How to Resolve a Maritime Dispute?

Maritime disputes tend to be international and commercial in their nature and often highly complex. Thankfully today court litigation is not the only method for resolving a dispute. There are essentially six modern methods of dispute resolution, as follows:

Negotiation – This is where the parties get together and try to negotiate a settlement of the issues and perhaps claims between them. It can be effective because the dispute will be elevated to a higher level within the firms in question, perhaps taking the dispute out of the hands of the individuals who are at loggerheads. Commercial considerations begin to be more at play and there can be a greater appetite to compromise. It is also the most cost effective method costing nothing, other than perhaps the cost of supporting legal advice or assistance with the negotiation process.

Mediation – Mediation essentially involves the appointment of an individual to go between the parties and see if they can find common ground or tease out settlement terms that would be acceptable to both sides.

Conciliation – Tends to be reserved for employment disputes.

Adjudication – Tends to be reserved for construction disputes. This method is very quick because often there is a strict timetable for submitting evidence and providing an Award. The adjudicator in Construction disputes in the UK must provide a decision within 28 days of the instruction. This has been intentionally designed for construction disputes where daily costs are often being incurred of hundreds of thousands and if a project were to be delayed for a series of months it would cause considerable economic impact. So the parties sacrifice the ability to present their case and analyse it in granular detail for the right to obtain a swift judgment.

Arbitration – This where the parties appoint an arbitrator or a panel of three arbitrators to listen to their case and give a judgment in much the same way that a court would, but without the strict rules of evidence, delays, formality and the need for lawyers. Also, importantly, it can be done and normally is in private. So the media and the public never become aware of the facts or judgment. The parties can go to arbitration by having a standard term in their contract agreeing to do so, or by agreeing to resolve a dispute that has otherwise arisen by arbitration. They may decide on almost every element of how the arbitration should be conducted, but tend to choose a standard form of rules such as the UNCITRAL, CIArb, CII Rules etc., which provide adaptable templates for Arbitration procedures. Arbitration is by far the most common way to resolve maritime disputes and frequently the LMAA (or London Maritime Arbitrators’ Association) Rules are used.

Litigation – If all else fails the parties always have their original recourse to a court of law.

Laytime & Demurrage: A Back-to-Basics Guide

One of the more mysterious elements of shipping law, at least to the uninitiated, are the issues of laytime and demurrage. I thought, for this reason, that it might be useful to do a 'bare bones' guide to the area. As with other areas identified many people use the terminology incorrectly so don't get confused by people saying apparently contradictory things. 

This area of shipping law deals with the general principle that if you charter (hire) a ship to move cargo from A to B at a set price (i.e. a voyage charter), then you should pay the ship compensation if it gets held up whilst loading or discharging the cargo you wanted to move, i.e. if you delay in getting your goods to the port and the ship's journey takes 2 days longer as a result, you should compensate the ship for those 2 days lost. Here is the framework that has developed, in simple terms. 

Ships are not like trains and cannot confirm absolute timetables for being in place A to B, especially when they are 'tramping' (just going where ordered next and not between set ports). So, when you enter a charterparty to hire a ship to move your goods the ship is given Laydays, being the period of days in which the ship can arrive to load your goods. After this point comes the Cancelling Date; if the ship is not there by this date the charterer may cancel the contract, basically because the ship is so late they either no longer wish to move the goods or wish to use another ship. This period is sometimes referred to altogether as the Laycan (Laydays + Cancelling).

When the ship arrives to load or discharge it tenders a Notice of Readiness (NOR) to the charterer, stating that they are ready to load / discharge. After a period of time (normally 6 hours) of giving notification it is considered reasonable for the charterers to have been able to start loading, so Layitme starts to run. Laytime is a period of time set out in the charterparty which gives the charterer an allowance for time to load (often 36 hours, but depends on trade and means of loading - oil tankers load faster than bulk cargo for instance). Once the charterers used up their laytime allowance time switches to Demurrage. Demurrage is a rate of compensation per day (or pro rata per hour) that they must pay to the shipowner for holding up the ship for longer than agreed. 

