Shipowners' Right to Detention


IN VOYAGE chartering, time is money. The shipowner wants to earn the freight, complete the voyage as soon
as possible and move on to the next piece of business. Unexpected delays cut deep into the owner's voyage
estimate.



Similarly, when trading a vessel as a disponent owner, the time charterer may be in the uncomfortable position
of paying the head owner a daily hire rate in excess of the demurrage rate agreed to in the sub voyage charter
party. Obviously in such a scenario, the charter party's demurrage rate is not viewed by the disponent owner
as adequate compensation for delay.



Voyage charter parties play a major role in international shipping because much of the cargo carried in ocean
trade moves under this type of private contract of carriage. In the typical voyage charter, the vessel's owner
places its ship at the charterer's disposal for carrying cargo on a single voyage, which may consist of one or
more ports of loading to one or more discharging ports. While the shipowner retains full control of the vessel
throughout the charter period, the charterer is responsible for furnishing a specified amount of cargo and pays
freight based on the amount of cargo carried. If the charterer fails to load the full cargo, it pays deadfreight on
the shortage.



In most voyage charters, the shipowner looks at the market for the vessel and, if it is strong, wants to complete
the voyage quickly in order to collect freight and place the vessel on the market for new business. The
charterer, on the other hand, often watches the cargo market and wants to time the vessel's arrival in order to
get the best price possible.






In order to avoid lengthy port stays, parties often incorporate complex clauses in voyage charters which specify
the time parameters within which cargo operations are to be concluded. The time allowed for loading and
discharging, and quite often the time allowed for waiting for the berth, is usually fixed by a set number of days
or by a rate of cargo worked per day. This period is referred to as "laytime" or "lay days."




Laytime allows for a free period within which the charterer may work the vessel in port without incurring any
additional cost. If laytime is exceeded, the charterer must pay the shipowner compensation at an agreed rate
called demurrage. If, on the other hand, loading or discharging is in fact completed prior to the expiration of
laytime, the shipowner may be liable to the charterer for despatch, generally calculated at half the demurrage
rate. The demurrage rate is agreed to in the charter party and often approximates the cost of the vessel on a
daily basis.




In the charter party context, demurrage must be distinguished from detention. As stated above, demurrage is a
form of liquidated damages fixed by contract at a certain sum per day. Generally, it is payable if the time
required by the charterer for loading or discharging operations exceeds the available laytime.





In contrast, detention damages are a general contract remedy arising out of various forms of delay to the
vessel. Detention damages are awarded under certain circumstances when the charterer has unlawfully
detained the vessel, whether at sea or in port. In order to recover detention, the vessel's owner must prove that
it actually suffered a loss because of the vessel's delay. Once again, charter party demurrage is
distinguishable from detention because demurrage does not require that the shipowner actually prove its loss.





The purpose of this article is to provide a few case studies under which an award of detention (and not
demurrage) was claimed by a ship's owner because of an unlawful delay to the vessel. Those that are
responsible for managing a vessel's time should appreciate that time lost in port arising out of the charterer's
activities, should not necessarily simply count as laytime, nor is the compensation for such time lost limited to
the charter party's demurrage rate.



M.V. OMNIUM PRIDE


An excellent example of an unlawful detention concerned a sugar cargo and the M.V. OMNIUM PRIDE
(SMA 1354). The charterer, Cargill, had purchased 22,000 metric tons of sugar. On the date of the purchase,
the market for the sugar was very firm and continued to remain strong on the date the charter party was fixed.
The purchase called for the shipment to be made by Cargill sometime between November 15 and November
30. On November 21, the sugar market peaked, the prices being considerably more than those paid by Cargill.
However, by November 26, the spot price was declining and sales were low. The market continued to
dramatically decline and Cargill found that buyers nationwide were scarce, most claiming full warehouses and
reduced domestic demand.



The day before Cargill was obligated to nominate the first discharge port under the charter party, half of the
cargo had been sold for delivery at Galveston. The vessel arrived and tendered her Notice of Readiness on
December 21. Delivery, however, was not to take place until February 3. Cargill subsequently sold the balance
of the cargo to a receiver at a second port but it was not to be delivered before February 10. Thus, the vessel
remained idle at Galveston from December 21 to February 3.



The charter party provided a demurrage rate of $4,000 per day, which Cargill was prepared to absorb.
However, the ship's owners, knowing that the vessel could have been traded during the delay for more than
$7,500 per day, were not satisfied with the agreed demurrage rate. The owners brought a claim for detention
alleging that they were entitled to be compensated for the market rate (and not the demurrage rate) for the
vessel.





