Who Bears The Liability For The Time Lost By The Vessel Due To Port Congestion If The Vessel Subsequently Fails To Pass The Holds` Inspection

Should the time lost by the vessel waiting for berth count as laytime or time on demurrage if after berthing the vessel`s hatch covers and/or holds fail to pass the inspection?
The question of liability for the time lost by the vessel waiting for berth was raised in three English law cases involving grain shipments.
The first case was Compania de Naveira Nedelka S.A. v. Tradex Internacional S.A. (The "Tres Flores")<sup>1</sup>. In that case the vessel arrived at loading port to load a cargo of maize, but it was instructed to wait at anchorage for an available berth. The Master tendered NOR on 22 November 1970 upon the vessel`s arrival at the anchorage place, but when the vessel was called to berth on 30th November, the port authorities discovered pests in the holds and ordered the fumigation of holds. After the fumigation, on 1 December the vessel`s holds were re-inspected and approved for loading.
The shipowners claimed the payment of demurrage charge contending that the laytime commenced at 14:00 hours on 23rd November. The charterers rejected the demurrage claim on the ground that they accepted the NOR only at 11:00 hours on 1 December and therefore, the laytime commenced at 14:00 hours on 1 December.
The charter party contained the following clause:

"Before tendering notice [of readiness] master has to take necessary measures for holds to be clean, dry, without smell and in every way suitable to receive grain to shippers/charterers` satisfaction."

The English Court of Appeal held that the charter party requirement that the vessel`s holds be clean, dry, without smell and in every way suitable to receive grain was a condition precedent to the validity of the NOR. Because of that condition precedent, the vessel had to be ready at the time the NOR was given and not at a time in the future. The condition precedent was not fulfilled until the fumigation had been completed and the vessel passed the inspection of holds on 1 December. Therefore, the time lost by the vessel waiting for berth from the expiry of the Notice period at 14:00 hours on 23 November until 11:00 hours on 1 December when the vessel passed the holds` inspection did not count as laytime or time on demurrage.
The second case was United Nations Food and Agriculture Organisation-World Food Programme v. Caspian Navigation Inc. (The "Jay Ganesh")². In that case the vessel arrived at loading port to load a cargo of rice, but it was instructed to wait at anchorage for an available berth. The Master tendered NOR on 10 August upon the vessel`s arrival at the anchorage place. When the vessel was called to berth on 8th September, the port authorities discovered insects in the holds and ordered the fumigation of holds. After the fumigation, on 9th September the vessel`s holds were re-inspected and approved for loading.
The shipowners claimed the payment of demurrage charge for the time lost by the vessel waiting for berth. The charterers rejected the demurrage claim.
The charter party contained the following clauses:

"8. Notice of Readiness (Loading and Discharging)
(a) At each port of loading and discharging notice of readiness shall be given by the Master to the Charterers or their agents when the Vessel is in the loading or discharging berth and has obtained customs clearance and free pratique and is in all respects ready to load and discharge.
(b) At loading port before tendering notice of readiness, the Owners and the Master shall ensure that all holds of the Vessel are clean, dry and free from smell and in all respects suitable to receive the cargo to the Shippers`/Charterers` satisfaction.
(c) If a loading/discharging berth is not designated or if such designated berth is not available upon the Vessel`s arrival at or off the port, notice of readiness may be given upon arrival at the customary waiting place at or off the port, whether cleared at Customs or not and whether in free pratique or not.

9. Laytime Counting (Loading and Discharging)
(c) If the notice of readiness has been tendered while the vessel is at or off the port, in accordance with Clause 8(c) the laytime shall commence to count and shall count as if the vessel were in berth ...
(e) If after berthing the Vessel is found not to be ready in all respects to load/discharge, the actual time lost until the Vessel is in fact ready to load/discharge (including customs clearance and free pratique if applicable) shall not count as laytime or as time on demurrage."

The charterers contended that the Sub-Clause 8 (b) required the vessel to be physically ready to load  the rice cargo and therefore, the vessel`s physical readiness was a condition precedent to the validity of NOR.
The shipowners contended that the NOR tendered on 10 August was valid so as to start the running of laytime from 11 August but subject to deduction of about two and a half days from berthing on 7 September to 9 September when the vessel passed the holds` inspection.
The LMAA Tribunal and English Commercial Court held that when the Master tendered NOR on 10 August he believed that the vessel was physically ready to load, but unknown to the Master the vessel`s holds were infested with insects. The NOR tendered at anchorage was valid and the laytime started to run from 11 August so that the time lost by the vessel waiting for berth counted. If after berthing the vessel was found not to be physically ready to load, the time actually lost until she was ready did not count. The relevant paragraph of the judgment is quoted below:

"The overall effect of clauses 8 and 9 is accordingly, that this form of charter party requires that the charterers must pay for waiting time at the anchorage when they have not provided a berth, but that if the vessel then causes delay after arrival in berth because she was not in truth then ready to load or discharge, that loss of time is to be borne by the owners."

