Arbitration practice: Violation of the Charter Party not always results in negative effects

Interlegal recently completed arbitration proceedings regarding the influence of intermediate voyage and delay in laycan on lawfulness of filing demurrage claims.

The vessel was chartered for cargo transportation from Ukraine to France. While the vessel sailed to Ukraine the shipowner ordered to perform intermediate voyage from Romania to Russia despite that such voyage contradicted to the Charter Party. The shipowner assumed that the vessel should have performed intermediate voyage and be ready to perform her main voyage within the laycan.

Due to delay in intermediate voyage, in breach of its obligations, the Shipowner failed to supply the vessel within the laycan agreed and applied to the Charterer for time extension. Due to commercial reasonability the Charterer decided not to cancel the Charter Party and to allow laycan extension.

As the result, the vessel arrived to France a few days later than the initial date and missed tide water. It caused vessel detention and made impossible berthing and prompt discharge. Due to vessel detention waiting for tide water, the Shipowner filed a demurrage claim against the Charterer.

The key issues are the following:

- Has the Shipowner violated an obligation to perform the Charter Party with reasonable dispatch?

- Shall the Charterers be responsible for demurrage?

The Charterers supposed that if the Shipowner had not violated the Charter Party and had not performed intermediate voyage the vessel would have arrived within initial laycan, would have arrived to the discharge port during tide water and would have avoided undesirable detention. Furthermore, the schedule of tide water was incorporated into the Charter Party. Therefore, while planning intermediate voyage and performing main voyage, the Shipowner should have take into account tide water intervals.

LMAA to which the dispute was referred to upheld the Owners’ claim and awarded whole amount of demurrage to their favor.

Tribunal stated in the award that in fact the Shipowner violated terms of the Charter Party but, for the purpose of justifying the Charterer’s release from demurrage claim, it shall have causal relationship with its effects. In this case violation occurred long before the demurrage.

The key issue for making a decision on favour of the Shipowner was extension of laycan provided  by the Charterers. Fragments of arbitration award were published in Lloyd\'s Maritime Law Newsletter. Mr. John Schofield, LMAA Arbitrator, has ordered: “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. By giving a time extension, the Charterers shot themselves in the foot.”