In News Update No. 46 we wrote: “Since oil companies are unwilling to issue long-term approvals for vessels, the concept that the vessel should be approved by several oil companies before a charterer will consider fixing it taxed the mind of Judge Mackie QC in the recent High Court case of Transpetrol Maritime Services Ltd. v. SJB (Marine Energy) BV [2011]. Unfortunately, the Court of Appeal has overturned his judgment. The dispute related to clause 18 of Vitol's standard chartering terms "Owners warrant that the vessel is approved by the following companies and will remain so throughout the duration of this charter party". This was somewhat contradicted by c/p recap which stated that to the best of the owners' knowledge without guarantee that the vessel was “approved by: BP/Litasco/Statoil/Exxon via SIRE”. The judge held that this was still an ongoing guarantee despite the phrase "WOG" (without guarantee). He held that the approvals had to be maintained thought the period of the charter.
The Court of Appeal in, Transpetrol Maritime Services Ltd. v. SJB (Marine Energy) BV (The “Rowan”) [2012] has decided that clause 18 of Vitol’s chartering terms had been replaced by the wording in the c/p recap and were not to be read in conjunction with it. Therefore the owners were not committed to maintain the approvals thought the duration of the charter. They had only warranted a) that at the time of concluding the charter, to the best of their knowledge, the vessel was approved by the named companies and b) that there was nothing they were aware of which might cause the vessel to lose the approvals during the course of the charter. The C of A found no evidence to suggest the owners were aware of anything which might cause the vessel to lose its approvals and therefore they allowed the owners’ appeal.
ExxonMobil have recently published their updated charter party with effect from 1 April 2012. There are a number of amendments from ExxonMobil Voy2005. For example, the vessel has to be remain acceptable to the charterers’ vetting organisation and that of the terminals or facilities where it will load or discharge for the duration of the charter. The warranties for tank cleanliness and segregation of different grades have been tightened up. If the charterers have to pay for additional bunkers consumed due to a change of orders, they must be invoice at the price of the last bunkers taken, not the next time the vessel bunkers.
The half-rate demurrage clause 14(b) has been amended so that the time lost due to any of the listed causes of delay will count as half laytime or as half demurrage for the period of the delay. This is in line with most other oil company charterers. Previously, only the resulting demurrage would have been paid at half rate. This meant that if the delay was longer than the total demurrage incurred, the claim was reduced only by half the demurrage, not by half the total time of the delay itself.
Exclusions to laytime and demurrage now include any breach of a warranty by the owner, and also requirements or orders, action or inaction of governmental or military authorities. The exclusions, described as the “Excluded Conditions” will be considered the sole cause of delay if they caused the delay or could have caused the delay if the other conditions in cl.14 (a) and (b), which include the half-rate conditions, had not co-existed.
The amendments are not all one sided. For example, the lightering provisions have been updated. If the vessel is partially lightered laytime/ demurrage will not now end until all the lightering equipment has been removed from the vessel. If the vessel has to shift from the berth due to weather, high water or current conditions the shifting expenses will be shared equally with between the charterers and the owners. If you would like a copy of the 2012 version with the amendments highlighted in red, please let us know.
The High Court case of Progress Bulk Carriers Ltd V Tube City Ims Llc (The “Cenk K”) [2012] EWHC 273 (Comm) is a good example of the principle of economic duress where the court can step in to rectify the terms of an agreement which a company has been forced to accept under economic pressure.
The owners had repudiated a voyage charter party for the carriage of shredded scrap from the Mississippi to China by chartering the named vessel to a different company. The charterers were subsequently obliged to enter into a settlement agreement with the owners under protest to accept a substitute vessel with a much later laycan and also to waive all claims for loss and damage. Was this settlement agreement voidable on the grounds of economic duress, i.e. did the owners’ conduct amount to illegitimate pressure?
In dismissing the appeal by the owners from the arbitrators’ award in favour of the charterers, the judge, Mr. Justice Cooke, reached the following conclusions about the principle of economic duress. “The exertion of pressure by lawful means did not prevent the operation of the doctrine of economic duress. The question was not whether the conduct was lawful but whether it was morally or socially acceptable. In determining whether there had been illegitimate pressure, a range of factors had to be taken into account, including: whether there had been an actual or threatened breach of contract; whether the person allegedly exerting the pressure had acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. Illegitimate pressure had to be distinguished from the rough and tumble of the pressures of normal commercial bargaining.
Whilst it was true that the arbitrators had not found that there was any threatened breach of contract by the owners in refusing to ship the cargo on a replacement vessel the “Agia” without a waiver of rights by the charterers, it was the owners’ repudiatory breach that was the root cause of the problem. The factors to be taken into account on the issue of illegitimate pressure included an actual breach as well as a threatened breach of contract, and in the present case there was no doubt about the repudiation which had taken place. That was the dominant factor in the situation. Whilst the arbitrators did not expressly find that the owners were in bad faith in what they did thereafter, it was clear that the arbitrators took the view that the owners had manoeuvred the charterers into the position they were in, following the breach, in order to a drive a hard bargain. The charterers had no realistic practical alternative but to submit to the pressure. It could not be said that the arbitrators applied the wrong test. Their finding that the owners had applied illegitimate pressure was one that they were entitled to make.”
