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Bentleys' Bulletin

Published July 2017

ESCALATED DEMURRAGE RATE CLAUSES UNDER EXAMINATION

The dispute in the "ZALIV BAIKAL" [2017] EWHC 1091 (Comm) concerned whether the owners were entitled to claim demurrage under a voyage charter at an escalated rate, together with the value of bunkers concerned, over a period of 64 days whilst the vessel was waiting to discharge cargo at Rotterdam. The vessel arrived and tendered NOR, but thereafter charterers failed to give any instructions for 64 days. This was for their own commercial purposes.

The relevant terms of the charter were an amended Clause 22 of the BPVOY4 form and an additional Clause 11, which both provided for uplifted rates of demurrage in certain circumstances. Clause 11 provided:

Shipbroker's commission cases are quite rare

"…Charterers shall have the liberty, at any stage of the voyage, of instructing the vessel to stop and wait for orders FOR MAX 3 DAYS at a safe place…In particular…Charterers shall be entitled to instruct the vessel not to tender NOR on arrival at or off any port or place or to delay arriving at any port or place until Charterers give the order to do so. Time to count as used laytime or time on demurrage, if vessel is not demurrage. AND ALL THE BUNKERS CONSUMED TO BE FOR CHRTS ACCOUNT.
AFTER FIRST 5 DAYS WAITING FOR ORDERS/DISCH INSTRUCTIONS AT SEA VESSEL TO BE CONSIDERED AS BEING USED FOR STORAGE, AND, UNLESS OTHERWISE AGREED, FOLLOWING INCREASE OF DEMURRAGE RATE TO APPLY…"

The question was one of construction of these clauses.

The judge held that Clause 22 was concerned with the giving of revised voyage orders to divert the vessel to an alternative port notwithstanding the prior nomination of a load or discharge port, and therefore had no application on the facts of the present case. The parts of Clause 22 in the standard BPVOY 4 form which could have covered this scenario (i.e. an order to stop and await further orders) had been deleted.

Clause 11, however, gave a liberty to give a positive order to the vessel to stop and wait for orders and a period in excess of 5 days waiting time was to be considered as storage, with increased rates of demurrage payable. What was envisaged in Clause 11 is an order made before the vessel is in a position to give NOR. Once NOR is given, the ordinary laytime and demurrage regime applies.

Furthermore, no order to stop and wait was ever given. In Mr Justice Cooke's view:

"I cannot, however, accept…that a passive failure to give orders falls within the meaning of the wording used, because what is clearly envisaged is an instruction to stop and wait for further orders or to delay arrival".

This conclusion might be thought somewhat impractical given that charterers can choose whether or not to give a positive order or remain silent, and the effect of the two scenarios is the same. The judge considered, however, that the charter had instituted different laytime and demurrage regimes for different scenarios, and that the dividing lines drawn by the parties, no matter how arbitrary, should be respected. Given that NOR had been tendered, which was an act within the control of the owners, the applicable regime was the ordinary load and discharge port regime rather than the Clause 11 regime. This meant that demurrage was payable, but not at the enhanced rates set out in Clause 11.


OTHER ARTICLES IN THIS ISSUE

Post-Termination Benefits and Damages

Unsafe Ports and Co-Insurance in the Supreme Court

Electronic Release Systems and Theft of Cargo: MSC v Glencore [2017] EWCA CIV 365

Escalated Demurrage Rate Clauses Under Examination

Aggrieved Shareholders and Settlements






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