Section 6 Demurrage and Despatch


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Section 6 Demurrage and Despatch


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Title: Section 6 Demurrage and Despatch

Section 6 Demurrage and Despatch
  • 1. Demurrage
  • According to VOYLAYRULES 93, the
    definition of demurrage is that it means an
    agreed amount payable to the shipowner in respect
    of delay to the vessel beyond the laytime for
    which the shipowner is not responsible. Demurrage
    shall not be subject to laytime exceptions.

1.1 Nature of demurrage
  • A demurrage clause is merely a clause providing
    for liquidated damages for a certain type of
    breach. It is presumably the parties estimate of
    the loss of prospective freight which the
    shipowner is likely to suffer if his ship is
    detained beyond the laytime.
  • An agreement to pay demurrage is normally treat
    as preventing the shipowner recovering from the
    charterer more than the agreed sum for the
    wrongful detention of his ship.
  • Unless the demurrage period is fixed, the
    demurrage rate applied not just for a reasonable
    time but for as long as the ship in fact detained
    under the contract. In such a case the shipowner
    is entitled to the demurrage rate and no more as
    compensation for detention.

1.2 The provision of demurrage clause printed in
Gencon form 1994
  • Demurrage at the loading and discharging port is
    payable by the charterers at the rate stated in
    Box 20 in the manner stated in Box 20 per day or
    pro rata for any part of a day. Demurrage shall
    fall due day by day and shall be payable upon
    receipt of the owners invoice.
  • In the event the demurrage is not paid in
    accordance with the above, the owners shall give
    the charterers 96 running hours written notice to
    rectify the failure. If the demurrage is not paid
    at the expiration of this time limit and if the
    vessel is in or at the loading port, the owners
    are entitled at any time to terminated the
    charter party and claim damages for any losses
    caused thereby.

  • In order to reflect current practice when making
    fixtures on the GENCON, the reference to ten
    running days on demurrage to be allowed the
    charterers in the port of loading and
    discharging, has been deleted. As will also be
    seen, rather than being payable day by day,
    demurrage is now payable upon receipt upon the
    receipt of the owners invoice.
  • However, in the absence of a specific provision
    allowing the charterers to keep the vessel on
    demurrage for a limited period of time it is
    important for the owners to have in the charter
    party an express right to cancel the charter
    party in the event of outstanding payments of
    demurrage, as otherwise they may find themselves
    in the position where they would have to keep the
    vessel waiting for cargo loading operations to
    start for a considerable time without being able
    to terminate the charter party. This would, in
    particular, appear to be a problem under English
    law when the owners are not able to cancel until
    there is a repudiation of the charter party.

  • Accordingly, to give the owners a legal remedy
    when these unfortunate situations occur, it is
    now expressly provided that if demurrage is not
    paid on the expiration of the time limit
    provided, i.e. 96 hours, the owners shall have a
    right to terminate the charter and claim damages
    for any loss incurred thereby.
  • It is to be noted, however, that the right to
    terminate the charter party applies to the
    loading port only and, for all practical
    purposes, depends on no cargoes or part cargoes
    having been loaded and no bill of lading issued
    transferring the rights to the cargo to a third

1.3 Once on demurrage always on demurrage
  • Once laytime has been fully used, demurrage
    should normally run continuously, night and day,
    weekend and working period, with no interruptions
    until cargo work is completed unless the contract
    expressly provides otherwise e.g. shifting
    time from anchorage to berth not to count as
    laytime or as time on demurrage. Normally,
    however, laytime interruptions such as bad
    weather, weekends and holidays, will not
    interfere with demurrage time, although
    breakdowns on a vessel affecting discharge will
    interrupt demurrage time. Given these exceptions,
    it can usually be said that the much used
    shipping expression once on demurrage, always
    on demurrage means what it says.

  • A vessel had been chartered under a voyage
    charter party, which contained a strike clause
    stating that the time for discharging should not
    count against the charterers during the
    continuance of a strike. The vessel began to
    discharge the cargo, but after the laytime had
    expired a strike took place which interrupted
    further unloading. Held by the House of Lords,
    that the charterers could not rely on the strike
    clause, because it was not sufficiently clearly
    worded to have the effect of relieving them from
    the payment of demurrage. Consequently they had
    to pay demurrage for the whole period after the
    laytime had expired.

