20 October, 2012

 

Legal News & Analysis – Asia Pacific – China – Shipping Maritime & Aviation

 

The background

 
Cargo liquefaction and its consequences for safe navigation remains an issue of great importance to ship owners, charterers and insurers, as the loss of vessels such as the Vinalines Queen in recent times show. Efforts are underway at IMO-level to change the regulatory regime, namely the IMSBC Code, with the goal of preventing future incidents of this kind.
 
We will in due course provide an update on those efforts. In the meantime, this article addresses an interesting related development. BIMCO, in a Special Circular dated 25 July 2012, has published the “BIMCO Solid Bulk Cargoes that can Liquefy Clause for Charter Parties” (“the Clause”), which has been developed in ollaboration with the International Group of P&I Clubs. We outline the main features of the Clause and consider what impact those features could have, particularly on owners and charterers.
 
The aim of the Clause
 
The Clause is aimed at dealing with the disputes that can arise between owners and charterers during the loading and carriage of cargoes such as nickel ore and iron ore fines which may be subject to liquefaction. It is also directed towards the common scenario in which owners are prevented from sampling cargo prior to loading, often by means of pressure or intimidation from shippers at load ports and/or their charterers. In our experience, charterparty disputes frequently arise in relation to the proper mode for sampling and testing of cargo, and as regards what the parties’ respective legal positions are where there are contradictory test results. As discussed below, the Clause demonstrates potential to prevent such disputes.
 
The Clause
 
The Clause reads as follows:
 
a. The Charterers shall ensure that all solid bulk cargoes to be 
carried under this Charter Party are presented for carriage and loaded always in compliance with applicable international regulations, including the International Maritime Solid Bulk Cargoes (IMSBC) Code 2009 (as may be amended from time to time and including any recommendations approved and agreed by the IMO). 
b. If the cargo is a solid bulk cargo that may liquefy, the Charterers shall prior to the commencement of loading provide the ship’s Master, or his representative, with all information and documentation in accordance with the IMSBC Code, including but not limited to a certificate of the Transportable Moisture Limit (TML), and a certificate or declaration of the moisture content, both signed by the shipper.
c. The Owners shall have the right to take samples of cargo prior to loading and, at Charterers’ request, samples to be taken jointly, testing of such cargo samples shall be conducted jointly between Charterers and Owners by an independent laboratory that is to be nominated by Owners. Sampling and testing shall be at the Charterers’ risk, cost, expense and time. The Master or Owners’ representative shall at all times be permitted unrestricted 
and unimpeded access to cargo for sampling and testing purposes. If the Master, in his sole discretion using reasonable judgement, considers there is a risk arising out of or in connection with the cargo (including but not limited to the risk of liquefaction) which could jeopardise the safety of the crew, the Vessel or the cargo on the voyage, he shall have the right to refuse to accept the cargo or, if already loaded, refuse to sail from the loading port or place. The Master shall have the right to require the Charterers to make safe the cargo prior to loading or, if already loaded, to offload the cargo and replace it with a cargo acceptable to the Master, all at the Charterers’ risk, cost, expense and time. The exercise by the Master of the aforesaid rights shall not be a breach of this Charter Party.
d. Notwithstanding anything else contained in this Charter Party, all loss, damage, delay, expenses, costs and liabilities whatsoever arising out of or related to complying with, or resulting from failure to comply with, such regulations or with Charterers’ obligations hereunder shall be for the Charterers’ account. The Charterers shall indemnify the Owners against any and all claims whatsoever against the Owners arising out of the Owners complying with the Charterers’ instructions to load the agreed cargo.
e. This Clause shall be without prejudice to the Charterers’ obligations under this Charter Party to provide a safe cargo. In relation to loading, anything done or not done by the Master or the Owners in compliance with this Clause shall not amount to a waiver of any rights of the Owners.
 
Discussion
 
Sub-clause (a) is largely self-explanatory. It is worth noting, however, that it makes compliance with the IMSBC Code an obligation of the charterers, even though the Code itself addresses the obligations of shippers (who are very often not the charterers). In practice, this may not substantially alter the position, as a cargo which was not Code-compliant would likely be viewed as a dangerous cargo. The vast majority of charterparties proscribe the loading of dangerous cargoes. Even if the charterparty itself does not do so expressly, Article IV Rule 6 of the Hague/Hague-Visby Rules (the “Rules”) will have broadly the same effect. The Rules could potentially apply, whether because of a clause paramount or of another method of contractual incorporation. Similarly, the Rules will generally apply to shippers/consignees under a contract of carriage contained in a bill of lading.
 
Sub-clause (b) deals with the provision of documentation prior to loading. Again, this has the effect of making the fulfilment of the shippers’ obligations under the IMSBC Code the responsibility of the charterers.
 
The first half of sub-clause (c) gives owners the right to sample and test the cargo prior to loading. The crucial point to note is that the costs of this, as well as the time used, will be for charterers’ account. This will be the case even if owners have made an entirely unilateral decision that this testing is required, regardless of the outcome of that testing.The second half of this sub-clause grants the Master a wide discretion to refuse to accept a cargo or to refuse to sail with it on board. The charterers may be required to take steps to make a cargo safe or to replace it with a different cargo which is acceptable to the Master 

 

The key phrase used is “in his sole discretion using reasonable judgment”. This means charterers seeking to characterise a Master’s conduct in refusing a cargo as a breach of charter would have to show that the Master had not used reasonable judgment. Not only is this an inherently high bar to clear, but tribunals and courts can also be expected to be sympathetic to a Master who, if he has even slight doubts, errs on the side of caution. The facts are bound to differ from case to case, but it is difficult to envisage circumstances in which, absent some ulterior motive, a Master would refuse to load or carry a cargo which he had no reason to believe to be unsafe.
 
The final point to note in respect of sub-clause (c) is that all actions required by a Master under the clause are, once again, at charterers’ cost and time.
 
Sub-clause (d) makes charterers liable for all costs, delays and so forth arising out of compliance with either the applicable regulations (i.e. the IMSBC Code) or their charterparty obligations, or indeed arising out of their non-compliance with the same. It also grants owners a broad indemnity against claims arising out of compliance with charterers’ instructions.
 
Finally, sub-clause (e) makes clear that the clause does not affect charterers’ other charterparty obligations and that compliance with the clause on the part of owners or the Master shall not be construed as a waiver of owners’ rights. The latter aspect is certainly noteworthy: we have encountered cases of this type in which charterers have raised waiver arguments. Whilst such an argument was always difficult to make out, this clause precludes charterers from even attempting to do so.
 
Comment
 
As the above discussion demonstrates, this clause is very beneficial to owners, who will no doubt wish to introduce it into their new fixtures. Whilst any attempt to allocate risks and liabilities contractually, thereby preventing future disputes, has its merits, it is perhaps difficult to imagine charterers being content with the clause as drafted. This is all the more significant given the current state of the market, with the Baltic Dry Index declining to 661 points on 12 September 2012, lower than the 663 points registered on 5 December 2008 when the financial crisis was at its height. It remains to be seen, therefore, to what extent this clause will make its way into new fixtures.
 

 

 





For further information, please contact:

 

Wai Yue Loh, Partner, Ince & Co

waiyue.loh@incelaw.com

 

Ruaridh Guy, Ince & Co

ruaridh.guy@incelaw.com

 

Ince & Co Shipping Maritime & Aviation Profile in China

 

Homegrown Shipping Maritime & Aviation Law Firms in China

 
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