MSC Mediterranean Shipping Company SA v Cottonex Anstalt

Under a container bill of lading, agreed free time begins when the containers are discharged at the destination port. Demurrage then accrues as liquidated damages for detention until the merchant is ready and willing to redeliver, subject to any loss caused by the carrier’s failure to nominate a redelivery place.

Where continuing delay makes performance of the remaining obligations radically different from the agreed adventure, the contract may become frustrated by repudiatory breach. Once that point is reached, the innocent party cannot affirm the contract and recover indefinite demurrage, because further performance has become impossible. The appropriate remedy is damages for the containers’ value when the commercial purpose became frustrated. A general duty of good faith is unnecessary to decide the issue.

The carrier claimed demurrage for 35 containers carrying cotton to Chittagong. The shipper’s consignee refused delivery after a dispute concerning the bills of lading, and the containers remained under customs control. The carrier continued to demand redelivery and demurrage.

Leggatt J held that demurrage accrued after the 14-day free period until 27 September 2011, when the shipper’s inability to arrange redelivery amounted to repudiatory breach. He held that the carrier had no legitimate interest in affirming the contracts thereafter and gave judgment for US$98,599.70. The carrier appealed and the shipper cross-appealed. The central issues were when the demurrage obligation arose, when the commercial purpose of the adventure became frustrated, and whether demurrage could continue after repudiation.

1. Disposition. The judgment below was varied. The carrier was entitled to recover demurrage for detention up to and including 1 February 2012, and damages for the loss of the containers calculated by reference to their value on 2 February 2012. On the judge’s findings, that value was the replacement cost of US$3,262 per container.
2. Demurrage. Under clause 14.8, free time began on discharge at the port of discharge. Clause 20.2 concerned the separate obligation to take delivery of the goods and the carrier’s right to unpack and store them. The nomination of a redelivery place was not a condition precedent to demurrage. After free time expired, demurrage accrued for detention until the merchant was ready and willing to redeliver. If the carrier’s failure to nominate a place then prevented redelivery, the merchant could have a cross-claim for equivalent damages.
3. Frustration and repudiation. The shipper’s inability personally to perform after property in the goods passed to the consignee did not itself repudiate the contracts, since the parties contemplated that the consignee might perform the delivery obligations. The judge’s finding that frustration occurred on 27 September 2011 was inadequately reasoned and could not stand. By 2 February 2012, however, the continued delay and the carrier’s offer to sell the containers showed that the commercial purpose had become frustrated. Performance had become radically different from that originally agreed.
4. Effect of frustration. A repudiatory breach ordinarily gives the innocent party a choice whether to accept the breach and discharge remaining primary obligations or affirm the contract. The present case was different because further performance had become impossible. The carrier could not affirm the contracts and recover indefinite demurrage. The containers were, in commercial terms, lost on 2 February 2012, and the carrier’s remedy was damages for their value. The White & Carter principle therefore did not govern.
5. Other matters. It was unnecessary to invoke a general duty of good faith. Clause 14.8 was not penal merely because it fixed no express limit on the period of liability, since general principles imposed a limit. The court expressed the provisional view that mitigation did not require the carrier to buy additional containers, and distinguished the cargo-vessel detention cases relied on by the shipper.

• Court of Appeal (Civil Division): The judgment of Leggatt J was varied. Demurrage was recoverable up to and including 1 February 2012, with damages for the loss of the containers assessed by reference to their value on 2 February 2012.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Leggatt J gave judgment for the carrier for US$98,599.70, holding that demurrage accrued until 27 September 2011 and that the carrier had no legitimate interest in affirming the contracts thereafter: [2015] EWHC 283 (Comm).