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Voyage Charters – Common Issues


Jagan - November 28, 2019 - 2 comments

This article focusses on some of the common issues faced in Voyage Charters, namely, Notice of Readiness (“NOR”) and Commission due to Brokers.

  1. NOR:
    1. We recently attended a dinner organized at Singapore for members and well-wishers of Association of Maritime International Commercial Interests & Expertise1 (“AMICIE”). One of the topics discussed was the recent English Commercial Court case of The Arundel Castle2 in which the court ruled that the vessel was not an arrived ship given that the NOR was provided when she was outside the port limits (she was anchored at the location directed by the port authority – due to congestion). Some of the participants felt that this was an “unfair” decision to Owners given that there was no fault on the part of Owners.
    2. NOR is an “evergreen” topic with lots of literature readily available such as this detailed article published by The Standard Club3. As you will note from this article, there are three main English cases i.e. The Johanna Oldendorff4 (decided by the House of Lords), The Martha Envoy5 (again decided by the House of Lords) and The Arundel Castle decided by the Commercial Courts. By way of summary, Lord Reid in The Johanna Oldendorff postulated that in order for a ship to have arrived at a port, she must have reached a position within the port (if she is unable to proceed immediately to a berth) and at the immediate and effective disposition of the charterer. In The Martha Envoy, the English Court of Appeal wanted to to apply this test i.e. The Johanna Oldendorff test but without the requirement of the vessel being within the port limits as long as the vessel was at the immediate and effective disposal of the charterers. The House of Lords rejected the Court of Appeals view and held that certainty was achieved by maintaining the earlier decision of The Johanna Oldendorff i.e. the vessel needed to be within the port limits together with the requirement that she must be available immediately should the charterers require her.
    3. The crucial requirement under common law for a ship to become an arrived ship, absent agreement between the parties, is that it must be within the port and available at the immediate and effective disposition of the charterers. Basically, it is an allocation of risk and if Owners are not comfortable with the common law position, they should either impose wider definitions in the C/P to ensure that the Ship becomes an arrived ship if unable to enter the Port or Berth (say as provided in Cl 6c of Gencon C/P 1994) or incorporate the definition of Port6 as provided in BIMCO Laytime Definitions for Charterparties 2013. Alternatively, Owners may wish to incorporate provisions in the C/P allowing them to serve NOR in cases of congestion by incorporating WIPON/WIBON Clauses i.e. whether in port or not / whether in berth or not (commonly known as the 4 W’s with the other 2 W’s being whether in free pratique or not (WIFPON) and whether customs cleared or not (WCCON)) or Reachable on Arrival Clause8.
  2. Brokerage Commission:
    1. It is an established fact that a Broker is entitled for commission on the freight earned by the Owners. The commission is contractually extended to Deadfreight9 and Demurrage10i.e. commission is paid to Brokers for Freight, Deadfreight and Demurrage. The question which arises is whether Brokers are also entitled for commission for Detention11?
    2. It is submitted that the Detention accrued to Owners is also an earning which has arisen out of the services provided by the Broker. In the absence of the Owners proving their loss, Courts and Tribunals generally consider the Demurrage rate as a measure of the losses arising due to Detention.
    3. In English Arbitration 17/1712, the Tribunal allowed the Charterers to deduct the commission on Detention from their payment to Owners given that the rate applied for Detention was the Demurrage rate and for which there was a provision for commission. It therefore suggests that if the Detention awarded is the Demurrage rate, then commission should be payable as of right (although in this award, the deduction was provided to Charterers and not Brokers).
    4. The Gencon C/P 1994 box 24 deals with Brokerage commission and refers to Cl 15 and which states “A brokerage commission at the rate stated in Box 24 on the freight, dead-freight and demurrage earned is due to the party mentioned in Box 24. …” Given that the Gencon C/P 1994 does not expressly provide for any Brokerage commission on the Detention, it appears to us that the only possible way to seek would be as what was decided in the English Arbitration 17/17 i.e. if the detention awarded is the same as the demurrage rate, the Broker would be entitled to commission on this sum.
    5. Members of the Baltic Exchange13 are guided by the Baltic Code. The 2007 Baltic code provides “Unless otherwise expressly agreed, commission is payable only on freight or hire earned and paid; it is customary in a voyage charter for this to be extended by agreement to allow commission to be payable on deadfreight and/or demurrage, detention (waiting time) if any. …”(words in underline by us for emphasis). We understand that the earlier editions of the Baltic Code did not make any reference to “detention”. This tends to suggest to us that the market is supportive of Brokers being entitled to commissions on any detentions earned. However, to avoid any ambiguity, it would be best if the C/P expressly provides for Brokers to be entitled for commissions on any detention earned by Owners.
  3. To conclude:
    1. NOR: Both Owners and Charterers should be aware of the advantages and pitfalls of various clauses incorporated into their C/P contract. Some of these clauses may have a bearing on the allocation of risk and which in turn would have a bearing when a NOR could be validly served.
    2. Brokerage commissions: A Broker is arguably entitled to commissions on detentions if the detention earned / awarded is the same as the demurage rate. In order to have certainty, it would be best to incorporate a provision in the contract providing for Brokerage commissions for other revenues earned by Owners such as Detention.

