Article: The Eternal Bliss - The High Court confirms that owners can seek damages in addition to demurrage

News & Insights 28 September 2020


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In this case, Andrew Baker J resolves the uncertainty surrounding owners’ rights to bring a claim for damages in addition to demurrage for losses resulting from delays in cargo operations.

K Line Pte v Priminds Shipping (HK) Co Ltd (The Eternal Bliss) [2020] EWHC 2373 (Comm)

In this case, Andrew Baker J resolves the uncertainty surrounding owners’ rights to bring a claim for damages in addition to demurrage for losses resulting from delays in cargo operations. The High Court judgment clarifies previous case law and confirms that a claim for losses separate to the loss of the use of the vessel can be brought, where the only breach of contract is charterers’ failure to load or discharge cargo within the allowed laytime.

Facts

In accordance with the contract of affreightment between K-Line ('owners') and Priminds Shipping ('charterers'), the Eternal Bliss (the 'vessel'), loaded 70,133 mt of soybeans at Tubarao, Brazil in June 2015 for discharge in China. The vessel arrived at Longkou anchorage and tendered notice of readiness ('NOR') for discharge at 0442 on 29 July 2015. However, due to port congestion and lack of storage space ashore for the cargo, the vessel was kept waiting at anchorage for 31 days.

Once the cargo was discharged, it was found to be damaged. The cargo showed signs of moulding and caking throughout. After issuing a letter of undertaking in the amount of USD 6 million in favour of the cargo receivers as security, owners subsequently settled the cargo claim at a total cost of USD 1.1 million. In turn, they commenced arbitration proceedings against the charterers to recover their losses, including the settlement sum, by way of damages or an indemnity. Owners alleged that charterers breached clause 18 of the charterparty by failing to discharge cargo at the specified rate.

Charterers responded to the claim by alleging that owners’ exclusive remedy for this (sole) breach was demurrage. Owners argued that demurrage only provides liquidated damages for the detention of the vessel, whereas the claimed cargo liabilities were a different type of loss and thus recoverable separately or in addition to demurrage.

The parties agreed to refer this question of law to the High Court as a preliminary issue pursuant to s. 45 of the Arbitration Act 1996.

The Issue of law

Andrew Baker J formulated the question before the court as follows (see page 21 of the judgment):

'…is the charterer liable to compensate or indemnify the owner in respect of the loss, damage and expense referred to therein by way of:
(a) damages for the charterer’s breach of contract in not completing discharge within permitted laytime;
(b) an indemnity in respect of the consequences of complying with the charterer’s orders to load, carry and discharge the cargo?'

Decision

The judge analysed the nature of demurrage, exploring the current academic debate and case law on where damages can be recovered in addition to demurrage for other losses caused by exceeding the allowed laytime. The above question of law presented to the Commercial Court was answered 'yes' to part (a), however, Andrew Baker J declined in his discretion to give a final answer in relation to whether charterers was liable to indemnify owners as per the question set out in part (b) as quoted above.

It was confirmed that demurrage provides liquidated damages for owners’ loss of earnings due to delays for which charterers are responsible and 'nothing more' (see paragraph 88 of the judgment). Furthermore, Baker J agreed with the dicta in Suisse Atlantique [1967] that a demurrage clause is not an exclusion clause, and consequently does not prevent owners from recovering any other type of loss. The court concluded that when owners have suffered a different type of loss from the loss of the use of the ship, as here, they are entitled to claim damages without having to prove a different breach of contract. 

This contrasts with previous case law, which had held that in order to be able to claim for damages in addition to demurrage, a different breach was required. Andrew Baker J, departed from Potter J’s decision in The Bonde [1991], which interpreted Reidar v Arcos [1927] and Suisse Atlantique. It was held that the decision on The Bonde was wrongly decided and hence the court refused to follow this prior decision finding that no separate breach of the charter was required, though a causal link between the detention of the vessel and the claim for additional losses will be necessary.

In conclusion, it was found that in principle owners, K-Line, could recover damages for losses and expenses arising out of the cargo damage claim settled for USD 1.1 million without needing to evidence that charterers, Priminds, had breached the charter beyond exceeding the allowed laytime.


Comments

Whilst the judgment focused mostly on whether additional damages could be claimed, the decision brought clarity to the principle of demurrage. The scope of demurrage was defined as liquated damages for the loss of use of the vessel and nothing beyond that.

The insightful analysis of previous judgments and the departure from The Bonde decision has opened the possibility for owners to recover losses beyond the loss of freight without needing to identify a separate breach of the charter. Charterers need to be mindful of this development, especially in the current climate with delays resulting due to COVID-19 and situations where these delays might cause owners other losses in addition to the loss of freight.

Category: Defence

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