Tag: voyage charter

Demurrage an exclusive remedy: the Court of Appeal gives judgment in The Eternal Bliss – Simon Rainey QC & Tom Bird

The Court of Appeal has today given judgment in The Eternal Bliss on the availability of general damages in addition to demurrage arising from delay. Allowing the appeal, the Court held that demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime.

The appeal raised a point on which there was no previous binding authority and which has, for almost 100 years, divided eminent judges and commentators. The leadig textbooks were split on the issue. 

Scrutton took the position that where the charterer’s breach causes the shipowner damage in addition to the detention of the vessel, losses can be recovered in addition to demurrage. But the authors of Voyage Charters said the better view was that the shipowner could only recover such losses if it could show a separate breach of contract (one other than the failure to load or discharge the cargo within the time allowed).

The dispute in this case arose from a voyage charter for the carriage of soybeans from Brazil to China. The charter was drawn up on an amended Norgrain form, which provided that demurrage, if incurred, was to be paid at a daily rate or pro rata.

After arriving at the discharge port, the vessel was kept at the anchorage for 31 days due to port congestion and lack of storage space ashore. Post discharge, it was said that the cargo exhibited significant moulding and caking throughout the stow in most of the cargo holds. The owners commenced arbitration against the charterers seeking to recover the cost of settling the cargo claim. The sole breach of contract relied on was the charterers’ failure to discharge within the laytime. The charterers contended that demurrage was the owners’ exclusive remedy for that breach.

The parties invited the Court to determine this point of law on assumed facts under s.45 of the Arbitration Act 1996. At first instance, Andrew Baker J found for the shipowner. He held that the cargo claim liabilities were a different type of loss to the detention of the vessel and that the shipowner could recover damages without proving a separate breach of contract. The 1991 decision in The Bonde (in which Potter J had reached the opposite conclusion) was, he said, wrongly decided.

Like the first instance judge, the Court of Appeal approached the point as one of principle, noting that distinguished judges have struggled, without success, to discern a ratio on this issue in Reidar v Arcos (the 1926 decision to which the long debate is often traced back). In delivering the Court’s judgment, Males LJ held that the case turned on the proper meaning of the term “demurrage” as it is used in the charterparty. The Court of Appeal concluded that, “in the absence of any contrary indication in a particular charterparty, demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime” (para 52).

This is a significant judgment on a major point of shipping law. In reversing the first instance decision, the Court of Appeal has given a much broader scope of the meaning of “demurrage” and treated it in much the same way as a standard liquidated damages clause, rather than limiting it to a particular type of loss. But this may not be the last word on the issue, which given the lively debate would benefit from clarification from the Supreme Court.

Simon Rainey QC and Tom Bird acted for the shipowner, instructed by Nick Austin and Mike Adamson of Reed Smith LLP.

Repudiated voyage charters and recoverable damages.

The prima facie measure of damages for repudiation of a voyage charter by charterers is the profit which would have been made by the shipowner on performance of that charter, less any benefit arising from mitigation which needs to be taken into account, such as what the ship earned during the period which would have been occupied in performing the voyage (Smith v M’Guire (1858) 3 H & N 554). However, the shipowner may suffer loss other than loss of profit and this may also be recovered, subject to the rules on remoteness. An example of such a different kind of loss arises when a vessel is redelivered to an owner in the wrong location or when a substitute fixture is completed at a discharge port which is not (or which is some distance from) the discharge port under the contract voyage.

This was the case in The MTM Hong Kong [2016] 1 Lloyd’s Rep 197. After the repudiation the vessel had proceeded on her ballast voyage to South America where she had been due to load under the terminated charter. On arrival there was an unexpected delay of nearly three weeks in fixing a substitute charter. The substitute fixture completed in Rotterdam on 12 April 2011. Had the original charter had been performed, the voyage would have completed on 17 March 2011 and the vessel would then have carried a cargo from the Baltic to the US, followed by a further cargo from the US to Europe. The owners were awarded the profit which the vessel would have earned on the contract voyage and the next two voyages less the profit actually earned on the substitute charter. Males J held that the arbitrators had been correct in awarding this additional head of loss.

Disponent owners’ liens on cargo

Can disponent owners lien cargo for sums due under their sub-charter? Dicta in The Clipper Monarch [2015] EWHC 2584 (Comm); [2016] 1 Lloyds’ Law Rep 1, suggests that they can. The sub-charterers, Silver Rock, had failed to pay freight, deadfreight, and demurrage to disponent owners, CCS, and the vessel waited outside Chinese territorial waters. CCS obtained and order to sell the cargo under CPR Part 25.1(1)(c)(v), which provided for the gross proceeds of sale to be held by the claimant’s solicitors to the order of the court and “treated as if subject to the same rights (if any) as [CCS] had in respect of the goods prior to their sale”.

The cargo had been purchased by Silver Rock from Max Coal and sold on to Grupo Minero, the original consignee. Silver Rock found a new purchaser and the vessel berthed to discharge the cargo. The cargo was sold and its proceeds held by CCS’s solicitors pursuant to the High Court’s order. CCS obtained arbitration awards against Silver Rock for sums due under the voyage charter, and against Grupo Minero, claiming as assignee of the head owner’s right to claim an almost identical amount as carrier under the bill of lading. The awards were converted into judgements. His Honour Judge Waksman QC held that the sale proceeds representing the cargo clearly belonged to one of the two judgment debtors and CCS was entitled to the monies as judgment creditor against whichever of them was the appropriate owner.

His Honour Judge Waksman QC then considered, obiter, a second ground on which CCS would be entitled to the proceeds of the sale – by way of its rights on a lien on the cargo which arose prior to the sale. If the cargo was owned prior to sale by Grupo Minero, CCS relied on the voyage charter “lien” clause as incorporated into the bills of lading, CCS having taken an assignment of the carrier’s rights. If the cargo was owned by Silver Rock, CCS relied on the voyage charter “lien” clause as giving it a right with similar effect to a possessory lien, namely a right to procure that the cargo be withheld from Silver Rock by directing the employment of the vessel in its capacity as time charterer.

This second ground assumes that the time charterer has the right, under the employment clause, to direct the shipowner to lien the cargo by not unloading it. Such an order would only be lawful if the shipowner had the right to lien the cargo under the bill of lading, as was the case in The Clipper Monarch. It is worth noting that a similar argument was rejected  in The Mathew [1990] 2 Lloyd’s Law. Rep 323 where Steyn J held that there was no implied term that the time charterers could direct the shipowners to lien cargo.