Delay penalties can cut both ways

Simon Tatham takes a look at the of both owner and hirer under deepsea towage contracts.  Using a scrap tow as an example, he explains why disputes over long delays are rarely straightforward to resolve.

One of the problems in ocean towage almost guaranteed to give rise to hypertension, is when a long delay occurs in either the tug or tow being ready at the port of departure. Take for example a scrap tow from a remote port.

Lets assume first that the Tugowner is the good guy and that his tug steams 2000 miles arriving in good time only to find that the tow is not ready and shows no signs of being ready. Now hopefully he did secure a fair sized lump sum on signing of the contract, so mobilisation has been paid for. The complication now is that the next stage payment is only earned once underway from the place of departure.

He waits until the agreed departure date is past and any agreed free time used up. All is well. The Tugowner goes onto the agreed delay payment rate, which is fine if the rate is a decent one.

But what then if the delay is now jeopardizing the laycan on his next towing fixture? This is a problem under TOWCON, because the Tugowner has to wait 21 days (14 days under TOWCON 2008) before he can give notice to terminate, and then he has to wait a further 48 hours before the tug can leave. He then has to fund the tug’s operating costs steaming to the next fixture. He cannot claim the cancellation or termination fee, which is usually quite a generous sum, because that is only applicable when the Hirer cancels.

The good news on the other hand is that the normal ‘knock-for-knock’ rule, that no claim can be made for loss of profit or loss of use, does not apply when termination occurs in this way, so he could try his luck by commencing proceedings against the Hirer. However if the ship is going to a scrap port, any arrest for security for the claim is going to have to take place at the port of departure – which may be good place or not, and the Tugowner needs to get his act together fast.

If the Tugowner may feel slightly hard done by, then let’s look at it from the Hirer’s perspective. If the tug is delayed en route, arriving weeks late, the Hirer may have had to leave a crew on board and pay his agents and other costs. His certificates meanwhile may be expiring. He might not only be exposed to volatile scrap price movements but also having to appease the buyer or risk losing his scrap sale. To make matters worse, the local harbour master may wake up to the fact that an elderly deadship, not in routine layup, is riding unattended at his anchorage and start to take an unhealthy interest.

Certainly, the Hirer can cancel at any time, but he will have to pay the above mentioned hefty cancellation fee. He then has to find another tug – and my bet is that a call to the brokers will reveal that no alternative tug is available for weeks and that the price has now rocketed.

Eventually, if the tug is not ready to commence towage by midnight on the cancelling date, the Hirer can exercise his option to cancel without incurring a termination penalty, but what rights does he have to recover his losses? Once he has put on the bifocals and turned up the small print of clause 16 (or clause 5 under TOWCON 2008), he will discover that he appears only to have the right to claim for losses arising from delay but in order to do that, he needs to prove that the tug’s delay has arisen from wilful default. Take it from, me that’s not always an easy thing to do.

Simon Tatham

Simon Tatham is a partner at Tatham Law and founder member of the service. He has more than 30 years’ experience of shipping law.

Reproduced with kind permission of International Tug & OSV magazine
, January/February 2013