AET Inc Ltd v Arcadia Petroleum Ltd "Eagle Valencia"

For over a century shipowners have tried to make charterers responsible for delays at loading and discharging ports. They have done so by aiming to insert well-known clauses in charterparties such as “Time lost in waiting for berth to count as loading/discharging time” or clauses requiring a port or berth to be reachable or accessible on arrival. Time is of course money and, if time allowed in the charterparty for loading or discharging is exceeded, demurrage will be payable. For allowable time (laytime) to begin to run, the shipowner will usually have to serve a notice of readiness indicating that the vessel is ready to load or discharge as the case may be. Under the Shellvoy 5 form on which the EAGLE VALENCIA was chartered in the present case laytime began to run 6 hours after the vessel was ready to load and a written notice of readiness had been tendered by the Master or his owners to the charterers or their agents.

Strictly speaking a vessel will not be ready to load or discharge on arrival unless and until the port authorities have (inter alia) satisfied themselves that the vessel is free from infectious disease and that the crew are thus free to make contact with the shore; that means in the time-honoured phrase that the vessel has to be granted “free pratique”.

The term “free pratique” is something of a term of art. It is defined in one maritime dictionary published online by Asia’s online Maritime Centre, and available on Google as:-

“official permission from the port health authorities that the ship is without infectious disease or plague and the crew is allowed to make physical contact with shore; otherwise the ship may be required to wait at quarantine anchorage for clearance.”

Cooke on Voyage Charters (3^rd ed) 2007 page 384 para 15.117 cites the definition given by an American case in 1967:-

“No vessel may communicate with the shore in a foreign port, in the sense of persons leaving the vessel or coming abroad the vessel or loading or unloading cargo or taking on stores, without prior permission of the shore authorities. The grant of this permission is usually under the authority of medical officers, the danger normally apprehended being contagious diseases among passengers or crew. The permission itself is generally called “pratique” or “free pratique”.”

It can thus be seen that the concept of “free pratique” involves (or is at least consistent with) a “grant” of permission.

Nowadays the granting of free pratique is likely to be something of a formality and the need for free pratique will not, at common law, prevent a notice of readiness from being given, see The Delian Spirit [1972] 1QB 103. But the parties can, of course, in their contract make other arrangements e.g. (as in Additional Clauses attached to Shellvoy 5) that time is to begin to run 6 hours after free pratique has been granted.

The facts giving rise to the dispute in this appeal in 2007 are brief and most conveniently set out in tabular form:-

The charter was dated 18 December 2006 and was based on the Shellvoy 5 form. Demurrage was stated to be: "60,000 USD PDPR". Laytime was 96 running hours. Other express terms of the charter included those falling into 2 categories. The first comprises Part II of the Shellvoy 5 form as amended. The second comprises what were described as "Shell Additional Clauses – February 1999."

Clause 13 and 15 in Part II of the Shellvoy 5 form as amended have potential relevance. The judge, Walker J, helpfully separated out and numbered parts of these clauses and I adopt his numbering.

“II.13 (1) Subject to the provisions of Clauses 13(3) and 14, …

(a)

[13.1.a1] Time at each loading or discharging port shall commence to run 6 hours after the vessel is in all respects ready to load or discharge and written notice thereof has been tendered by the master or Owners' agents to Charterers or their agents or the vessel is securely moored at the specified loading or discharging berth whichever first occurs.

[13.1.a2] However, if the vessel does not proceed immediately to such berth time shall commence to run 6 hours after (i) the vessel is lying in the area where she was ordered to wait or, in the absence of any such specific order, in a usual waiting area and (ii) written notice of readiness has been tendered and (iii) the specified berth is accessible.

[13.1.a3] A loading or discharging berth shall be deemed inaccessible only for so long as the vessel is or would be prevented from proceeding to it by tidal conditions, awaiting daylight, pilot or tugs, or port traffic control requirements (except those requirements resulting from the unavailability of such berth or of the cargo).

...

