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Lighthouse - July, 2021.

IS DEMURRAGE AN EXCLUSIVE REMEDY FOR THE SHIP-OWNERS IN THE EVENT OF DETENTION?

cssSitting in the Commercial Court division of the High Court of England & Wales, Andrew Baker J aptly stated, “From time to time, a case provides the opportunity to resolve a long-standing uncertainty on the point of law of significance in a particular field of commerce.” The Eternal Bliss is certainly such a case.

In the case of K Line Pte Ltd v Priminds Shipping (HK) Co Ltd – The Eternal Bliss, where the ship (Owned/operated by K Line) on voyage charter under (Priminds Shipping) was delayed at the discharge port in China for 31 days due to alleged congestion or possibly lack of storage space ashore for the cargo of soybeans, due to which, the condition of the cargo deteriorated.

K-Line settled the receivers’ and their insurers’ claims at a total cost of about U$1.1 million and commenced proceedings against Priminds (Charterers) seeking indemnity in respect of that cost and for failure to discharge the subject cargo at the rate (within contractual laytime).

It is well-established that demurrage is by nature liquidated damages for failing to discharge at the required rate, but in that respect what does demurrage, calculated in accordance with the voyage charter, fix or limit the owner’s recovery?

In Reidar v Arcos1 and Suisse Atlantique2, it was held that, if damages in addition to demurrage are to be recovered, it is necessary to show a breach of a separate obligation as well as damage of a different kind from delay in the completion of the loading and discharging operation. However, Andrew Baker J held that it is unnecessary to prove a separate breach to recover damages in addition to the detention of the ship, i.e. demurrage and quoted “Agreeing a demurrage rate gives an agreed quantification of the owner’s loss of use of the ship to earn freight by further employment in respect of delay to the ship after the expiry of laytime, nothing more. Where such delay occurs, the demurrage rate provides an agreed measure by which the parties are bound for the owner’s claim for damages for detention, but it does not seek to measure or therefore touch any claim for different kinds of loss [emphasis added], whatever the basis for any such claim.”

The judgment by Andrew Baker J contains a forensic analysis of the cases and legal commentary on the issue, and in summary, held that “demurrage is not and/ or should not be the exclusive compensation where failure to load within the contractual laytime has consequences other than the detention of the ship,” and therefore, where a ship-owner has suffered a different type of loss arising from a failure to load or discharge the vessel within laytime (such as cargo claim liabilities) there should be no need for the owner to establish a separate and independent breach of contract to recover damages in addition to demurrage.

The decision has brought some delight to vessel owners, but it has yet to be determined since the Charterers have been granted permission to appeal to the Court of Appeal.

 

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