Court of Appeal rules on demurrage in case of The Eternal Bliss; Supreme Court beckons?

The Court of Appeal ruled yesterday in London on the matter of The Eternal Bliss and the availability of general damages in addition to demurrage arising from delay. Allowing the appeal, the Court held that demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime, reported Quadrant Chambers.

Simon Rainey QC and Tom Bird reported on the significant case. The appeal raised a point on which there was no previous binding authority and which had, for almost 100 years, divided eminent judges and commentators. The leading textbooks were split on the issue.

Scrutton took the position that, where the charterer’s breach caused the shipowner damage in addition to the detention of the vessel, losses could be recovered in addition to demurrage.

Contrariwise, the authors of Voyage Charters said the better view was that the shipowner could only recover such losses if it could show a separate breach of contract (one other than the failure to load or discharge the cargo within the time allowed).

The dispute in the case of The Eternal Bliss arose from a voyage charter for the carriage of soybeans from Brazil to China. The charter was drawn up on an amended Norgrain form, which provided that demurrage, if incurred, was to be paid at a daily rate or pro rata.

After arriving at the discharge port, the vessel was kept at the anchorage for 31 days due to port congestion and lack of storage space ashore. Post-discharge, it was said that the cargo exhibited significant moulding and caking throughout the stow in most of the cargo holds.

The owners commenced arbitration against the charterers, seeking to recover the cost of settling the cargo claim. The sole breach of contract relied on was the charterers’ failure to discharge within the laytime. The charterers contended that demurrage was the owners’ exclusive remedy for that breach.

The parties invited the Court to determine this point of law on assumed facts under s.45 of the Arbitration Act 1996.

At first instance, Andrew Baker J found for the shipowner. He held that the cargo claim liabilities were a different type of loss to the detention of the vessel, and that the shipowner could recover damages without proving a separate breach of contract. In a 1991 decision (The Bonde) Potter J had reached the opposite conclusion. Baker J said that this was wrongly decided.

The Court of Appeal followed the lower court in approaching the point as one of principle, noting that distinguished judges had struggled, without success, to discern a ratio on this issue in the 1926 case of Reidar v Arcos (the decision to which the long debate is often traced back).

In delivering the Court’s judgment, Males LJ held that the case turned on the proper meaning of the term “demurrage” as it is used in the charterparty.

The Court of Appeal concluded that, “in the absence of any contrary indication in a particular charterparty, demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime” .

Quadrant said that this was a significant judgment on a major point of shipping law. “In reversing the first instance decision, the Court of Appeal has given a much broader scope of the meaning of “demurrage” and treated it in much the same way as a standard liquidated damages clause, rather than limiting it to a particular type of loss. But this may not be the last word on the issue, which given the lively debate would benefit from clarification from the Supreme Court”, Quadrant said.

The case was heard before:

Sir Geoffrey Vos, Master Of The Rolls, Lord Justice Newey and Lord Justice Males.

Simon Rainey QC and Tom Bird acted for the shipowner K Line Pte Ltd, instructed by Nick Austin and Mike Adamson of Reed Smith LLP.

Christopher Hancock QC and Alexander Wright (instructed by Penningtons Manches Cooper LLP) acted for the Appellant, Priminds Shipping (HK) Co Ltd.

Judgment can be read at: