American and foreign oil tankers operating in U.S. waters are required to carry certificates of compliance issued by the Coast Guard. Certificates confirm that vessels have been thoroughly inspected and conform with U.S. regulations governing the transfer of petroleum cargoes. The regulations relate to ship design, construction, cargo safety, operational procedures and are designed to lessen the chances of oil spills and pollution.
The recent “M/V Framura” maritime arbitration (S.M.A. 3006) in New York is the latest in a series of decisions on the importance of certificate of compliance requirement clauses found in most tanker charter parties.
These clauses say the vessel owner warrants its tanker will be in full compliance with Coast Guard pollution-prevention regulations for trading to U.S. ports and that the vessel possesses a valid certificate for the service.
The practical importance of the certificate of compliance is that it is now being viewed by the majority of arbitrators in New York as a prerequisite for the commencement of laytime in the tanker charter trade to the United States.
In the typical tanker charter, the vessel owner earns freight by placing its ship at the charterer’s disposal for carrying cargo on a single voyage. However, the shipowner retains full control over the navigation and maintenance of its vessel during the voyage.
The charterer is entitled to a stipulated period of free time to load and discharge its cargo, known as laytime. If laytime is exceeded, the charterer pays an additional freight charge called demurrage.
For laytime to commence, the vessel must be physically and legally ready to receive or discharge cargo at destination. To be legally ready, the vessel must comply with local regulations and documentation requirements.
Usually tankers arrive at ports ready to load or discharge. The master then tenders a notice of readiness to the charterer. This normally triggers the running of laytime. Demurrage accumulates when laytime expires.
The “M/V Framura” arbitration dealt with a demurrage dispute between a tanker owner and a charterer arising during a voyage from Algeria to the United States. The vessel arrived at the first U.S. discharge port and the master immediately tendered the notice of readiness to the charterer. Unfortunately, the vessel’s certificate of compliance had expired.
In order to obtain a certificate of renewal, the Coast Guard had to board and reinspect the vessel the next day. No cargo operations were allowed before a new inspection had taken place and the certificate was reissued.
The vessel owner argued to the arbitration panel that tendering the notice of readiness at arrival triggered the running of laytime. The Charterer contended that the tender was invalid and that laytime did not start until the certificate was issued.
The arbitration found that the vessel was in breach of its obligation in the charter by not having a valid certificate of compliance aboard.
The “M/V Framura” arbitration illustrates that in the tanker trade, certificate clauses in charter parties should not be taken lightly by owners. Any time lost due to a vessel’s failure to have a valid certificate aboard will defeat a vessel owner’s claim for time on demurrage.