ReedSmith associate Gabrielle Sweidan considers the lessons learnt with regards to demurrage from Gunvor SA v. CruGas Yemen Ltd & CruGas Ltd
The claimant, Gunvor SA entered into a contract in April 2015 with CruGas Yemen Ltd and/or CruGas Ltd (CruGas) for the sale of gasoline in 12 monthly shipments CIF Hodeidah.
In order to fulfil the contract, Gunvor SA had entered into a long-term contract of affreightment (CoA) with one of its group companies, Clearlake Shipping Pte Ltd (Clearlake), in January 2015. The CoA stated that, when Gunvor SA needed a vessel, Clearlake would charter-in a vessel from the open market and then sub-charter it to Gunvor SA “at cost”. In other words, the freight and demurrage rate from each charter would be incorporated into the CoA.
Several cargoes of gasoline were delivered to CruGas without a major issue. However, problems arose under shipments on Chang Hang Xian Feng (sub-chartered by the Gunvor SA around 10 July 2015), Ocean Mars (sub-chartered around 22 July 2015) and Hong Ze Hu (sub-chartered around 10 September 2015 and again around 10 February 2016).
The key issue was CruGas’s failure to make the agreed pre-delivery payments for each shipment and also to pay outstanding demurrage. Gunvor SA therefore refused to permit the vessels to discharge the gasoline at Hodeidah. While being held, the vessels incurred substantial demurrage (for example, the Hong Ze Hu was on demurrage for 261 days) and expenses, such as anchorage fees and increased AWR premiums.
Eventually Gunvor SA terminated the contract and issued a claim for around US$19M plus interest. This comprised demurrage which had accrued under each of the three vessels, market losses in relation to the 55,000 tonnes of gasoline remaining on-board Hong Ze Hu, and other expenses. The key issues which arose during the hearing (which the CruGas did not attend) are summarised below:
Who was the buyer – CruGas Yemen Ltd (the first defendant) or CruGas Ltd, the party named in the contract (the second defendant)?
CruGas Yemen Ltd. Gunvor SA was “entirely unaware” that CruGas Ltd (a Cayman Islands company) existed: all of the pre-contract documents referred to CruGas Yemen Ltd and this made commercial sense.
Does the demurrage time-bar provision in the CoA operate in the contract?
No. The contract stated that demurrage was payable “as C/P rules”. In other words, the demurrage payable under the relevant charter should also be payable under the Sale Contract.
This principle was laid down in OK Petroleum AB v. Vitol Energy SA [1995] 2 LLR 160.
Should the contract require Gunvor SA to prove that the demurrage rates are “in line with the market rate”?
No. In order to imply such a term, it must be either necessary for the business efficacy of the contract or to give effect to the obvious (but unexpressed) intentions of the parties on the contract date. This reflects the courts’ reluctance to rewrite a contract.
Must Gunvor SA pay the demurrage to Clearlake before it claims it from the CruGas?
No. The general rule is that, when a sale contract incorporates the terms of a charter relating to demurrage, the obligation in the sale contract operates independently (not as an indemnity).
This principle is set out in Glencore Energy (UK) Ltd v. Sonol Israel (the “Team Anmaj”) [2011] 2 LLR 697.
Lessons learned
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