  • A charter party stated Lightening if any, at
    discharging ports to be at owners risk and
    expense, and time used not to count as laytime.
    It was held that once laytime had expired, the
    clause had not further application and the
    charterers were liable for the whole of the time
    used in lightening.
  • It should be noted that a number of standard
    charterparty forms limit the time on demurrage to
    a certain number of days after which the owner
    will claim damages for detention. Generally
    this limitation is removed by mutual consent at
    the negotiating stages although not always. In
    the event that the time on demurrage exceeds the
    number of days contained in the clause the
    parties may agree to treat all the time as time
    on demurrage or they may pursue the matter in the

1.4 Damages for Detention
  • If charterers fail to abide by the provisions of
    a contract and, as a result, permitted laytime is
    exceeded, shipowners are normally entitled to
    reimbursement for their loss, if any. One method
    of reimbursement could be by claiming damages
    for detention, however this could be a lengthy
    and costly legal exercise. Consequently, most
    parties to a shipping contract avoid the problem
    by negotiating a daily level of liquidated
    damages i.e. demurrage for the time spent
    in excess of agreed laytime. The difference
    between demurrage and damages for detention is
    that demurrage is only be paid for an agreed
    number of days and damages for detention is to be
    paid for further delay takes place. So damages
    for detention become payable either on the
    expiration of a reasonable time for loading or
    unloading when no laytimes are specified or on
    the expiration of the fixed number of days for
    which demurrage has been stipulated.

1.5 Demurrage and Shipowners Default
  • When once a vessel is on demurrage no exceptions
    will operate to prevent demurrage continuing to
    be payable unless the exceptions clause is
    clearly worded so as to have that effect. One
    question is that if due to the fault of shipowner
    during the time on demurrage, does the charterer
    have a obligation to pay the demurrage for that

2. Despatch
  • DESPATCH MONEY or DESPATCH shall mean an
    agreed amount payable by the owner if the vessel
    completes loading or discharging before the
    laytime has expired.

Section 7. Charter Party Bill of lading
  • Question 
  • ?Is such a bill of lading, in the hands of the
    charterer, evidence of a contract adding to or
    varying the terms of the contract contained in
    the charter, or is it merely a receipt for the
  • ?If such a bill of lading, in the hands of the
    charterer, is merely a receipt for the goods, is
    it, in the hands of an indorsee from the
    charterer, a contract or evidence of a contract ?
  • ?To what extent is a holder of the bill of
    lading, other than the charterer, affected by the
    terms of the charter?
  • ?To what extent is a holder of the bill of
    lading, other than a charterer, bound by and
    entitled to rely on terms of the bill of lading
    differing from the charter?
  • ?If a bill of lading evidencing a contract with
    the shipowner imposes more onerous terms on the
    shipowner than the charter, is the shipowner
    entitled to be indemnified by the charterer?

1. Bill of lading in the hands of charterer
  • Where the charterer is himself the shipper, and
    receives as such shipper a bill of lading in
    terms differing from the charter, the proper
    construction of the two documents taken together
    is that, prima facie and in the absence of any
    intention to the contrary, as between the
    shipowner and the charterer, the bill of lading,
    although inconsistent with certain parts of the
    charter, is to be taken only as an acknowledgment
    of the receipt of the goods.
  • Where the charterer becomes indorsee of a bill of
    lading, original issued to a shipper other than
    the charterer, the bill of lading does not modify
    or vary the terms of the charter party.

2.Bill of lading in hands of indorseefrom the
  • Although, as between shipowner and charterer, the
    bill of lading may be merely in the nature of a
    receipt for the goods, yet, where it is indorsed
    over, as between the shipowner and the indorsee,
    the bill of lading must be considered to contain
    the contract.
  • According to the provision of Chinas Maritime
    Code, where the holder of the bill of lading is
    not the charterer in the case of a bill of lading
    issued under a voyage charter, the rights and
    obligations of the carrier and the holder of the
    bill of lading shall be governed by clauses of
    the bill of lading.

