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TFCApr2019-Day2slides.pptx

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Gafta GPD Trade Foundation Course

23rd – 26th April 2019

London

Day Two

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Introduction to Shipping

Roger Rookes

Gafta Arbitrator

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Introduction

Our business is the movement of goods from one place to another by sea.

Many different roles are involved, not just inland at the origin and destination but also specifically for the shipment of goods:

exporters / importers / brokers and associated stevedores, superintendents, agents, fumigators, customs officials, health inspectors etc.

Other speakers will deal specifically with some of these roles.

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Predominantly, our goods are moved in bulk, but also in bags and/or in containers.

There are thousands of commercial vessels:

- bulk carriers

- general cargo ships (tween deckers)

- container ships

- ro-ro

- tankers (both mineral and vegetable oil)

- gas carriers

- specialist vessels (e.g. heavy lift)

Introduction (2)

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DIFFERENT TYPE OF BULK CARRIERS

Restricted number of ports / commodities

Iron Ore + Coal

Iron Ore + Coal + Grain + Sulphur + Coke + Petcoke + Phosrock +Bauxite + Alumina +…

Iron Ore + Coal + Grain + Sulphur + Coke + Petcoke + Phosrock + Bauxite + Alumina + Steel + Mineral Concentrates + Salt + Rice + Tapioca + Sugar + Pig iron + Potash +Cement + Clinker + Scrap Large number of ports / commodities

+…

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Ship’s particulars

Main particulars

(WATER) DRAFT

Freeboard

Beam

Air Draft

Water line to top of hatch-cover

Keel

Water line

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Ships’ particulars II

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What to think about when fixing a vessel…

Tramp or liner?

Size:

Contract quantity

Grain capacity

Gear

Port limits (access, draft, aircraft, cargo equipment)

Water - fresh, salt, brackish

Vessel size (LOA, Beam, max draft, height to hatch coamings, DWT, airdraft)

Class

P&I cover

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Stowage Factors

Safe stowage

TPC or TPI

Commodity	cu.ft/mt	cu.m/mt
Wheat	45/50	1.27/1.42
SBM	50	1.42
Maize	50/53	1.42/1.5
Barley	52/55	1.47/1.56
Steel billets	18	0.51

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The container revolution (1)

Historically, containers for shipping goods were not one standard size

Goods were loaded in a variety of items, such as sacks, barrels and other boxes, making the loading operation a bit like a jigsaw puzzle

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The container revolution (2)

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The container revolution (3)

The first standard-sized shipping container was introduced in the 1950s

Having a uniform container had several advantages:

Increased speed of loading

Better security of cargo

Reduced cost of loading

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The container revolution (4)

Container Types

Dry

Refrigerated

Specialized

Flat Rack

Open Top

Tank

Container sizes

Standard width = 8 feet

Heights

Standard = 8 feet

High Cube = 9 feet 6 inches

Lengths

Standard = 20, 40 & 45 feet

Others = 10, 30, 48 and 50 feet

Industry measurement

1 TEU = 1 twenty foot equivalent unit

1 FEU = 1 forty foot equivalent

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The movement of goods

The shipping documents should record the history of the movement:

- Mate’s Receipt or Bills of Lading

- Certificate of Origin

- Certificates of Weight / Quality etc

- Phytosanitary and Fumigation Certificates

- Insurance Certificate

Who issues them? What terms do they show?

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Timeline of a transaction & key parties

With seaborn bulk trade it all starts with a buyer and a seller each located in different countries and needing logistical arrangements to complete their trade.

These services include:

Storage

Transportation

Insurance

Brokerage

Supervision

Freight forwarding

Laboratory analysis etc

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Broker (commodity)

Put together Buyer & Seller and helping them confirm a trade.

