This paper was presented by Mr Donald Chard _{FICS, FCIArb} at ICMA XXII Singapore, a Chartered Shipbroker and Fellow of the Chartered Institute of Arbitrators. He spent more than thirty-eight years with the UK Chamber of Shipping where he was Head of Legal and Documentary and was subsequently a Consultant with BIMCO’s Contracts and Clauses Department, He is an Aspiring Full Member of the London Maritime Arbitrators Association (LMAA) and on the Singapore Chamber of Maritime Arbitration (SCMA) Panel of Arbitrators; has been practising as a Maritime Arbitrator since 2012.

Introduction

1. The shipping market has always understood “demurrage” to be liquidated damages for detention. However, from time to time the question has arisen as to whether this is a complete remedy or whether further recovery can be made where there is additional loss or damage.
2. This paper will consider the concept of demurrage and review the development of the law over the past one hundred years from Inverkip v Bunge (1917) 2 B.193 (C.A.) Reidar v Arcos (1927) 1 K.B. 352 (C.A.), Suisse Atlantique Société D’Armement Maritime SA v NV Rotterdamamsche Centrale 1967 1 A.C. 361 UKHL to Richco International Ltd v Alfred C Toepfer International GmbH (The Bonde)[1991] 1 Lloyd’s Rep 136. It will then consider the issues raised in the most recent case K-Line Pte Ltd v Priminds Shipping (HK) Co Ltd[2020] EWHC 2373 (Comm) where, in the High Court, the conventional approach was overturned opening the way for damages for other types of loss in addition to demurrage and the decision in the Court of Appeal where it was said that if demurrage covers the owner’s loss of the vessel’s use for further employment and nothing more, and so does not apply to other types of loss, there will be disputes as to the types of losses covered by the demurrage clause. The accepted understanding of the scope of demurrage was therefore restored to provide ”clarity and certainty”.
3. This paper will assess the positiion from owner’s and charterer’s perspective and consider the feasibilty and implications of the Court of Appeal’s suggestion that parties can stipulate for a different result by drafting clauses limiting demurrage to defined categories of loss.
4. Standard industry charter parties, such as The North American Grain Charterparty (NORGRAIN) 1989, GENCON 2022 and AMWELSH 1993, set out the rate of demurrage using wording along the lines “Demurrage at loading and discharging ports is to be paid at the rate of…….per day” perhaps with the addition of “or pro rata for part of a day” and sometimes qualified to specify that payment is the charterer’s obligation.
5. In President of India v Lips Maritime Corporation (The Lips)[1987] 2 Lloyd’s Report 311 (at 315), Lord Brandon explained that “…demurrage is not money payable by a charterer…for the exercise …of a right to detain a chartered ship beyond the stipulated lay days…It is a liability in damages to which a charterer becomes subject because by detaining the chartered ship beyond the stipulated lay days, he is in breach of his contract….” (Emphasis added by author.)
6. In Triton Navigation Ltd v Vitol A. (The Nikmary) {2003} 1 Lloyd’s Rep 151, Moore-Bick J, as he then was, noted at para 47 that “demurrage being liquidated damages for detention, notionally reflects the fullcost to the owner of keeping his ship in port. As such it is deemed to cover all normal running expenses, including the cost of diesel oil required to run the ship’s equipment.”
7. The Laytime Definitions for Charter Parties 2013, which update provisions originally issued in 1980 and revised in 1993, with the current iteration supported by BIMCO, FONASBA, CMI and the Baltic Exchange, state that “Demurrage shall mean an agreed amount payable to the owner in respect of delay to the Vessel once the Laytime has expired, for which the owner is not responsible …” The definitions are available for incorporation into charter parties.
8. Thus, the clauses, definitions and judicial commentaries, support the industry understanding of the term “demurrage”. But the scope of demurrage and what it liquidates has been open to debate. Moreover, is demurrage the only remedy in the event that a charterer’s breach results in the detention of a vessel? Can the owner make a further claim for loss or damage together with demurrage where there is only one breach of charter or must the owner show that a separate, and therefore, additional breach has been committed? This paper sets out to explore the issues.

