How to succeed with a demurrage claim or “not to shot yourself in the foot”

• Shipping

In order to avoid potential difficulties entailed by the breach of a contract, the parties often agree to amend its provisions so as to nevertheless perform the contract. The innocent party, however, must be utterly cautious when renegotiating such amendments in order not to worsen its position.
Unfortunately, sometimes such an impulsive kindness plays a mean trick on the parties.

In the recent Interlegal case the Charterers under the voyage Charter Party agreed to extend the laycan, in the view of the Vessel’s delay during performance of the intermediary voyage, and ultimately had been held liable for demurrage. 

The Vessel was chartered on an amended GENCON 94 form for a voyage from Nikolaev, Ukraine to Le Legue, France with a cargo of kaolin clay in bulk. The Charter Party, inter alia, contained NAABSA (Not Always Afloat but Safely Aground) provisions for the port of discharge due to tidal activity in Le Legue.

The laycan initially agreed in the Charter Party was 16-17 October 2014. However the Owners, without the Charterers’ consent, fixed the Vessel for an intermediary voyage from a port in Russia to a port in Romania. A delay of the Vessel occurred during that voyage and the Owners requested extension of laycan to 18-21 October 2014. The Charterers, having accumulated the cargo exactly for that Vessel and intending to mitigate the losses, agreed with such an extension without any specific conditions. 
The Vessel arrived at the port of loading on 21 October 2014, loaded the cargo and sailed on 24 October 2014.

The Vessel arrived in the port of discharge on 9 November 2014 and tendered Notice of Readiness, but she could not berth immediately upon arrival as the berth was occupied by another Vessel. The berth became vacant on 11 November 2014, yet the Vessel could not enter the port and berth, because she had missed the tide. 
The Vessel was finally berthed on 22 November 2014, completed discharging and sailed on 25 November at 19:30.

As Notice of Readiness triggered the laytime to count, the Vessel went on demurrage on 13 November 2014.

Upon the completion of the voyage the Owners forwarded their laytime calculation to the Charterers, claiming demurrage for 12 days. The Charterers expressed their disagreement and initiated negotiations on the demurrage issue. The matter was later referred to arbitration.

The Charterers contended that the Owners were in breach of the Charter Party, as they engaged the Vessel in the intermediary voyage, thus entailing the necessity for the Charterers to extend laycan. The Charterers insisted that the delay, which took place during the intermediary voyage, resulted in failure to provide the Vessel within initially agreed laycan and, subsequently, missing of the tide by the Vessel and demurrage in the port of discharge.  In the Charterers’ opinion, the Owners’ claim for demurrage was to be set aside, as the demurrage had resulted by the Owners’ breach of obligation to proceed to the loading port with reasonable despatch.

In his award Mr. John Schofield pointed out that there was a “fault” on the part of the Owners, but, in order to give rise a defence for the Charterers, such a fault should had been concurrent with its sequences (the loss of time).

By renegotiating the laycan, the Charterers deferred the Owners obligations under the Charter Party; therefore, under the new Charter Party provisions no breach of the Charter Party occurred.

Mr. John Schofield stated that “the Charterers would have been in a better position had they simply told the Owners that they wouldn’t cancel, but they reserved the right to claim damages for the Owners’ failure to meet their obligations in respect of the approach voyage.”

It is a well-established principle of English law, which is the governing law of the Charter Party in question, that, after a breach of contract, an innocent party can either affirm the contract and treat it as in force or terminate it. 

In this particular case, the Charterers should have better cancelled the Charter Party and claimed damages from the Owners or granted a conditional extension, indemnifying themselves from liability and reserving their rights to claim damages incurred by the breach of the Charter Party provisions. 
The arbitrator wittily noted that “by giving a time extension, the Charterers shot themselves in the foot.”
This case teaches us once again that one should be extremely careful when amending the contract provisions, think twice and take a good advice not to shoot yourself in the foot.

Published in Arbitration Watch.