Section 6 Demurrage and Despatch

1
Section 6 Demurrage and Despatch

• 1. Demurrage
• According to VOYLAYRULES 93, the
  definition of demurrage is that it means an
  agreed amount payable to the shipowner in respect
  of delay to the vessel beyond the laytime for
  which the shipowner is not responsible. Demurrage
  shall not be subject to laytime exceptions.

2
1.1 Nature of demurrage

• A demurrage clause is merely a clause providing
  for liquidated damages for a certain type of
  breach. It is presumably the parties estimate of
  the loss of prospective freight which the
  shipowner is likely to suffer if his ship is
  detained beyond the laytime.
• An agreement to pay demurrage is normally treat
  as preventing the shipowner recovering from the
  charterer more than the agreed sum for the
  wrongful detention of his ship.
• Unless the demurrage period is fixed, the
  demurrage rate applied not just for a reasonable
  time but for as long as the ship in fact detained
  under the contract. In such a case the shipowner
  is entitled to the demurrage rate and no more as
  compensation for detention.

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1.2 The provision of demurrage clause printed in
Gencon form 1994

• Demurrage at the loading and discharging port is
  payable by the charterers at the rate stated in
  Box 20 in the manner stated in Box 20 per day or
  pro rata for any part of a day. Demurrage shall
  fall due day by day and shall be payable upon
  receipt of the owners invoice.
• In the event the demurrage is not paid in
  accordance with the above, the owners shall give
  the charterers 96 running hours written notice to
  rectify the failure. If the demurrage is not paid
  at the expiration of this time limit and if the
  vessel is in or at the loading port, the owners
  are entitled at any time to terminated the
  charter party and claim damages for any losses
  caused thereby.

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Explanation

• In order to reflect current practice when making
  fixtures on the GENCON, the reference to ten
  running days on demurrage to be allowed the
  charterers in the port of loading and
  discharging, has been deleted. As will also be
  seen, rather than being payable day by day,
  demurrage is now payable upon receipt upon the
  receipt of the owners invoice.
• However, in the absence of a specific provision
  allowing the charterers to keep the vessel on
  demurrage for a limited period of time it is
  important for the owners to have in the charter
  party an express right to cancel the charter
  party in the event of outstanding payments of
  demurrage, as otherwise they may find themselves
  in the position where they would have to keep the
  vessel waiting for cargo loading operations to
  start for a considerable time without being able
  to terminate the charter party. This would, in
  particular, appear to be a problem under English
  law when the owners are not able to cancel until
  there is a repudiation of the charter party.

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Explanation

• Accordingly, to give the owners a legal remedy
  when these unfortunate situations occur, it is
  now expressly provided that if demurrage is not
  paid on the expiration of the time limit
  provided, i.e. 96 hours, the owners shall have a
  right to terminate the charter and claim damages
  for any loss incurred thereby.
• It is to be noted, however, that the right to
  terminate the charter party applies to the
  loading port only and, for all practical
  purposes, depends on no cargoes or part cargoes
  having been loaded and no bill of lading issued
  transferring the rights to the cargo to a third
  party.

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1.3 Once on demurrage always on demurrage

• Once laytime has been fully used, demurrage
  should normally run continuously, night and day,
  weekend and working period, with no interruptions
  until cargo work is completed unless the contract
  expressly provides otherwise e.g. shifting
  time from anchorage to berth not to count as
  laytime or as time on demurrage. Normally,
  however, laytime interruptions such as bad
  weather, weekends and holidays, will not
  interfere with demurrage time, although
  breakdowns on a vessel affecting discharge will
  interrupt demurrage time. Given these exceptions,
  it can usually be said that the much used
  shipping expression once on demurrage, always
  on demurrage means what it says.

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Case

• A vessel had been chartered under a voyage
  charter party, which contained a strike clause
  stating that the time for discharging should not
  count against the charterers during the
  continuance of a strike. The vessel began to
  discharge the cargo, but after the laytime had
  expired a strike took place which interrupted
  further unloading. Held by the House of Lords,
  that the charterers could not rely on the strike
  clause, because it was not sufficiently clearly
  worded to have the effect of relieving them from
  the payment of demurrage. Consequently they had
  to pay demurrage for the whole period after the
  laytime had expired.

