SHELLVOY 6: The New Provisions and their Substantive Impact on Shipowners

August 2005

 

From 4 April 2005, Shell began fixing voyage charters on its newly launched Shellvoy 6 form. This new charterparty has also been adopted by charterers in the market. The "Note to Brokers" which accompanied the launch stated the intention of the update was to "capture all current additions and amendments to Shellvoy 5 in one new document whilst taking the opportunity to clarify standard interpretations and practice". The 1999 Standard Amendments and Additional Clauses, which have by and large been incorporated in this new form have been subject to considerable comment and will not be looked at in this article.

Shell has endeavoured to be entirely transparent in its approach, highlighting and explaining the changes both on the document, and in an accompanying explanatory note¹. That said, some of the changes, however minor they seem, may have greater implications than the explanatory notes suggest. Rather than provide a general commentary on the differences to previous iterations of the Shellvoy Form, this article seeks to highlight the material changes to the owners' obligations, and outline the potential consequences².

1. The Pumping Warranty - Part I (A)(I)(vii)

The warranty that the vessel can discharge a full cargo within 24 hours or can maintain back pressure of 100 PSI at the vessel's manifold is now, by amendment, "subject always to the obligation of utmost despatch". As a result, complying with the alternate warranties will not necessarily mean the owner has fulfilled its obligations. If the vessel can discharge the full cargo in under 24 hours, or can maintain a back pressure exceeding 100 PSI, but fails to do so, then the charterer will be able to argue that the owner has breached its obligation of "utmost despatch" and could seek to discount any additional time that the vessel may have taken as a result of not running the pumps at maximum capacity.

It should be noted that the pumping warranty has also been amended to apply all "receiving facilities" permitting. This is helpful from an owner's perspective as it avoids any confusion in the event of discharge by STS or into a SBM or similar (earlier editions of this charterparty has made reference only to "shore facilities").

2. Position/Readiness - Part I (B)

In addition to advising the charterer of the vessel's known programme, as well as any contractual options available to the incumbent charterers³ that can be exercised between the vessel's current position and its expected ready to load date, the owners undertake not to "negotiate or enter into any business or give the current Charterers any further options that may affect or alter the programme of the vessel as given in this clause" unless it is "with Charterers' prior consent" (emphasis added). In the explanatory note provided Shell states of this provision "New wording inserted to ensure the Owner keeps Charterers informed of the schedule of the vessel prior to loading". Whilst this may be the intention of this provision, its effect could be considerably greater.

Take, for example, a situation where under an earlier charterparty, it appears that the vessel is likely to miss the laycan of that earlier charterparty (absent breach by the owner). In such circumstances it is arguably the case that the owners cannot give those charterers notice of a new readiness date and an option to extend the cancelling date without the future charterers under a Shellvoy 6 fixture first consenting to same: to do otherwise could well be a case of giving the (current) charterers further options "that may affect or alter the programme of the vessel".

The effect of this new provision is to make the owner potentially hostage to the whims of the Shellvoy 6 charterer. Where, say, under a previous Asbatankvoy charter the owner, absent breach, appears likely to miss the laycan, it will not be open to renegotiate the laycan without first seeking and obtaining the permission of the charterer under the subsequent Shellvoy 6 fixture.

The potential restriction on the vessel's ability to trade in advance of the Shellvoy 6 fixture is self-evident. An owner could find itself in breach of that charterparty even though the alternative business would fit within the owner's honest and reasonable assessment of the "estimated ready to load" date.

3. Co-mingling and Dyeing Cargo - Part I(F)(a) and (c)

These provisions expressly require that the vessel co-mingle cargoes on board and add dye to the cargo at the charterer's request. The wording is wide and would appear to allow the charterers to order such cargo operations at any stage after loading, including after issue of the bills of lading. Although these provisions are subject to an express indemnity from the charterers, the owner could find itself in breach of its obligations to cargo interests under bills of lading. Further, and if so the owner's P&I Club cover may be prejudiced in respect of any resulting claims.

4. Voyage Instructions, Obligations and Remedies - Part II Cls. 3, 10, and 26

The charterers' obligations with regard to voyage instructions are not materially different to those set out in the 1999 Standard Amendments. Whilst some commentaries have suggested the position with regard to remedies available to the owner in the event of breach by the charterers is altered by the amendment to Cl. 10, there in fact appears to be no material change. Whereas under the previous iteration of this form, Cl. 10 provided that the demurrage rate would constitute the liquidated damages for breach by the charterer of its obligation to nominate the load/discharge ports, the latest amendment (that "such compensation shall be Owners' sole remedy in respect of such delay") only serves to underline that the charterer's obligation is subject to a liquidated damages provision.

