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Laytime and demurrage are one of the most litigious issues in shipping. The terms in the contracts are tricky as it is commonplace that shipowners and charterers face delays in ports, leading to demurrage charges to be incurred. The vague wording in the charter party contracts also provide lots of grey areas, a common cause of disputes. Hence, shipowners are often looking for ways to avoid and minimise demurrage charges. These include sending cargo and delivery instructions in advance, having a trucker back-up plan and requesting for extended free time at the port.
Laytime, lay day and demurrage
Laytime is defined as “the period of time agreed between the parties during which the Owner will make and keep the vessel available for loading or discharging without payment additional to the freight”. If a ship fails to complete the work during the allocated time and the ship is required to stay at a port for a longer time, then demurrage (fine) is incurred to the shipowner.
It is also important to note that laytime only begins after these three conditions have been met:
- The vessel has become an “arrived ship” within the terms of the charter party;
- The vessel is in all respects ready to load/discharge
- Notice of readiness has been served on the charterers or their agent in accordance with the charter party.
Lay day is defined as “days stipulated for the loading or unloading of cargo from a ship.” Lay days generally begin when the ship issues a Notice of Readiness (NOR) document to begin loading or unloading. Here is a case study where a dispute has arisen due to the timing of when the NOR was presented.
The “MEXICO I” Case Study
The shipowners of “MEXICO I” led their vessel to the charterers for the carriage of part cargo of maize from Argentina to Angola. Under the charter party, the shipowners had a right to complete the vessel with the other cargo of beans as well. On completion of loading, the vessel was also carrying a cargo of beans for the same charterer under another agreement. Both the maize and the beans were overstowed by parts of the completion cargo.
On arrival at the discharge port, the vessel tendered Notice of Readiness on January 25. However, at the time of tender, neither of the charterers’ cargo were accessible due to the overstow of the completion cargo. The charterers’ maize cargo only became accessible on February 6 and the beans on February 19, which was when both cargoes were discharged. The shipowners claimed that laytime commenced when the cargo became fully accessible on February 6. However, charterers claimed it only commenced when February 19.
The Court of Appeal held that the notice was invalid and a nullity to commence laytime even if the charterers knew the vessel’s subsequent readiness. Consequently, the charterers were entitled to insist on a further Notice of Readiness in order for laytime to commence unless they had in the meantime waived their right to a further notice or agreed that it would not be necessary.
In this case, the Judge found that although the notice was invalid, the charterers had unknowingly accepted the terms when their agents began their commencement of discharge. As a matter of principle, however, the judge confirmed that an acceptance of an invalid notice in circumstances where the charterers were unaware of the inaccuracy in the notice could not bind the charterers and they were not prevented from subsequently disputing the effect of the notice. What will constitute a waiver of the defect or acceptance of an invalid notice is considered in more detail below.
Unless there is provision to the contrary in the charter party, the statements in the notice must relate to the time that they are made and when the notice is given. There is a distinction, however, between an invalid notice and one that is uncontractual in that it has been tendered to the wrong party or at the wrong time of day. A notice that falls within the second category may still be regarded as valid.
No time? Download the free PDF versions of the articles below!
- 5 Tips to Minimise Unexpected Demurrage Fees
- To Understand the Different Types of Charter Party
- For Tips to Avoid or Reduce Demurrage Charges
- What is Laytime and Lay Day in Shipping?
Practical A-Z Guide to Laytime & Demurrage is a 3-day training course held from 9-11 March 2020 (Kuala Lumpur), designed to provide insights on how to navigate the complexities of laytime and demurrage for maximum charter party advantage. At the end of the course, shipowners will be able to maximize their collection of demurrage, and charterers will be able to reduce their potential exposure to demurrage claims and save substantial costs.