UK Supreme Court grants permission to appeal in Eternal Bliss case

The UK Supreme Court has granted permission to appeal in the case of K Line Pte Ltd v Priminds Shipping (HK) Co Ltd [2020] EWHC 2373 (Comm) (The Eternal Bliss), reports North.

In November 2021 the Court of Appeal reversed the decision of the High Court judge that a shipowner is entitled to recover damages in addition to demurrage where a ship exceeds laytime.

The Court of Appeal decided that demurrage liquidated the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime.

The Eternal Bliss loaded soya bean cargo at Tubarao, Brazil and discharged at Longkou, China. It was kept waiting at an anchorage at Longkou for 31 days due to port congestion and lack of storage space.

On discharge in China, the cargo was found to exhibit moulding and caking throughout the stow in most of the cargo holds. The owners put up security for $6m and later settled the cargo claim for $1.1m. They sought to recover that exposure as damages from voyage charterers.

The parties agreed the High Court should answer the following legal question: where a voyage-chartered vessel is detained at a discharge port beyond the laytime, and the delay causes cargo to deteriorate, is the owner entitled to damages in addition to demurrage? The judge’s answer in the lower court was ‘yes’.

The decision (in October 2020) was always likely to head for higher courts, because this ruling effectively contradicted the 1990 decision in the Bonde case, which many lawyers thought resolved the question and which the Appeal Court noted had survived for 30 years without much questioning of its substance. In that case the High Court decided that a shipowner needed to show a separate breach before recovering damages resulting from delay where the contract contains a demurrage clause. However, the judge in The Eternal Bliss case thought The Bonde was wrongly decided and came to the opposite conclusion.

North noted that recent cases like The Tai Prize have decided a shipowner cannot usually rely on an implied indemnity under a voyage charter to obtain damages for shipping inherently unstable cargo. In that case, the shipowner’s alternative argument that the voyage charterer impliedly warranted that the cargo was in apparent good order and condition also failed.

The 2021 Court of Appeal judgment is at:

https://www.bailii.org/ew/cases/EWCA/Civ/2021/1712.html

in which one of the interesting comments (from an insurance point of view is in para 56:

“Fourthly, as Lord Justice Newey pointed out in argument, the cost of insurance is one of the normal running expenses which the shipowner has to bear. A standard expense for a shipowner is the cost of P&I cover which is intended to protect it against precisely the loss suffered in this case, that is to say liability to cargo claims, whether justified or not. Thus a shipowner will typically have insurance against cargo claims, while a charterer will not typically have insurance against liability for unliquidated damages resulting solely from a failure to complete cargo operations within the laytime. Rather, the charterer has protected itself from liability for failing to complete cargo operations within the laytime by stipulating for liquidated damages in the form of demurrage. Accordingly the consequence of the shipowner’s construction is to transfer the risk of unliquidated liability for cargo claims from the shipowner who has insured against it to the charterer who has not. That seems to us to disturb the balance of risk inherent in the parties’ contract.”

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: 27th October 2021