There have been cases when following the charterers` insolvency shipowners sought to recover the demurrage due from the commodity buyers. The shipowners` chance of recovery in such cases depends upon the terms of voyage charter party or Bill of Lading1.
In the US law case Trans-Asiatic Oil Ltd., SA v. Apex Oil Co.2, the US District Court for the District of Puerto Rico and the US Court of Appeals for the First Circuit held that if the consignee is not a charterer it cannot be held liable for demurrage under a voyage charter party which stipulates expressly the charterer`s obligation for payment of demurrage. Nor it can be held liable for demurrage under the Bill of Lading, unless the Bill of Lading stipulates expressly that the demurrage incurred at discharge port is to be paid by the consignee or the Bill of Lading incorporates a charter party with a demurrage clause that states that the demurrage incurred at discharge port is to be paid by the consignee. The relevant phrase of the judgment is quoted below:

"[D]emurrage liability cannot be imposed under the bill of lading unless that document expressly so provides or incorporates the charter provisions that so provide."

There is a similar rule in English law. According to this rule, the consignee can be held liable under the Bill of Lading for demurrage incurred at discharge port if the Bill of Lading stipulates expressly the consignee`s liability for discharge port demurrage. An example of such clause is shown below:

"In case the Bills of Lading states the destination as a geographical area, a range of ports or a destination for orders, by nominating the discharge port and demanding delivery of cargo at such port the Consignee shall be liable for any costs incurred by the shipowner in complying with Consignee`s instructions for delivery of cargo, including any demurrage costs incurred at discharge port."


"INTANKBILL 78" Bill of Lading form had the following clause:

"By taking delivery of the cargo the Consignee shall make himself liable for unpaid freight, deadfreight, demurrage and other charges."

Alternatively, the consignee can be held liable under the Bill of Lading for discharge port demurrage when the Bill of Lading incorporates a charter party demurrage clause which stipulates expressly that the discharge port demurrage is to be paid by the consignee or a charter party demurrage clause which provide in neutral terms that "demurrage is to be paid". This rule was adopted by the House of Lords in Miramar Maritime Corp. v. Holborn Oil Trading (The "Miramar")3.
Lord Diplock held that the liability for demurrage cannot be imposed upon the holder of Charter Party Bill of Lading in any circumstances. Lord Diplock distinguished three categories of voyage charter party forms in function of the way they set the liability for demurrage:
(i) those which provide that the charterer is to pay demurrage;
(ii) those that provide expressly for the shipper or consignee to pay demurrage;
(iii) those which provide in neutral terms that "demurrage is to be paid".
Lord Diplock held that in the second and the third categories it is plain that the intention is that the incorporation of the relevant term into the Bill of Lading is intended to produce the effect that consignee/Bill of Lading holder incurs a direct liability for demurrage.
The comments of Lord Diplock in The "Miramar" are relevant in the settlement of demurrage claims in the grain and coal trades, as there are grain and coal voyage charter party forms which provide expressly for the consignee to pay demurrage incurred at discharge port.
An example of grain voyage charter party form with such provisions is the North American Grain Charterparty, "Norgrain 89" form which in the Clause 20 (Demurrage/Despatch Money) stipulates that:

"Demurrage …...................... shall be paid by Charterers in respect of loading port(s) and by Charterers/Receivers*4 in respect of discharging port(s)."

If the parties to the charter party decide to place the responsibility for the payment of demurrage at discharging port upon the receivers, then the word "Charterers" can be strikethrough in which case the demurrage clause would have the following wording:

"Demurrage …..... shall be paid by Charterers in respect of loading port(s) and by Receivers in respect of discharging port(s)."


An example of coal voyage charter party form with such provisions is the Polish Coal Voyage Charter Party, "Polcoalvoy" form which in the Clause 24 (Demurrage/Despatch Money) stipulates that:

"(a) Demurrage in loading shall be paid by the Shippers/Charterers at scale rate in force on the date of the Charter Party or at the rate as stated in Box 20 per running day or pro rata. Demurrage in discharging shall be paid by Consignees at the rate as stated in Box 25 per running day or pro rata.
…............................