Concern has also been raised with regard to an amendment to the provision relating to remedies available to the charterer in the event the owner fails to comply with voyage instructions⁴; in addition to the list of losses for which the owner has to indemnify the charterer as set out in the 1999 Amendments to the Shellvoy 5 ⁵, a reference to "replacement tonnage" has been added. This additional recoverable cost should not substantially alter the owners' position: that there is an exhaustive list of potential losses enumerated in this provision should not affect the (normal) measure of damages available to the charterer, nor should it affect the charterer's duty to mitigate. If the charterer fixes replacement tonnage in order to mitigate its losses, then damages would be recoverable in respect of same regardless of the inclusion of the new words. The new words do not allow the charterer to fix replacement tonnage where doing so only increases it loss, thereby breaching the duty to mitigate.

5. Claims, Dues & Other Charges - Part II Cl. 6

The 90 day post-discharge time bar in respect of indemnity claims introduced into the charter by the 1999 Amendments Additional Cl. 6 has now been removed; Clause 6 now provides that claims for demurrage, Worldscale charges/dues, and indemnity are outside the 90 day time bar.

6. Shifting - Part II Cl. 9

The Shellvoy 6 gives the charterers the option to order the vessel to shift "to a waiting place inside or outside port limits". This can be contrasted with Cl. 9 of the Asbatankvoy form as well as earlier versions of the Shellvoy form, all of which only provide for shifting within the port.

The impact of this change should be limited since, as with shifting within the port, the charterer will be liable for all additional expenses incurred, and time continues to count.

7. Laydays/Termination - Part II Cl. 11

This clause has been subject to a significant amendment.

The Owners position may be considerably prejudiced in that now, once the owners have given notice of a new readiness date and requested the charterer to confirm its position vis-à-vis cancellation, whilst the clause still requires the charterer to respond within four days failure to do so no longer gives rise to an automatic extension of the laycan. This amendment removes the certainty of the earlier version.

That failure by the charterer fails to make an election within four days puts it in breach does not mean, however, that the owner will be able to fix alternative business. Nor does it necessarily mean that the owner should sail to the loadport on the assumption that the charterer, having failed to elect, cannot now terminate if the original laycan is missed: whilst the owner may have strong arguments to this effect on the basis of cases such as Den Norske Afrika Linie v. Port Said Salt Association⁶, the lack of certainty of parties' respective position, particularly when one considers the potential losses involved.

Further, whereas previously Cl. 11 provided that "if Owners reasonably conclude that, despite the exercise of due diligence, the vessel will not be ready to load by noon on the termination date, Owners may, as soon as they are able to state with reasonable certainty a new date when the vessel will be ready, give notice to Charterers declaring the new readiness date and asking Charterers to elect whether or not to terminate the charter", the new version removes the permissive "may" and the vague "reasonably conclude" so as to provide instead that "As soon as Owners become aware that the vessel will not be ready to load by noon on the termination date, Owners will give notice to Charterers declaring a new readiness date and ask Charterers to elect whether or not to terminate this Charter". A failure by the owners to give immediate notice to the charterers upon knowing (apparently for a certainty) that the vessel will miss the termination date may itself constitute a breach of this provision and entitle the charterers to a remedy in damages. The difficulty in pinpointing when the owners become aware that the vessel would not be able to make the termination date may lead to disputes. Disputes may also arise as to whether the owners obligation with regard to "aware"ness relates only to actual knowledge, or whether owners who "should have" been aware will also be in breach.

8. Laytime - Part II Cl. 12

Part (2) of this provision is an amendment and replacement of Cl. 4 the 1999 Additional Clauses. Whereas the latter provided that where the vessel loads before the commencement of laydays the "charterers shall have the benefit of such time saved when calculating laytime and/or demurrage at subsequent ports…" (the benefit being the time from commencement of loading and the commencement of the original laydays), Cl.12 (2) states that "Charterer shall have the benefit of such time saved by way of offset from any demurrage incurred".

This amendment is probably a response to the findings of the tribunal in London Arbitration 27/04⁷, which related to a dispute as to whether the benefit of the time saved was subject to the charterparty terms relating to the running of laytime. The Owners argued that time between the commencement of loading and the commencement of the original laydays which would not have counted as laytime under normal circumstances (i.e. after the commencement of laydays) should not count for the charterers' benefit under this clause. The tribunal agreed⁸. According to the LMLN report: "By way of comment, the tribunal added that the wording … was not as clear as it might be. It was not immediately apparent what was meant by 'the benefit of ... time saved'. Nor was the last sentence of the clause the clearest…".

The new amendment addresses this issue by counting all time between the start of loading and the commencement original laydays as a credit against any demurrage payable.

9. Notice of Readiness/Running Time - Part II Cl. 13

Cl. 13(1)(a)(ii) holds that an NOR is valid even though free pratique has not been obtained provided it is in a port where it is not customary to obtain free pratique prior to berthing. This reflects the position at common law⁹.