Development of the case law

9. An early instance of the issue being raised was in Inverkip Steamship Company Ltd v Bunge & Co (1917).  The steamship, “Inverkip”, was chartered to proceed to New Orleans or Galverston to load grain with five laydays and, thereafter, to pay demurrage without any limit on the number of days on demurrage. Owing to damage from a tidal wave at the nominated port of Galveston, the vessel was directed to load at Newport News where a long delay was encountered. The Owners claimed that after a certain period the vessel was no longer on demurrage and sought damages for detention, at a much higher daily rate.
10. The Court of Appeal, affirming the decision in the High Court, held that the demurrage rate of compensation applied to the whole period of detention. Therefore, the owners were not entitled to damages, as distinguished from demurrage, for the extra period of detention. It is noteworthy that, in his judgment, Scrutton LJ, referred to“demurrage” as being “sometimes treated as agreed damages for detaining the ship, sometimes as an agreed payment for extra laydays”. The concept of demurrage as “paid extra laydays” no longer has any credence.
11. The issue next came before the courts in 1927 in Reidar v Arcos. The facts were straightforward. The steamer “Sagatind” was chartered to load a full and complete cargo of 850 standards of timber from the White Seato a port in England. The vessel arrived at the loading port early in October. Had she loaded at the specified rate, the owners would have earned freight on the full cargo. However, owing to delays for which the owners were not responsible and in order to comply with winter loading restrictions in the Merchant Shipping Act 1906, only 544 standards could be loaded. The owners claimed deadfreight on 306 standards.
12. The Court of Appeal, affirming Greer J’s judgment in the High Court, held that payment of demurrage did not entitle the charterers to detain the vessel beyond the laydays but, by so doing, they were in breach of charter; and that as such breach prevented them from loading a full cargo, they were liable for deadfreight beyond demurrage due. Significantly, the agreed rate of demurrage was not intended as liquidated damages for breach of the obligation to load a full cargo.
13. There has been some debate about the judgements in the Court of Appeal. Bankes LJ asked whether, having regard to the terms of the charter party, there was any breach on the part of the charterer; unsurprisingly, he concluded in the affirmative. Moving on to the question of damages, he noted that had the owner’s claim been for detention of the vessel, the special damages being claimed would not be recoverable. However, on the special facts, the owner’s claim was distinct from any claim for detention. The charterer’s failure to load the goods at the agreed rate caused the owner’s loss of freight on 306 standards and that loss was recoverable as damages.
14. Atkin LJ disagreed with the view that days on demurrage are extended laydays but, rather, days when the charterer is in breach. The charterer could not load cargo beyond the permitted winter maximum and so the vessel sailed with a complete cargo at the date of sailing but less than a complete cargo had loading been completed within the laydays and so the charterer was liable for any resulting damages.
15. Sargant LJ explained that the charter party fixed damages for detention at £25.00 per day and asked whether such payment provided compensation for the owner’s loss. In his view, the loss claimed by the owners was of another character, that is the loss of freight caused by the charterer’s breach of contract to load the full and complete charter party cargo of 850 standards.
16. Thus, while all three dismissed the charterer’s appeal, Bankes LJ held that two types of damage could arise from a single breach. Despite some contention about the interpretation of Atkin LJ’s position, in the much later case of mv Eternal Bliss [2020] Lloyd’s Report 419 Andrew Baker J accepted the view expressed by Potter J, as he then was, in The Bonde [1991] 1 Lloyd’s Rep 136 that Atkin LJ was with Sargant LJ in saying that there were two breaches.
