6 DEMURRAGE
Meaning and nature
6.1 The Laytime Definitions for Charterparties 2013 define demurrage as follows:1
“DEMURRAGE” shall mean an agreed amount payable to the Owner in respect of delay to the vessel beyond the laytime for which the Owner is not responsible. Demurrage shall not be subject to laytime exceptions unless specifically stated in the Charter Party.
The final phrase was added to that in The Voylayrules 1993 to avoid conflict with the position in many charter parties.
6.2 However, this definition avoids what at one time was unclear, namely whether a failure to complete loading and discharging in the allowed laytime of itself constituted a breach of charter. The current view is that demurrage is liquidated damages for such a breach. In origin, however, demurrage did not mean a sum payable for breach of contract but a sum payable under and by reason of a contract for detaining a ship at the port of loading or discharge beyond the allowed time.2 In Lockhart v Falk, Cleasby B said:3
The word demurrage no doubt properly signifies the agreed additional payment for an allowed detention beyond a period either specified in or to be collected from the instrument: but it has also the popular or more general meaning of compensation for undue detention; and from the whole of each charterparty containing the clause in question we must collect what is the proper meaning to be assigned to it.
6.3 On the other hand, in Harris v Jacobs, having said in the course of argument that demurrage is an elastic term, Brett MR said in his judgment:4
Demurrage is the agreed amount of damage which is to be paid for the delay of the ship caused by a default of the charterers at either the commencement or the end of the voyage.
Ten years later, in Lilly v Stevenson, Lord Trayner took the view:5
Days stipulated for by the merchant on demurrage are just lay days, but lay days that have to be paid for. If a charterparty provides that the charterer shall have 10 days to load cargo, and 10 days further on demurrage at a certain rate per day, the shipper has 20 days to load, although he pays something extra for the last 10, loading within 20 days is fulfilment of the obligation to load …
6.4 The Court of Appeal in Steel, Young & Co v Grand Canary Coaling Co took a similar view, Collins MR saying:6
… it was also contended that the charterparty was broken by the vessel being allowed to go on demurrage; but this is not so, for the payment of demurrage is merely a payment for the use of the ship, and not damages for a breach of charterparty
and in the same case Mathew LJ said:7
There is no ground for suggesting that the obligation to pay demurrage is by way of damages for breach of charterparty. It is merely a payment for use of the ship.
In Inverkip Steamship Co v Bunge & Co, Scrutton LJ suggested that both views were tenable, saying:8
The sum agreed for freight in a charter covers the use of the ship for an agreed time for loading or discharging, known as “the lay days”, and for the voyage. But there is almost invariably a term in the agreement providing for an additional payment known as demurrage for detention beyond the agreed lay days. This is sometimes treated as agreed damages for detaining the ship, sometimes as an agreed payment for extra lay days.
6.5 The Gencon charter (Uniform General Charter 1976) provides for the possibility of a limited period on demurrage, as did many early charters, and if the vessel is further delayed beyond that, then the shipowner’s claim is one for detention. Most modern charters do not put any fixed time limit on demurrage. In Aktieselskabet Reidar v Arcos Ltd,9 Bankes LJ suggested that charters where only a limited demurrage time was allowed might be considered as an example of where demurrage could arise without there being a breach of charter. Having quoted what Cleasby B said in Lockhart v Falk,10 Bankes LJ continued:11
It will be noted that the learned judge draws the distinction between the “allowed detention”, and the “undue detention”. It may well be that where a charterparty … provides for a given number of days … on demurrage, as much of the much-discussed judgment of Lord Trayner in Lilly v Stevenson,12 … as holds that days stipulated for by the merchant on demurrage are just lay days, but lay days that have to be paid for, is well founded.
6.6 More recently, in Union of India v Compania Naviera Aeolus SA (The Spalmatori), Lord Guest said:13
Lay days are the days which parties have stipulated for the loading or discharge of the cargo, and if they are exceeded the charterers are in breach; demurrage is the agreed damages to be paid for delay if the ship is delayed in loading or discharging beyond the agreed period.14
In Dias Compania Naviera SA v Louis Dreyfus Corporation,15 Lord Diplock said:
If laytime ends before the charterer has completed the discharging operation he breaks his contract. The breach is a continuing one; it goes on until discharge is completed and the ship is once more available to the shipowner to use for other voyages.
In The Oriental Envoy, Parker J said of demurrage:16
In my view, however, while demurrage can no doubt be regarded as being in the nature of damages, for detention, it is not to be equated with such damages. It is very different. It is a simple contractual obligation by the charterer to pay a certain sum if he fails to complete discharge within the stipulated laytime, the commencement and calculation of which is itself a matter of agreement.