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Case

• A charter party stated Lightening if any, at
  discharging ports to be at owners risk and
  expense, and time used not to count as laytime.
  It was held that once laytime had expired, the
  clause had not further application and the
  charterers were liable for the whole of the time
  used in lightening.
• It should be noted that a number of standard
  charterparty forms limit the time on demurrage to
  a certain number of days after which the owner
  will claim damages for detention. Generally
  this limitation is removed by mutual consent at
  the negotiating stages although not always. In
  the event that the time on demurrage exceeds the
  number of days contained in the clause the
  parties may agree to treat all the time as time
  on demurrage or they may pursue the matter in the
  courts.

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1.4 Damages for Detention

• If charterers fail to abide by the provisions of
  a contract and, as a result, permitted laytime is
  exceeded, shipowners are normally entitled to
  reimbursement for their loss, if any. One method
  of reimbursement could be by claiming damages
  for detention, however this could be a lengthy
  and costly legal exercise. Consequently, most
  parties to a shipping contract avoid the problem
  by negotiating a daily level of liquidated
  damages i.e. demurrage for the time spent
  in excess of agreed laytime. The difference
  between demurrage and damages for detention is
  that demurrage is only be paid for an agreed
  number of days and damages for detention is to be
  paid for further delay takes place. So damages
  for detention become payable either on the
  expiration of a reasonable time for loading or
  unloading when no laytimes are specified or on
  the expiration of the fixed number of days for
  which demurrage has been stipulated.

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1.5 Demurrage and Shipowners Default

• When once a vessel is on demurrage no exceptions
  will operate to prevent demurrage continuing to
  be payable unless the exceptions clause is
  clearly worded so as to have that effect. One
  question is that if due to the fault of shipowner
  during the time on demurrage, does the charterer
  have a obligation to pay the demurrage for that
  period?
•  

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2. Despatch

• DESPATCH MONEY or DESPATCH shall mean an
  agreed amount payable by the owner if the vessel
  completes loading or discharging before the
  laytime has expired.

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Section 7. Charter Party Bill of lading

• Question 
• ?Is such a bill of lading, in the hands of the
  charterer, evidence of a contract adding to or
  varying the terms of the contract contained in
  the charter, or is it merely a receipt for the
  goods?
• ?If such a bill of lading, in the hands of the
  charterer, is merely a receipt for the goods, is
  it, in the hands of an indorsee from the
  charterer, a contract or evidence of a contract ?
• ?To what extent is a holder of the bill of
  lading, other than the charterer, affected by the
  terms of the charter?
• ?To what extent is a holder of the bill of
  lading, other than a charterer, bound by and
  entitled to rely on terms of the bill of lading
  differing from the charter?
• ?If a bill of lading evidencing a contract with
  the shipowner imposes more onerous terms on the
  shipowner than the charter, is the shipowner
  entitled to be indemnified by the charterer?

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1. Bill of lading in the hands of charterer

• Where the charterer is himself the shipper, and
  receives as such shipper a bill of lading in
  terms differing from the charter, the proper
  construction of the two documents taken together
  is that, prima facie and in the absence of any
  intention to the contrary, as between the
  shipowner and the charterer, the bill of lading,
  although inconsistent with certain parts of the
  charter, is to be taken only as an acknowledgment
  of the receipt of the goods.
• Where the charterer becomes indorsee of a bill of
  lading, original issued to a shipper other than
  the charterer, the bill of lading does not modify
  or vary the terms of the charter party.

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2.Bill of lading in hands of indorseefrom the
charterer

• Although, as between shipowner and charterer, the
  bill of lading may be merely in the nature of a
  receipt for the goods, yet, where it is indorsed
  over, as between the shipowner and the indorsee,
  the bill of lading must be considered to contain
  the contract.
• According to the provision of Chinas Maritime
  Code, where the holder of the bill of lading is
  not the charterer in the case of a bill of lading
  issued under a voyage charter, the rights and
  obligations of the carrier and the holder of the
  bill of lading shall be governed by clauses of
  the bill of lading.