17. In Chandris v Isbrandtsen-Moller Co Inc (1950) 83 Lloyd’s Report 385, as a result of dangerous cargo on a vessel arriving at Liverpool, she was ordered to a safe area to Discharge took sixteen days longer than expected. The owners claimed for their full losses (exceeding demurrage for the period of delay) as well as the extra costs of discharging. Devlin J rejected the owner’s claim holding that damages were limited to the agreed rate of demurrage plus the extra costs of discharge.
18. The scope of a demurrage clause came before the courts again in Suisse Atlantique Société D’ArmementMaritime SA v NV Rotterdamamsche Centrale 1967 1 A.C. 361 UKHL. In 1956, the respondent (charterer) agreed to charter the appellant’s (owner’s) vessel for carriage of coal from the USA to Europe with the vessel returning in ballast between each voyage. The charter was to remain in force for a total of two years’ consecutive voyages. Fixed periods of laytime were agreed with demurrage payable at the rate of USD 1,000 per day.
19. The vessel undertook eight round voyages during the charter period whereas the owner alleged that a further six, or possibly nine, could have been performed. The owner alleged that, because of the charterer’s deliberate actions in limiting the number of contractual voyages, the contract had been rendered less profitable.
20. The owner’s claim for damages over and above demurrage was referred by arbitrators to the court which was asked to consider whether damages could be claimed apart from  demurrage. In the High Court, Mocatta J rejected the owner’s claim for such additional damages and the decision was affirmed in the Court of Appeal. The owner’s further appeal to the House of Lords also failed.
21. The House of Lords held that there was no implied provision that not less than a certain number of voyages were to be accomplished. Furthermore, where delay was due to detention of a vessel and demurrage provisions applied, damages obtainable were limited to the demurrage payments.
22. On the cases reviewed up to this point, we can thus see an emerging pattern in the courts (apart from Bankes LJ in Reidar) that demurrage is the sole remedy where there is a delay to the vessel and that a further separate breach is required for an additional claim.
23. In Total Transport Corporation of Panama v Amoco Trading Co (The Altus) [1985] 1 Lloyd’s Rep 423, the demurrage rate was linked to the quantity of cargo to be loaded but, in breach of their obligations, the charterer loaded less than the contracted quantity. The owner, as well as claiming deadfreight, claimed unliquidated damages for the loss of demurrage due to the reduced cargo intake. Webster J upheld the owner’s claim for the difference between the actual demurrage payable and the amount which would have been payable but for the charterer’s failure to load the agreed cargo.
24. Does this apparent “one breach” decision break with the general approach taken by the courts? Or, rather, is the interpretation of the outcome obscured by the particular circumstances of the parties’ agreement to link the intaken cargo quantity and the resulting variable demurrage rate?
25. Possible support for the “one-breach” concept was expressed in Adelfamar SA v Mangimi & Martini SpA (The Adelfa) [1988] 2 Lloyd’s Rep 466 where Evans J suggested that an independent head of damages might be recovered in the circumstances of a particular case. However, the comments were obiter and the possible circumstances which might give rise to an independent head of damages were not subjected to analysis.
26. The question of recovery in addition to demurrage made its next appearance in The Bonde [1991]. The case concerned the sale of wheat to be delivered f.o.b. Damman for shipment April 20/May 20 1988. The sellers guaranteed to load the vessel at a certain rate per day with demurrage for their account at the charter party rate while additional carrying charges for sellers’ account would apply if the vessel filed late although the applicable GAFTA terms and conditions allowed for extension of the contract period for delivery.
27. The buyers claimed an extension of the delivery period and their vessel filed outside the shipment period. The sellers failed to achieve the guaranteed loading rate although loading was completed within the extended delivery period.
28. The sellers did not dispute any liability for demurrage but claimed that the buyers were liable for the carrying charges. The dispute went to GAFTA arbitration where the Board of Appeal held that the sellers were entitled to the full amount of the carrying charges and stating, inter alia, that carrying charges, as they appear in the contract, are liquidated damages.
