The UK Defense Club reports that a number of ships loaded with Australian coal are experiencing significant delays in receiving authorization to discharge in Chinese ports.
To remind, the discharge of Australian cargoes is being restricted in China, but no official policy has been published. This leads to delays, giving rise to the question of which party should bear the associated losses.
Therefore, the Club provides some FAQs addressing some of the issues being faced:
Will ships remain on hire during the delay?
Under a time charter, owners/disponent owners continue to receive hire for the duration of the charter in the absence of an applicable off-hire event. Most standard off-hire provisions are unlikely to apply in a situation of this kind, not least because the ship itself is at all times available for the charterer’s service. Wholly extraneous restrictions are unlikely to trigger standard off-hire clauses, such as clause 15 of the NYPE 1946. That said, bespoke off-hire provisions which operate in these circumstances may exist and each charterparty will need to be considered in detail.
Can an owner claim an implied indemnity from its charterer?
According to the club, an owner may argue that it should be compensated for any additional losses incurred due to the delay under the general implied right of indemnity due to complying with the charterer’s orders. To succeed with such an indemnity claim against a charterer, the owner’s loss, damage or liability must be effectively caused by the charterer’s order and cannot result from a risk or cost which the owner has expressly or impliedly agreed to bear under the contract. Essentially there must be no break in the chain of causation between the charterer’s orders and the owner’s losses.
However, an owner places its ship at a time charterer’s disposal for so long as the contract continues and the charterer pays hire. Delay in discharge falls within this envisaged use, even if the delay at a particular port is extensive. It is therefore likely to be difficult to recover an indemnity from a charterer in the present circumstances.
Can an owner can claim damages as well as demurrage?
Under English law, it is has long been established that demurrage represents the liquidated damages payable by the charterer for its breach of the agreed period for loading or discharge. The demurrage rate reflects the parties’ estimate of the loss the owner is likely to suffer if the ship is detained beyond the agreed period of laytime. This will therefore be the usual measure of liability of a charterer’s liability to an owner for an extensive delay unless there is a limit on the period of demurrage or the delay is a result of a breach by the charterer. Failing to complete cargo operations within laytime will not constitute a breach unless time is expressly stated to be of the essence.
That said, the recent decision in The Eternal Bliss [2020] EWHC 2373 (Comm) has altered this pre-conception somewhat and paved the way for the possibility of a damages claim in addition to demurrage. In that case, the owner was entitled to damages, in addition to demurrage, for losses independent of claims for delay to the ship in respect of the deterioration of cargo because of the delay. However, in the context of coal cargoes, which are not perishable it is unlikely that similar additional damages will be easily available.
Is this a “force majeure” situation?
It is common for voyage charters to include a “force majeure” clause which relieves the parties of their obligation to perform, and liability for damages, if a defined event has occurred. In the absence of such a clause, “force majeure” cannot invoked. However, such clauses are notoriously difficult to invoke, and any flexibility in the language will be construed against the party trying to rely on the clause. It is up to the party seeking to invoke the clause to prove:
- there were no reasonable steps that could have been taken to mitigate the event or its consequences.
- that its non-performance was due to circumstances beyond its control; and
- that it has been prevented, hindered or delayed (as the case may be) from performing the contract by reason of that event;
- the occurrence of an event identified in the clause.
