1 Introduction
Delays in ports have always constituted a common occurrence in the shipping business. Going back in time, one could mention that, during the 1970s, it could take up to six months to discharge cargo in certain Middle East ports. Similarly, during the coal boom in the 1980s, bulk carriers would wait multiple months before being able to load coal at Baltimore and Hampton Roads.(1) This data is taken from Stopford M., p. 183.
In more recent times, the disruptive consequences of delays have come to the forefront during the Covid-19 pandemic. The pandemic – and specifically the various measures and quarantine procedures adopted by national governments to limit the spread of the virus – have significantly affected shipping services. Several ports worldwide have been closed, giving rise to delays in cargo operations, which in turn have impacted the performance of shipping contracts, increasing surcharges and port fees as well as demurrage and detention fees.(2) For more details, see “Review of Maritime Transport 2021” published on 18 November 2021 (UNCTAD/RMT/2021).
For those operating in the shipping business, port delays are costly. To spread the risk of such delays, a functional shipping contract will require a precise risk allocation. This is where, in the context of voyage charterparties, the provisions of laytime and demurrage come into play.
In voyage charters, the parties frequently agree that loading and discharging are the charterer’s responsibility(3) It is assumed throughout this dissertation that the charterer is responsible for loading and discharging the cargo. See Tiberg, p. 34, para 1-03, where the author states that the charterer is usually considered the nearest party to bear the risks closely linked to the conditions of the ports. and that he shall have a certain amount of time at his disposal for completing such operations. This amount of time is known as “laytime”. Laytime is commonly defined as “the period of time agreed between the parties during which the owner will make and keep the Vessel available for loading or discharging without payment additional to the freight.”(4) See “Laytime Definitions for Charter Parties”, 2013, clause no. 5, available at https://www.bimco.org/contracts-and-clauses/bimco-contracts/laytime-definitions-for-charter-parties-2013#. In commercial terms, laytime may be considered the amount of “port time” for which the charterer has paid.
When laytime is exceeded, the contract normally stipulates that the charterer has to pay so-called “demurrage”. Demurrage is generally defined as
“an agreed amount payable to the Owner in respect of delay to the vessel beyond the laytime for which the Owner is not responsible. […]”(5)Ibidem, clause no. 30.
Simply put, demurrage is a sum of money paid by the charterer to compensate the owner of the vessel when the agreed laytime is exceeded.
In these terms, the concept appears easy to grasp. The issue, however, becomes more intricate when delays in cargo operations have further consequences, which are not strictly limited to the owner being prevented from using the vessel, but are nonetheless a result of the delay. A significant example of such a loss is the deterioration of the cargo on board of the vessel. It is such a loss that was at the origin of the recent English case of the Eternal Bliss.(6) [2020] EWHC 2373 (Comm); [2021] EWCA Civ 1712.
For such losses, it becomes essential to understand whether demurrage, i.e., the “agreed amount payable” in respect of a delay, merely remunerates the owner for the detention of the ship, leaving other damages to be assessed at large, or rather, whether it covers the entirety of the damages that arise from the delay. In the latter case, the owner would be precluded from claiming damages above demurrage regardless of his actual losses. To this day, these issues remain unclear under English law.
The present thesis aims at bringing clarity into the matter of how demurrage clauses should be construed under English law. The goal of the thesis is thus to answer the question of “What does demurrage liquidate?”. This question was at the core of the Eternal Bliss. The case, which was decided differently by the High Court and the Court of Appeal, was originally granted permission to appeal to the English Supreme Court.(7) See https://www.supremecourt.uk/news/permission-to-appeal-july-august-2022.html. However, and to the disappointment of those hoping for a long-awaited legal clarification on the issue, the appeal was finally dismissed due to a commercial settlement between the parties in May 2023. Nonetheless, the decision of the Court of Appeal, which is the main object of analysis of this thesis, remains an important legal source when seeking to determine the ultimate nature of demurrage.
This thesis will focus on demurrage under the lens of English law. There are several reasons why the English law perspective is significant. Firstly, even though the shipping sector is highly international, English law decisions are read and taken into account in a high number of countries. In addition, there are several common law jurisdictions, such as Singapore, Australia, and Hong Kong, that rely on or follow the guidance of English law decisions.
Secondly, English arbitration has become a feature of many contracts of carriage. English law is therefore frequently adopted as the governing law in international commercial contracts. This may be seen as a natural consequence of the fact that shipping contracts are based on English standard models or, in any event, mainly are written in English. As a consequence, the contracts usually contain English terms that can only be fully understood on the background of the developments in English law.(8) See Tiberg, p. 6; See also Cordero-Moss, i.a. p.141 and ff., for a discussion on the consequences of the use of English language and of models developed in English in international commercial contracts.
How demurrage clauses are understood under English law could therefore potentially impact not only common law jurisdictions relying on English law but, more generally, how demurrage clauses are written worldwide.
The thesis is composed of three parts: Chapter 2 will present a general overview of demurrage clauses in voyage charterparties governed by English law. The chapter will attempt to elucidate how these clauses fit into the broader context of a voyage charterparty. The last two parts are devoted to the above-listed objectives of the dissertation. Chapter 3 will analyse in detail the decisions in the Eternal Bliss, which has recently put the issue of demurrage to the forefront of the legal debate, as well as presenting the position of previous case law on the matter. The objective is to ascertain what is the common understanding of demurrage – if any – under English law. Lastly, Chapter 4 will attempt to present certain remarks regarding the commercial impact of the decision.