Claiming damages in addition to demurrage following delay, important ruling

Andrew Glynn-Williams Vice President, Head of FDD Skuld Oslo 2, has written on a recent judgement in the English Commercial Court, which he said “brought clarity to whether a Shipowner, faced with a cargo damage claim, following delay by the Charterer to discharge the vessel within laytime, can recover those losses from the Charterer”.

In The Eternal Bliss [2020] EWHC 2373 (Comm), before Mr Justice Baker the matter at issue concerned a Voyage Charter of 70,133 tonnes of soybeans, on Norgrain terms, loaded in Brazil for discharge in China.

After the vessel arrived in China she waited at the anchorage for 31 days, a result of congestion and a lack of available storage ashore. Upon discharge it was found that some of the cargo was damaged with mould and caking. Owners settled the cargo interests’ claim for $1.1m and then sought to recover those losses from Charterers in Arbitration. A preliminary point of law was referred to the Commercial Court.

The Court was asked to determine, in circumstances where there was a breach by Charterers to discharge within the time specified in the charterparty, whether it was sufficient for Owners to simply identify a different type of loss beyond that of the loss of use of the vessel as freight earning unit, or whether Owners needed to also demonstrate a different type of loss and a separate breach by Charterers.

Previously in these circumstances it had been held in the case of The Bonde [1991] 1 Lloyd’s Rep 136 that, in order to recover a loss beyond that of the loss of use of the vessel, it was necessary to identify a separate breach and with the additional need that the loss needed to be different in character to the loss of use of the vessel. However, there had been much debate in leading texts and academic papers around this subject and as such there was some “…long-standing uncertainty…” on the point, said Baker J.

After much analysis of previous authorities and those leading texts and papers, Baker J, concluded that The Bonde was wrongly decided.

He concluded that the analysis by the judge in that case “….. was premised on the faulty reasoning…”. Baker J also concluded that previous cases had “…distracted from the underlying arguments of principle that ought to drive the answer…”

Following his analysis, Baker J, in quite a lengthy judgement, held that Owners were entitled to recover those losses which were different in type to the loss of use of the vessel and without needing to identify a separate breach.

The matter was then referred back to the Arbitration.

Despite this legal avenue now being open to an Owner there would still be causation hurdles to overcome. An example of the sort of issues that might arise would be where, in addition to a lengthy delay, there were breaches of Owners obligations to care for the cargo, perhaps by the introduction of sea water onto the cargo via a leaky hatch coaming.

Nonetheless, Glynn-Williams said that this was “an important decision and paves the way for Owners to now recover separate losses from Charterers following delay”, where previously this would not have been not possible. He added that “given the recent delays we have seen in ports around the world due to Covid-19, one might expect that that we will see an increase in the number of Owners seeking to make such a recovery.

Clyde & Co, commenting on the same judgement called it an important ruling, as it “re-opened the door to recovering damages in addition to demurrage for losses caused by exceeding laytime in cargo operations”.

Clyde noted that in the 85 page judgment in K Line Pte Ltd vs Priminds Shipping (HK) Co Ltd (The Eternal Bliss) [2020] EWHC 2373 (Comm), Justice Baker thoroughly surveyed “almost 100 years of law and commentary on a question that has never been properly resolved and which has divided the opinion of academics and practitioners alike”.

Recognizing the significance of the decision, Andrew Baker J said: “From time to time, a case provides the opportunity to resolve a long-standing uncertainty on a point of law of significance in a particular field of commerce. This is such a case.”

The judge added: “It is a strong thing for a judge of first instance to refuse to follow a prior decision at first instance that has stood without direct criticism in later case-law for a substantial period of time.”

Clyde said that this was a significant decision for the shipping industry. “It could have far reaching consequences where owners suffer losses unrelated to the vessel’s earning potential (in this case, liability to cargo interests following deterioration of the cargo) as a result of a failure to load or discharge within the laytime.”

However, Clyde also observed that “whether this will be an end to the controversy remains to be seen, but today’s judgement is the first to consider the issue, and grapple with the difficulties of previous decisions dating back to Reidar v Arcos in 1927, in this level of detail”.

Nick Austin and Mike Adamson of Reed Smith, and Tom Bird of Quadrant Chambers, represented the successful claimants K Line Pte Ltd in a question of law referred to the Court under s.45 Arbitration Act 1996.

https://www.skuld.com/topics/legal/pi-and-defence/claiming-damages-in-addition-to-demurrage-following-delay/

Standard Club has also covered the ruling at:

https://www.standard-club.com/risk-management/knowledge-centre/news-and-commentary/2020/09/article-the-eternal-bliss-the-high-court-confirms-that-owners-can-seek-damages-in-addition-to-demurrage.aspx