The recent case of MSC vs Cottonex Anstalt [2016] ALL ER (D) 159 (Jul) sounds a warning to shippers and / or consignees, who may be liable to the carrier for demurrage on the late turn in of containers.

A shipment of cotton was sold by the shipper to the consignee. Prior to the consignee having received the shipment, there was a collapse in the price of raw cotton. As a result a dispute arose between the shipper and the consignee that resulted in an impasse – neither party would take delivery of the cotton. The shipper tried to avoid liability for demurrage on the containers by advising the carrier that it was unable to redeliver the containers due to circumstances beyond its control. The carrier offered to sell the containers to the shipper, but the negotiations failed.

The Court of Appeal held that although there had been a frustration of the commercial purpose of the contract of carriage, the shipper's advice that it was unable to redeliver effectively amounted to a repudiatory breach of the contract of carriage. Given that the carrier had offered to sell the containers to the shipper in order to provide a solution to the problem, the court held further that such a repudiatory breach contact did not automatically discharge the parties from further performance and gave the innocent party (the carrier) the right to choose whether to treat the contract as cancelled or affirming the contact in order to see whether the shipper performed its obligations in due course. That was because at 2 February 2012 the shipper could no longer redeliver the containers and having brought about the situation by its breach, had become liable for their loss. The court thus allowed demurrage in respect of the detention of the containers up to 1 February 2012 and damages in respect of the loss of the containers as from 2 February 2012.

The lesson to be learned is that where a commercial deal is frustrated (and neither party wants to accept the loss) there is no purpose in "being an ostrich and sticking your head in the sand". It is important to remember that the contract of carriage is a separate contract and an affected party must mitigate its damages while looking for a potential commercial solution.

The failure by the shipper (who was liable under the contract of carriage for demurrage) to either buy the containers or arrange for the containers to be turned in empty to the shipping line exacerbated the problem.