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Demurrage and Detention

Jagan - May 11, 2014 - 0 comments

  1. This article focuses on Detention and Demurrage. As the target audience includes Bulk and Liner Operators (a majority of which is in containerised trade), we will initially discuss on how they arise separately and then focus on the common issues.
  2. Demurrage simply means liquidated damages. It first arose in voyage charters when a vessel became detained for loading or discharge beyond the agreed laytime (time allowed in the charter for loading and discharging the cargo). In order to avoid discussions post event, the charter would mention the demurrage amounts to be paid for breach by the charterer. The only defence to a claim of demurrage available to the charterer appear to be the implied exception of delay caused by the fault of the Owners or those for whom the Owners are responsible.
  3. If the demurrage clause in the charterparty provides for a fixed number of days, then demurrage is payable as liquidated damages for the delay in loading or discharge only for this period. Further delays may entitle the Owners not to Demurrage but to a Detention claim at large. On the other hand, if the charter does not provide for any express limit on the period of demurrage, then the demurrage rate may apply for the entire period of delay.
  4. A claim for detention would generally arise (in addition to the failure to load or discharge within the laytime) when an obligation of the charterers has been broken causing additional loss. In this case, the Owners are not necessarily restricted to their claim for demurrage. This may be due to charterer’s breach of a term of the charter and which are not governed by the laytime and demurrage provisions (the delay occurs before the commencement of laytime or after the completion of loading of discharging). Unless the charter provides for these delays to be within the demurrage provisions, the Owners could pursue the charterers for the loss due to the delay by way of a claim for detention. The disadvantage of pursuing a claim in detention is that the Owners would have to prove their loss (which is avoided in the case of demurrage as the demurrage rate has already been agreed at the time of signing the charter).
  5. In the Containerised Liner industry, various Carriers have defined Demurrage and Detention as follows:
    1. Demurrage: Charges levied on the customer when they hold the carriers equipment inside the port / terminal for longer than the agreed free days / time (for both import and export cargo).These charges may be in addition to the port storage charges which are generally collected directly from the cargo interests by the port / terminal (charges when the container remains in the port / terminal over the agreed free time).
    2. Detention: Charges levied on the customer when they hold the carriers equipment outside the terminal longer than the agreed free days / time till the equipment is returned back to the carrier’s custody (charges when the container has been trucked out from the port and remain with the cargo interests more than the agreed free time).
    3. In some trades/ ports, there is no distinction made between the demurrage and detention and as long as the customer exceeds the agreed free time (both within the port / terminal and outside), they become liable to the Carrier for the demurrage / detention accrued.
  6. The next question to be answered is can the Owners / Carriers successfully pursue the cargo interests for the accrued demurrage / detention. It is trite law that only parties to the contract can enforce the contract. If the contract of carriage (charterparty / Bill of Lading), does not list the party from whom the demurrage / detention is being sought, then unless there is a custom of the trade or a subsequent contract such as delivery order contract, etc ( seeBrandt v Liverpool ), it would be difficult for the Owners / Carriers to pursue third parties. This being the case, Owners / Carriers may wish to review their contracts to ensure that they are entitled to pursue other parties involved in the chain should a demurrage / detention claim arise.
  7. Sometimes, even when the Owners/Carriers are entitled to pursue the cargo interests, they would be unable to recover due to the impecuniousness of the cargo interests. In this instance, could the Owners / Carriers pursue any third parties involved in the chain? With respect to charters, Brokers would generally negotiate with Owners “As Brokers only” and would generally disclose the details of their Principal . If the Owners are uncomfortable dealing with any specific charterer, they could seek a guarantee by a third party (say a performance guarantee). If the guarantee is properly worded, it could assist the Owners in recovery of the demurrage and detention accrued from the third party.
  8. In the liner industry, an agent may also incur personal liability on the contract of carriage itself, if he contracts in appropriate terms or if there is a custom to the effect (In Anglo – Overseas Transport v Titan Industrial it was found that there was a custom in the London freight market that an agent who booked shipping space on a vessel for an unidentified principal incurred a personal liability for dead freight in the event that no cargo was shipped. In Cory Bros V Baldan the custom was found to extend to the United Kingdom as a whole and to render the agent liable for freight as well as dead freight). Alternatively, the Owners / Carriers could consider contracting on specific terms with Agents (Brokers / Freight forwarders) so as to ensure that they are jointly and severally liable for the payment of all charges (including Demurrage and Detention).
  9. As there are costs involved in the recovery of the Demurrage and Detention accrued, Owners / Carriers can consider FD&D Cover and which reimburses the legal costs incurred by the Owners / Carriers provided there is a reasonable prospect of success. However, please note that the cover is not for the Demurrage / Detention accrued i.e. the principal sum in dispute.
  10. In summary, Carriers / Owners must:
    1. Ensure that they have appropriate contracts to pursue not only the cargo interests but also any third parties involved in the contract.
    2. If necessary, consider seeking a performance guarantee from third parties to protect against any impecuniosity.
    3. Consider recovery of Demurrage and Detention as and when an opportunity arises.
    4. Seek assistance from FD&D Insurers in respect of the pursuit costs incurred.
  11. Demurrage and Detention are important revenue components to the Owners / Carriers given the state of the freight market. Hence, Owners / Carriers should consider recovery from the cargo interests as and when an opportunity arises. Should you require any assistance in this, we at NAU would be pleased in reviewing your contracts and in the recovery.

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