(3)

Notwithstanding anything else in this Clause 13, if Charterers start loading or discharging the vessel before time would otherwise start to run under this charter, time shall run from commencement of such loading or discharging.

(4)

For the purposes of this Clause 13 and of clause 14 "time" shall mean laytime or time counting for demurrage, as the case may be.

…

II.15 (1) Charterers shall pay demurrage at the rate specified in Part I(J).

...

Demurrage shall be paid per running day or pro rata for part thereof for all time which, under the provisions of this charter, counts against laytime or for demurrage and which exceeds the laytime specified in Part I(I). Charterers' liability for exceeding the laytime shall be absolute … .

…

(3)

Owners shall notify Charterers within 60 days after completion of discharge if demurrage has been incurred and any demurrage claim shall be fully and correctly documented, and received by Charterers, within 90 days after completion of discharge. If Owners fail to give notice of or to submit any such claim with documentation, as required herein, within the limits aforesaid, Charterers' liability for such demurrage shall be extinguished”.

...

Of the "Shell Additional Clauses – February 1999" the only relevant clause for present purposes is clause 22. I shall refer to it as "SAC 22." The judge set it out with typographical corrections and again with sentences numbered in square brackets for ease of reference:

“22.

Clearance Clause

[22.1] If Owners fail

(A)

to obtain Customs clearance; and/or

(B)

free pratique; and/or

(C)

to have onboard all papers/certificates required to perform this Charter,

either within the 6 hours after Notice of Readiness originally tendered or when time would otherwise normally commence under this Charter, then the Original Notice of Readiness shall not be valid.

[22.2] A Notice of Readiness may only be tendered when Customs clearance and/or free pratique has been granted and/or all papers/certificates required are in order in accordance with relevant authorities requirements.

[22.3] Laytime or demurrage, if on demurrage, would then commence in accordance with the terms of this Charter.

[22.4] All time, costs and expenses as a result of delays due to any of the foregoing shall be for Owners' account.

[22.5] The presentation of the notice of readiness and the commencement of laytime shall not be invalid where the authorities do not grant free pratique or customs Clearance at the anchorage or other place but clear the vessel when she berths.

[22.6] Under these conditions the NOR would be valid unless the timely clearance of the vessel for customs or free pratique is caused by the fault of the vessel.”

The Owners contended that laytime began at Escravos 6 hours after they tendered notice of readiness namely at 17.48 hours on 15^th January. On 8^th March 2007 in accordance with clause 15 they forwarded their claim with supporting documents for demurrage calculated on that basis. Charterers did not react until 21^st August 2007 but on that date asserted that laytime did not begin until the vessel berthed at 15.42 on 19^th January since

“free pratique was not obtained within 6 hours per c/p clause 22.”

They maintained this position at the hearing before Walker J relying on SAC 22.1, arguing that the notice of readiness was invalid. Owners relied on SAC 22.5 arguing that NOR was not invalid. It was not until about a fortnight before the hearing that Owners appear to have appreciated that, if clause 22.1 applied as Charterers maintained, then they could have served (and perhaps had served) a fresh notice of readiness pursuant to clause 22.2. They applied for leave to amend their points of claim to make this allegation but Charterers objected saying that any such alternative claim had not been notified within 60 days or fully and completed documented within 90 days after completion of discharge and had therefore been extinguished pursuant to clause 15 of the charter.

The judge upheld the Owners’ claim to demurrage on the basis that clause 22.5 meant that the original notice of readiness was not invalid if free pratique had been granted before the vessel berthed. He gave permission to Owners to allege their alternative case by way of amendment; although he did not need to decide whether that alternative case was viable he held that it was not because the documentation submitted had not fully or correctly identified that alternative claim.

The judge held (para 55) that it would be absurd to think that the phrase “when she berths” in SAC 22.5 excludes clearance before berthing. But I find that difficult to follow. The whole scheme of SAC 22 in relation to free pratique is to implement a different arrangement from the position as it is under Clause 13. There would otherwise be no point in having a Special Additional Clause at all. If the notice of readiness is to be valid if given at any time before berthing pursuant to SAC 22.5, it is difficult to see how clause 13 will have been altered.

