Giant Shipping v. Tauber Oil

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Giant Shipping Ltd. as Owners of m/t Posidon v. Tauber Oil Company
New York Arbitration: Society of Maritime Arbitrators: R Glenn Bauer, Chairman, Mr Alexis Nichols and Mr Jack Berg, Arbitrators: April 8 2002
The Arbitration panel held by different majorities that

  1. Owners had an implied obligation to take all reasonable measures to ensure that tanks were well drained and stripped, even if they met the charterparty description of being "free of any liquid and pumpable residues". As a consequence, when the ship arrived at her loading port with an excessive amount of cargo remaining on board, she was not in a condition to give a valid notice of readiness and laytime could only commence once loading began.
  2. Charterers, once they had assumed responsibility for the further tank cleaning operations, were held responsible for the consequences of engaging incompetent contractors. By so doing, they failed to mitigate their damages arising from the Owners’ breach of contract in tendering the vessel for loading in a discrepant condition. As a consequence, Charterers could not recover the amounts they had paid the contractors and the Owners were entitled to damages for detention for the time the contractors spent in their fruitless efforts to clean the ship’s tanks.

DMC’s Category Rating: Developed

Under a charterparty dated March 21 1997, the tanker ‘Posidon’ was fixed on the Asbatankvoy form for a voyage with carbon black feedstock from Galveston and Houston in the US Gulf to Singapore and Thailand, via Port Elizabeth. The vessel’s previous cargo was Low Sulphur Waxy Residue (‘LSWR’) crude oil from Indonesia, which was discharged at Norco, Louisiana, on the Mississippi River close to New Orleans. The dispute in the case arose from the time lost and expense incurred when it took 22 days to clean and load the vessel’s tanks at Galveston.

The Charterparty contained an additional clause M13, which provided:
"It is understood that vessel’s last cargo is Low Sulphur Waxy Residue, and the ship will tender at load port with all tanks… well drained and stripped free of any liquid and pumpable cargo residues… Cargo tanks to be cleaned to the satisfaction of Charterers’ independent inspector, bearing in mind the above."

LSWR had a pour point of between 108 and 118o Fahrenheit. It must be heated to be discharged and some will always remain on board beneath the vessel’s heating coils. The river temperature was 66o F. Discharge of the LSWR at Norco was assisted by the use of heated cutter stock supplied by the Receivers but the cutter stock operation was ended by the Master early in the morning of April 7 1997, perhaps because he feared that the ship would miss her cancelling date under the Tauber charterparty. In consequence of that decision, 2436 barrels of umpumpable residues were allowed to remain in the tanks, Evidence suggested that, had the cutter stock operation been continued, this amount could have been reduced to around 300/400 barrels.

Whilst the ship was still at Norco, Tauber telexed Owners saying that the condition of the vessel’s tanks was "far from acceptable" and requested that they be cleaned with with "very hot water under pressure". Owners instructed the Master to comply with these instructions during the voyage from Norco to Galveston. On arrival at Galveston on April 9, the Owners gave readiness to load under the Tauber charterparty, saying that the umpumpable residues had been reduced to about 900 barrels and that, given the specific terms of clause M13 in the charterparty, the vessel met the agreed condition of readiness. However, Tauber’s surveyors at Galveston found the tanks "far from ready to load" and, at Charterers’ request, the ship continued cleaning efforts with fresh water, but without satisfactory results. On April 14, the washing ended. From that point on, Tauber took charge of the cleaning operations. At first they engaged contractors, whose intervention proved completely ineffectual. They had grossly underestimated the quantity remaining on board and were reduced to trying to remove it by the use of buckets and manual labour.

On April 25, after ten days of futile effort, the sub-contractors' operation was terminated and Charterers employed a new method, namely washing the tanks with heated carbon black as a solvent. This worked well and by April 28, only 387 barrels of mixed carbon black and LSWR remained on board. The vessel was finally approved and loading commenced that day. The vessel then moved to Houston for the completion of loading and sailed on her overseas voyage on May 3. The rest of the voyage was completed without incident.

The Parties’ Claims
Owners claimed US$625,957, primarily for demurrage, including the full period of time spent tank cleaning at Galveston. Tauber claimed damages of US$971,492 for the extra cleaning costs incurred at Galveston.

