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

In the recent case of The “Eternal Bliss” the High Court decision changed the landscape for owners and voyage charterers by establishing that damages in excess of demurrage can be claimed by owners, even where the only breach was the failure to load and discharge within the laytime. Previously, demurrage had been thought to be a complete code for damages caused by that breach. Then the Court took opposite approach allowing to claim costs on the top of demurrage for the Charterers’ failure to complete cargo operations in time. However, the Court of Appeal has now handed down a judgment that has overturned that decision, less than a month after the hearing.

The dispute arose from a voyage charter for the carriage of soybeans from Brazil to China.

At the discharge port, the vessel was kept at anchorage for 31 days due to port congestion and a lack of storage space ashore for the cargo. As a result of the delay, the cargo suffered significant moulding and caking and the receivers brought a claim against the Owners which the Owners subsequently settled for US$1.1 million. The Owners then commenced arbitration proceedings against the Charterers seeking damages or an indemnity in respect of that cost. The sole breach of contract relied on was the charterers’ failure to discharge within the laytime.

The Charterers invariably argued that demurrage is a complete code of damages for delay, and that in order to claim damages over and above the demurrage rate, it is necessary to show both a breach of a separate obligation (distinct from the obligation to load and discharge within the agreed laytime) and a different type of loss. This is the leading view which has been applied for a long time.

However, the Owners invited the Court to determine this point of law. At first instance, Andrew Baker J 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. Therefore, the High Court decision in The “Eternal Bliss” came down on the owners’ side.

However, just over a year after the judgment, the Court of Appeal heard the charterers’ appeal of the first-instance decision.

The Court of Appeal held that demurrage liquidates all damages arising from a charterer’s failure to complete cargo operations within the laytime, in breach of charter, because:

– it would be “unusual and surprising” to liquidate only some of the damages arising from a particular breach;

– demurrage is intended to compensate owners for the loss of prospective freight, but the loss of freight is not the only factor;

– The “Bonde”, overturned by the first-instance decision in this case, had stood almost unchallenged for over 30 years, and hence could be seen as settled law;

– allowing owners to claim damages in addition to demurrage would disturb “the risk inherent in the parties’ contract”, which was already balanced between commonly insured losses on the one hand and demurrage on the other hand.

Since the first-instance decision in The “Eternal Bliss”, there has been a sharp increase in claims from owners for sums in addition to demurrage. It was related to attempts to pass on liability for cargo claims, which are usually brought against owners as carriers under the bill of lading contract in the first instance, and which are often worth millions of dollars. These claims previously struggled to find a separate breach and, following the rejection of The Bonde, this obstacle had been cleared.

Now, however, the floodgates have firmly closed on those claims (at least, until the Supreme Court has had an opportunity to hand down a decision). It follows that, as per the Court of Appeal, the state of the law on demurrage is now that “if a shipowner seeks to recover damages in addition to demurrage arising from delay, it must prove a breach of a separate obligation”.
Source: Interlegal

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