However that view of demurrage as a debt, is clearly incompatible with what was said five years later by Lord Brandon in the House of Lords in The Lips,17 who put it this way:
… I deal first with what demurrage is not. It is not money payable by a charterer as the consideration for the exercise by him of a right to detain a chartered ship beyond the stipulated lay days. If demurrage were that, it would be a liability sounding in debt. I deal next with what demurrage is. It is a liability in damages to which a charterer becomes subject because, by detaining the chartered ship beyond the stipulated lay days, he is in breach of his contract. Most, if not all, voyage charters contain a demur-rage clause, which prescribes a daily rate at which the damages for such detention are to be quantified. The effect of such a claim is to liquidate the damages payable: it does not alter the nature of the charterer’s liability, which is and remains a liability for damages, albeit liquidated damages. In the absence of any provision to the contrary in the charter the charterer’s liability for demurrage accrues de die in diem from the moment when, after the lay days have expired, the detention of the ship by him begins.
6.7 In The Team Anmaj,18 the High Court affirmed that an obligation to pay demurrage did so day by day pro rata from the moment when the lay days expired. They did so in the context of what was the date of the obligation to pay demur-rage and whether a claim in relation to a sale of goods contract for two parcels of gasoil was time-barred. The sellers had deferred invoicing their buyers for demur-rage for some four months after discharge had been completed (and the day after they had been invoiced by the party from whom they had bought the gasoil) and they unsuccessfully claimed that time in relation to a time-bar should run from when demurrage was invoiced, not when it accrued.
6.8 Whilst, strictly speaking, demurrage is the money payable for time in excess of the allowed laytime, it is often used to describe the period during which such money is payable. The Charterparty Laytime Definitions 1980 also provide that:19
“ON DEMURRAGE” means that the laytime has expired. Unless the charterparty expressly provides to the contrary the time on demurrage will not be subject to the laytime exceptions.20
But this additional definition, that is “on demurrage” was dropped from The Voylay Rules 1993 and has not been included in The Laytime Definitions for Charterparties 2013.
6.9 It is, of course, true that demurrage normally only commences when the allowed laytime has expired. However, if they wish, there is no reason why the parties should not agree that demurrage should be payable for any delay at an earlier stage. Indeed, the Australian Grain Charters 1928 and 1972 contain an express provision allowing demurrage for waiting time in specified circumstances before the vessel concerned becomes an Arrived ship.21
6.10 Under such a provision demurrage may run, cease on the vessel becoming an Arrived ship, and then start again on expiry of the allowed laytime.
Length and end of demurrage
The end of demurrage
6.11 Although related, the length and end of demurrage are two different issues. The most common way in which demurrage comes to an end is the same as the way laytime comes to an end if that is before it expires, namely that loading or discharging, as the case may be, has been completed.
6.12 Whether demurrage comes to an end because of the temporary or permanent absence of the ship from the port in question is discussed separately at paragraph 6.182 et seq. above. A third way in which it might come to an end, although now very rare (see paragraph 6.5 above), is because the charter in question provides for a limited period on demurrage.
6.13 Whether demurrage should come to end before all cargo has been discharged is another aspect of this issue. The consequences of the charterer, or whoever is responsible for such matters, refusing to continue cargo operations, has already been discussed in the context of the end of laytime at paragraphs 5.36 and 5.37 ante. The problem however is much more likely to occur, particularly in relation to discharge, towards the end of such operations often after the vessel in question has gone on demurrage. The same principles that apply to a “change of specie” of the cargo that apply in relation to laytime, will apply in relation to demurrage.
6.14 An extreme example of a case where those responsible refused to complete discharge is The Andra22 where there was a six-month delay in discharge being completed, although, in that case, it was not alleged that there was a “change of specie”. The problem arose from contamination of a cargo of frozen chickens by gasoil, which was the initial cause of the delay. Whilst the tribunal that dealt with the case initially, held in a decision upheld on appeal, that some of the delay arose from the unseaworthiness of the ship and therefore the fault of the owners, for which period the owners could not claim demurrage, but the tribunal also held that the original cause ceased to have effect and the bulk of the delay was due to the failure of those responsible, to carry out their obligations to discharge the cargo. Eventually the vessel sailed with the contaminated cargo still on board and the owners were held entitled to over US$ 3m in demurrage. The charterers’ argument, relying on the earlier case of The Adelfa23 that the charter had been frustrated, failed, the difference in the two cases being that in the latter, the vessel had been arrested by the receivers and it was the arrest that caused the charter to be frustrated.
6.15 Whilst a breach of the laytime provisions in failing to discharge the vessel within the permitted laytime and detaining the vessel thereafter upon payment of demurrage is probably breach of a warranty, rather than a condition (see below at paragraph 6.19), breach of the obligation to load or discharge by a wilful refusal to so do may be a breach of a separate obligation, one that is a breach of a condition rather than a warranty or at least an innominate term, which would explain why in The Andra the owners were entitled to accept this and bring the contract to an end by sailing from St Petersburg with the remaining cargo still on board.
6.16 The case is therefore an illustration of a principle touched on earlier at paragraph 5.51 in relation to the end of laytime. That principle stems from the House of Lords decision in White and Carter (Councils Ltd) v McGregor24 and a series of authorities following on from that decision.25 The basic principle enunciated in that decision is that where a party is guilty of a breach of condition and thus repudiatory conduct, the innocent party has the option of accepting that conduct and thus bringing the contract to an end or he can do so without the involvement of the guilty party, maintaining the contract and claiming sums due under it, such as demurrage. Clearly keeping a ship available for further discharge, does not require any participation on the part of the charterers. In that case, Lord Reid rejected the suggestion that it must be shown that the innocent party acted reasonably in maintaining the contract.