29. The High Court dismissed the buyers’ appeal. Potter J held (p136/7) that “where a charter party contained a demurrage clause, then in order to recover damages in addition to demurrage for breach of the charterers’ obligation to complete loading within the lay days, it was a requirement that the plaintiff demonstrate that such additional loss was not only different in character from the loss of use but stemmed from breach of an additional and/or independent obligation; and by analogy the same conclusion was to be drawn in respect of the rights and obligations of the buyer and seller under an f.o.b. contract into which provisions relating to payment of demurrage and rates of loading were incorporated”.
30. The judge further held that there was good reason for construing the buyers’ right to demurrage as being the sole remedy for breach of the loading rate guarantee which was inserted to trigger the right to demurrage.
31. Of importance to the discussion in this paper, the judge said (p144 lhc) that the buyers had failed to demonstrate a breach additional to or separate from that of failing to load within the lay days and/or at the agreed rate and held that “no separate right to damages in addition to demurrage arises” [emphasis added]. Potter J was, therefore, a “two breach” man.

mv “Eternal Bliss”

32. This brings us to the final, and much publicised, case of K-Line Pte Ltd v Priminds Shipping (HK) Co Ltd (“Eternal Bliss”) [2020] EWHC 2373 (Comm) where the question “what does demurrage liquidate?” was explored. The matter was brought before the court under s45 Arbitration Act 1996 for the determination of a question of law arising under an arbitration to decide the remaining issues.
33. The facts were straightforward. Under a contract of affreightment between K-Line (owners) and Priminds (charterers) on an amended Norgrain form, K-Line nominated the dry bulk carrier mv Eternal Bliss to load 70,133 mt of soybeans at Tubarao for discharge in China. The vessel arrived at Longkou anchorage and tendered NOR at 04.42 hours, local time, on 29^th July 2015. Owing to port congestion and lack of storage space, she was held at anchorage for some thirty-one days. Discharge began on 30^th August 2015 when the cargo was said to have exhibited significant moulding and caking.
34. Discharge was completed and the vessel sailed on 11^th September 2015 having provided a US$6 million letter of undertaking for cargo receivers’ claim. K-Line settled the receivers’ and their insurers’ claims in the sum of c. US$ 1.1 million. K-Line then commenced arbitration. On the assumed facts, the question of law before the court was: “is the charterer liable to compensate or indemnify the owner in respect of loss, damage or expense…by way of (a) damages for the charterers’ breach of contract in not completing discharge within permitted laytime; (b) an indemnity in respect of the consequences of complying with the charterers’ orders to load, carry and discharge the cargo?”
35. At the beginning of a lengthy judgment, Andrew Baker J explained that no breach of contract was alleged against the charterers other than their failure to discharge within the daytime. The owners said that there was no fault on their part and that the cargo had deteriorated due to its prolonged on-board retention because of Priminds’ breach. Had the cargo been timely discharged, it would have been in sound condition. If the facts were proved in arbitration, would the owners be entitled to an award requiring Priminds to pay compensation by way of damages or under an implied indemnity covering the cost of the cargo claim settlement or was demurrage K-Line’s exclusive remedy for the breach?
36. As to the type of loss, K-Line submitted that its cargo claim liabilities were unrelated to the loss of use of the ship as a freight-earning vessel and that K-Line was not claiming damages for detention. The relevant loss was a liability for damage to the cargo caused by its on-board retention. That it was, in turn, a by-product of the delay to the ship did not stop the cargo damage or liability in respect of it from being a different kind of loss.
37. Priminds submitted that it was not a different kind of loss. On the assumed facts, the deterioration in the cargo and the consequent loss and expense all resulted from the ship being delayed at Longkou beyond the laydays. The claim, therefore, was only a claim for detention of the ship.
