Demurrage, Detention and Delays by Agreement

High Court rules that the unplanned laytime of a vessel did not fall within the terms of the contract of sale

Overview

Where the parties to a crude oil sale contract agreed that a tanker should wait offshore, was the resulting claim one for detention or for demurrage, and was the claim time-barred?    

Glencore Energy UK Limited v OMV Supply & Trading Limited [2018] EWHC 895 (Comm) (High Court of Justice, Queens Bench Division Commercial Court, England)

Facts

The claim concerned the contract for the sale of oil on CFR terms between the claimant seller and the defendant buyer, to be loaded in Russia and discharged in Trieste.

The carrying vessel was chartered by the seller. Because of congestion at the discharge port, the buyer requested (by email, during loading in Russia and a week or so thereafter):

  1. That the vessel carrying the oil should wait offshore until a berth was available;
  2. To have the master tender a notice of readiness upon arrival both at the waiting area, and again on arrival at Trieste;
  3. That such notices indicate how many bunkers had been used during the waiting period; and
  4. Details of the demurrage rate.

The vessel arrived at the waiting area (north of Corfu) on 17 November and remained there until 10 December before proceeding to Trieste to discharge.

The seller claimed that an implied contract came into existence as a result of the seller agreeing to the buyer’s request that the vessel wait offshore, and pursuant to such contract the seller claimed as “detention” the time spent at the waiting position, (at the contractual demurrage rate), and also for the cost of the bunkers consumed during that period.

The buyer rejected the claim on the basis that the time spent at the waiting area should be treated as part of the laytime and demurrage calculation, either under the terms of the sale contract or, alternatively, as a result of an implied variation to that contract through the seller agreeing to its email requests, and that either way it was therefore time-barred under the terms of the sale contract (in which there was a 90 day time limit for notifying demurrage claims).

The sale contract incorporated the 2007 edition of BP Oil International Limited's General Terms and Conditions for Sales and Purchases of Crude Oil ("the BP Terms").

The court’s decision

As regards the buyer’s argument that this was a claim for demurrage pursuant to contract of sale, the court held that the contract of sale did not cover the waiting time, and what happened did not fit within its terms. The definition of laytime in the BP terms was the time allowed for loading and unloading, and therefore the contract did not contemplate laytime running in the middle of the carrying voyage. As for the buyer’s argument that the notice of readiness issued on arrival at the waiting area brought the laytime and demurrage provisions into effect, this was also rejected by the court.

The definition of notice of readiness in the BP terms was of a notice to load or discharge given by the master to the seller at the loading terminal, or to the buyer at the discharge port. That definition did not apply to a waiting period in which there was neither loading nor unloading. Furthermore, the buyer could not explain how time was stopped when the vessel left the waiting area and was triggered again on arrival at Trieste. Moreover, the contract of sale did not provide for a second notice. As regards the buyer’s alternative case of implied variation of the contract, this did not bear close examination. It would have required substantial amendments to the laytime and demurrage clauses in the contract of sale and the BP terms. Such amendments were not necessary to give business reality to the parties' agreement, and it is unlikely the seller would have agreed to them.

The court held that the correct legal analysis was that the seller's agreement to the buyer's requests to wait offshore created an implied contract for "delay by agreement", which came into effect on 17 November. Such a contract was necessary to give business reality to the transaction because, without it, the seller would not be paid for the waiting time.

The terms of the implied contract were that the vessel would wait in the waiting area until further orders, and that the seller would be remunerated for that service. The buyer's enquiry about the demurrage rate and the seller's response providing such rate led to that rate becoming the implied contractual benchmark for calculating the seller's claim. Furthermore, the buyer's request that the master record the bunkers on arriving and leaving the waiting area evidenced an additional implied term that the buyer would pay for those bunkers. The seller was thus entitled to compensation for holding the vessel in the waiting area, calculated at the demurrage rate, and for the cost of the bunkers consumed during that period

Comment

There has been a good deal of case law regarding demurrage time bar clauses and the courts can be extremely strict in the way they have applied such clauses. Unsurprisingly, the buyer tried to bring the facts within the laytime and demurrage of the sale contract so as to invoke the time bar provisions, and argued that there was nothing unfair about its doing this, as the aim of such clauses is for claims to be investigated and, if possible, resolved whilst the facts are still fresh.

But despite the “ingenious arguments” (as the judge referred to them) put forward by counsel representing the buyer, the facts in this case simply did not, in the court’s view, fit within the sale contract demurrage provisions.

The decision provides a helpful example of the distinction between demurrage and detention, and reinforces the line of authority from case law (as illustrated in The “Mass Glory” [2002] 2 Lloyd’s Rep.244) that ordinarily laytime and a claim for demurrage cannot by definition arise midway through the carrying stage of the voyage.

For further information about Weightmans or this update, please contact Richard Hawkins, on 0151 242 6967 or email richard.hawkins@weightmans.com.

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