Don’t miss the boat

DEMURRAGE claims routinely run into tens or even hundreds of thousands of dollars. Demurrage should be a matter between the owners and the charterers, but often substantial amounts have to be paid out because a ship manager or shipbroker has not forwarded the claim documentation within the time permitted by the charter party.

ITIC has seen a whole range of reasons for non-delivery of the claim - including everything from brokers failing to tell their post-fixture department that the charterers had moved, to the far less avoidable, sudden liquidation of the courier company. The use of email systems to deliver documentation has also given rise to issues. The effect of non-delivery is inevitably the same – a demurrage claim of thousands of dollars is rejected by the charterers and the owners then claim the money from the shipbroker.

The provision of the time bar is frequently found in an additional clause because many printed charter party forms do not have such a provision. The clauses, therefore, vary considerably and may be within the text of a general time bar clause covering much more than just demurrage statements. It appears that ninety days is the average period, but this certainly cannot be relied upon. The first golden rule is to always read the clause carefully.

An example of a specific demurrage time bar clause appearing in a printed form is Clause 15(3) of SHELLVOY 5. This provides that, “Owners shall notify charterers within 60 days after completion of discharge if demurrage has been incurred and any demurrage claim together with supporting documentation shall be submitted within 90 days after completion of discharge. If owners fail to give notice of or to submit any such claim within the time limits aforesaid, charterers’ liability for such demurrage shall be extinguished.”

The first sentence of the clause is in two parts. The first part provides that the owners shall notify the charterers within sixty days after completion of discharge if demurrage has been incurred. The second and separate provision is that any demurrage claims, together with supporting documentation, shall be submitted within ninety days. The second sentence of the clause makes it clear that both limits need to be complied with for the claim to be valid.

There is no requirement that the two conditions must be satisfied in separate documents, provided that the first obligation of notification is fulfilled within sixty days. Therefore, if the charterers receive the demurrage claim and documents within those first sixty days, the claim would also act as notification and be valid. In practical terms, a problem can occur when no separate notice is given and the owners pass to the broker a full claim before the expiry of that sixty-day period.

The broker, perhaps lulled into a fall sense of security by receiving the full claim, passes it on to the charterers well within the ninety-day period, but unfortunately after the expiry of the sixty-day notice period. The charterers respond by pointing out that, since they did not receive notification within sixty days then, under the terms of this clause, the claim is time-barred.

Whether the charterers are right or wrong will depend upon the position of the brokers involved and the applicable law. If the broker is representing owners, then clearly receipt of the documents by the broker could not constitute ‘submission’ to the charterers. The position may well be different, however, if the broker concerned was acting as the charterers’ broker.

The issue has arisen in arbitrations. LMLN 151 London Arbitration 8/85 was decided according to English law. The owners had to present their case to charterers before midnight on June 13, 1983. On June 9, 1983, the owners’ agents sent the claim to a firm of shipbrokers asking for it to be forwarded to the charterers. The brokers, who had been the channel of communication throughout, forwarded the claim on June 15. The charterers refused to pay on the grounds that the claim had not been presented in time. The owners argued that the presentation to the brokers had been sufficient. The arbitrators held by a majority that the brokers had, despite the charterers’ denial, been acting as the charterers’ brokers and accordingly had authority to receive the documents on their behalf.

The fact that the owners can show that the demurrage claim was validly presented may not be the end of the matter as far as the brokers are concerned. If the charterers have been unable to pass on the claim to cargo receivers, they may demand compensation from their brokers. The charterers’ brokers may therefore be in no better position than the owners’ brokers would have been if the demurrage claim had been time- barred.

In many cases there will only be one broker working between principals with whom they have established relationships. In the cited London arbitration, the majority of the tribunal stated that, if this had been the case, and the brokers were intermediate brokers, the result would have been the same. If, however, the contract had contained a New York arbitration clause, the outcome would probably have been different.

In Sea River Maritime Inc v Enron Clean Fuels Co, the panel identified such a broker as having a dual role alternating between agent for the owner and agent for the charterer. The panel held that, when transmitting notices from the owners, they were the owners’ agents.

It is important to remember that it is necessary for the owners to be able to show that the demurrage statement was actually presented. This was the issue in another arbitration in which the tribunal accepted that the clause requiring the claim to be ‘presented to charterers’ could have been satisfied by presentation to their brokers. The onus was, however, on the owners to prove that the claim had been presented to those brokers.

In the case in question the owners had failed to provide any evidence that the claim had been delivered. The second golden rule, therefore, is to always use a postal or courier service that will generate a receipt. When the receipt is received, keep a copy in the file.

An issue that has arisen in recent times is the use of email to forward demurrage claim documentation. This has proven unsatisfactory if a dispute arises. The problem has been that the members’ systems’ have only been able to show that the message was sent to their internet service provider and not delivered to the addressee. It is possible to set up the system to produce a receipt when the message is delivered. It is important to check that it has been safely delivered.

The reason that brokers are held liable for non-delivery is the allegation that they have been negligent. If, for example, the demurrage claim has been lost under a pile of paperwork, or put in a filing cabinet and forgotten, it is clear that the broker has failed to exercise reasonable care and skill. There are, however, situations in which the position is much harder to determine.

If the owners sent the claim to their brokers so close to the deadline that it was impossible for them to forward it in time, then clearly the owners can have no cause for complaint. In practice, however, the more likely scenario is that the brokers have been slow to forward a claim that was already close to the time limit. In these circumstances it must be remembered that shipbrokers hold themselves out as providing a professional service and will be judged accordingly.

It is common to send important documentation by courier. This raises the question about what happens if the courier company, and not the shipbroker, is at fault. In practice, the courier service will have been ordered by the brokers and will therefore be responsible to them and not to the owners. The shipment will be subject to the terms of the courier’s airway bill. These will limit the amount of compensation payable to the value of the physical package, excluding any consequential loss such as a demurrage claim becoming time-barred.

Although entrusting the documents to a specialist courier company is a prudent step, shipbrokers will have difficulty avoiding liability if they have not independently checked to see that the package was received in time. It is not enough to post it and forget it. Accordingly, the third golden rule is to check that the demurrage claim has been delivered.