the part of the line where the leak occurred was in or about the plant of the consignee. The judges said that a breakdown would occur when the equipment no longer functioned for its intended purpose. A hole or a gap in the flange would cause such a breakdown to the pipeline. Although there had been a history of breakdowns of this sealine, the circumstances of each event had to be looked at separately. A distinction had to be made between the breakdown and its cause. The judges were satisfied that this leak had occurred after the “Alfrapearl” had arrived and had been caused by the activities of either the vessel itself or the tug. The Court of Appeal did not accept that the long term state of the pipeline was tantamount to a continuing failure resulting entirely from lack of maintenance.
A second issue was the liability for the costs of removing the vessel from the berth to allow repairs to the sealine. The Court of Appeal again overturned the judgement of the High Court. The charterers had the right under clause 9 of Asbatankvoy to move the vessel from one berth to another with the costs of shifting to be for their account. However, they had not exercised this right when the vessel was ordered off the berth so that repairs could be effected. The vessel had gone to anchor. There was nothing in the charter party to say that the costs for this type of shifting would be paid for by the charterers.
The ship owners were not given leave for a further appeal to the House of Lords.
The Lloyd’s Maritime Law Newsletter has just published details of a London arbitration award No. 18/04 which was decided before the “Alfrapearl” judgement above. It dealt with a similar problem. There had been a leak in a loading arm that had interrupted loading. However, when the arm was dismantled it had not been possible to find an explanation for the leak. The arbitrators were clear that there had been a leak and, even though there was no obvious reason for it, this constituted a breakdown. They accepted that the loading arm was equipment within the meaning of clause 8 of Part II of Asbatankvoy. The arbitrators also agreed that although the breakdown occurred during laytime, the result was that additional demurrage was incurred. They considered that it was not logical that a breakdown had to occur during a period when demurrage was running for clause 8 to apply. For example, if a breakdown had lasted 10 hours and a total of 12 hours demurrage had been incurred on the voyage, it could be assumed, at least prima facie, that 10 hours of the demurrage was the result of the breakdown. The half-rate provision of clause 8 of Asbatankvoy would therefore apply. The arbitrators accepted that there was no binding authority on this point but they followed a similar award in London Arbitration 10/89.
Asdem has long agreed with the arbitrators’ approach, even though we have been overruled in LMAA arbitrations on more than one occasion. The award in this case is also very much in line with the opinion of New York arbitrators . See, for example, their arbitration awards such as SMA 3112, SMA 3165, SMA 3443 (Society of Maritime Arbitrators, New York) all of which concluded that there was no reason to restrict the application of this clause to events causing delay that occurred once laytime had expired.
In another Court of Appeal decision, Fal Oil Co. Ltd. v. Petronas Trading Company [2004], the judges, by a majority of two to one, confirmed that the demurrage provisions in the CFR sale contract gave the buyers an absolute obligation to pay demurrage. It was not a clause which permitted the buyers only to indemnify the sellers for no more than the demurrage they had to pay to the ship owners. In this instance, the demurrage provisions were not particularly well written. However, this case indicates just how careful drafters of laytime and demurrage clauses must be to ensure that they have their intended effect.
The principal dispute in this case was over the short delivery of heavy fuel oil which had been delivered by ship-to-ship transfer. Upon final discharge, the cargo was found to be short by 1,500 mt of oil but contained an additional 1,500 mt of sea water instead. Faced with numerous conflicting arguments, the judges found it impossible to decide the cause of this discrepancy with any certainty. The buyers had the burden of proving that the cargo had been short delivered to their vessel. As they had not been able to do this, they were obliged to pay for the cargo in full.
For many years, Asdem has employed its consultants to handle claims and manage disputes for client companies. As a result, we have gathered a considerable amount of expertise in litigation management and can provide experienced consultants who are able to assist companies to manage complex legal disputes. As anyone who has been involved in a drawn-out legal case will be aware, the costs can quickly spiral out of control and it can increasingly absorb the valuable time of senior staff. In such circumstances, bringing in someone from outside the company can often prove particularly cost-effective. Asdem can also provide reliable expert witnesses who possess many years’ oil industry experience. Please contact Andrew Wilding if you are interested in more information on these services.