Notice of Readiness and Demurrage: Geographical Issues in the LMAA Arbitration Award

• Shipping
• Litigation & arbitration

Geographical location is one of the principal specifications used for seaport formation having a direct impact on port operation efficiency and its further development. At the same time, geographical peculiarities of each seaport have not only economic but also legal impact on the organization of sea carriage and consequent handling operations.

These factors serve as a key point in making a decision on giving the Notice of Readiness, vessel recognition as arrived, laytime calculation and demurrage accrual. They often become a stumbling block on the way to amicable and prompt completion of the parties’ relationship under the Charter Party, which may result in heated judicial or arbitral proceedings. One of such spectacular example is the recent case from our Shipping Law practice settled by the London Maritime Arbitrators Association (LMAA) with due regard to the special provisions of the agreements between the Parties.

The Shipowners applied to the LMAA due to non-payment of demurrage by the Charterers

In accordance with the case background, the Parties concluded the voyage Charter Party based on GENCON 1976. In the course of the voyage performance, demurrage arose under results of cargo loading at the port of Belgorod-Dnestrovskiy, Ukraine, and discharge at one of the ports in the Gulf of Izmit, Turkey. The demurrage claim was based on principles and provisions of the applicable English law.

The dispute was complicated by the fact that due to geographical peculiarities of both ports location:

• at the loading port, whose facilities are located on the liman (estuary), the Vessel tendered the Notice of Readiness and for several days anchored at the railway bridge waiting for confirmation of the port authorities on further passage and berthing;
• at the port of discharge the Notice of Readiness of the Vessel was tendered in the Gulf of Izmit underway with the pilot on board near the pilot station and followed by cargo discharge at the port not specified expressly by the Charter Party.

With reference to geographical peculiarities of the ports and navigational areas, the Charterers contended before the Arbitral Tribunal that Notices of Readiness were given untimely and therefore were invalid. In order to justify their position, in their submissions, the charterers referred to such classical cases as E.L. Oldendorff & Co. G.M.B.H. Appellants v Tradax Export S.A. Respondents (The Johanna Oldendorff) [1974] A.C. 479 at p.535 and Glencore Grain Ltd. v Goldbeam Shipping Inc. (The Happy Day) [2002] EWHC 27 (Commercial). In the Charterers opinion, taking into account not only commercial goals of the Parties but also geographical characteristics of each port, the Vessel was not deemed as arrived ship at the moment of tendering both notices. Therefore, the laytime commenced to count with the Vessel’s discharge and no demurrage was ever accrued.

In their turn, the Shipowners drew the attention of the Arbitral Tribunal to the procedure of tendering the Notice of Readiness agreed by the Parties in the Charter Party, which inter alia included the WWWW clause. Furthermore, the Charterers guaranteed in the Charter Party that 1 GSBAA (good safe port berth always accessible) shall be nominated at each port, being fully aware of the railway bridge as official limits of the harbor waters at the port of loading. Thus, in Shipping Development Corp. v. V/O Sojuzneftexport (The Delian Spirit) [1972] 1 Q.B. 103 case it was held that ‘where a warranty is given at a place of berth be ‘always accessible’ [...] this amounts to an absolute warranty by the charterer that the vessel may proceed into the designated berth without delay and without risk immediately upon her arrival [...].

In addition, addressing the demurrage at the port of discharge, the Shipowners made a comparison with one of the LMAA published arbitration cases under which the Notice of Readiness tendered at the pilot station 75 miles from the loading port was recognized as valid. In turn, in our case, the Notice of Readiness was tendered at the pilot station nearly 7 miles from the port of discharge, which shows that in fact the vessel was at the immediate and effective disposition of the Charterers and was ready to commence discharge.

As a result, despite the case complexity and the Charterers’ active position, the Arbitral Tribunal agreed with the Shipowner’s arguments. The laytime calculation, submitted by the Shipowners with regard to the geography of the loading port and defined limits of the harbor waters, was accepted and recognized as the correct one.

In turn, with regards to demurrage at the port of discharge, the Arbitral Tribunal motivated its decision in a new light, in particular as follows: ‘[...] the Vessel did not give her NOR on anchoring [...]. She had given it earlier, on picking up her inward pilot [...]. But she did not anchor there, so at the time the NOR was given [...] the Vessel must have still been underway. That being so, the NOR cannot be regarded as a valid one [...].’

Meantime, the invalidity of the Notice of Readiness in fact does not entail that time starts to count again only once the Vessel eventually berths and commences discharging. Therefore, paying due regard to the Charter Party special provisions, the Arbitral Tribunal stated that the Shipowners are entitled to refer to Clause 6 © GENCON 1976 under which ‘Time lost in waiting for berth to count as loading and discharge time, as the case may be’. As per the Arbitral Tribunal, this provision does not depend on whether the valid Notice of Readiness has been given, since ‘[...] waiting time is distinct from laytime, even if it is to ‘count as’ laytime. What triggers waiting time is waiting; once the Vessel has gone as far as she can towards her destination, and can go no further until a berth has become available for her, she is ‘waiting for berth’ within the meaning of this clause and, from that moment on, time will count as if it were laytime. In other words, the waiting time is subject to the laytime regime [...]’.

The claim filed on behalf and in the interests of the Shipowners was satisfied in full

These arbitral proceedings and the final award confirm once again the complexity of claims on demurrage related to geographical peculiarities of port location. Answer to the question “When shall Notice of Readiness be deemed as submitted and the vessel as arrived?” requires a complex approach and assessment. In such cases, the key to success is knowledge of geography, applicable customs and port rules as well as expert consulting.

Published on Arbitrationwatch.com

Arthur Nitsevych

nitsevych@interlegal.com.ua