3. Incorporation of charter in bill
of lading
  • The bills of lading usually contain some clauses
    which are contradictory to the clauses contained
    in the voyage charter party. To make clear that
    the charter party, and not the bill of lading, is
    the governing agreement for the shipment,
    shipowners often insist on having a clause
    inserted in the bill of lading with reference to
    some or all of the terms of the charter party.
  • However, if the clauses of the voyage charter
    party are incorporated into the bill of lading,
    the relevant clauses of the voyage charter party
    shall apply.

4. Incorporating provisions
  • Freight and all other conditions as per
    charter. This is the narrowest form of
    incorporating clause in common use. This clause
    covers only such conditions of the charter as
    are to be performed by consignee, or are
    referable to the discharge and receipt of cargo.
    Thus the words do not incorporate charter party
    exceptions clauses into the bill of lading. Nor
    are they effective to incorporate a cesser
    clause, nor a clause in the charter party that
    the bill of lading should be conclusive evidence
    of the arrival of cargo shipped.
  • All conditions and exceptions. An express
    reference to exceptions clause is sufficient to
    make the bill of lading subject to the excepted
    perils contained in the charter party.

4. Incorporating provisions
  • All the terms provisions and exceptions. These
    are very wide words of incorporation, and are
    sufficient to bring into the bill of lading
    almost everything which is in the charter
    party----provided of course that the term makes
    sense in the context of the bill, and is not
    inconsistent with its express provisions.
  •  All terms, conditions, clauses and exceptions.
    This provision is perhaps the widest of those in
    common use. It has been held to be effective to
    incorporate into a bill of lading a clause which
    required demurrage to be paid if a discharging
    berth was not immediately available.
  •  In normal cases, the arbitration clause is not
    incorporated into the bill of lading. Courts in
    England have held that unless there is a specific
    reference in a bill of lading to the law and
    arbitration clause in the governing charter party
    it may not necessarily be deemed part of the
    terms and conditions of the bill of lading even
    though the law a arbitration clause itself
    stipulates that it shall apply in any bill of
    lading issued under the charter party.

5. UCP 600 Refers to Charter Party Bill of Lading
  • 5.1 A bill of lading, however named, containing
    an indication that it is subject to a charter
    party (charter party bill of lading), must appear
  • 5.1.1. be signed by
  • a) the master or a named agent for or on behalf
    of the master, or
  • b) the owner or a named agent for or on behalf of
    the owner, or
  • c) the charterer or a named agent for or on
    behalf of the charterer.
  • Any signature by the master, owner, charterer or
    agent must be identified as that of the master,
    owner, charterer or agent.
  • Any signature by an agent must indicate whether
    the agent has signed for or on behalf of the
    master, owner or charterer.
  • An agent signing for or on behalf of the owner
    or charterer must indicate the name of the owner
    or charterer.

  • 5.1.2. indicate that the goods have been shipped
    on board a named vessel at the port of loading
    stated in the credit by
  • a) pre-printed wording, or
  • b) an on board notation indicating the date on
    which the goods have been shipped on board.
  • The date of issuance of the charter party bill of
    lading will be deemed to be the date of shipment
    unless the charter party bill of lading contains
    an on board notation indicating the date of
    shipment, in which case the date stated in the on
    board notation will be deemed to be the date of
  • 5.1.3 indicate shipment from the port of loading
    to the port of discharge stated in the credit.
    The port of discharge may also be shown as a
    range of ports or a geographical area, as stated
    in the credit.
  • 5.1.4 be the sole original charter party bill of
    lading or, if issued in more than one original,
    be the full set as indicated on the charter party
    bill of lading.
  • 5.2. A bank will not examine charter party
    contracts, even if they are required to be
    presented by the terms of the credit.

