K Line PTE Ltd v Priminds Shipping (HK) Company Ltd “Eternal Bliss”
| Jurisdiction | England & Wales |
| Judge | Lord Justice Males |
| Judgment Date | 18 November 2021 |
| Neutral Citation | [2021] EWCA Civ 1712 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A4/2021/0009 & A4/2021/0010 |
[2021] EWCA Civ 1712
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT (QBD)
Mr Justice Andrew Baker
[2020] EWHC 2373 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Geoffrey Vos, MASTER OF THE ROLLS
Lord Justice Newey
and
Lord Justice Males
Case No: A4/2021/0009 & A4/2021/0010
Christopher Hancock QC and Alexander Wright (instructed by Penningtons Manches Cooper LLP) for the Appellant
Simon Rainey QC and Tom Bird (instructed by Reed Smith LLP) for the Respondent
Hearing date: 27 th October 2021
Approved Judgment
Lord Justice Males delivered the judgment of the court:
Demurrage, as every shipping lawyer knows, is “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” ( Scrutton on Charterparties, 24 th edition (2020), Art 170). The issue arising on this appeal is whether demurrage is liquidated damages for all the consequences of the charterer's failure to load or unload within the laytime, as Mr Justice Potter held in The Bonde [1991] 1 Lloyd's Rep 136, or only some of them, as Mr Justice Andrew Baker held in this case.
That issue arises because, in circumstances where the charterer committed no other breach of the charterparty, the delay in discharging a cargo of 70,133 mt of soybeans caused it to deteriorate. This led to a claim by the receivers, reasonably settled by the shipowner, who now seeks to recover its outlay from the charterer as damages for failure to complete discharge within the laytime. These, in outline, are the assumed facts on which the court was asked to determine a question of law pursuant to section 45 of the Arbitration Act 1996.
Mr Justice Andrew Baker held (at [61]) that “agreeing a demurrage rate gives an agreed quantification of the owner's loss of use of the ship to earn freight by further employment in respect of delay to the ship after the expiry of laytime, nothing more”. Accordingly, because the present claim was for “a different kind of loss”, the shipowner was entitled to recover the sum paid to settle the receivers' claim as unliquidated damages falling outside the scope of the demurrage clause in addition to the demurrage of US $20,000 per day paid by the charterer for the period of delay.
The charterer appeals, contending that demurrage operates as a liquidated and exclusive remedy for all the consequences of its failure to complete cargo operations within the agreed laytime. On that basis, a shipowner wishing to recover unliquidated damages in addition to demurrage must prove a breach by the charterer of a separate and distinct obligation.
Accordingly this case turns on the proper meaning of the term “demurrage” as it is used in the charterparty.
The charterparty
The demurrage clause in question is the standard clause 19 in the Norgrain 1973 form with some minor amendments. It is in the following terms:
“Demurrage at loading and/or discharging ports, if incurred, to be declared by Owners upon vessel nomination but maximum USD 20,000 per day or pro rata / despatch half demurrage laytime saved at both ends for part of a day and shall be paid by Charterers in respect of loading port(s) and by Charterers in respect of discharging port(s). Despatch money to be paid by Owners at half the demurrage rate for all laytime saved at loading and/or discharging ports. Any time lost for which Charterers/Receivers are responsible, which is not excepted under this Charter Party, shall count as laytime, until same has been expired, thence time on demurrage”.
Assumed facts
The voyage was one of a number of voyages performed pursuant to a contract of affreightment dated 30 th July 2014 between K-Line as owner and Priminds as charterer. The contract was for the carriage of bulk cargoes of 60,000 mt 10% more or less of heavy grain, soya or sorghum from South American ports to the Far East. The “Eternal Bliss”, a drybulk carrier, was nominated for the June 2015 laycan. In the event she loaded 70,133 mt of soybeans at Tubarao in Brazil for discharge at Longkou in China, where she arrived and tendered Notice of Readiness on 29 th July 2015. Due to port congestion and lack of storage space ashore she was kept at the anchorage for some 31 days before berthing. Upon discharge, the cargo exhibited significant moulding and caking throughout the stow in most of the cargo holds. Discharge was completed on 11 th September 2015.