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3. Incorporation of charter in bill
of lading

• The bills of lading usually contain some clauses
  which are contradictory to the clauses contained
  in the voyage charter party. To make clear that
  the charter party, and not the bill of lading, is
  the governing agreement for the shipment,
  shipowners often insist on having a clause
  inserted in the bill of lading with reference to
  some or all of the terms of the charter party.
• However, if the clauses of the voyage charter
  party are incorporated into the bill of lading,
  the relevant clauses of the voyage charter party
  shall apply.

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4. Incorporating provisions

• Freight and all other conditions as per
  charter. This is the narrowest form of
  incorporating clause in common use. This clause
  covers only such conditions of the charter as
  are to be performed by consignee, or are
  referable to the discharge and receipt of cargo.
  Thus the words do not incorporate charter party
  exceptions clauses into the bill of lading. Nor
  are they effective to incorporate a cesser
  clause, nor a clause in the charter party that
  the bill of lading should be conclusive evidence
  of the arrival of cargo shipped.
• All conditions and exceptions. An express
  reference to exceptions clause is sufficient to
  make the bill of lading subject to the excepted
  perils contained in the charter party.

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4. Incorporating provisions

• All the terms provisions and exceptions. These
  are very wide words of incorporation, and are
  sufficient to bring into the bill of lading
  almost everything which is in the charter
  party----provided of course that the term makes
  sense in the context of the bill, and is not
  inconsistent with its express provisions.
•  All terms, conditions, clauses and exceptions.
  This provision is perhaps the widest of those in
  common use. It has been held to be effective to
  incorporate into a bill of lading a clause which
  required demurrage to be paid if a discharging
  berth was not immediately available.
•  In normal cases, the arbitration clause is not
  incorporated into the bill of lading. Courts in
  England have held that unless there is a specific
  reference in a bill of lading to the law and
  arbitration clause in the governing charter party
  it may not necessarily be deemed part of the
  terms and conditions of the bill of lading even
  though the law a arbitration clause itself
  stipulates that it shall apply in any bill of
  lading issued under the charter party.

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5. UCP 600 Refers to Charter Party Bill of Lading

• 5.1 A bill of lading, however named, containing
  an indication that it is subject to a charter
  party (charter party bill of lading), must appear
  to
• 5.1.1. be signed by
• a) the master or a named agent for or on behalf
  of the master, or
• b) the owner or a named agent for or on behalf of
  the owner, or
• c) the charterer or a named agent for or on
  behalf of the charterer.
• Any signature by the master, owner, charterer or
  agent must be identified as that of the master,
  owner, charterer or agent.
• Any signature by an agent must indicate whether
  the agent has signed for or on behalf of the
  master, owner or charterer.
• An agent signing for or on behalf of the owner
  or charterer must indicate the name of the owner
  or charterer.

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• 5.1.2. indicate that the goods have been shipped
  on board a named vessel at the port of loading
  stated in the credit by
• a) pre-printed wording, or
• b) an on board notation indicating the date on
  which the goods have been shipped on board.
• The date of issuance of the charter party bill of
  lading will be deemed to be the date of shipment
  unless the charter party bill of lading contains
  an on board notation indicating the date of
  shipment, in which case the date stated in the on
  board notation will be deemed to be the date of
  shipment.
• 5.1.3 indicate shipment from the port of loading
  to the port of discharge stated in the credit.
  The port of discharge may also be shown as a
  range of ports or a geographical area, as stated
  in the credit.
• 5.1.4 be the sole original charter party bill of
  lading or, if issued in more than one original,
  be the full set as indicated on the charter party
  bill of lading.
• 5.2. A bank will not examine charter party
  contracts, even if they are required to be
  presented by the terms of the credit.

