For decades confusion has surrounded the question of what compensation is due to a ship owner who suffers loss and damage when a charterer exceeds the agreed laytime. It’s well established that damages are payable under the demurrage principle for the owner’s loss of use of the vessel for the period during which the charterer exceeds the original laytime. But what about other losses that arise from a delay in loading and discharging a vessel? Can a shipowner recover damages in respect of these ancillary losses?
The English Commercial Court shed some useful light on the issue in the Eternal Bliss case (2020), and we examine the case below. However it should be noted that the case is subject to an appeal and many observers believe that question of ship owner compensation in the context of excessive laytime won’t be definitively answered until the higher court reaches its conclusion. ParrisWhittaker is a leading shipping and maritime law firm based in the Bahamas. Our specialist team regularly advise ship owners and charterers on their rights and obligations.
Laytime And Demurrage
In brief, laytime is the period of time granted to a charterer for loading and unloading a vessel. If the vessel is not loaded and unloaded within the time allotted in the charter agreement, a fine or ‘demurrage’ is payable by the charterer.
In general laytime will only start to run once:
- The vessel has arrived at port in accordance with the charter agreement
- The vessel is ready to load or unload
- A Notice of Readiness has been served on the charterer
The question the courts have had to grapple with over the years (and which the Commercial Court sough to clarify in the Eternal Bliss case) is what exactly a demurrage payment represents: Does it satisfy all loss and damage suffered by a ship owner when laytime goes beyond what was originally agreed? Or does it only represent a compensation payment for the ship owner being temporarily deprived of use of the vessel as an income generating asset?
What Happened In The Eternal Bliss Case (2020)
The case centred on a consignment of soybeans being shipped from Brazil to China. On arrival at the designated discharge port (Longkou in China) the vessel was delayed for 31 days because of port congestion.
We’ve already seen the repercussions of delays like this in the Ever Given’s blocking of the Suez Canal. In Eternal Bliss the shipment of soybeans onboard deteriorated significantly. The intended recipient of the soybeans successfully sued the owner of the ship for $1.1 million for the damage to the cargo. The ship owner in turn sought reimbursement of this sum from the charterer.
The issue for the court was as follows:
If a vessel is delayed at port beyond the agreed laytime, and the delay results in damages to the cargo and loss to the ship owner, is demurrage the only remedy available? That is, is the amount of compensation available to a ship owner in these circumstances strictly limited by the terms of the demurrage clause in the charter agreement?
The Court decided that the purpose of demurrage is to compensate a ship owner for earnings lost due to the impossibility of using the ship commercially during the additional laytime. Demurrage doesn’t compensate for other losses, such as here – where the cargo was essentially rendered worthless by the delay.
On one level the judgment in Ever Bliss is welcome news for ship owners and ship insurance companies. For charterers it would seem to increase the risk of additional claims for delay at port – a situation that is increasingly common in the Covid era.
That said, the judgment can also be viewed as an interim decision. While the Commercial Court judge opened his judgment with the assertion that the case
‘..Provides the opportunity to resolve a long-standing uncertainty on a point of law of significance..’
the decision could be reversed on appeal. And this means we will have to wait a bit longer for a definitive answer to the question of whether demurrage is the only remedy available to ship owners faced with a charterer who exceeds the agreed laytime.