The damage to the cargo led to a claim by the receivers which the shipowner (or in reality, no doubt, its P&I Club) settled at a total cost of US $1.1 million. It then sought to recover that cost from the charterer in arbitration. The only allegation of breach made against the charterer was that it had failed to discharge the cargo within the laytime allowed (which was calculated by reference to a discharge rate of 8,000 mt per weather working day with weekends excepted: there were other exceptions, such as strikes, but it does not appear that these had any impact on the laytime calculation). That gave rise to the question of law with which we are concerned, which the parties agreed to bring to the court for a decision under section 45 of the 1996 Act.
For this purpose the parties agreed that the following facts should be assumed, although some of them may be in dispute hereafter:
(1) The vessel was detained at the discharge port beyond the contractual laytime, due to port congestion and a lack of storage.
(2) The charterer was therefore in breach of its obligation to complete discharge within the permitted laytime.
(3) The condition of the cargo deteriorated as a result of the detention beyond the laytime, and not due to any want of care by the shipowner.
(4) The shipowner suffered loss and damage and incurred expense as a result of the detention beyond the laytime, including dealing with and settling the cargo claims brought by the cargo interests and insurers.
(5) The loss, damage and expense suffered by the shipowner were:
a) not caused by any separate breach of charter other than the charterer's obligation to discharge within the contractual laytime;
b) not caused by any event which broke the chain of causation; and
c) reasonably incurred.
(6) The loss, damage and expense suffered by the shipowner were consequences of compliance with the charterer's orders to load, carry and discharge the cargo.
We must also assume, if the question of law is to arise, that the loss claimed in the arbitration is not too remote, that is to say that it was within the reasonable contemplation of the parties when entering into the contract that a failure to discharge within the laytime might cause the shipowner to incur liability for cargo damage. That assumption was not spelled out by the parties or addressed in submissions. The procedure adopted (determination of a question of law under section 45) means that we do not have the benefit of any findings on the point.
The judge noted that the factual basis for the shipowner's case in the arbitration will be that the cargo was shipped in Brazil with a high moisture content for the anticipated voyage length, although this is not alleged to have involved or resulted from any breach of contract by the charterer.
We would observe that if, as is usually the case, the bills of lading were subject to the Hague-Visby Rules, the shipowner ought not on these facts to have been under any liability to the cargo receivers, particularly if the shipowner is able to make good its allegation about the high moisture content of the cargo. It may be, therefore, that the facts of the present case are unusual. Nevertheless, we must proceed on the basis of the assumed facts set out above.
The judgment
As reformulated in the course of the hearing before the judge, the question of law for decision was whether, on the facts assumed, the charterer is liable to compensate or indemnify the shipowner for the cost of settling the cargo claims by way of (a) damages for the charterer's breach of contract in not completing discharge within the permitted laytime; and/or (b) an indemnity in respect of the consequences of complying with the charterer's orders to load, carry and discharge the cargo. The judge held that the charterer was liable by way of damages and that it was therefore unnecessary to decide whether there was a viable indemnity claim. He added, however, that if demurrage was liquidated damages for all the consequences of the charterer's delay at the discharge port, it would be inconsistent with that element of the parties' bargain to imply an indemnity rendering the charterer liable for one of those consequences. That aspect of his decision has not been challenged on appeal.
The judge identified the main point of principle as requiring an answer to the question: what is it that demurrage liquidates? This was a question of construction of the demurrage clause in the charterparty, although the clause in the present case does not provide an express answer to the question. The judge sought an answer to the question in the case law and textbooks, conducting an exhaustive examination of the cases from Inverkip Steamship Co Ltd v Bunge & Co [1917] 2 KB 193 to The Luxmar [2007] EWCA Civ 494, [2007] 2 Lloyd's Rep 542 via AS Reidar v Arcos Ltd (1926) 25 Ll LR 32, ...
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K Line PTE Ltd v Priminds Shipping (HK) Company Ltd “Eternal Bliss”
...K Line PTE Limited Respondent/Claimant and Priminds Shipping (HK) Co Limited “Eternal Bliss” Appellant/Defendant [2021] EWCA Civ 1712 Before: Sir Geoffrey Vos, MASTER OF THE ROLLS Lord Justice Newey and Lord Justice Males Case No: A4/2021/0009 & A4/2021/0010 IN THE COURT OF APPEAL (CIVIL DI......