Cl. 13(1)(a)(iii) requires that the owners have on board "all papers/certificates required to perform this Charter, either within 6 hours after notice of readiness or when time would otherwise normally commence under this Charter", failing which the original NOR becomes invalid. This new provision may substantially alter the owner's common law position with regard to the vessel's readiness.

The common law position is that such papers and certificates which are mere formalities (such as, for example, US Tank Vessel Examination Letters where the vessel operators are regular US traders and have a written understanding with the US Coast Guard), do not affect the validity of the NOR.

Case law highlights that where a charterparty requires a particular document as a condition precedent for valid tender of the NOR, an owner could face difficulties where it is not possible to obtain those documents because of, say, the unavailability of the relevant inspectors or their inability to access the vessel. In London Arbitration 6/84¹⁰, which related to a charterparty incorporating a provision that required the vessel to comply with all port formalities "including Gas Free Certificate", it took three and a half days for an Inspector to come out to the vessel. This delay was due to bad weather which was sufficient to stop small vessel's going out but would not have stopped that vessel berthing. In fact the vessel did not berth for thirteen days due to congestion. A dispute arose as to laytime could commence before the Gas Free Certificate was obtained, with the owner arguing that time should have started to run six hours after the vessel arrived at port.

The arbitrators held that a valid NOR could not be tendered until the Gas Free Certificate was obtained. As such, time could not start to count until then. In this instance, however, the owner was able to recover in respect of the lost time as damages because the charterer was in breach of its obligation to nominate a berth that was "reachable on arrival".

In contrast with the Asbatankvoy form, the Shellvoy 6 (along with its previous iterations) does not place an obligation on the charterer to nominate berths that are "reachable on arrival". Therefore, delay caused by the owner not being able to obtain certain certificates, through no fault of its own, may result in the NOR being invalid. With the amendment in the Shellvoy 6 (that the vessel will have on board "all papers/certificates required to perform this charter") it may be that owners will not be able to treat any document as a mere formality (with the exception of free pratique as discussed above). This is a noteworthy restriction on the commencement of laytime and the validity of the NOR.

It should also be noted that this provision goes on to state that, if the first NOR is invalid because of the failure to have on board all the papers and certificates, then "a new notice of readiness may only be tendered" when the relevant paperwork is in order. And, only then would time start to count. This new provision arguably alters the position of the parties under common law, and may give the charterers an argument that the absent a new NOR, time will never start to count; this notwithstanding the well-publicised decision of the Court of Appeal in The "Happy Day"¹¹.

In that case the Court was asked to consider the question of whether laytime could ever commence when no valid NOR had been served. In finding that laytime could commence, the Court of Appeal based its decision on the doctrine of waiver: where discharge commenced to the order of the charterers or receivers without either having given any intimation of rejection or reservation in any respect of the notice of readiness previously served or any indication that further notice of readiness was required before laytime commenced, then the charterers would be deemed to have waived their right to rely on the invalidity of the NOR and time would start to count on the commencement of discharge. The charterparty in the The "Happy Day" did not contain an express provision covering the need to re-tender and NOR or when laytime would commence in the absence of a valid NOR. As outlined above, the Shellvoy 6 has such a provision and, in circumstances similar to those in The "Happy Day", the charterers will be able to argue that there can be no waiver: the charterparty expressly dictates the position and there is no reason for the charterers to intimate the rejection of the validity of the NOR or the need to re-tender same. The Shellvoy 6 owner should therefore be very careful to ensure the NOR tendered is valid, and should re-tender in the event of uncertainty.

10. Suspension of Time - Part II Cl.14

This provision expressly introduces a suspension to laytime in Charterers' favour when the vessel is bunkering, discharging slops, and tank washing unless cargo operations are not delayed thereby.

11. Demurrage - Part II Cl. 15

Cl. 15(2) now provides for the reduction by half of both laytime used and the rate of demurrage should any of the events set out therein cause demurrage to become payable (such events include fire, breakdown of plant/machinery, strikes, restraint of princes, etc.). It is however left unclear whether, if the vessel never gets onto demurrage whilst such an event is operating upon the loading/discharging operations, laytime is nevertheless to be extended so as to be available at a subsequent port. Given the general rule that an exception to demurrage must be clearly worded, there is scope for arguing that time is not to be extended in such a situation. As a result this clause may give rise to litigation.

12. Vessel Inspection/Cargo Inspection - Part II Cls. 16 & 17

The exclusion of the right of charterer to inspect tanks at "locations at sea" prior to loading/discharging has been deleted. It is arguable that the deletion of the phrase 'locations at sea' has limited effect, however, because the clauses still refer only to ports.

