1. INTERTANKO SEMINAR, DALIAN Session 5 Tanker Charterparties – recent cases and model clauses John C. Fawcett-Ellis

2. Introduction The 2 areas on which I shall concentrate are the following: 1.Demurrage – The Happy Day; 2. INTERTANKO’s Model Clauses

3. THE “HAPPY DAY” [2002] 2 Lloyd’s Rep. 487. The case raised the following question, what are the rights of owners to demurrage and charterers to despatch when, under a charterparty which provides for a notice of readiness (“NOR”) to be given at the discharge port to trigger the start of laytime, the owners give NOR which is invalid for prematurity, yet the vessel thereafter, and without further NOR being given, commences and completes discharge over a period well in excess of the number of laydays provided for.

4. Demurrage – Notice of Readiness In THE “HAPPY DAY”, the charterparty contained the following relevant clauses. “3.Being so loaded, the vessel shall proceed direct to 1-2 safe berth(s) anchorage(s) [various named ports] in charterers’ option …

5. 28.If by reason of congestion the vessel is unable to enter the loading / discharging ports, Master has privilege to tender NOR in accordance with the Charterparty … and laytime is to commence …, whether in berth or not, whether in port or not …

6. 30. At first or sole discharging port notice to be given to Receivers / Agents during normal local office hours and laytime to start counting at 8 am next working day whether in berth or not, whether in port or not, … Time from Friday 5 pm until Monday 8 am not to count even if used.”

7. FACTS The vessel completed loading 23,000 tonnes of wheat at Odessa departing for Cochin where she arrived off the port on Friday, 25 th September at 1630 hours. At the time of her arrival off the port the vessel could not immediately enter port in order to berth because she had missed the tide. Nevertheless, the Master purported to give NOR by cable at 1630 hours on 25 September 1998. Because the charterparty was a berth charter and there was no congestion at the berth, the NOR was premature and was invalid when given.

8. FACTS (Cont) The vessel was able to enter the port on the morning tide of Saturday, September 26 th, berthing at 1315 hours. No further NOR was ever given. However, discharge commenced on Saturday, September 26 th and as a result of various delays was not completed until December 25 th, 1998. The matter was submitted to arbitration where the arbitrators found that the NOR tendered was ineffective as the charterparty was a berth charterparty. However, the arbitrators nonetheless concluded that laytime commenced at 0800 hours on Tuesday, September 29 th, which was the first moment on which it could have commenced under clause 30 of the charterparty if valid NOR had been given in accordance with that clause at the time discharging in fact started.

9. The Decision of the High Court The High Court reversed the arbitrators’ decision and held in favour of the charterers. In essence, the reasoning was that the triggering of laytime under the charterparty required the tendering of a valid notice which was never given and that, based on the arbitrators’ fact finding, the charterers had not waived their right to a further valid NOR nor were they estopped by their conduct to this right. In his judgment Mr Justice Langley considered the judgment of the Court in THE “MEXICO I” and applied the view of Mustill LJ as stated in that case that where an invalid NOR to discharge is given and discharge takes place without the giving of any further notice then:

10. Langley J in the Happy Day: “… unless something happened after the notice was sent to make the laytime start, it never started at all, with the consequence not only that the owners have earned no demurrage, but also that they are obliged to pay the charterer’s despatch money for the whole of the laytime.”

11. When THE “HAPPY DAY” reached the Court of Appeal, the Court recognised the force of the argument that the purpose of the laytime clause is to create certainty where otherwise there might be argument over the moment of commencement of the laytime and the precise amount of demurrage / despatch payable. However, in the Court’s view, the circumstances of the case and the demands of commercial good sense were such that the Court would be reluctant to arrive at a result whereby, despite the fact that the vessel had arrived, NOR had been tendered and the unloading operation commenced without any reservation expressed in respect of it, the charterers were free of any constraints upon the time which they took in unloading and, despite delays for which they would otherwise be liable for demurrage, were in fact entitled to despatch.

12. The ruling of the Court of Appeal was as follows: - Laytime can commence under a voyage charterparty requiring service of a notice of readiness when no valid notice of readiness has been served in circumstances where (a) a notice of readiness valid in form is served upon the charterers or receivers as required under the charterparty prior to the arrival of the vessel; (b) the vessel thereafter arrives and is, or is accepted to be, ready to discharge to the knowledge of the charterers; (c) discharge thereafter commences to the order of the charterers or receivers without either having given any intimation or rejection or reservation in respect of the notice of readiness previously served or any indication that further notice of readiness is required before laytime commences. In such circumstances, the charterers may be deemed to have waived reliance upon the invalidity of the original notice as from the time of commencement of discharge and laytime will commence in accordance with the regime provided for in the charterparty as if a valid notice of readiness had been served at that time.

13. Important points to note about THE “HAPPY DAY” 1. It is not a decision which downplays the importance of tendering a valid NOR. In the end, the decision favoured the owners only because the Court found the charterers had waived the requirement to a valid NOR being tendered. 2. Waiver is an extremely flexible concept which depends on various factors, such as the effect of the communications or conduct of the parties, the intention of the party alleged to have waived his rights being judged by objective standards. Silence by itself cannot constitute waiver. In THE “HAPPY DAY”, what constituted waiver was the failure to object to the invalid notice in combination with the commencement of discharge of the cargo signifying acceptance of the readiness of the vessel by the charterers.

14. 3. In a situation where an invalid NOR is tendered and the charterers do not object to it but also do not agree to the commencement of loading or discharging, the Courts are highly unlikely to find that laytime has commenced. 4. If Owners are in doubt about the validity of the NOR tendered, it is advisable to tender a further NOR. This can be without prejudice to the contention that the earlier NOR tendered was valid.

15. INTERTANKO’s Model Clauses Vetting Clause Vetting Clause Pumping Clause Pumping Clause Demurrage Payment Demurrage Payment Quality Management Quality Management

16. Thank You www.intertanko.com