In a recent Commercial Court decision on the construction of a tailored demurrage provision in a charterparty, the Court refused to rewrite the parties agreement regarding demurrage merely because "it might be thought odd".
In Gard Shipping AS v Clearlake Shipping Pte Ltd 2017 EWHC 1091 (Comm) the claimant owner sought to persuades Sir Jeremy Cooke to apply its version of business common sense in order to rewrite the parties agreement with regard to demurrage. However, the Judge concluded that the charterparty did not "lack commercial or practical coherence and works perfectly well with the express allocation of differing liability in respect of different situations". The fact that applying the charter terms could lead to similar types of delay giving rise to different rates of demurrage, whilst perhaps odd, was no reason, he held, for the Court to rewrite the contract by construing its terms unnaturally or by implying terms.
RPC acted for the successful Charterer.
The facts of the case
Owner (Gard Shipping AS) and Charterer (Clearlake Shipping Pte Ltd) entered into a voyage charterparty in respect of the "Zaliv Baikal" ("the Vessel"). The charter was based on the BPVOY4 form and incorporated the "Gard/Clearlake" rider terms.
The key clause was Additional Clause 11 of the Gard/Clearlake terms (AC11).
AC11 was in 3 sub-paragraphs and stated:
“Notwithstanding any term of this charter to the contrary, 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 WITHIN THE RANGES AGREED. In particular and without prejudice to the generality of the foregoing, 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 o[r] place until Charterers give the order to do so. Time to count as used laytime or time on demurrage, if vessel is on 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 OTHEREWISE AGREED, FOLLOWING INCREASE OF DEMMURAGE RATE TO APPLY
DAYS 6 – 15 DEMM RATE PLUS $5,000
DAYS 16 – 25 DEMM RATE PLUS $10,000
DAYS 26 – 35 DEMM RATE PLUS $15,000
PRIOR TO EXPIRATION OF 35 DAYS PERIOD CHRTS TO INFORM OWNERS IF THEY REQUIRE MORE TIME TO USE VSL AS A STORAGE, AND NEW RATES TO BE MUTUALLY AGREED LATEST ON 35TH DAY OF SUCH A WAITING.
SUCH A WAITING TIME TO BE COMPENSATED AT RATES AGREED ABOVE AND PAYABLE TOGETHER WITH FREIGHT AGAINST OWNERS SEPARATE INVOICE.”
Chrs option to order the ship to wait at an offshore position provided they give final destination and expected cargo delivery window, In WHICH case the above increase in rates not to apply”
in case when final destination a/or cargo delivery window changes, then increase Of rates to apply as per this clause.”
The facts were agreed. The Vessel was ordered to wait on several occasions and to discharge some cargo at an interim port during her voyage to the final discharge port, Rotterdam. The Vessel arrived and tendered Notice of Readiness (NOR) at Rotterdam on 26 January 2016 but the Charterer did not give any discharge instructions until 31 March. It was agreed that the Vessel was waiting at Rotterdam for 64.7 days.
The Charterer paid demurrage for the 64.7 days at the standard demurrage rate of US$32,550 pd. However, the Owner contended that the 'escalated demurrage' regime at sub-paragraph 2 of AC11 applied and that it was owed an additional US$976,731.
Owner's case was, in essence, that there was no commercial logic in differentiating between the Vessel being told to wait outside a port and/or not to tender NOR and tendering NOR but not being given orders to berth. In all cases the Vessel should be considered as being used for (floating) storage, per sub-paragraph 2 of AC11, and so the 'escalated demurrage' regime applied. If not, then the Charterer could avoid being liable for the 'escalated demurrage' at the discharge port by waiting for the vessel to tender NOR and then giving no discharge instruction (as happened in this case).
The Charterer's case was simple; AC11 on its express terms only applied when the Charterer gave orders to stop and wait at sea prior to tender of an NOR and, as was common ground, no such orders were given. Further, once NOR had been tendered, AC11 could not apply as the position was then that demurrage was payable under the specific laytime/demurrage clauses in the charterparty relating to post NOR delay in discharging at the discharge port.
The Court considered the meaning of the first and second sub-paragraphs and AC11 within the context of the entire charterparty and decided that:
- Overall the charterparty provided a comprehensive demurrage framework for the different events which may cause delay during a voyage and different regimes applied in different circumstances with each having their own defined "trigger" event.
- Fundamentally, AC11 only operates where there has been an instruction to stop and wait for orders which is the trigger for AC11 to apply. A passive failure to give orders did not trigger AC11.
- In this case the delay at Rotterdam clearly fell within the laytime/demurrage regime dealing with post NOR delay at the discharge port. The tendering of NOR was the "trigger" for that regime in the same way the "trigger" for AC11 to operate was the giving of an order to stop and wait.
- Even if AC11 had applied (which it didn't) as there had been no agreement reached between the parties after 35 days waiting at Rotterdam, the escalated demurrage rates would not apply after that: only the basic demurrage rate plus bunkers consumed in accordance with the first sub-paragraph of AC11.
Owners also argued that if AC11 did not apply to the current situation then the Court should imply a term of "like effect" i.e. that operated as Owners contended AC 11 operated. Perhaps unsurprisingly, the Court determined that it was not necessary to imply such a term; not least as such a term would be inconsistent with the express terms as construed by the Court.
The Court thus concluded:
"As set out above, given the agreed facts that there was no order to stop and wait prior to the service of the NOR at Rotterdam, I cannot see how the provisions of either AC 11 ….. can apply. Given the structure of the Charterparty, it is the ordinary laytime regime which applies and not the orders regime prescribed by AC 11. Demurrage at the ordinary contractual rate is payable, not at enhanced rates (with payment for bunkers), because AC 11 is of no application to the waiting time at Rotterdam, since no order was given to stop, wait or delay prior to giving NOR and, once given, the ordinary laytime/demurrage regime kicks in."
Having acted for the successful Charterer impartial observation is difficult but it is suggested that faced with the clear, if not perfectly drafted, terms in this charterparty the Owner's case was ambitious. Oddity, even if present, is not enough under any Supreme Court authority to permit a Court to rewrite the parties clearly expressed agreement.