Points of caution when negotiating Laytime and Demurrage provisions

Introduction

Before agreeing the terms of a particular laytime provision, the parties should consider carefully the methods by which the cargo can be provided to or removed from the proposed loading/discharging port or place. English law interprets clauses extending laytime narrowly and also assumes that each party is aware of the usual commercial methods by which cargo is handled at an agreed port or place. Unless the parties consider these factors carefully these rules can have unexpected results.

One of the absolute duties of a charterer under a voyage charterparty is to provide and load the cargo within the time specified for laytime. Once laytime for loading or discharging has been used, the charterers will have to pay the owners demurrage for the time it takes in excess of the agreed laytime to complete cargo operations.

Exclusions

Laytime exclusions of Sundays/holidays and “weather permitting” can be found in most standard wordings. [1] In addition the loading/discharge clauses of some standard forms [2] also provide for a list of specified events, delay caused by which does not count as laytime. [3] Time lost by reason of the listed events does not count as laytime, which will in turn delay the commencement of demurrage. These exclusions seek to reduce the risks and cost to charterers of delays in the loading or discharging of cargo and pass it to the owners.

Events that are usually specified are: Strikes, bad weather or weather events, ice, accidents, fires and similar obstructions to loading or discharging. Usually the list is further extended by a “catch all” provision such as “any other cause beyond the reasonable control of the charterers”.

Interpretation of Laytime Exclusions

In the context of laytime (and demurrage) English law imposes two requirements on such exclusion clauses that both owners and charterers should be aware of in order to achieve the desired allocation of risk of delay.

Firstly, the law places the onus on the charterers to show that the event on which they wish to rely to extend laytime falls squarely within the events listed in the clause. The courts require the charter party to express in very clear terms in which cases a party (here the charterers) is excused from performing a duty under the charter party (here to pay demurrage). This rule makes it necessary that the potential event is described accurately and this has, no doubt, spawned the extensive list of specified events found in some standard forms.[4]

Secondly, the courts have drawn distinctions between loading and providing the cargo.[5] This narrows the scope of the exclusion. For instance in a case where there is a strike, it will depend on where the strike takes place. If the strike does not extend to the loading port, but nevertheless prevents the charterers from getting the cargo to the port, then laytime will usually not be extended (even if “strike” is listed as an excluded event) because the strike does not affect the loading of the cargo at the port or place. In such a case, and despite the express exclusion of strike, the owners would usually be able to claim demurrage.

Effect of the factual background on the scope of Laytime Exclusions

Depending on the factual background these general rules may be modified. The courts require the owners to be reasonably aware of the custom of the agreed port or place. This means that the owners will be deemed to have agreed to the customary modes of loading and discharging cargo at the agreed port or place.

One effect of this is on the interpretation of laytime exclusions. For example, if loading via barges is customary at the port or place, then any time lost as a result of a strike by the barge crew will not count as laytime (provided that “strike” is an event excluded in the laytime provision and there is no other commercially viable method of loading the cargo). There is no obligation on the charterers, in such a case, to remind the owners of the fact that loading via barges is the only method of loading at the port or place, nor do the charterers have to tell the owners if they consider that there might be a risk of a strike.

In some instances the courts have gone even further and held that this deemed knowledge applies to the provision and not just the loading of cargo. For instance in one line of cases [6] it was held that an event that stopped the cargo further up the supply chain (and therefore prevented the charterers from providing the cargo to the port or place specified for loading) can stop laytime from running if this method is the only commercially possible method of loading (or discharging) the cargo at the port or place and it is the method in the contemplation of the parties. In other words the owners are deemed to be aware of the local circumstances and customary requirements of the specific port, which in turn may extend the scope of the various events triggering exclusions in the laytime provisions of the charterparty.