6. Gencon Form Provision
  • The Bills of lading shall be presented and
    signed by the Master as per Congenbill Bill of
    Lading form, Edition 1994, without prejudice to
    this charter party, or by the Owners agents
    provided written authority has been given by
    Owners to the agents, a copy of which is to be
    furnished to the charterers. The charterers shall
    indemnify the owners against all consequences or
    liabilities that may arise from the signing of
    bills of lading as presented to the extent that
    the terms or contents of such bills of lading
    impose or result in the imposition of more
    onerous liabilities upon the owners than those
    assumed by the owners under this charter party.

7. Congenbill Bill of Lading, Edition 1994
  • The Congenbill Bill of Lading is probably the
    most widely used bill of lading in general tramp
    shipping today. The Congenbill was, when first
    issued, mainly intended to be used with the
    GENCON Charter but could also be used with other
    charter parties. However, considering the
    extensive use of the Congenbill together with the
    GENCON Charter it is obviously very important
    that the two forms are aligned so that all the
    necessary clauses of the GENCON Charter are
    suitable incorporated into the Bill of Lading.

Section 8 Other Clauses
  • 1. Lien Clause
  • 2. Taxes and dues clause
  • 3. Agency Clause
  • 4. Commission and brokerage clause
  • 5. Law and arbitration
  • 6. AMS clause for voyage charter party
  • 7. General strike clause
  • 8. War risks clause
  • 9. General Ice clause

1. Lien clause
  • 1.1 Lien on cargo
  • The shipowner may have a lien on goods carried on
    board the vessel for charges like freight,
    deadfreight, demurrage, expenses for the cargo,
    general average contribution, etc. Lien on goods
    can be based on the general law, on express
    agreement in the charter party or bill of lading.
  • 1.2 Cesser clause
  • In voyage chartering it is not unusual that the
    charter party contains a clause which relieves
    the charterers from liability from the moment the
    vessel has been loaded. The intention is that the
    shipowners shall turn to the cargo owners with
    any additional claims as, for instance, demurrage
    at the discharging port. It is not unusual that
    this cesser clause and lien clause is combined
    which has the heading lien clause.

1.3 The co-existence principle
  •  Under such clause, the shipowners cannot simply
    go to the charterers afterwards, without first
    having claimed from the receivers by exercising
    of a lien. The co-existence principle applies to
    this clause which means that it is only capable
    of protecting the charterers from liabilities
    that the shipowners can effectively resort to
    against the consignees by way of a lien on cargo.
  • Before the shipowners lien the cargo they must
    find out legal and practical possibilities and
    difficulties in the actual country and port. In
    some countries it is not at all legally possible
    to exercise a lien over cargo.

1.4 Lien clause in Gencon form 1994
  • The provision of lien clause in Gencon form 1994
    is quite different from other charter forms as
    well as Gencon form 46. It states that The
    owners shall have a lien on the cargo and on all
    sub-freight payable in respect of the cargo, for
    freight, deadfreight, demurrage, claims for
    damages and for all other amounts due under this
    charter party including costs of recovering
    same. This provision only gives the shipowners
    right of lien on cargo not relieves the
    charterers liability.
  • In order to reflect common practice nowadays, the
    old reference to damages for detention has been
    deleted. In addition, the Clause has been brought
    up to date in accordance with the more modern
    lien clauses making no reference to cesser type
    provisions (i.e. provisions effectively providing
    that all responsibility of the charterers ceases
    on shipment of the cargo).

2. Taxes and dues clause(1) Who is responsible
for taxes and dues
  • In many countries the tax system includes special
    taxes on freight and other taxes connected with
    the loading or discharging of ships in the
    country. It is the recipient of the freight who
    is liable to pay this tax, not the party paying
    same and therefore this charge is frequently
    levied against the shipowner, being usually added
    to port disbursements incurred by the vessel
    concerned and thus collected via the offices of
    the port agent.
  •  The parties must agree on whose account such
    taxes shall be. The best way is to find out
    exactly what taxes will be debited for the
    intended voyage. Taxes known beforehand can be
    dealt with directly in the charter party but as
    new tax laws may be introduced with very short
    notice it is advisable also to have a clause
    dealing with the question in a more general way,
    as for instance in 1994 Gencon form