As I see it, nothing in clause 13 prevents a notice of readiness being tendered in the absence of free pratique (which reflects the common law position if free pratique is expected to be a formality). Subject to an argument on the word “fail” to which I will come, SAC 22.1 provides that clause 13 will continue to govern if free pratique is granted within 6 hours of the tender of notice of readiness; but if it is not granted (and is thus, perhaps, less of a formality than expected) within 6 hours of the notice of readiness, then the “original” notice of readiness is not to be valid. That will not, however, prevent a fresh notice of readiness from being tendered once free pratique has been granted (SAC 22.2) and time will then run after 6 hours from the tender of that fresh notice of readiness (SAC 22.3). Up to that point in time, costs and expenses will (as one would expect) be for Owners’ account (SAC 22.4). This is an eminently workable scheme and, although not so favourable to Owners as clause 13, at least allows them to start the laytime clock 6 hours after such fresh notice of readiness is tendered. If the port remains congested, laytime will still accrue, although it has started somewhat later than envisaged by clause 13.

The only situation where Owners will be heavily disadvantaged will be if free pratique is only granted when the vessel berths. That may happen because it is the practice of the port only to board a vessel and grant free pratique when she has actually berthed or for any other reason. If, in these circumstances, the only notice of readiness which Owners have been able to tender is invalid, they will (unfairly) have borne the risk of congestion which clause 13 provides they do not have to bear. SAC 22.5 then comes into play because it provides that, in those circumstances, the original notice of readiness is not to be invalid but is to take effect in accordance with the terms of the charter unless (SAC 22.6) the delay is in some way the fault of the Owners.

This is an entirely understandable and workable scheme. It does not require (as the judge thought it would (para 54)) the parties to investigate and resolve what the practice of the port is. It depends on what actually happened namely whether free pratique was in fact granted on berthing (for whatever reason) not on any investigation of any kind.

Mr Ashcroft for Owners submitted that this was an uncommercial construction which should, if possible, be avoided. But it seems to me to be sensible and workable and to be likely to have been the intention of the parties. His preferred construction requires SAC 22.5 to be read “when she berths” as “at latest when she berths” and to ignore the word “not” in the phrase “do not grant free pratique at the anchorage”. This does greater violence to the clause than to read “when she berths” as “on or after the vessel berths”. The only seriously uncommercial result of Charterers’ construction to which Mr Ashcroft could point was that Owners might under SAC 22.4 have to be liable for Charterers’ expenses. Even if that were right (and there is no need to decide that matter) that could not affect the construction of SAC 22.5. It is, moreover, very difficult to see how SAC 22 has, on Owners’ construction, altered clause 13 of part II in any way.

Mr Ashcroft had a further point. He submitted that, as far as free pratique was concerned, SAC 22.1 only invalidated the original notice of readiness if the Owners were told they had “failed” free pratique. As I understood, the argument, it was a deliberate drafting device that the words “to obtain” applied to customs clearance but not to free pratique so that Owners would in some way have had to be notified that they had failed (in the sense, presumably, that the vessel had not “passed” the requirements of) free pratique. This is a strained construction of SAC 22.1. In the first place the word “fail” is frequently used to describe a situation which has not come about. It is not confined to the sense of failing something like an examination or a test. Secondly free pratique is not an exam which one can fail. It is something which, as is apparent from SAC 22.2 and 22.5 and the definitions cited earlier, is granted or not granted. If Owners apply for the grant of free pratique, it is hardly an abuse of language to say that the Owners “fail … free pratique” until it is granted. The point was not argued below and Mr Ashcroft candidly admitted that the point had not occurred to him until he looked at the newer Shellvoy 6 which has incorporated the substance of SAC 22 into the body of clause 13 of the charterparty. There the words “to obtain” have been inserted before the words “free pratique” so that they accord with the provision about customs clearance. Although Shellvoy 6 can be no guide to the true construction of Shellvoy 5, I am satisfied that the words of SAC 22.1 are apt to apply to a situation where free pratique is not granted with 6 hours of the tender of the original notice of readiness.