6.17 The most recent judicial consideration of the principle was by Cooke J in The Aquafaith.26 That was a time charter case, but what the judge said applies equally to a voyage charter and a claim for demurrage. What the judge said at column 2 of page 69 of his judgment, was:
The effect of the authorities is that an innocent party will have no legitimate interest in maintaining the contract if damages are an adequate remedy and [author’s emphasis] his insistence on maintaining the contract can be described as “wholly unreasonable”, “extremely unreasonable” or perhaps, in my words “perverse”.
This is clearly quite a high burden that is imposed on any charterer in resisting a claim by an owner for demurrage as a result of keeping his ship at a port after a refusal to complete cargo operations by those responsible for such matters.
6.18 A perhaps slightly unusual example of the application of the White and Carter (Councils) Ltd v McGregor principles was the container demurrage case of MSC Mediterrean SA v Cottonex Anstalt27 (see below at paragraph 6.35). In that case, consignees failed to take delivery of containers of raw cotton and return the empty containers. One of the issues was for how long the carrier, who was the owner of the containers, could claim demurrage. The judge found that there had been repudiatory conduct and, as a result of the commercial frustration of the contract, it had come to an end, but the carrier could not keep the contract alive simply to claim demurrage as it had no legitimate interest for so doing. Having found that the carrier was not suffering any financial loss beyond the date he found the contract came to an end by the detention of the containers, he concluded it would be wholly unreasonable to keep the contracts alive when the only purpose of doing so would be to claim demurrage. As a result the carrier was entitled to demurrage to the end of the contract and, although there was no finding to this effect, nor any claim for the value of the containers, since the judge found a value for the replacement of the containers, the implication is that the carrier would in addition be entitled to their value by way of damages.
6.19 As already mentioned, a charter may either provide a specific duration for demurrage or, more commonly, just provide for a demurrage rate, leaving the period unspecified.
6.20 Where the period was unstated, it used to be said that demurrage would run for a reasonable period with any further delay thereafter forming a claim for detention. That view, however, has been superseded and it is now the case that demurrage will run until the contract becomes frustrated or repudiated. Similarly, it was the law that the shipowner could depart from the port of loading once the specified demurrage period had expired, or if the charter only stated a demurrage rate, after a reasonable period had elapsed. How judicial thinking changed will now be considered in more detail.
6.21 In Dimech v Corlett,28 it was held that if the charter provides for a fixed number of demurrage days, the ship must wait for those days to expire before sailing if the charterer requires it and there is ground for believing that further cargo will be loaded. In Lilly v Stevenson,29 to which reference has already been made, Lord Trayner also said:30
Where the days on demurrage are not limited by contract, they will be limited by law to what is reasonable in the circumstances.
6.22 In Wilson and Coventry Ltd v Otto Thoresen’s Linie,31 Bray J had to consider a charter that provided for customary laytime with indefinite demurrage thereafter. The shipowner had undertaken to load a full and complete cargo of straw but had sailed early because of later commitments. Bray J found that a reasonable time for loading would have been 2½ days but that the vessel had sailed before that had elapsed. He then went on to hold that not only should the ship have remained until the laytime had expired, but a reasonable time thereafter. However, in Western Steamship Co Ltd v Amaral Sutherland & Co Ltd,32 the same judge said that if a shipowner chose to remain after a reasonable time on demurrage had elapsed, where the charter did not provide for a fixed time on demurrage, then demurrage remained payable and the shipowner was not entitled to claim damages for detention thereafter.
6.23 Although the case went to the Court of Appeal,33 they sent the case back, saying that the point of law involved should not have been decided as a preliminary issue without going into all the facts. They declined, however, to express any opinion at that stage on Bray J’s decision in the court below. As the case was subsequently settled they were thus denied any further opportunity.
6.24 Such an opportunity did, however, arise some three years later in Inverkip Steamship Co v Bunge & Co.34 At first instance, Sankey J held that Bray J had been right in the Western Steamship Co case35 and Lord Trayner in Lilly v Stevenson36 had been wrong. He said that the clause in the charter with regard to demurrage, which simply provided for a rate, was exhaustive on the subject and that this rate applied to the whole period during which the ship was detained. The shipowners were not therefore entitled to claim damages exceeding the demurrage rate for the period the steamer was detained beyond a reasonable time after the termination of the lay days. The Court of Appeal agreed. Scrutton LJ pointed out some of the difficulties that might arise if it were to be held that demurrage ran for a reasonable period, particularly with customary laytime charters where the laytime itself was measured in terms of a reasonable time. How could there be a second reasonable time thereafter? Said Scrutton LJ:37
Her days on demurrage are part of an unreasonable time for loading. Is the court to determine what is a reasonable degree of unreasonableness? In my view, the test of reasonable time is not one that is applicable. To enable the ship to abandon the charter without the consent of the charterer, I think the shipowner must show either such a failure to load as amounts to a repudiation of, or final refusal to perform, the charter, which the shipowner may accept as a final breach and depart claiming damages – Mersey Steel Co v Naylor, Benson & Co38 – or such a commercial frustration of the adventure by delay under the doctrine of Jackson v Union Marine Insurance Co39 as puts an end to the contract.
