FORCE MAJEURE PART 3 – WHAT HAPPENS WHEN PIPELINES SUPPLYING TERMINALS ARE SHUTDOWN – THE CHARTERERS DUTY TO PROVIDE CARGO WHEN FORCE MAJEURE EVENTS OCCUR
The Middle East region is nervous. Unfortunately, the scale of recent attacks on shipping in the Red Sea corridor is increasing. Certain organisations are threatening further disruption to energy supplies which could involve the targeting of ‘strategic oil pipelines’. Looking back to 2013 and earlier, extensive disruption was caused by the bomb damage from attacks to a strategic pipeline that runs from Kirkuk province in northern Iraq to Ceyhan in Turkey. It is designed to carry as much as 350,000 barrels per day. Damage to the pipeline meant empty storage tanks and no cargoes for charterers to load and queues formed in and outside the port. The Asdem Advisory was asked for its opinion on several shipments that were affected.
THE DUTY TO PROVIDE CARGO
The charterers duty is to have a cargo available for loading when, or six hours after, the vessel gives notice of its readiness to load. No excuses are available for the failure to comply with this obligation. Liability is strictly applied. Failure to provide a cargo means a breach of the charterparty has occurred. THE VINE (2011)
Despite the legal drama, the word breach implies the charterers’ failure to have the cargo ready will rarely be problematic. Delays in the supply chain can and do occur. The ship will arrive, and time will run whilst the ship waits for cargo to arrive. The counting of time will start.
EXCEPTIONS TO LAYTIME AND DEMURRAGE
Exceptions to laytime and demurrage apply when laytime or time on demurrage is running. Charterparty exceptions to laytime and demurrage are therefore presumed to apply to the charterers duty to load the cargo during laytime and the obligation to pay demurrage for a failure to do so. They are presumed not to apply to the charterers duty to provide a cargo because they are concerned with not the providing of it but the events occurring around the loading of it.
The wording of most exclusions in the laytime and demurrage regime tends to support this. In 2003 the English Court of Appeal in THE NIKMARY (2003) considered the charterers defences to the owners claims for failure to supply cargo. The court examined the scope of the exceptions that the charterers relied on. It concluded that neither addressed the failure to have a cargo available for loading. The clause did not provide an exception to the charterers duty to provide a cargo or the time the vessel spent waiting for one.
A lack of cargo can prevent a ship from arriving and laytime commencing. The ship may have to wait outside the port at an outer anchorage or drift. The ship is detained in the approach voyage ‘stage’ by being required to wait before it can be completed and NOR tendered.
The delays are caused by the lack of cargo and the ship owner can claim damages for detention for the lost time. Such damages are mostly claimed at the demurrage rate. Again, these claims are rarely problematic day to day. Some charter forms count such waiting time within the laytime and demurrage regime of the charter. Others charge for detention at the rate of demurrage.
THE CONTRACTUAL CONSEQUENCES WHEN A PIPELINE SUPPLYING THE TERMINAL IS SHUT
The contract will have to be consulted to identify whether the ship is on detention or if the laytime and demurrage clock has started. The distinction is important.
LAYTIME AND DEMURRAGE
If the tanker is in the laytime and demurrage regime, the charterer will have the burden of finding an exception and then proving that it applies in the circumstances.
The principle standard form tanker charters generally confine their exceptions for accidental events in and about the port or terminal. In other words, around the destination and facilities that the ship is ordered to. Pipelines run into this area of the port or terminal and the area covered by the exception. Pipelines also extend beyond the area covered by the exception. It is then necessary to consider how far coverage extends which will depend on the exact wording of the clause. Some clauses have a much narrower coverage than others.
Added to the presumption that exceptions apply to the duty to load not the duty to provide a cargo, it is unlikely there will be an exception unless the charter has been amended to provide one. Dry charterparties in contrast often provide express exceptions to laytime and demurrage for a wide range and variety of accidental events.
DAMAGES FOR DETENTION
Exceptions do apply to damages for detention. In tanker voyage charters these are invariably called exceptions or general exceptions clauses. Cl 19 of The ASBATANKVOY form or the extensive provisions of CL 32 in the SHELLVOY 6 FORM are examples of general exceptions or CL 38 of BPVOY 4 is another example. This clause would not apply to a vessel waiting for its cargo on the BPVOY 4 form as this is laytime or time on demurrage under this charter.