The third case was Agrimex Ltd. v. Tradigrain S.A. & Ors³. In that case the vessel arrived at loading port to load a cargo of feed wheat, but it was instructed to wait at anchorage for an available berth. The Master tendered NOR on 11th March 1999 upon the vessel`s arrival at the anchorage place. In the NOR the Master warranted that the vessel was “in all respects ready to load her cargo … in accordance with the terms and conditions of the charterparty”. When the vessel was called to berth on 26th March 1999, she failed the holds` inspection due to the rust found on the hatch covers. After the removal of rust, the vessel`s holds were re-inspected and approved for loading on 27th March 1999.
The FOB buyers claimed the payment of demurrage charge for the time lost by the vessel waiting for berth. The sellers rejected the demurrage claim. The question in dispute was whether the NOR tendered on 11th March was valid given that the vessel failed the holds` inspection after berthing on 26th March.
The FOB sale contracts under which the dispute arose incorporated the charter party terms. The voyage charter party was based on SYNACOMEX 1990 Continent Grain Charter Party form which stipulated that if the loading berth is unavailable at the time of vessel`s arrival, the Master may tender NOR from “any usual waiting place”, whether in port or not, whether in free pratique or not, whether customs cleared or not, provided that the Master warrants that the vessel is in all respects ready to load. If after the vessel`s berthing the surveyors inspect the vessel`s holds and reject them, the laytime or time on demurrage shall not count from the time the vessel`s holds are rejected until the vessel`s holds are accepted.
The FOB sellers contended that the NOR given at the time of the vessel`s arrival at the port roads was invalid, because the vessel was not in fact ready in all respects to load and since no fresh NOR had been tendered upon the surveyor`s approval of holds, the laytime did not start to count until the commencement of loading. Furthermore, it would be inconsistent with the sale contract terms to import charter party terms because the sale contracts require the service of a valid NOR and that connotes that the vessel must be ready to receive the cargo at the time it is tendered.
The English Commercial Court held that the words "as per charterparty" and "all other conditions as per relevant charterparty" were sufficient to incorporate into the sale contracts "provision in the charterparty permitting the service of a notice of readiness when the loading berth was not available, and the provision about the position if a notice of readiness was served in such circumstances and the vessel was subsequently found to be unready".

"[A] notice of readiness valid under the charterparty should be effective under the sale contract unless the parties stated the contrary either expressly or by clear implication."

The implication of this Court decision is that in the FOB sale contracts incorporating the SYNACOMEX Charterparty terms the time lost by the vessel waiting for berth shall count for laytime purposes in cases where after berthing the vessel`s holds fail the inspection. That would be the case in the FOB contracts for the sale of French grain which are typically based on the INCOGRAIN Contract form No.13 that incorporates expressly the terms of SYNACOMEX Charterparty. It would also be the case in the FOB contracts for sale of Ukrainian, Romanian and Russian grains because the GAFTA Contract form No.49 used for such sales does not have any provision covering NOR tendering and time counting so that the NOR tendering and time counting provisions of SYNACOMEX Charterparty are incorporated by general words, as in Agrimex Ltd. v. Tradigrain S.A. & Ors⁴.

The Provisions Of The Other FOB Contract Forms On The Question Of Liability For The Time Lost By The Vessel Waiting For Berth In Case Of Subsequent Failure To Pass The Inspection Of The Hatch Covers And Holds

