K Line Pte Ltd v Priminds Shipping (Hk) Co. Ltd. m.v. “Eternal Bliss” [2020] EWHC 2373 (Comm)

An important point regarding the nature of demurrage may, finally, have been conclusively determined by the High Court in this recent case, which came before Mr Justice Andrew Baker. It is however presently the subject of an appeal to the Court of Appeal (leave having been granted by the learned judge), so a definitive answer is awaited.

The matter came before the court, pursuant to section 45 of the Arbitration Act 1996, to determine as a preliminary point of law, whether charterers were liable to compensate, or indemnify, owners for losses, damages and expenses incurred as a result of the detention of the vessel (“Eternal Bliss”) beyond the permitted laytime, in addition to demurrage (liquidated damages). Thus, in circumstances where there was only one breach; namely a failure to discharge within the permitted laytime, or strictly speaking to discharge at the rate specified in clause 18 of the relevant Norgrain form charterparty (as amended and supplemented by the parties).

The claimant shipowners had entered into a voyage charter with the defendant charterers for the carriage of soybeans from Brazil to China. The vessel arrived at the Longkou, discharge port anchorage and tendered notice of readiness (NoR) on 29 July 2015. She was kept at anchorage for 31 days due to port congestion and lack of storage space for the cargo ashore. She finally commenced discharge on 30 August 2015, when the cargo displayed significant moulding and caking. Owners’ insurers provided cargo receivers with a Letter of Undertaking (LOU) for US$ 6 million, as security for their cargo claims and as consideration for them refraining from arresting the vessel. Owners settled the receivers and their insurers claims for c.US$1.1 million and sought to recover this sum as damages, or an indemnity, from charterers.

The claim was subject to LMAA arbitration, arbitrators were appointed and submissions exchanged and the matter then came, as a preliminary point and by mutual agreement, to the High Court.

For the purposes of the award, and without prejudging any contrary determinations which may be made in the arbitration, it was agreed that certain facts would be assumed by the court; namely:

(1) the reason for the detention;

(2) charterers’ breach of their obligation to discharge within the permitted laytime;

(3) the soybeans deterioration as a result of the detention beyond laytime, and not due to any want of care by owners;

(4) owners’ relevant losses sustained as a consequence of charterers’ failure to load within the permitted laytime and not due to any separate breach, there was no cause which broke the chain of causation and the losses were reasonably incurred; and

(5) the losses were as a consequence of compliance with charterers’ orders to load, carry and discharge the cargo.

The court found that the main point of principle was to ask what precisely was liquidated, in the context of the particular charterparty, by agreeing a demurrage rate. The Norgrain demurrage provision in clause 19 of the charterparty merely specified the rate at which “Demurrage…if incurred” was to be paid. Thus, it did not state what demurrage was, or what it sought to liquidate, and this was the reason the court held the matter to be contentious.

The court was of the view that underlying arguments of principle should drive the answer. It considered, and made comparisons between, various cases and textbooks on the point, including the principal authority on which charterers relied, namely Richco International Ltd v Alfred C Toepfer International GmbH (The Bonde) [1991] 1 Lloyd’s Rep. 136.

In relation to The Bonde, the court cited the argument made for the seller - effectively owners in the current context - that demurrage is not and/or should not be the exclusive compensation when a failure to load within the contractual laytime has consequences other than the detention of the ship. Further, that as agreed compensation for the detention of the ship, it did not cover…the separate and independent head of loss represented by the necessity to pay carrying charges for the excessive time taken in loading.

The court found that this argument, as made in The Bonde (and which accorded with the authorities on the nature of the demurrage rate), was sound and was something Potter J in the The Bonde was free to adopt, but declined to. Rather it was stated in the judgment amongst other things, and fundamentally, that Potter J had misread the speeches of the House of Lords in Suisse Atlantique (Suisse Atlantique Societe d’Armement SA v NV Rotterdamsche Kolen Centrale [1966] 2 All E.R. 61) as saying that it was necessary for a party to establish a separate breach, other than the detention of the vessel, if damages are to be payable in addition to demurrage.

Consequently, the court found that an additional and different breach is not required for owners to recover their additional losses and as such the The Bonde reasoning was faulty and wrongly decided, and would not be followed. The court acknowledged: (1) that it had stood for nearly 30 years; and (2) the extent to which it had since been followed, reviewing relevant cases thereafter, including the The Luxmar (ERG Raffinerie Mediterranee SpA v Chevron USA Inc [2006] EWHC 1322 (Comm)). Nonetheless the Court in Eternal Bliss was firmly of the view that it was not the correct answer.

The preliminary point in Eternal Bliss was thus decided in owners’ favour. Although it was not necessary to decide the indemnity question, for the sake of completeness the court did so; concluding that, if it had found against owners on demurrage, then it would have done likewise on the indemnity point.

LARA MCDONNELL © 2020

BARRISTER

33 BEDFORD ROW

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.