London Arbitration 21/21


On 29 October, a sea-river vessel was chartered on an amended Asbatankvoy to transport fuel oil from the port at Turkmenbashi, Turkmenistan, to OPL Kavkaz, Russia. The vessel was capable of navigation in coastal water and river/sea trading. The charter required passage of the Volga-Don Shipping Canal (the VDSC) and connecting river systems before their winter shut down at the end of November.

The agreement contained two cargo options for the owner to choose from:

Option 1 was a voyage from Turkmenbashi to OPL Kavkaz with a minimum cargo of 3,350 mt of fuel oil. The passage included sailing via the Caspian Sea, to the Volga River, then up the Volga river via Astrakhan to Volgograd, transit via the VDSC to the Don River and then down the Don river via Rostov-on-Don to the Sea of Azov, via the Kerch Strait to the Black Sea and discharge/transshipment at OPL Kavkaz (i.e., outside port limits of port Kavkaz, in open sea, outside territorial waters). The length of the voyage was some 1,250 nm.

Option 2 was a much shorter voyage and was to be considered only if Option 1 became impossible to perform between the date of the charter and the completion of loading. 

To select Option 2, the owner had to give the charterer proper notice when the obstacles arose.

Option 2 was a passage from Turkmenbashi to Baku. Both ports are in the Caspian Sea, so the vessel was to increase cargo intake to 5,000 mt. This was effectively a full cargo for the vessel, but the freight rate was reduced; this made freight payable decrease from US$184,250 under Option 1 to US$67,500 under Option 2.  

Critical to choosing Option 2 was the loading status: the owner could only make this choice if Option 1 was an impossibility and loading had not concluded. This was essential since the intake quantity had to be increased before hoses were disconnected.

The Alternative Discharge Clause stated the following:

“If for some reason the vessel is delayed under way to the loading port or during loading (or river navigation is decided to be closed earlier than expected and consequently Owner will estimate that the Vessel won’t be able to leave Volga and Don rivers before closing of river navigation) then Owner to inform Charterers immediately (but not later than hose disconnection at loading port) and in this case discharge port to be changed to Baku and Charterers to load min 5,000 mts…” 

Should Option 1 become impossible after loading was complete, the vessel would have to travel to Baku or another Caspian Sea/Volga river port from its current location. The parties knew this would require the ship to sail back the way she came, cargo on board, with terms to be agreed or implied.

In southern Russia, the Volga-Don Shipping Canal connects the Sea of Azov and the Caspian Sea through an intricate inland waterway linking the Volga and Don rivers. The controlling authority is the Administration of the Volga-Don basin, which maintains the hydro facilities along the canal and river. Weather, specifically ice and water restrictions, require the hydro facilities to officially close every year from the end of November until the following April. If a ship arrived at the VDSC after this closing, she might be permitted to pass, providing the shipowner compensated the controlling authority for using the hydro facilities during transit. Known as a “commercial” entrance, this passage could only be completed if the vessel’s draft did not exceed the actual depth of the Don River.

On November 11, the controlling authorities issued notice that the VDSC would officially close at midnight on 27 November. The vessel arrived at Turkmenbashi on 14 November and tendered NOR. Loading began and ended on 18 November, which was the owners’ last choice to select Option 2 of the Alternative Discharge Clause. The vessel departed the port on 19 November and the next day received notice that the VDSC would close on 24 November, three days earlier than previously stated. No changes were made to permitted drafts or “commercial” entrances.

By 25 November, the vessel requested a commercial passage to the VDSC and sought to lighten, which did not happen. When she arrived on 27 November, the commercial entrance was refused, for the vessel had a draft of 318 cm, and the maximum depth the hydro facility permitted on that date was 290 cm. The vessel was forced to sail back and discharge the cargo at Baku and Absheron.

The delay at Baku presented two options for the owner: demurrage or deviation.

Both options netted identical monetary amounts.

The owner claimed the following:

1)   Additional freight: Since the distance of the actual voyage was longer than the original voyage, the owner was entitled to a quantum meruit freight 

of the difference between the freight which would have been paid if the vessel had carried the cargo to OPL Kavkaz (US$55 per mt) and the freight actually paid for the carriage of the cargo to Absheron (US$13.5 per mt), i.e. (US$55 per mt – US$13.5 per mt) x 3,441.168 mt = US$142,808.47.

2)   Deadfreight: The owner was due US$21,044.23 for the charterers’ failure to load a minimum of 5,000 mt of cargo either initially or subsequently after the vessel retraced her voyage. 

3)   Cost of deviation: The owner claimed the time taken to sail from Turkmenbashi to OPL Baku along with the bunkers consumed during the voyage. 

4)   Quantum meruit demurrage: These costs were incurred at Turkmenbashi and Absheron and totaled US$10,138.89. 

5)   Damages for detention: A delay at Baku incurred costs of US$47,291.67.

The delay at Baku presented two options for the owner: demurrage or deviation.  Both options netted identical monetary amounts.  After initially considering the time as demurrage, the owner changed direction and claimed the time at Baku as detention for which, along with the demurrage at Turkmenbashi and Absheron, the tribunal ultimately awarded owner USD 47K.  The vessel arrived at OPL Baku on December 5 at 02:00 and subsequently tendered NOR.  After waiting days for a berth, the charterer ordered the vessel on December 14 at 13:00  to proceed to Absheron.  The master asserted the NOR counted as a notice of arrival and not a notice of readiness since the charterer had changed the port to Baku.  

Further, the tribunal ruled that the owner was not at fault for the deviation. The vessel encountered a minimum of two days delay due to bad weather and customs formalities which were unforeseeable circumstances. In addition, the early closure date of 24 November was wholly unexpected. The refusal of the commercial entrance to the VDSC caused the frustration of the charterparty for impossibility of performance. None of these events could have been predicted when the vessel was loading cargo on 18 November and the Alternative Discharge Clause window was open.

The tribunal awarded additional freight, ruling that the owner was entitled to additional compensation but not deadfreight, for it was the owner’s choice to take Option 1, which was irrevocable. In addition, the tribunal decided the owner had a rightful claim for deviation and was owed for excess time and bunkers per the Torm Interim Ports Clause; after the charter was frustrated, it was implied that the charterer would pay for the voyages to the final discharge ports. 

The judgment for the owner totaled US$ 73,414.78.