London Arbitration 2/25 

Editor’s Note: Please reference London Arbitration 1/25 and London Arbitration 3/25 for the final arbitration decisions.

This arbitration is the second in a series of proceedings involving the disponent Owners’ claims against the Charterers, who denied liability and counterclaimed for US$544,290.46 or an equal credit against damages awarded to the Owners. This sum comprised US$454,059.38 for unearned advance freight, US$57,208.59 for demurrage, and US$33,022.50 in commission. The claim was in response to the Owners’ claim of repudiatory breach. 

Claims and Counter Claims

The Owners contended the Charterers breached their non-delegable duty to provide cargo for loading which terminated the charterparty, citing Triton Navigation Ltd v Vitol SA (The Nikmary) {2004] 1 Lloyd’s Rep 55. Despite providing extensive time for the provision of a cargo, the Charterers failed to provide said cargo and thus failed to meet their contractual obligations. The Owners argued this entitled them to advanced freight without obligation to return it.

The Charterers counterclaimed, arguing the owners had breached the contract by using the freight payment made to them on May 10  to pay hire to Head Owners on May 21, thus terminating their contract with the Owners. They further argued the Owners committed a second repudiatory breach by refusing to return the prepaid freight after redelivery, which effectively cancelled the charter and invalidated demurrage per Clause 13, since freight was unearned. The Charterers also argued the Owners failed to mitigate damages, asserting the vessel should have been redelivered when no cargo was ready at the loadport and no later than June 19, when the Owners notified them of over US$400,000 in demurrage owed until June 26. The Charterers alleged failure to redeliver the vessel led to the accrual of unnecessary demurrage.

The Owners submitted several demurrage amounts based on multiple potential end dates. Differences were attributable to timezone differences, but predominantly about whether the end date was June 26 (notice of redelivery) or June 29 (actual redelivery). Additionally, the full net freight of US$771,865.63 was claimed, leaving a balance of US$17,816.25. The tribunal noted the voyage was prevented by the Charterers’ breach, calling into question the Owners’ obligation to the voyage. The Charterers maintained the freight was unearned and should be returned. Finally, the Owners claimed US$632,224.28 for hire until redeliver, minus commission, bunker, and US$90,000 paid to the Head Owners for a settlement agreement related to redelivery. 

CHARTERPARTY CLAUSES

Clause 12:

FREIGHT PAYMENT: 100 PERCENT FREIGHT LESS ADDRESS COMMISSION/BROKERAGE COMMISSION TO BE PAID TO OWNERS…ONE BANKING DAY AFTER FIXING THE MAIN TERMS. IF CHRTS FAILURE, THEN OWNERS WILL HAVE RIGHT TO WITHDRAW THE VESSEL W/O ANY NOTICE TO CHRTS. CHRTS WILL BE RESPONSIBLE FOR ANY LOSS/COST TO OWNERS…”

Clause 13:

FRT IS DEEMED EARNED ONCE FULL CARGO IS SHIPPED ON BOARD, DISCOUNTLESS AND NON-RETURNABLE WHETHER VSL AND/OR CGO LOST OR NOT LOST.”

Quantum

The tribunal acknowledged that requiring 100% of freight payment prior to the vessel’s arrival at the loadport was unusual, but determined there were no restrictions on the use of freight per Clause 12 or 13. The freight was paid unconditionally, the Owners had sole discretion over its use. The argument that the Charterers’ were entitled to repayment under “certain circumstances” was inapplicable under Clause 12, as the funds were not paid “generally”.  The Owners were entitled to use the freight payment for any purpose, including payment to the Head Owners for hire.

The Charterers maintained there was no indication the cargo would not be made available, nor that the voyage would remain incomplete, prior to vessel redelivery. While this position was understood by the tribunal, they held that it did not absolve the Charterers of their obligation to pay demurrage for the duration the vessel was available for cargo loading. The tribunal held the Owners’ expectation that the Charterers would fulfill their contractual obligations was reasonable, as they were led to believe that the cargo would be delivered to the load port. Had the Owners redelivered the vessel prematurely, the Charterer’s claim of repudiatory breach might have been validated, but since this was not the case, the Owners were entitled to demurrage until the vessel was released.

Demurrage was determined based on the time the vessel was waiting for provisions and cargo loading. The tribunal found demurrage ended at the notice of redelivery on June 26, as the vessel was no longer available to load. Additional adjustments were made for time spent moving the vessel to another port to take on provisions. These days were time off-hire per the head charter and excluded from demurrage due to the vessel’s unavailability. Total demurrage earned over 33.70486 days, ceasing at 11:13 on June 26, was determined to have a remaining balance of US$437,155.20.

The rarity of cases where damages and the full freight amount were equal, even when the owner had a fair opportunity to mitigate losses, was highlighted by the tribunal. Normally, other associated costs are incurred earning freight. Despite no freight being earned, the Owners were still entitled to damages for repudiatory breach. However, the tribunal decided to make note of, but not award the freight balance of US$17,816.25. Further, the tribunal noted the Owners paid hire and bunkers to earn demurrage, which the Charterers did not dispute. However, due to lack of jurisdiction, the Owners’ claims for hire and bunker failed, but they were informed of their entitlement to claim damages on freight that would have been earned had the Charterers not been in breach.

Conclusion/Award

The tribunal found the Charterers in repudiatory breach, entitling the Owners to damages in an amount determined by a subsequent hearing. The Charterers were also entitled to file claims pursuant to the advance freight payment of US$454,059.38. Issues of cost and award were deferred until all claims between the Parties were decided.