Computation and Calculation of Freight Intaken or delivered quantities

The contract for the conveyance of merchandise is in its nature and entire contract: and unless it be completely performed by the delivery of goods at the place of destination, the merchant will in general derive no benefit from the time and labour expended in a partial conveyance, and consequently be subject to no payment whatever …
Abbot’s Treatise of the Law Relative to Merchant Ships and Seamen, 1810.

General Principles

Unless otherwise agreed, general rule of very ancient legacy provides that payment of freight is always subject to delivery of the goods to place of destination.

… the true test of the right to freight is the question whether the service in respect of which the freight contracted to be paid has been substantially performed …
Dakin v Oxley (1864) 15 C.B. (N.S.) 646, per Willes J. at pp. 664-665.

And when only part of cargo is delivered the owner is paid only on the part delivered. Any process of marine transportation assumes estimation of cargo volume or weight or any other quantitative assessment necessary to pay freight. It can be, for example, calculated either on "delivered" or "intaken" quantity. The rule at common law is, that the nett quantity, at the port of delivery, is the measure of freight payable by the merchant. Parties are free to bind themselves by express language of written contract and suppress the common law rule. Thus, when parties agreed that freight shall be paid on intaken quantity, then freight will be considered as earned on shipment even if cargo lost or destroyed on the voyage.

In Shell International Petroleum Ltd v Seabridge Shipping Ltd (The Metula) [1978] 2 Lloyd’s Rep 5 case one-third of cargo loaded at Persian Gulf was lost due to the grounding of The Metula in the Magellan Strait. Subsequently remaining two-thirds of cargo were transferred to other tankers and eventually delivered to the destination in Chile. The arguable question in that case was whether the owners entitled to full freight payment in spite of huge short-delivery of cargo.

Clause 2 – ‘Freight’ of the charterparty based on the Exxonvoy form provided inter alia that:

Freight … shall be computed on intake quantity … as shown on the Inspector’s Certificate of Inspection… Payment of freight shall be made by Charterer without discount upon delivery of cargo at destination, less any disbursements or advances made to the Master or Owner’s agents at ports of loading and/or discharge and cost of insurance thereon…
See Compania Naviera General S.A. v Kerametal Ltd. (The Lorna I) [1983] 1 Lloyd’s Rep. 373

At both instances, Donaldson J. in the High Court and Lord Denning, M.R. and Roskill LJ in the Court of Appeal noted that, although, provisions of the charterparty in question related to the freight payment were not, strictly speaking, attributable to lump sum freight but these provisions had the characteristics of a lump sum payment ‘in that the freight is computed on the intake quantity’.

If the freight is payable only on such part of the cargo as is delivered, why is special provision made in this charter-party that it has been computed on the intake quantity? I never received any satisfactory answer to that question. It seems to me the very purpose of having the computation being made on the intake quantity is that freight should be ascertained then, although payable later when the ship gets to its destination. There is no provision whatsoever for subsequent adjustment or calculations being made at the port of destination.

The words in the first sentence of Clause 2 above, indicating that freight shall be computed on intake quantity, were deemed to shift the whole meaning of the freight clause to what is taken on board at the port of loading and only the amount ascertained in accordance with the first sentence is that sum which has to be paid.

The case was decided for owners also because the charterparty provided no mode for adjusting the delivered quantity to correspond with the intake quantity or which weight ship’s or shore to be applied for freight calculation.

However, it is always a question of construction of the particular terms of the contract whether a provision that freight is to be calculated on intaken quantity displaces the common law rule, so as to entitle the shipowner to freight on goods accidentally lost on the voyage. In some modern forms such as ExxonMobil VOY2000 and SHELLVOY5 (see below) freight is also payable on the gross bill of lading quantity so the owners are entitled to full freight payment even if part of cargo was not delivered. Thus, both mentioned forms embody the ‘lumpsum’ principle of ASBATANKVOY and it’s predecessors.

ExxonMobil VOY2005.6 FREIGHT.
Lines 67 - 87
(a) Freight shall be paid at the rate stipulated in Part I (G) and shall be computed on gross quantity as stated on the Bill of Lading and on quantity of documented tank washings if freight thereon is payable in accordance with Clause 33 (a); provided, however, that no freight shall be payable on any quantity of cargo which puts Vessel, at any stage of the voyage(s) hereunder, below the marks permissible under the ILL Convention. Deadfreight shall be paid in accordance with Clause 7. Except as provided in Clause 18 (h), no deduction from freight shall be made for water and/or sediment contained in the cargo, nor for any claim Charterer or cargo interests may have against Owner or Vessel arising under this Charter or Bills of Lading issued for the cargo. Payment of freight shall be made by Charterer without discount upon Charterer’s receipt of notice of completion of discharge of cargo at last discharging place less any disbursements made to Master or Owner’s agent(s) at port(s) or place(s) of loading and/or discharging plus cost of insurance, commissions and expenses on said disbursements and any other costs incurred by Charterer on Owner’s behalf pursuant to this Charter.
(b) WORLDSCALE. Unless otherwise stipulated herein, all rates, hours, terms and conditions in the Worldwide Tanker Nominal Freight Scale current on the date of this Charter (hereinafter called "WORLDSCALE") shall apply to this Charter regardless of when Vessel loads.
(c) If cargo is carried between places and/or by a route for which no rate is expressed in WORLDSCALE, then, in the absence of agreement as to the freight rate, the parties hereto will apply to either of the publishers of WORLDSCALE for a binding determination of an appropriate WORLDSCALE rate.
(d) Regardless of whether or not the freight specified in Part I (G) is lumpsum, for the purposes of Section 4(5) of the Carriage of Goods by Sea Act of the United States, or the corresponding provisions of any international regime that may otherwise apply in accordance with Clause 27, Owner and Charterer agree that the customary freight unit, shipping unit or unit (as the case may be) of the cargo is Metric ton.

