Tuesday 21 April 2015

A Brief Guide to Liquidated Damages

We often receive queries from readers at the Shipping Law Blog, and today we received one from a non-lawyer, who had been asked to confirm whether one of their contracts contained a 'liquidated damages clause'.

(Image Credit: Western Area Power)

To non-lawyers this language is typical of the legalese used by lawyers, to refer to what is really a very simple concept; in short it means, does the contract contain specific compensation amounts payable.

When two parties enter into a contract they agree to both do something for each other (consideration). Normally, in the maritime industry, one party pays and the other performs a service. If either party does not maintain their side of the deal they are considered to have breached the contract. 

Only very serious (fundamental / repudiatory) breaches will actually bring the contract to an end. So, in general, the legal position is that the party who has breached a part of the contract must pay the other compensation (damages) for that breach and the contract continues. Normally, when such a breach happens, the parties have to agree on how much compensation should be paid, or the case goes to arbitration or court to decide. 

Litigation costs an awful lot of money and in cases like a long-term hire agreement for a vessel (charterparty), where there will probably be many small breaches, it is better for the parties to agree beforehand how much compensation is due for different types of breach. These amounts are then inserted in the contract and becasue they are damaged which have been refined to specific (normally USD) amounts, they are known as liquidated damages. 


A common example would be demurrage. When you hire your ship, you might say that the ship will spend 1 day at the load port and 1 day at the discharge port. The charterer therefore agrees that they will load the cargo and discharge the cargo at their chosen ports within this timeframe. If the vessel stays in port longer (say because the Charterers are slow to get the cargo trucked to of from the ship), the vessel owner will incur additional charges, fees and delays. Therefore a clause in the charterparty may say that demurrage (i.e. delay by the charterer) will be charged at USD 500 per day, or pro rata per hour. When there is a delay of 3 hours, this becomes payable, without an argument as to whether it is reasonable.

Penalty Clause

The amount cannot be any amount, but must broadly reflect the additional costs of the breach on the party who has suffered. Otherwise the English Courts would likely consider the clause a penalty clause, which would be unenforceable under English Law. The main case law on this area dates back to 1915 (Dunlop Pneumatic Tyre Co Ltd vs New Garage & Motor Co Ltd), and outlines when a liquidated damages clause will be considered a penalty clause.

Thursday 2 April 2015

A Visual Guide to Tug Boat Types

Tugboats are one of the most easily recognised of all vessel types, and have found a popular place in the public's eyes, even appearing in a number of Children's books and television programmes. However, there are a number of common varieties it is useful to recognise if you are working in the industry; each has some distinctive features, as set out briefly below.


The Common Harbour Tug

The workhorse of all local and national harbours, these versatile little tugs are able to help with all kinds of activities in port, as well as berthing, towing vessels out and potentially salvaging vessels in distress. Identify them by their small size and all-round basic fendering (often tyres) which shows the variety of jobs they may have to assist with.

Image credit: simplonpc.co.uk


AHTS (Anchor Handling Towage Supply)

These large, advanced tugs are favourites of the offshore industry, these tugs can provide all the services required to oil rigs and platforms, including towing them into place, setting their anchors, and carrying goods and cargo as well as crew to and from the vessel. Identify them by their very large size, gear (cranes onboard for lifting), and open-backed stern (for taking anchors onboard).

Image credit: aluminiumnowturkey.com


Pusher tug / River Tug

These vessels principally operate in sheltered inland waters, and tend to push (rather than tow) other vessels. Because they typically push barges or regular vessels by their flat stern, they are usually unusual looking with a flat front.  

Image Credit: GPIA.com


ATB Tugs

Articulated Tug and Barge (ATB) combinations are custom built sets of tugs and barges which go together. Normally the tug slots into the back of the barge for a more secure fit. Because they are often pushing large unmanned barges from behind, they need to have their bridge set very high, to see over the front of the barge; hence the unusual 'high neck' appearance. These vessels are more common in the USA.

Image credit: towmasters.wordpress.com


ASD Tugs

Azimuth Stern Drive (ASD) tugs do not have a rudder and propeller system like most vessels. Instead they are fitted with an advanced propeller which itself can turn direction, normally with one or two such propellers fitted at the stern of the vessel. This gives the tug much improved and more efficient manoeuvrability in the water, which allows them to better help other vessels. It also reduces running costs. However, these vessels remain expensive to build so look out for top-spec, modern-design, with more of an even all around freeboard tugboats.

Image credit: products.damen.com


SDM Tugs

Ship Docking Module (SDM) tugs are, as the name implies, specifically designed to help other vessels dock in sheltered harbours or marinas. They have a very low and wide freeboard, so they can get up close to any section of the hull of larger ships without damaging them. They are also extremely nimble and have two Azimuth (360 degree) thrusters at either end, so they can spin 360, or speed up very quickly then move the opposite direction. They have a patented shape like a floating saucer, and because they are patented by one marine company (Seabulk), they are not as frequently spotted as other harbour craft.

Image: ebdg.com

Emerging Incident: Sinking of the fishing trawler "Dalniy Vostok" in Russia (1 April 2015)

A large Russian fish factory, the "Dalniy Vostok", sank off the remote east coast of Russia on Wednesday 1 April 2015, resulting in a very high number of casualties.

Vessel: Fishing Trawler "Dalniy Vostok" / "Dal'nij Vostok" (IMO No. 5085653)

P & I Club: Unconfirmed (but thought to be Ingosstrakh)

GT: 23,102

Build: 1963 (52 years old)

Flag: Russia

Operator: Magellan LLC

Numbers Onboard: 132 crew of Russian, Burmese, Ukranian, Lithuanian and Vanuatuan nationality.

Voyage: Working off the Kamchatka peninsula.

Incident: The vessel appears to have been trawling a very heavy (and possibly overweight) dragnet, when she may have struck ice or some mother object, resulting in the vessel being pulled quickly beneath the surface.

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