Six-Hours Notice Time for LPG Charters

Six-Hours Notice Time for LPG Charters

An interesting question recently arose by a delegate in HC's Advanced Demurrage training course that I would like to share with my readers:  "With regard to the Notice of Readiness (NOR), if a LPG charter requires the Vessel to take product for conditioning/gassing up, when does the six hours free time apply (for conditioning or loading)?"   

Normally the Vessel tenders the 1^st NOR when ready to take conditioning parcel for gassing up; and, tenders a 2^nd NOR when ready for actual loading (after gassing up completed).  Under a port charter like ASBATANKVOY,  laytime commences after the expiration of six hours at each port, or upon the Vessel's arrival in berth, whichever first occurs.  That said, how is the six hours notice time to be treated when the Vessel tenders twice? 

Here's the comprehensive Presentation Clause that pertains to the fixture in question:

Presentation Clause:

The vessel is to present cargo tanks and lines under n2 with max 0.2 pct (2000 ppm) o2 and dew point not warmer than minus 45 deg c, ready to gas up with ethylene.

The vessel shall prior bringing the cargo tanks under n2 bring the cargo tanks under breathable air and the master is to carry out visual inspection and issue certificate of cleanliness.  All time and costs for nitrogen purging to be for Owner's account.

Charterer shall provide ethylene for gassing-up/cooling down operation, ready and available to the vessel upon arrival alongside load berth. Costs for supply of the product to be for Charterers account.  If product for gassing up is not available upon vessels readiness then time waiting for gassing up product to count against laytime.  All time used for gassing up to be for owner's account.

Gassing up to be done at anchorage.  Cost and time of shifting from berth to anchorage and back after completion of gassing up is for Owner's account.

Any product lost during conditioning in excess of 10 MT shall be for Owner's account and reimbursed to Charterer at Charterer's documented FOB price. Any product remaining on board after conditioning shall be included in the Bills of Lading quantity.

Without the matter of the six hours notice time expressly defined within the charter clause, in order to reach a conclusion as to how it should be treated, we turn to an arbitration decision on point.

In a case decided by the Society of Maritime Arbitrators in New York, the Panel held that with regard to the Presentation Clause, once the Vessel has been gassed up/cooled down laytime immediately starts to run (the six hours notice time already expired after the first NOR).  Following is a recap of this arbitration award:

Cheshire, SMA No. 3146. (ASBATANKVOY)

The panel majority finds in favor of the Owner for the following: 1) The commencement of laytime applicable under the Propylene Presentation Clause is deemed to begin after purging and prior to cooling the cargo (ref. SMA 3129). 2) Clause C states, “...one to two safe berth(s) with Charterer’s option to call second berth at either loadport at no extra costs to Charterers.” Shifting time counts to the second berth due to the phraseology in Clause C drawing a distinction to “costs” thereby separating that issue from the “time” issue covered in Clause 9, Part II. 3) Charterers charge Owners with a 2H 9M delay between the N2 purging and commencement of propylene conditioning to the Vessel’s non-readiness which is denied by the panel on account that the Master’s signed Time Sheet shows that this time was utilized for tank inspections and connecting cargo and vapor lines.

Lastly, Owners properly deduct the time consumed on account of gassing up/cooling down prior to load operations. However, the period prior to commencement of these operations had not been deducted. The panel finds in favor of the Charterer that this time should also be deducted as the Vessel is not in a ready state to load. It is deemed that laytime commences immediately upon completion of Owner’s tank preparation without providing six-hours Notice Time after.

Source:  The TANKVOYager  Vol. 2 No. 2, Apr/Jun 1996

CMA Shipping 2012 -- Arbitration Game Changers

Due to conflicts, it’s been three years since I last attended this hallmark shipping conference in Stamford, Connecticut, and I was happy to be back this week after my hiatus.   It’s tough to beat this annual opportunity to meet and reunite with the drivers of the global shipping community in one spot.  The venue, Stamford Hilton Hotel, is conveniently located in the tri-state region of New York, New Jersey, and Connecticut with train service only two blocks away; and, given its proximity to New York, that’s sufficient incentive for me to schedule a visit to the Big Apple too!  

The topics covered at the Shipping 2012 Conference fell under the umbrella theme entitled “Game Changers” with speakers covering a variety of topics throughout each day in two conference rooms.  In light of the fact that I can’t be in two places at the same time I had to make a difficult decision as to which presentations to attend. Although all topics are relevant to our business, given that my work predominantly entails consulting on shipping contracts, demurrage claims management and dispute resolution, I opted to attend the presentations given by admiralty lawyers and arbitrators.  

The New York Society of Maritime Arbitrators discussed recent awards and the points that their decisions turned on.  In one case, an arbitrator involved in the recent SMA No. 4116 award dated March 19, 2012 spoke about the key points considered therein.  

