Demurrage ruling in MSC-v-Cottonex Anstalt Case to set new precedent?

Demurrage ruling in MSC-v-Cottonex Anstalt Case to set new precedent?

In January 2015, Leggatt J. handed down a decision on demurrage fees which at last gave some detailed clarification on the extent to which carriers could claim demurrage when containers had been left for a substantial period of time and the ability to move them did not appear to be imminent. In this particular case the containers had been left uncollected by the receiver for three and a half years at the time of trial and MSC sought demurrage for the whole of this period. At the time Leggatt J. considered the case, the demurrage that had accrued was over $1million and many times the value of the shipped goods in question.

In essence his findings were that an email sent on 27 September 2011 by the shipper made it clear to the carrier and that the carrier would have reasonably understood that there was no realistic prospect of it being able to arrange for the containers to be collected so the commercial purpose of the contract had become frustrated and, that in any event, even if the email had not been there to rely on, by that time, the delay of itself had become so prolonged to make it plain that the commercial purpose of the contract had been frustrated and consequently the shipper was in repudiatory breach of the contract. He also found that once it was clear that the shipper could not carry out the primary obligation of returning the containers, the carrier no longer had any legitimate interest in keeping the contract alive to keep charging demurrage in the hope that the containers would eventually be redelivered.

This was all good news for any party responsible for demurrage but that good news has been watered down by the judgment handed down on 27 July 2016 by the Court of Appeal. It was decided that the Judge’s finding in relation to when frustration occurred which was based on an email from the shipper dated 27 September 2011 could not stand. This was because, in the words of Lord Diplock, in the case of “The Nema” which were to the effect that whether or not delay was sufficient to bring about frustration must be a question that is decided on an informed basis upon all the evidence that has occurred, and that it was a question of degree for the tribunal seized of the matter.

The finding was that Leggatt J. had only taken into account the shipper’s email and as this was only taking into account the shipper’s position and not the carrier’s position, the decision could be overturned. It was found that the clearest indication of frustration was on 2 February 2012 when the carrier had confirmed an offer made to sell the containers to the shipper to try and settle the dispute in another email. One of the Appeal Court judges pointed out that the earliest offer to sell the containers by the carrier was made in January 2012 in a telephone conversation with the shipper but accepted that 2 February 2012 was the preferable and pragmatic date to accept as when frustration occurred and that the question of whether or not delay was enough to bring about frustration “calls for a pragmatic judgment”. It had also found that the shipper had not responded to the offer.

The Appeal Court went on to consider the effects of the repudiation by way of frustration and found that the first instance Judge had taken a wrong turn in relying on White ‐v‐ Case as it had not been open to the carrier to affirm the contract and as this was the case, there was no basis for considering whether there was a legitimate interest in affirming the contract or not. The reason that it was not open to the carrier to affirm the contract was because the shipper was in no position to redeliver the containers at the time of frustration and, that as such, was liable in damages being replacement value of the containers at the time of frustration. One of the Judges suggested that it should be taken into account that the Judge had found that there had been an agreement as to value at $3262 per container. It was found that White v Case had no application as this related to cases where the defaulting party’s obligations were in the future and here, the obligation was required now and could not be complied with, hence the contract was at an end.