Cargo Retention Clause
Crude oil is probably the most complex liquid carried at sea. Due to its natural characteristics, such as viscosity, pour point, sulphur and sediments content, it is not unusual for the cargoes of crude oil to accumulate substantial volume of unpumpable liquid and non-liquid residues inside cargo compartments – tanks. It gives rise to the situation when the goods (crude oil), although being delivered delivered at the destination, in commercial sense of this word, yet have not been completely discharged from ship’s tanks to the receiving facility.
There are also many technical factors, such as ship’s pumps performance and characteristics, physical pumpability criteria of the oil, tanks’ structure and design which impede complete delivery of the cargo over the ship’s manifolds.The cargo left inside of ship’s tanks on completion of the discharge is usually called ROB – Retaining (or Remaining) On Board. Until 1973, oil cargo shortage disputes were largely attributed to the cases when large volumes of cargo were lost as a result of a major casualty, whereas relatively small undischarged volumes were generally neglected. Thereafter, due to the unprecedented rise in the price of crude oil at the end of 1973, both oil companies and cargo underwriters became naturally more concerned with cargo losses resulted from vessel’s performance.
Large cargo shortages or other substantial cargo-related claims are settled with the cargo insurers. Insurers first indemnify the cargo-owners for the damage and then, by way of subrogation, sue the carrier in the name of the cargo-owners if, of course, there is an actionable fault of the shipowner.
Complexity of ascertainment of short delivery after a normal voyage was acknowledged by Kerr LJ in The Olympic Brilliance  2 Lloyd’s Rep 205, at p.209 as notoriously difficult in the bulk carriage of oil (see also In-Transit Loss (ITL) Clause).
It depends on complex calculations comparing the quantity apparently loaded with the quantity apparently discharged, with some additional allowances for undischargeable quantities of sediment and for oil remaining in the ship’s lines, and also possibly for apparent losses due to evaporation. At the end of the day, as in the present case, there may remain an apparent, but inexplicable, short delivery.
Freight and cargo claims based on relatively small quantities of oil which may remain inside the tanks upon completion of discharging are covered by ROB clauses, either printed or added, which provide for the Charterers’ right to deduct from freight an amount equal to the FOB port of loading value of any liquid cargo remaining on board at completion of discharge operation plus freight due with respect thereto. The owners may thus find themselves in situation when, on the one hand, they face a freight deduction under a ROB clause and on the other hand a claim from a bill of lading holder for the same amount of undelivered cargo. To avoid aforesaid ‘double jeopardy’ tanker owners shall either provide for the charterers to show that they have suffered loss, as in cl.12(d) of TANKERVOY 87 form, or to have the charterers agreed to indemnify owners against any liability to a bill or lading holder as it was done in cl.33.4 of BP VOY4 and cl.14 Shellvoy 5 Additional Clauses 1999.
See some examples of Cargo Retention Clauses below (in BPVOY4, SHELLVOY5, TANKERVOY 87, EMV2005, SHELLVOY 6 standard forms)
33-1 If any quantity of cargo remaining on board the Vessel ("ROB") upon completion of discharge is judged by an independent surveyor appointed by Charterers to be liquid, or if Charterers can show that the ROB would have been liquid if Owners and/or the Master, officers and crew had followed Charterers’ instructions for the management of the cargo, then Charterers shall be entitled to deduct from freight the value of such quantity of cargo calculated on the basis of the free on board ("FOB") value at the loading port plus freight thereon calculated in accordance with Clause 31 hereof
33-2 For the purpose of this Clause 33, any quantity of ROB shall be regarded as liquid if sampling and testing, which testing shall be performed as soon as practicable after sampling, shows the ROB to have had a dynamic viscosity of less than 600 centistokes at its temperature when sampled from the Vessel’s tank or, if Charterers’ heating instructions have not been complied with, at the temperature that would have been applicable in the Vessel’s tank if such instructions had been complied with,
Any quantity of ROB which is of insufficient depth to be sampled shall also be regarded as liquid if the independent surveyor judges it to be liquid after using other means of testing including, without limitation, a representative number of dips across each tank
33-3 The independent surveyor’s findings shall be final and binding upon Owners and Charterers save for instances of arithmetical error in calculation
33-4 Charterers hereby agree to indemnify Owners against any liability to a Bill or Lading holder resulting from non-delivery of any such cargo in respect of which a deduction from freight is made under this Clause 33 provided always that Charterers shall under no circumstances be liable to indemnify Owners in an amount greater than the amount of freight so deducted
33-5 For the purpose of this Clause 33, slops shall not be included in the measured and reported liquid volume of oil on board the Vessel prior to loading
33-6 For the avoidance of doubt this Clause 33 refers solely to liquid cargo ROB from the cargo loaded hereunder and any measured volume of liquid oil on board the Vessel prior to loading shall be deducted from any calculation made under this Clause 33.
