Voyage Charters. Deadfreight. Last updated 31-Aug-2014

… "dead-freight," which is really a claim for damages for breach of contract by reason of the charterer having failed to ship the requisite quantity of goods as required by the charter.
In Angfartygs A/B Halfdan v Price & Pierce Ltd [1939] 3 All ER 672 by Sir Wilfrid Green MR at p.674

Deadfreight (Dead freight). Introduction

Freight is primary payment obligation arising under a voyage charter which represents a fixed price for carriage of a certain agreed quantity of particular cargo on a particular voyage.

The monetary value of freight directly depends on the quantity of the goods loaded by the charterer, and then delivered in undamaged state by the shipowner to the consignee or receiver. It follows therefore that, when the charterer, without lawful excuse, ships a quantity of goods less than that required by the charterparty, or if the goods shipped are not in accordance with the charterparty, then the charterer is liable to the shipowner for the difference between the freight actually earned, being calculated on actually supplied quantity of goods, and the freight which would have been earned if the charterer had fulfilled his obligation to load the cargo in full. Such measure of damages claimed for breach of contract by a charterer to furnish a full cargo to a ship is known as deadfreight.

The charterers are ultimately liable for deadfreight resulted from bad stowing, if under the charterparty they undertake the duty of stowing the cargo, notwithstanding the master’s duty to supervise stowage, because it is not a question of whose servant the stevedore was, but who under the charterparty undertook the duty of stowing the cargo. Read also Voyage Charterparty. Charterer’s Duties: Obligation to load and later to discharge the goods.

Full cargo and full loading capacity

Dead freight means the damage caused by the failure to furnish a full cargo in accordance with the contract, not merely the damage that caused by the ship not being in fact fully loaded. In other words deadfreight accrues only when quantity stated in contract was not supplied, which signifies a breach of contract, and not when the vessel loaded cargo as per contract but less than her full capacity. Deadfreight is traditionally described as the name given to liquidated damages claimed for a charterer’s breach of contract to furnish a full cargo to a ship in accordance with the charter.

In some instances it can happen that the vessel’s full capacity is utilised but not full cargo loaded. For example in Akties Steam v Arcos Ltd (1933) 47 Ll.L Rep 159, 18 Asp MLC 409, CA case the cargo loaded was covered with ice and snow, so that its bulk has been increased and the quantity which the ship could carry should be accordingly reduced. It was held that the shipowner is was entitled to dead freight in respect of the reduction in her carrying capacity so caused.

In AIC v Marine Pilot Ltd (The Archimidis) [2008] EWCA Civ 175 the dispute over deadfreight liability reached the Court of Appeal, where the owners claimed damages which followed from the charterer’s breach of charterparty. Vessel was chartered on the terms of the Asbatankvoy form (including standard clause 3.Deadfreight) with amendments and incorporating the charterer’s standard terms. One of special provisions said:

Cargo:
Minimum 90,000 metric tonnes always consistent with 45 feet fresh basis arrival Northwest Europe. No deadfreight to be for Charterer’s account provided minimum quantity supplied.

There was also clause 11. Lightering which gave the charterers an option to load/discharge via lightering/ship-to-ship transfer.

As case report says it was known to all parties beforehand that technically vessel cannot lift more than 67,000 mts due to the fact that at loadport the dredged channel had silted up as a result of a lack of water and master tendered NOR calling for 67,000 mt of cargo, while charterers tendered for loading a quantity of 93,410.495 mts. The Arbitration Tribunal held that the charterer had a liability to pay deadfreight if it failed to supply the minimum cargo and that the burden was accordingly upon it to justify the short supply, and concluded that the charterers was liable to pay deadfreight in respect of the difference between the amount actually loaded and the contractual minimum quantity of 90,000mt.

On appeal the judge held that the arbitrators erred in law on the deadfreight issue because the fact that the charterers had indeed "formally" tendered for loading a quantity of 93,410.495mt was a finding of actual tender of full contractual performance.

The Court of Appeal agreed with the arbitrators and the owners that although the charterers formally ‘tendered’ for loading a quantity of 93,410.495 mt, but since all concerned were aware that it would not be possible for the vessel at that particular time to load this quantity, that was a gesture without legal significance. The charterer’s obligation to ‘tender’ or ‘furnish’ certain min quantity of cargo required them to have the cargo alongside the vessel for loading. Since that would have meant that she would not have been able to proceed out of the port for an indefinite period following completion of loading, the fact that the quantity of cargo 'tendered' was available in the port was not relevant to the question of whether the charterers had complied with their obligation with regard to the minimum cargo size. To tender full contractual performance the charterers were required to load min 90,000mts and to do that they had two options: first by waiting for water in port to return to its normal level and second to perform STS operation outside of port limits. Therefore to escape deadfreight liability, it was necessary for the charterers to choose one or other of these two existing options to fulfil their obligations to load minimum cargo as provided in charterparty. Since neither option was chosen and it was less than the minimum supplied and actually loaded, it follows that deadfreight was in principle due.

Sir Anthony Clarke MR, explained in his judgment, that no formal tender of a quantity of 93,410.95 mt ever took place because everyone knew that no such quantity could possibly be loaded, thus there was no formal tender of performance which was intended to be acted upon. He said at para 12:

It seems to me to be likely that the reason the arbitrators said in paragraph 30 that the charterers formally "tendered" for loading a quantity of 93,410.95 mt and that that was a gesture that was without legal significance was not that they misunderstood the legal effect of what they were saying but that there was in fact no formal tender of performance which was intended to be acted upon. As they said, everyone knew that it would not be possible for the vessel to load that quantity, by which they plainly meant, if the vessel was to proceed down the channel before it was dredged.

Implied liberty

The owner by implication is at liberty, if acting reasonably, not only to fill up the space left vacant due to the charterer’s failure to provide full cargo, but also to delay the charter voyage by the period of time reasonably and necessarily occupied in taking in that substituted cargo. Basis for this implication is an assumption that the carrying out of such an action is for the benefit of the charterer, because it goes to diminish the damages that the charterer will be liable for.

For example and effect of ASBATANKVOY cl.3, below, is said to be such that it allows the vessel to sail when no full cargo loaded but vessel is in seaworthy condition. The words “upon request of the Charterer” give the owner an option to circumvent his general obligation of mitigating loss by seeking a fill-up cargo.

3. DEADFREIGHT. Should the Charterer fail to supply a full cargo, the Vessel may, at the Master’s option, and shall, upon request of the Charterer, proceed on her voyage, provided that the tanks in which cargo is loaded are sufficiently filled to put her in seaworthy condition. In the event, however, deadfreight shall be paid at the rate specified in Part I hereof on the difference between the intake quantity and the quantity the Vessel would have carried if loaded to her minimum permissible freeboard for the voyage.

Deadfreight and demurrage

If the charterer is unable to load a full contracted cargo during agreed laydays then he is liable to pay damages in the nature of deadfreight as well as demurrage for delays sustained. Atkin J. in Aktieselskabet Reidar v Arcos Ltd [1927] 1 KB 352; [1926] All ER Rep 140 at p.145 stated to this effect that:

The provisions as to demurrage quantify the damages not for the complete breach, but only such damages as arise from the detention of the vessel. For correlative to the ship’s right to receive the agreed damage is the charterer’s right to detain the ship for the purpose of enabling him, if possible, to perform, his broken contract and so mitigate any further damage. If, however, for reasons other than the shipowner’s default, the charterer becomes unable to do that which he contracted to do, namely, put a full and complete cargo on board during the fixed lay days, the breach is never repaired, the damages are not completely mitigated, and the shipowner may recover the loss that he has incurred in addition to his liquidated damages or his unliquidated damages for detention.

Also in Total Transport Corpn v Amoco Trading Co (The Altus) [1985] 1 Lloyd’s Rep 423 Webster J. held at 435-436 that where:

…a charterer commits any breach, even if it is only one breach, of his obligation either to provide the minimum contractual load or to detain the vessel for no longer than the stipulated period, the owner is entitled not only to the liquidated damages directly recoverable for the breach of the obligation with regard to detention (demurrage), but also for, in the first case, to the damages flowing indirectly or consequentially from any detention of the vessel (if it occurs) and, in the second case, to damages flowing indirectly or consequentially from any failure to load a complete cargo if there is such failure … it follows that the plaintiffs are entitled, in addition to the dead freight which they have already received, to the difference between the demurrage rates as damages for the loss of demurrage consequent upon the defendants’ failure to load the minimum agreed cargo.

Thus, both claims for deadfreight and demurrage exist independently and moreover the owners can recover damages sustained indirectly or consequentially from both detention of the vessel in excess of laydays and from failure to load a complete cargo.

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Readers’ comments:

Posted by: Kolawole B.Kevin, 8 July 2011:

Nice examples well understood. Wish to get more of those article.
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