MSC Mediterranean Shipping Company SA v Cottonex Anstalt

JurisdictionEngland & Wales
JudgeMr Justice Leggatt
Judgment Date12 February 2015
Neutral Citation[2015] EWHC 283 (Comm)
Docket NumberCase No: 2013 FOLIO 791
CourtQueen's Bench Division (Commercial Court)
Date12 February 2015

[2015] EWHC 283 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Leggatt

Case No: 2013 FOLIO 791

Between:
MSC Mediterranean Shipping Company S.A.
Claimant
and
Cottonex Anstalt
Defendant

Emmet Coldrick (instructed by Duval Vassiliades) for the Claimant

Luke Pearce (instructed by Holman Fenwick Willan LLP) for the Defendant

Hearing dates: 1–2 December 2014

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Leggatt

Section

Para No.

Introduction

1

The contracts and shipments

2

The proceedings in Bangladesh

7

The fate of the containers

11

The value of the containers

23

The witness evidence

25

The claim for demurrage

26

The issues

33

The course of argument

34

The nature of container demurrage

38

Can demurrage start to run before the Carrier nominates a place for redelivery?

40

Can demurrage become payable before the containers are delivered?

45

When, if at all, did demurrage cease to accrue?

57

The mitigation principle

58

Should the Carrier have unpacked the containers?

62

Should the Carrier have replaced the containers?

64

Does the mitigation principle apply?

69

Is there a distinction between period and rate?

72

The contractual demurrage period

79

The repudiation argument

83

Has there been a repudiation?

85

Consequences of repudiation

89

The 'legitimate interest' principle

94

The Carrier's decision to keep the contracts alive

99

Is it open to the Shipper to argue that the demurrage provision is a penalty clause?

106

Is the demurrage provision a penalty clause?

111

Was there a legitimate interest in keeping the contracts alive?

117

Conclusions

122

Mr Justice Leggatt

Introduction

1

This case raises questions of some importance in international shipping about the nature and duration of an obligation to pay 'container demurrage'.

The contracts and shipments

2

The claimant, whom I will call "the Carrier", is a Swiss company which carries on a container shipping business worldwide. According to its evidence, the claimant is currently the second largest carrier of containers in the world by number of container vessels operated and by container slot capacity. In 2013 it carried about 13,722,000 containers.

3

The defendant, whom I will call "the Shipper", is a Lichtenstein Anstalt which trades in raw cotton.

4

The Carrier contracted with the Shipper to carry a total of 35 containers of raw cotton by sea from ports in the Middle East to Chittagong in Bangladesh. The containers used for the carriage were 40 foot 'high cube' containers provided by the Carrier. The cargo was shipped in three lots under five bills of lading. The first lot of 19 containers was loaded at Bandar Abbas in Iran under two bills of lading both dated 7 April 2011 and was discharged at Chittagong on 13 May 2011. The second lot of 12 containers was loaded at Bandar Abbas under two bills of lading dated 11 and 17 April 2011 and was discharged at Chittagong on 20 May 2011. The third lot of four containers was loaded at Jebel Ali in Dubai under a bill of lading dated 4 June 2011 and was discharged at Chittagong on 27 June 2011.

5

The Shipper sold the cotton to a company in Bangladesh called Regent Spinning Mills Ltd, which I will refer to as "the Consignee". Payment was by confirmed letter of credit. The contract of sale dated 14 April 2011 contained a retention of title clause, which provided that "the goods remain the property of Seller until full execution of the payment by the Buyer".

6

The Consignee has never collected the goods. Nor has anyone else. To this day the cotton remains at the Port of Chittagong, still packed inside the containers. The dispute in this case is about whether the Shipper is liable to pay the Carrier a daily charge, described as "demurrage", for each day that the containers remain unavailable to the Carrier because they are still being used to hold the goods.

The proceedings in Bangladesh

7

Shortly after the conclusion of the contract of sale, the market price of raw cotton collapsed and the Consignee sought to extricate itself from the contract. When the Shipper refused to cancel the contract, the Consignee sought to stop payment under the letter of credit by bringing proceedings in the courts of Bangladesh.