6.25 Scrutton LJ, however, went on to disagree40 with what Bray J had said in Wilson and Coventry Ltd v Otto Thoresen’s Linie41 about a ship being able to sail a reasonable time after the expiration of lay days, which must thus be considered overruled. It therefore follows that a ship must normally remain for the full period of allowed laytime and thereafter on demurrage until loading or discharging is complete, or the contract has come to an end in one of the ways suggested by Scrutton LJ.
6.26 The reason why a shipowner must keep his vessel at the port of loading, discharge or call, as the case may be, after the time allowed to the charterer to fulfil his obligations there was considered by the Court of Appeal in Aktieselskabet Reidar v Arcos Ltd.42
6.27 Having pointed out that previous decisions43 had left open the question whether this was because of an implied term in the charter or upon the necessity that the master should remain for a reasonable time before he would be in a position to say that the conduct of the charterers amounted to a repudiation of the contract, Bankes LJ went on to set out what is the present position, saying:44
I see no sufficient reason for construing the provision for demurrage as contained in the charterparty in the present case as a contractual extension of the lay days either for a reasonable time or for any other time, or as an implied term of the contract that the vessel shall remain for any time. I prefer to rest the necessity for remaining upon the ground that, time not being of the essence of the contract, the shipowner will not, except under some exceptional circumstances, be in a position to assert that the contract has been repudiated unless the vessel does remain for a sufficient time to enable that question to be tested.
6.28 In a similar vein, Lord Diplock said in Dias Compania Naviera SA v Louis Dreyfus Corporation:45
But unless the delay in what is often, though incorrectly, called re-delivery of the ship to the shipowner, is so prolonged as to amount to a frustration of the adventure, the breach by the charterer sounds in damages only. The charterer remains entitled to continue to complete the discharge of the cargo, while remaining liable in damages for the loss sustained by the shipowner during the period for which he is being wrongfully deprived of the opportunity of making profitable use of his ship.
6.29 It therefore seems that, in contractual terms, laytime provisions relating to the amount of laytime allowed are warranties rather than conditions, and therefore a breach only results in damages being payable unless the delay is such as to bring the charter to an end by frustration or by a repudiation of the charter.
Rate and payment of demurrage
6.30 As Lord Diplock also said in Dias Compania Naviera SA v Louis Dreyfus Corporation:46
It is the almost invariable practice nowadays for these damages to be fixed by the charterparty at a liquidated sum per day and pro rata for part of a day (demurrage) which accrues throughout the period of time for which the breach continues.
6.31 Whilst most charters do provide for demurrage on a daily basis or a method of so calculating, there is no reason why demurrage should not be specified on an hourly or some other basis. An example of an hourly basis was the charter considered in Rayner v Rederiaktiebolaget Condor47 which provided for laytime of 72 hours and “if longer detained to pay 16s 8d per like hour demurrage”.
6.32 Unless the charter provides for portions of a day, then prima facie the shipowner is entitled to a whole day’s demurrage if any time is used. Thus, in Commercial Steamship Co v Boulton,48 the charterer provided for seven days’ laytime and “ten days on demurrage over and above the said lying days …”. Laytime expired at midnight on a Tuesday and discharging ended at 08 00 the following Thursday. Finding that the shipowners were entitled to two days’ demurrage, Lush J said:49
There is no ground for saying that in the case of demurrage there can be any division of a day, without express stipulation to that effect.
6.33 Lush J’s decision was followed and applied in South Australian Voluntary Wheat Pool v Owners of the Riol,50 where a 31½-hour delay resulted in two days’ demurrage. In Stewart Line (Belfast) v Wallace Brothers Ltd (Dublin),51 however, the charter provided for the cargo to be discharged in 24 running hours, with demur-rage 2s per gross ton per day. Gordon J agreed52 that where fixed days were appointed for discharge and these were exceeded if only by one hour, that a full day’s demurrage must be awarded in respect of that hour, but, he continued, in this charter it was fixed hours that were named for laytime and demurrage was to be paid at the rate of so much per day. With some doubt, he arrived at the conclusion that the intention and meaning of the charter was that demurrage should be calculated on a per hour basis.
New Worldscale – full title: New Worldwide Tanker Nominal Freight Scale53
6.34 In tanker charters, it is usual to specify freight rates in terms of a percentage of a scale published as a standard of reference by means of which rates for voyages can be compared. Worldscale provides for standard demurrage rates according to ships’ sizes based on deadweight capacity. Thus in the absence of any provision to the contrary, the size of the ship is critical and not the amount of cargo carried. The freight scale is based on a standard tanker of 75,000 tonnes54 (summer deadweight). For any particular voyage Worldscale will publish freight rates based on New Worldscale 100. If the parties agree another figure, e.g. New WS50, then the freight rates will be that percentage of the published figures.
