Voyage Charters. Once on demurrage always on demurrage? Last updated 30-Sep-2014

When once a vessel is on demurrage no exceptions will operate to prevent demurrage continuing to be payable unless the exceptions clause is clearly worded so as to have that effect.
Scrutton on Charterparties and bills of lading, 16th edition at p.353

Qualifying absolute liability of continuing breach

Classic statement of Lord Esher in Budgett & Co. v Binnington & Co [1891] 1 QB 35 set general rule of operating laytime and demurrage provisions from which the principle "once on demurrage always on demurrage" flows.

This has been called an absolute and independent contract, and it is obvious that contrast is intended to be drawn between such a contract and a conditional one, and that absolute contract is meant an unconditional one. The only condition attached to it is that lay-days shall have commenced and run out, and, that condition being fulfilled, the obligation arises. Directly the shipowner shews this state of facts, he has proved his case, and it lies on other side to shew, not that there has been no breach of contract, but that he is excused from the performance - in other words, his case is one of confession and avoidance, and the whole burden of proof is on him. Speaking generally of all contracts, a breach is excused where the party committing the breach has been prevented by the other side from carrying out his contract. Here the condition is that the cargo should be out of the ship in a certain number of days; and shipowner, by any act of his, has prevented the discharge, then, though the freighter’s contract is broken, he is excused.
Per Lord Esher in Budgett & Co. v Binnington & Co [1891] 1 QB 35 at p.38.

Liability for demurrage is absolute (see Liability for Breach), i.e. it does not depend on fault on the part of the charterer, nor on whatever the nature of the impediments met by the charterers. Thus, the underlying idea of "once on demurrage always on demurrage" concept is that demurrage, being a damages for continuing breach of contract, once started goes on until discharge is completed and the ship is once more available to the shipowner to use for other voyages. It is for the charterers therefore, when laydays become exceeded, to show some special reason why they should not be liable for the time spent in excess of laytime. Such special reason(s) interrupting demurrage can be only clear and unambiguous provision in charterparty or the owners’ fault.

For example in Nippon Yusen Kaisha v Societe Anonyme Marocaine de l'Industrie du Raffinage, (The Tsukuba Maru) [1979] 1 Lloyd’s Rep. 459 the court was to decide whether laytime exceptions in cl.6 and cl.7 of Exxonvoy69 form were clear enough to interrupt the running of demurrage. Mocatta J held at pp.471-3 that:

There is nothing however to indicate in either cl. 6 or 7 that the provisions as to time not counting as used laytime are to be treated as applicable once the vessel is on demurrage or, to use less technical language, once the allowed laytime of 72 hours has been used up and indeed exceeded at the port of loading.

I think that cll. 6 and 7 do contain within them exceptions preventing time running, or, to use the language of this charter, time being treated as used laytime in certain circumstances, but I do not think that the provisions in cll. 6 and 7 apply once the vessel is on demurrage. On the other hand, I think that within cl. 8 in the second and third sentences of that clause there are certain limitations or exceptions in relation to the running of demurrage. The second sentence in certain circumstances reduces the rate of demurrage to one half of what it would otherwise be, while the third sentence provides for circumstances in which no demurrage shall be incurred at all during delay caused by certain named events wholly outside the control of the charterers.

It is well established that once the ship is on demurrage in order to prevent demurrage from continuing to run there must be clear provision to this effect. The last sentence of cl. 6 can be given full effect when the ship in question is not on demurrage, but there is nothing contained within it or in the remainder of that clause to indicate that it applies when a vessel is on demurrage.

Therefore far-reaching consequences of the Charterers’ breach of laytime provision in case when vessel was on demurrage on departure from load port, were held to be such that demurrage continue to accrue immediately on arrival to discharge port, whether valid NOR was tendered or not.

It needs to be mentioned that the conception of causation in relation to demurrage is very largely irrelevant, unless delay in question was due to the fault of the shipowner or those from whom he is responsible. As Mocatta J noted in The Tsukuba Maru :

 It does not avail the charterer to say in such circumstances "Oh, I couldn't help your ship being delayed; the port was full of ships chartered by other persons over whom I had no control and until a berth became available on one of those ships leaving after having completed loading or discharge it was beyond my powers to do anything by way of discharging your vessel". The liability to demurrage falling upon a charterer in such circumstances is his misfortune. It is not beyond his powers to protect himself against such misfortune by the careful insertion in the charter-party of exception clauses applicable to a period when the vessel is on demurrage as much as to a period when laytime is running but has not yet been consumed.

Modern forms of charterparties specifically provide for example that laytime or, if the vessel is on demurrage, demurrage shall commence, at each loading and each discharge port, upon the expiry of six (6) hours after a valid NOR has become effective berth or no berth, or when the vessel commences loading, or discharging, whichever first occurs. Such wording allows interruption of both laytime and demurrage and partly devaluate rigour of "once on demurrage, always on demurrage" rule. (See BPVOY4 clause 7.3.2 below).

bpvoy4 cl7.3.2

Absolute undertaking, subject to exceptions, that the cargo will be handled within the agreed period, makes the charterers liable if operation is not completed in time, even if discharging operation has become the responsibility of the receiver or of some other party and the charterer plays no part in it himself.

In DGM Commodities Corp v Sea Metropolitan SA [2012] EWHC 1984 (Comm) at the final stage of discharging (commenced on 23 February 2008) of cargo of frozen chicken leg quarters in cartons in St. Petersburg, on 8 April 2008, a part of cargo in Hold No 2 was found damaged by gasoil which had leaked from an adjacent deep bunker tank due to unseaworthiness of the vessel. The receivers demanded a cash settlement of US$2 million in relation to the damaged cargo and in consequence vessel was detained for several months, because receivers were unwilling to accept security for the claim and insisted on being paid a sum in settlement of the claim; in the meantime they did not take any further steps to discharge the remaining damaged cargo. This remained their stance throughout the vessel’s stay at St. Petersburg, from the mid of April 2008 and until the owners’ agreement to pay a cash sum in October 2008.

On 14 April 2008 the discharge of the vessel was completed, apart from the cargo in Hold No 2. The Tribunal found that From 14 April 2008, the Charterers’ liability for demurrage was interrupted because the delay was due to the owners’ fault related to the unseaworthiness of the vessel. Then from 15 April until 25 April 2008 the cause of the delay to the vessel was not the Charterers’ failure to unload the cargo but the necessity for the terms of the LOU (instead of cash settlement of US$2 million) to be negotiated and agreed. After that the owners’ breach had foreseeably caused the intervention of the Veterinary Service, to whom notification of the cargo damage would have been made irrespective of disputes over accepting a letter of undertaking. The Veterinary Service was under a legal obligation to take samples and arrange for the examination of the goods and to determine whether the owners were obliged to arrange for their re-export or destruction. The Tribunal found that it was reasonably foreseeable that the owners’ breach of charterparty would cause a delay in the Veterinary Service resolving the position up to, but not after, 19 May 2008. From that date, the owners’ breach ceased to be causative of foreseeable delay. Accordingly, on the Tribunal’s findings, the Vessel was on demurrage from that date, and further delay thereafter was too remote to be recoverable as damages for the owners’ breach in relation to the seaworthiness of the Vessel. The Tribunal held that the charterers were clearly be liable for demurrage, notwithstanding that the discharging operation has become the responsibility of the receiver or of some other party and the charterer plays no part in it himself. Charterers appealed arguing among the other points that the Tribunal found that the charterparty had been frustrated by reason of the April order of the Veterinary Service, but that the plea of frustration failed because the Tribunal treated such frustration as self-induced or caused by the Charterers’ fault. On the Tribunal finding that the receivers’ conduct was ultimately the real reason for the cargo not being discharged, because it was the reason why the continued existence of the Veterinary Service’s order, was in place the Commercial court held that such conduct on the part of receivers prevents the charterers from relying on what would otherwise be a frustrating event as relieving them from the obligation to pay demurrage.

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