In The Eternal Bliss Mr Justice Baker decided it was not, holding that if (as is usual) the charterparty is silent as to what type of losses the demurrage rate compensates, then demurrage should not be interpreted as an exclusive remedy and an owner may seek to recover additional losses on top.

The reasoning

To reach this decision it was reasoned:

  1. Exceeding laytime is classified as a breach of charter. A charterer does not have a right to exceed laytime, and demurrage is not merely additional remuneration for the owner.
  2. Demurrage is damages. It is intended to compensate the owner for delay when laytime is exceeded.
  3. The demurrage rate does not cover all loses that may be caused by exceeding laytime.
  4. Because demurrage only covers one specific type of loss it should not be interpreted as an exclusive remedy. If an owner suffers other losses as a result of the charterer exceeding laytime he may seek to claim them in addition to demurrage.

Comments

There is logic in this reasoning, but it also raises questions. For example:

The Judge declined to follow a previous High Court decision in The Bonde [1991] which held that demurrage was an exclusive remedy. For the past 30 years how many contracts have been entered into on the basis this earlier case reflected the commercial bargain?

The Judge cited with approval The Nikmary [2003] in which it was stated that additional bunkers consumed by the vessel whilst on demurrage were not recoverable as a separate head of loss as demurrage, “being liquidated damages for detention, notionally reflects the full cost to the owner of keeping his ship in port”. This does not seem to sit fully square if demurrage is simply compensation for loss of income in a follow on fixture. The boundaries of which losses are and are not included in demurrage remains not entirely settled; e.g. hull fouling caused by the delay?

Demurrage as compensation for loss of income in a follow on fixture does not make much sense in a sale contract or if the owner under the voyage charter is only in turn the charterer in a trip time charter up the chain. In neither case will there really be any actual loss against future income due to exceeding laytime.

When fixing a voyage charter is the demurrage rate actually calculated as an estimate of loss of future freight earning capacity? Our understanding is that such a calculation would be rare and a demurrage rate is usually agreed according to market forces.

Closing remarks

In the spring of 2021 the Court of Appeal will have its turn to consider this case. It will be interesting to see how this develops.

Subject to a successful appeal The Eternal Bliss is good news for owners and those that insure them. Charterers may wish to consider whether they can amend their future contracts to make it expressly stated that demurrage is the exclusive remedy for any loss due to exceeding laytime.