Niki Maritime v. Global Companies

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Niki Maritime Entreprises SA, as Disponent Owner of the M/T "Niki" v. Global Companies LLC, as Charterer
United States of America: Arbitration Award: Society of Maritime Arbitrators of New York: Gerard T Desmond, Chairman, Thomas F Fox and Donald J Szostak, arbitrators: 1 June 2007

Bengt E Nergaard, of Heidenreich Marine Inc, for the Claimant Owner
Sean T Geary, Deputy General Counsel, and Jeanette G Smith, of Demurrage Specialists International, for the Respondent Charterer
The Panel held that, where under the Hess Pumping Clause attached to an Asbatankvoy Form of Charterparty , the vessel does not discharge her cargo within 24 hours and fails to maintain a pressure of 100psi at her manifold, the Charterer is entitled to deduct from laytime/time on demurrage the difference between the time actually taken to discharge and 24 hours. The Panel rejected, albeit with some reluctance, the Owner’s argument that excessive pumping time should be calculated as the difference between the time taken to discharge and the time discharge would have taken, had the vessel maintained the contracted pressure, based on the ASDEM1 formula.

DMC Category Rating: Confirmed

The MT Niki carried a cargo of heating oil from Amuay Bay in Venezuela to Providence, Rhode Island, pursuant to a charterparty on the ASBATANKVOY Form dated 23 January 2006. Disputes arose over the calculation of demurrage at the discharging port. The discharging operations there lasted about 41.5 hours. The issue between the parties concerned the way in which "excessive pumping time" should be calculated under the Hess Pumping Clause in the charterparty. Should the entire time in excess of 24 hours be deducted from demurrage, or only the time in excess of that would have been consumed, had the vessel maintained a pressure at the manifold of 100psi?

The relevant clause in the charterparty read as follows:

"Hess Pumping Clause
Owner warrants that the vessel will discharge her full cargo within 24 hours, excluding stripping to shore, which not to exceed four (4) hours, or will maintain an average of 100 PSI at the ship’s rail, provided the shore facility is capable of receiving same. Charterer will be entitled to deduct excessive pumping time from laytime or demurrage…"

The Owner argued that excessive pumping time meant time over and above that which the ship would have taken to discharge the cargo, had a pressure of 100psi been maintained at the manifold. In this case, the average pressure had been about 73psi. The Charterer argued that, as an average of 100psi was not achieved, excessive pumping time is all time in excess of 24 hours.

The Award
Although the Panel acknowledged that logic and fairness "would seem to dictate that excess time ought to be defined as time in exceess of, not 24 hours, but that which would have been expected had 100psi been maintained or averaged", it noted that traditionally in New York arbitration, panels had ruled in favour of Charterers on the 24 hour issue, when vessels have failed to meet the pressure warranties, "mostly because excess time had not been defined in the contract and/or no adequate method had been shown to determine predicted pumping time over a period at an average pressure."

In the present case, the Owner had argued strongly that the excess pumping time should be calculated in accordance with the ASDEM formula1, which reflects the presumption that the pressure is proportional to the square of the velocity of the cargo.

But the Panel noted two problems in this approach. First, there was nothing in the charterparty itself to indicate that the excessive pumping time was to be calculated in accordance with this formula. Second, the formula presented problems in the practical environment. "Is there," the panel asked," a limited range over which this formula would apply? For example, to determine the time to discharge a fixed quantity of cargo at 100psi, will it produce equally accurate results if the actual average pressure was 99psi or 85 psi, or, as in this case, 73 psi? How often should pressures be recorded to produce accurate results? What influence do shutdowns have on the formula’s accuracy when discharge pressures might be zero for some period of time? What effect, if any, does variation in back pressure, which is rarely static, have on the accuracy of the calculated results?"

Answers to these questions were not presented by the Owner, who should have provided information regarding the derivation of the formula and any applicable limitations. The Panel acknowledged that the formula might reflect a fair and equitable solution to "the vexing problem" of defining excessive pumping time but concluded that, "failing a fundamental revision of this pumping clause, it will be the burdensome responsibility of owners to convince future panels that an adequate method exists and should be applied to achieve the fairness and justice expected of the arbitration process."

The panel noted that this was not the first occasion on which a New York arbitration panel had urged the "principals in the bulk liquid transportation business [to] address this issue by more carefully defining the meaning of excessive time and providing a satisfactory means to determine it." Until that was done, however, "these apparently inequitable decisions [by which the charterers appear to be gaining an undeserved advantage] will persist."

Accordingly, the Panel ruled that the Owner’s claim for increased demurrage failed.

Q2 = Q1 x √ (H2 / H1)
 Q1 = Average discharge rate achieved by the vessel during bulk discharge.
H1 = The average pumping pressure achieved by the vessel during bulk discharge as measured 
H2 = The pumping pressure warranted in the charter party or lower maximum pressure required by the terminal.
Q2 =The discharge rate that would be achieved at the pumping pressure, H2.

The "Pumping Performance Formula" is now widely accepted as the only reliable way to assess any underperformance by a tanker's pumps during discharge of the cargo. It is based on straightforward physics. The formula can be used to determine the flow rates that may be achieved at different back pressures. The logic is that the discharge pressure for a given system varies proportionally to the square of the flow rate. This can best be explained by an example. If the bulk pumping rate is 500 mt/hour at 6 Kg/cm², the rate at 7 Kg/cm² can be calculated as: 500 x √(7.0 ∕ 6.0) = 540 mt/hour. This formula is accurate so long as the differences in flow rate are not extreme, and provided an increase in back pressure does not result in significant vaporisation in the suction lines to the pump.

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