Broker (shipping)

Assists either Seller (CIF or C&F) or Buyer (FOB) to find vessel

Bank

Finances the operation

Usually draft and confirm contract

Helps negotiate charterparty terms

Drafts charterparty or contract

Cargo side: CAD, L/C, prepayment, performance bond etc

Insurer

Usually via a broker

Either:

CIF: Marine and storage policy

FOB/C&F: Sellers interest policy

Operators/Execution

Freight: Operators

Cargo: Execution

Take over contract and charterparty

Typically take over ancillary service providers

Timeline of a transaction & key parties

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Warehouse/silo

Receive, store & deliver goods on board vessel

Stevedores

Where mandatory

Superintendent

Supervise loading & discharge

Issue warehouse receipt

Check quantity through SMA (stock monitoring agreement) or CMA (collateral management agreement)

May operate cranes if required

In port or where goods handling is needed

Carry out sampling

Ascertain weight, quality & condition

Issue certificates

Vessel master

Usually First officer or First Mate

Supervises whole loading operation

Issues Mate’s receipts (before B/L)

Laboratory

Runs analysis of samples against contract specifications

Other service providers

Fumigation

Execution staff

Check certificates

Bank

Check documents against L/C

Phytosanitary sampling analysis

Certification of origin

Issue certificates of above

1st tier issues

Cargo underwriters

Average adjusters

P&I

2nd tier issues

Legal services

Mediation

Arbitration

Transactional process in the shipping of goods. From negotiation and loading through to discharge at destination.

The example attached in the following slides includes reference to the physical contract for the goods, the associated charterparty to transport the goods and then payment for the goods under a letter of credit.

With the example used there are in fact three specific contracts which make up the transaction.

The first is the Physical Contract for the goods.

The second is the Contract governing transport, in this case the Contract of Carriage (Charterparty).

And the third is the contract and obligations surrounding the payment terms associated with a Documentary Letter of Credit (L/C).

We have attempted to make the example relatively uncomplicated and consequently the Buyer is also the end receiver. Clearly however, there are many permutations associated with the transaction of goods and their delivery. The commentary given within the slides is not intended to be comprehensive enough to cover all eventualities but nevertheless it does give an indication of the elements of a transaction that the participant in this course will need to consider in greater detail.

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Goods remain in silo/warehouse for ultimate receiver

Seller’s Stevedores complete loading at Seller’s load port

Buyer presents vessel to Seller

Buyer agrees Charterparty with Vessel Owner

Seller collates docs inc;

Invoice, Quality cert, Phyto,

B/L

Master signs B/L - Receipt to Sellers for goods loaded

Superintendent provides quality cert & any other relevant quality docs to Seller

Seller presents all required docs to Buyer’s bank for payment

Buyer opens L/C on Buyer’s Bank

Bank checks docs against L/C & pays Sellers if all in order

Vessel arrives at Destination

Stevedores unload the goods into storage on behalf of Buyer

Physical contract negotiated

Parties

Broker

FOB Seller

FOB Buyer (end receiver)

Physical contract timeline

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Contract of carriage (Charterparty) timeline

Charterparty will include amongst many other things; cancelling dates, laydays, despatch & demurrage rates.

Buyers’/Charterers’ Freight Forwarding team, will monitor all aspects of the charter from the initial charter fixture, through to discharge of the vessel.

Payment terms will depend on whether ‘Voyage’ or

‘Timecharter’

Many of the parties responsibilities and liabilities rests with the type of charter

Parties

Broker

FOB Buyer

(end receiver)

Vessel owner

Charterparty negotiated. FOB buyer becomes the ‘Charterer’

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Shipping documents

Diane Galloway

Gafta Arbitrator

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Bills of lading and their functions

What is a B/L?

A document issued by or on behalf of the carrier, to a person (usually shipper), who has contracted with the carrier for the carriage of the goods to the place of delivery.

Usually negotiable and transferrable

Parties:

Carrier, shipper, consignee/ holder

A vital document as relied upon by all parties to the transaction

3 functions:

Receipt for the goods – proof of loading in good condition by the seller

Evidence of the contact of carriage – ship owner / bill holder

Document of title – the ‘key to the cargo’

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The overview of contracts

Sale/Purchase Contracts

Banking Contracts

Carriage Contract

Insurance Contract

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Bills of lading: a transferable contract

Transfers rights to delivery of the goods

Transfers contractual rights against the shipowner

Sale contract risk passes on shipment – so buyer looks to shipowner if goods arrive damaged

Buyer is entitled to a “reasonable contract of carriage” for the goods under the sale contract

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What will you see on bills of lading 1?

Front contains specifics:

Ports of loading and discharge

Carrying vessel and any incorporated charterparty

Shipper/consignee/notify party / “To Order”

Signature box

Issue date / shipped on board date

Whether freight is paid [why important?]

“shipped” in “apparent good order and condition”

“weight, measure, quantity, quality…unknown”

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What will you see on bills of lading 2?

Reverse contains standard terms – few terms  C/P bill – lots of terms  Liner bill

Reverse will also have any endorsements

Other terms are incorporated by operation of law (e.g. Hague Visby Rules)

Often issued in triplicate:

Now, as is commonplace, GAFTA contracts require the full set to be delivered to the shipper – reduces the risk of the originals falling in the wrong hands.

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Types of bills of lading

Clean/Claused Bills

Short Form Bills

Freight PrePaid/Freight Payable as per C/P

Combined Transport Bills / Through Bills

Charter Party Bills – contrast Charterers’ Bills

Straight Bills

Switch Bills

Spent Bills

Liner Bills

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Common issues

Identity of the carrier – usually shipowner

Who should sign the bill of lading? Master or Agent

Incorporation of charterparty terms into bill of lading contracts

Is the charterparty incorporated or which charterparty is incorporated (if more than one)?

Which terms?

Who can ask the carrier for the goods at the discharge port?

Delivery of cargo without production of bills of lading/misdelivery

Change of voyage and deviation

Discrepancies in loaded quantities

Ante or post dated bills of lading [why important?]

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Mates Receipts

What is a Mates Receipt?

A document drawn up prior to the B/L – shipper’s interim receipt when good are delivered to the ship owner

Why use a Mates Receipt?

It contains details of the goods loaded and any qualifications

It shows entitlement to the B/L - evidence of ownership, but not a document of title/not negotiable

Sometimes used to obtain payment

Important distinctions between Bs/L and Mates Receipts

NOT a document of title

NOT evidence of a contract of carriage

Does NOT transfer rights against the carrier

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LoIs – Letters of Indemnity

Contractual agreement to indemnify a party if they do what you are requesting

Examples:

Discharge without Bs/L

Rain LoIs

Missing documents

Take care: LoIs carry with them huge (potential) liabilities

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Invoices

Addressed to buyer, describing the goods

Contract price: good practice to invoice separately for demurrage etc

Usually includes any contractual allowances

Should give payment instructions (where/when)

Specific requirements in UCP600 for letter of credit sales

[Payment terms: talk tomorrow]

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Certificates 1

Contract should state exactly what is required and from whom

GAFTA contracts have requirements to incorporate weighing and sampling rules

Certificates are part of “Shipping Documents”

Inconsistencies and defects? What are the remedies (i) if deviation is slight? (ii) if deviation is significant?

Documentary duties are important: (i) buyer will usually pay against the shipping documents (ii) compliance with the contract terms will be demonstrated by the shipping documents and the certificates may be “final” (binding) between Buyer and Seller. The Seller will usually want to retain control of the documents until payment is made.

When must shipping documents be presented under the sale contract to the buyer?

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Certificates 2 (“phytos”)

What are phytosanitary certificates and who issues/what are they for?

Why are they a problematic issue in practice? (strict obligation to provide the document but unknown destination/changes in regulations).

What do the GAFTA contracts say now?

Obligation is one of best endeavours where there is a change in regulation or country of import unknown to seller at date of contract;

Not application to all GAFTA contracts;

How does this apply to FOB contracts or CIF with a range of destinations?

Should FOB buyers now include a range of possible destinations in all contracts to overcome this?

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Case Studies

Case Study 1:

You are a CIF seller. Your execution department wishes to present two original B/Ls to the Buyer via the Bank and send one directly to the Buyer. Is this sensible or possible?

Case Study 2:

Your CIF buyer wants to discharge against an LOI because documents are not yet available at the discharge port. The relevant contract is GAFTA 100. What should you do?

Case Study 3:

You bought on CIF Ravenna terms and the Seller presents a B/L for destination “Main Italian Ports”. What should you do?

Case Study 4:

You are a CIF Buyer. Seller presents a B/L stating: “400MT off loaded due to wetting after loading” and “wheat is dusty and seems old”. Is this a clean B/L?