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6. Gencon Form Provision

• The Bills of lading shall be presented and
  signed by the Master as per Congenbill Bill of
  Lading form, Edition 1994, without prejudice to
  this charter party, or by the Owners agents
  provided written authority has been given by
  Owners to the agents, a copy of which is to be
  furnished to the charterers. The charterers shall
  indemnify the owners against all consequences or
  liabilities that may arise from the signing of
  bills of lading as presented to the extent that
  the terms or contents of such bills of lading
  impose or result in the imposition of more
  onerous liabilities upon the owners than those
  assumed by the owners under this charter party.

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7. Congenbill Bill of Lading, Edition 1994

• The Congenbill Bill of Lading is probably the
  most widely used bill of lading in general tramp
  shipping today. The Congenbill was, when first
  issued, mainly intended to be used with the
  GENCON Charter but could also be used with other
  charter parties. However, considering the
  extensive use of the Congenbill together with the
  GENCON Charter it is obviously very important
  that the two forms are aligned so that all the
  necessary clauses of the GENCON Charter are
  suitable incorporated into the Bill of Lading.

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Section 8 Other Clauses

• 1. Lien Clause
• 2. Taxes and dues clause
• 3. Agency Clause
• 4. Commission and brokerage clause
• 5. Law and arbitration
• 6. AMS clause for voyage charter party
• 7. General strike clause
• 8. War risks clause
• 9. General Ice clause

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1. Lien clause

• 1.1 Lien on cargo
• The shipowner may have a lien on goods carried on
  board the vessel for charges like freight,
  deadfreight, demurrage, expenses for the cargo,
  general average contribution, etc. Lien on goods
  can be based on the general law, on express
  agreement in the charter party or bill of lading.
  
• 1.2 Cesser clause
• In voyage chartering it is not unusual that the
  charter party contains a clause which relieves
  the charterers from liability from the moment the
  vessel has been loaded. The intention is that the
  shipowners shall turn to the cargo owners with
  any additional claims as, for instance, demurrage
  at the discharging port. It is not unusual that
  this cesser clause and lien clause is combined
  which has the heading lien clause.

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1.3 The co-existence principle

•  Under such clause, the shipowners cannot simply
  go to the charterers afterwards, without first
  having claimed from the receivers by exercising
  of a lien. The co-existence principle applies to
  this clause which means that it is only capable
  of protecting the charterers from liabilities
  that the shipowners can effectively resort to
  against the consignees by way of a lien on cargo.
  
• Before the shipowners lien the cargo they must
  find out legal and practical possibilities and
  difficulties in the actual country and port. In
  some countries it is not at all legally possible
  to exercise a lien over cargo.

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1.4 Lien clause in Gencon form 1994

• The provision of lien clause in Gencon form 1994
  is quite different from other charter forms as
  well as Gencon form 46. It states that The
  owners shall have a lien on the cargo and on all
  sub-freight payable in respect of the cargo, for
  freight, deadfreight, demurrage, claims for
  damages and for all other amounts due under this
  charter party including costs of recovering
  same. This provision only gives the shipowners
  right of lien on cargo not relieves the
  charterers liability.
• In order to reflect common practice nowadays, the
  old reference to damages for detention has been
  deleted. In addition, the Clause has been brought
  up to date in accordance with the more modern
  lien clauses making no reference to cesser type
  provisions (i.e. provisions effectively providing
  that all responsibility of the charterers ceases
  on shipment of the cargo).

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2. Taxes and dues clause(1) Who is responsible
for taxes and dues

• In many countries the tax system includes special
  taxes on freight and other taxes connected with
  the loading or discharging of ships in the
  country. It is the recipient of the freight who
  is liable to pay this tax, not the party paying
  same and therefore this charge is frequently
  levied against the shipowner, being usually added
  to port disbursements incurred by the vessel
  concerned and thus collected via the offices of
  the port agent.
•  The parties must agree on whose account such
  taxes shall be. The best way is to find out
  exactly what taxes will be debited for the
  intended voyage. Taxes known beforehand can be
  dealt with directly in the charter party but as
  new tax laws may be introduced with very short
  notice it is advisable also to have a clause
  dealing with the question in a more general way,
  as for instance in 1994 Gencon form

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(2) Gencon form provision

• The Owners shall pay for all dues, charges and
  taxes customarily levied on the vessel, howsoever
  the amount thereof may assessed.
• The charterers shall pay for all dues, charges
  and taxes customarily levied on the cargo,
  howsoever the amount thereof may assessed.
• Unless otherwise agreed in Box 23, taxes levied
  on the freight shall be for the charterers
  amount.