Payment
6.35 Whilst the entitlement to demurrage accrues usually on a day-by-day basis, payment is normally made on completion of the voyage after the vessel has departed for her next fixture. However, it would seem that, if the delay is substantial, then it is possible to apply to London arbitrators (assuming the charter provides for London arbitration) for an interim award of demurrage before discharge has been fully completed.55 Such an award will probably only cover an undisputed amount and is unlikely to include interest, which will be dealt with when the final calculation can be made.
Container demurrage
6.36 Leggatt J made clear the nature of this relatively new form of demurrage in the following extract from his judgment in MSC Mediterrean SA v Cottonex Anstalt,56 the only reported case on this subject:
“The nature of container demurrage
38. Container “demurrage”, like container shipping, is a relatively modern phenomenon. No case was cited by either party which involved a claim for container demurrage. There is, however, a substantial body of case law concerning claims under voyage charterparties for “demurrage” payable to the shipowner on account of delay caused by the charterer’s failure to load or discharge cargo within an agreed period. It is well established that such demurrage represents liquidated damages. As Lord Brandon explained in President of India v Lips Maritime Corporation (The “Lips”) [1987] 2 Lloyd’s Rep 311, 315:
“[Demurrage] is a liability in damages to which a charterer becomes subject because, by detaining the chartered ship beyond the stipulated lay days, he is in breach of his contract. Most, if not all, voyage charters contain a demurrage clause, which prescribes a daily rate at which the damages for such detention are to be quantified. The effect of such a claim is to liquidate the damages payable: it does not alter the nature of the charterer’s liability, which is and remains a liability for damages, albeit liquidated damages.”
39. Subject to a question about whether the sum payable is a penalty which I will come to at the end of this judgment, I think it clear by analogy that clause 14.8 of the bills of lading is similarly a liquidated damages clause. Its effect is to liquidate the damages payable for breach of contract if the Merchant fails to return a container to the Carrier within the agreed period of “free time” (equivalent to laytime in a voyage charter). As with demurrage payable under a voyage charter, the clause prescribes a daily rate at which the damages for detention of the container are to be quantified. To determine when demurrage begins to run under clause 14.8, it is therefore necessary to identify the point at which a breach of contract occurred.
6.37 The underlying contractual documents on which the case was brought were five bills of lading relating to a total of 35 40-foot “high cube” containers provided by the carrier, each stuffed with raw cotton by the shippers, who were the defendants in this case. The defendants sold the cotton to the consignees, who following a collapse in the price of raw cotton, failed to collect the containers. Despite attempts by the consignees to prevent payment being made to the shippers under the various letters of credit associated with the contracts of sale, it appears payment was made to the shippers in full, and therefore ownership of the cotton passed to the consignees, notwithstanding a retention of title clause.
6.38 The carriers’ claim for demurrage was based on clause 14.8 of its standard terms of carriage, which establishes a contract between “the merchant” and the carrier. The merchant includes both the shippers and the consignees and it appears that the shippers remain a party to the contract, notwithstanding the negotiation of the bills of lading and that they are no longer the owners of the cotton.
6.39 As the extract from the MSC judgment makes clear the contract between the merchant and the carrier allows a period of “free time”, the equivalent of laytime, after the containers’ discharge at the intended discharge port with demur-rage payable thereafter until the containers are returned to the carrier. In the present case, the free time allowed was 14 days, but when the case was heard 3½ years later, the containers had still not been emptied.
6.40 In his judgment, Leggatt J held that the nomination by the carrier of a place of redelivery as referred to in clause 14.8 was not a condition precedent to the obligation to return the containers, nor was demurrage subject to mitigation and liability for demurrage only ceased if the containers were no longer detained, or if the contract was brought to an end. Discharge of the containers occurred in May and June 2011 and, on the facts, the judge held the contract came to an end on 27 September 2011, by which date the merchants were in repudiatory breach of contract and the commercial purpose of the contract had been frustrated. The judge further held that, like conventional demurrage, container demurrage was not a penalty, whilst the underlying contract under which it was payable, remained in existence, but he also said that had he found that the carrier had an unfettered right to keep the contract in existence after he had ceased to suffer a financial loss, that would be unenforceable as a penalty.
Damages in addition to demurrage57
6.41 As has already been pointed out,58 once the allowed laytime has expired and demurrage becomes payable, it will continue to be payable until the loading and discharging operations are completed, unless the charter provides for a limited period on demurrage. There is thus normally no point at which demurrage becomes replaced by damages at large. The question now under consideration, however, is whether damages can ever be payable in addition to demurrage, where the ship-owner’s proved losses exceed the moneys payable as demurrage.
6.42 This, unfortunately, is a question of some complexity and, whilst the general principles are now reasonably clear, the precise scope of their application is not.
6.43 The leading cases on this point are the Court of Appeal decision in Aktieselskabet Reidar v Arcos Ltd,59 some aspects of which have already been mentioned, and the House of Lords’ decision, usually referred to as the Suisse Atlantique case,60 where their Lordships agreed on this aspect with what had been said in the lower courts. The effect of these cases is that where there has been a breach of the charter laytime provisions by the charterer failing to load and discharge in the period allowed, resulting in a detention of the ship and a consequent loss of earnings to the shipowner, then the only damages payable are the liquidated damages, i.e. demurrage provided for in the charter. If, however, the shipowner can prove a separate breach of charter, although arising from the same circumstances, then he may recover damages at large if he can show that the consequences extended beyond the detention of his vessel.
