Charterers Liable for Demurrage Despite Invalid NOR

Fanos Theophani and Alexander George of lawyers Clyde & Co have reported on London Arbitration 13/19, which they described as “a cautionary tale for charterers”, highlighting the manner in which a defective Notice of Readiness (NOR) could result in charterers being liable for demurrage and in repudiatory breach of the charterparty. Theophani acted for the successful disponent owners.

The owners had chartered the vessel from her head owners for a one time-trip charter, from South West Pass to one safe Moroccan port. The owners in turn chartered her out, on an amended Norgrain 1989 form, for the carriage of soya meal and soya beans from Myrtle Grove, Louisiana, to Casablanca, with a laycan of 24 August to 2 September.

The vessel’s holds were subsequently approved by the NCB at 17:00 and at 18:10 charterers’ agents delivered the berthing approval, with documents including the NCB certificate and NOR, to the loading terminal.

However, on August 25th the US Coast Guard implemented its Maritime Hurricane Contingency Port Plan due to an approaching tropical storm. When the tropical storm struck, it drove the vessel aground.

On September 2nd the laycan expired. The charterers complained that the vessel was not yet ready for cargo on September 4th, before sending a further message on September 6th purporting to declare force majeure because the storm, an Act of God, had water-damaged the cargo.

The vessel was refloated on September 15th; on September 16th she proceeded to South West Pass for an underwater inspection, which revealed no issues.

On October 3rd the charterers informed the owners that they considered the NOR tendered on August 24th invalid because:

  • the vessel was not an arrived ship, and
  • she was not in all respects ready to load.

On October 4th, upon the vessel’s arrival at Port Celeste, the owners sent charterers a further copy of the NOR from August 24th. Charterers advised that the NOR was invalid for the reasons they had previously given and purported to cancel the charterparty because the NOR was re-tendered (on October 4th) after the cancelling date.

The owners treated the purported cancellation as a repudiatory breach, which they accepted at 12:30 on October 9th. They redelivered the vessel to head owners on the same day and agreed to forfeit the bunkers remaining on board (equating to US$217,134.10) in settlement of any claims from head owners for early/wrongful redelivery.

The owners commenced proceedings against the charterers to recover demurrage, the forfeited bunkers, and their lost profits. The charterers counterclaimed to recover their loss of income on the sale, lost profits on the resale of the substitute cargo, and barge demurrage, on the basis that owners had breached Clause 77 by presenting the vessel without clean holds.

The Tribunal agreed with the charterers that the NOR was invalid. For it to have been valid, the master should have tendered it when the vessel was at the immediate disposal of charterers and could proceed no further. Had there been no berths or river anchorages available, the Tribunal would have considered the vessel an “arrived ship”, but when the NOR was in fact tendered, the vessel was continuing to proceed upriver.

Further, the NOR was invalidated by Clause 18(b) and Clause 77, which both required the Master to retender NOR once the holds had been passed by NCB.

However, the invalid NOR was submitted to the loading terminal by charterers’ agents, once the holds had been passed for loading, and this constituted acceptance by the charterers of the NOR and a waiver of any right to object.

The Tribunal determined that the first weather working day following the hurricane was 22:00 on August 31st, at which point laytime commenced.

The charterers’ force majeure argument was also rejected, with the Tribunal noting that, absent clear wording, the general exceptions clause, on which charterers relied, didn’t apply to laytime or demurrage in any event.

The charterers were found to be in repudiatory breach. Demurrage accrued from the expiry of laytime at 15:14 on September 5th until owners accepted the repudiation at 12:30 on October 9th.

Further, the charterers’ counterclaim was rejected on the basis that Clause 77 was a complete code which set out the consequences of breach (i.e. owners were to clean the holds at their own time and expense). The charterers were not entitled to seek damages in addition to the consequences set out in Clause 77.

Clyde noted that the Tribunal was critical of the apparent “mistaken belief”, common amongst masters, that NOR is to be tendered at the first pilot station at the end of a sea passage, which is not correct.

There are a number of ways that owners can protect themselves from the risk of lost demurrage and/or cancellation from an invalid NOR:

  • Always ensure masters are instructed to only issue the NOR when the vessel is an “arrived ship”. In this respect, the vessel must have gone as far as it can and be at the immediate disposal of the charterer.
  • Beware of charterparty provisions that invalidate a NOR, such as Clause 77, and ensure that such clauses clearly specify a complete code of consequences of breach (e.g. by providing that owners will remedy the breach at their own cost and time) to avoid spurious claims from charterers following a breach.
  • Ensure the master is aware of any provisions in the charterparty that may invalidate a NOR, and ensure he is instructed to re-tender the NOR once any breach has been remedied. In this case, the Tribunal noted that much of the dispute could have been avoided by better communication between owners and the master, and between charterers and their agents.
  • If a dispute as to the validity of a NOR arises, take care when considering the documents the charterer submits to the loading terminal, as submission of an invalid NOR may amount to acceptance of an invalid NOR and a waiver of any right to object.