Asdem News Update - No.

44: September 2010

NOTICE OF READINESS, FAILURE TO OBTAIN FREE PRATIQUE AND

TIME BAR

We reviewed the High Court judgment in AET Inc. Ltd. v. Arcadia Petroleum, The
"Eagle Valencia" [2008] in News Update No.42. We described it as "an interesting
example of the court looking at the charter party as a whole to decide the intentions of
the parties rather than dwelling on the wording of a single clause". The Court of
Appeal has now overturned this decision in AET Inc. Ltd. v. Arcadia Petroleum,
The "Eagle Valencia" [2010] EWCA Civ 713. The fixture was under a Shellvoy5
charter party with Shell's additional clauses of February 1999. Additional clause 22
stated that if owners failed to secure customs clearance or free pratique within 6 hours
of tendering Notice of Readiness, the NOR would not be valid. However, the original
NOR would still be valid if the authorities granted free pratique only after the vessel
had berthed.

At Escravos, the health authority boarded the vessel while it was at anchor and
granted free pratique about 20 hours after it had arrived and tendered NOR. The
charterers claimed that the NOR was invalid and the Court of Appeal has now agreed
with them. If free pratique was granted within 6 hours of arrival, it would be treated as
a formality and laytime would run in the usual way. If it wasn't granted, the NOR
would not be valid. However, there was nothing to prevent a new Notice of Readiness
from being tendered as soon as free pratique was granted. Laytime would then run
from six hours after the new NOR. Clause 22 gave owners specific protection in as
much as the original NOR, tendered on arrival, would still be valid if the vessel did
not receive free pratique until after it berthed. This was "an entirely understandable
and workable scheme", albeit one that wasn't particularly favourable to the ship
owner.

As a result, the owners were time barred from recovering their demurrage. They had
submitted a copy of the initial Notice of Readiness with their claim and this NOR was
invalid. The Master had subsequently issued a second NOR by email, several hours
after free pratique had been given. This was held to have been a valid NOR but,
unfortunately, the owners had not included it with their claim within the 90-day time
bar. Lord Justice Longmore, the leading judge in this case, said the Notice of
Readiness was "an essential document in support of every demurrage claim" and
quoted the advice of the judge in The Timna [1970]2 Lloyd's Rep 409, quoted in
Asdem News Update - No. 16. He also referred to the remarks of the judge in another
well-known case on time bars, The "Oltenia", Babanaft v. Avant Petroleum,
[1982] 1 Lloyd's Rep 448 "The owners would not, as a matter of common sense be
debarred from making factual corrections to claims presented in time ... nor from
putting a different legal label on a claim previously presented, but the owners are in
my view shut out from enforcing a claim the substance of which and the supporting
documents of which (subject always to de minimis exceptions) have not been
presented in time".

USCG CERTIFICATE OF COMPLIANCE

The US Coast Guards' inspection regime for tankers operating in US waters

requires a vessel to hold a valid Certificate of Compliance (COC). This replaced
the TVEL (Tank Vessel Examination Letter) a few years' ago. Although the
COC is valid for two years, the Coast Guards must conduct an interim
examination after one year. Incidentally, this is what the COC looks like:
http://www.handytankers.com/Lists/Fleet
%20Certificates/Maersk_Bering_Certificate_of_Compliance.pdf

Without a valid certificate, the vessel cannot load or discharge which may
prevent the tendering of a valid NOR. We referred to this in relation to the
TVEL in News Update No.24. However, the annual interim examination is
unlikely to invalidate an NOR unless the wording of the c/p makes it very clear
that an overdue interim inspection will have this effect. Most likely, only the time
for carrying out the interim examination will be deductable from the charterers'
used laytime. This was the conclusion of a recent New York SMA arbitration
between Chembulk Trading and Interchem Logistics. The charter party was an
amended Asbatankvoy form.

