Laytime and demurrage in wet cargo trade
Introduction
For those in the business of shipping, delays can be costly. It is common practice for shipowners to charter vessels in return for freight. When calculating freight, shipowners take into consideration the period of the charter. Therefore, where a shipowner has calculated freight based on the time for which the vessel will be in the charterer’s possession and the charterer is then delayed, the owner will lose profit. However, the law provides the shipowner with a possible remedy.
‘Laytime’ and ‘demurrage’ are important terms in a charterparty and carry significant financial implications:
‘laytime’ refers to the time allowed in a voyage charter for cargo to be loaded on to or unloaded from a vessel; and ‘demurrage’ is incurred after the permitted laytime is spent.
Both terms involve the time allocated for a vessel to be loaded or unloaded and the penalty incurred where the vessel has been unjustly delayed. In order to protect the shipowner from suffering loss, charterparties usually provide for compensation if the charterer is delayed.
When does laytime commence?
Before a vessel is ready to commence loading or discharging, it must be at the destination as specified in the charterparty and ready to take on or discharge cargo. Further, where required, a notice of readiness must be issued to the charterer of the vessel, notifying him or her that the vessel is ready. When these conditions have been fulfilled, the vessel is classed as an ‘arrived ship’.
In Alfortrin Limited (The Owners of M/V Fotini) v The AG of the Federation (Vol 6 327-366) the Supreme Court was faced with the question of what constitutes ‘demurrage’. Justice Iguh stated that:
“‘demurrage’ connotes reasonable compensation or damages to be paid for delay or allowed detention of a chattel, such as a ship or truck on hire or charter beyond the agreed period of such hire or charterā¦ Indeed in the mercantile world, demurrage is often used in a wider sense as including both demurrage strictly speaking and damages for detention.”
The appellant’s vessel had been diverted from Lagos to Tema, Ghana, after congestion at the port in Lagos had prevented it from being able to discharge cargo. Ighu further opined that:
“In the present case, the original contractual carrying voyage with accrued demurrage came to an end as soon as the offer in respect of the latter carrying voyage from Lagos to Ghana was made by the Respondents and accepted by the Appellants. As at that stage, the vesselā¦ was already in demurrageā¦ The maxim is firmly settled that once on demurrage, always on demurrage until the vessel is fully discharged unless of course, the owners removed it for their convenience. There is no suggestion in the present case that the Appellants at any stage removed their vessel for their own purpose or convenience.”
Do all delays count as laytime?
The tanker voyage charterparty Asbatankvoy provides for instances where a charterer may avoid paying demurrage or pay at a significantly reduced rate. This is possible where:
a vessel suffers delay at berth, even after giving a notice of readiness, and the charterer has no control over such delay (Clause 6); the delay is due to the vessel’s condition or inability to load or unload cargo within the time permitted by the charterparty (Clause 7); or demurrage is incurred at a port of loading or discharge due to stoppage, restraint of labour, breakdown of machinery or equipment ashore, or an explosion. In this case the rate of demurrage will be halved (Clause 8).
Owing to the nature of the discharge operation in the wet cargo trade, charterers may be concerned as to where Clause 8 will apply (eg, how the court will interpret “the breakdown of machinery or equipment”). Although there appear to be no Nigerian cases which interpret this principle, a number of English cases have provided appropriate guidance.(1)
Comment
While delay can be expensive for a shipowner which suffers loss where a charterer delays the loading and discharge operation, a charterer should not have to pay demurrage for such delay where it can be proven that it was not at fault. It is imperative to ensure that, before executing the contract of carriage, both parties are clear on the laytime and, most importantly, on clauses which stipulate where a charterer is relieved of its obligation to pay demurrage or where the rate payable is reduced by half. Failure to do so could prove costly.
For further information on this topic please contact Ngozi Medani at Akabogu & Associates by telephone (+234 1460 5550) or email (ngozi@akabogulaw.com). The Akabogu & Associates website can be accessed at www.akabogulaw.com.
Endnotes
(1) For example, see The Afrapearl (2004 2 LLR 305) and Thanassis A Olbena SA v Psara Maritime Inc (unreported, March 22 1982).
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