Article from Elizabeth Nemeth, Lead Negotiator Barge Demurrage, BP Oil International Ltd. London
Negotiating a barge demurrage claim is easy if parties are in agreement on the terms of the contract. But what happens when that’s not the case? The trader agrees a deal and forwards the details to the contracts team who put the details into words to form a contract. Not so long ago most conditions were straightforward, as industry practice dominated how a claim was assessed. Even if the traders did not discuss the demurrage terms, there was a common understanding of the rules. These days, however, businesses are doing their best to save money. Companies think up new ideas on nomination procedures, applicable rates, determining when time should start, etc. All very well, but what happens if these terms are not discussed at the time of agreeing to the deal?
The sellers send out their contract with their version of provisions. The buyers review the contract and are not in agreement so they reject the relevant clauses. The sellers come back stating that as they are the seller it is their contract that is final and binding. This might be a general understanding in the industry, although many challenge it. They argue that the purpose of a contract is to reflect accurately the agreement reached between the two companies’ traders and neither the seller nor the buyer can unilaterally insert clauses that were not agreed at that time into the governing contract. Many times contracts go backward and forward between parties without reaching a final agreement, even after the barge has performed the contract. Whose contract is final then? Is it the one that went out last? Some are of the opinion that if there’s a disagreement, the relevant clauses from the governing GT&Cs would take precedent or, in the absence of such clauses in the GT&Cs, industry practice would prevail. What happens if the counterparty doesn’t reply to a contract? Does silence constitute an acceptance of terms? Taking legal action is not something which happens a lot in the barge industry. Most of the time, especially if relationships are good and important, participants may agree a commercial settlement resulting in both sides reasonable satisfaction.
Things might be easier if traders were familiar with the standard contract wording of companies they often did business with. This would ensure that the clauses, which may be of concern, could be discussed in advance of the time of agreeing a deal.
Settlement of claims may be delayed due to the lengthy negotiations that arise due to rejected clauses. Time is money so companies that do a lot of business with each other often draw up a ‘side agreement’ to aid negotiations. Terms of the side agreement will always go into both the seller’s and the buyer’s contracts and are deemed as accepted even if they are not discussed at the time of agreeing the deal. Drawing up such agreements still has its own difficulties. They can only be implemented successfully if both participants have an equal or near equal share of being the seller and the buyer during the term of the agreement, otherwise a side agreement may be viewed as biased towards seller or buyer and never be agreed.
The industry is constantly trying to improve practices to eliminate unnecessary disagreements. One of the solutions lies with the LEAP project. Companies throughout the industry are working together on a single template of rules that would be acceptable for everybody and used as standard. Would creating such rules be possible? While some companies are heavily focusing on chartering, others might be happier to be part of a contractual chain. Considering this, would the same rules suit everyone? The theory and the reason behind the creation of these standard rules are great. However, it will remain to be seen if such rules are going to be accepted by all or will companies still prefer to use their own set of rules and get them accepted? Whatever the outcome, we are looking forward to it. In the meantime, we will carry on with our negotiations.
Article from Phil Stalley Demurrage Consultant
Argy-bargy is an old term for a wrangling argument or verbal dispute derived from an old Scottish word argle, which is assumed to be a derivative of the word argue. I think this is a good word to describe ARA barge disputes. These disputes often take the characteristics of a debate in the pub where a lot of points are thrown in by both sides but at closing time both parties go home having not resolved the issue. Next week I present a paper at the European Oil Barge Conference “Suggested procedures for nominations, time bars and dispute resolution” where I will propose a low cost dispute resolution service which will be provided under the Asdem umbrella.
Last year when I ran the barge demurrage workshops I was intrigued by the number of different agreements involved in this business. I was not able to find any significant disputes that had been heard in any European Courts for the barge business, although I was not surprised when one considers the legal costs and, I suspect because of this, most disputes are resolved on a commercial basis. When trying to find this information I pondered what jurisdiction would apply. Let’s take a London charterer, a German barge operator, loading in Rotterdam in the Netherlands and discharging Antwerp in Belgium. If there was a dispute should this be heard under English, German, Dutch or Belgian law? I would hope that the contract between the Owner and the Charterer would have a jurisdiction clause and this may be found in the carrier’s standard terms and conditions but it would be a headache if it wasn’t specified.
Is there much difference between the laws in these countries? I assume there is much more alignment between German, Dutch and Belgian law than between those jurisdictions and English law because most European countries use a system of codified law which entails the law being written down in much more detail. English Law has a lot of law written on its statute books but there is also a reliance on common law which is the law handed down over the years by the English courts. Does it really matter? I have come across one interesting difference which may be just a myth or folklore: in German law I am told that if a contract requires something to be put in writing, then it must be handwriting - typed text does not meet the requirements.
Coming back to the argy-bargies in the barge market, most of these disputes arise from the trading of the oil which, in the majority of cases, is governed by English law. Most General Terms and Conditions used by the oil companies and traders in Europe use English Law, as do the likes of ICE and Platts. If you are attending the Barge Conference next week (there is still time to book!), I look forward to sharing with you our proposal to resolve your disputes and giving you my opinion on what should change in the world of nominations and time bars for barges. Perhaps together we can consign the word argy-bargy to history! If you have any views or comments on this please share them on my blog at www.hubse.com.