Two Ocean Tankers’ vessels were held in Houthi-controlled Hodeidah, Yemen in 2016 due to a payment dispute. That dispute – for around US$19 million (excluding interest) – has now been decided by an interesting commercial court decision that highlights the importance of careful wording in demurrage provisions.


The claimant, Gunvor SA (the Seller), entered into a contract (the Sale Contract) in April 2015 with CruGas Yemen Ltd (and/or CruGas Ltd) (the Buyer) for the sale of gasoline in 12 monthly shipments CIF Hodeidah.

In order to fulfil the Sale Contract, the Seller had entered into a long-term contract of affreightment (CoA) with one of its group companies, Clearlake Shipping Pte Ltd (Clearlake), in January 2015. The CoA stated that, when the Seller needed a vessel, Clearlake would charter-in a vessel from the open market and then sub-charter her to the Seller “at cost”. In other words, the freight and demurrage rate from each charter would be incorporated into the CoA.

Several cargoes of gasoline were delivered to the Buyer without a major issue. However, problems arose under shipments on the Chang Hang Xian Feng (sub-chartered by the Seller around 10 July 2015), Ocean Mars (sub-chartered around 22 July 2015) and Hong Ze Hu (sub-chartered around 10 September 2015 and again around 10 February 2016).

The key issue was the Buyer’s failure to make the agreed pre-delivery payments for each shipment and also to pay outstanding demurrage. The Seller therefore refused to permit the vessels to discharge the gasoline at Hodeidah. While being held, the vessels incurred substantial demurrage (for example, the Hong Ze Hu was on demurrage for 261 days) and expenses such as anchorage fees and increased AWR premiums.

Eventually the Seller terminated the Sale Contract and issued a claim for around US$19 million plus interest. This comprised demurrage which had accrued under each of the three vessels, market losses in relation to the 55,000 tonnes of gasoline remaining on-board the Hong Ze Hu, and other expenses. The key issues which arose during the hearing (which the Buyer did not attend) are summarised below.


Who was the Buyer – CruGas Yemen Ltd (the first defendant) or CruGas Ltd, the party named in the Sale Contract (the second defendant)?

CruGas Yemen Ltd.

The Seller was “entirely unaware” that CruGas Ltd (a Cayman Islands company) existed: all of the pre-contract documents referred to CruGas Yemen Ltd and this made commercial sense.

Does the demurrage time-bar provision in the CoA operate in the Sale Contract?


The Sale Contract stated that demurrage was payable “as C/P rules”. In other words, the demurrage payable under the relevant charter should also be payable under the Sale Contract.

The general rule is that, when a sales contract uses general words to incorporate demurrage provisions from a separate charter, those words will only incorporate terms concerning the substantive provisions of that charter relating to demurrage. In other words, the demurrage rate, and other provisions specifying how demurrage will accrue, will be incorporated. The ancillary terms, such as demurrage time-bars, will not be incorporated.

The reason is that when parties use general words, they intend to incorporate the substantive provisions of another contract, but not any other provisions.

This principle was laid down in OK Petroleum AB v. Vitol Energy SA [1995] 2 LLR 160.

Should the Sale Contract require the Seller to prove that the demurrage rates are “in line with the market rate”?


In order to imply such a term, it must be either necessary for the business efficacy of the Sale Contract or to give effect to the obvious (but unexpressed) intentions of the parties on the contract date. This reflects the courts’ reluctance to rewrite a contract which has been negotiated between parties of equal bargaining power.

The above guidance is useful but was unnecessary for the case (‘obiter’). The Seller provided expert evidence that the demurrage rates agreed between each vessel’s owner and Clearlake, and hence the rates relevant to the Sale Contract, were in line with the market rates (albeit there is no such thing as demurrage market rates, in the sense of published figures).

Must the Seller pay the demurrage to Clearlake before it claims it from the Buyer?


The general rule is that, when a sale contract incorporates the terms of a charter relating to demurrage, the obligation in the sale contract operates independently (not as an indemnity).

This principle is set out in Glencore Energy (UK) Ltd v. Sonol Israel (the “Team Anmaj”) [2011] 2 LLR 697.

Lessons learned

  1. Make sure that your contract reflects your intentions clearly. If you wish to incorporate a time-bar provision from a charter into a second contract, then you will need to refer to that time-bar provision in the second contract. Do not expect the courts to imply a term.
  2. Be aware that, if your contract incorporates the terms of a charter relating to demurrage, the obligation in your contract operates independently (not as an indemnity).
  3. Check that the full name of your counterpart is written in the contract (and that it is the name which you expected to see).