(2) Gencon form provision
  • The Owners shall pay for all dues, charges and
    taxes customarily levied on the vessel, howsoever
    the amount thereof may assessed.
  • The charterers shall pay for all dues, charges
    and taxes customarily levied on the cargo,
    howsoever the amount thereof may assessed.
  • Unless otherwise agreed in Box 23, taxes levied
    on the freight shall be for the charterers

3. Agency Clause
  • Normal practice in voyage chartering is that
    agents are nominated and paid by the shipowners.
  • Notwithstanding this, it is not unusual that the
    agents are nominated by the charterers, a
    situation that may sometimes be very difficult
    for the shipowner.
  • When agents are nominated by charterers, the
    shipowners sometimes nominate their own
    agent-----usually called husbandry agent or
    protective agent---to take care of shipowners
    matters such as repatriation of crew members and
    contract with yards or similar and sometimes also
    to take care of the shipowners interests against
    the charterers, shippers or receivers.
  • Consequently it is often the case that charterers
    specifically negotiate that they have the right
    to nominate the port agents that will be
    appointed by the shipowner.

4. Commission and Brokerage clause
(1) Basis of brokerage
  • A shipbrokers income from voyage chartering is
    based on a percentage of the gross freight
    payable to a shipowner and this income is payable
    by that shipowner to all the brokers involved in
    the fixture.
  • A shipbrokers income is usually termed brokerage
    to distinguish it from commission or address
    commission used to describe a charterers
    negotiated entitlement to a discount on freight
  • In fact the practice of deducting address
    commission from freight, deadfreight and
    demurrage is one peculiar to the dry cargo
    trades and is rarely encountered in the tanker

(2)Brokerage amount
  • Brokerage normally amounts to 1.25 of gross
    freight, deadfreight and demurrage and is payable
    by a shipowner from sums received to each broker
    involved in a transaction, although it frequently
    occurs that a charterer will deduct an
    appropriate amount from freight payment to the
    shipowner and undertake to pay the brokerage
    direct to his own and to other brokers involved.
    Thus, for the involvement of two brokers 2.5
    brokerage is payable, 3.75 for three and so on.
  •  This was a dispute over fees payable to a broker
    by a shipowner. The charter party provided for
    daily demurrage which had been unpaid by the
    charterer. The shipowner attempted to set-off the
    unpaid demurrage from the fees payable to the
    broker. Both at first instance and on appeal the
    court held that the shipowner was not entitled to
    claim a set-off.

(3)Address commission
  • Address commission also varies in amount. The
    total commission - address commission plus
    brokerage due on dry cargo business may vary from
    as little as 1.25 to as much 7.5 perhaps even
    more. The norm for deep-sea dry cargo business is
    around 3.75 to 5.

  • When brokers have been involved they are entitled
    to commission. The commission is usually a
    certain percentage of the freight.
    Nevertheless, a broker may be able to gain some
    protection in the case of non-performance of
    confirmed business, as is provided, for example,
    in the Gencon charter party, which states
  • A brokerage commission at the rate stated in Box
    24 on the freight, dead freight and demurrage
    eared is due to the party mentioned in Box 24. In
    case of non-execution 1/3 of the brokerage on the
    estimated amount of freight to be paid by the
    party responsible for such non-execution to the
    brokers as indemnity for the latters expenses
    and work. In case of more voyage the amount of
    indemnity to be agreed.

5. Law and arbitration
  • To avoid discussion and disputes about what law
    is applicable to the charter party, all charter
    party forms should contain a clause dealing with
    the law applicable to and the procedure for
    handling of disputes between the parties. The
    charter parties usually have reference to
    arbitration while bill of lading more often are
    referring to procedure in the courts.
  • An arbitration clause should not only have a
    reference to the applicable law but also rules
    about the procedure when arbitrators are
    nominated, etc. When English law is applicable
    the arbitration clause sometimes has a reference
    to the arbitration Act 1950 and 1979, which deals
    with the procedure.

