The "Eos"

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DMC/SandT/08/25
Andorra Services, Inc. and Chemoil Corp, Charterer v. Venfleet Ltd., as owner of the M/T "Eos"
United States of America: Arbitration Award: Society of Maritime Arbitrators of New York: Jack Berg as Sole Arbitrator: Award dated 5 June 2008
Lawrence B. Brennan, James Deaver and Wendy J Lindstrom, of Wilson Elser Moskowitz & Dickler, for the Charterer
James M Textor, of Cichanowicz Callan Keane Vengrow and Textor, for the Owner
SHIPPING: CLAIM FOR CARGO DAMAGE: EXCESS WATER IN FUEL OIL: WHETHER CERTIFICATE OF QUALITY ISSUED ON LOADING ACCURATE: EFFECT OF CERTIFICATE AS BETWEEN OWNER AND CHARTERER: DEMURRAGE: WHETHER DELAY CAUSED BY CONDITION OF CARGO ON ARRIVAL: WHETHER DELAY CAUSED BY CHARTERER USING VESSEL FOR SHORT TERM STORAGE
Summary
In this arbitration, the arbitrator determined that the principal reason why a cargo of fuel oil had arrived at the port of discharge with a discrepant water content was not that the ship’s heating coils had (admittedly) leaked water into the cargo but that the cargo had been loaded with a water content in excess of that shown in the quality certificate. The arbitrator further held that the lengthy delay at the port of discharge, in respect of which the shipowner claimed demurrage, was caused not by the discrepant condition of the cargo, but by the charterer using the vessel as temporary storage during a period of rising prices. The arbitrator also awarded full legal fees to the shipowner, as the winning party. 

DMC Category Rating: Confirmed

Case Note contributed by Patrick V Martin, counsel to the Society of Maritime Arbitrators

Facts 
Under a Charter Party dated December 19, 2005 on the Shellvoy 5 form, the "Eos"OS performed a voyage from Amuay Bay to New York with a cargo of 549,087 bbls of fuel oil under a Shellvoy 5 form of charter. During the voyage the vessel’s heating coils leaked and an amount of fresh water was introduced into the fuel oil. The cargo had reportedly been purchased with a maximum Sediment & Water ("S&W") content of 1%. The supplier’s load port certificate of analysis showed S&W of 0 .7%. Upon arrival at New York, the cargo inspectors found the S&W to be 1.8%. After an initial partial discharge and subsequent considerable subsequent testing and retesting, the Charterer ordered the vessel from the berth to anchorage. The vessel remained at anchorage for 18 days before reberthing and completing discharge.

Disputes arose and the parties, after protracted legal proceedings, agreed to submit them to a sole arbitrator in New York.

Charterer asserted a claim for US$471,435.81, primarily for blending stock to required to reduce the S&W content to acceptable limits and related tankage costs. Owner’s counter-claimed asserted a claim for demurrage totaling US$1,117,842.90, primarily for demurrage including the 18 days at anchorage.

The Arguments
Charterer contended that it proved a prima facie case by establishing that the S&W was 0.7% on loading and 1.8% on discharging. Furthermore, Owner did not dispute It further pointed out that it was undisputed that the vessel’s heating coils had leaked fresh water into the cargo and therefore the ship was unseaworthy at the commencement of the voyage.

The Owner contended that the load port analysis of the cargo used by the Charterer was at least suspect, if not erroneous., and that the small amount of fresh water which could have entered the cargo through the leaking heating from the coils was inconsequential and therefore could not and did not cause the considerable increase in S&W content found at New York.

The first issue was whether the load port analysis used by Charterer as the basis for its claim fairly represented the condition of the cargo upon loading.

The cargo was loaded from a massive open pit identified as open pit 801. Just before the M/T "Eos", another vessel loaded a fuel oil cargo from pit 801, which cargo had a S&W of 1.4%. The certificate of analysis prepared for the "Eos" was done by the supplier’s laboratory and not by an independent inspection company. The Owner had no involvement with the sampling or analysis of the cargo from pit 801. Further if, as Charterer contended, the sole cause of the increase in water content from 0.7% to 1.8% was due to the leaky coils then there would have been a commensurate increase in the volume of the liquid in the ship’s tanks. There was an increase of about 1,704 bbls, based on the difference between ship’s ullages at load and discharge ports. However, to support an increase in the volume based on a difference of 1.1%, there would have had to be a volumetric increase of about 6,050 bbls. There was no evidence to support this position.

While the load port certificates may be prima facie evidence of the cargo quality as between buyer and seller of the product (and indeed areis often "final and binding"), the quality certificate does not have the same import as between a charterer and an owner.

The Award
The arbitrator concluded that, based on the credible evidence, the load port certificate was not reliable and in fact the load port certificate was not reliable and in fact the cargo on loading likely had a water content between 1.4 to and 1.5% and that the leaky coils added about 0.3%. "[T]he overwhelming bulk of the problem" was the excess water existing in the cargo at loading for which the Owner was not responsible. Charterer’s claim was and therefore denied. the claim.

The arbitrator then considered the Owner’s demurrage and expenses claim of US$1,117,842.90, of which US $324,438.88 was for loading and discharging operations and US$822,066.65 was for time spent at the anchorage. The arbitrator had no difficulty awarding the former.

With respect to the latter, the Charterer argued that the high water content caused by the leaky coils made it impossible to discharge the cargo promptly. The arbitrator found that this position was not sustained by the evidence. The terminal would have taken the cargo in at any time and ultimately did so. Instead, the arbitrator found that the time spent at the anchorage had less to do with the cargo’s S& W content than Charterer’s decision to use the ship as floating storage. Further, the real reason the vessel was ordered to the anchorage was that the Charterer did not have tankage available and used the vessel for storage in a rapidly rising market from which it "profited enormously". The full amount of the Owner’s claim was awarded.

Lastly, each side claimed legal expenses in excess of US$600,000. With very little discussion, the arbitrator awarded the Owner, as the prevailing party, US$550,000 as being reasonable in the circumstances.

Comment
The editor understands (27 October 2008) that the Charterer has commenced proceedings in the New York Federal Court to vacate (set aside) the award.

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