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Refreshments

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Case study session: Shipping documents

Diane Galloway

Gafta Arbitrator

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Ascertaining the goods and the vessel

Diane Galloway

Gafta Arbitrator

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Nomination

Definition of FOB Contract

"The Seller must at his own expense put the goods on board a ship which has to be nominated or designated by the Buyer. The Seller is not bound to reserve shipping space in advance nor to bear any expense of shipment which arises after the goods have been put on board.”

GAFTA FOB contracts have a “Delivery Period”, which is for the arrival of the Buyer’s vessel at the loadport.

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Buyer’s duties are to give:

Effective Shipping Instructions (i.e. present a performing vessel at the agreed load port)

So that Sellers can deliver goods in accordance with the terms of the contract i.e. place, quantity, time

Adequate Notice (i.e. Nomination)

Either agreed period of time e.g. 10 consecutive / 3 business days, or other sufficient period of time according to circumstances (if contract is silent).

Substitution

Usually the buyer has a contractual right to substitute a nominated vessel provided replacement vessel fulfils all the requirements of the contract. (Cargill v Continental (1989))

Restricted in some contracts due to practical & administrative problems.

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Seller’s duties

Deliver goods on board when required by Buyer during agreed period;

No obligation to have goods available during entire period (Tradax v Italgrani (1986)).

Deliver at agreed rate (e.g. tons per day) or otherwise reasonable rate in customary manner.

Usually Seller will pay damages for the delay to the vessel if he does not deliver at the agreed rate, usually demurrage.

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Service of Nomination Notice

See for example GAFTA 64, clause 6.

Nomination is a Notice to be served under the contract. Check provisions carefully (notices clause, how many days, what information).

Local time of sender applies to service. Notice valid via broker.

Usually the period of notice is expressed as a number of days or hours preceding the estimated date of arrival (eta) and readiness to load.

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Content of Nomination. 1

Name of the vessel

GAFTA 64 clause 6 – name of vessel is required.

"T.B.N." vessels (to be nominated) By definition, the designation of a vessel yet to be nominated is not valid.

Nomination of m/v "Santa Celia" “OBN” (or better name) or sub vessel - must consider any contractual right of substitution.

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Content of Nomination. 2

Estimated tonnage required (usual in practice to simply re-state the contract tolerance – 30,000 mt +/- 10% - but is this sufficient?)

Probable readiness date: Readiness, not simply arrival.

Contracts often require updates – e.g. “Master to provide 10/7/3/1 day notices of eta to seller”.

Further information: Ship's Agents, Superintendent, Documentary requirements, Rate of Demurrage...?

Nomination must be honestly or reasonably given –

No Mickey Mouse vessels

No fanciful eta’s

But no need to have fixed vessel

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Substitution Content of Nomination. 3

New express terms with regard to substitution in many GAFTA contracts;

Problem was whether new nomination needed new pre advice and whether there was enough time for this;

“The Buyer has the right to substitute any nominated vessel. Buyer’s obligations regarding pre-advice shall only apply to the original vessel nominated. No new pre-advice is required to be given in respect of any substitute vessel, provided that the substitute vessel arrives no earlier than the estimated time of arrival of the original vessel nominated and always within the delivery period”.

“Notice of substitution to be given as soon as possible but in any event no later than one business day before the estimated time of arrival of the original vessel”.

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Failure to Nominate

Failure to nominate at all or failure to nominate correctly gives rise to breach:

Seller may reject a defective nomination, or refuse to load a vessel not nominated correctly.

Seller may declare Buyer in default if there is no valid nomination in time BUT note extension clauses.

Subject to the particular contract, Buyers may substitute with effective nomination.

Contrast:

(a) 7 day notice required, 3 days notice given. Seller does not have to load until full 7 days elapses, even if vessel tenders NOR (Notice of Readiness) earlier;

(b) 7 day notice required, no extension, only 4 days left in Delivery Period. Too late for any valid nomination. Seller could declare default.

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APPROPRIATIONS

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CIF / C&F contracts

Performance of a CIF / C&F contract:

Seller to make shipment of goods of contract quantity and description at the agreed time;

Seller to provide a contract of carriage (usually Bill of Lading) to the agreed destination;

Seller to present contractual shipping documents.

