Eight years’ ago the Oil Industry Working Group on the Fair Interpretation of Pumping Clauses presented its conclusions at Asdem’s 4th International Conference on Tanker Demurrage. This formula, which is based on pure physics, has been used worldwide to great effect to assess the under-performance of a vessel’s pumping against the back pressure warranted in the charter party. As a result, long-running pumping disputes are now relatively rare.
Nevertheless, there are still some charterers who have refused to accept that there should be any assessment of a tanker’s under-performance. Instead, they insist that if a vessel fails to meet the minimum backpressure or discharge within 24 hours, they are entitled to deduct all time taken to discharge in excess of 24 hours. We have recently been involved in such a dispute that went to arbitration in New York and no doubt the award will be published in due course by the Society of Maritime Arbitrators. The charter party was a modified Asbatankvoy with a pumping clause that said “Owner warrants that the Vessel will discharge the entire cargo within 24 hours or maintain 100 PSI at the vessel’s manifold providing shore facilities can accept. Any delays due to the Vessel’s inability to discharge within 24 hours or maintain 100 PSI at the Vessel’s manifold will be for the Owner’s account and will not count as used laytime or demurrage if on demurrage.” The vessel had failed to discharge within 24 hours or to maintain 100 psi. The only disagreement was whether the charterers were entitled to deduct all the time taken in excess of 24 hours or whether the effect of the shore facilities should be taken into account so that only the time lost directly as a result of the inefficiency of the ship’s pumps should be deducted.
The owners argued that the charterers were treating the pumping clause as a penalty clause and that this was not a true assessment of the charterers’ damages. The owners proposed that the Pumping Performance Formula was the most accurate way to calculate time lost due to the vessel’s inability to achieve the warranty. We are pleased that this argument was accepted by the majority of the arbitration panel. In their award in favour of the owners, they said that there was nothing in the pumping clause that entitled the charterers “to arbitrarily and totally disregard all time beyond the 24 hour discharge period. Such an interpretation bears no relationship to the time actually lost (delays) which are the real damages incurred by the Charterers”. They added that the failure to address the true damages would turn the pumping clause into a penalty. Even if the charterers’ interpretation was correct, the clause would still be a penalty and therefore unenforceable. The panel accepted the owners’ calculation which used the Pumping Performance Formula to assess the actual time lost due to the vessel’s poor pumping performance.
The dissenting arbitrator chose to follow some vintage SMA awards that had found in favour of the charterers in similar circumstances. These awards had been decided before the pumping formula was widely known and as a result the arbitrators had thought, albeit mistakenly, that acquiring the data to make a calculation of the excess time would be a burden or impractical. To download a copy of the pumping formula in an Excel spread sheet, please go to the "Downloads" section on our website.
Based on the reactions of certain companies to unforeseen events in 2006, it may be worth pointing out that if they do not have a force majeure clause included in their contract or charter party, they cannot claim it. Furthermore, even if there is such a clause and it does not specifically state that it will apply to demurrage claims, for example Clause 19 of Asbatankvoy, it will not provide any protection against any unforeseen delays that occur when laytime or demurrage is running – see “The Johs Stove” [1984] 1 Lloyd’s Rep 38 where the judge said: “I agree with the arbitrator that a general exceptions clause such as cl.19 will not normally be read as applying to provisions for laytime and demurrage, unless the language is very precise and clear”.
Force majeure is a civil law concept that has no real meaning under English common law. If it did, we would probably not need to use a French phrase to describe it. The only similar English common law concept is the doctrine of frustration. The court will intervene and declare the contract to be frustrated when it would be quite unreasonable to expect the parties to perform under the changed circumstances. However, this is of limited application because it will only apply when the performance of a contract is made impossible by an event radically different from anything the parties had anticipated.
The current trend is to list potential force majeure events in the sales contract or charter party. However, if you have a force majeure clause which does not list specific events, English case law has granted an extensive meaning to the term "force majeure". There are three essential requirements before a party can claim force majeure. The event can be man-made or arise from natural causes, but it must be one that a) could not reasonably have been foreseen by the parties, b) was completely beyond the parties' control and c) they could not have prevented its consequences.
Force majeure is usually declared fairly promptly and an immediate declaration may be required by the contract. If not, there is nothing to prevent a company claiming retrospectively that the occurrence was in fact a force majeure event.