We reviewed the High Court judgment in AET Inc. Ltd. v. Arcadia Petroleum, The "Eagle Valencia"  in News Update No.42. We described it as "an interesting example of the court looking at the charter party as a whole to decide the intentions of the parties rather than dwelling on the wording of a single clause". The Court of Appeal has now overturned this decision in AET Inc. Ltd. v. Arcadia Petroleum, The "Eagle Valencia"  EWCA Civ 713. The fixture was under a Shellvoy5 charter party with Shell's additional clauses of February 1999. Additional clause 22 stated that if owners failed to secure customs clearance or free pratique within 6 hours of tendering Notice of Readiness, the NOR would not be valid. However, the original NOR would still be valid if the authorities granted free pratique only after the vessel had berthed.
At Escravos, the health authority boarded the vessel while it was at anchor and granted free pratique about 20 hours after it had arrived and tendered NOR. The charterers claimed that the NOR was invalid and the Court of Appeal has now agreed with them. If free pratique was granted within 6 hours of arrival, it would be treated as a formality and laytime would run in the usual way. If it wasn't granted, the NOR would not be valid. However, there was nothing to prevent a new Notice of Readiness from being tendered as soon as free pratique was granted. Laytime would then run from six hours after the new NOR. Clause 22 gave owners specific protection in as much as the original NOR, tendered on arrival, would still be valid if the vessel did not receive free pratique until after it berthed. This was "an entirely understandable and workable scheme", albeit one that wasn't particularly favourable to the ship owner.
As a result, the owners were time barred from recovering their demurrage. They had submitted a copy of the initial Notice of Readiness with their claim and this NOR was invalid. The Master had subsequently issued a second NOR by email, several hours after free pratique had been given. This was held to have been a valid NOR but, unfortunately, the owners had not included it with their claim within the 90-day time bar. Lord Justice Longmore, the leading judge in this case, said the Notice of Readiness was "an essential document in support of every demurrage claim" and quoted the advice of the judge in The Timna 2 Lloyd's Rep 409, quoted in Asdem News Update - No. 16. He also referred to the remarks of the judge in another well-known case on time bars, The "Oltenia", Babanaft v. Avant Petroleum,  1 Lloyd's Rep 448 "The owners would not, as a matter of common sense be debarred from making factual corrections to claims presented in time ... nor from putting a different legal label on a claim previously presented, but the owners are in my view shut out from enforcing a claim the substance of which and the supporting documents of which (subject always to de minimis exceptions) have not been presented in time".
The US Coast Guards' inspection regime for tankers operating in US waters requires a vessel to hold a valid Certificate of Compliance (COC). This replaced the TVEL (Tank Vessel Examination Letter) a few years' ago. Although the COC is valid for two years, the Coast Guards must conduct an interim examination after one year.
Without a valid certificate, the vessel cannot load or discharge which may prevent the tendering of a valid NOR. We referred to this in relation to the TVEL in News Update No.24. However, the annual interim examination is unlikely to invalidate an NOR unless the wording of the c/p makes it very clear that an overdue interim inspection will have this effect. Most likely, only the time for carrying out the interim examination will be deductable from the charterers' used laytime. This was the conclusion of a recent New York SMA arbitration between Chembulk Trading and Interchem Logistics. The charter party was an amended Asbatankvoy form.
Ship owners should be aware that London arbitrators appear to be taking an increasingly strict view about the documentation required to substantiate a demurrage claim. For example, if the charter party does not permit tendering of the NOR by email (as is the case with older c/p's such as Asbatankvoy and BPVOY3), a copy of an emailed NOR will not be sufficient to satisfy the requirement to provide "full and correct supporting documentation" of the demurrage claim. This will be the case even if the time bar clause did not stipulate that the NOR certificate was required and the time of the NOR was clearly shown on the statements of facts. One reason for this is the appreciation by arbitrators that the charterers often have to pass on the documents in order to recover demurrage from their suppliers and receivers under related sales contracts. These documents may have to correspond strictly to the terms of the charter party.
It is quite easy to turn the absolute obligation to pay demurrage under the terms of a sales contract into an indemnity by including a clause such as "It is understood that the Seller will not charge demurrage in excess of the total amount they incur on the voyage" or similar. We discussed this a long time ago in News Update No.4. One question arising from this clause which has created a number of recent disputes is whether or not the address commission received by the charterer should be deducted to establish the net amount of demurrage payable under the indemnity clause. Having discussed this point with a number of experienced maritime lawyers, we have come to the conclusion that it depends on the precise wording of the clause. If, as in the example above, the clause refers to demurrage incurred, the claimants can claim the demurrage they incur, i.e. the gross amount. Any commission they receive back from owners is a separate issue. However, if the indemnity clause refers to "no more demurrage than is paid to the owners" the claimants cannot recover more than the net amount because this is all they have actually paid to the owners.
Article from Andrew Wilding, Managing Director, Asdem Asia Pte. Ltd.
Specification, quality and certification clauses which are included in sales contracts are called express terms. The seller will be expressly obliged to supply according to the grade and specification set out. It is important to be aware that there are a variety ways in which these express terms can be extended or modified by terms which are not written in the contact itself but are incorporated by being implied or applied to it by law.
The English Sale of Goods Act 1979 implies a number of compulsory legal rules requiring that goods sold under a contract of sale must be of satisfactory quality and fit for use at the receiving terminal. These terms are automatically incorporated into the contract unless they have been excluded.
At common law, there is an implied undertaking in a CIF/CFR sale that the product meets the contract specification and description when the cargo is delivered on to the vessel and for a reasonable time after delivery. This implied term means that the cargo should remain in accordance with the contract specification for the intended voyage. Somewhat controversially, as the law stands at the moment, even with final and binding certification at the load port, a seller may still be liable for latent deterioration that occurs during the voyage which is only discovered on discharge. Proving a breach of this implied term may be difficult and needs to be supported by independent expert evidence. See Mash & Murrell Ltd v. Joseph L. Emanuel Ltd  1 WLR 862.
The High Court has recently considered and confirmed the law as stated above in The Mercini Lady  EWHC 1088 (Comm). However, this judgment is under appeal. We understand that the Court of Appeal decision will be handed down shortly and we shall report on how it alters the current legal position. A key issue in the reasons supporting the decision of the High Court in The Mercini Lady was that by using an appropriate clause the sellers could have excluded liability for breach of the statutory implied terms under the Sale of Goods Act 1979 and also their common law obligations.
As far as certification is concerned, a common provision in the oil industry is that quality and description will be ascertained and certified by a mutually agreed independent inspector at the load port. This inspection is often stated to be "final and binding". As a matter of law, the intention of such a certificate is to provide conclusive proof of the condition of the product when it is delivered and its purpose is to bind both parties. See Toepfer v. Continental Grain Co  1 LR 11; Gill & Duffus S.A. v. Berger & Co Inc  1 LR 622. However, there are circumstances in which a certificate will not be final and binding, thereby exposing the seller to quality claims. These include fraud or a very obvious error on the part of inspector, or because the certificate was not prepared in accordance the instructions in the contract. See Veba Oil Supply and Trading GmbH v. Petrotrade Inc  EWCA Civ 1832; "The Kriti Palm"  EWCA Civ 1601.
It is therefore most important to look at terms agreed in the contract to ensure instructions for taking and testing samples have been followed correctly. There is a risk that if they haven't, the test certificate will not be final and binding - see News Update No. 31. Unfortunately, the details included in testing clauses can sometimes be overlooked when operational instructions are issued to the inspectors, the loading terminal or to the ship's master.