Risk of loss or damage to the goods passes on shipment

Title to the goods? GAFTA contracts are silent …

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Functions of the Appropriation

Advise Buyer of performance - Expectation of documentary details, arrange finance, likely day of physical receipt of goods, carrying vessel details to arrange discharge, onward transmission to sub-buyers;

Notification of Insurance risk (important in C&F contracts SoGA 1979 s. 32)

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Service of Notice. 1

Appropriation is a notice to be served under the contract. Check provisions carefully.

Usually the period is stipulated in the contract as a number of days following the date of the Bill of Lading. E.g. GAFTA 100 - 10 days.

In relation to the original notice from the Shipper, this period cannot be extended by non-business days.

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Service of Notice. 2

After the service period has expired....

In relation to re-sellers, an appropriation is still in time if received after 16.00 hours on a business day and passed on by 16.00 hours on the next business day.

If received before 16.00 hours, the appropriation must be passed on the same calendar day.

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Service of Notice. 3

Notice to Broker / Agent named in the contract is valid and binding between Seller and Buyer.

Valid notice of appropriation cannot be withdrawn without Buyer's consent. [contrast vessel nomination on FOB contract…]

Invalid appropriation may be replaced if time available.

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Content of Appropriation. 1

Name of vessel Must be accurate – not open to substitution. Use of “or better name” only valid for genuine errors in transmission;

Presumed weight shipped Must be specific. No tolerance e.g. 1,000 mt 10% “Shipped” means “on board”.

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Content of Appropriation. 2

Bill of Lading date:

The Notice must include the date, or presumed date, of the Bill of Lading.

The term "presumed" is used to protect the Seller because, at the time of appropriation, he may not have yet sighted the B/L.

For this reason, the B/L date is not binding in the appropriation and the Seller cannot be penalised if the actual B/L date is different when it comes to presenting the documents.

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Content of Appropriation

However, the actual Bill of Lading date on the documents is binding and if it proves that the Notice of Appropriation was out of time, the Buyer can reject the documents. This can arise when the actual B/L date is earlier than the presumed date mentioned in the appropriation.

UNDER USUAL RESERVES “UUR” only protects the Seller from genuine errors in transmission repeated in good faith.

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Case Studies

Case Study 1

GAFTA 100, Notice of Appropriation given by Seller, rejected as defective by Buyer, Seller gives new notice for same vessel but it is now 12 days after the B/L date. What should the Buyer do?

Case Study 2

GAFTA 100, Seller presents all shipping documents within 10 days of B/L date, but gives no Appropriation. Valid?

Case Study 3

GAFTA 64, Delivery Period September 2018, pre advice of 10 days required. It is 26th September 2018. Can the Seller declare default?

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Lunch

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Introduction to Charterparties

Nicholas Walser,

Partner

Gateley PLC

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Types of contract

There are different types of contract designed to be used for the carriage of goods by sea

The most common examples are:

Contracts of Affreightment (COAs)

Charterparties

Bills of lading/sea waybills

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FOB

SELLER

BUYER

SHIP OWNER

SALE CONTRACT

CHARTERPARTY

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CIF

SELLER

BUYER

SHIP OWNER

SALE CONTRACT

Bill of lading

CHARTERPARTY

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Charterparties (1)

A contract between a shipowner commonly described in the contract as “owner” and a “charterer”

Use of the whole (or part) of the ship

Three main types:

Bareboat (demise)

Time

Voyage

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Charterparties (2)

Bareboat/Demise – you hire the ship and nothing else:

No crew, no spares, no bunkers. Shipowner is giving you the ship “bare”

Time/Voyage – essentially a contract for carriage services

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Time/voyage charterparties

Time charterparties: Use of the ship for a specified period of time within trading limits

Voyage charterparties: Use of the ship for a specified voyage or voyages

Which one you use will depend on your trading patterns:

Time: A trader wanting to lock in shipping costs for numerous shipments

Voyage: A purchaser at the end of a FOB string, for example

Other commercial needs, e.g. flexibility makes time charters more attractive, but at a cost

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Time charterparties - overview

Owner provides the ship, crew, spares, food, water etc. But no bunkers. Ship under charterers’ orders against an indemnity

Charterer pays “hire” for the use of the ship and the provision of its services, plus separately buys bunkers

Who bears the risk of delay? It depends on how the charter period is defined

Simple time period – charterers bear the risk, because they pay for the time used up to redelivery. They will pay damages for late redelivery

“Trip time charter”. Hybrid – time defined by however long the voyage takes. Owners at risk – floating warehouse

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Voyage charterparties - overview

Owner provides ship, crew and all fuel

Charterer pays “freight”

When is freight earned? Can you deduct from freight?

