TT Talk - Legal eagle: potential new exposures

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This first instance judgment in relation to a charterparty dispute has the potential to spawn a range of liability exposures that could reverberate through the complex network of supply chain contracts. Most particularly the reasoning may expose ports and terminals in non-liner trades.

The Facts

‘Eternal Bliss’ was voyage chartered to carry a cargo of soybeans from Brazil to China. After the ship arrived in China, she waited at anchorage for 31 days due to congestion and lack of storage ashore. Upon discharge it was found that some of the cargo was damaged with mould and caking. The ship owner settled the cargo interests’ claim and sought to recover the losses from the charterer in arbitration.

The cargo deteriorated as a result of the detention beyond the laytime, with no break in the chain of causation and no lack of care by the owners. No breach of contract was alleged against the charterers other than the failure to discharge within the laytime.

The charterer contended that demurrage, as set out in the applicable Norgrain charter (in terms similar to most voyage charterparties), was the ship owner’s exclusive remedy; there were no grounds to support an additional claim for cargo damage. The ship owner argued that the demurrage only liquidated the damages for the detention and loss of use of the ship. The cargo damage, as a different type of loss, could therefore be recovered in addition to demurrage.

A preliminary point of law was referred to the Commercial Court, whether in these circumstances it was sufficient to identify a different type of loss or whether it was necessary to identify both a different type of loss and a separate breach.

The Judgment

Existing law, albeit the authorities are conflicted, was dominated by the Bonde , which decided that it was necessary to identify both a loss that differed in character from loss of use of the ship and a separate breach. In the Bonde, the ship filed late with the authorities incurring carrying charges, and the seller failed to load at the contractual rate. The buyer could not recover damages beyond demurrage because the only breach by the seller had been the failure to load at the contractual rate.

The Bonde has always been controversial and has provoked much disagreement, not least in the academic textbooks, to which the court referred in detail.

The court did not distinguish this case from the Bonde, but determined that the Bonde was wrongly decided. Demurrage was intended to be no more than an agreed measure of the value of the ship's lost time, in excess of what was reflected in the freight. Commercial parties should not expect that agreeing a demurrage rate also liquidated other claims, such as for physical damage to the ship or cargo, or injury to the crew.

The court therefore held that the ship owner was entitled to recover losses different in type from the loss of use of the ship without needing to identify a separate breach, and referred the matter back to the arbitration.

Comment

This is an important decision, which may be expected to become more so as delays continue to be caused by COVID-19 around the world. Subject to there being a causal link between the delay and the ‘different’ claim, ship owners may now recover separate losses from charterers where previously this would not have been possible. Such losses could conceivably not be restricted to cargo liabilities, but extend to ship damage, foul berthing and ship maintenance issues, including crew changes and deviations to bunker. Certainly, the judgment is likely to inhibit the fairly common practice of using ships for storage on the basis the only financial exposure is demurrage. The implications are therefore potentially wide. The decision may not be of great direct relevance to many supply chain actors, but it may impact on liabilities in different parts of a forwarding contractual chain. The liability of ports and terminals may also be impacted if charterers are able to seek indemnity for an increased range of claims.

In view of its importance and the fact that it changes existing law, this first instance decision is likely to be appealed (as was more or less anticipated in the judge’s summing up).

K LINE Pte v PRIMINDS SHIPPING (HK) Co Ltd (“Eternal Bliss”)
[2020] EWHC 2373 (Comm)


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Peregrine Storrs-Fox

Risk Management Director, TT Club

Staff Author

Date03/11/2020

Source TT Club

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