In our last newsletter, Andrew Wilding, Managing Director of Asdem Asia reviewed the decision in Waterfront Shipping Co Ltd v. Trafigura AG. “The Sabrewing” 1 Lloyd’s Rep 286. We now have a very different judgment on a similar set of facts in the case of The Petroleum Oil and Gas Corporation of South Africa (PTY) Ltd. v. FR8 Singapore Ltd. (2008) 755 LMLN 1. However, the owners’ demurrage claim was a secondary issue. The main dispute was the charterers’ claim for approximately USD 8.3 million for contamination of the gasoline and gas oil parcels carried on the M/T “Eternity” from India and the UAE to South Africa. The court upheld the claim on the grounds that the contamination resulted from the owners’ failure to separate the vapour phases of the two cargoes from the common inert gas line. This was due either to the unsatisfactory state of the separation valves or to their incorrect operation. The owners’ liability arose primarily from a failure to care for the cargo.
Although the owners’ demurrage claim for USD 796,357 was a secondary issue, the judgment is of particular interest to all the demurrage analysts who have been puzzling over the outcome of the “Sabrewing” case.
The charterers had contested the demurrage claim on the grounds that the entire claim was time barred as the owners had failed to provide an appropriately signed copy of the ship’s pumping log, both at the discharge terminal and for the subsequent ship-to-ship (STS) operation for the discharge of the balance of the cargo. The owners had accepted that their failure to prove a pumping log signed by the terminal representative prevented them from claiming for “excess pumping time” at the terminal, but disagreed that the log was required for the STS discharge or that the failure to provide a pumping log was sufficient to time bar their entire demurrage claim under the terms of cl. 20 of the BPVOY4 charter party.
The judge, Mr. Justice Steel, agreed with the owners. The pumping clause 19 of BPVOY4 applied to discharge at the terminal but not to the STS operation. He said, “As a matter of language it is wholly inappropriate to describe an STS operation as involving a terminal”. Furthermore, only the excess pumping time at the terminal would be barred by the owners’ failure to provide a correctly signed pumping log.
The charterers had relied on the judgment in the “Sabrewing” case to support their argument that the entire demurrage claim should be barred. However, the judge rejected this very robustly: “I confess that I find the proposition that a claim put in on time but in respect of part of which the accompanying documents are non contractual gives rise to a bar to the entire claim is a commercially surprising construction”. He went on to add “I am not persuaded that the clause requires the Owners to submit only one composite claim (even though they would usually do so and in fact they did so). In my judgment it was open to the Owners to present a number of separate claims if so advised and in those circumstances the lack of documentation for one or more parts of the claim would not constitute a bar to the balance. In my judgment it cannot have been the intention of the parties that the choice to present a composite claim would give rise to a different outcome”.
The total number of LMAA arbitrations has declined in recent years, from a peak of 649 in 2002 to 463 in 2007. Since both sides must agree to the award being published, only 26 on average reach a wider audience each year in Lloyd’s Maritime Law Newsletter. However, we are very disappointed to see that only 13 awards were published in 2008. These awards are already sanitised to ensure the companies involved cannot be identified. So while there may occasionally be valid commercial reasons why the parties would want to keep their disputes private, there really ought to be a way to ensure that a far greater percentage of arbitration awards see the light of day. Please see News Update No. 36 for past comments on this subject.
The recent High Court case of Statoil ASA v. Louis Dreyfus Energy Services LP (The “Harriette N”) (2008 754 LMLN 1) examined the question of whether Statoil, who had under-claimed for demurrage due to a mistake in their calculations, were entitled to reopen negotiations and amend their claim once they had discovered their error.
It did not help the parties had sent conflicting emails outlining their understanding of the terms of their agreement. The broker involved had also sent a deal confirmation which also was found not to be an accurate summary of the agreement. The broker’s recap had included a 90-day time bar, as initially requested by Louis Dreyfus. However, the court decided that no time bar had been agreed by the parties.
The court held that Louis Dreyfus’ original agreement to pay USD 103,500 should stand and would not be voidable on the grounds of unilateral mistake, even though they were aware of Statoil’s error when they agreed to pay this amount. Fortunately for Statoil, the court accepted that on the balance of probabilities there had been a verbal agreement by Louis Dreyfus, made in a phone call after Statoil had realised their mistake, to pay the correct amount of the claim, USD 539,460.
The court also said that if the proposed 90-day time bar, which covered “all claims”, had been included in the contract, this would have been sufficiently all embracing to prevent Statoil from increasing the amount of their claim after the expiry of the 90 days. This is an important point which should be noted because the industry has usually accepted that claims could be adjusted upwards during the negotiation process, even after the expiry of the time bar. Furthermore, it is not uncommon for companies to reopen claims which have already been settled, unless the payment has been made specifically in full and final settlement.
There has been a regrettable increase in the number of companies that are inclined to look for any excuse they can find to avoid paying otherwise valid claims arising under both charter parties and oil sales contracts. The conflicting decisions in cases such as Waterfront Shipping Co. Ltd. v. Trafigura Ltd. and The Petroleum Oil and Gas Corporation of South Africa (PTY) Ltd v. FR8 Singapore Pte Ltd, and the conclusions reached in Statoil ASA v. Louis Dreyfus Energy Services LP have failed to reduce the uncertainty of how claims should be handled in the oil industry.
We are currently forming a working group to look at a code of ethics for the handling of demurrage and other shipping claims in the oil and tanker industry. So far we have representatives from BPOI, STASCO, ConocoPhillips, Clarkson, Torm and Eletson. The intention is to establish some basic standards and principles which the majority of companies will want to abide by. This will help to ensure that claims are settled fairly and promptly with the minimum of discord. Phil Stalley, who has just retired as manager of the demurrage department at BPOI, has agreed to present the findings of the working group at our 9th International Conference on Tanker Demurrage which will be held at The May Fair Hotel in London on 28/29 May 2009.