Who bears the risk of delay?

Normally the charterer:

Laytime and demurrage terms.

The voyage is not defined by time, BUT the Owners cannot unlawfully deviate and normally must prosecute the voyage with due despatch.

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Time versus voyage?

Owners

Charterers

Pro: Insulated from market rises

Con: Cannot take advantage of falls

Pro: Offers flexibility in use of the ship: Multiple shipments/destinations/cargoes

Pro: Possible ability to mitigate delay by a change in ship orders

Pro: Ability to “trade” the ship to make money

Time Charter

Pro: Guaranteed rate of income

Con: Cannot take advantage of market rises

Pro: Continuous operation of the ship reduces risks

Pro: Indemnity for vessel employment

Pro: Fewer delay risks

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Owner

Pro: Ship not tied up for long periods

Pro: Greater control over the ship

Pro: Mitigate risk of delay via demurrage

Pro: Ability to take advantage of market opportunities when open at the end of the voyage – backhaul cargoes

Charterer

Pro: Short term commitment reduces market exposure

Pro: Less control over the ship

Pro: Not exposed to movements in bunker costs

Pro: Ability to lay off cost of delay (demurrage) under sale contract

Time versus voyage?

Voyage Charter

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Bareboat charterparties

Shipowner provides only the ship

Charterer provides crew/bunkers/stores/maintenance

Charterer is responsible for liabilities that arise during the charter period

Favoured by ship owning companies who want to invest in, but do not want to operate, the ship

Advantage for the charterer: Essentially using a ship as if owned, but do not have capital/credit tied up in it

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COAs

Strictly speaking not contracts for carriage of goods but a contract for a series of voyages

Will normally specify a stated quantity by a stated number of shipments over a defined period

Each shipment governed by the terms of an agreed c/p form, but terms of COA prevail in event of conflict

Benefit to sellers/buyers: gives them control over a vessel but they don’t have to pay “hire” when not using the vessel

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Slot Charterparties

Chartering a guaranteed number of container spaces, holds or tanks (“slots”) on a vessel

Another “hybrid” contract on either a time or voyage basis

Operated by liner companies calling at a series of load ports

Often seen in containerised trade and vegoil trade – ship is subject to multiple CPs with each Charterer loading cargo into separate tanks

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Negotiating the CP

Recapitulation (“fixture recap”) – sets out the main terms. Nearly always will incorporate more detailed terms:

A standard form e.g. Gencon, NYPE etc and/or a previous CP; AND

Rider clauses

What happens if terms are inconsistent with one another?

Negotiating the CP. When are the parties bound contractually?

Note: Arbitration clause

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Questions

Q1: You own a vessel and want a steady income stream over the financial year. What type(s) of charterparty are likely to provide it?

Q2: You are an end user purchasing soybeans from Brazil, FOB. You buy one cargo every two months. What kind of charterparty is likely to suit you best?

Q3: When negotiating a charterparty, when would you say a binding fixture is likely to come into existence? How do you stop yourself becoming bound inadvertently?

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Charterparty chains

Owner

(Registered Owner)

Head Charter

Charterer

Disponent Owner

Sub-charter

Sub-charterer

Charterer

Disponent Owner

Sub-sub-charter

Sub-sub-charterer

Charterer

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Refreshments

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Laytime, demurrage and dispatch: An introduction

Nicholas Walser,

Partner

Gateley PLC

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Agenda:

What is laytime, demurrage and dispatch in the voyage charterparty context?

Why is it relevant to sellers and buyers under sale contracts?

Commencement of laytime under a voyage charterparty.

Common issues in sale contracts. Is the law on voyage charterparties relevant?

Suggestions

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What is laytime, demurrage and dispatch in the voyage charterparty context?

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What is laytime, demurrage and dispatch in the charterparty context?

