Port becomes unsafe following its nomination: know your rights

Under English law, upon nomination of a loading or discharge port same is treated as if it was written in the contract ab initio (from the beginning). However, what happens if the port has become unsafe at a stage after its nomination and the Charterers have nevertheless warrantied its safety? Are the Charterers entitled to ask the vessel to proceed to another port irrespective of their prior nomination? Fair questions those.

Under a Time Charter, the position is more or less clear: in the circumstances, the Charterers come under a secondary obligation to re-nominate another port which is safe at the time of that re-nomination (The Evia No 2 – [1982] 1 Lloyd’s Rep 334). Problem solved.

Under a Voyage Charter, however the position is less clear although there is support in the view that the Charterers will not have the option to renominate the discharge port. In Lord Roskill’s words in The Evia (No. 2):

“But in considering whether there is any residual or remaining obligation after nomination it is necessary to have in mind one fundamental distinction between a time charterer and a voyage charterer. In the former case, the time charterer is in complete control of the employment of the ship. It is in his power by appropriate orders timeously given to change the ship’s employment so as to prevent her proceeding to or remaining at a port initially safe which has since it was nominated become unsafe. But a voyage charterer may not have the same power. If there is a single loading or discharging port named in the voyage charterparty then, unless the charterparty specifically otherwise provides, a voyage charterer may not be able to order that ship elsewhere.

 [1983] 1 A.C 736, at p. 736.

It appears that, in the absence of a particular clause dealing specifically with this matter (always look at the Charter!), the parties are free to negotiate a solution. Nothing precludes Owners to ask for extra freight before agreeing to another discharge or loading port. Under a Time Charter, the Owner would be compensated anyway as hire would continue running. If no such fresh agreement is achieved, the position would most likely fall under the doctrine of frustration.

Demurrage and Damages for Detention: Can you tell the difference?

Now that you know what Demurrage is, it is time to move on and learn how to distinguish it from Damages for Detention. But why we should even bother doing so?

This is why: Your vessel is fixed under a voyage charter to carry a cargo of grain from Berdyansk, Ukraine to one / two safe ports in Libya or Egypt in Charterers’ option. The Charterers are obliged under the Charter to nominate the discharge port(s) prior to the vessel crossing Bosphorus.

The vessel loaded her cargo and is currently en route having already crossed Bosphorus southbound. Charterers (Happy Grain), however, having failed to nominate a discharging port yet, they give you a call at your operations department. You pause this youtube video you have been watching on repeat all day and pick up the phone.

-Yello?

-Yes, hi it is Happy Grain here, how are you today?

-Oh yes, hi hello there. Yes, not that bad considering the market rates – lol. I have been waiting your call actually.

-Haha, riiiiight… Well, we need a favour I am afraid.

-Go on.

-Can you ask the Master to wait off Crete until we decide the discharge port. Sorry about this *hangs up*

-I do not see why we should order the vessel to wait.. Hello? Hi? Can you hear me?

Unsurprisingly, the Charterer is facing a problem in his Sale Contract (so many things can go wrong) and for his own reasons has asked the vessel to wait for a moment. Generally speaking, the vessel has to follow Charterers’ legitimate orders.

However, when Owners calculated their freight rate, they made their calculations based on a certain – uninterrupted approximate time for sailing which will now have to be extended due to Charterers’ default. This will naturally lead to additional time being wasted. Vessels’ time costs money you know. How will our Shipowner get compensated for the lost time? They cannot obviously apply Demurrage as the vessel is not at the discharging place and she cannot tender her Notice of Readiness to start Laytime counting.

This is where damages for detention creep in. Generally speaking, Damages for Detention will arise when a vessel is delayed due to Charterers’ fault either on the approach or carrying voyage, or respectively at the port of loading or discharge. They also may cover delays after completion of the cargo operations.

That is all for now folks. Have a question? Fire it away at the comments’ section below. In another session we will be speaking about how are Damages for Detention calculated. AGW.

Cheerio.

What (on earth) is Demurrage?

If you are new in the shipping world, then you may find yourself struggling to figure out what Demurrage is. If you are not new in the shipping world, then you should not be here wasting your time reading this post. Shoo! Come on now, go away!

Where were we? Ah, right. Demurrage. Before looking at what Demurrage actually is, let us take things from the start.

In the vast majority of the cases, a commercial vessel will be let under one of the two main types of Charters, namely either on:

  1. A Time Charter, or on
  2. A Voyage Charter;

When the vessel is let on a Time Charter, then the Ship Owners is getting compensated for the period the vessel is under the Charterers’ employment by daily hire. This makes sense, right?

When, however, the vessel is chartered on a Voyage Charter basis then the vessel is essentially fixed to go from place A to place B (there may be other ports in between but let’s keep things simple for now, shall we?). The Charterer, in turn, is paying the Ship Owner freight (rather than hire) which compensates the Ship Owner for the the time the vessel will spend in performing the agreed voyage plus some further time allowed for loading and discharging respectively (which shall be provided for in the Charter and is known as laytime).

It is not, however, unusual for a vessel to exceed the allowed laytime under the Charter. If this is the case, then, depending on the terms of the Charter, Demurrage is likely to be incurred. Demurrage normally takes the form of a daily rate which will apply for every day used for loading or discharging in excess of the laytime.

Demurrage clauses essentially constitute liquidated damages clauses and they should represent a genuine pre-estimate of the losses the Ship Owner will suffer as a result of the Charterers’ breach to exceed the contractually agreed laytime.

Capish?