Although the London Arbitration 13/15 reported by the Lloyd's Maritime Law Newsletter was dealt with by a single arbitrator under the LMAA Small Claims Procedure, it is worth considering, even if one disagrees with the conclusion.
The under performance of the vessel's pumps when discharging a cargo of crude oil in India had led to a dispute over the charter party pumping warranty. The c/p was Shellvoy5 with 1999 amendments. Shellvoy5 Part 1 states that the owners guarantee that the vessel can discharge a full cargo within 24 hours or maintain a backpressure of an average of 100 PSI at the vessel's manifold. Owners guarantee such minimum performance provided shore facilities permit.
Shellvoy5 Part II Clause 20 refers to an allowance of 0.6 hours per tank that is crude oil washed. It also states "If the vessel fails to maintain 100 PSI throughout the discharge then any time over 24 hours plus the additional discharge performance allowance under this clause, shall not count as laytime or demurrage, if on demurrage. This does not reduce the Owner's liability for vessel to perform her service with utmost despatch".
The vessel took 42 hours to discharge the full cargo. The arbitrator concluded that stoppages, periods of reduced pumping pressure requested by the terminal and the washing of two tanks should be taken in to account, thereby increasing the time allowed from 24 hours to a total of 29 hours and 59 minutes. As the actual pumping time was 42 hours, the excess time was 12 hours 1 minute. The vessel had only achieved an average backpressure of 5.22 kg/cm2 compared to the warranty of 7.03 kg/cm2 (100 psi). The arbitrator considered that all the excess of 12 hours 1 minute was due to the breach of the pumping warranty and that it would therefore not count as laytime or demurrage. The arbitrator did not agree that the Shell clauses created a separate cause of action or a measure of damages for failure to meet the required backpressure and "Therefore there was no point in ascertaining the actual time taken compared with the time that the vessel would have been taken had the vessel achieved the required backpressure".
The arbitrator considered that the pumping clauses were not penalty clauses. We beg to differ because the arbitrator failed to take into consideration the considerable effect of the shore facilities. Applying the pumping performance formula it is very clear that if the vessel had achieved an average of 100 psi, the excess pumping time due to the inefficiency of the ship's pumps would have been only 5 hours. Following the arbitrator's logic, if the vessel had taken 100 hours to discharge at an average of 95 psi, all the time over 24 hours, after deducting any allowances, would be for the owners' account regardless of the fact that nearly all the additional time would have been due to the terminal's facilities. In our opinion and, indeed, that of most owners and charterers, the pumping performance formula ensures that pumping clauses are treated fairly as indemnity clauses, not as penalty clauses.
We have encountered several disputes, particularly in West Africa, over the arbitrary application of force majeure clauses. See Issue No. 33 for a concise explanation of force majeure in English law. The Court of Appeal's overturning of the High Court decision in the case of Great Elephant Corporation v. Trafigura Beheer BV (The "Crudesky") [2013] EWCA Civ 905 is therefore an interesting example of where the Court of Appeal was not convinced that there was a genuine force majeure situation.
Total, the operator of the Akpo FPSO terminal in Nigeria, had sold a cargo of crude oil to Chinese Offshore Oil (Singapore) International (COOSI) who had sold it to Vitol who in turn had sold it to Trafigura, the final FOB buyer, who chartered the vessel to load the cargo. Total had obtained clearance to load from the local DPR (Department of Petroleum Resources). However, after loading this clearance was revoked by the Minister in Lagos who refused to provide the necessary documentation to allow the vessel to sail. The vessel was only released 45 days later after Total had paid a fine of USD 12 million. The ship owner claimed demurrage for the long delay and Trafigura sought to pass it on to Vitol, their seller.
The High Court held that the first week of the delay was due to a lack of documentation. After that the delay was caused by the abuse or arbitrary exercise of power by the Minister in Lagos which amounted to an "arrest or restraint of princes". Demurrage would therefore count at half rate. However, since the delay was not within either Total's or Trafigura's reasonable control, the demurrage claim could not be passed on as Vitol could rely on the force majeure clause in their sales contract.
The Court of Appeal strongly disagreed and concluded that the delay was not beyond Total's reasonable control. Their decision to go through the local DPR and to commence loading before obtaining the normal clearance from the DPR in Lagos was their choice. It carried a clear risk and was certainly within their control. It was a breach of cl.18.1 of the Nigerian National Petroleum Corporation's (NNPC) terms in at least three respects including the obligation to ensure that their agents and contractors complied with all rules and regulations.
Vitol had also not ensured that its contractor, COOSI, had complied with the regulations and therefore they could not rely on the force majeure clause in their contract with Trafigura. To do so would allow the clause to excuse Vitol's own breach of NNPC's rules.
The chain of causation had not been broken by the arbitrary action of the Minister in Lagos. Total could not claim that it was beyond their control that the loading took place without authority from the DPR in Lagos. The Court of Appeal said "If every arbitrary exercise of power in any country of the world where ships come and go were sufficient to displace serious breaches of contract, that might be an encouragement to lawlessness".
The owners' claim for demurrage succeeded. However, Trafigura could pass it on to Vitol who could pass it on to their seller, COOSI.
We are reliably informed that the final version of BP Shipping's long-awaited new charter party will be available very shortly. We have several clients who are keen to adopt it as their charter of choice and we are confident that it will quickly establish itself as the most up-to-date c/p requiring the fewest amendments.
All charter parties are different. If you agree to "demurrage as per charter party rate, terms and conditions" and you are not the charterer, how do you know what terms have been agreed in the charter party that you have now incorporated into your sales contract? You also need to know that this phrase will only incorporate into the sales contract the terms required to calculate the demurrage claim itself. It will not include the time bar in the charter party. If you want a time bar you will need to agree this as a separate clause.
What if there is no charter party because you are the charterer and have used a time chartered vessel? Unless you have agreed specific terms for laytime and demurrage, including a daily demurrage rate, you will not be able to claim any demurrage.
The uncertainty over demurrage terms is the reason why oil companies prefer to use their own general terms and conditions rather than having to rely on whatever terms another company may have agreed in their charter party. If you need to incorporate additional terms for laytime and demurrage into a sales contract, we would recommend BP Oil International Limited General Terms & Conditions for Sales and Purchases 2015 Edition. At 117 pages it is a substantial document but you will only need a small part of it to cover laytime and demurrage terms. If you do not already have a copy, we can email one to you on request.