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3. Agency Clause

• Normal practice in voyage chartering is that
  agents are nominated and paid by the shipowners.
• Notwithstanding this, it is not unusual that the
  agents are nominated by the charterers, a
  situation that may sometimes be very difficult
  for the shipowner.
• When agents are nominated by charterers, the
  shipowners sometimes nominate their own
  agent-----usually called husbandry agent or
  protective agent---to take care of shipowners
  matters such as repatriation of crew members and
  contract with yards or similar and sometimes also
  to take care of the shipowners interests against
  the charterers, shippers or receivers.
• Consequently it is often the case that charterers
  specifically negotiate that they have the right
  to nominate the port agents that will be
  appointed by the shipowner.

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4. Commission and Brokerage clause
(1) Basis of brokerage

• A shipbrokers income from voyage chartering is
  based on a percentage of the gross freight
  payable to a shipowner and this income is payable
  by that shipowner to all the brokers involved in
  the fixture.
• A shipbrokers income is usually termed brokerage
  to distinguish it from commission or address
  commission used to describe a charterers
  negotiated entitlement to a discount on freight
  payment.
• In fact the practice of deducting address
  commission from freight, deadfreight and
  demurrage is one peculiar to the dry cargo
  trades and is rarely encountered in the tanker
  trades.

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(2)Brokerage amount

• Brokerage normally amounts to 1.25 of gross
  freight, deadfreight and demurrage and is payable
  by a shipowner from sums received to each broker
  involved in a transaction, although it frequently
  occurs that a charterer will deduct an
  appropriate amount from freight payment to the
  shipowner and undertake to pay the brokerage
  direct to his own and to other brokers involved.
  Thus, for the involvement of two brokers 2.5
  brokerage is payable, 3.75 for three and so on.
•  This was a dispute over fees payable to a broker
  by a shipowner. The charter party provided for
  daily demurrage which had been unpaid by the
  charterer. The shipowner attempted to set-off the
  unpaid demurrage from the fees payable to the
  broker. Both at first instance and on appeal the
  court held that the shipowner was not entitled to
  claim a set-off.

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(3)Address commission

• Address commission also varies in amount. The
  total commission - address commission plus
  brokerage due on dry cargo business may vary from
  as little as 1.25 to as much 7.5 perhaps even
  more. The norm for deep-sea dry cargo business is
  around 3.75 to 5.

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(4)Non-performance

• When brokers have been involved they are entitled
  to commission. The commission is usually a
  certain percentage of the freight.
  Nevertheless, a broker may be able to gain some
  protection in the case of non-performance of
  confirmed business, as is provided, for example,
  in the Gencon charter party, which states
• A brokerage commission at the rate stated in Box
  24 on the freight, dead freight and demurrage
  eared is due to the party mentioned in Box 24. In
  case of non-execution 1/3 of the brokerage on the
  estimated amount of freight to be paid by the
  party responsible for such non-execution to the
  brokers as indemnity for the latters expenses
  and work. In case of more voyage the amount of
  indemnity to be agreed.

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5. Law and arbitration

• To avoid discussion and disputes about what law
  is applicable to the charter party, all charter
  party forms should contain a clause dealing with
  the law applicable to and the procedure for
  handling of disputes between the parties. The
  charter parties usually have reference to
  arbitration while bill of lading more often are
  referring to procedure in the courts.
• An arbitration clause should not only have a
  reference to the applicable law but also rules
  about the procedure when arbitrators are
  nominated, etc. When English law is applicable
  the arbitration clause sometimes has a reference
  to the arbitration Act 1950 and 1979, which deals
  with the procedure.

