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Dangerous Cargo and Delays - Who Pays?

Sarah Nowak

Sarah Nowak

Published: March 01, 2011

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Consider a situation where the actions of a third party lead to substantial loss suffered by two innocent parties to a Voyage Charter. Where does that loss fall?

The Vessel was chartered on amended Asbatankvoy terms to carry a cargo of fuel oil from Indonesia to Thailand. On completion of loading, the Indonesian navy detained the vessel for approximately 33 days, citing a lack of accurate export documents as the reason for the arrest. Owners brought a claim for demurrage or damages for the period of delay, arguing that charterers had loaded a dangerous cargo without adequate notice and the lack of cargo documentation lead to the arrest by the navy.

Once released, the vessel proceeded to the discharge port but the detention in Indonesia had created practical problems relating to the underlying supply contract and to buy themselves some time, charterers asked owners to deviate to Singapore for sampling. Owners advised that they would agree to do so if charterers covered their costs of deviating and agreed to pay the outstanding claim in respect of the delay at the loadport. No agreement was reached and the vessel proceeded to anchorage where she remained, awaiting orders. Cargo receivers agreed to accept the cargo approximately 25 days later and she proceeded to discharging berth. Owners put forward a second claim for demurrage or damages for the delay at the discharge port.

The Tribunal were asked to consider the events leading up to each delay, the defences and indemnities available to each party and where the loss should lie.
 

The Delay at the Loadport

When considering the cause of the arrest the Tribunal queried whether it was due to the condition of the cargo, including the allegation of the Indonesian navy of a lack of export permit (providing a reminder of the principle that “dangerous” cargo did not simply mean any physical danger, but also included lack of necessary documentation). They concluded, as a finding of fact, that charterers did have all necessary documents in their possession. The arrest by the navy was therefore completely unsound. In the circumstances, both parties were “innocent” and the Tribunal rejected owners’ claim, stating that the loss should lie where it falls. They did however give consideration to the possible defences and indemnities which might have been available, were it not for the arbitrary and erroneous actions of the navy.

It was charterers’ position that they had not loaded a dangerous cargo, and even if that were the case, they would be entitled to rely on either (i) Article IV rule 3 Hague Visby Rules which provided that “…the shipper shall not be responsible for loss sustained by the carrier or the ship arising or resulting from any cause without the act, fault or neglect of the shipper, his agents or his servants…”, or (ii) the General Exceptions clause in the charter which provided a “restraint of princes” defence.

The Tribunal held that if charterers were responsible for loading dangerous cargo (which, on the facts, they were not), the exception available to shippers under Article IV rule 3 should be read as also applying to charterers. However, this exception did not apply to the common law implied term which was an absolute obligation on the shippers not to ship dangerous goods with the knowledge and consent of owners. Charterers would, however, have been able to rely on the General Exceptions clause in the charterparty because the detention of the navy was, effectively, a forcible intervention of a government body, charterers had not acted improperly and, as such, the “restraint of princes” defence would bite.
 

The Second Delay

The facts surrounding the second period of delay were different; they did not involve the outside influence of a third party, rather the decisions taken by charterers against a commercial background. They were aware that if the vessel sailed straight to the discharge port and was delayed due to problems with the cargo receivers, the vessel would be earning demurrage.

Firstly, the Tribunal held that there was neither an express nor an implied agreement between the parties for the vessel to call at Singapore pending clarification of the position with the receivers. There had been an attempt at an agreement but this had failed. There was however a clause in the charterparty which owners sought to rely on. It provided as follows:
 

“Clause 38(C) Survey and Sample: Charterer also has the option to order the vessel after loading to make an unscheduled call at a port or ports for purposes of sampling cargo with all time lost at demurrage rate, extra bunker at replacement cost and port expenses at the unscheduled port(s) for Charterers’ account…”

Charterers tried to discredit this argument by unpicking the wording of the clause arguing, inter alia, that they were not liable to pay for any time lost at Singapore because the vessel never entered the port and that the navy’s detention of the vessel at the loadport had, in effect, lead to the delays at Singapore. This was, essentially, an extension of the “restraint of princes” issue and they should be allowed to extend the defence available under the exceptions clause accordingly.

On their interpretation of clause 38(C), the Tribunal held that there was indeed a liberty to call at an unscheduled port for sampling but that this “came at a price”; in exercising their rights, charterers undertook to pay for all time lost and this was to be at the demurrage rate. Charterers’ arguments were, therefore, rejected.

The meaning of “port” was not defined for the purposes of this clause and charterers’ arguments on causation (that the second delay resulted from the first) also failed, the cause of the delay at Singapore being, in fact, the commercial choice of charterers not to proceed directly to the discharge port.

Owner’s claim for delay at Singapore succeeded under clause 38(C).

For the sake of good order, the Tribunal considered owners’ third argument; that their claim should succeed on the implied indemnity for complying with charterers’ orders.

This final issue had also been considered in The "Island Archon" [1994] 2 Lloyd’s Rep 227 where a distinction between the implied indemnities given by charterers under a time charter and a voyage charter were considered. The starting point was that owners were generally allowed an implied indemnity for complying with charterers’ orders under a time charter but not under a voyage charter. The implied indemnity was granted where one party acted to his detriment outside the contract, at the request of the other party, and should be entitled to indemnification for it. Different risks and obligations arise under time and voyage charters and this would already be reflected in the rates of hire and freight payable.

Following the general principle, owners were not entitled to an implied indemnity under the voyage charter, though they sought to argue that this was not a hard and fast rule. Here, charterers requested that the vessel proceed to Singapore, as they were entitled to do under clause 38(C), so owners’ claim for demurrage did not depend necessarily on an implied indemnity. However, if charterers in ordering the vessel go to Singapore had requested that owners act outside the contract, there would likely be an implied indemnity for losses available, if that was just in the circumstances. Owners’ claim would succeed on either reasoning but the sums available for recovery would in fact differ; the agreed charterparty indemnity being recoverable at the demurrage rate, to include bunkers, whereas any implied indemnity would be for time lost only.

LMLN (2010) 807 LMN 2a

Article by Sarah McGuire

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