SHELLVOY5 SHELL ADDITIONAL CLAUSES - February 1999
14. Cargo Retention Clause
If on completion of discharge any liquid cargo of a pumpable nature remains on board (the presence and quantity of such cargo having been established, by application of the wedge formula in respect of any tank the contents of which do not reach the forward bulkhead, by an independent surveyor, appointed by Charterers and paid jointly by Owners and Charterers), Charterers shall have the right to deduct from freight an amount equal to the FOB loading port value of such cargo, cargo insurance plus freight thereon, provided, however, that any action or lack of action hereunder shall be without prejudice to any other rights or obligations of Charterers, under this Charter or otherwise, and provided further that if Owners are liable to any third party in respect of failure to discharge such pumpable cargo, or any part thereof, Charterers shall indemnify Owners against such liability up to the total amount deducted under this clause.
(a)Subject to Clauses 4 and 35 freight shall be paid at the rate(s) specified in part I (J), and calculated on the Cargo Outturn intaken quantity of cargo and on Collected Washings Payment of freight as specified in Part I (K) shall be made by Charterers in cash without deductions unless otherwise stated, this Charter is for a full and complete cargo having regard to the permissible freeboard for the voyage in accordance with the International Load Line Convention from time to time in force and the limitations provided in Part I (A) No freight shall be payable on any quantity of cargo in excess of the maximum consistent with such permissible freeboard
(b)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 (J)
(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 shall apply to either of the publishers of Worldscale referred to in Part I (H) for the determination of an appropriate Worldscale rate
(d)If on completion of discharge any cargo pumpable by the vessel’s own pumps remains on board the vessel (the presence and quantity, obtained by application of the Wedge Formula in respect of any tank whose contents do not reach the forward bulkhead, of cargo so pumpable having been established by a jointly appointed independent surveyor or if no agreement can be reached on such a surveyor, by two independent surveyors, one to be appointed by Owners and one by Charterers), and Charterers thereby suffer a loss, Charterers shall have the right to deduct from freight an amount corresponding to such loss up to a maximum amount equal to the FOB loading port cost of such cargo plus freight thereon, provided, however, that any action or lack of action hereunder shall be without prejudice to any other rights or obligations of the parties under this Charter or otherwise.
18. PUMPING IN AND OUT.
(h) In the event that any liquid cargo remains on board at completion of discharge for the final voyage under this Charter then Charterer shall have the right to deduct from freight an amount equal to the Free On Board (FOB) port of loading value of such cargo plus freight due with respect thereto The quantity and quality of such liquid hydrocarbon material shall be determined by a mutually agreeable independent cargo inspector The quantity of Remaining On Board (ROB) material shall be measured using the Vessel’s wedge tables if available or otherwise by wedge formula.
Cargo retention 48.
If on completion of discharge any liquid cargo of a pumpable nature remains on board (the presence and quantity of such cargo having been established, by application of the wedge formula in respect of any tank the contents of which do not reach the forward bulkhead, by an independent surveyor, appointed by Charterers and paid jointly by Owners and Charterers), Charterers shall have the right to deduct from freight an amount equal to the FOB loading port value of such cargo, cargo insurance plus freight thereon; provided, however, that any action or lack of action hereunder shall be without prejudice to any other rights or obligations of Charterers, under this Charter or otherwise, and provided further that if Owners are liable to any third party in respect of failure to discharge such pumpable cargo, or any part thereof, Charterers shall indemnify Owners against such liability up to the total amount deducted under this clause.
Cargo retention clause raised two interesting issues in Protank Shipping Inc. v Total Transport Corporation (The Protank Orinoco)  2 Lloyd’s Rep 42:
1. whether SGS document was a determination or an estimate by an independent surveyor;
2. whether absent such a determination or estimate the charterers were entitled to deduct from freight the value of any cargo remaining on board after discharge;
In that case the charterers exercised their right to deduct from freight an amount equal to the FOB port of loading value of cargo left on board after completion of discharging at two terminals, Chevron and Exxon, in Houston. Such right was granted to the charterers by clause L8 of amended Amoco standard form which says:
In the event that any cargo remains on board upon completion of discharge, charterers shall have the right to deduct from freight an amount equal to the FOB port of loading value of such cargo plus freight due with respect thereto, provided that the volume of cargo remaining on board is liquid and pumpable and reachable by vessel’s pumps (or would have been liquid and pumpable and reachable by vessel’s pumps, but for the fault or negligence of the owners, master, vessel or her crew, including incorrect trim procedure) as determined by an independent surveyor whose estimate shall be final and binding.
