Storage of Liquid Cargoes – Legal Implications

Such orders can give rise to a number of legal issues. The most common being whether such an order is valid or if it can be rejected. In answering this question, careful consideration must be given to the terms of the applicable charterparty.

Time charterparties

In the context of a time charterparty, the issue will be most straightforward if there is a specific “floating storage” clause. Certain standard form charterparties include such a clause (e.g. clause 21 of BPTIME 3); and where such a clause is included, then subject to the terms of the clause, the orders will most likely be valid.

If no express provision is made for floating storage, there is more potential for ‘grey areas’ – and therefore disputes – to arise.

Charterers typically enjoy wide discretion as to the employment of a vessel, and can issue employment orders within the usual limits as to trading ranges, lawful cargoes, safe ports and places etc. On that basis, orders to wait off port for a relatively short period, whilst awaiting the availability of shore-side storage capacity, will in most cases constitute normal employment of the vessel and be valid.

However, should the vessel be asked to wait for a period of some months, the situation is far less clear. Owners may well be able to argue that such orders present risks which they did not agree to bear, do not reflect the ‘ordinary’ trading of a time-chartered tanker, and as such are not valid. The ability of an owner to make such arguments will depend on the circumstances of each case; but the onus would always be on an owner to show why charterers’ discretion as to the vessel’s employment should be curtailed.

Voyage charterparties

Agreeing a period of floating storage is more difficult for the parties under a voyage charter, which is fixed for the carriage of a cargo between pre-agreed locations. It will typically require owners to execute the voyage with utmost dispatch; and even where there is no express ‘utmost dispatch’ obligation in the charterparty, such a term will usually be implied.

Most voyage charters do not contain a right to stop the vessel mid-voyage, and even those that do (for example the BPVOY4 form, at clause 22), are usually designed to allow for a change of discharge port. Such clauses generally provide for the vessel to stop ‘to await orders’, and it is not clear that this right could be interpreted so widely as to include floating storage orders. That would, we think, be a difficult argument for a charterer to make, which is possibly why the question remains untested before a court.

Additional considerations

Putting aside the validity of such employment orders, there are additional issues which owners and charterers must consider.

Hull fouling:

Did the parties consider a prolonged period of floating storage when they agreed the hull fouling provisions? If fouling arises as a result of the time spent awaiting onward orders, does the charterer have to pay for the required cleaning? Are the performance warranties suspended in the meantime?

Bills of lading:

Beyond the charterparty terms, bills of lading will almost certainly contain relevant terms. In many cases there will be important issues to consider in the context of insurance.

An order to wait for a prolonged period might arguably be valid in the charterparty, but where owners have issued bills of lading, there will in most cases be an obligation vis-a-vis the receiver to prosecute the voyage without undue delay. Would halting the voyage place the owner in breach of their bill of lading obligations? If so, this may well provide grounds to reject charterers’ order.

Similarly, owners should consider whether such a delay on the laden voyage might constitute a deviation and should seek advice from their P&I Club.

Damage to cargo and cargo tanks:

Depending on the nature of the cargo, there is a risk that a long period of storage might see a deterioration of cargo quality.

As the owner is responsible for the care of the cargo, they should consider whether additional insurance(s) are required to cover such risks, and which party will pay for the additional premium(s).

Does a prolonged storage period also pose a risk to the tank coatings and other cargo-related infrastructure? If any such damage occurs, it may well be that the costs arising will fall to owners under their maintenance obligation – notwithstanding that there would be a potential indemnity claim against charterers.

In many cases, orders for a vessel to act as floating storage will give rise to complex, and fact-specific, issues. If in any doubt, Members should contact their usual FD&D contact(s) for further guidance and advice.