ARBITRATION YIELDS INSIGHT ON CARGO DILEMMA

The recent New York maritime arbitration of the M/T TURMOIL (S.M.A. 2842) focuses on a dilemma often encountered by shipowners who voyage charter vessels: How long must a ship remain at a load port waiting for the voyage charterer’s cargo before the voyage can be abandoned?

This is an extremely difficult question to answer. To complicate matters, an unjustified voyage cancellation may cause the shipowner to be liable to the charterer for its losses. Likewise, if abandonment of the voyage is proper, the charterer may be liable to the shipowner for its damages.

In the voyage charter trade, the shipowner places its vessel at the charterer’s disposal for carrying its cargo. The shipowner is interested in completing the voyage as quickly as possible in order to collect freight and to move on to new business with the next charterer.

To expedite the voyage, a demurrage (penalty) clause is customarily inserted in the charter to cover loading and discharge delays caused by the charterer.

The charterer is entitled to a stipulation period of free time to load and discharge its cargo. This period is called lay days or laytime. If laytime is exceeded, the charterer pays demurrage. If laytime is not exceeded, the shipowner may put a bonus to the charterer, called dispatch.

The shipowner has an absolute day to send its vessel to the load port. Usually the ship arrives ready to load. The master then tenders a notice of readiness and shortly thereafter laytime begins to run.
The charterer has an absolute duty to furnish a specified amount of cargo to the vessel. If the charterer refuses to load the vessel, the shipowner can treat the charter at an end and sue for damages.

However, the shipowner does not necessarily have the right to sail its ship from the load port merely because laytime has expired. The charterer is entitled to detain the vessel for some time after the expiration of laytime and pay demurrage.

The charterer is not entitled to detain the vessel indefinitely. If cargo is not supplied, a time will be reached when the shipowner may treat the charterer’s conduct as a repudiation of the charter and may order its ship to sail.

Unfortunately, the law fixes no precise time period for ending the charter. In one New York arbitration, the shipowner waited 55 days until the charterer conceded that it could not supply cargo.

The arbitrators in the previously mentioned M/T TURMOIL arbitration have set forth a practical solution to the dilemma of determining how long a ship should wait for cargo.

The M/T TURMOIL tendered her notice of readiness on June 17, 1990. The charterer had contracted to obtain a supply of cargo. For various reasons, the cargo was not supplied and on June 23, the shipowner ordered the vessel on another voyage. The panel found that both parties were in breach of their respective duties under the charter. Neither party could profit from its own mutual faults, therefore, all damage claims were dismissed.

“The panel had no difficulty in deciding that the (shipowner) within that time frame, acted prematurely and therefore unreasonably by abandoning its obligations before there was clearer evidence of charterer’s inability to supply any cargo. Withdrawal of a ship is the most serious of steps.

Before taking that inevitable step, the owner could have demanded an immediate arbitration to determine whether withdrawal was justified under the circumstances.”

Under the M/T TURMOIL approach, a ship should remain at the load port at least until one of the parties demands an immediate arbitration. The arbitrators will then decide how long the ship must remain at the load port to await cargo.


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