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Validity of Detention & Demurrage Clauses

Jagan - March 30, 2015 - 1 comment

The decision of MSC Mediterranean Shipping Company S.A. v Cottonex Ansalt appears to be the first English decision in relation to container demurrage. This article reviews the possible effect of the decision to Container Carriers.

  1. In our earlier article on Demurrage and Detention, we focused on the terminology used in the Container Industry and suggested ways and means for the container carriers to ensure recovery of the accrued Demurrage and Detention from the cargo interests.
  2. As mentioned in our earlier article, some trades/ ports make a distinction between container demurrage and detention and which is as follows:
    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)
    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).
    However, 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 for the demurrage / detention accrued. 
    In this article, reference to demurrage includes container detention i.e. as long as the customer does not take delivery / return the containers to the container carriers, Demurrage / Detention would accrue.
  3. In the earlier judgements of the Courts of Australia & New Zealand, it was held that the entitlement of container carriers to demurrage accrued (in this case, it was detention) on the basis that the charges were not only an industry standard (Cargo Coordinators International NZ Ltd v Cubic Transport Ltd [2012]) but also on the basis of contractual provisions agreed prior to the release of the container to the consignee (Cosco Container Lines v Unity International Cargo [2012]). However, the facts of the English Case MSC Mediterranean Shipping Company S.A. v Cottonex Ansalt are different in that the container carrier pursued the shipper instead of the consignee (consignee refused to accept the cargo due to a contractual dispute with the shipper). While the court held that the container carrier was entitled to demurrage, the period of demurrage was capped up to the repudiatory breach of the shipper. The repudiatory breach of the shipper was determined when the shipper advised the carrier that they were unable to collect any of the containers. The effect of the repudiatory breach was that it reduced the total demurrage accrued and payable to the carrier.
  4. While the judgements in the courts of Australia, New Zealand and the UK are certainly of assistance to the container carriers, they must also be aware that the demurrage ‘clock’ may stop ticking when a repudiatory breach is established by the cargo interests (as in the case of MSC v Cottonex Ansalt). Hence, container carriers must take active measures to minimize their losses. (in some ports, the carriers are responsible for the port storage costs and if the cargo in question is of very low value, then they (carriers) would have to bear the costs incurred for storage till disposal has been effected). If the cargo retains some value, invariably the cargo interests would try to take delivery to reduce their losses or alternatively, some value could be derived through an auction conducted either under the statutory powers of the port authority or by making an application to the courts seeking an order allowing for an auction. However, when cargo is of limited value,container carriers may incur additional costs for disposing off the cargo. While the judgment of MSC v Cottonex Ansalt does not consider this aspect i.e. additional costs for disposing off the cargo, we believe that this would be an additional claim which would be allowed by the courts.
  5. In conclusion, container carriers should be aware of:
    1. the effect of repudiatory breach and which may stop further demurrage accruing.
    2. the additional costs which they may incur to dispose of the cargo to stem further port storage costs, etc.
    3. the requirement to take positive steps to deal with the situation at hand when a repudiatory breach is established.

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