Issue 38


The House of Lords has recently delivered a significant judgment in the dry cargo case of The "Achilleas", Transfield Shipping Inc. v. Mercator Shipping Inc. [2008]. The dispute related to late redelivery of the vessel at the end of a time charter. This meant that the ship owners were forced to renegotiate their next time charter at a hire rate of USD 8,000 /day less than originally agreed for a period of 4-6 months. They claimed USD 1,364,584 in compensation. The charterers contended that the owners were only entitled to USD 156,301 for loss of hire for the 9 days of late delivery. Although the owners won an arbitration and been successful in subsequent appeals to the High Court and the Court of Appeal, the House of Lords decided in favour of the charterers on the basis that the majority of the arbitrators had been wrong (as had the lower courts) to rely only on the test of "foreseeability" (often quoted as the first rule in Hadley v. Baxendale (1854)). The House of Lords said that the correct test was whether when taking the contract as a whole and considering the commercial background, the contracting parties would have considered that the loss is not just foreseeable, but would also have been sustained in the normal course of events. Would reasonable and objective people have contemplated that late delivery would cause the owners such a large loss of profit? The House of Lords considered that the answer was "no". The owners would have been expected to have lost the use of their vessel at the going market rate during the 9-day period of late delivery. The very large loss that the owners had suffered was the effect of an extremely volatile market. It was not, "in the ordinary course of things", to be anticipated from late delivery. The charterers only had to pay USD 158,301. Lawyers have suggested that modifying the interpretation of a rule that has survived for more than 150 years has introduced a level of subjectivity that may well create more unpredictability in the courts in future - not that they were complaining unduly.


In English law, if you do not include a "force majeure" clause in a contract you have to rely on the doctrine of frustration. This means that penalties for non-performance can only be avoided if, after the contract was agreed, unpredictable events occur that make performance impossible, illegal or highly unrealistic. The Court of Appeal case of CIT Group Inc. v. Transclear SA, The "Mary Nour" [2008] is a good example of events that did not amount to frustration. The sellers were unable to deliver the contracted 27,000 mt of cement to Mexico because their anticipated suppliers were unwilling to provide it. They had been pressurised by the cement company that apparently held a monopoly position in Mexico into not making the cement available. The C of A agreed with the High Court that the sellers bore the risk of failing to make the cement available from the suppliers that they had hoped to rely on. In order to frustrate a contract, there had to be a supervening event that made performance impossible. The suppliers' decision not to provide the cement as a result of the commercial pressure applied to them was a risk that the sellers had to bear.


In response to a number of queries we have received, Andrew Wilding, Managing Director of Asdem Asia and a very experienced maritime lawyer, has reviewed the current state of English law in the light of the High Court decision in Waterfront Shipping Co Ltd v. Trafigura AG. He writes as follows: Much of the recent case law and most disputes concerning time bars focus on whether the necessary and correctly issued supporting documents were submitted with the claim. While not expressly decided until recently, it is implicit from earlier judgments that provided the claim was divisible into its constituent parts, which can be identified and quantified, a failure to provide documents which are relevant to only a part of a claim does not mean that the entire claim is time barred. This was the approach adopted in Transoceanic Co. Limited v. Newton Shipping Limited [2001] . The Transoceanic case was consistent with the overall the judicial approach to the commercial construction of time bar clauses of resolving issues in such a way as not to prevent an otherwise legitimate claim from being pursued. This approach has, however, not been followed in Waterfront Shipping Co Ltd v. Trafigura AG [2007]. The issue was whether the totality of the demurrage claim was time barred or whether (in the absence of signed pumping logs) only the excess pumping time should be deducted from the claim, leaving a substantial balance of demurrage due and owing. The court ruled that the entire claim was time barred, justified by an overtly legalistic approach to construction of the clause and the issue.

The apparent conflict between the decisions can, perhaps, be legally justified by the fact that they reflect the diversity of the wording of time bar clauses in use and each case is decided on the interpretation and construction of a particular clause. However, it is at the expense of a commercially sensible approach taken by the industry reflected in a number of other legal authorities. Waterfront Shipping Co Ltd v. Trafigura AG stands out as being against this line of authority and industry practice. The clause by clause approach to the construction of time bar clauses prevents useful commercial principles of construction, developed over time, from operating for the benefit of the industry. The law as it stands is now in conflict and this has created uncertainty by allowing demurrage analysts to take advantage of this uncertainty by adopting an approach to the analysis of the supporting documents provided which best suits them at the time.

As far as compliance is concerned, the processing of demurrage claims needs to be done with an awareness of this diversity of case law and by careful reference to the time bar clause in the contract under which the claim arises and the vigour with which these requirements can be applied. Our advice to the industry is that in order to avoid disputes, one should put a system in place to ensure that the documents comply exactly with the requirements of the demurrage time bar provisions and support all the amounts claimed.


The c/p said "Time for discharging shall count after NOR has been tendered and accepted by the Charterers". However, the charterers lost their argument that laytime would not start until the Notice of Readiness had been accepted. The arbitrator in London Arbitration 8/08 748 LMLN 2(2), decided under the LMAA small claims procedure, concluded that unless the NOR was rejected because the vessel was not ready, the NOR would be considered as accepted at the time it was tendered. A charterer could not prevent laytime from running by the simple expedient of not accepting the NOR.


In the same arbitration as above, the charterers had also sought to deduct time when the vessel was taking on bunkers while it waited at anchor for a berth. The arbitrator considered that the vessel remained in a state of commercial readiness. It was available to meet the charterers' purpose which at that time was to wait for a berth. There was therefore no reason to stop laytime running during the period of bunkering. This seems to be slightly different from the judgment in The Stolt Spur [2001] where the judge said that commercial readiness meant that the vessel had to be ready to move into the berth without delay if the charterers issued berthing instructions. There was no indication whether this case was referred to in the charterers' submissions or whether they proffered the argument that, as in The Stolt Spur, there was no need to compensate the owners by paying demurrage when they were using their vessel or their own purposes. It is a pity that this was only an arbitration award. Because there have been so many arguments on this point, a definitive ruling by the courts would be most welcome.


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