Stop The Clock - Examining Indefinite Demurrage Claims (MSC v Cottonex)

Commercial analysis: Allen Marks, director at Campbell Johnston Clark, explains how the judgment in MSC Mediterranean Shipping Co v Cottonex usefully puts into perspective the point in time when the affirmation of a contract ceases to be an acceptable remedy.

Original News

MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789, [2016] All ER (D) 159 (Jul)

The Court of Appeal, Civil Division, held that, in circumstances where, under bills of lading, the defendant shipper was obliged to redeliver containers to the claimant carrier or suffer the imposition of demurrage, but was unable to redeliver in the foreseeable future because it did not have title, the carrier was only entitled to demurrage up to the date when it had been told of that impossibility. That was because it had then been clear that the shipper had repudiated the contract and the carrier was not in a position to wait for the contract to be performed as its performance had become impossible.

What is the significance of this decision?

The major significance is that the court on its own volition was willing to impose a date on which it considered delay had become so prolonged as to frustrate the commercial purpose of the contract and that was to be considered a repudiatory breach of the contracts.

Notwithstanding the generally understood principle of English law regarding repudiation, which provides that when one party is in repudiatory breach of contract, the other party is not necessarily bound to accept that repudiation, the courts (at first instance and on appeal) recognised that while an innocent party may have entitlement to the remedy of affirmation, in certain circumstances the court will decline to grant that remedy if the court considers damages as adequate remedy instead.

From review of the judgments at first instance and at appeal, it can be seen how the courts dealt with this. The Commercial Court said, as of September 2011 in the first instance, the date when Cottonex (the shipper) informed MSC (the carrier) that it did not have legal title to the goods, the carrier could not be considered to be bound any more, and so it was repudiatory conduct, which the carrier should have accepted.

The Court of Appeal disagreed, and said that September 2011 was too early, as it was only two and a half months after the last containers had been discharged and such a relatively short period of delay was not sufficient. Instead, it ruled that the contract became...

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