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?

Brazilian Statement of Compliance (SOC) Certificate

Recently we were asked about the meaning of Brazil’s Statement of Compliance for Oil Transport (“SOC”) certificate and how it affects laytime. Although we are familiar with charter party clauses addressing an SOC inspection, we needed to research the underlying purpose of the certificate, the method for procuring it, and the length of its validity. That said, I would like to share what we have learned on this subject.

Foreign vessels trading petroleum or its derivatives in Brazil are required to have onboard a valid SOC as mandated under NORMAM-4. The Brazilian Navy regulates practical matters pertaining to navigation activities in Brazilian waters and issues, via the Port and Seashore Office (“DPC”), the Maritime Authority Rules (“NORMAM”).

Here’s an example of an SOC voyage charter clause that expressly stipulates that the Vessel cannot tender NOR until she is officially allowed to operate by the Brazilian Authorities:

Compliance for Carriage of Oil

In case, upon Vessel’s arrival at port, Brazilian Authorities (Navy) request Vessel to be inspected in order to obtain the “Compliance for Carriage of Oil” certificate, all time and/or expenses from Vessel’s arrival at port until Vessel is officially allowed to operate shall be for owner’s account. Six (6) hours Notice of Readiness (NOR) to start counting only after the Vessel has been officially allowed to operate by the Brazilian Authorities.

If, for example, a Vessel is directed to load at Campos Basin (located offshore of Rio de Janeiro), the Vessel must first call a Brazilian port e.g. Rio de Janeiro for customary clearance (Free Pratique, Customs, Immigration, etc.). Furthermore, if needed, the Vessel can be inspected for SOC issuance.

There are two methods that can be utilized for procuring an SOC: 1) the SOC can be issued via SIRE (Ship Inspection Report Program) or, 2) an onboard inspection by the local Port State Control (“PSC”). If issued by SIRE, the ship’s agents present the required documentation to the PSC who assesses the ship’s compliance without an onboard inspection; and, if the SOC is granted, it is valid for a maximum of 30 days.

The SOC’s issuance via SIRE may occur once every 12 months which means that after the 30 day period expires, if the ship trades in Brazil again within the following 12 month period the next SOC may not be issued via SIRE again but must have a compulsory onboard inspection by the PSC.

The documents required by the Navy for the Brazilian SOC include:

- IMO Crew list
- Ports of call list
- Ship's particulars
- Certificate of Registry
- IOPP (all pages including any supplement form)
- Ship Certificate of Financial Responsibility for Water Pollution
- P&I Entry Certificate with wreck removal clause
- Last Port State Control Inspection Report
- Ship´s construction Certificate

If anyone else has information or experience relative to this SOC topic, please share. Many thanks.

Demurrage Benchmarking Study

Haugen Consulting (HC) was first approached a year ago by an oil major who was interested in HC conducting a demurrage benchmarking study with their peers. The project is a natural fit for our company as we are an international independent demurrage consulting firm and thus naturally well-versed in the depth and breadth of demurrage issues. In embarking on this study, we sought input from those interested in participating as to what they would like to see reported.

The purpose of the study is to assess one’s demurrage department’s performance in relation to its peers by quantifying what a successful demurrage department actually is and the business practices leading to that success. To accomplish this many factors would be considered and data stratifications reported, including but not limited to, differentiating amongst cargo, vessel type, payable and receivable claims; and, further, distinguishing settlement cycle time norms between claims made by vessel Owners and claims made by commercial trading partners. In addition, the study will explore the demurrage cost on a per barrel basis, demurrage to freight ratios, demurrage analyst experience, software, operating procedures, and overhead. Naturally, due to the confidential nature of this study, HC would sign confidentiality agreements with all the participants.

Great idea, right? Well, it may be a great project that will yield insightful information but as with all things in life, timing is everything. The study did not take flight a year ago due to an insufficiency of participants; perhaps the economy was to blame. More recently, about a year after we initially embarked on this study, we got a call from an interested participant who last year was not a subscriber but now wants to see this project launched. Perhaps now the time is right?

Again, with enthusiasm brimming, HC campaigned for the resurgence of this study amongst numerous producers and trading companies, but to no avail. Although some previously disinterested parties expressed interest this go around, it was nullified because some of last year’s interested parties declined participation this time. There’s simply not enough interest to get this off the ground at the moment.

Nonetheless, we will not abandon this demurrage benchmarking study altogether, rather, we look forward to the day when more organizations will be inclined to participate to gain insight into running a successful demurrage department. Just give us a call if this study is of interest to you and we’ll be happy to make another attempt at launching it. I’m certain that one day this project will fly, it’s just a matter of when.