I therefore prefer Charterers’ construction of SAC 22 and, in disagreement with the judge, would hold that, since free pratique was granted more than 6 hours after the “original” notice of readiness was tendered, that notice of readiness was rendered invalid by SAC 22.1. It is, therefore, necessary to consider whether Owners can rely on the subsequent e-mails of 15.39 and 15.53 on 16^th January in support of an alternative case that laytime began to run 6 hours after the times those e-mails were sent.

There is no legal requirement that a notice of readiness has to be in any prescribed form. It has merely to be a statement that a vessel is ready to load or discharge as the case may be and it must be accurate in stating that the vessel is so ready. Unless the contract says otherwise, nothing else is required. The only additional requirement mentioned in 13.1.a1 of Shellvoy Part 2 is that the notice should be in writing.

The e-mail of 15.39 of 16^th January was, of course, a written document. It was sent by the Master to the Charterers and said this:-

“WITHOUT PREJUDICE TO THE NOTICE OF READINESS TENDERED ON 15-JAN-07 ON ARRIVAL

Please be informed that M. T. “Eagle Valencia” arrived and anchored at Escravos terminal, Nigeria at 11.48 hrs local time on 15-Jan-07 and is ready in all respects to load a parcel of Escravos Crude Oil as per terms, conditions and exceptions of the relevant Charter party.

Please accept Notice of readiness tendered at 11.48 Hrs local time on 15-Jan-07.

Agents R. I. C: Please inform all parties concerned.”

On its true construction this e-mail stated that the vessel was in all respects ready to load a parcel of crude oil. That, to my mind, suffices for it to constitute a notice of readiness within SAC 22.2. That is confirmed by the fact that it is “without prejudice to the original notice of readiness of 15^th January”. It is true that the e-mail also asks the Charterers to accept the original notice of readiness but that is in addition to, not a detraction from, the statement that the vessel is ready in all respects.

It is fair to say that the original notice of 15^th January was in a standard form headed “NOTICE OF READINESS” and that the e-mail was not in that standard form. It might even be the case that the Master did not think that he was serving a fresh or new notice of readiness. But both those considerations are irrelevant if on its true construction the e-mail was a fresh notice of readiness. In my view it was.

The second e-mail of 15.53 on the same day merely pointed out that free pratique had been granted at 08.30 that morning. I would not myself construe that as a (third) notice of readiness but that does not matter.

The more troubling question is whether Charterers can rely on clause 15(3) of Part II of Shellvoy 5 and, in particular, the provision that, if Owners fail to submit any demurrage claim “fully and correctly” documented within 90 days, Charterers’ liability for any such claim “shall be extinguished”. Clauses in similar terms to clause 15(3) of Shellvoy 5 frequently occur in charterparties and have given rise to a certain amount of litigation at first instance but not, so far as counsel are aware, in the Court of Appeal.

It is obviously important that demurrage claims be made promptly at the end of a voyage both because both parties will wish to have a final accounting as soon as reasonably possible and because, if any factual investigation has to be made at either the loading or the discharging port, it should be done while minds are moderately fresh. Nevertheless the draconian nature of the clause can be seen by the fact that, although the Owners submitted their claim promptly within 30 days (rather than the contractually allowed 60 days) of completion of discharge, the Charterers left it until more than 90 days had passed before they took the point that the notice of readiness on which Owners had relied to substantiate their claim was invalid pursuant to SAC 22.1. By that time it was too late for Owners to submit an alternative claim with alternative documentation based on a notice of readiness served pursuant to SAC 22.2 if that is what clause 15(3) required them to do in order to avoid the extinction of the claim. Mr Croall QC for the Charterers made much of the fact that Owners had only formulated their alternative claim a few days before the hearing but that would be beside the point if it was already extinguished in any event.