(c) Demurrage/despatch money at discharging port to be settled directly between the Owners and the Consignees without prejudice to the terms of Clause 27 (Lien and Cesser)."


A similar example is the Clause 14 (Demurrage) of "Sovcoal" Charter Party which has the following provisions:

"Demurrage, if any, at the rate as indicated in Box 16 per day of 24 hours or pro rata to be paid by the Charterers if the Vessel be detained beyond her loading time or by the Consignees at the rate as indicated in Box 21, payable day by day, if the Vessel be detained beyond her discharging time."

There are also grain and coal charter party forms which provide in neutral terms that "demurrage is to be paid". An example of grain voyage charter party form with such provisions is the Australian Wheat Charter 1990, "AUSTWHEAT 1990" form which stipulates in Clause 15 that demurrage at loading port shall be paid by the shippers, while for demurrage at port of discharge the Clause 19 provides just that:

"Demurrage ..., if any, at discharging port or ports shall be paid when and where incurred, and settlement to be made on completion of discharge."


An example of coal voyage charter party form with such provisions is the "NIPPONCOAL" Charter Party form, which in the Clause 7 (Demurrage and Despatch Money) stipulates that:

"Demurrage to be paid to the Owners at the rate as stated in Box 28 as to loading and in Box 30 as to discharging per day of 24 running hours or pro rata for any part thereof for all time used in excess of laytime at the port or ports of loading and/or discharge."


In the English law, the effect of incorporation into the Bill of Lading of a charter party demurrage clause like any of those four examples above is that the Bill of Lading holder is responsible for the payment of demurrage incurred at the port of discharge.
In The "Miramar" case the House of Lords held that it is plain that in case of charter parties which provide that the charterer is to pay demurrage it is not so intended.     
The opinion of the House of Lords in The "Miramar" case is relevant for the settlement of demurrage claims in oil trade because all tanker voyage charter party forms stipulate expressly that it is the responsibility of the charterer to pay the demurrage.
In The "Miramar" case, the voyage charter party was made on Exxonvoy 1969 form, the name under which Asbatankvoy tanker voyage charter party form was published and used before 1977 when it was taken over by the American Association of Ship Brokers and Agents and re-published under the name of Asbatankvoy. The Demurrage Clause of Exxonvoy 1969 charter party form had the following wording:

"8. DEMURRAGE. Charterer shall pay demurrage per running hour and pro rata for a part thereof at the rate specified in Part I for all time that loading and discharging and used laytime as elsewhere hereto provided exceeds the allowed laytime elsewhere herein specified."

The Charter Party Bill of Lading`s clause incorporating the charter party terms had the following wording:

"This shipment is carried under and pursuant to the terms of the charter dated 19 May 1980, between Miramar Maritime Corporation, Monrovia and S.E.A. Petrochem Ltd., Singapore, charterer and all the terms whatsoever of the said charter except the rate and payment of freight specified therein apply to and govern the rights of the parties concerned in this shipment."

The shipowner claimed that the general words of incorporation were sufficient to incorporate the demurrage clause of charter party into the Bill of Lading contract of carriage and that the demurrage clause thereby incorporated into the Bill of Lading rendered the consignee, as holder of the Bill of Lading, directly liable for the demurrage incurred at the port of discharge. The shipowner also said that it was permissible to manipulate the wording of charter party demurrage clause so that the word "charterer" be read as "consignee" or "bill of lading holder".
The English Commercial Court and then English Court of Appeal accepted that the general words of incorporation were sufficient to incorporate the charter party demurrage clause into the Bill of Lading contract of carriage because the demurrage clause is a clause which is directly germane to the subject-matter of the Bill of Lading. However, they held that in case of general incorporation it was not permissible the manipulation of wording suggested by the shipowner and the words "charterer to pay demurrage" used in the demurrage clause of charter party should not, in the context of the Bill of Lading contract of carriage into which that clause had been incorporated, be read as applying mutatis mutandis to the holder of the Bill of Lading, namely, the consignee. Even though a demurrage clause is one which is germane to the shipment, carriage and delivery of goods, such substitution of words is impermissible. The House of Lords upheld the decision of the English Court of Appeal and held that it is inconceivable that the word "charterer" should be treated as the equivalent of words "consignee" or "Bill of Lading holder" upon incorporation into the Bill of Lading contract of carriage. The relevant paragraph of the judgment is quoted below:

