The Availability Of Damages In Addition To Demurrage

• Published date: 07 September 2020
• Subject Matter: Litigation, Mediation & Arbitration, Transport, Marine/ Shipping, Arbitration & Dispute Resolution
• Law Firm: Quadrant Chambers
• Author: Tom Bird

OVERVIEW

A voyage charterer fails to discharge a cargo within the time allowed. The cargo deteriorates as a result of the delay, exposing the shipowner to a claim from the receivers which it settles at a cost of US$1.1 million. Can the shipowner recover damages in addition to demurrage to compensate it for that cost?

This is the question that came before the Commercial Court in The Eternal Bliss. It is one that for many years had divided judges and commentators alike.

One school of thought held that an owner may recover damages as well as demurrage if it could prove a separate type of loss, one unrelated to the loss of the use of the ship as a freight-earning vessel. The other held that to be insufficient: on this view, an owner must prove both a separate type of loss and separate breach of contract (one other than the failure to load or discharge the ship within the laytime).

In deciding that it is unnecessary to prove a separate breach, Andrew Baker J has resolved a long-standing debate in the owner's favour.

Tom Bird acted for the owner, K Line Pte Ltd, instructed by Nick Austin and Mike Adamson of Reed Smith.

Background

The question arose in the course of arbitration proceedings between the parties concerning 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 certain rate.

After tendering notice of readiness at the discharge port, the vessel was kept at the anchorage for some 31 days due to port congestion and lack of storage space ashore for the cargo. Upon discharge, it was said that the cargo exhibited significant moulding and caking throughout the stow in most of the cargo holds. Discharge was completed and the ship sailed away, but only after the provision of a US$6 million letter of undertaking in favour of the cargo receivers as security for their claim.

The owner later settled the cargo claim at a total cost of c.US$1.1 million. It commenced arbitration seeking damages or an indemnity in respect of that cost. No breach of contract was alleged against the charterer other than the failure to discharge within the laytime. The charterer contended that demurrage was the owner's exclusive remedy for the breach and that the claim was a bad one.

For its part, the owner argued that the demurrage rate only liquidates the damages for the detention of the vessel. The cargo claim liabilities, it said, were a different type...