The Court of Appeal concludes that demurrage is an owner’s sole remedy where a charterer fails to load and discharge cargo within the permitted laytime under a voyage charter.
The “ETERNAL BLISS” loaded a cargo of soybeans in Brazil, which it carried to China. Due to port congestion, the Vessel waited for about a month before berthing. Upon discharge, the soybeans were found to be damaged with mould. Owners settled the resulting cargo claim for USD 1.1m with the receivers and then sought to recover this amount from the Charterers as damages for failing to discharge within laytime, in addition to demurrage.
The High Court Decision
The High Court decision was covered in the October 2020 issue of the Nordisk Circular, but by way of recap, the principal question addressed was what damages, exactly, does demurrage liquidate? Owners argued that demurrage only liquidates lost earnings where there has been a failure to load and discharge cargo within the agreed laytime, but charterers contended that it encompasses all losses suffered when there has been such a failure. Thus, the Court was asked to determine whether Owners could recover for the cargo damage, in addition to demurrage on the basis of the same breach (failing to discharge within the agreed laytime). The first instance judge decided that an owner could bring such an additional claim, provided that it was a different type of loss to lost earnings.
The Decision on Appeal
The High Court decision was ultimately overturned on appeal. After analysing a long line of authorities, the Court of Appeal decided that, on balance, the judgments tended to conclude that demurrage serves to liquidate all losses arising from delay.
In light of the lack of settled authority on the subject, the Court of Appeal decided the issue needed to be approached as one of principle. The Court of Appeal noted that an owner will often have insurance in place to address losses other than demurrage. In addition, if other “types of losses” were to be recoverable then it could lead to disputes as to what types of losses fall within or outside demurrage. In the interest of “clarity and certainty” and with an invitation to the industry to “stipulate a different result” if desired, the Court of Appeal concluded 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 and not merely some of them.”
The Court of Appeal judgment ultimately brings welcome legal clarity for now, albeit not perhaps what an owner would wish to hear. It is of course open to the parties to carve out other types of losses from demurrage, such as in respect of cargo claims; or otherwise define which damages demurrage liquifies.
We will keep you posted If permission to appeal the Court of Appeal ruling to the Supreme Court is granted.