ARBITRATION PROVIDES INSIGHT INTO DILEMMA OF DISCHARGE NOMINATION

Cargo transported in international shipping is often carried aboard vessels sailing under voyage charter party contracts where the shipowner places its vessel at the charterer’s disposal for a single voyage. The shipowner retains full control over navigation, while the charterer is responsible for designating ports and setting itineraries

A voyage charter party is usually divided into four stages: (1) The loading or ballast voyage — where the vessel proceeds to the load port; (2) the loading operation; (3) the laden voyage — the trip from the load port to the place nominated by the charterer for discharge; (4) the discharge operation — where the cargo is unloaded and delivered to the charterer or a consignee.

The recent New York maritime arbitration of the M/T QUIXADA (S.M.A. 3233) focuses on a dilemma occasionally encountered by shipowners when charterers fail to timely nominate discharge ports.
This dilemma can occur because discharge ports need not be named in voyage charter parties. However, charterers must be given the option to later direct vessels, within certain geographical limits, to specific discharge ports.

The charterer is obligated to exercise its discharge nomination within a reasonable time, but is not bound to consider the consequences to the shipowner when exercising the option. Once the nomination is made, the charterer generally has no right to change the designation. Thereafter, the shipowner has a duty to carry out the charterer’s order without delay and without deviating from the customary route to destination.

The M/T QUIXADA arbitration involved a voyage charter party contract for a partial liquid cargo carriage on a parcel tanker from Buenos Aires to Rotterdam, Netherlands with an option to discharge at Dunkirk, France. The charterer claimed damages because of the shipowner’s failure to honor the charterer’s order to discharge at Dunkirk. The shipowner countered by claiming the charterer failed to exercise its Dunkirk option in a reasonably commercial manner.

The QUIXADA was also carrying other cargos for other charterers destined for Rotterdam and Antwerp. On July 20, 1993, after the vessel had passed the English Channel, the charterer requested a Dunkirk discharge. The shipowner refused because the vessel had already passed Dunkirk and was taking a pilot at Antwerp.

The shipowner ultimately discharged the cargo into storage tanks at Rotterdam to prevent further vessel delay. The charterer, to mitigate damages, purchased a substitute cargo for Dunkirk and sold the product stored at Rotterdam.

The shipowner successfully argued that nothing in the law or in the voyage charter party gave the charterer, with only a part cargo on a parcel tanker, unlimited discretion to tie up an entire vessel beyond a commercially reasonable point. The arbitrators held the charterer breached the charter because the option should have been exercised well before the vessel reached Dunkirk.

Conversely, the arbitrators further held that the charterer’s breach did not excuse the shipowner from following the charterer’s late discharge order. “[T]he shipowner’s duty was to deliver the cargo at Dunkirk and claim damages for loss of time from the charterer…. We find, therefore, that both parties breached the charter and their respective damages must be offset against each other.”

The QUIXADA arbitration suggests that if discharge ports are not named in voyage charter parties, a reasonable time period for making the nomination should be set forth in the voyage charter in order to properly protect the shipowner.


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