Practice and Procedure


PUBLISHED October 14, 2003

The defendant failed to show that a cargo of oil had been contaminated with seawater before or during a ship to ship transfer of the cargo. The demurrage obligation in the cost and freight contract of sale was in the nature of an indemnity rather than an independent obligation.Claim relating to a cargo of oil, which was found to be off-specification on discharge by contamination with seawater, and to the liability of the defendant ('Petronas') for demurrage. A cargo of oil was loaded on the "Centaur" at Yanbu in Saudi Arabia. The oil had been tested at the refinery and in shore tanks. The water and sediment content of the oil in the shore tanks was 0.2 per cent compared with the contractual specification that permitted a level of water of up to one per cent by volume. Immediately prior to loading the cargo inspectors checked the Centaur's tanks and found a minimal amount of cargo left in the tanks and no free water. The oil was transferred at sea to another vessel ('the Devon') in a ship to ship transfer ('STS'). A surveyor ('P') appointed by both parties attended the STS to take measurements and samples. P did not take samples from the Centaur's tanks. He prepared an ullage report confirming that no free water was found in any of the cargo tanks on the Centaur prior to the transfer. P inspected the cargo tanks on the Devon. After the STS was completed, P sampled the Devon's cargo tanks. The cargo in the Devon contained no more than the 0.25 per cent water that was permissible under the contract. As P had found traces of water he required both ship masters to sign a letter of protest to that effect. After the STS, the tanks on the Centaur were checked and found empty. P visually inspected the ballast tanks and could neither see nor smell oil in them. When the Devon discharged at the Caltex terminal in Singapore there was no free water within the cargo but water in excess of the contractual specification was found in shore line samples. Caltex required the Devon to leave the terminal and discharge was completed in Malaysia. Tests confirmed that the water in the fuel oil was mostly seawater. The claim for demurrage was put on the basis that Petronas failed to discharge the Devon within the permitted laydays in breach of the sale contract.HELD: (1) Petronas had to show on the balance of probabilities that, when pumped into the Devon, the cargo contained a quantity of water in excess of the permitted proportion. (2) On the evidence it appeared that some 1,500 metric tonnes of seawater was substituted for that amount of oil at some stage prior to or during discharge at Singapore. The evidence excluded accidental cargo contamination, which would in any event not account for the missing oil, and indicated that the substitution of water for oil must have been done knowingly. (3) P was not party to any fraud and it was unlikely, although possible, that he would have missed 1,500 metric tonnes of oil remaining in the Centaur after the STS. (4) It was possible that the switch of water for oil occurred on the Devon. The switch could have been made before or after the STS. Either was possible but that was not sufficient. Petronas had not made out its case that the switch occurred before the STS. (5) The sale contract provided that demurrage was payable as per charter party. Since the demurrage clause identified the amount of demurrage by reference to the charter party, the demurrage obligation in the cost and freight contract, which imposed no obligation on the buyer to discharge the vessel in any particular time, was to be construed as in the nature of an indemnity rather than an independent obligation.Judgment accordingly.

[2003] EWHC 2225 (Comm)