... Including Demurrage Time Bars
The first instance judgment of Walker J in AET Inc. Ltd v Arcadia Petroleum (The “Eagle Valencia”) was reported in an earlier website article: Tendering NOR before Free Pratique Granted. The case concerned issues of demurrage payable under a Shellvoy 5 charter with Shell’s additional clauses of February 1999 (SAC), and which we described as “an interesting example of a court looking at the charterparty in its entirety in order to determine the true intention of the parties, rather than adhering to a strict interpretation of the wording of a single clause”. The Court of Appeal has now overturned that decision.
The Facts
The claimant owners entered into a voyage charterparty with the defendant charterers on Shellvoy 5 form with Shell Additional Clauses 1999 (SAC). SAC 22.1 provided that if owners failed to obtain free pratique within six hours after NOR was tendered, then the notice would be invalid. However, SAC 22.5 provided that the presentation of the NOR and the commencement of laytime would not be invalid "where the authorities do not grant free pratique or customs clearance at the anchorage or other place but clear the vessel when she berths". Under those conditions the notice of readiness would be valid unless the timely clearance of the vessel was caused by the fault of the vessel (SAC 22.6). The charterparty also contained a demurrage time bar provision which provided for a demurrage claim to be presented within 60 days after completion of discharge and full and correct documentation to be presented within 90 days, failing which the demurrage claim would be extinguished.
The vessel arrived at the loadport of Escravos on 15 January 2007 and NOR that day at 11.48 hours. Free pratique was granted the following day, 16 January, at 08.30 hours, and on the same day the Master sent two subsequent emails to charterers at 15.39 hours and 15.53 hours, stating that the vessel was in all respects ready to load. Three days later the vessel berthed and commenced loading. Owners argued that the NOR was valid, given that the purpose of SAC 22.5 and 22.6 was to provide that the original NOR should not be invalidated where timely clearance within six hours of tender was unobtainable through no fault of the vessel, in particular where timely clearance was not delayed by the fault of the vessel and where the vessel was, at the latest, cleared by the time that she berthed. On that basis, laytime began at 6 hours after tender of NOR, namely at 17.48 hours on 15th January.
Charterers submitted that laytime did not commence until the vessel was all fast at the berth, since free pratique was not obtained within six hours as required by SAC 22, and the NOR was therefore invalid.
Owners submitted in the alternative that the emails sent at 15.39 hrs and 15.53 hrs on 16 January constituted further valid NORs. Owners had supplied only a copy of the first NOR with their demurrage claim. Charterers claimed that the later emails did not constitute valid NORs and that, in any event, the demurrage claim was time-barred under cl. 15 Part 2 Shellvoy 5.
The High Court
Walker J upheld the owners’ claim to demurrage, holding that since clearance and free pratique had been obtained by the time the vessel berthed, there was no reason for the SAC regime to apply. The judge declined to comment on whether the form and content of the subsequent emails of 15.39 hrs and 15.53 hrs on 16 January constituted valid NORs. The Charterers were granted leave to appeal.
The Court Of Appeal
There were two key issues for the Court of Appeal to consider. First was the validity of the NOR in the light of SAC 22. Second, whether owners had complied with the requirement under cl. 15(3) Shellvoy 5 that demurrage claims should be fully and correctly documented and received within 90 days of discharge.
Validity of the NOR
Longmore LJ, delivering the leading judgment, noted by way of introduction that nowadays the granting of free pratique is something of a mere formality and that the need for free pratique will not, at common law, prevent an NOR being tendered. However, the parties are of course free to make other contractual arrangements, an example being the Additional Clauses attached to Shellvoy 5 stating that time is to begin to run 6 hours after the tender of NOR, but only if free pratique is granted within that time. The purpose of SAC 22 was to implement a different arrangement for free pratique distinct from the position set out in cl. 13.
Longmore LJ observed that under the SAC 22 scheme “the only situation in which an owner will be heavily disadvantaged will be if free pratique is only granted when the vessel berths. If, in those circumstances, the only notice of readiness which Owners have been able to tender is invalid, they will (unfairly) have borne the risk of congestion which clause 13 provides they do not have to bear. SAC 22.5 then comes into play because it provides that, in such circumstances, the original notice of readiness is not to be invalid, but is to take effect in accordance with the terms of the charter, unless (SAC 22.6) the delay is in some way the fault of the Owners”. In the light of this, the first NOR was invalidated by the fact that free pratique was not obtained within the contractual time of six hours, owners’ claim failed.
It should be noted that, as an issue of real practical significance, even if the original NOR has been invalidated by failure to obtain free pratique within six hours, there is nothing to prevent an owner from tendering fresh NOR once free pratique has been granted, so that time will run six hours from the tender of the fresh NOR. Indeed, it was held by the Court of Appeal that the email sent by the Master to charterers at 15.39 hrs on 16 January, even if not intended to constitute a new NOR, did have the effect of being a fresh NOR tendered after granting of free pratique, since it stated that the vessel was in all respects ready to load a parcel of crude oil. Notwithstanding this finding, however, owners’ attempt to rely on the email in question failed. The reason for this highlights a second practical point - namely, the effect of the demurrage time bar provision under cl. 15 (3).
The 90 day demurrage time bar
Cl. 15(3) Part 2 Shellvoy 5 provides that, if owners fail to submit any demurrage claim “fully and correctly” documented within 90 days, charterers’ liability for any such claim “shall be extinguished”. The demurrage claim presented by owners in this case was presented in time, but while it included the original NOR tendered on 15 January, it did not, crucially, include the subsequent email of 16 January. The Court of Appeal found that since the original NOR had been held invalid, the demurrage claim submitted within the time bar could not be said to be “fully and correctly documented”, since it included neither a valid NOR nor any reference to it, such as in a statement of facts, that would enable charterers to verify the calculation and the commencement of laytime.
As Longmore LJ observed in his judgment, the NOR is “an essential document in support of every demurrage claim”. Since it is owners’ responsibility to ensure that a demurrage claim is correctly documented, in the event that there is any doubt as to the validity of an original NOR tendered by owners and a demurrage claim is subsequently submitted, the demurrage claim and accompanying documents should also include, at the very least, any subsequent NORs tendered without prejudice to the validity of the original NOR.
The appeal was allowed and judgment entered for charterers.
Article by Caro Faser
