The Court of Appeal in Metall Market OOO v. Vitorio Shipping Co Ltd (The “Lehmann Timber”) EWCA Civ 650, overturned the decision of the judge in the High Court and held that when a ship owner is entitled to maintain a lien over the cargo he is entitled to recover the costs involved in doing so. The vessel, sailing from China to St. Petersburg, had been captured by Somali pirates. It was released after a ransom had been paid but it subsequently suffered an engine break down. The ship owner then declared general average but the consignee of the cargo of metal coils refused to provide adequate security for its general average contribution. The ship owner maintained a lien over the cargo and discharged it into warehouse storage in Finland.
The court referred to cases such as Castle Insurance Co Ltd v. Hong Kong Islands Shipping Co Ltd (The “Potoi Chau” [1984] 1AC 226 (PC) where owners would often forgo the lien in exchange for adequate security, typically in the form of an average bond guaranteed either by the insurers or by a cash deposit. In the absence of any such security, the ship owner was fully with his rights to recover the cost of maintaining the lien. Most tanker charter parties include clauses giving owners the right to a lien over the cargo, usually for non-payment of freight, deadfreight or demurrage. Claims for damages for detention are generally not included. See cl. 21 of Asbatankvoy, cl.46 of BPVOY4 and the much expanded version in cl.30 of ExxonMobil Voy2012 which also gives the charterer a lien over the vessel in certain circumstances.
The High Court case of Gard Marine & Energy Ltd. v. China National Chartering Co Ltd (The “Ocean Victory”) [2013] EWHC 2199 (Comm) helps to explain what the courts consider to be an unsafe port. The “Ocean Victory” was a bulk carrier part laden with iron ore which became a total loss when trying to leave the port of Kashima in Japan in a severe storm.
The owners argued that there was a risk that vessels moored in port might be advised to leave port on account of long waves although there was no system in the port to ensure either that vessels left in good time and in conditions which did not pose a threat to safe navigation or that vessels did not attempt to depart in storm conditions which posed a threat. No risk assessment had been carried out by the port to consider appropriate limiting conditions for vessels at the Raw Materials Quay (RMQ) to ensure that vessels did not leave when it was unsafe to do so.
The charterers, on the other hand, submitted that a port was not unsafe because it fails to guard against every conceivable hazard. They contended that the emphasis was on reasonable safety and the taking of reasonable precautions. Counsel for the charterers claimed "In the light of the fact that no vessel had ever been trapped by a combination of wind and swell at the RMQ and adverse conditions in the channel…. it is difficult to see upon what basis the port is to be criticised for not having put in place a system to address such a (non) risk".
The judge rejected the charterers’ submission that “reasonable safety” should apply. He referred to the classic definition of a safe port of Sellers LJ in the Eastern City [1958] 2 Lloyd's Rep 127 where he said that "a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship." The judge held that the casualty was caused by the unsafety of the port in breach of the safe port warranty.
PS. Oil tankers regularly berth at Kashima, often to discharge naphtha cargoes, and normally without any problem.
Article from Phil Stalley, Independent Demurrage Consultant.
Earlier this year I was interested to hear that Intertanko were calling for a code of conduct for freight and demurrage as they claim Owners are waiting longer for their money these days. I have heard that payment of freight can be slow, but there should be no excuse for not paying freight within just a few days of completion of discharge.
As for demurrage, Intertanko presumably had not heard about the Asdem Code of Practice which has been around now for over four years. Isn’t it time to look at it again if you have not already adopted it?
Advantages for both Charterers and Owners? Yes, you will be surprised to know that I think there are some clear advantages for Charterers. Most people think it’s all about paying Owners more quickly, so how does this benefit Charterers? I’ll come back to the advantages for Charterers a bit later.
Owners. The main push is to get the cash to the Owners much more quickly. Demurrage is increasingly important to Owners in this market and I agree with Intertanko’s sentiment that undue delays in demurrage payments mean that Owners are funding the Charterers’ business. Why does it take so long for Charterers to respond and pay the demurrage due to Owners? There could be a number of reasons such as a shortage of staff or a backlog of claims. This can be addressed by adding more people to the team either temporarily or permanently but, of course, no one wants to add costs today. Another reason is deliberate – many Charterers delay settlement of Owners’ claims because they are waiting for their counterparty’s response in the oil contract chain and are reluctant to pay out until they have some news from the claims they have made to suppliers and receivers.
Charterers. If you are in the position of a backlog, staff shortage or you are waiting for your counterparty you could take some stress out of your work and gain an advantage by adopting the Code of Practice. It will not solve the backlog or staff shortage and you will have to address this at some point but it may help you if you feel that you are fire fighting all the time. If you are in the position where you have kept the Owners waiting for so long that they have lost patience and have commenced legal proceedings, you are forced to settle the claim when you may not have had the luxury of hearing from your counterparty. Once you have paid the demurrage it is very difficult to reopen the claim or ask for a refund as my understanding of the courts’ attitude in such cases is that you have made a commercial settlement and the money is gone forever.
Adopt the Code of Practice as suggested in the download from Asdem and, of course, you will be paying the Owner earlier than you normally would. However, the Owners should give you the right to reopen the claim if you come across something at a later date which you were not aware of at the time of settlement. This aspect of the Code gives you a very definite advantage over the current system and probably gives you much longer to revert on the claim than you would otherwise have had. The Code of Practice should also improve the relationship between the Owners and Charterers and this can only be of benefit to both parties.
If you want to know more about the Code of Practice contact rsepkes@asdem.com or phil.stalley@hubse.com. If you have had a good or bad experience with the Code of Practice or if you have a comment to make about this article please go to my blog at www.hubse.com and join the debate there.
Article from Phil Stalley, Independent Demurrage Consultant.
Stripping cargo tanks is carried out to ensure that as much cargo as possible is discharged. Normally the vessel will use stripping pumps and lines for this purpose as they will reach the last drop of cargo that the bulk discharge pumps cannot reach. Stripping is an integral part of the discharge and if carried out properly should cause little delay to the vessel. Normally, the discharge plan will see the ship’s tanks discharged in a certain order. As soon as the first tanks become empty stripping can commence. Stripping can be carried out whilst the vessel is bulk discharging the remainder of the tanks and as the next tanks become empty, stripping of those tanks will tanks will begin. It is only at the end of bulk discharge that there will be a period of time when the vessel is only carrying out stripping. The bulk discharge is finished but the last two or three tanks to be discharged now need to be stripped. Clearly as there is no bulk discharge, it is impossible for the vessel to meet the back pressure required under the charter party of, say, 100psi.
Stripping is carried out to get as much cargo as possible out of the vessel which the Owner is obliged to do. The Charterer and the Receiver are also eager to see this happen as none of the parties wants to deal with a cargo shortage claim. I get frustrated when I hear that charterers or receivers want to deduct the last two or three hours of a discharge as excess pumping time because the vessel has not maintained 100psi – it is impossible!
I believe two or three hours stripping is reasonable and should not be deducted from the claim. On the other hand, fifteen hours is totally unreasonable and usually indicates an inefficiency of the either the pumps or the ship’s staff. What do you think? Which side of the argument do you sit on? Have you had any good or bad experiences over stripping? Go to my blog at www.hubse.com and join in the debate.