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What if there is no voyage?

Voyage charterparties often involve claims for demurrage, detention, deviation and other additional transit or port expenses. Disputes can arise under fixture wording set amid what has happened, but most such things are largely routine for the parties’ commercial analysts. Sometimes however the fixture is simply not performed, resulting in a damages claim when, for example, Charterers release the vessel because they cannot provide cargo.

Principles

Such charterparties sometimes give a series of dates by which arrangements may be rescheduled or even cancelled, with deadlines for issuing and responding to notices, in view of (or failing) which set alternatives follow. However, it is not usual to prescribe the result of last-minute default, and we here examine that by reference to a recent arbitration.

Damages are:

  1. Assessed at the time of the breach;
  2. Confined to what usually happens, or what (at the fixture date) the parties must reasonably have thought would be the probable result of the breach;
  3. To put the claimant in the same position as if the fixture had been performed.

Sometimes (3) overrules (1), so occasionally things that happened after the breach come into account. We discuss this further below, having referred to it in outline last year in our update headed The “NEW FLAMENCO” - Causation and credit.

A recent award

In London Arbitration 26/17 [(2017) 987 LMLN 3] the vessel was fixed to lift Australian coal for carriage to China, and on arrival at Newcastle she tendered NOR on 11 February 2015.

Laytime began at 23:12 hours that day and (at $6,500 PDPR) the vessel went on demurrage at 03:28 hours on 15 February, thus 3.18 days later. No cargo appeared, and soon after Charterers said none would and the vessel could be traded elsewhere. So at 11:34 hours on 2 March a message from Owners accepted the position as ending the charterparty, due to Charterers’ breach.

The claims

Owners sought:

(a) straightforward demurrage from 03:28 hours on 15 February to 11:34 hours on 2 March, and that claim succeeded in full; and

(b) damages for the difference between what they would have made on the charterparty voyage and what they actually achieved under a replacement fixture.

Owners calculated the freight that they would have been paid if the intended voyage had happened, less the cost of earning that, such as bunkers and port and other expenses. They then subtracted the result of a matching calculation for the actual voyage, to show what they had lost.

Such loss probably falls under both parts of principle (2) above. Owners’ inability to find a fixture as good as the one that Charterers breached is something that follows normally, and when the fixture was made both sides must have reckoned it the probable result of failure to perform.

Double counting

However, in their earnings figures for the intended voyage, Owners included the first part of the period running from the start of laytime, i.e. the 3.18 days from 23.12 hours on 11 February to 03:28 hours on 15 February. So they mixed up a demurrage calculation with a damages claim.

A demurrage calculation is time-based and a pre-agreed rate is applied.

Under principle (3) above, a damages claim is compensatory, and leaves the claimant as he would have been if the contract had been performed. If that had happened Charterers would have had the full 3.18 days’ laytime, so they should have had credit for that and Owners should have deducted it.

So the Tribunal excluded it and reduced the damages claim by $20,670.

Other arguments sometimes raised

It seems that Charterers did not run or succeed with any point that Owners should have done better in getting other work for the vessel. Defaulting Charterers sometimes say that Owners did not look hard enough, missed opportunities and should have secured a better alternative fixture than they did. So, Charterers then argue, to that extent Owners failed to mitigate loss and their claim should be reduced. This argument largely depends on the market and what was reasonably available to the vessel at the time.

Developments after the breach?

We said above that sometimes principle (3) governs over principle (1), so things that happened after the breach are taken into account.

In recent years we have seen a clear trend of defendants asking courts not to assess damages (as normal) at the time of breach, but to do so in view of later events. The argument is that “if this contract had been performed/charterparty had not prematurely ended/voyage had happened, developments since - sometimes only during the life of the claim - show that the damages would have been less”.

Sometimes the argument succeeds, and sometimes it fails as entirely opportunistic, as in the “NEW FLAMENCO”. There the defendant unsuccessfully sought credit for supposed avoidance of a reduction in capital value, allegedly due to the vessel having been sold soon after breach, rather than on expiry of the charterparty term, when the market had dropped.

Something like that would probably not occur within the scope of a voyage charterparty, but (when planning following breach) claimants should as far as possible consider all angles, remembering always that their counterparty might try to use hindsight to argue that actions at the time should be considered in the light of developments since.

For more details or a preliminary discussion please contact Maryam Taher or Paris Pantelis


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