Regularly, however, the owners are not as familiar with the surroundings of remote ports or anchorages as the charterers. Sometimes such facilities are owned and operated by the charterers themselves. In the courts, however, the owners have not been able to use such circumstances to their advantage. In The Notos [7] it was held that merely because the charterers controlled the sea line at their own facility did not mean that the event (in this case swell) was within their reasonable control. The charterers could therefore rely on the exclusion and the owners could not claim demurrage for the time lost.

Conclusion

In the context of agreeing charter party terms this means:-

1)  That both parties need to review the proposed charter party terms carefully for any exclusions to the laytime/demurrage provisions. If there are no exclusions, laytime will run and (upon expiry) demurrage will be payable if a delay occurs.

2)  If the charterers wish to exclude specific events for the purposes of laytime/demurrage, they should ensure that they describe these events accurately in their proposed wording and amendments. If the wording does not clearly cover the event, charterers may find that it has not been excluded effectively if a dispute arises. Further, the charterers should avoid relying solely on “catch all” provisions, in particular if they have a particular risk of delay in mind, they should try to include express wording in the charter party terms.

3)  If the chosen standard form contains exclusions or if the charterers include specific exclusions in their amendments, the owners in turn will need to verify the risk of delay and the various events that could lead to delay to assess whether this risk is acceptable to them. One way the owners can do this is by asking the charterers for detail about the port and about the different methods by which the cargo will be provided or is customarily provided at the proposed port of place. If time allows, further details of the charterers’ operations and the reasons for the specific exclusions will also assist the owners to evaluate the risk before deciding whether or not to accept it. As set out above, it will not be sufficient for the owners to say that they had no knowledge about the customs at the specified port or place when they agreed to the terms of the charter party.

Both owners and charterers should be aware that English law in the area of laytime and demurrage exclusions is very complex. The diverse wordings used in the different standard forms over the years have given rise to numerous rules and exceptions that may or may not apply to a particular case. If the risk of extended delay is thought likely, then it will usually be worthwhile to confirm the legal position on the proposed laytime provisions before the risk is assumed under the charter party.

———————————————————————————————————————-

[1] See for example clause 6(a) of Gencon 1994; clause 19(a)-(c) of Norgrain 89; clause 8 of Multiform 86; 
clause 5 of Mediterranean Iron Ore C/P C. (Ore) 7; clause 7(a) of Amwelsh Form 1993; Baltimore Form 1976;
clause 19 of Sugar Charterparty 1999.

[2] See clause 5 of Mediterranean Iron Ore C/P C. (Ore) 7; clause 8 of Amwelsh Form 1993.

[3] Other standard forms list various events that trigger a reduction in the rate of demurrage, see clause
8 of Asbatankvoy 84 which stipulates a reduction by one half.

[4] Clause 5 of Mediterranean Iron Ore C/P C. (Ore) 7; clause 8 of Amwelsh Form 1993 each list more than
20 different events.

[5] See for instance Lord Dunedin’s dictum in Arden Steamship Co v Mathwin & Son 1912 S.C. 211, 215, and 
also Lord Scrutten in Brightman and Co v Bunge y Born Limitada Sociedad [1924] 2 KB 619, 632

[6] Hain Steamship Company Ltd v Canadian Transport Company (1942) 73 LLR 80, where it was held that transport 
down river by tugs for 40 miles for unloading was covered by the particular laytime exclusion provision; also 
Hudson v Ede (1868) L. R. 3 Q. B. 412 where it was held that delay to river transport by lighters for loading 
for a distance of 110 miles was covered by the particular laytime provision exclusion.

[7] SA Marocaine de L’Industrie du Raffinage v Notos Maritime Corp (The Notos) [1987] 1 Lloyd’s Rep. 503.
This article is filed under:  Industry news

About the contributor

  • Thilo Jahn Solicitor

    Thilo specialises in international trade, shipping disputes and insurance and on disputes arising under commodity contracts, charterparties, bills of lading, and insurance policies. He has experience in both litigation and arbitration proceedings.

    Read more