The Arbitration Panel agreed with the shipowners. The Panel ruled that there is an implied obligation upon the
charterer to arrange for the discharge of the cargo within a reasonable period of time after the vessel has
arrived at the designated discharge port and is ready to discharge. Absent a clause to the contrary in the
charter party, the charterer has no right to keep the cargo in the vessel for its own purposes, that is, for the
purpose of warehousing cargo pending a delivery date (and an increased price for the goods). The delay to
the vessel did not arise out of ordinary congestion, poor weather or other like causes that are routinely covered
by the charter party's laytime and/or demurrage provisions. The Panel believed that this was a deliberate and
unlawful misuse of the vessel by the charterer. Thus, it awarded the owners detention damages.



THE BALSA 21




The misuse of the vessel as a warehouse, as in OMNIUM PRIDE, will, not surprisingly, lead to a successful
claim for detention. After all, a charter party is a contract of carriage, and not one for storage. However, a
somewhat analogous issue arose in another case in which the shipowner's claim for detention failed. The case
involved the M.V. BALSA 21 (SMA 2899), and the charterer's deliberate delay of the commencement of loading
operations for the charterer's own commercial purposes.




The vessel was voyage chartered to carry a cargo of sugar from the Dominican Republic to Baltimore. During
the negotiation of the charter party, the shipowner specifically rejected the charterer's request to delay the
laden vessel's arrival at Baltimore.




The ship was ready to load in the Dominican Republic on May 11, however, the berth was occupied until May
13. In spite of the fact that the cargo was available on May 14, the charterer instructed the vessel not to berth
until May 20. By doing this, the charterer had effectively delayed the vessel's arrival at Baltimore, over the
owner's protests.




Loading was completed on May 21 and the vessel sailed for Baltimore. Laytime had not expired at the loadport
despite the unintentional and intentional delays to the vessel.




The owner claimed detention damages alleging the charterer wrongfully detained the vessel at the loadport.
The owner argued that the charterer had an absolute duty to have the cargo available when the ship was
ready to load. It had no right to delay the vessel for its own commercial purposes even if it finished working the
vessel within the agreed laytime.




The charterer, however, contended that it was free to use the whole of the laytime, even though it could have
loaded the vessel in less time had it wanted to. The charterer further argued that since the vessel's loading was
completed within the agreed laytime, the owner should not complain.




The case presented an interesting question. Is the charterer able to postpone the commencement of loading
for commercial purposes, so long as it completes working the vessel within the agreed laytime? The Arbitration
Panel ruled that it could.



At first glance this case may seem similar to the OMNIUM PRIDE. It is not, however, if one understands that the
payment of freight, in essence, not only purchases ocean transportation, but also purchases laytime to be used
at the loading and discharging ports. The charterer is free to use the laytime it purchases as it sees fit. So long
as the vessel finishes within the agreed laytime, owners have no basis for complaint, as opposed to the
situation in ONNIUM PRIDE where laytime was exceeded.




Thus, owners should be aware that so long as the charterer completes its cargo operations within the agreed
laytime, owners generally have no claim for the vessel's delay. This is true even if it appears that the charterer
intentionally delayed the vessel, in essence forgoing a despatch claim.




M.T. SAGVENAY



The above cases demonstrate that the question of whether a delay to the vessel should count as laytime
and/or demurrage, or as an unlawful detention, is not always easily answered.




M.T. SAGVENAY (SMA 2480), among many other cases, addressed another aspect of this question, namely
time lost waiting for cargo documents after loading of a tanker. The sole arbitrator in that case ruled that the
time lost waiting for cargo documents is detention, not laytime and/or demurrage.




Under a voyage charter to carry jet fuel and gas oil, from and to various loading and discharging ports, a small
amount of the vessel's time was spent at the loading ports waiting for delivery of cargo documents that were
required for departure. The individual waiting period at each load port was small, the periods varying from
approximately two to four hours per port, although cumulatively, the time lost was about twelve hours. This was
enough to make the owner complain and seek compensation for the delay.





The charterer argued that the vessel would not have sailed immediately after disconnecting the cargo hoses
anyway, and so, no time was actually lost. More importantly, however, the charterer submitted that since the
voyage was governed by Worldscale terms and conditions, the charter party provided for some twelve hours
for each port in addition to the laytime. The charterer contended that assuming that six of these twelve hours
represented the notice of readiness allowance at each port, the difference may reasonably be applied to the
time span between disconnecting of the hoses and the time the vessel actually sailed.