 

  1. http://www.amicie.net/
  2. Navalmar UK Limited -v- Kale Made Hammadeeler Sanayi Ve Ticart AS (The Arundel Castle) [2017] 1 Lloyd’s Rep 370
  3. The Standard Club is a Mutual P&I Club involved in insuring various marine risks. Further details of The Standard Club can be viewed at https://www.standard-club.com
  4. L. Oldendorff & Co. v Tradax Export S.A. (The Johanna Oldendorff) [1973] 2 Lloyd’s Rep 285
  5. Federal Commerce and Navigation Co Ltd v Tradax Export SA (The Maratha Envoy) [1977] 2 Lloyd’s Rep 301
  6. PORT shall mean any area where vessels load or discharge cargo and shall include, but not be limited to, berths, wharves, anchorages, buoys and offshore facilities as well as places outside the legal, fiscal or administrative area where vessels are ordered to wait for their turn no matter the distance from that area.
  7. See 24.15 of Voyage Charters, III edition.
  8. Reachable on arrival is a well-known phrase and means precisely what it says. If a berth cannot be reached on arrival, the warranty is broken unless there is some relevant protecting exception … The berth is required to have two characteristics: it has to be safe and it has also to be reachable on arrival.
  9. If the charterers load a quantity less than what they have contracted for, Owners are entitled to the payment for the quantity not loaded and which is known as dead freight.
  10. Demurrage is basically liquidated damages paid by the Charterers should they exceed the laydays provided for loading and discharge of cargo.
  11. Detention arises when there is no provision of a demurrage rate for such breaches and in which case, Owners would have to prove their losses to claim for damages. Generally, the demurrage clause apply only for loading and discharge of cargo. If the Charterers breach falls outside the ambit of the demurrage clause, Owners would have to claim for detention.
  12. Lloyd’s Maritime Law Newsletter , (2017) 978 LMLN 2
  13. The Baltic Exchange is a membership organisation for the maritime industry, and freight market information provider for the trading and settlement of physical and derivative Further details of the organisation can be viewed at https://www.balticexchange.com

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2 comments

  1. Lalit C Dharmani

    Thanks, a very lucid explanations.
    Querry:
    Hamburg rules do not apply to charter party but will apply to a bill of lading in the hands of a third party. So in case of collision , cargo claim would best be brought agsinst the carrier . How do both to blame clause be interpreted?
    Academic intetest.

    • M Jagannath

      Thank you for your comments.
      In respect to your query, the general rule is that cargo interests can recover from the other vessel based on their fault / apportionment of liability i.e. if the other vessel was at fault of say 60%, cargo interests will be entitled to recover 60% of their loss/damage to cargo from the other vessel (known as the Rule of the Milan). However, some jurisdictions do not follow this rule (notably USA) and allow the innocent cargo interests to claim for the complete loss / damage from the other vessel (in excess of their fault / apportioment of liability). Once an Owner has paid in excess of his apportionment of liability, they would claim from the other vessel (the cargo carrying vessel) for this excess. As a consequence, the Carrying Vessel would be liable for the cargo claims even though they may be entitled to exclude such losses based based either on The Hague or The Hague Visby Rules.A Both to Blame Clause allows the Carrying Vessel to seek recovery of such claims from their contractual party.Trust this assists.

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