UK: Demurrage Claim Time-Barred Where Full and Correct Documentation Not Submitted

Last Updated: 27 July 2010
Article by Paul Herring and Jo Stephens

AET Inc Ltd v Arcadia Petroleum Limited (Eagle Valencia) [2010] EWCA Civ 713

This was an appeal by charterers against a first instance decision of Mr Justice Walker in the Commercial Court in 2009, which was covered in some detail in our January 2010 e-Brief. The appeal was allowed and the appeal judges have held inter alia that the original NOR tendered by owners was invalid. Whilst this finding depended on the interpretation of the specific charterparty clauses in the present case, a point of more general application arises as a result of the appeal decision. This is that, in the event that there is any doubt as to the validity of an original NOR tendered by owners and a demurrage claim is subsequently submitted, the demurrage claim and accompanying documents should also include at the very least any subsequent NORs tendered without prejudice to the validity of the original NOR. Otherwise, owners may find their demurrage claim time-barred.

Facts and first instance decision

The Eagle Valencia was chartered on a Shellvoy 5 Form as amended, with Shell Additional Clauses (SAC).

Clause 13 of the charterparty provided, inter alia, that time at each loading/discharge port was to start to run six hours after the vessel was in all respects ready to load or discharge and written notice had been tendered, or when the vessel was securely moored at the specified loading or discharging berth, whichever first occurred. Further, if the vessel did not immediately proceed to such berth, time was to commence six hours after (i) the vessel was lying in the area where she was ordered to wait or, in the absence of such a specific order in the usual waiting area; and (ii) written NOR has been tendered; and (iii) the specified berth was accessible.

Clause 22 of SAC provided inter alia that if owners failed to obtain free pratique and / or customs clearance either within the six hours after NOR was originally tendered or when time would otherwise normally commence under the charterparty, then the original NOR would not be valid (SAC 22.1). The clause further stated (at 22.5) that "the presentation of the notice of readiness and the commencement of laytime shall not be invalid where the authorities do not grant free pratique or customs clearance at the anchorage or other place but clear the vessel when she berths".

The charterparty also contained a demurrage time bar provision which provided for a demurrage claim to be presented within 60 days after completion of discharge and full and correct documentation to be presented within 90 days, failing which the demurrage claim would be extinguished.

In this case, free pratique was granted more than six hours after the original NOR was tendered and whilst the vessel was still at anchorage (i.e. free pratique was not granted when the vessel berthed). The Master did, however, subsequently send two emails repeating the original NOR on the day that free pratique was granted.

Owners' primary claim for demurrage was calculated on the basis that the original NOR was valid. Charterers argued that that NOR was invalid because "free pratique was not obtained within 6 hours per c/p clause 22". At first instance, Mr Justice Walker upheld owners' claim for demurrage on the basis that clause 22.5 meant that the original NOR was not invalid if free pratique had been granted before the vessel berthed. Charterers appealed.

Court of Appeal Decision

(i) Validity of original NOR

The Court of Appeal disagreed with Mr Justice Walker and allowed the appeal. Lord Justice Longmore gave the leading judgment. He considered that the scheme of SAC 22 in relation to free pratique was intended to implement different arrangements to the position under clause 13 of the charterparty, as otherwise there would be no point in having a special additional clause at all. The judge's view was that if the NOR was valid under SAC 22.5 if free pratique was given at any time before berthing, it is difficult to see how clause 13 had been altered.

Lord Justice Longmore found that SAC 22 means that clause 13 will govern if free pratique is granted within six hours of the tender of NOR, but if it is not then, in accordance with clause 22.1, the original NOR is not valid. That regime does not, however, prevent a fresh NOR from being tendered once free pratique has been granted after the six hour limit from the original NOR. Time would then run from six hours after that fresh NOR was tendered. The judge considered this to be an eminently workable scheme and, although not so favourable to owners as clause 13 alone, nonetheless allows them to start the laytime clock six hours after free pratique is granted and the fresh NOR is tendered (which is admittedly somewhat later than envisaged by clause 13 alone). He considered that the only situation where owners would be heavily disadvantaged by this interpretation would be if free pratique was only granted when the vessel berthed. However, in that scenario SAC 22.5 would come into play and allow the original NOR to be valid unless the delay in obtaining free pratique was in some way attributable to the fault of the owners.

The Court of Appeal therefore found that in this case, since free pratique was granted more than six hours after the original NOR and was not granted at berth, the original NOR was rendered invalid under SAC 22.1.

(ii) Validity of subsequent emails as NORs

Owners' alternative case was that the subsequent e-mails sent by the Master constituted valid NORs and that in the event the original NOR was invalid, laytime began to run six hours after these emails were sent (by which point free pratique had been granted). At first instance, the judge did not have to determine this issue as he had upheld the validity of the original NOR. On appeal, the Court of Appeal stated that there is no legal requirement for an NOR to be in a prescribed form and the only additional requirement mentioned in 13(1)(a) of Shellvoy Part 2 was that the notice be in writing. They held that the contents of the first email, stating that the vessel was in all respects ready to load a parcel of crude oil, constituted a valid NOR.

(iii) Time bar relating to alternative demurrage claim

Mr Justice Longomore then considered whether owners' alternative claim for demurrage based on this subsequent NOR was time-barred, as alleged by charterers. At first instance, Mr Justice Walker had suggested that it would be. Owners argued that the demurrage time bar provision was not intended to extinguish an alternative lesser but correct claim and, to the extent that the documentation submitted by owners in accordance with their claim under the first NOR (which the Court had found to be invalid) was incorrect, only a small amendment of the claim was required.

The Court of Appeal found that the substance of owners' claim was presented in time in as much as it was clear that owners were claiming a particular number of days and hours spent at the port when no berth had been accessible. However, Mr Justice Longmore added that an essential document in support of every demurrage claim is the NOR and the only NOR submitted by owners in support of their demurrage claim was the original, contractually invalid NOR. He therefore held that the alternative claim could not be said to be fully and correctly documented. The judge stressed that this was not necessarily to say that alternative laytime statements and invoices would always have to be submitted to avoid an alternative claim being time-barred, but merely that the documents submitted pursuant to a claim for demurrage must include a valid NOR. The Court of Appeal therefore concluded that owners' alternative claim for demurrage was extinguished pursuant to the demurrage time-bar provision in the charterparty.

Comment

  1. It is noteworthy that the Court decided that an NOR did not need to be in a particular form; an e-mail from the ship saying that the vessel has arrived and is in all respects ready to load/discharge the cargo is sufficient (see also Cooke on Voyage Charters, Third Edition at paragraph 15.22 and following).
  2. The outcome in respect of the alternative demurrage claim might, at first blush, seem somewhat unfair (as owners submitted) given that charterers had not taken the point that the original NOR was invalid until after time for submitting the claim documentation had expired. Nonetheless, Lord Justice Longmore said that this consideration was not conclusive. In his opinion, in similar circumstances to the present case, "it is not unreasonable to expect an Owner claiming demurrage to include alternative notices of readiness when he submits a claim, on the basis that they may be legally relevant".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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