FAILURE TO PROVIDE CORRECTLY TENDERED NOR CERTIFICATES

Ship owners should be aware that London arbitrators appear to be taking an
increasingly strict view about the documentation required to substantiate a demurrage
claim. For example, if the charter party does not permit tendering of the NOR by
email (as is the case with older c/p's such as Asbatankvoy and BPVOY3), a copy of
an emailed NOR will not be sufficient to satisfy the requirement to provide "full and
correct supporting documentation" of the demurrage claim. This will be the case even
if the time bar clause did not stipulate that the NOR certificate was required and the
time of the NOR was clearly shown on the statements of facts. One reason for this is
the appreciation by arbitrators that the charterers often have to pass on the documents
in order to recover demurrage from their suppliers and receivers under related sales
contracts. These documents may have to correspond strictly to the terms of the charter
party.

OIL SALES CONTRACTS – INDEMNITY CLAUSES FOR DEMURRAGE.

It is quite easy to turn the absolute obligation to pay demurrage under the terms of a
sales contract into an indemnity by including a clause such as "It is understood that
the Seller will not charge demurrage in excess of the total amount they incur on the
voyage" or similar. We discussed this a long time ago in News Update No.4. One
question arising from this clause which has created a number of recent disputes is
whether or not the address commission received by the charterer should be deducted
to establish the net amount of demurrage payable under the indemnity clause. Having
discussed this point with a number of experienced maritime lawyers, we have come to
the conclusion that it depends on the precise wording of the clause. If, as in the
example above, the clause refers to demurrage incurred, the claimants can claim the
demurrage they incur, i.e. the gross amount. Any commission they receive back from
owners is a separate issue. However, if the indemnity clause refers to "no more
demurrage than is paid to the owners" the claimants cannot recover more than the net
amount because this is all they have actually paid to the owners.

SPECIFICATION AND CERTIFICATION CLAUSES

Article from Andrew Wilding, Managing Director, Asdem Asia Pte Ltd.
Specification, quality and certification clauses which are included in sales contracts
are called express terms. The seller will be expressly obliged to supply according to
the grade and specification set out. It is important to be aware that there are a variety
ways in which these express terms can be extended or modified by terms which are
not written in the contact itself but are incorporated by being implied or applied to it
by law.

The English Sale of Goods Act 1979 implies a number of compulsory legal rules
requiring that goods sold under a contract of sale must be of satisfactory quality and
fit for use at the receiving terminal. These terms are automatically incorporated into
the contract unless they have been excluded.

At common law, there is an implied undertaking in a CIF/CFR sale that the product
meets the contract specification and description when the cargo is delivered on to the
vessel and for a reasonable time after delivery. This implied term means that the cargo
should remain in accordance with the contract specification for the intended voyage.
Somewhat controversially, as the law stands at the moment, even with final and
binding certification at the load port, a seller may still be liable for latent deterioration
that occurs during the voyage which is only discovered on discharge. Proving a
breach of this implied term may be difficult and needs to be supported by independent
expert evidence. See Mash & Murrell Ltd v. Joseph L. Emanuel Ltd [1961] 1
WLR 862.

The High Court has recently considered and confirmed the law as stated above in The
Mercini Lady [2009] EWHC 1088 (Comm). However, this judgment is under
appeal. We understand that the Court of Appeal decision will be handed down shortly
and we shall report on how it alters the current legal position. A key issue in the
reasons supporting the decision of the High Court in The Mercini Lady was that by
using an appropriate clause the sellers could have excluded liability for breach of the
statutory implied terms under the Sale of Goods Act 1979 and also their common law
obligations.