If the ship is held up for reasons for which the charterer is responsible but outside the running of laytime / demurrage then the shipowner can sue the charterer for Detention. Usually the compensation awarded for detaining the ship is the same as the demurrage rate, because the parties have already agreed a convenient compensation calculation for using the ship's time outside the contract so it is easy for the courts to apply this rate. 

ARTICLE: Bareboat Charters

Charterparties are contracts for the hire of a vessel (or part of, or space onboard, a vessel). Bareboat, or 'demise', charters are a type of charterparty where the charterer hires the vessel for a period of time and just hires the ship 'bare'; in other words without a Master or crew. The charterer staffs the boat, supplies bunkers and is generally free to decide where to take the vessel and what to do with it (within the contractual limits set out in the charter). 

Often this is done as an alternative to buying a ship, whch can be a huge commitment. Say if a small shipping company is receiving more demand than it's current fleet can supply, it may not want to order a new build ship or obtain a ship mortgage to buy a second hand vessel as both are very long term commitments and there is no guarantee that the demand will be sustained. Instead they may choose to pay six months' or a year's hire for a ship, crew it and capitalise on the upturned interest in this way. If the market remains high they can always increase the charter period or even make an offer to purchase the vessel, and if the interest fades then they can merely return the ship with no further commitment (and not suffering from any loss in hull value due to depreciation or lower freight rates).

Indeed, some shipping companies will never purchase their own fleet, preferring to hire vessels on long-term bareboat charters. In these companies it is not uncommmon for them to be allowed to paint the ship in their own livery whilst it is on charter so it does appear that they do in fact own it.

Many of the standard forms of time charterparty contain the prefix 'bare' (BARECON for example), which gives a clue as to the type of charter they relate to, but a more extensive list of the main forms of bareboat charter is set out below:
BARECON 2001

ARTICLE: Voyage Charters

Charterparties are contracts for the hire of a vessel (or part of, or space onboard, a vessel). Voyage charters are a type of charterparty where the charterer requires the vessel for one voyage only, i.e. if you needed to move 100 MT of iron ore from Brazil to China, you could charter a bulk carrier and use its holds to transport your cargo from Brazil to China.

As the charterer, you only need to provide the goods for shipment at the agreed time and pay the freight charges ('freight', not 'hire' as in time / bareboat charters). The shipowner will provide the ship, equipment, bunkers, Master and crew. They will also normally pay the port expenses, pilot fees etc.

Voyage charters are commonly used in the movement of bulk cargoes and normally the charterparty is entered into in advance of the goods actually being received and sometimes in advance of them being purchased by the shipper. Therefore when the goods are presented for shipment (at the ship's rail) the Master will normally issue a Bill of Lading describing the type, amount and quality of cargo actually received. The Bill of Lading acts as a receipt only (rather than the contract of carriage itself - as in, for example, the Liner trades).

Many of the standard forms of voyage charter contain the suffix 'voy' (CEMENTVOY, ASBATANKVOY etc.), which gives a clue as to the type of charter they relate to, but a more extensive list of the main forms of voyage charter, and the cargoes commonly carried under them, is set out below:
GENCON 1976 (general bulk cargo)
GENCON 1994 (general bulk cargo)
ASBATANKVOY (oil and gas)
POLCOALVOY (coal)
AMWELSH 93 (coal)
SCANCON (Scandinavia cargo)
GRAINCON (grain)
NIPPONCOAL (coal)
OREVOY (ores)
NUBALTWOOD (wood from the Baltic)
GASVOY (liquid gas, but not LNG)
FERTIVOY 88 (fertilizer)
AUSTWHEAT 1990 (Australian wheat)
NORGRAIN 89 (North American grain)
HYDROCHARTER 1975 (phosphates etc.)

GUIDE: Towage Claims / Law

When we consider towage, we generally think of one vessel pulling another at sea. However, technically towage is merely any operation where one vessel is assisting another (helping to berth, ating as pusher tug, providing an escort, etc.

