For purposes of certainty, under English Law, it is assumed that time-related stipulations in commercial contracts are to be construed strictly. However, the typical contractual provisions as to time differ between commodity sale contracts and charter parties, often leading to recovery issues connected with vessel delays.
Vessel delays en route
For a commodity trader, a vessel’s delay in arriving at port may mean a loss on the value of the cargo priced by reference to the bill of lading date or a loss on the resale price due to a change in the sound market value by the time of arrival. In terms of potential liabilities for damages, a common commodity sale contract scenario is likely to see the chartering seller or buyer liable to their counterpart for additional storage costs, an extension discount on the contract price or contractual default damages for failure to present the vessel on time for loading or failure to load the vessel within the contractual period without the need for the innocent party to demonstrate a separate breach. However, to recover own losses under a charter party, the charterer-traders will typically be required to demonstrate a separate breach on the part of the owners and to show that the damages claimed are not too remote.
Need to establish a breach by the owners
a. Voyage charters
Under a voyage charter, there is an implied obligation to prosecute the voyage to the load port and up until completion with reasonable despatch. Breach of this obligation on the approach or laden voyage may open the route for the charterer-traders’ recovery action. Otherwise, with respect to delays in arrival at the loading port, the pure failure of the vessel to arrive within the laycan will not give rise to liability for damages, unless the charter contains other additional obligations which the owners failed to comply with, such as an “expected ready to load” undertaking or a statement as to the position of the vessel on the date of the charter.
b. Time charters
Under a time-charter, it is usual to have both an express obligation to prosecute a voyage with utmost despatch and a wide exemption clause protecting the owners from the breach of this obligation. As to late delivery, to establish a breach, charterer-traders would need to demonstrate owners’ breach of the implied obligation to exercise reasonable diligence to deliver the vessel by the agreed cancelling date. Alternatively, they may show a lack of due diligence in meeting the agreed delivery time or a failure to exercise reasonable diligence to ensure the vessel arrives by the ETA or sails in time to arrive around the stated ETA.
Remoteness of damages
Once the hurdle of establishing a breach on the part of the owners has been passed, the charterer-traders will need to demonstrate that their losses under the sale contract were not too remote, i.e. that these consequential losses may reasonably be supposed to have been in the contemplation of the parties at the time of the contract.
In The Heron II, a case of a loss on the price of sugar onboard resulting from the vessel’s late arrival at the discharge port, it was held “that on the facts the appellant ought to have foreseen that delay would involve a serious possibility of a real danger that the price of sugar would decline”.
The case was more recently followed in Rhine Shipping DMCC v Vitol SA, where the charterer-traders were able to recover from the owners their loss of price incurred due to a later dated bill of lading. Even though the charterer-traders had conducted internal price hedging, the loss was deemed not too remote. It is important to note that in addition to a breach of contractual warranty, there was a separate indemnity engaged here, making owners liable for damages, penalties, costs and consequences for an arrest/ detention levied against the vessel, and it was opined by the Commercial Court, obiter dictum, that damages under the specific indemnity were not subject to the remoteness test.
Measure of damages
Once the owners’ breach has been established and the remoteness test has been satisfied, the question comes to the measure of damages. Although the general contractual damages principle under English law is that a claimant is entitled to be broadly placed in the same position which he would have been in had the contract been performed, this is another point where the charter party and sale contract approaches often differ. Sale contract damages are often based on (although are not limited to) the difference between the contract price, concluded at times months in advance, and the default price / price on the date of default. Whereas, the ordinary measure of damages with respect to goods carried by sea is the difference between the price when the goods should have been delivered and when they were in fact delivered.
Vessel delays in port
If the above scenarios are put in reverse, charterer-traders may face liability for liquidated damages for vessel delay in port i.e. demurrage under the charter party and encounter difficulties in recovering these from their sale contract counterpart. Such difficulties may stem from the incorporation of a “demurrage as per cp” provision, that would not include the charter party laytime terms, or could not function as intended, if the underlying charter were on a time basis. It ought to be remembered that sale contract obligations will override the incorporated charter party laytime provisions, and that it is not necessary to have incurred demurrage under a charter party for the charterer-traders to claim demurrage in accordance with the sale contract terms.
Conclusion
Treatment of time-related losses and damages differs substantially between sale contracts and charter parties, resulting in potential recovery difficulties. Sale contracts often provide for automatic damages for failure to comply with the shipment or vessel presentation periods, whilst recovery of resulting damages or losses under a charter party entails establishing owners’ breach, passing the remoteness test and accounting for measure of damages considerations. Conversely, recovery of demurrage incurred under a charter from a sale contract counterpart may suffer from problems of incorporation, but charterer-traders could make a profit even where no loss was incurred. As always, careful drafting and awareness of potential unrecoverable losses are recommended.
source: cyprusshippingnews.com
