Charterers' CQD Obligations

December 2005

Many voyage charters stipulate a set period for allowable laytime (either by stating a fixed period of laytime or by setting a rate at which cargo operations are to take place). Others may provide for charterers to load/discharge with customary quick despatch (CQD). That means that they must load/discharge as fast as is possible in the circumstances prevailing at the time.

If the charterers fail to load or discharge in the time allowed by the contract or as fast as possible in the circumstances they will be liable for damages for detention. The Charter may set out a fixed rate for these damages (demurrage), failing which owners will have to establish their loss arising from the delay.

The question of whether a charterer has met their CQD obligations is probably the more difficult to determine. Unfortunately, the issue of whether cargo operations were carried out as fast as possible in the circumstances prevailing at the time is one of fact and previous arbitration awards or decisions of the Courts will rarely, if ever, provide a clear answer to any subsequent dispute(s). Nevertheless, previous authorities can provide guidance as to the extent of the burden upon charterers.

A recent London Arbitration concerning CQD provisions demonstrated that the burden upon charterers is not a light one.

The facts of the case were that shortly after discharge had started the charterers/cargo interests paid the import duties assessed on the cargo. The cargo receiver was an associated company of the charterers. However, the Customs Authorities then retrospectively imposed an increased duty which the cargo receiver alleged was invalid/illegal and refused to pay. As a result the authorities refused to allow discharge to continue and shifted the vessel off the berth.

The cargo receiver started proceedings in the local courts to challenge the extra duty and for an injunction to restrain the Customs Authority from preventing discharge. There was no possibility of discharging the cargo ashore whilst this challenge took place and, therefore, the vessel was forced to wait at anchorage, with cargo still on board.

After a delay of almost a month the Court decided that the extra duty claimed by the Customs Authority was illegal and discharge was allowed to continue.

The owners started arbitration in London and claimed damages for the delay. They argued that, pursuant to their CQD obligations, charterers could and should have paid the additional duty under protest so as to allow discharge to continue without delay. The charterers asserted that the legal system in the country in question meant that if they had paid the Customs Authorities there was a real risk that they would then have been unable to reclaim the monies at all or at least not without significant difficulty.

While the Tribunal expressed sympathy with the charterers they held that charterers were liable. They took the view that charterers or the receivers were obliged to pay the duty, either to the authorities or possibly into Court to ensure that the vessel was discharged as quickly as possible. The arbitrators went as far as to say that that the obligation to pay was regardless of whether the excess duty was easily recoverable (or at all recoverable) from the authorities.

The Tribunal was influenced by the charterers' failure to persuade them that they were left with no alternative but to leave the cargo on board when challenging the Customs Authorities' actions. In particular, the receivers' successful challenge to the Customs Authorities' attempt to levy additional duty was evidence that the legal system in place was efficient and fair. As such, they were not convinced that charterers could not have recovered the excess duty if paid.

Because of this, the arbitrators did not have to decide specifically whether charterers' duty would extend to paying the duty even if it would be irrecoverable. Their comments suggest, however, that the duty could well extend that far, although whether or not a charterer should pay will turn on the facts prevailing in the port at that time, what alternatives are open to the charterer and perhaps the size of any additional sums sought by the local authorities.

The moral of the story for charterers would seem to be that, when faced with obstructions to loading or discharging in a CQD charter, they must be sure that every avenue to clear that obstruction is examined and, if they consider that they are left with no alternative but to allow the obstruction to continue, they should obtain clear evidence to that effect.

 

Article by Joe Mays of Mays Brown who acted for the successful owner in the arbitration.