  • Following is the model arbitration clause
    prepared by China Maritime Arbitration Commission
  • Any dispute arising out of or in connection
    with this contract shall be submitted to China
    Maritime Arbitration Commission for arbitration
    in Being in accordance with the existing
    arbitration rules of the Commission. The
    arbitration award shall be final and binding upon
    the parties.

6. US Customs Advance Notification/AMS Clausefor
Voyage Charter Parties
  • The AMS Clauses have been produced by BIMCO to
    meet the requirements of US Customs regulations
    under the Maritime Transportation Security Act of
  • The AMS regulations relate to the automated
    filing of cargo manifests for all vessels loading
    or carrying cargoes destined for or passing
    through US ports. The regulations require one of
    the contract parties to assume the role of
    carrier for the purpose of submitting cargo

AMS Clause for Voyage Charter Parties
  • (a) If the Vessel loads or carries cargo destined
    for the US or passing through US ports in
    transit, the Owners shall comply with the current
    US Customs regulations (19 CFR 4.7) or any
    subsequent amendments thereto and shall undertake
    the role of carrier for the purposes of such
    regulations and shall, in their own name, time
    and expense
  • i)  Have in place a SCAC (Standard Carrier Alpha
  • ii) Have in place an ICB (International Carrier
    Bond) and
  • iii)Submit a cargo declaration by AMS (Automated
    Manifest System) to the US Customs.

AMS Clause for Voyage Charter Parties
  • (b) The Charterers shall provide all necessary
    information to the Owners and/or their agents to
    enable the Owners to submit a timely and accurate
    cargo declaration.
  • The Charterers shall assume liability for and
    shall indemnify, defend and hold harmless the
    Owners against any loss and/or damage whatsoever
    (including consequential loss and/or damage)
    and/or any expenses, fines, penalties and all
    other claims of whatsoever nature, including but
    not limited to legal costs, arising from the
    Charterers failure to comply with any of the
    provisions of this sub-clause. Should such
    failure result in any delay then, notwithstanding
    any provision in this Charter Party to the
    contrary, all time used or lost shall count as
    laytime or, if the Vessel is already on
    demurrage, time on demurrage.

AMS Clause for Voyage Charter Parties
  • (c) The Owners shall assume liability for and
    shall indemnify, defend and hold harmless the
    Charterers against any loss and/or damage
    whatsoever (including consequential loss and/or
    damage) and any expenses, fines, penalties and
    all other claims of whatsoever nature, including
    but not limited to legal costs, arising from the
    Owners failure to comply with any of the
    provisions of sub-clause (a). Should such failure
    result in any delay then, notwithstanding any
    provision in this Charter Party to the contrary,
    all time used or lost shall not count as laytime
    or, if the Vessel is already on demurrage, time
    on demurrage.
  • (d)  The assumption of the role of carrier by the
    Owners pursuant to this Clause and for the
    purpose of the US Customs Regulations (19 CFR
    4.7) shall be without prejudice to the identity
    of carrier under any bill of lading, other
    contract, law or regulation.

7. General Strike Clause
  • Considerable delay and costs may be the result of
    strikes in loading or discharging ports or in
    seaways through which the vessel has to pass on
    her voyage. The voyage charter party therefore
    usually contains a strike clause where the
    various problems and costs connected with strikes
    are dealt with. The strike clauses are often
    complicated to construe and to interpret.

8. War Risks Clause
  • In time of war, revolution or other disturbances
    the crew, the vessel and the cargo may be exposed
    to certain risks. The personnel on board may be
    injured or killed and cargo and ship damaged or
    lost. Furthermore, there is a risk of delay and
    extra costs. In order to make sure the rights and
    the obligations of the parties, it is usual to
    have a special war clause in the charter parties.

9. General Ice Clause
  • Port of loading
  • (a) In the event of the loading port being
    inaccessible by reason of ice when the vessel is
    ready to proceed from her last port or at any
    time during the voyage or on the vessels arrival
    or in case frost sets in after the vessels
    arrival, the master for fear of being frozen in
    is at liberty to leave without cargo, and this
    charter party shall be null and void.