In the recent judgment of K Line Pte Ltd v Priminds Shipping (HK) Co Ltd (The “ETERNAL BLISS”)[1] the UK Court of Appeal has held that demurrage is an exclusive remedy that covers all consequences of a charterer’s failure to load or discharge within the agreed laytime and there is no right to recover further damages for the same breach of charter party in addition.
Legal characterisation
The background to the judgement is the legal characterisation of demurrage. The court confirmed earlier authority[2] that conceptually demurrage is, in the words of a leading textbook (Scrutton on Charterparties, 24th edition (2020),
“a sum agreed by the charterer to be paid as liquidated damages for delay beyond a stipulated or reasonable time for loading or unloading, generally referred to as the laydays or laytime”
Demurrage is thus agreed damages. 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 and thus to be characterised as a debt rather than damages.
Against this background the issue arising on appeal was whether demurrage is liquidated damages covering all the consequences of the charterer’s failure to load or discharge within the laytime or only some of them and thus whether further damages could be claimed in addition to demurrage.
The facts
The case arose out of a contract of affreightment between K Line as owner and Priminds Shipping as charterer. The dry bulk carrier “ETERNAL BLISS” was nominated for one voyage under this contract for the carriage of 70,133 MT soyabeans from Tubarao in Brazil to Longkou in China. Due to congestion at the discharge port and the lack of storage ashore the vessel was kept waiting for 31days before she could discharge thereby giving rise to demurrage. Following discharge the soyabeans were found to be caked and mouldy apparently as a result of the delay. This led to a claim by the receivers that the owners settled for US$1.1 million. The owners sought to recover this sum from the charterers on the grounds that this loss was a consequence of the failure to discharge within the agreed laytime which was a breach of charter party.
The issue was whether the owners could recover damages (here US$1.1 million) in addition to the demurrage. It was not alleged that this further claim was caused by any breach of charter separate from the charterer’s obligation to discharge within the contractual laytime that gave rise to demurrage.
Held
The court held that:
” …, in the absence of any contrary indication in a particular charterparty, 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. Accordingly, if a shipowner seeks to recover damages in addition to demurrage arising from delay, it must prove a breach of a separate obligation.”
Accordingly the charterer was not liable to pay damages in addition to demurrage for its breach of contract in not completing discharge within the permitted laytime.
Comment
This decision has clarified the law on this subject unless, of course, this case is the subject of further appeal to the UK Supreme Court. Demurrage should be considered as an exclusive remedy for failure to load or discharge within the agreed laytime and proof of breach of a separate obligation will be necessary to sustain any additional claim for damages.
[1] [2021] EWCA Civ 1712
[2] AS Reidar v Arcos Ltd (1926) 25 Ll LR 32, [1927] 1 KB 352
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