"[W]here in a bill of lading there is included a clause which purports to incorporate the terms of a specified charter-party, there is not any rule of construction that clauses in that charter-party which are directly germane to the shipment, carriage or delivery of goods and impose obligations upon the "charterer" under that designation, are presumed to be incorporated in the bill of lading with the substitution of (where there is a cesser clause), or inclusion in (where there is no cesser clause), the designation "charterer", with the designation "consignee of the cargo" or "bill of lading holder"5."

However, in the decision of House of Lords it was said also that if the Bill of Lading incorporates specifically a charter party demurrage clause, then it is permissible to manipulate the wording of charter party demurrage clause, like in case of charter party arbitration clauses. The relevant paragraph of the judgment is quoted below:

"Except in circumstances where the incorporating clause identifies a specific clause or clauses in the charter-party, which require some degree of manipulation to fit them into the bill of lading there is in truth no warrant for any manipulation."


In case of the Bill of Lading forms containing or incorporating a lien clause, the claims for discharge port demurrage incurred during delivery of the bulk commodities can be based on the consignee`s implied promise to pay the outstanding demurrage charge in consideration for the shipowner giving up/waiving his lien upon the cargo. In such situations an implied contract, known in English law as a Brandt v. Liverpool contract, comes into existence between the carrier and consignee, enabling the carrier to sue the consignee for the payment of discharge port demurrage.
In US law, examples of such cases are The "Yone Suzuki"6 and The "Arizpa"7.
The relevant paragraph of The "Arizpa" case is quoted below:

"[The consignee] is not a party to the charter party or to the bill of lading, and becomes charged with the obligation to pay for demurrage only by implication from the acceptance of the goods under the bill of lading. The reason for the rule is said to be that the carrier looks to the consignee for payment, and waives its lien upon the goods by delivery in reliance upon the implied contract."

In The "Yone Suzuki" case, the liability of consignee was based on an implied promise to pay demurrage following his acceptance of the coal cargoes under the Bills of Lading that incorporated charter party lien provisions. The US Court held that the CIF buyer directed and accepted delivery of coal cargoes under Bills of Lading which incorporated the terms of charter parties expressly giving the shipowners a lien upon the cargoes for demurrage and thereby the CIF buyer impliedly promised to pay and is liable for the demurrage.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Oil Trade Review Edition No. 3.

Endnotes:

1. It may also depend upon the terms of sale contract. If the sale contract stipulates that the demurrage incurred at discharge port is to be paid by the buyer to the carrier in accordance with the charter party terms incorporated therein, then the buyer is bound by the provisions of charter party demurrage clause. See Amerada Hess Corp. v. S.S. Phillips Oklahoma, 558 F. Supp. 1164 (S.D.N.Y. 1983). If by the terms of sale contract, the buyer is bound to pay demurrage to the seller only, then the carrier cannot recover from the consignee. See Trans-Asiatic Oil Ltd. SA v. Apex Oil Co., 804 F.2d 773 (1st Cir. 1986), 626 F. Supp.718 (District Court of Puerto Rico 1985).
2. 804 F.2d 773 (1st Cir. 1986), 626 F. Supp.718 (District Court of Puerto Rico 1985).
3. [1984] A.C. 676; [1984] 2 Lloyd`s Rep. 129.
4. The charter party form leaves the parties to decide which one of the charterer or receiver is to have the responsibility for the payment of demurrage.
5. See also Tradigrain S.A. and Others v. King Diamond Shipping S.A. (The "Spiros C"), [2000] 2 Lloyd`s Rep. 319
6. Yone Suzuki v. Central Argentine Ry., 27 F.2d 795 (US Court of Appeals, 2nd Circuit, 1928)
7. United States v. Consolidation Coal Co., 63 F.2d 42 (US Court of Appeals, 4th Circuit, 1933)