SHELLVOY5. Freight 5.
Lines 102-116
Freight shall be earned concurrently with delivery of cargo at the nominated discharging port or ports and shall be paid by Charterers to Owners without any deductions in United States Dollars at the rate(s) specified in Part I(G) on the gross Bill of Lading quantity as furnished by the shipper (subject to Clauses 8 and 40), upon receipt by Charterers of notice of completion of final discharge of cargo, provided that no freight shall be payable on any quantity in excess of the maximum quantity consistent with the International Load Line Convention for the time being in force. If the vessel is ordered to proceed on a voyage for which a fixed differential is provided in Worldscale, such fixed differential shall be payable without applying the percentage referred to in Part I(G). If cargo is carried between ports and/or by a route for which no freight rate is expressly quoted in Worldscale, then the parties shall, in the absence of agreement as to the appropriate freight rate, apply to Worldscale Association (London) Ltd., or Worldscale Association (NYC) Inc, for the determination of an appropriate Worldscale freight rate. Save in respect of the time when freight is earned, the location of any transhipment at sea pursuant to Clause 26(2) shall not be an additional nominated port for the purposes of this charter (including this Clause 5) and the freight rate for the voyage shall be the same as if such transhipment had not taken place.

As remuneration for services freight is payable for transportation of goods by sea, and that comprise the laden part of voyage alone. Tanker freight rates, however, are calculated bearing in mind the ballast leg also. Unlike dry cargoes trade when the rate is agreed on per ton basis or as a lump sum, in the tanker trade, there is a system of expressing the freight by means of the WORLDSCALE rate schedule.

In the second half of the last century Suez Canal closure made both laden and ballast legs of the voyage from Persian Gulf to Europe much more prolonged. In Achille Lauro Fu Gioacchino & C. v Total Societa Italiana Per Alioni [1968] 2 Lloyd’s Rep 247, the question pursued by the claimants (the owners) was whether freight shall be paid on the basis of notional ballast voyage from Lisbon to Persian Gulf via Cape of Good Hope or, as theoretical possibility, via Suez Canal. Defendants, the charterers, contended that on the true construction of a charterparty notional ballast voyage should be from Lisbon to Persian Gulf via Suez Canal, as it was anticipated on the date when contract was signed. Clause 29 of the charterparty provided:

SUEZ CANAL CLAUSE:
The rate of freight for the voyage is to be in accordance with the International Tanker Nominal Freight Scale as amended for voyages via the Suez Canal both laden and ballast… Notwithstanding the foregoing, … If however, the ballast passage to the loading port would not normally entail transit of the Suez Canal, or if the vessel, otherwise than when ordered by Charterers or with Charterers’ consent, proceeds on the outward ballast passage via the Cape of Good Hope although such ballast passage could have been more quickly performed via the Suez Canal, the applicable freight rate payable shall be on the basis of the actual laden passage performed plus a theoretical ballast passage via the Suez Canal to the loading port.

Normally vessel would go via Suez Canal but the Canal was closed due to hostilities in the Middle East before vessel departed on her laden leg to Portugal. And for the ballast voyage back to Persian Gulf there was no other option left. The charterers only consented to the performance of the laden passage via the Cape to Lisbon because there was no other route open, but neither party contended that this was sufficient to bring cl.29 into operation. The judge held for the owners that:

The central feature of the dispute is that one way or another the owners expect to be paid for ballast voyages, but such payment under a consecutive voyage charter can only be effected through the medium of a payment of freight for a laden voyage. … If, however, the Suez Canal is closed and there is no alternative to the Cape route, the voyage by that route is indistinguishable in principle from any other voyage and there is no obvious reason for its receiving exceptional treatment.

In BP Oil International Ltd v Target Shipping Ltd [2013] EWCA Civ 196 the Court of Appeal was invited to decide on the meaning of wording "Overage 50 percent applicable for Euromed discharge only". Charterers argued that freight payable for any cargo loaded in excess of that minimum quantity is to be at the "Overage rate stated in Section H", unless a lump sum freight had been agreed which it was not. The 50% provision is only applicable if discharge occurs on the European coast of the Mediterranean and, if (as happened) discharge was elsewhere (e.g. the US Gulf), no overage rate is stated in Section H and therefore, no freight payable for any cargo loaded in excess of the minimum quantity. The owners submitted that the freight rate was always WS 135. If the printed provision of 50% in relation to overage is to apply only to Euromed discharge, that means the freight rate for all the cargo (both the stated minimum and the excess over that minimum) for other voyages is WS 135. It cannot be supposed that the owners were to carry any cargo in excess of the minimum rate for nothing. The Court of Appeal held that the Charterers’ approach confuses the absence of specification with the specification of zero and agreed with the owners’ construction.

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