In that dispute, a problem arose for the Time Charterer when the Owner scheduled the Vessel for a special class survey in drydock.  In particular, the Vessel would be in drydock for twenty days causing the last of their four sub-chartered COA voyages to be in jeopardy due to the Vessel’s redelivery date requirement.   The Time Charterer objected to the drydocking and contemporaneously argued with the Owner that they were in breach of the charter party.  The Owner, denying the alleged breach, proposed an extension of the charter at a significantly higher daily rate and with a "take it or leave it" attitude.  It was a rising market and the Charterer unsuccessfully countered the rate several times and ultimately accepted it in order to fulfill their last voyage requirement under the sub-charter.

The Panel held that the Owner breached their obligation to maintain a suitably classed vessel throughout the charter.  Owner should have advised and negotiated the need for the special class survey at the time of the fixture.  Owner's breach notwithstanding, the ultimate award was for the Owner wherein it was decided that the contract extension was negotiated without undue duress thereby disallowing the Charterer to recover damages.  In rendering its decision the Panel stressed the fact that the parties freely negotiated the extension and Charterer did not show that they attempted to find alternative tonnage.    Furthermore, during the negotiations there was no inclusion of legalistic phrases such as “without prejudice” or “under protest”. 

  

Despite the $1.3M loss incurred by the Time Charterer as a result of Owner’s breach, this award hinged on the Time Charterer’s inability to adequately prove that they agreed to the extension under duress.   The Panel also placed weight on the fact that, when negotiating, the Charterer did not reserve their right to claim for damages at a future date.

The game changer in this scenario is the increasing weight that the SMA is placing on the express terms, or lack thereof, with apparent little regard for the commercial reality of the Charterer's inherent duress in this scenario.  London arbitrators, comprised of attorneys, typically weigh the express written terms of the contract in its most literal legal context, whereas the SMA, mostly comprised of “commercial men,” can use leeway to apply commercial consideration when rendering an award.   Given this recent award, brokers and chartering personnel need to be aware of the importance of the aforementioned terms when negotiating a compromise.  The devil is in the details!

Restraint of Princes - Did the London Arbitrators Get it Wrong?

I just read the recently published London Arbitration 20/10 with great interest.  It involves two demurrage issues which arose under a voyage charter fixed on an amended Asbatankvoy charter form for the carriage of fuel oil from Indonesia to Thailand.

The demurrage issue of particular interest to me pertains to a protracted interruption incurred during a ship-to-ship (STS) transfer operation at the load port.  The Vessel was arrested by the Navy for allegedly failing to have the required export permit and was only released 33 days later after the Charterer paid $600K cash. The tribunal found that the Charterer did in fact have the required permit and did not violate Indonesian law rendering this situation to be a case where two innocent parties suffered a loss (Owners were seeking $780K demurrage for this period).

Owner's claim for demurrage was denied on the basis that this delay fell within the scope of "restraint of princes" as expressly excepted within Asbatankvoy, Part II, Clause 19, General Exceptions Clause.  However, the caveat in said clause stipulates that neither the Owner nor Charterer are responsible for various force majeure type exceptions "unless otherwise in this Charter expressly provided".  This phrase has been held to mean that in matters involving laytime and demurrage, the exceptions to time counting must be found within the context of the clauses governing laytime and demurrage issues e.g. Clauses 5-9.  Furthermore, supporting the position that Clause 19 does not pertain to laytime and demurrage is evidenced by the fact that although it excuses delays due to strikes, Clause 8, Demurrage, provides for payment of demurrage at one-half the charter rate for loss of time caused by strikes of shoreside labor, with complete relief from demurrage attributable to strike of the officers or crew of the vessel or tugs.

In the English court ruling of Gem Shipping co. v. Babanaft (Lebanon) S.A.R.L. (The Fontevivo), [1975], the vessel departed the port after having discharged only part of the cargo owing to war risks.  She returned three days later and the issue at stake was whether the time when she was away from berth counted as laytime.  Justice Donaldson held that laytime was not interrupted and that Charterer was not excused from liability as there was no fault on the part of the shipowner.

In a N.Y. arbitration, SMA No. 3739 (Raphael),  the Vessel was delayed 11 days at port due to the Iraqi government halting oil exports during that period due to a pricing dispute with the United Nations "Oil-for-Food Program".  The Charterer sought to be excused from demurrage on the basis that this delay fell within the scope of "restraint of princes" exception in Clause 19, General Exceptions Clause.  In ruling for the Owner, the Panel confirmed that the General Exceptions Clause does not apply to the running of laytime. 

Based on the above, I wonder if the decision in London Arbitration 20/10 is correct?  Does anyone have any thoughts on this topic?