New judgment covering the circumstances surrounding the discharge of the bulk carrier Eternal Bliss offers hope for ship owners facing cargo claims following extensive periods of delay, writes Alexandra Bailey.

In a bold move on 7 September 2020, Justice Andrew Baker for the English Commercial Court rejected judicial precedent, by departing from the judgment of The Bonde on the basis that its reasoning was faulty. Instead, Baker J allowed Owners’ indemnity claim for cargo damage arising from a period of extensive delay. This was in addition to their claim for demurrage and despite there being only one contractual breach – that of Charterers’ failure to discharge the cargo within the agreed laytime allowance.

We comment on the facts of the case, the reasoning of Baker J and its wider implications for the commercial community below.

The Facts

The Owners K-Line and the Charterers Priminds entered into a contract of affreightment (“COA”) for 9 separate voyages, each to be performed by vessels nominated by Owners. The COA was based on an amended Norgrain form (the North American Grain Charterparty 1973, Amended 1/7/74). One laycan per month would take place over a 9-month period (February – October 2015) with bespoke provisions for each voyage, therefore creating 9 individual voyage charters.

The dry bulk carrier Eternal Bliss was nominated by Owners for the June 2015 laycan. The vessel duly loaded 70,133 m.t. of soya beans at Tubarao, Brazil and proceeded to Longkou, China for discharge. Due to port congestion and a lack of storage space ashore, the vessel remained at anchor for 31 days. When the vessel was finally able to berth for discharge, the cargo is said to have exhibited significant moulding and caking throughout the stow of most of the cargo holds. The condition of the cargo had deteriorated as a result of the prolonged period of the vessel at anchor. Consequently, the Owners were forced to provide the cargo receivers with a letter of undertaking for US$6 million in order to avoid the arrest and detention of the vessel at Longkou. The cargo receivers finally accepted US$1.1 million from the Owners in settlement of their claim.

The Owners subsequently commenced arbitration proceedings against the Charterers seeking damages (or an indemnity) in respect of the claim from the cargo receivers. The Owners’ only allegation of a breach made against the Charterers was that they had failed to discharge the subject cargo at the contractual demurrage rate of 8,000 m.t. per weather working day, which thus determined the discharge port laytime allowed.

A Question of Law

Since the Owners’ claim against the Charterers was not caused by any separate breach of charter, the parties agreed that the question of law as to whether the Owners’ claim could be recoverable in addition to demurrage should be determined by the Court as a preliminary issue. This Question of Law was articulated in part as being:

“If the facts were as presently assumed in respect of the voyage charter of m.v. ‘Eternal Bliss’ in relation to the June 2015 laycan under the contract of affreightment between the parties dated 20 July 2014, is the charterer liable to compensate or indemnify the owner in respect of the loss, damage and expense referred to therein by way of:

(a) damages for the charterer’s breach of contract in not completing discharge within permitted laytime”

The answer to this Question of Law principally turned on a) What is it that demurrage liquidates? and b) What does the law take to be covered by the demurrage rate? As with most demurrage clauses, the Norgrain demurrage clause neither defined what demurrage was, nor specified that demurrage was the remedy for all and any breach of the laytime allowance.

As a starting point, Baker J consulted the leading cases dealing with multiple claims involving a breach of the laytime allowance and constructed the following table. The case in question fell into the bottom left corner because no breach was alleged by the Owners other than the failure to discharge within the laydays.

The Owners submitted that they were not claiming damages for detention because their liability for the cargo damage claim was unrelated to the loss of use of the ship as a freight-earning vessel. Instead, they were claiming damages for the retention of the cargo on board the ship, giving rise to the loss. While this was a by-product of the delay to the ship it was different kind of loss.

The Charterers on the other hand, submitted that the Owners’ claim was still only a claim for detention of the ship (the bottom right of the above grid) because the deterioration of the cargo and the consequent loss and expense all resulted from the ship being delayed at Longkou beyond its laydays.

However, Baker J did not think that Charterers’ position was quite right because it placed them at odds with the judgment in Reidar v Arcos. In that case “If being a result of delay to the ship beyond the laydays meant a loss could not be recovered separately from or additionally to demurrage, the decision in the Reidar v Arcos would have gone the other way”. The tabulated cases also held a preponderance of views that the only nature of demurrage is that “it serves to liquidate loss of earnings resulting from delay to the ship through failure to complete loading or discharging within the laytime allowed by the charter”.

Enter The Bonde

However, Charterers’ trump card was the case of The Bonde. That case involved a contract of sale rather than a charterparty, where the buyer claimed for an increase in the price it had to pay for the cargo following a delay in loading of the cargo i.e. a harm separate from and different in kind than the detention of a ship. Potter J judged in The Bonde that 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. After careful analysis, Baker J considered that The Bonde was the first decision exactly on point and therefore a judicial precedent. Consequently, if Owners were to have any hope of success in this case, Baker J had to consider whether or not The Bonde was wrongly decided.

In deciding this, Baker J consulted the leading authorities and textbooks and revisited the Reidar v Arcos case which was key in the judgment of The Bonde. Baker J finally concluded that Potter J’s analysis in The Bonde “was premised on the faulty reasoning that if the majority view in Reidar v Arcos was that it was a two breach case, it followed that Bankes LJ (in Reidar v Arcos) was wrong in law for a one breach case” (See previous table). Accordingly, Baker J considered it appropriate to depart from The Bonde and answered the Question of Law in this case in the affirmative: Owners were entitled to recover damages for their indemnity claim from cargo receivers, in addition to demurrage.

Comment

The judgment in this case will be welcomed by Owners who often bear the consequences of local delays or market fluctuations beyond their control, and which result in ships being utilised effectively as floating storage. Owners now placed in this position will no longer face the uphill task of having to establish a separate breach in order to recover losses that they suffer other than demurrage. However, while Baker J was particularly thorough in his approach to this case, the Charterers have been granted permission to appeal the judgment. Consequently, it remains to be seen whether this case really will produce a blissful ending for Owners.