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Case law: London Arbitration 8/21

News & Insights 31 May 2021


Key word: Demurrage

Demurrage – Charterers failing to pay demurrage invoice – Owners subsequently invoicing charterers for reduced amount – Charterers still failing to pay – Owners bringing arbitration proceedings to recover full amount – Whether owners restricted to recovering reduced sum claimed in second invoice – Whether implied term that reduced amount would be accepted in exchange for prompt payment

The vessel was chartered by the owners/claimants to the charterers/defendants on a GENCON 94 form for a voyage from India to Saudi Arabia, carrying barite lump in bulk. Once the discharge operations were completed at Saudi Arabia, the owners submitted a demurrage invoice for US$ 21,250.00.

The terms of the charterparty provided that demurrage had to be settled by the charterers within 12 days from completion of discharge. The charterers had failed to pay demurrage within this period. Subsequently, the owners submitted another demurrage invoice to the charterers for a reduced amount of US$ 18,000. However, payment was still not made by the charterers.

The owners commenced arbitration, claiming the full amount of US$ 21,250. The charterers failed to appoint an arbitrator and the owner’s arbitrator became the sole arbitrator. In addition, the charterers did not provide any submissions or take part in the arbitration.

The question for the tribunal was whether the owners could claim the full demurrage amount of US$ 21,250 after having subsequently submitted a reduced invoice for US$ 18,000.

The tribunal considered the reason why the owners issued a second invoice for the reduced amount. Absent any information about negotiations between the parties, the tribunal considered that the most obvious explanation was that the owners were prepared to accept the reduced amount in exchange for prompt settlement. This was not expressly provided in the second invoice and so it could only be by way of an implied term.

The tribunal held that the term to be implied was very obvious and passed the “officious bystander” test, in that if a bystander had suggested the term (i.e. reduced amount would be accepted in exchange for prompt payment), both parties would have accepted the suggestion.

The tribunal decided that the owners were not restricted to claim the reduced amount of US$ 18,000 and could indeed claim the full amount of US$ 21,250 under the arbitration clause of the charterparty.

Comment

It can be adduced from the decision that if the parties had negotiated and agreed a reduced demurrage amount (evidenced by email exchanges for example), the tribunal might have restricted owners’ claim to US$ 18,000 instead of the full amount of the original invoice US$ 21,250.

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Category: Caselaw

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