38. The judge, at paras 43-45, expressed his preference for K-Lines’s argument. This was a case of cargo damage and loss suffered by K-Line by way of liability or the reasonable settlement of possible liability. The cargo became damaged because the excess period of confinement in the cargo holds lasted long enough for it to deteriorate. In his judgment, the damage to the cargo was quite distinct in nature from, and was additional to, the detention of the ship as a type of loss.
39. In further argument, K-Line adduced a range of factors supporting the notion that demurrage provides a pre-estimate of the (negative) value to an owner of the loss of use of a ship as a freight-earning instrument. To find for Priminds, it was said, would be to conclude that a typical demurrage clause is a partial exclusion or limitation clause. K-Line asserted that (The Bonde aside) the consistent focus in judgments contemplating the recoverability of damages on top of demurrage for loss suffered by an owner where the ship has been detained beyond the laydays, has been the nature of the loss, and its counterpart the particular nature of the loss intended to be quantified by the demurrage rate, rather than the question of the separate breach.
40. Priminds submitted that it was well settled that a demurrage clause is by nature a liquidated damages provision. It should be given the effect ordinarily given to such clauses, that is to say it should be treated as fixing (and limiting) the damages recoverable for the breach it covers. An agreed basis for assessing damages for all the consequences of the charterers’ failure to load or discharge within the laydays promoted certainty whereas K-Line’s approach created uncertainty as to whether or not a particular loss fell within or out with the scope of the demurrage provision.
41. As with the type of loss, the judge (at para 57), expressed his preference for K-Line’s argument. This was supported by his reading of the Norgrain Laytime and Demurrage/Despatch provisions (clauses 18-19) where the language conveys the meaning that the demurrage provided for is compensation for the fact that time is money for the ship.
42. Following a detailed review of case law, and sometimes opposing views put forward by textbook authors over the years about the scope of demurrage, at para 124 he addressed the decision in The Bonde as being authority for the proposition that an additional and different breach is necessary so that to find for K-Line would require him to conclude The Bonde was wrongly decided and should not be followed.
43. After further analysis, the judge concluded, at para 127, that the reasoning in The Bonde (which it will be recalled was a “two breach decision”) was clearly faulty and, at para 145, should not be followed. Having sided with K-Line on the demurrage issue, and with the claim to proceed to arbitration, if not settled, the judge, at para 149, answered the question of law put to the court (see para 34, above) under s45 Arbitration Act 1996 as (a) Yes; (b) Not answered (although not relevant to this paper, he did indicate how he would have answered the indemnity question).
44. The case was therefore decided on a “one breach” But that was not the end as Priminds appealed.
45. In the Court of Appeal, Priminds submitted that the general presumption is that clauses liquidating damages for delay in the performance of contractual obligations are intended to cover all losses flowing from the breach. The argument about the need for certainty adduced in the High Court was repeated whereas Andrew Baker J’s approach would lead to uncertainty and dispute about whether losses were of a different kind from those covered by a demurrage clause.
46. K-Line, supporting the judge’s reasoning, submitted that the starting (and finishing) point was to identify what demurrage is, and is intended to be, as a payment for loss of future earnings and liquidated damages for the charterers’ breach of an obligation to complete loading or discharging within the agreed laytime. Judges who have spoken on the issue of liquidated damages for detention plainly had in mind losses resulting from a profit-earning vessel’s detention and nothing more; and while there was no case binding on, this court, it was submitted that the better view of the authorities and the textbooks is that the scope of a typical demurrageclause is limited in this way.
47. Males LJ, delivering the judgment of the court, said that it was open to the parties to agree whether a liquidated damages clause should cover all or some of the losses flowing from a breach of contract. The question was what the parties had agreed in the present case, a question that was not expressly addressed in the charter party.
48. The charter party set out only the quantum and basis of calculating demurrage. It did not indicate whether demurrage was intended to cover all or only some of the losses flowing from a failure to complete cargo operations within the laytime. If the parties had intended demurrage to cover only some such losses, they gave no indication of which losses were intended to be covered and which were not.
