26 Nov 2013

LEAP Proposes 2014 Working Group on Public Dock Clause

Background:  Demurrage is a charge that is payable from a charterer (or another party) to a vessel owner as a result of a voyage extending beyond an agreed allotted period (called the “laytime”) for a specific voyage or time charter.  Demurrage rates between vessel owners and charterers are usually agreed as part of a bilateral charterparty agreement between the parties, or in some cases are agreed as part of wider agreements among parties (e.g. the German Tankschiff Transport Bedingungen “TTB” rules for barges).

Demurrage rates and terms are also often claimed and payable throughout a ‘trade chain’ between counterparties in the purchase and sale of oil, as oil sellers may claim demurrage payable from oil buyers (and vice versa) as the result of circumstances requiring the delivery or receipt to run longer than originally expected.

“The Public Dock Clause” Defined:  A clause similar to the clause below is in many parties GTCs and in their relevant long-form confirmations.  (For FOB purchases/sales)

“Where the parties agree in the Confirmation that the public dock clause applies, if loading occurs at a public terminal over which Seller has no control, Vessels are loaded on a first come first serve basis subject to dock availability.  Laytime shall not commence until Vessel is All Fast at the dock.  Seller will not be responsible for any delays or demurrage incurred while waiting for a berth.”

Similar clauses are found with respect to other Incoterms as well, but they all have the common theme of limiting the liability for demurrage for the party who has the storage location lease relationship such that they cannot be passed the cost of demurrage.  The ‘theory’ behind this clause is that the Seller (in the FOB case) has no control over the order in which the various barges and vessels are called to berth, and as such should not be penalized for the demurrage incurred by the other party.

Problems with the Public Dock Clause in Practice Today:  Several disagreements exist today among companies who reference a Public Dock in oil contracts, and several market participants believe that the largest single cause of aged demurrage claims is the Public Dock Clause.  Questions include: 

  • Which terminals operate as Public Docks?  Companies’ GTCs do not define the term, and there is not an objective standard of definition.
  • What scenarios allow for an FOB Seller to cite the Public Dock clause to claim that demurrage is not payable?  Theoretically, berth congestion should be the only ‘excuse’ for demurrage that is ‘cured’ by the Public Dock Clause.  Lack of availability of product, issues with equipment, arrival of third party inspectors and agents, etc., should not be cured by the Public Dock Clause.
  • Did the Parties agree to waive the Public Dock Clause?  Did they agree to abide by it?  Some parties have boilerplate text in their GTCs which disallows the use of the Public Dock Clause unless explicitly agreed in a transaction Confirmation, while others include it by default and Confirmations must explicitly disallow it.  This is often further complicated by a seemingly ‘standard practice’ of inserting a reference to the ‘Public Dock Clause’ in confirmations for transactions that clearly occur at private terminals and refineries.

What can LEAP do about it?  Our intention is to form a Working Group in early 2014 within LEAP that will address the Public Dock Clause, with the following goals:

  • Develop and publish an objective standard by which a terminal can be considered a Public Dock.
  • Create and publish a list of Public Docks in North America and the Caribbean that adhere to the objective standards create above. 
  • Develop a process by which other Terminals may be added to the ‘LEAP Public Docks’ list by providing information supporting the adherence to the objective criteria.
  • Create a set of clauses that could be voluntarily inserted into GTCs and Confirmations to reference the LEAP Public Docks and specify the circumstances in which a Party is not liable for demurrage because of the nature of the Public Dock.

Our intention is that oil trading companies would be able to freely reference the LEAP terms and Public Dock list within the GTCs, Confirmations, and other documents.

Introducing the LEAP North America Demurrage Working Group

  • “Kickoff Meeting” on December 3, 2013.
  • Intention is to hold one-hour meetings roughly every 3 weeks via conference calls.
  • We anticipate one ‘face-to-face’ meeting in Houston in February/March 2014 in conjunction with a LEAP workshop focusing additionally on other marine demurrage matters.  Time and location TBD.
  • Meetings will be subject to the restrictions outlined in the policies found on our LEAP Website
    • Parties must be registered members of LEAP, which is open on a nondiscriminatory basis to energy trading entities and service providers to those entities.  All members are legal entities, not natural persons.
    • All meetings will have an Agenda and Minutes prepared by the LEAP Project Manager representative.
    • The LEAP Antitrust Policy will be summarized verbally at the beginning of each meeting and in the Agenda and Minutes.
    • All LEAP documents will be subject to the review of LEAP antitrust counsel.