Bliss for shipowners! Damages may be claimed in addition to demurrage for voyage charterparty delay
The dry bulk carrier, Eternal Bliss, shipped a cargo of soybeans from Brazil to China on an amended Norgrain voyage charterparty form that provided for the Owners to earn demurrage if the cargo operations exceeded the laytime allowed by the charterparty.
The vessel arrived at the Chinese discharge port, but, due to port congestion and limited storage space, discharge was delayed by 31 days.
The soybean cargo was found to contain mould and caking damage on discharge, in respect of which the Owners were exposed to a cargo claim under the bill of lading which they settled for about US$1.1m.
The Owners advanced claims against the Charterers in a London arbitration, claiming damages and/or an implied indemnity for this cargo liability. They argued that the Charterers’ failure to discharge within the agreed laytime period – in fact a prolonged retention on board the vessel – resulted in damage to this cargo, which would have been in a sound condition but for this delay.
Pursuant to section 45 of the Arbitration Act 1996, the parties asked the High Court to determine as a preliminary question of law whether the Owners could recover these damages from the Charterers or whether the Owners’ sole compensation for the Charterers’ failure to discharge within the allocated laytime period was demurrage (i.e. liquidated damages in a fixed amount).
Mr Justice Andrew Baker sought to determine “what it is that demurrage liquidates”. If the issue were free from authority, he would have considered that the Owners had the better of the argument by a clear margin. However, the governing authorities were contradictory, so he proceeded to consider them.
In The Altus, the High Court found that damages were available to an owner in addition to demurrage, even if there was only one breach of contract. This decision cited the Court of Appeal’s judgment in Reidar v Arcos, in which an owner successfully claimed damages by way of deadfreight on top of demurrage.
Conversely, Mr Justice Potter in The Bonde stated that demurrage was an exhaustive remedy for a voyage charterer’s failure to load cargo within the agreed time period. Therefore, to obtain general damages in addition to demurrage, the owner had to establish “a breach additional to or separate from that of failing to load within the lays and/or at the agreed rate”. Mr Justice Potter argued he was supported in this approach by the decision in Reidar v Arcos, as informed by comments in Suisse Atlantique, on the basis that two breaches in that case were separate in law and therefore warranted two distinct heads of loss.
Mr Justice Andrew Baker observed that the present case provided an “opportunity to resolve the long-standing uncertainty” which had arisen from these divergent approaches, and which is reflected in the leading textbooks, Scrutton on Charterparties and Voyage Charters.
In his view, the court had been wrong in The Altus to conclude that Reidar v Arcos was authority for the proposition that damages could be recovered in addition to demurrage for a single breach.
However, the court had also been wrong to conclude in The Bonde that Reidar v Arcos was authority for the contrary proposition, that such damages are not recoverable for a single breach – the judge considered that its reasoning was based on a misreading of Suisse Atlantique and should therefore not be followed.
Therefore, neither authority provided the answer, in the judge’s view.
On the basis of the agreed facts in this case, the Owners had suffered loss from the vessel’s prolonged detention at port:
- Through the inability to use the vessel for subsequent transportation of freight; and
- Through the cargo interests’ claims for the cargo damage.
Consequently, the judge decided that the Owners were entitled to claim both:
- Demurrage (liquidated, fixed damages) for the vessel’s loss of earnings due to the delay; and
- Damages for the loss flowing from the deterioration of the cargo (a by-product of the delay producing a different kind of loss).
This decision will come as welcome news to shipowners, in that it confirms that an owner is not limited to claiming demurrage for delay to a ship if the delay results in a different kind of loss, such as a cargo claim relating to cargo damage that results from the delay.
However, the judgment does not squarely answer the question that has arisen in ‘floating storage’ oil tanker cases as to whether an owner can claim damages for detention for a vessel’s lost opportunity to obtain better earnings in a rising market, as opposed to mere demurrage, by virtue of the vessel being used as floating storage. Mr Justice Andrew Baker’s reasoning suggests not, and that damages are merely permissible for a different kind of loss (distinct in nature from, and additional to, detention), meaning that an owner will have to look elsewhere in the charterparty for a possible answer.
This article was authored by Athens Partner Evangelos Catsambas and Gerard Rhodes, a trainee solicitor in our London office.
Source: Watson Farley & Williams LLP