An aspect of English maritime law relating to voyage (not time/”time trip”) charterparties

Laytime (“lying alongside time”): the period of time agreed between the parties (charterer and shipowner) during which the shipowner will make and keep the ship available for loading or discharging without the charterer paying additional freight

Demurrage: an agreed amount payable to the shipowner in respect of delay once the laytime has expired, for which the shipowner is not responsible (i.e. liquidated damages). What the shipowner has actually “lost” (if anything) is irrelevant

Dispatch: an agreed amount payable to the charterer if the charterer uses less than the agreed loading/discharging time

Damages for detention: A loss caused by delay flowing from breach of a different term (i.e. something other than the laytime/demurrage clause(s)) of the charterparty

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Why is it relevant to sellers and buyers under sale contracts?

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Why is it relevant to sellers and buyers under sale contracts?

CIF/C&F seller: Responsible for making the contract of carriage (voyage/time charter/bill of lading terms) but buyer is likely to control the discharge process

FOB buyer: How does the buyer protect against the seller delaying at the loading port?

To try and protect a charterer if s/he incurs demurrage liability under the voyage charter

However, you can also make money with careful drafting!

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Commencement of laytime under a voyage charterparty

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Commencement of laytime under a voyage charterparty (1)

The ship must have arrived at the destination specified in the charter.

The ship must be ready and in a fit condition to load/discharge cargo.

Notice of readiness (“NOR”) must have been given to the charterer.

The charter may (and often will) contain provisions about all the above and will also likely contain “interruptions” and “exceptions” to laytime.

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Destination: berth, dock or port charter? Is the ship at the immediate and effective disposition of the charterer?

Condition:

Is the ship physically ready e.g. “grain” ready?

Is the ship legally ready e.g. in free pratique?

3. Commencement of laytime under a voyage charterparty (2)

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Notice of readiness:

The notice that the ship has “arrived” and is ready to load/discharge. Effect of phrases in the charter such as e.g. “WIBON”, “WIPON” and “reachable on arrival”.

Compliance with the terms of the charter e.g. clause 6(c) “Gencon” ’94.

What if the NOR given is invalid?

3. Commencement of laytime under a voyage charterparty (3)

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Interruptions and exceptions to laytime:

Interruption: periods of time where laytime does not run because outside the definition of laytime.

Exception: periods of time within the definition of laytime but excluded by an exceptions clause.

E.g. “any time lost through bad weather not to count as laytime” is an exception. However laytime defined in terms of “weather working days” means that a non-weather working day is an interruption.

A causal connection is required for an exception (i.e. that bad weather caused the loss of time).

An exceptions clause will only interrupt demurrage if it says so! However laytime/demurrage will not run whilst delay is caused by the fault of the shipowner.

3. Commencement of laytime under a voyage charterparty

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Common issues in sale contracts

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Common issues in sale contracts (1)

Does the sale contract say anything about laytime/demurrage? E.g. GAFTA 100 clause 14

No automatic right to, or liability for, demurrage under a CIF/C&F contract

No implied duty on a CIF/C&F buyer towards the seller to have the goods discharged at all

Although FOB seller owes buyer a duty to load the goods and must do so within the shipment period, seller can use the whole period. Cf. GAFTA 64 clauses 6 and 7

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Common issues in sale contracts (2)

Is a laytime/demurrage clause in a sale contract an “indemnity”

i.e. a clause by one party (e.g. a CIF buyer) to keep the other (e.g. a CIF seller) harmless against loss (e.g. demurrage incurred by the CIF seller under the charter because of delays by the buyer at the discharge port) or is it a clause which operates “independently” of the position under the charter?

The default position under English law is that the laytime/demurrage clause in a sale contract operates independently of the positon under the charter (and likewise of any other sale contracts in the “string”).

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Common issues in sale contracts

Should you use the phrase “demurrage as per charterparty”?

What if the “charterparty” is a time charter or a time trip charter?

What about laytime? When does it start?

What about loading/discharge rates?

Application of “charterparty law” to “sale contract law”?

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5. Suggestions

What do you want to achieve?

Does a standard clause deal with it?

What is the position under the charter?

What if the charter is not drawn up?

Do I need to use the words “laytime”, “demurrage” and “dispatch”?

“Cesser” clauses (for a CIF/C&F seller who is also a charterer)?

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