SGS surveyor’s (who had been appointed by both Chevron and Exxon respectively) report stated that it was ‘2,127.00 Bbls of liquid hydrocarbons (commonly referred to as "pumpable" by the industry) remains on board your vessel’. Other surveyors representing charterers, owners and their P and I club also attended and although were generally in agreement as to the quantity of oil remained they were not agreed about the condition of the oil. SGS and Charterers’ surveyor considered that oil was liquid when owners’ and P&I surveyors considered that oil was unpumpable.
The judge found that SGS report contains neither determination nor an estimate, and those lines from the report saying that:
To the extent we are aware of contractual relationships, this oil belongs to our client(s) and should be pumped ashore. In case you are unable to do so, please indicate your reasons below.
offer no answer to the question of whether the liquid was reachable by the vessel’s pumps. He also stated that to satisfy the meaning of ‘independent’ surveyor it is not enough to show only that such surveyor operates independently of the owner or charterer or receiver. When charterparty provides for his finding to be final and binding, thus depriving both parties from the right to challenge his decision, ‘it is highly unlikely that the parties would have intended to entrust such an important determination which would involve final decisions on significant sums of money unless the person was not only independent but, what is more important, was jointly appointed’ (Read more about ‘jointly appointed surveyor’ here).
ExxonMobil VOY2005 in cl.18 PUMPING IN AND OUT stipulate for ‘mutually agreeable independent cargo inspector’ while cl.14 of Shellvoy 5 Additional Clauses 1999 only provides for ‘an independent surveyor, appointed by Charterers and paid jointly by Owners and Charterers’ and new Shellvoy 6 form for ‘an independent surveyor, appointed by Charterers and paid jointly by Owners and Charterers’ while cl.33-1 of BPVOY4 says about ‘an independent surveyor appointed by Charterers’quo;. More clarity we can find in cl.12(d) of TANKERVOY 87, which said to have the most balanced owners-charterers obligations.
While it is evident that the sole purpose of Cargo Retention Clause is to ascertain the quantity of oil which was not pumped out (delivered) into receivers’ receptacles and for which, generally speaking, no freight is payable by the charterers, it is not same plain and straightforward when it comes to application of such clauses. First of all, these clauses do not recognise the inherent properties of the crude oil and other black petroleum products, which properties largely contribute to accumulation of unpumpable ROB. Then, there is little, if any, difference between loss due to ‘inherent vice’ or due to nature of the cargo or its characteristics of chemical components.
Secondly, Cargo Retention Clause is a penalty type of clause, i.e. its incorporation into the charter serves to the benefit of only one party to the contract. Such type of clauses when being considered in the court falls under scrutiny of contra proferentum rule, which means that before the party may have a benefit under provisions of such clause the full terms and specific requirements of the clause have to be strictly complied with in full. Varying from form to form these conditions stipulate for some requisites which rather difficult to establish for certain; e.g. quality of remaining hydrocarbon – whether it is liquid, pumpable and reachable for ship’s pumps; whether it is cargo or sediments and sludges. In London Arbitration 3/08-734 LMLN the charterers sought to rely on the cargo retention clause to entitle them to deduct the CIF value of a quantity of crude oil remained on board after discharging upon binding surveyor’s determination. While it was found that the surveyor’s report was an adequate determination of the stated quantity of liquid ROB, it failed to definitely certify that the liquid cargo was pumpable, neither did it certify that the cargo was reachable by the vessel’s fixed pumps. Accordingly the tribunal held that the charterers had failed to bring themselves within the strict provisions of the clause.
It is also worthy to mention that quantification of the claim based on complicated calculation, which are done on assumption that oil or product is evenly distributed over the whole surface of the tanks’ bottom. Such assumption is not always correct but there is no way to prove or refute it for certain.
Finally, the question whether independent surveyor was in fact jointly appointed if answered in negative can diminish to null all the Charterers’ rights to deduct monetary value of ROB from freight under such clause.
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