The vast majority of towage claims are claims in contract.[1] Routine towage operations under contract are referred to in law as “ordinary towage”, and are contrasted with the sort of ‘emergency’ towage which takes place during a salvage operation. In the vast majority of ordinary towage situations a tug will be providing services on a standard form of contract wording, which both parties will be familiar with.

“Knock-for-Knock” Terms (kfk / k4k)

It is important that our Members enter towage contracts which are on what is known as “knock-for-knock” terms, or terms more favourable. Knock-for-knock terms are essentially an agreement whereby each party takes responsibility for damage to their own property or injury to their own employees, regardless of how caused (i.e. who was negligent). Accordingly, the parties also agree to indemnify each other against claims brought by third parties against the wrong side. The most common standard form towage contracts all include such terms, or terms more favourable still.  

Standard Form Contracts

The main standard form towage contracts used are as follows: 

“UK Standard”[2] - These are the main terms used by harbour authorities in the UK and are used for all general day-to-day towage operations undertaken by their tugs. They are found throughout the common law world and are considered exclusionary, in that they generally exclude the liability of the tug, for damage to the tow and even for damage to the tug (which must be paid for by the tow). For this reason they are considered more favourable, for the tug, than basic “knock-for-knock” terms.

“Towcon” 2008[3] - Towcon contains a basic form of knock-for-knock terms, where the tow and tug agree to meet their own liabilities. Where the tug collides with another vessel or property it accepts liability for the damage and where the tow collides it does the same. The contract is designed for use in the ocean towage of a vessel from one place to another at a fixed rate.

“Towhire” 2008[4] - Towhire contains the same basic form of knock-for-knock terms as Towcon, but the contract is designed for the hire of a tug for a period of time, rather than for one specific job.

“Supplytime” 1989 or 2005[5] - Supplytime is not technically a towage contract but a charterparty for the hire of a vessel. However, it is often used in the offshore industry as a contract under which to hire a tug, which will then provide towage services. The contract contains knock-for-knock terms but there is a risk if the tug, once hired, is used for towage operations involving third party vessels. They may then bring claims directly against the tugowner, who would be unable to rely on contractual defences or limits.

Contracts at Common Law 
Sometimes terms are not agreed in advance of the towage operation, or the terms used by the tug are not properly incorporated into the contract of towage. In these circumstances the courts will apply what they call an ‘ordinary contract of towage’. This is a contract with only basic terms, under which the owner of the tug is required to provide a seaworthy tug, which is properly manned and equipped and they must be competent and use skill in carrying out the operation.

A common law towage contract, such as this, is not desirable for a tugowner because although it still absolves them of liability for accidents beyond their control, it does not provide the necessary defences, limitations of liability and safeguards that the normal standard form conditions provide.

The often cited general principle of towage that "tug is servant of tow", in other words the tug is (generally) the smaller vessel and is only acting under the instructions of the larger vessel. The principler comes from The Niobe (1888).   

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[1] There are some notable exceptions. In salvage claims where there is no contract claims arising are based on equitable rights at common law. In so-called ‘gratuitous’ towage situations, where no charge is made for the towage service, claims are based in tort. And where the tow is capable of being considered ‘property’ (say a dumb barge incapable of independent navigation and with no crew) then a claim in bailment is also possible.

[2] UK Standard Conditions for Towage and Other Services (Revised 1986) – Issued by the British Tug Owners Association.

[3] BIMCO’s Towcon 2008 – International Ocean Towage Agreement (Lump Sum).

[4] BIMCO’s Towhire 2008  – International Ocean Towage Agreement (Daily Hire).

[5] BIMCO’s Supplytime ’89 / Supplytime 2005 – Time Charter Party for Offshore Service Vessels.

GUIDE: Contracts of Affreightment

There are two basic types of contract of affreightment:

1)      Bills of Lading; and

2       Charterparties.

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BILLS OF LADING

“A document issued by a carrier, to a shipper, acknowledging that goods have been shipped on board for conveyance to a specified party and place.”

A Bill of Lading has three main purposes:

a)     1. It acts as a receipt for the goods, showing the carrier took possession of them,

b)     2. It is evidence of a contract of carriage,

c)      3. It is a document of transfer, being freely transferable.

