OUR KNOWLEDGE / PUBLICATIONS / LAYTIME AND DEMURRAGE IN SALE CONTRACTS

Suek AG v Glencore International AG [2011] EWHC 1361

In this recent case, the Commercial Court considered the construction of laytime and demurrage provisions in a sale contract.

Background and relevant terms of the contract

The case concerned a contract for the sale of 390,000 metric tons (+/- 10%) of coal by Suek AG (the Claimants) to Glencore International AG (the Respondents) in 6 shipments across 2010 on a CIF basis.

The key terms of the sale contract were as follows:

“7.1 The shipment of the Coal from the Loading Port to the Discharging Port shall be the responsibility of the Seller. The Seller shall arrange the shipment of the Coal to be delivered under a Clean on Board Bill of Lading….

7.11 The Buyer shall provide a safe berth for the Carrying Vessel at the Discharge Port…

7.13 Upon arrival at the Discharge Berth the Master of the Carrying Vessel shall give a Notice of Readiness to discharge at any time during the day or night SSHINC whether in Free Pratique or not, and whether customs cleared or not, by telex, radio or e-mail. Except for Wilhelmhaven where Notice of Readiness to be tendered within office hours Mon-Fri 8.00 am – 5.00 pm and Sat 8.00 am – Noon. In case the berth is occupied on arrival, vessel can tender NOR at the usual waiting place ATDN SSHINC, whether in berth or not, whether in port or not, whether in Free Pratique or not, whether customs cleared or not.

7.15 Laytime shall commence 12 hours after Notice of Readiness for discharging has been tendered in accordance with the Clause 7.13, herein or upon commencement of discharging whichever is sooner.

7.20 Time taken waiting for first available tide after the Carrying Vessel's arrival and/or to shift from pilot station or anchorage to berth, and opening of the Carrying Vessel's hatch covers shall not count as laytime or time for Demurrage.

7.21 Periods of bad weather shall not count as laytime subject to such bad weather conditions being duly recorded in the SOF and signed for by all parties.

The issue in dispute

The dispute arose when the vessel upon which one of the shipments under the contract was to be carried arrived at the discharge port and found that the berth at which it was to discharge the cargo was occupied by another vessel. In addition, the tidal conditions were such that the vessel would have been unable to reach the berth even if it had been available. Notwithstanding this, the Master gave NOR on arrival at the usual waiting place.

The issue for determination by the Commercial Court was whether, given that the berth at which the vessel was to discharge was occupied by another vessel such that she was unable to reach the berth upon arrival, and also given that the tidal conditions were such that the vessel would in any case have been unable to reach the berth on arrival, was the Master entitled to give NOR at the usual waiting place, such that the NOR was one tendered in accordance with Clause 7.13 of the contract?

Suek argued that this was not a port charterparty or a berth charterparty but was a contract of sale in which the seller was not the carrier but simply nominated a carrying vessel and arranged to ship the coal to the port. In addition, Glencore were responsible for providing a safe berth for the carrying vessel at the discharge port. With regards to Clause 7.13, Suek argued that the vessel was entitled to tender NOR upon arrival at the usual waiting place regardless of the fact that the vessel is not in berth, in port etc.

Glencore, on the other hand, argued that the primary obligation was on Suek to carry the cargo to the berth. Further, it was contended that the WIBON provision in Clause 7.13 imported an obligation for Suek to establish causation, such that the Clause 7.13 exception is to be construed as applying only if the vessel has arrived and the unavailability of the berth is the sole reason why the vessel cannot proceed to berth. The argument followed that if there were weather or tide problems, then the vessel must wait until that condition had cleared and only if the berth remains unavailable at that time can the Master give NOR.

The decision of the Commercial Court

Mr Justice Burton agreed with Suek and concluded that it would not be correct to interpret the Clause 7.13 exception as interfering with an overriding or otherwise primary obligation of the buyer to provide a berth. Whilst the Judge acknowledged that there may be some inconvenience to the buyer if NOR is given when both causes (i.e. congestion and tidal conditions) exist at the time of the vessel's arrival at the port and the berth then becomes available before the weather/tide conditions lift, it remains the case that the buyer was under a primary obligation to provide a berth. In any event, the Judge noted that if a berth was available when the vessel arrived at the port then, irrespective of weather or tide conditions, the buyer would be protected and service of an NOR would not be permitted if the berth was available and the only cause preventing the vessel from reaching the berth was weather/tide conditions.

Ultimately, the Judge was convinced by Suek's arguments as to simplicity. He noted that Glencore's case would require a re-writing of Clause 7.13 so that the exception would only apply if the unavailability of the berth were the only reason why the vessel could not access it. The Judge saw no need for such re-writing and concluded that, notwithstanding the presence of tidal conditions that would have prevented the vessel accessing the berth, the unavailability of that berth entitled the vessel to give NOR.

Ted Graham
Partner, London
ted.graham@incelaw.com

Carl Walker
Solicitor, London
carl.walker@incelaw.com