K Line PTE Ltd v Priminds Shipping (HK) Co, Ltd (Rev 1)

A voyage-charter demurrage rate ordinarily liquidates the owner’s loss of use of the vessel as a freight-earning instrument during detention beyond laytime. It does not, without clear contractual language, liquidate losses of a different kind caused by the same breach, such as cargo deterioration and liabilities arising from it. Recovery of such additional loss does not require a separate breach of contract. The court declined to follow The Bonde on that point, holding its reasoning clearly faulty. A court determining a preliminary question under section 45 of the Arbitration Act 1996 may leave an unnecessary implied-indemnity issue to the arbitral tribunal.

The parties had agreed a question of law arising in an arbitration under section 45 of the Arbitration Act 1996. A voyage-chartered vessel had been detained at the discharge port beyond laytime because of congestion and lack of storage. It was assumed that the cargo deteriorated during the prolonged confinement, without fault by the owner, and that the owner reasonably incurred liabilities and expenses in settling cargo claims.

The charterer’s only assumed breach was failure to complete discharge within the permitted laytime. The central issue was whether the owner could recover those losses in addition to contractual demurrage, either as damages or under an implied indemnity.

1. Demurrage and distinct losses. The Norgrain demurrage clause was construed in its contractual context. It quantified the owner’s loss of use of the vessel, namely the loss of freight-earning opportunity caused by detention beyond laytime. It did not operate as a general exclusion or limitation clause for every consequence of the breach.
2. The cargo deterioration and resulting liabilities were distinct in kind from detention of the vessel. They were analogous to the deadfreight loss recovered in Aktieselskabet Reidar v Arcos [1927] KB 352. The fact that the loss resulted from delay did not convert it into a claim for detention. Recovery was therefore possible in principle even though no separate breach was alleged.
3. Authorities. The Bonde [1991] 1 Lloyd’s Rep 136 was wrongly decided. Its reasoning depended on a faulty inference that the majority reasoning in Reidar v Arcos established the necessity of an additional breach. The court declined to follow it. The relevant dicta in Suisse Atlantique d’Armement Maritime SA v N.V. Rotterdamsche Kolen Centrale [1967] 1 AC 361 did not decide that issue.
4. Implied indemnity. Since the damages claim was viable, it was unnecessary and potentially academic to decide the implied-indemnity issue. The court declined, in its discretion, to answer that part of the question, leaving it to the arbitrators if it remained material.
5. The question under section 45 was answered: (a) yes, as to recovery of the additional loss by way of damages; (b) not answered, as to implied indemnity. Had the demurrage argument failed, the judge indicated that both answers would have been no.

First-instance determination of an agreed question of law arising in arbitration under section 45 of the Arbitration Act 1996. The damages issue was answered affirmatively. The implied-indemnity issue was left for the arbitral tribunal.