Mr Ashcroft submitted Owners’ claim for demurrage had been notified within 60 days; it had been fully documented. To the extent that the documentation was incorrect, all that was needed was a small amendment to rely on a fresh notice of readiness which had undoubtedly been sent to the Charterers when the vessel was at anchorage waiting to load. It was, moreover, an amendment which would only have the effect of reducing the claim. Could clause 15(3) , he asked, have been intended to extinguish an alternative lesser (but correct) claim?

Mr Croall submitted that there would be no question of resisting an amendment to a demurrage claim if the right documentation had been produced within 90 days but in this case the wrong documentation had been produced. No fresh notice of readiness had been sent to Charterers pursuant to clause 15(3) within 90 days or at all. No alternative (or substitute) claim for demurrage had been submitted; no alternative laytime statement had been submitted; nor had any alternative invoice; how could Charterers know what they had to pay in order to discharge their true liability?

In response Mr Ashcroft said it was unfair to Owners to deprive them of an alternative claim which they could only have been expected to present once Charterers had taken the point that the original notice of readiness was invalid pursuant to SAC 22. Neither a Master nor his Owners can be expected to have readily in mind all the different interlocking clauses of a complex contractual document, for the purpose of being able to submit all possible alternative claims to demurrage within 90 days of the completion of discharge. To my mind this consideration (even if correct) cannot be conclusive.

Disputes about the validity of notice of readiness are by no means uncommon. In those circumstances, as Donaldson J said in The Timna as long ago as [1970] 2 Lloyd’s Rep 409, 411

“It is a good working rule in such situations to give notice of readiness and to go on giving such notices in order that, when later the lawyers are brought in, no one should be able to say “If only the master had given notice of readiness, laytime would have begun and the owners would now be able to claim demurrage”.”

The fact that the Master in the present case thought it wise to send the two e-mails of 16^th January as earlier discussed shows that he had taken on board the thrust of Donaldson J’s reasoning. In these circumstances it is not unreasonable to expect an Owner claiming demurrage to include alternative notices of readiness when he submits a claim, on the basis that they may be legally relevant.

It is perhaps also worth noting that the form of the original notice of readiness had a line on which it was to be noted when it was accepted by Charterers. Had Charterers accepted the notice of readiness when it was given (or 6 hours after it was given), estoppel arguments might be available. As it is in the present case, the word “accepted” has been deleted; someone has substituted the word “received” timed at 13.04 hours on 19th January, the moment when the vessel left its anchorage and started shifting to the berth. Whatever the precise significance of this statement, it must have been clear to the Master and his Owners that Charterers were not (for whatever reason) going to agree that time would start to run from 6 hours after the original notice of readiness had been tendered.

We were referred to certain first instance authorities but decisions on clauses with different wording do not necessarily give much general assistance. I would, however, single out the helpful remarks of Bingham J in Babanaft v Avant (The Oltenia) [1982] 1 Lloyds Rep 448 albeit in connection with a differently but similarly worded clause. He said (page 453):-

“… The owners would not, as a matter of common sense be debarred from making factual corrections to claims presented in time … nor from putting a different legal label on a claim previously presented, but the owners are in my view shut out from enforcing a claim the substance of which and the supporting documents of which (subject always to de minimis exceptions) have not been presented in time.”

In the present case it might well be fair to say that the substance of the Owners’ claim was presented in time inasmuch as it was always clear that they were claiming that a particular number of days and hours had been spent at Escravos when no berth had been accessible for the vessel. But an essential document in support of every demurrage claim is the notice of readiness and, if the only notice of readiness submitted is a contractually invalid notice, the claim cannot be said to be “fully and correctly documented” within the wording of clause 15(3). That is not necessarily to say that alternative laytime statements and invoices would always have to be submitted to avoid the extinction of an alternative claim but merely to say that the documents to be submitted pursuant to the clause must include a valid notice of readiness. It is not unreasonable for charterers to require such a notice nor is it unreasonable to expect owners to supply it.

It must follow that Owners’ alternative claim for demurrage has been extinguished pursuant to clause 15(3) of the charterparty. Since their primary claim must also fail, I would allow this appeal and enter judgment for the Charterers.

I agree.

I also agree.