Must A Vessel Anchor to Validly Tender NOR
In the case of The Johanna Oldendorff [1973] it was held that the voyage stage does not end until a vessel is securely moored or all fast at the berth. The point at which NOR can be validly given and take effect at common law is at anchor down if the vessel does not proceed straight to a berth. The vessel being securely moored by its anchor in port. This is the default position which may or may not be altered by the charterparty contract.
Modern form charterparties such as BPVOY4 or BPVOY5 state that if the vessel is required to anchor before proceeding to berth, then it must anchor for the NOR to take effect, unless the vessel is instructed to wait without anchoring. In that circumstance, the NOR takes effect on reaching the waiting area. The NOR itself is validly tendered upon arrival at the port. (See Cl 6 BPVOY4 and Cl 10 BPVOY 5).
The ASBATANKVOY and EXXONMOBIL VOY2012 form charters do not state that the vessel must be anchored. Both state that NOR is to be given upon arrival at the customary anchorage. (Cl 6 ASBATANKVOY and Cl 11 EXXONMOBIL VOY2012). Some parties within the industry take the position that NOR given prior to anchoring under these charters takes effect to start time after any 6 hour NOR allowance expires. Other parties take the data point for the commencement of time from anchor down. Some parties in the industry have challenged the validity of an NOR given prior to anchoring. The basis of this challenge is that a vessel has not arrived at an anchorage unless it is in fact anchored.
By stating that NOR can be given upon arrival at the anchorage, NOR tendered at that data point, is validly given under the EXXONMOBIL and ASBATANKVOY forms. The forms state that time starts after the 6 hour NOR allowance expires. (The 6 hour NOR allowance is not given to the charterer under ASBATANKVOY if the vessel arrives on demurrage.)
The NOR is unlikely to establish definitively the vessel's position. It is not unknown for Masters to tender NOR before reaching the commercial anchorage and there may be no way of knowing the vessel's position from the NOR itself. There is therefore a well-established body of commercial practice of accepting NOR on reaching the anchorage without actually anchoring, with the NOR taking effect at anchor down, which is obtained from the time sheets.
This practice does not amount to a legally binding custom. However, commercial practice represents an important indication of the industry's understanding of how the clause works in practice. By separating the validity of the NOR from its effectiveness in starting time, the common law test in The Johanna Oldendorff (1973) and the requirement to be anchored to crystallise the data point for the end of the voyage and the start of time is satisfied. It neatly deals with any objection that the vessel must be anchored to validly tender NOR.
The BPVOY 4 and BPVOY 5 form charters expressly employ the concept of the validly tendered NOR followed by the NOR then taking effect to start time upon anchoring. In ASDEM’s opinion, the same principle applies to the unamended ASBATANKVOY or EXXONMOBIL form. The NOR takes effect upon anchoring at the anchorage. This conclusion is reinforced because the data point for anchoring and the NOR taking effect can be taken from the Statement of Facts with confidence.
The case of The Eternal Bliss (K Line Pte Limited v Priminds Shipping (HK) Co Limited (The Eternal Bliss) [2021] EWCACiv 1712) is a widely reported and important decision on the meaning of demurrage. Following on from the contrasting decision in the High Court and the Court of Appeal, this case is now on its way to the Supreme Court of England and Wales.
Andrew Baker J in the High Court decided that a shipowner’s remedy for breach of the charterer’s obligation to load and discharge within the laytime gives rise to a claim for demurrage, and could also include damages in addition to demurrage, if the shipowner had suffered a type of loss other than loss arising from the detention of the vessel. In The Eternal Bliss case, the shipowner had a claim against the charterers for the receiver’s cargo claims it settled and could in principle recover these besides demurrage. The Court of Appeal held that demurrage caps (liquidates) the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime.
These two very different decisions illustrate that the meaning of demurrage and what it covers has divided judges and academic commentators for the past 100 years and continues to do so. What is notably absent from these legal decisions and the academic commentary upon them to date is the absence of commercial expert evidence on the function of demurrage and the loss it is specifically designed to cover.
The charterer makes no promises over how long the voyage will take and agrees to pay demurrage for the use of the ship if it takes longer than planned for in laytime. Demurrage is a payment for overtime and the charterer receives an invoice for that time, calculated under the code set out in the charterparty. In oil and gas voyage charters time is money. When owners and charterers agree to the payment of a sum of money such as demurrage, they know what they are paying for and can work out what demurrage includes and what it does not. This is broadly the approach taken in The Nikmary (2003) (Triton Navigation Ltd.v. Vitol S.A. (The "Nikmary") [2003] EWHC 46 (Comm) where at first instance it was held that bunkers consumed at anchor are included within the rate of demurrage. Commercial parties know that bunkers, port costs and other items for the account of the ship operationally whilst on demurrage are included in the rate of demurrage. The rate cannot function as a liquidated damages clause regarding both time and operational costs incurred in waiting if they are not included in the rate agreed.
As far as claims which are unrelated to the costs of detention of the vessel, such as a cargo claim, are concerned, can the shipowner and charterer foresee the possibility of cargo claims? Yes. Do they have these in mind or take them into account when agreeing on the rate of demurrage? Absolutely not. It is simply not a consideration. It is not the function of demurrage to cover such claims.
What Lord Justice Males said in the Court of Appeal reveals where, from a commercial point of view, they simply took a wrong turn in assuming that:
‘it was within the reasonable contemplation of the parties when entering into the contract that a failure to discharge within the laytime might cause the shipowner to incur liability for cargo damage.’
The Court of Appeal decision was based on their legal classification of demurrage as a liquidated damages clause and the function and purpose of such a clause which is to act as a cap on all foreseeable claims – including cargo claims. The Court of Appeal must have assumed that all foreseeable claims including cargo claims were taken into account or should have been taken into account when the rate of demurrage was negotiated and agreed. The court then set out policy-based reasons for its decision to underpin its judgement. The decision has the benefit of creating legal certainty, but commercially is misconceived. Having legal certainty on what demurrage as a liquidated damages clause includes has its benefits. Owners and charterers know exactly where they stand.
In engineering legal certainty, the Court of Appeal overlooked the fact that demurrage is an invoice for the costs and expense of overtime nothing more. What commercial parties foresee when agreeing the rate of demurrage does not accord with what the Court of Appeal assumed they foresee or should have foreseen. Demurrage is a commercial term not a legal one because the term demurrage was adopted by owners and charterers in the 16th century to give a name to payments that shipowners asked for when their ship was detained. Therefore, understanding the commercial function of demurrage is the key to understanding what the term means. The subsequent 19th century legal classification of the term demurrage as a liquidated damages clause should not alter its meaning.
The case of The Eternal Bliss, irrespective of the outcome in the Supreme Court, has changed the demurrage landscape. The very passage of this case through the English court system requires parties to set out what the rate covers and what it does not – such as cargo claims which would not fall within its provenance. Owners and charterers must now work together on the allocation of costs and claims and not leave such matters to a decision from the Supreme Court which, depending on its outcome, may not reflect how owners and charterers use the demurrage rate commercially. They will need to define clearly what demurrage is for, what it includes and what it does not include, and negotiate rates accordingly.
On a positive note, given the changing landscape of emissions control that will impact on the cost of waiting time, it is a fortunate time for shipowners to be having this conversation. It focuses the spotlight firmly on the environment and the allocation of the environmental costs of waiting time between thecharterer and the shipowner.