The Arbitrator rejected the charterer's arguments and awarded the owner its detention damages. This was, to
no small extent, because demurrage is meant to compensate owners at an agreed rate for delays arising out of
cargo work within the port, that is, the actual loading and discharging of vessels. It is suggested that waiting for
cargo documents is more akin to other forms of operational delays not closely connected to cargo work and
should, therefore, be compensated at the applicable detention rate.



MV. ANAGEL PROSPERITY



       M.V. ANAGEL PROS¬PERITY (SMA 2764) dealt with the issue of what happens when a vessel is ordered
off the dock in the middle of cargo operations.




In this case, the charterer loaded the vessel with a full cargo of scrap steel. In addition, the charterer placed
four 55 inch magnets onboard for discharging purposes. The magnets were tested, without load, before being
placed onboard the vessel.




The vessel arrived it the discharge port and commenced discharging operations as planned. It soon became
apparent, however, that the magnets were inadequate and their lifting capacity would not allow the vessel to
meet the charter party's discharging rate. The charterer's efforts to solve the problem were only partially
successful because mechanical grabs were not available. Higher capacity magnets, three of which were located
in the discharge port, were put to part time use.




Due to the extremely slow discharge, the receivers, over the owner's and charterer's objections, put the vessel
off the berth for two extended periods, allowing other vessels, carrying critically needed cargoes for the steel
mill, to discharge. All of these circumstances resulted in a discharging time of 83 days. The shipowner
subsequently made several claims for detention against the charterer, ranging from detention damages for all
time in excess of allowed laytime to detention for those periods during which the vessel was put off the berth.
The owner also claimed bunker costs, harbor fees, shifting expenses and other miscellaneous costs.




The Panel concluded there was no basis for the detention claim. The Panel noted that the charterer did all it
possibly could have to expedite the discharge once it became aware of the magnet, problem; they sent
representatives to the discharge port, at considerable expense to themselves, and attempted a number of
alternate   means to expedite discharge. Their failed efforts resulted in severe financial losses, which they
absorbed. The Panel concluded that the charterer had acted in good faith to avoid delay to the vessel and
accordingly treated the delay as time on demurrage rather than detention.



CONCLUSION



In this article, I have tried to provide some insight into the circumstances under which an owner may claim for a
loss of time at a detention rate, instead of the often lesser demurrage rate. However, the examples that I have
offered are by no means exhaustive. There are other circumstances in which detention may be claimed by the
owner.




For example, some charter party pro formas specifically limit the amount of time on demurrage, excess of which
will be payable at the detention rate. The GENCON form, which is used as a proforma in many trades that do
not have a specific form of charter party, provides for "ten running days on demurrage ... per day or pro rata
for any part of a day." This has been, interpreted to provide for payment of detention for all delays in excess of
the agreed ten day period.




Similarly, detention will be payable (and not demurrage) in the very unusual case in which the charter party
does not contain a demurrage provision.




Owners have also been granted detention damages when the voyage charterer fails to give orders to sail to
the discharge port on a timely basis upon completion of loading. The reasoning is similar to that learned from
the OMNIUM PRIDE, that is, the owners should not be asked to offer their vessel as a warehouse pending the
charterer's search for a suitable consignee.




Another example where demurrage might be appropriate is if the ship arrives at the discharge port and the
receivers want the cargo discharged without presenting an original bill of lading. As stated in the treatise by J.
Bes entitled Chartering and Shipping Terms, in modem practice, if the bills of lading have not arrived before the
ship's arrival, the receivers or consignees offer the master a letter of indemnity usually with a bank guarantee.
The master, though, still remains free to insist on the presentation of the original bill of lading in case the
guarantee is not acceptable for any reason. If the charterer refuses to discuss the issue of a bank guarantee,
the delay because of non presentation of the original bill of lading' should be compensated by  payment of
detention damages.




It is also noteworthy that certain charter parties specifically restrict an owner's right to detention. For example,
the NORGRAIN form, which is a popular U.S. grain export form, specifically states that all delays to the vessel,
including detention, are to be payable at the charter party's demurrage rate.




Because of the significant capital investment that is frequently involved in the marine industry, monetary losses
arising out of the loss of time can be very high. As such, a shipowner should seek detention damages, where
applicable, especially if the owner can prove that they exceed the demurrage rate.


End of Article
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