13. Inert Gas - Part II Cl.19

The reference to inert gas systems has been made more specific and the owner expressly warrants that the IG system will operate at loading, discharging, and during the voyage if so required.

14. Crude Oil Washing - Part II Cl.20

Time spent COW now no longer counts if required by "any competent authority"; it is only if the charterer requires it that time counts. Further, the owner is now required to provide the charterer with a copy of the vessel's crude oil washing log containing the information set out in lines 313/315.

15. Charterers' Orders/Change of Orders/Part Cargo Transhipment - Part II Cl.26

As a result of amendments to the (1999 Amended) Shellvoy 5, the charterer is no longer at risk of having to compensate the owner for any loss and expense (other than for deviation or delay at the demurrage rate) should it vary its orders for the vessel. Under the previous wording, where the owner promptly informed the charterer of the said loss and expense, the charterer would be liable for same. Instead, the owner is now confined to a remedy for additional time at the demurrage rate, and extra bunkers consumed.

Shell, in its explanatory note, states that "This change has been made to reflect the current oil trading environment/industry practice where most shipowners acknowledge the reality of the current conditions and accept compensation at the demurrage rate plus bunkers consumed for any deviations of the vessel".

However, change in voyage orders may result in losses well in excess of the demurrage amount plus bunkers, and many owners may be uncomfortable limiting the compensation they receive in this way.

16. Subletting/Assignment - Part II Cl.30

Charterers may now novate the charter to another member of the Royal Dutch/Shell group.

17. General Average - Part II Cl. 36

General average is now to be adjusted by reference to the York-Antwerp Rules 1994 as amended, rather than the 1974 Rules: line 580.

18. Clause Paramount - Part II Cl. 37

The Clause Paramount to be included in all bills of lading issued under the charter has been amended to provide for the compulsory application of the Hamburg Rules where appropriate, i.e. where the Hamburg Rules compulsorily apply under law governing the shipment.

19. Back loading - Part II Cl. 38

This provision now imposes an obligation on Charterers who engage in back loading to pay additional expenses over and above those required to load and discharge one full cargo. This is a reasonable amendment.

20. Oil Response Pollution and Insurance - Part II Cl. 41

This provision has been amended to include reference to the Small Tanker Oil Pollution Indemnification Agreement (STOPIA). The owner warrants that it will be entered in the agreement if applicable to the vessel chartered.

21. ISPS/MTSA - Part II Cl. 51

The Shellvoy 6 now incorporates the Shell Clause issued in May 2004.

22. Business Principles - Part II Cl. 53

This new clause requires Owners to co-operate with Charterers to ensure that the "Business Principles" (to be found at www.shell.com) are complied with. However, these principles are rather vague and aspirational, and it is difficult to see how much, if any, impact they can have on the charter.

23. Law and Litigation - Part II Cl.54

The previous version of this clause has been almost totally re-drafted. The new version provides for arbitration in London rather than for proceedings before the High Court with arbitration as an option. Moreover, the arbitration cannot be frustrated by the refusal of one party to appoint an arbitrator (in line with the provisions of the Arbitration Act 1996). Further, provision is made for the application of the LMAA Small Claims Procedure to disputes involving sums less than US$50,000.

24. Part III - Country Specific Clauses

This section includes all the country specific additional clauses found in the 1999 Amendments to the Shellvoy 5.

Members with any further queries relating to this new Charterparty should contact the Club.

 

1. In addition to the "Note to Brokers". 

2. For a general commentary on the Shellvoy 6, we would recommend the article on the Intertanko website: www.intertanko.com

3. It should be noted that disclosure of such information may in fact be in breach of confidentiality obligations under the prevailing charter and, subject to how the Shellvoy 6 charterers use the information, may result in the owner facing a claim 

4. Part II, Cl. 3(2) 

5. Cl. 11(a) of the 1999 Shell Additional Clauses states that "Owners shall be responsible for and indemnify Charterers for any time, costs, delays or loss including but not limited to use of laytime, demurrage, deviation expenses, lightening costs and associated fees and expenses, due to any failure whatsoever to comply fully with Charterers' voyage instructions..". 

6. (1924) 20 Ll. L. Rep 184 

7. London Arbitration - LMLN 651, 27 October 2004. 

8. It should be noted that the disputed provision in the charterparty contained a material amendment to the 1999 Additional Cl.4 wording (in italics): "… Charterers shall have the benefit of such time saved which counts under the c/p terms when calculating time saved". The reasoning of the arbitrators would suggest, however, that the owners' argument may have succeeded even in the absence of the amendment. 

9. cf. The Court of Appeal's judgment in The Delian Spirit [1971] 1 Lloyd's Rep 506. 

10. London Arbitration - LMLN 117, 26 April 1984 

11. [2002] 2 Lloyd's Rep 487