K Line PTE Limited v Priminds Shipping (HK) Co Limited

Unless a charterparty indicates otherwise, demurrage liquidates the whole of the damages arising from failure to complete loading or discharge within the laytime. Additional damages for delay require proof of breach of a separate obligation. A clause liquidating only some consequences of the same breach is commercially unusual and should be clearly expressed. The scope of demurrage must be determined in its shipping context. Statements that it primarily compensates prospective freight loss do not confine it to that loss. The Court of Appeal followed The Bonde [1991] 1 Lloyd’s Rep 136 and allowed the appeal.

A vessel carrying soybeans was detained at the discharge port beyond the agreed laytime because of congestion and lack of storage. The cargo deteriorated and the shipowner settled receivers’ claims for approximately US$1.1 million. The parties agreed assumed facts for determination of questions of law under section 45 of the Arbitration Act 1996.

Andrew Baker J held that the shipowner could recover the settlement sum as unliquidated damages for failure to complete discharge within the laytime, in addition to demurrage. The appeal concerned whether demurrage was an exclusive remedy for all consequences of that breach and whether recovery could alternatively be founded on an indemnity for compliance with the charterer’s orders.

Appeal allowed. The court proceeded on the agreed assumptions, including that the loss was caused by detention beyond laytime, was not too remote, and was not caused by any separate breach or intervening event.

1. Construction of demurrage. The issue was the meaning of demurrage in the commercial shipping context. General principles drawn from liquidated-damages clauses in other fields could not determine the parties’ agreement. Although parties may stipulate that a clause covers only some losses, that would be unusual and surprising. Clear wording would be expected. The standard clause contained no indication of a limited scope.
2. Effect of the authorities. The cases were inconclusive apart from The Bonde [1991] 1 Lloyd’s Rep 136. The reasoning in AS Reidar v Arcos Ltd [1927] 1 KB 352 was obscure on the relevant issue. Statements in Navico AG v Vrontados Naftiki Etairia PE [1968] 1 Lloyd’s Rep 379, Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240, Suisse Atlantique [1965] 1 Lloyd’s Rep 533 and The Dias [1978] 1 WLR 261 that demurrage primarily compensates prospective freight loss did not establish that it covered only that loss.
3. Rule and application. In the absence of a contrary indication, demurrage liquidates the whole of the damages arising from failure to complete cargo operations within laytime. A shipowner seeking damages in addition to demurrage for delay must prove breach of a separate obligation. The assumed facts disclosed no such breach. The cargo settlement was therefore unrecoverable in addition to demurrage. An indemnity for the same consequence was likewise inconsistent with the parties’ bargain.
4. Orders. The answer to both parts of the question of law was negative. The High Court orders were varied, costs were awarded to the appellant, repayment of costs already paid was ordered, and permission for a further appeal was refused.

• Court of Appeal (Civil Division) The appeal was allowed. The answers to both parts of the question of law were negative, the High Court orders were varied, and permission for a further appeal was refused.
• High Court of Justice, Commercial Court Andrew Baker J, in [2020] EWHC 2373 (Comm), held that the shipowner could recover the cargo-claim settlement as unliquidated damages in addition to demurrage. The indemnity issue was left undecided.