6.44 In Inverkip Steamship Co v Bunge & Co,61 owing to a late change in loading port occasioned by a natural phenomenon affecting the original load port, there was a delay in loading and in fact no cargo was loaded before the vessel went on demurrage. The shipowner’s principal argument was that the demurrage rate provided for in the charter should only apply for a reasonable period and that thereafter damages should be at large. That point was rejected by the court, as has already been considered.62 However, an additional argument put forward was that there was a further breach by the failure to provide a cargo. Whilst the court accepted that the obligation to load and the obligation to provide a cargo were separate and distinct obligations, they nevertheless held that the result of a breach of either was the same. Scrutton LJ put it this way:63
If there was a breach in not having cargo ready on August 25 the only consequence is detention of the ship, and the damages for that, which is the same detention, however it arises, are agreed in the charter and have been paid.
Citing this decision, a similar result was reached by the High Court in The Abqaiq.64
6.45 The next case that considered the question was Aktieselskabet Reidar v Arcos Ltd,65 where a vessel was fixed to carry a full cargo of timber from the White Sea to an English port. She arrived at Archangel on 3 October, lay days began the following day, loading actually started on 8 October and completed on 23 October. The significance of the dates was that had she completed loading within the allowed laytime, she would have arrived in England by 31 October and therefore could have loaded to her summer loading line, thus carrying more cargo and earning more freight. The case concerned the cargo that had thereby been shut out, for which deadfreight was claimed, and allowed, in addition to demurrage.
6.46 Whilst Greer J in the High Court66 and Bankes, Atkin and Sargant LJJ in the Court of Appeal67 were all agreed that this should be the result, their reasoning differed somewhat.68 Greer J, Atkin and Sargant LJJ all held that there was a breach of the obligation to load a full and complete cargo, Greer J and Atkin LJ holding that the amount to be loaded to meet this requirement was to be determined at the end of the lay days. Sargant LJ, on the other hand, said that69 “… the time at which that [amount of] cargo must be ascertained is … the time when the charterers received the ship for loading … and not the time at which they ceased to load in fact”. However, even if it is quantified on commencement of laytime, that quantification must presumably take into account the length of laytime and what effect, if any, this would have on the application of regulations at the intended discharge port. Interestingly enough, Atkin LJ appears to have considered70 the demurrage payable in the particular case as a part mitigation of the loss suffered by the shipowner from the failure to load a full and complete cargo, a loss that could never be fully extinguished by the payment of demurrage because of the change in the regulations after 31 October.
6.47 Bankes LJ differed71 from his colleagues by holding that the date on which a full and complete cargo was to be ascertained was the actual date of completion of loading. However, he then went on to say that the shipowner could recover his additional loss as a separate head of damage.72 Detailed analyses of the judgments in this case are contained in most of the subsequent cases, particularly by Webster J in The Altus73 and by Potter J in The Bonde.74
6.48 Another case where similar issues arose was Chandris v Isbrandtsen-Moller Co Inc,75 a decision of Devlin J, as he then was. This concerned a cargo of general merchandise shipped from the United States to Liverpool during the Second World War. Amongst the cargo was some 1,546 tons of turpentine in steel drums, a dangerous cargo and as such excluded under the terms of the relevant charter.
6.49 Whilst Devlin J was prepared to hold that this breach would have entitled the shipowner to repudiate the charter, nevertheless, as the cargo had been accepted by the vessel, the owner was held to be limited to claiming damages. The damages claimed before Devlin J arose from what happened during discharge at Liverpool. Two days after commencing discharge the vessel was moved out of dock and ordered to complete discharge into barges in the River Mersey because of the dangerous nature of turpentine, with the result that discharge took 16 days longer than it would otherwise have done. For those days the shipowner claimed the full amount of the loss as well as demurrage for the first two days when the vessel was already on demurrage, plus the extra costs of discharge. The shipowner’s argument was rejected by Devlin J, who held that damages were limited to demurrage plus the extra costs of discharge. Much of the case concerned whether loading a dangerous cargo was a fundamental breach of the charter or, put another way, a breach of a primary obligation so that the demurrage clause did not apply, an argument that Devlin J declined to accept. However, it would seem that, like Bankes LJ in Aktieselskabet Reidar v Arcos Ltd,76 Devlin J accepted that if damages were recoverable in addition to liquidated damages for detention then it was because they could be shown to be a separate head of damage, rather than because there had been a breach of a separate obligation. Of what the Court of Appeal had decided, the judge said:77
That case decided a point up to then left undetermined. Inverkip Steamship Co Ltd v Bunge & Co78 … had decided that damages for detention for breach of the obligation to provide a cargo were covered by the demurrage clause. But supposing that the breach of such an obligation gave rise to damages of a different character, not for detention at all. The demurrage clause could not then provide the measure. Ought the clause to be construed as exhaustive, so that no damages which could not be measured by it could be recovered at all, or ought it to be construed merely as applying to damages for detention, leaving damages of any other character to be assessed at large? The Court of Appeal decided the latter.