General exceptions clauses are general in nature; they do not apply to the laytime and demurrage regime as such but the entire charterparty. They are directed to the general duties of both parties. One of the charterers duties is to provide cargo. The issue of construction that arises is does the clause extend to that duty. Does it exempt the charterer for liability for delay caused by the blowing up of a pipeline which prevents the charterer from making cargo available at the load port. A careful analysis of the event, the exceptions clause and what it covers will be required. For example, was the damage an act of war, civil war or terrorist activity and not simply sabotage to steal the oil.
EXAMPLES OF EXCEPTIONS TO THE DUTY TO PROVIDE CARGO
SEABRIDGE SHIPPING LTD. V. ANTCO SHIPPING LTD. (THE "FURNESS BRIDGE") (1977)
In Oct. 1973, the Arab-Israel war occurred. Libya together with other Arab countries imposed an embargo on shipments of oil to certain destinations whether directly or indirectly including the United States and the Caribbean.
The Furness Bridge was chartered for a single voyage based on the Exxonvoy 1969 form. The charter was for the carriage of a cargo of 140,000 tons crude or dirty products loaded at a range of Mediterranean ports including Libya. The expectation was that the voyage would be from Libya to Freeport Bahamas which is a hub for the export of products to the US markets. The shipment of cargo from Libya was hit by the embargo. Charterers could not supply a cargo in Libya.
The charter contained the following exception
Neither the Vessel nor Master or Owner, nor the Charterer, shall . . . be responsible for any loss or damage or delay or failure in performing hereunder, arising or resulting from:- . . . restraint of princes . . .
The Charterer sought to rely on exception.
It was decided that the effective cause of the non-performance of the duty to provide a cargo from Libya was the restraint of princes. For this the cargo would have been shipped, but due to the restraint, it was not.
However, whilst the cargo could not be shipped from Libya, it would have been physically possible for the 'FURNESS BRIDGE' to load a full cargo, or a part cargo, or part cargoes, at several Italian, Sicilian and Spanish European Mediterranean ports if the Charterers (who were FOB buyers) had procured such cargo, or cargoes. Their evidence on efforts to ship alternative cargoes was lacking in supporting detail. It was decided that it was insufficient to meet the standard required to say that shipment from other ports within the agreed range was not possible. The charterers failed to discharge the burden on them that it was beyond their control to ship from and alternative cargo from alternative ports. The exception could not be applied.
CLASSIC MARITIME INC v LIMBUNGAN MAKMUR SDN BHD (2020)
Classic Maritime and Limbungan provides an example of an exception which addresses the failure to make a cargo available for loading.
Under a dry bulk contract of affreightment agreed with Classic Maritime, Limbungan was to provide five cargoes for shipment from Brazil to Malaysia. The COA contained a lengthy exceptions clause. It covered a wide range and variety of force majeure type events and accidents which could impact on charterers ability to provide a cargo. The coverage of these exceptions extended to laytime or time on demurrage. As a result of the dam burst, the charterer found itself unable to supply cargoes for shipment.
There was no dispute that the dam burst was an “accident at the mine” that triggered the exceptions clause. The owners disputed it applied.
The exceptions clause required Limbungan to show that but for the dam burst, the cargo would have been supplied but due to the dam burst it was not. It was in breach of its duty because, had there been no dam burst, it was held that Limbungan would not have been able or willing to ship the five shipments. Limbungan was unable to rely upon clause 32 to excuse its breach and avoid a substantial claim for lost freight from the failure to ship the cargoes under the COA.
Most of the discussion in the case considered the requirement of showing causation under this clause. There was no direct discussion of whether it addressed the charterers duty to provide a cargo but there is an implicit acceptance that it did. It provides an example of the type of wording that will be required to effectively target the duty to provide with an exception. It has required us to cross trades into the dry sector to find an example being used commercially. It is unusual to see such a lengthy exception in a spot tanker voyage charter.
Force majeure and the application of force majeure and other exceptions are highly sensitive to their own facts. This series of newsletters on force majeure and laytime and demurrage are for guidance on some of the general principles and legal issues involved and do not constitute advice.
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