The GTA FOB Contract No.1 is a berth sale contract. The vessel`s Master may tender NOR only upon the vessel is ready in all respects to load at all hatches, i.e. after the vessel was inspected and approved for loading by a qualified marine surveyor and an authorised officer of the Australian Government Department of Agriculture, at the berth ordered by the sellers.
However, if the loading berth is occupied at the time of the vessel`s arrival at or off the loading port (or so near as the vessel is permitted to approach), the vessel`s Master will be entitled to give NOR upon arrival at the port roads or waiting place. The laytime shall commence to run upon the expiry of the 24 hours` Notice time and shall count as if the vessel was in berth and in all respects ready for loading, unless subsequently the vessel fails the holds` inspection in which case the NOR tendered at the waiting place shall be deemed invalid and the time lost waiting for berth will not count as laytime or time on demurrage.
After the vessel is finally approved for loading, the Master can tender a "fresh valid NOR". In such case, the laytime shall commence to count upon the expiry of the 24 hours` Notice time after the "fresh valid NOR" has been accepted by the sellers, unless the port operators commence loading earlier in which case the laytime will commence to run from the time of commencement of loading.
To avoid situations where the shipowners incur additional costs due to berth congestion, the Australian port operator CBH Group requires the Australian shippers to arrange for the holds` inspection to be performed within 24 hours after the vessel`s arrival at the anchorage place⁵ and provide the Bulk Vessel Approval Record Part B – Vessel Approval (ship`s holds inspection certificate) within 24 hours of completion of the inspection.
Another example of berth sale contract is GAFTA Contract No. 38 which provides that the sellers` loading obligation and commencement of laytime will be subject to the vessel`s berthing at the nominated berth and vessel passing the holds` inspection, thereby protecting the Argentine grain shippers against the potential liability for demurrage due to the time lost by the buyers` vessel waiting for berth in case of port congestion.
The shipping terms and conditions of NAEGA FOB Export Contract are based on the US and Canadian Shipping Regulations for the export of grain and oilseeds in bulk.
The vessels arriving to load grain at US ports must first pass the National Cargo Bureau and FGIS inspections before obtaining the permission to berth.
The vessel shall be considered physically ready to load when it is ready in every respect to receive grain in all compartments necessary for loading the quantity required to be loaded. The vessel`s NOR shall not be effective and laytime shall not commence to run until all holds necessary for loading the quantity required to be loaded have passed the inspection.
Only after the vessel has passed the National Cargo Bureau and FGIS inspections and the vessel`s Master has obtained the relevant certificates, he can tender NOR to the charterer`s agent who will then file a berth application for obtaining the terminal elevator operator`s permission for the vessel to come at berth for loading.
Upon the vessel`s berthing, the vessel`s holds are re-inspected by the FGIS surveyors. If the vessel fails the re-inspection at the loading berth, the laytime shall cease to count from the time the holds fail the re-inspection until the vessel passes<sup>6</sup>. In the event that the number of holds that fail the re-inspection is less than the number of holds required to be loaded, the laytime shall be suspended pro rata for the rejected holds from the time they are rejected until they are re-passed. The rejection of two of the five holds required to be loaded would not normally affect the loading of the approved holds and thereby, the time counting in respect of those holds.
The NAEGA FOB Export Contract does not say when the vessel is considered an "arrived ship" for the purpose of tendering the NOR in the event that the vessel has to wait outside the port limits due to port congestion. It has no provisions in respect of the commencement of laytime in such case and no time counting provisions if the vessel subsequently fails to pass the holds` inspection.
The Sub-Clause 18 (b) of NORGRAIN 89 Charterparty form stipulates that if the vessel is prevented to enter the limits of the loading port because the loading berth or a lay berth or an anchorage place is not available within the port limits or by an order of the Charterers or a port authority, and the Master warrants that the vessel is physically ready in all respects to load, the Master may tender the vessel`s Notice of Readiness "from the usual anchorage outside the limits of the port". If after entering the limits of the loading port, the vessel fails to pass the National Cargo Bureau and/or FGIS inspections, the time lost by the vessel from the time the vessel fails the inspections until she is passed shall not count as laytime or time on demurrage, "but if this delay in obtaining said passes exceeds 24 running hours shex all time spent waiting outside the limits of the port shall not count".
Given that the NAEGA FOB Export Contract has no provisions on this matter, the FOB buyers of US and Canadian cereals and oilseeds should ensure that the sale contracts and voyage charterparties have corresponding provisions on the question of liability for the time lost by the vessel outside the loading port limits due to port congestion.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Grain Trade Review Edition No. 2.


Endnotes:

1. [1973] 2 Lloyd`s Rep. 247
2. [1994] 2 Lloyd`s Rep. 358
3. [2003] EWHC 3451 (Comm)
4. [2003] EWHC 3451 (Comm)
5. There are similar requirements in GTA Voyage Charter – AusGrain 2015. Sub-Clause 15.2 provides that the holds` inspection must be performed within 24 hours after the vessel`s arrival weather permitting "or otherwise as soon as is practical after weather permits".
6. See Clause 7 of Addendum No.1 to NAEGA FOB Export Contract.