6.50 The other important case to consider the exclusivity of demurrage for detention was the Suisse Atlantique case.79 The facts were relatively simple. A charter was entered into by the owners of a vessel called the General Guisan for the carriage of coal from the United States to Europe for a two-year period, during which some eight voyages were performed. Except for first loading, on each occasion of loading or discharging demurrage was incurred. Had loading and discharge been completed within the allowed laytime, a substantial number of additional voyages could have been performed on which the profit earned would have exceeded the demurrage paid on the reduced number of voyages. The charter did not provide for any minimum number of voyages during the two-year period. All three courts80 rejected the shipowners’ claim to recover the losses they said they had incurred.
6.51 One of the reasons why so few voyages were performed was that the freight rate agreed for the whole fixture was relatively high and the demurrage rate did not reflect the high freight rates that could be earned at the start of the charter. However, soon after the fixture was entered into, freight rates dropped and the owners claimed that the charterers had deliberately kept the number of voyages low because of this. If this was so, then it was irrelevant, said Mocatta J, and this aspect was not pursued in the higher courts. On the question of whether damages could be claimed apart from demurrage, Mocatta J said:81
Were it not for Reidar v Arcos,82 I would readily have accepted Mr Donaldson’s argument that the loss suffered by the owners was indistinguishable in principle from that suffered by a shipowner under a single voyage charter when his ship is detained beyond her lay days. In consequence, I would have decided without much doubt that, just as the consequential loss of future freight in such a case would be a loss by detention covered by the demurrage provisions, so should losses of freight under the additional voyages that could have been performed under the charter be treated as covered by demurrage.
The judge pointed out83 that the case of Aktieselskabet Reidar v Arcos Ltd84 had the special feature that the delay in loading affected the quantity of cargo that could be carried on the very voyage in which the delay arose, unlike the case he was then considering. He therefore concluded:85
… the general principle agreed by all members of the Court of Appeal must apply, namely that for a claim for detention by a shipowner due to the laytime provisions in a charter being exceeded, the demurrage provisions quantify the damages recoverable.
6.52 When the case came before the Court of Appeal, Sellers LJ said of the earlier case:86
The dead freight claim which the court allowed was an additional and independent loss unrelated to the loss of use. The length of detention was not relevant to the loss from failure to load a full and complete cargo, which was a loss of a different kind. If the vessel had sailed within her laytime with 300 tons short the claim for dead freight would still have succeeded. I do not find that the Reidar v Arcos case, supra, supports the argument which is advanced here – that there is some damage to be assessed on a separate ground or as a separate head by reason of the detention of this vessel. The figure of demurrage was the parties’ agreed assessment of what was to be paid …
Harman LJ and Diplock LJ also agreed that the owners’ claim must fail, Diplock LJ saying:87
The nature of the damage of which the parties have estimated the quantum in their agreed sum for demurrage is that during the period of detention the vessel is unable to earn freight; and in so far as the complaint of the claimants here is that the vessel has been unable to earn freight, it is covered, in my view, by their own assessment of the damage to be payable, namely, the daily demurrage rate.
6.53 By the time the case reached the House of Lords, it had become complicated by an additional claim from the shipowners that there had been a fundamental breach by the charterers, which they said precluded reliance on the demurrage clause since that was a form of exceptions clause. The House, however, decided that such a clause was for the benefit of both parties and was not an exceptions clause. Nevertheless, their Lordships went on to consider the doctrine of fundamental breach in what was subsequently described in a later case by one of their Lordships as “lengthy” and “sometimes indigestible” speeches.88 However, on the question of whether damages might be payable in certain circumstances in addition to demurrage, and the meaning of the Court of Appeal’s decision in Aktieselskabet Reidar v Arcos Ltd,89 Viscount Dilhorne said:90
I do not consider that this decision affords any basis for the contention that, where demurrage provisions apply, it is possible to obtain more than the demurrage payments for the detention of a vessel.
On these issues I agree with, and do not think that it is necessary to add to, the judgments of the Court of Appeal and Mr Justice Mocatta.
If, in this case, the appellants had been able to establish a breach of the charterparty other than by the detention of the vessel then Reidar v Arcos, supra, is authority for saying that the damages obtainable would not be limited to the demurrage payments. In my opinion they have not done so.
Lord Hodson said of the earlier case:91
There was a breach separate from although arising from the same circumstances as the delay, and it was in these circumstances that damages were awarded.
Lord Upjohn took a similar view:92
In the view of Mr Justice Greer at first instance and the majority of the Court of Appeal there were in that case breaches of two quite independent obligations; one was demurrage for detention (as here), the other was a failure to load a full and complete cargo, which had become impossible owing to the onset of winter conditions and, therefore, entirely different considerations applied to that case.
The remaining members of the House did not specifically comment on this point.
