Claims and disputes are part and parcel of the shipping business no matter whether you are buying/selling or chartering ships, purchasing bunkers, carrying cargo under liner bills of lading or facing a collision, personal injury accident, fine or penalty. To provide time to collect information and to amicably resolve claims and disputes the parties routinely request or agree to extend the time within which legal proceedings (or arbitration) need to be commenced. The terms of the agreement (indeed the contract) for an extension of time, are however, too often taken for granted leading to unnecessary dispute and unintended consequence.
This article discusses three rules of thumb, "the three Ws," for extensions of time (when no issue exists as to timeliness of the claim). If you follow the three Ws you will eliminate all doubt as to the consequences of an extension of time agreement. So dust off your dog-eared extension of time forms and bring onto your screen the "same old" extensions of time you have been using and compare them with the requirements of the three Ws: who, what and when.
The key word is "clarity". Neither party should be in any doubt as to:
- who is granting the extension;
- to whom the extension is being granted;
- for what period of time the extension is granted;
- under what contract(s)/document(s) the extension is being granted;
- for what claim the extension is being granted.
Because legal proceedings and arbitrations are prosecuted and defended in the name of specific parties, an extension of time must specify who is granting and who is receiving the extension of time. If neither the request for an extension of time nor the response to it correctly identify the company obtaining the extension of time and the company agreeing to it then inevitably arguments will follow: what company received the extension of time? What company granted the extension? "We did not mean to grant an extension of time to 'that company'" or "we did not mean the extension was our extension; the extension was supposed to be by the Shipowner" are not messages you want to be authoring.
A letter addressed to a legal firm naming a ship and "B/L 1234 dated..." signed by "XYZ, Inc., As Agents Only" and stating "We hereby extend your time to..." is useless for determining who granted the extension to whom. The letter should be addressed, for example, to "123 CargoOwner, Inc. c/o Lawfirm LLP" and signed by "ABC Shipowner Inc. by XYZ, Inc. As Agents Only".
Too often a shipowner, operator, manager, agent or charterer responds to a sloppily worded request for an extension of time with an equally sloppy "Agreed" or, worse yet, on the letterhead not of the shipowner but of the operator, manager or agent "We agree".
If a request to you for an extension of time is worded sloppily then your response should eliminate any ambiguity. Address your response to the actual claimant (e.g., "LMN Time Charterer, Inc. c/o Lawfirm LLP") and identify who is granting the request (e.g., "On behalf of ABC Shipowner Inc. we agree to extend
Because trade names are not business entities (e.g., "PQR Asia/Med Line"), a trade name should not request or grant an extension of time. Even when a trade name is involved in the transport, the best is for the corporate entity (or entities) which provided the transport at issue to request or grant an extension of time.
Because legal proceedings and arbitrations concern specific subject matter, an extension of time must identify the subject matter of the extension of time.
If the dispute is under a charterparty then the identity of the parties to the charter agreement and the date of the charterparty should be referenced as should be for what action the time is being extended. For example, "
extend the time within which we may commence arbitration to seek indemnity from you for cargo damage claims
". The response to that request can be even more specific: "
extend the time within which you may commence arbitration to seek indemnity from us for alleged damage to cargo carried under b/l
If the claim concerns cargo then the specific cargo at issue must be identified. A reference to "steel products delivered at New Orleans on Voyage 1" is unnecessarily vague. You should respond to such a request by stating "steel products carried under b/l 3 dated
If the extension of time is to commence a legal action, then state so. If to initiate an arbitration, then state so. If you are unsure whether you or your adversary has the right to commence a legal action or initiate arbitration, then you should clarify the position before requesting or granting an extension.
If you are agreeable to granting an extension of time but want your agreement conditioned upon the company obtaining a similar extension in its favour from another company, then you must clearly state so and provide for confirmation. For example: "This agreement to extend your time is conditioned upon your obtaining an identical extension in your favour from LMN Time Charterer, Inc. and upon your providing to us written confirmation that you obtained the extension".
If you are agreeable to granting an extension of time but want your agreement conditioned upon your obtaining an extension of time in your favour from another company then you must clearly state so. For example: "This agreement to extend your time is conditioned upon our (LMN Time Charterer Inc.) obtaining an identical extension of time in our favour from STV Voyage Charterer, Inc".
You should eliminate doubt as to when the extension of time is to expire. Do not extend time "for three months" or for "60 days from date" or, indeed, for any period of time. Instead you should specify a date: "up to and including 28 February 2003". Specifying a date eliminates uncertainty and can ensure that "the last day" is not a holiday or weekend day. And if the requestor asks for "180 days" then simply respond with a specific date. Do not just "agree".
Here is an example of a wording which is not recommended:
"We grant you an extension of time of 3 months, up to and including
, in respect of your above claim".
Who: Who is granting the above extension and to whom? This is not stated and could easily cause confusion and dispute. The name of the party granting the extension and the name of the party to whom the extension is granted should always be stated.
When: The length of the extension and the date on
which it will expire are stated. This is good.
What: The wording refers to "
your above claim". This may be acceptable if the heading of the communication properly identifies the "above claim". By "properly" is meant, at a minimum:
- the date of the contract (usually bill of lading or charterparty);
- the number(s) of the bill(s) of lading;
- the claim amount;
- the cargo;
- the nature of the claim.
Here is an example of a wording which is recommended:
"We, ABC Shipping Ltd., of 80, Broad Street, Monrovia, hereby grant you, the Flexible Insurance Co. Ltd., an extension of time, up to and including
This extension is granted solely in respect of your claim amounting to
for the alleged loss of/damage to (delete as necessary) a cargo of
carried under... [applicable contract - state date and number of bill of lading or date and place of agreement of a charterparty]. This extension is granted entirely without prejudice to liability (and in continuation of and on exactly the same terms as the previous extension)."
Do your hoary forms conform to the three Ws? If not then scrap them or change them. Taking a request for an extension of time and the response to a request for granted too often leads to unnecessary dispute (and to a lost opportunity if the extension should be conditioned upon another company providing an extension as well). And you often will derive an unexpected benefit from insisting that whoever requests a time extension be accurate. The owner of the dock, of the cargo, of the colliding vessel, etc., may be revealed, or specifics of the claim or precise cargo at issue may be identified, or the existence of a difference of opinion as to whether arbitration may apply may come to the fore.
If you insist upon complete, specific and clear who, what, when extension of time agreements then you will flush out basic facts and will have an accurate and doubt- free extension of time agreement. This can avoid lengthy and expensive argument, and sometimes litigation, at a later date.
As always, if help is required by a member, Gard Services can provide further advice.