The defendant chartered a vessel from the claimant owner under a contract of affreightment, containing clauses determining the laytime allowed and demurrage payable in the event the charterer failed to load or discharge the ship within that laytime. Due to port congestion and lack of storage space ashore for the perishable cargo, the charterer failed to discharge the vessel within the allowed laytime specified by the contract. The cargo deteriorated during the delay and was damaged by the time of discharge, although not due to any want of care by the shipowner. As a result, the shipowner suffered loss, damage and expense, including settling the claims brought by the cargo interests and insurers. The owner commenced arbitration against the charterer seeking damages or an indemnity in respect of those losses, the only allegation of breach being that it had failed to discharge the cargo at the rate specified by the contract. A preliminary issue arose as to whether the charterer liable to compensate or indemnify the owner in respect of its losses by way of: (a) damages for the charterer's breach of contract; (b) an indemnity in respect of the consequences of complying with the charterer's orders to load, carry and discharge the cargo. Relying on previous Commercial Court authority that a separate breach was necessary before damages for loss, other than loss of use, could be recovered where there was a demurrage clause, the charterer submitted that the demurrage, meaning a sum to be paid as liquidated damages, was the shipowner’s exclusive remedy for the breach. The shipowner submitted that that previous authority had been wrongly decided and should not be followed.
On the preliminary issue—
Held, the present case concerned damage to the cargo which was distinct in nature from, and additional to, the detention of the ship, as a type of loss and, as such, was on all fours factually with the previous authority Commercial Court, which should therefore be followed unless it had been wrongly decided. The demurrage provided for by the contract of affreightment in issue was compensation for the fact that time was money for the ship, with despatch the reward counterpart founded on the same principle. English law classified demurrage as liquidated damages for breach of contract, rather than saying it was remuneration (additional freight) for additional services. Agreeing a demurrage rate gave an agreed quantification of the owner's loss of use of the ship to earn freight by further employment in respect of delay after the expiry of laytime, nothing more. Where such delay occurred, the demurrage rate provided an agreed measure for the owner's claim for damages for detention, but it did not seek to measure, or therefore touch, any claim for different kinds of loss, whatever the basis for any such claim. It followed that the previous authority would not be followed, in that a separate and different breach of contract was not required before unliquidated damages could be recovered for loss additional to, and different in kind than, the loss of the use of the ship for earning freight where there was a demurrage clause. Accordingly, the shipowner’s claim in demurrage was viable and the charterer was liable to compensate or indemnify the owner in respect of the loss, damage and expense incurred by way of damages for the charterer's breach of contract in not completing discharge within permitted laytime (paras 44–46, 51, 57, 58, 61, 66, 74, 75, 85, 87, 88, 100, 115–118, 123–128, 135, 138, 144, 145, 152).
Per curiam. In the event that the shipowner pursues the implied indemnity claim under part (b) of the question of law raised, that issue is best to be considered within the arbitration. Had the shipowner lost on the demurrage claim and it would have been necessary to answer part (b), the position would have been that the parties, by the demurrage clause, had agreed to liquidate, whereby to limit the shipowner’s recovery for all the consequences of the delay. It would be inconsistent with that element of the agreement to imply an indemnity rendering the charterer responsible for one of those consequences (paras 148, 150–152).
Tom Bird (instructed by Reed Smith llp) for the owner.
Alexander Wright (instructed by Penningtons Manches Cooper llp) for the charterer.