49. After reviewing the case law over the previous one hundred years to see to what extent it determined the issue, the court concluded that, apart from The Bonde, there was no case law that decided, as a matter of ratio, whether unliquidated damages could be recovered in addition to demurrage when the only breach was the charterer’s failure to load or discharge within the laytime. Despite attempts to discern a ratio and statements to the effect that demurrage is compensation for loss of prospective freight, none of the cases has held that these were the only losses covered by demurrage. On the other hand, it has been said in this court, after The Bonde, (by which the court was not bound) that demurrage is the sole remedy for failure to complete cargo operations within laytime and that general damages for delay cannot be awarded as well. Therefore, the cases were inconclusive.
50. Therefore, the case law was in conclusive as were the differing views expressed by experienced legal minds about the decision in Reidar v Arcos. However, it followed from what had been said that the court did not agree with the judge (para 88) that “the preponderance of views evident in dicta” is that demurrage “serves to liquidate the loss of earnings resulting from delay” and nothing more. In the court’s view, the balance tipped the other way.
51. Given the lack of consensus, the court concluded that in the absence of any contrary indication in a particular charter party, demurrage liquidates the whole of the damages arising from a charterer’s breach in failing to complete cargo operations within the laytime and not merely some of them. A shipowner seeking to recover damages in addition to demurrage arising from the delay must prove a breach of a separate obligation.
52. In setting out detailed reasons, the court said (in summary):
    (i) while it was possible for contracting parties to agree that a liquidated damages clause should liquidate only some of the damages arising from a particular breach, that would be unusual but ought to be clearly stated although such agreement would forfeit many of the benefits of a liquidated damages clause which in genera lprovides certainty and avoids dispute. Nothing suggested that the parties had made such an agreement in this case;
    (ii) while accepting statements in case law that demurrage is intended to compensate an owner for loss of prospective freight-earnings arising from delay, and while this may be the primary or only loss, it did not mean that this was all that demurrage is intended to compensate;
    (iii) if demurrage quantifies only the owner’s loss of the ship to earn further freight and nothing more and does not apply to a different “type of loss”, there would inevitably be disputes about whether particular losses were of the “type” or “kind” covered by the demurrage clause;
    (iv) insurance is part of a shipowner’s running costs which includes P&I cover to provide protection for cargo liability claims such as the present case;
    (v) The Bonde has stood for some thirty years without causing market dissatisfaction or its reasoning criticised and was understood to have been applied in arbitration thereby providing a powerful reason not to depart from that decision;
    (vi) that reason would have had less force if the court agreed with the judge (at para 127) that the reasoning on The Bonde was “clearly faulty” but the court did not accept the judge’s criticisms; and
    (vii) to allow the appeal produces clarity and certainty while leaving it open to parties or industry bodies to stipulate for a different result if they wish to do it should not be difficult for clauses to be drafted stating expressly that demurrage only covers certain stated categories of loss.
53. The appeal was therefore allowed. On the assumed facts, Priminds would not be liable to pay damages in addition to demurrage for its breach in not completing discharge within the laytime. K-Line’s further appeal to the Supreme Court was withdrawn following a commercial settlement between the parties.

Conclusion

54. The Court of Appeal decision therefore stands. Demurrage liquidates all damages arising from a charterer’s failure to complete loading or discharging within the agreed daytime. In order to recover damages of a different kind of loss, the shipowner will have to show that a separate breach has occurred. Thus, unless and until the question comes before the English courts again, the “two breach” basis applies to the recovery of damages beyond demurrage.
55. The author questions the feasibility of the court’s comment that it would not be difficult for clauses to be drafted restricting demurrage to defined types of loss. While shipowners might embrace the idea, it is questionable whether charterers would accept a widening of their obligations and greater financial exposure. A more practical solution would be to ensure the incorporation into charter parties of issue-specific clauses designed to respond to events or obligations, other than the detention of a vessel, arising during a period of demurrage.