Common Types of Bill

Straight Bill – This is a non-negotiable Bill, stating clearly the consignee’s name. It can be endorsed over, but it is risky as if the carrier had for instance a maritime lien over the goods, the endorsee is bound by it in the same way the

Sea-Waybill – This is simply a receipt for cargo, and not a document of title. It is not transferable or negotiable. It is commonly used today when a company is shipping goods between branches in different countries, or where the cargo will arrive with the consignee before the original documents do.

Through / Multimodal / Combined Bill – Cargo carried under this type of Bill of Lading will go right through to destination, in other words by sea then by rail, or road or airfreight.

House Bill – The covering Bill to the real Ocean or Master Bill, issued by a freight forwarder.

Liner Bill – A Bill of Lading issued by a carrier that provides a regular service on a specified route. 

The Process

* Generally, once cargo has been shipped (or sometimes before) three original Bills of Lading are drawn up by the carrier, and one is given to the shipper. The information is usually just that supplied by the shipper.

* Sometimes the shipper draws it up and the carrier merely signs it, but this is unusual.

* They should not bear a date that is earlier than the date on which the cargo was fully loaded on board (The Wilomi Tanana [1993]).

Identifying the Carrier from the Bill of Lading

* The court will look at the logo printer on the Bill, the signature and wording of the signature box, and the terms on the back; specifically whether there is an IOC (Identity of Carrier) Clause.

CHARTERPARTIES

“This is a contract between a shipowner and someone who wishes to hire o let their ship, for a period of time or for a particular voyage.”

Types of Charterparty

Time Charterparty – This is where you hire the ship for a set period of time. The owner remains in charge of it but you can take it where you like, transporting what you like. You pay a fee plus the fuel you use and port charges you incur. 

Demise / Bareboat Charterparty – This is a sub-type of Time Chartering, where a ship is hired for a long period (years) and the charterer provides crew, insurance, maintenance themselves. Often the charterer obtains ownership after a set period of payments, and the Charterparty therefore acts as a form of finance (like HP on a car) for the sale of the ship.

Voyage Charterparty – This is where a cargo interest just charters a ship for one particular job (moving a bulk pig iron purchase from Rio to Beijing for instance). No crew costs, fuel costs or port charges are passed on by the owner, there is usually only one catch-all fee (but the charterer pays the stevedores). A miniature version is a Slot Charter Agreement, where a carrier agrees to give a charterer a certain number of container slots on a voyage from x to y.

COMMON CLAUSES IN C/P WORDINGS

Bunker Clause (Fuel Clause) – The charterer agrees to pay owners for all fuel on the vessel at the time of taking it over (delivery) - at the market rate at the port of delivery. The owner agrees to do the same to the charterer with any fuel left at the port where the vessel is returned to owners (port of redelivery).

Ship Clause – The owner of the ship warrants that the ship will be seaworthy in every respect at the point of delivery or beginning of the voyage.

Ice clause – Inserted when the ship is headed for a port which may be closed due to ice.

Lighterage Clause – Usually spells out that vessel can deliver goods near the port (for onwards transit by lighter) instead of exactly at it if necessary. Sometimes also declares that the delivery can be at any port in a certain range – Thamesport, Tilbury or Felixstowre for example.

Negligence Clause – Typically excludes shipowner’s liability for loss or damage to the goods during transit, save for a lack of due diligence by them.

Ready Berth Clause – Essntially says that shipowners have completed their job once they have arrived at the delivery port, and not once berthed , as in many ports they may have to wait for a berth and they will not pay the costs of this, and indeed the ship will charge for any laydays spent waiting for such a berth.

COMMON WORDINGS

Because of the complex nature of charterparty agreements and the number of clauses and safeguards that need to be built in to satisfy each party generally a charterparty agreement is entered into on a standard industry wording, such as a Gencon, Heavycon, Barecon etc., as appropriate. Sometimes the satandard wording is used, but more commonly an amended form of that wording is agreed, with some clauses removed, added and / or amended.