Blissful End to Landmark Demurrage and Consequential Loss Case

UK – WORLDWIDE – In a landmark case the English Commercial Court has recently resolved a much-debated question, choosing to disagree with two previous cases and bringing welcome news to ship owners confirming they are not limited to claiming demurrage for delay to a ship should they be held liable to a claim for damage to cargo caused by such a delay.

The case in question, K Line Pte Ltd -v- Priminds Shipping (HK) Co Ltd (The Eternal Bliss) [2020] EWHC 2373 (Comm),was for a claim lodged against the owners of the The Eternal Bliss, a dry bulk carrier shipping a consignment of soya beans from Brazil to China on an amended Norgrain voyage charter party form that provided for the owners to earn demurrage if the cargo operations exceeded the laytime allowed by the charter party.

The vessel arrived at the Chinese discharge port but, due to port congestion and limited storage space, discharge was delayed by 31 days, by which time the cargo showed signs of mould and caking damage when discharged. This exposed the vessel owners to a cargo claim under the terms of the Bill of Lading which was settled for in excess of $1 million.

This prompted a subsequent claim against the vessel charterers in a London arbitration, the vessel owners claiming damages and/or an implied indemnity for this cargo liability. The failure to discharge on time was cited as the cause of the damage and the charterers were being held responsible, something the Court of Arbitration was asked to rule on. The question then was could a claim for cargo damage be added to the claim for demurrage (i.e. liquidated damages in a fixed amount).

Mr Justice Andrew Baker thereby sought to determine ‘what it is that demurrage liquidates’. If the issue were free from authority, he would have considered that the owners had the better of the argument by a clear margin. However, the governing authorities were contradictory, so he proceeded to consider them.

Several previous cases were cited, Total Transport Corporation v Amoco Trading Co. (The Altus) [1985], in which the High Court found that damages were available to an owner in addition to demurrage, a decision reached after referral to Aktieselskabet Reidar v Arcos [1927] 1 K.B. 352 in which the delay in loading timber aboard the vessel meant she had reduced capacity due to winter regulations, thus costing the owners money.

This decision was not agreed with in a case Richco International Ltd v Alfred C Toepfer International GmbH (The Bonde) [1991] 1 Lloyd’s Rep. 136, when Mr Justice Potter stated that there must be two clearly separate reasons for claims, the demurrage being one. This point supported another later case, Suisse Atlantique d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361.

There are of course more legalistic complexities to this case and interested readers should refer to an article by Evangelos Catsambas and Gerard Rhodes of Watson Farley and Williams (WFW) for a complete analysis. Suffice it to say that Justice Baker concluded that some of the original Court decisions were flawed and, on the basis of the agreed facts the owners suffered losses due to the prolonged detention at port, only the one cause being necessary to claim both for the delay, and its consequential loss.

The two parts to this claim arose due to both the inability to use the vessel for the subsequent transportation of freight and the subsequent claim for damage to the cargo. Justice Baker therefore ruled that the owners were entitled to claim both for both of these, demurrage due to loss of earnings on the ship, and ‘loss flowing from the deterioration of the cargo’ that is a by-product of the delay spawning a different loss factor. means owners are not limited to demurrage claims alone

The authors of the WFW article conclude however that, although the case means owners are not limited to demurrage claims alone, it does not squarely answer the question that has arisen in ‘floating storage’ oil tanker cases, as to whether an owner can claim damages for detention for a vessel’s lost opportunity to obtain better earnings in a rising market, as opposed to mere demurrage, by virtue of the vessel being used as floating storage.

They point out that Mr Justice Andrew Baker’s reasoning suggests not, and that damages are merely permissible for a different kind of loss (distinct in nature from, and additional to, detention), meaning that an owner will have to look elsewhere in the charter party for a possible answer.

Photo: The Eternal Bliss was loaded with soya bean in bulk.