As far as certification is concerned, a common provision in the oil industry is that

quality and description will be ascertained and certified by a mutually agreed
independent inspector at the load port. This inspection is often stated to be "final and
binding". As a matter of law, the intention of such a certificate is to provide
conclusive proof of the condition of the product when it is delivered and its purpose is
to bind both parties. See Toepfer v. Continental Grain Co [1974] 1 LR 11; Gill &
Duffus S.A. v. Berger & Co Inc [1983] 1 LR 622. However, there are circumstances
in which a certificate will not be final and binding, thereby exposing the seller to
quality claims. These include fraud or a very obvious error on the part of inspector, or
because the certificate was not prepared in accordance the instructions in the contract.
See Veba Oil Supply and Trading GmbH v. Petrotrade Inc [2001] EWCA Civ
1832; "The Kriti Palm" [2006] EWCA Civ 1601.

It is therefore most important to look at terms agreed in the contract to ensure

instructions for taking and testing samples have been followed correctly. There is a
risk that if they haven't, the test certificate will not be final and binding - see News
Update No. 31. Unfortunately, the details included in testing clauses can sometimes
be overlooked when operational instructions are issued to the inspectors, the loading
terminal or to the ship's master.

ASDEM TRAINING COURSES

Please see the attached list of Asdem training courses for the remainder of 2010. Full
details of each event can be found in the Conferences & Training Seminars section
of our website. We are currently arranging dates and venues for our 2011 programme
and these will be added to our website as soon as possible. For further information
please contact Sarah Ellis, our training course co-ordinator, a tsarah@asdem.co.uk.

PETROLEUM TECHNOLOGY, REFINING AND BLENDING

The Chesterfield Hotel, London W1 & The Intertek Caleb Brett Laboratory at
Grays, Essex. 21/22 October 2010

Martin Stokes, Asdem's Senior Technical Consultant, has called on his many years of
practical experience in the oil industry to design a course where delegates will learn as
much as possible about refining processes and the specification of the different
refined products, from LPG through to bitumen. They will also gain an appreciation
of the basic principles of blending oil products. This 2-day course will be of interest to
operators, traders, claims analysts and anyone from oil trading companies, ship
owners and service companies who would like to have a better understanding of
refining, product qualities and blending. More Details >>

LAYTIME AND DEMURRAGE TRAINING FOR THE OIL & TANKER

INDUSTRIES

2/3 February 2011, The Pepper Club, Cape Town, South Africa.

Roger Sepkes, Managing Director of Asdem, last ran this course in Cape Town
in 1999 so the next one is somewhat overdue. He has arranged to run it in
conjunction with Derek Irwin, an experienced demurrage consultant who is
Asdem's representative in South Africa. The programme is constantly updated
to ensure it provides a thorough understanding of all the topics that a demurrage
analyst needs in order to handle claims efficiently and accurately on a daily
basis. The theory of demurrage, detention and deviation is fully explained and is
supported by plenty of opportunities for practical calculations. The course also
provides essential knowledge for operators, traders, charterers and lawyers
responsible for agreeing or operating oil sales contracts and tanker charter
parties. More Details >>

10TH INTERNATIONAL CONFERENCE ON TANKER DEMURRAGE

A date for next year's diary. Our biennial Conference on Tanker Demurrage will
be held at The May Fair Hotel, London on 18/19 May 2011. We have started
working on the programme and will publish it as soon as it has been finalised.

ASDEM EXECUTIVE SEARCH AND RECRUITMENT

We have a selection of interesting vacancies on our website in many areas including

claims, operations, shipping, trading, risk analysis, in-house legal and finance. These
can be accessed directly at:Asdem recruitment. For further details on any of these
positions or if you have vacancies that need to be filled, please contact Elizabeth
Davies at elizabeth@asdem.co.uk

30TH DEMURRAGE DRINKS EVENING

The next drinks evening, our 30th, will be held on Monday, 11th October and will
be sponsored by Vitol. We have arranged these evenings twice a year since 1996
because they offer an excellent opportunity to meet like-minded people involved
in all aspects of shipping and trading claims. As usual, a light buffet will be
provided. Please make a note of the date in your diary and let us know if you are
going to attend. Details are as follows: