Voyage Charters. Demurrage and Despatch. Last updated 12-Mar-2015

Other days are sometimes given also favour of the charterer, which are called "demurrage days." Those are days beyond the lay day but during which the amount that he has to pay for the use of the ship is a fixed sum, necessarily what it costs the owner to keep his ship, but a fixed sum, which is usually about what it is supposed it costs the owner to keep the ship. This stipulation also is in favour of the charterer, because instead of being involved in a dispute as to what he would have to pay for days during which the ship is kept idle, a sum is fixed, and he knows what he has to pay if he keeps the ship beyond the lay days. Those are the "demurrage days." If he keeps the ship beyond the lay days, when he pays nothing, and only the number of demurrage days, he pays a fixed sum for demurrage. If he keeps the ship after that, it is a question of damages, and he does not know what he has to pay until the question is settled by tribunal or by agreement.
Per Lord Esher in Nielsen v Wait (1885) 16 QBD 67 at pp.70-71.

Basic concept

When a laytime (certain amount of time agreed between the owner and the charterer for loading and discharging operations during which the charterer does not pay for the use of the ship) is exceeded the charterers are in breach of the charterparty contract. As a result of this breach the charterer becomes liable in liquidated damages, as contractually agreed, by way of demurrage.

A marine adventure by its nature has always been exposed to the risk of being prevented, impeded or delayed by a variety of causes beyond the control of either party, therefore often:

It may be … that the breach arises without what one might call fault on their part but the ultimate question is what does this charter-party provide are the respective liabilities of owners and charterers …
By Roskill J in The President Brand [1967] 2 Lloyd’s Rep 338.

Thus, from a commercial point of view it is not so important to know that the risk should be borne by one party rather than by the other, what really matter is that it should be accurately defined, at the time the charterparty is made, by which of them it will be borne.

Stipulation as to demurrage is introduced into a charterparty for the benefit of both the charterer and the owner, i.e. the owner receives an additional payment (based on the current freight rate) for the delay beyond the laydays and cannot withdraw the ship from the service, so the charterer is entitled to keep the vessel for agreed period or, if not agreed, as long as it will not commercially frustrate the adventure, as Scrutton LJ said in Inverkip Steamship Company, Limited v Bunge & Co. [1917] 2 K.B. 193 at p.201:

To enable the ship to abandon the charter without the consent of the charterer I think the shipowner must show either such a failure to load as amounts to a repudiation of or final refusal to perform the charter, which the shipowner may accept as a final breach and depart claiming damages Mersey Steel and Iron Co. v. Naylor, Benzon & Co. (1884) 9 App. Cas. 434, 439 - or such a commercial frustration of the adventure by delay under the doctrine of Jackson v Union Marine Insurance Co. (1874) LR 10 CP 125 as puts an end to the contract.

When instead of number of laydays permitted for loading and discharging the contract requires to load and discharge with customary despatch, demurrage will not accrue unless the charterer fails to do all they reasonably could to discharge the vessel.

Demurrage rate varies with the rate for the freight, therefore if freight rates are high then demurrage rates are also high. Prolonged delays can bring this sum to some significant amount; hereof provisions for laytime and demurrage are of utmost importance to both parties.

Therefore most of voyage charter forms, when dealing with demurrage, do not limit the demurrage period. One of the few which did limit was the Gencon 76. Clause 7 (Demurrage) provided that "Ten running days on demurrage at the rate stated … per day or pro rata for any part of a day, payable day by day, to be allowed merchants altogether at ports of loading and discharging". In the latest revision of this form the Gencon 94 these references have been deleted.

When the charterer complete loading or discharging before the laytime has expired so that the vessel is available to the owner earlier than if the charterer’s full laytime entitlement had been used, the owner may to be liable to pay dispatch money to the charterers if, but only when there is a special clause in the charterparty to this effect. Such clauses in more or less similar wording (see below) are often found in dry cargo voyage charters.

Norgrain89

Demurrage/Despatch Money 20.
Demurrage at loading and/or discharging ports is to be paid at the rate of … per day or pro rata for part of a day and shall be paid by Charterers in respect of loading port(s) and by Charterers/Receivers in respect of discharging port(s). Despatch money to be paid by Owners at half the demurrage rate for all laytime saved at loading and/or discharging ports.

Commercial background of monetary value of despatch payment as a half of the demurrage rate has been explained by Donaldson J. in Navico A.G. v Vrontados Nafiki Etairia P.E. [1968] 1 Lloyd’s Rep. 379 at p. 383:

Since the shipowners may have difficulty in obtaining another engagement at short notice or in advancing the date of the ship’s next voyage, he stands to gain less by unexpected expedition in loading and discharging than he stands to lose by delay. Accordingly dispatch is usually payable at half the demurrage rate.

Share this article on:


Readers’ comments:

Posted by:   

Be first to comment …
Leave your questions and comments here
:
:

Although author encourages visitors to leave their comments using this form, but if you unable or unwilling to use it for any reason you can forward your mail to info@lawandsea.net to contact with him.