Owners maintained, in reliance upon clause M13 in the charter, that on arrival at Galveston, the vessel’s tanks were "well drained and stripped free of any liquid and pumpable cargo residues", as required by the charterparty, Any additional cleaning was, therefore, for Charterers’ account. The butterworthing that had occurred between Norco and Galveston had been carried out on Charterers’ express instructions.

Charterers’ argument was that the Master stopped the cutter stock stripping operation too soon at Norco and thereby allowed the 2436 barrels of ‘Remaining on Board’ (‘ROB’)to become solidified. In Charterers’ view, it was unreasonable to leave such a quantity on board, when the evidence was that the cutter stock operation could have reduced it to about 300-400 barrels.

The Award
A majority of the arbitrators, Mr. Nicholls dissenting, found that the Ownersdemurrage claim failed, as they did not present a ship ready to load upon arrival at Galveston. The majority found that more LSWR should have been removed by Owners at Norco, before it became unpumpable. Charterers’ solution was to ask Owners to butterworth the tanks en route to Galveston. Owners complied with these instructions, for reasons that were unclear. But the end result was that by so doing, Owners destroyed any chance they had to give a valid notice on arrival at Galveston, since – at that point - the vessel’s tanks were not "well drained and stripped free of any liquid and pumpable cargo residues…They were not suitable for loading carbon black feedstock." It was not until Charterers took the decision to flush out the residues with heated carbon black that things got back on track, but it was impossible to reconstruct the exact time at which the tanks had been brought back into the condition required by the charterparty. In these circumstances, the majority held that laytime first commenced when loading began on April 28. Owners’ demurrage claim was, in consequence, reduced to US$259,481.

Charterers’ claim for the extra cleaning costs was based on Owners’ alleged breach of charter. The panel agreed that Owners were obliged to present a vessel for loading with tanks in fit condition, subject to any limitation on that duty contained in clause M13 of the charter. Implicit in that clause was a promise that all reasonable measures would be taken to see that the tanks were well drained and stripped. Furthermore, Owners were under a contractual duty to make the vessel "in every respect fitted for the voyage". The panel found that "if an excessive amount of ROB (whether pumpable or unpumpable) exists from a previous cargo due to a failure to adequately strip the tanks, Owner is in breach of charter. That is what happened here. …Another day’s use of cutter stock at Norco could have reduced the ROB to about 400 barrels…..The Owners were not obligated to reduce the ROB to any particular quantity such as 400 barrels. Clause M13 did not require the tanks to be tendered without the need for further cleaning. Further cleaning to the satisfaction of Charterers’ inspector was not unexpected. It is held, however, that the 2436 barrels was too much unpumpable ROB left on board at Norco and more should have been removed before sailing. There was therefore, a breach of charter by Owners at Norco…."

But the panel held that the question of damages recoverable for this breach "was another matter". They noted that it was the Charterers who had instructed Owners to butterworth the tanks, both en route to Galveston and after arrival there. Butterworthing was an ineffective remedy to the problem. The efforts of the contractors engaged by Charterers were similarly ineffectual. It was not until April 25 that Charterers decided employ the correct method, namely, to wash the tanks with hot feedstock, similar to what had been done at Norco. In these circumstances, the panel found that Owners’ breach of charter could have been easily and cheaply remedied. By not doing so, Charterers had failed to mitigate their damages. As a result, Charterers’ damages were limited to the US$50,000 estimated cost of the carbon black feedstock purchased for the tank cleaning operation.

The panel went on, by a majority, Mr Berg dissenting, to award Owners detention at the demurrage rate of US$18,500 per day for the ten days that the contractors spent in their unsuccessful cleaning efforts. The panel held that Charterers, having taken full command of the cleaning operations, were bound to do the cleaning "as responsible Owners would do, in a reasonable manner and without unreasonable delay." Their choice of cleaning contractor, "[an organisation which] did not and could not do the job the Charterers required" made "the fumbles of that operation the responsibility of Charterers alone. Charterers saw quickly that the contractor had underestimated the job and that their methods of cleaning were impractical in the circumstances. Charterers should have stopped the work much earlier than they did." These factors amounted to a breach of duty on the part of Charterers, entitling Owners to detention for the period involved.


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