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CMAC

• Following is the model arbitration clause
  prepared by China Maritime Arbitration Commission
  (CMAC)
• Any dispute arising out of or in connection
  with this contract shall be submitted to China
  Maritime Arbitration Commission for arbitration
  in Being in accordance with the existing
  arbitration rules of the Commission. The
  arbitration award shall be final and binding upon
  the parties.

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6. US Customs Advance Notification/AMS Clausefor
Voyage Charter Parties

• The AMS Clauses have been produced by BIMCO to
  meet the requirements of US Customs regulations
  under the Maritime Transportation Security Act of
  2002.
• The AMS regulations relate to the automated
  filing of cargo manifests for all vessels loading
  or carrying cargoes destined for or passing
  through US ports. The regulations require one of
  the contract parties to assume the role of
  carrier for the purpose of submitting cargo
  information.

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AMS Clause for Voyage Charter Parties

• (a) If the Vessel loads or carries cargo destined
  for the US or passing through US ports in
  transit, the Owners shall comply with the current
  US Customs regulations (19 CFR 4.7) or any
  subsequent amendments thereto and shall undertake
  the role of carrier for the purposes of such
  regulations and shall, in their own name, time
  and expense
• i)  Have in place a SCAC (Standard Carrier Alpha
  Code)
• ii) Have in place an ICB (International Carrier
  Bond) and
• iii)Submit a cargo declaration by AMS (Automated
  Manifest System) to the US Customs.

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AMS Clause for Voyage Charter Parties

• (b) The Charterers shall provide all necessary
  information to the Owners and/or their agents to
  enable the Owners to submit a timely and accurate
  cargo declaration.
• The Charterers shall assume liability for and
  shall indemnify, defend and hold harmless the
  Owners against any loss and/or damage whatsoever
  (including consequential loss and/or damage)
  and/or any expenses, fines, penalties and all
  other claims of whatsoever nature, including but
  not limited to legal costs, arising from the
  Charterers failure to comply with any of the
  provisions of this sub-clause. Should such
  failure result in any delay then, notwithstanding
  any provision in this Charter Party to the
  contrary, all time used or lost shall count as
  laytime or, if the Vessel is already on
  demurrage, time on demurrage.

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AMS Clause for Voyage Charter Parties

• (c) The Owners shall assume liability for and
  shall indemnify, defend and hold harmless the
  Charterers against any loss and/or damage
  whatsoever (including consequential loss and/or
  damage) and any expenses, fines, penalties and
  all other claims of whatsoever nature, including
  but not limited to legal costs, arising from the
  Owners failure to comply with any of the
  provisions of sub-clause (a). Should such failure
  result in any delay then, notwithstanding any
  provision in this Charter Party to the contrary,
  all time used or lost shall not count as laytime
  or, if the Vessel is already on demurrage, time
  on demurrage.
• (d)  The assumption of the role of carrier by the
  Owners pursuant to this Clause and for the
  purpose of the US Customs Regulations (19 CFR
  4.7) shall be without prejudice to the identity
  of carrier under any bill of lading, other
  contract, law or regulation.

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7. General Strike Clause

• Considerable delay and costs may be the result of
  strikes in loading or discharging ports or in
  seaways through which the vessel has to pass on
  her voyage. The voyage charter party therefore
  usually contains a strike clause where the
  various problems and costs connected with strikes
  are dealt with. The strike clauses are often
  complicated to construe and to interpret.

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8. War Risks Clause

• In time of war, revolution or other disturbances
  the crew, the vessel and the cargo may be exposed
  to certain risks. The personnel on board may be
  injured or killed and cargo and ship damaged or
  lost. Furthermore, there is a risk of delay and
  extra costs. In order to make sure the rights and
  the obligations of the parties, it is usual to
  have a special war clause in the charter parties.

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9. General Ice Clause

• Port of loading
• (a) In the event of the loading port being
  inaccessible by reason of ice when the vessel is
  ready to proceed from her last port or at any
  time during the voyage or on the vessels arrival
  or in case frost sets in after the vessels
  arrival, the master for fear of being frozen in
  is at liberty to leave without cargo, and this
  charter party shall be null and void.