8

The Consignee commenced proceedings on 6 June 2011 against the banks which had respectively issued and confirmed the letter of credit. The Shipper was also named as a defendant, although it does not appear that the Consignee has alleged any breach of the contract of sale. Its case is that the banks were not entitled to pay against the documents presented under the letter of credit as some of the bills of lading had been fraudulently misdated to make it appear, falsely, that the goods had been shipped within the period required by the terms of the letter of credit.

9

On 15 June 2011 the Consignee obtained an interim injunction from the High Court in Bangladesh to restrain the issuing bank from making any payment under the letter of credit. The injunction was still evidently in place on 27 February 2013, when the court ordered that the injunction should continue for a further six months. There is no evidence which shows what, if anything, has happened in the proceedings since then.

10

In fact, on 23 May 2011, before the Bangladeshi proceedings were begun, the Shipper had already been paid under the letter of credit for the first two lots of cotton shipped under the first four bills of lading. The payment for the third lot shipped under the fifth bill of lading was subsequently made by the confirming bank to the Shipper on 30 January 2013.

The fate of the containers

11

In the period of some three and a half years during which the containers have been sitting in the Port of Chittagong, such attempts as have been made to retrieve the containers have come to nothing.

12

The Carrier has taken the position that it is for the Shipper or the Consignee to collect the goods and then unpack and return the containers. The Shipper has taken the position that it has no power to take delivery of the goods and that only the Consignee may do so. Meanwhile, the Consignee has made no attempt to collect the goods and has made it clear that it does not intend to do so. To add to the problems, the Bangladeshi customs authorities have apparently taken the position that they will not allow anyone to remove the containers from the yard where they are being stored without a court order.

13

On 3 July 2011 the Carrier was already complaining to the Shipper that the shipments were still lying uncleared in Chittagong. On 23 July 2011 the Carrier's agent sent a formal notice to the Consignee and to the Shipper that the Carrier reserved the right to dispose of the cargo if it was not collected within 15 days and that the Consignee and the Shipper were being held responsible for all costs and charges caused by the failure to collect the goods. The Consignee responded to say that it was taking court proceedings based on an allegation that fraud had been committed in respect of the documents presented under the letter of credit and that it was not in a position to take any action to clear the consignment unless and until the issues raised in the proceedings had been resolved.

14

On 1 August 2011 the Carrier sent an email to the Shipper referring to the court proceedings and asking what actions the Shipper was planning to take to solve the problem with the Consignee and to pay the outstanding demurrage. This was followed up on 27 September 2011. The Shipper's response on that date was that it did not have legal title to the goods as it had been paid for them. (In fact, payment had not at that stage been made for the third lot of four containers but the first two lots comprising 31 containers had been paid for.) The Shipper suggested that the bank would pay the demurrage charges "as soon as conflict and disputes between banks are solved". The Carrier replied on 2 October 2011 asking for "a gesture of support by settling our demurrage". The Carrier also observed that it would not be surprising if the amount of demurrage owed by now exceeded the value of the cargo, and said that they did not want to see a situation in which the cargo was auctioned leading to the Carrier having to forego demurrage charges.

15

On 25 October 2011 the Carrier sent a further formal notice to the Shipper and the Consignee regarding the mounting demurrage charges. On 2 November 2011 the Consignee wrote a letter to the Carrier further explaining its refusal to accept the documents presented under the letter of credit.

16

On 27 November 2011 the Carrier sent an email to the Shipper complaining that the shipments remained uncleared by the Consignee "without any certain future for our containers which are just sitting idle in Chittagong". The Carrier said that its office in Chittagong had been in constant touch with the Consignee but without any positive response. The email requested settlement of the outstanding demurrage in an amount (which did not include the four containers used to ship the third lot) of US$127,968.

17

No response was received from the Shipper in the next several weeks, despite a series of reminder emails. Some time in January 2012, however, there was a telephone conversation in which the Carrier offered to sell the containers to the Shipper. According to the Carrier's manager, Mr Sethuraman, who made this offer, the Shipper specifically asked for such an offer as a practical solution because the...

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