6.54 In Bedford Steamship Co Ltd v Navico AG (The Ionian Skipper),93 the question arose as to how deadfreight should be calculated. Under the terms of the relevant charter, the charterers were to load a full and complete cargo of wheat for carriage from Antwerp to Alexandria. In fact, the quantity supplied was some 1,570 tonnes short, for which a claim for deadfreight was made in addition to demurrage. Initially, the charterers claimed to be entitled to laytime based on a full and complete cargo, the charter providing for loading and discharging at specified rates, but by the time the case came before the High Court, both sides had agreed that laytime should be based on the quantity loaded. Amongst the issues that were contested, however, was whether the deadfreight calculation should take into account the changes in despatch and demurrage because a reduced quantity had been shipped and also whether the charterers were entitled to re-open the calculation of deadfreight, which had already been paid, without changes in demur-rage/despatch being taken into account.
6.55 On what is meant by deadfreight, Parker J said:94
Prima facie such damages would be the freight which would have been payable on the quantity short-loaded but there would have to be deducted from that any benefits to the owner, e.g. by having his vessel available earlier as a result of having had to load and discharge a smaller quantity or any increased demurrage or saving in dispatch money which might result from the smaller quantity of cargo actually loaded and discharged. Any savings in dispatch and increase in demurrage so resulting would be dependent upon two things. Firstly, the time at which laytime would have expired had the full cargo been loaded and discharged, and secondly, how long it would have taken to load and discharge the full cargo.
As this information was not available, the case was remitted to the arbitrators. On the second question, Parker J held that the charterers were entitled to re-open the calculation of deadfreight.
6.56 The particular complication considered by Parker J on calculation of deadfreight will only arise where the laytime allowed is dependent upon the amount of cargo carried. However, another complication may arise in such circumstances where the demurrage rate is linked to the actual quantity of cargo loaded, as in some tanker charters where a part cargo is carried, and this was one of the issues considered in Total Transport Corporation v Amoco Trading Co (The Altus).95 Here was a claim for deadfreight and a claim for demurrage, which under the normal rules would have been payable at a higher rate had the full quantity been loaded.
6.57 Having reviewed the judgments in Aktieselskabet Reidar v Arcos Ltd96 in some detail, Webster J said:97
In these circumstances it seems to me that I must treat the ratio decidendi of the case as being that where a charterer commits any breach, even if it is only one breach, of his obligation either to provide the minimum contractual load or to detain the vessel for no longer than the stipulated period, the owner is entitled not only to the liquidated damages directly recoverable for the breach of the obligation to load (deadfreight) or for the breach of the obligation with regard to detention (demur-rage), but also for, in the first case, to the damages flowing indirectly or consequentially from any detention of the vessel (if it occurs) and, in the second case, to damages flowing indirectly or consequentially from any failure to load a complete cargo if there is such a failure.
The judge then continued:98
If that ratio decidendi is applied to the circumstances of this case, it follows that the plaintiffs are entitled in addition to the deadfreight which they have already received, to the difference between the demurrage rates as damages for the loss of demurrage consequent upon the defendants’ failure to load the minimum agreed cargo.
The judge also said that either the deadfreight clause was not a liquidated damages clause, or, if it was, then on the authority of the Aktieselskabet Reidar case99 the additional damages claimed were also recoverable. He then added:100
The defence ought in any event, in my view, to fail for a third reason, namely that the defendants should not be able to benefit, by paying a lower demurrage rate, from their own wrong in failing to load a full and complete cargo.101
The shipowners therefore effectively received the demurrage rate, which would have been applicable to the intended cargo.
6.58 Commenting on the reasoning in this case in The Bonde, Potter J said of Webster J:102
In that case he appeared to be of the view that Lord Justice Atkin was [in the Reidar v Arcos case], like Lord Justice Bankes a “one breach” man. However, surprisingly, he appears not to have had the decision in Suisse Atlantique brought to his attention and helpful as I have found the analysis which Mr Justice Webster gave to the Reidar case, I do not find it reliable for that reason.
6.59 In The Adelfa,103 Evans J suggested that the dicta in Suisse Atlantique did not necessarily preclude the possibility that an independent head of damages (as opposed to damages for a separate breach of contract) might be recoverable in certain circumstances. However, what those circumstances were is not specified and this view was described as obiter by Potter J in The Bonde where he went on to conclude:104
… the opinion which I have formed upon analysis of the cases … is that where a charter-party contains a demurrage clause, then in order to recover damages in addition to demurrage for breach of the charterers’ obligation to complete loading within the lay days, it is a requirement that the plaintiff demonstrate that such additional loss is not only different in character from loss of use but stems from breach of an additional and/or independent obligation.
An illustration of the working of this principle is contained in the case of R & H Hall plc v Vertom Scheepvaart en Handelsmaatschappij BV105 before Steyn J.
6.60 The vessel concerned, the Lee Frances, was to discharge at Cork and the charter contained a provision that, if the vessel was ready for discharge by a certain date and time, the charterers would guarantee the date of completion of discharge. However, by the time the guarantee period expired she had still not been able to berth, presumably because of congestion. There was a dispute about what ready for discharge meant in the context of Arrived ship, berth or port charters, etc., which the judge sidestepped, but the other issue was whether damages were claimable in addition to demurrage. On this the judge said: