MSC Mediterranean Shipping Company SA v Cottonex
Anstalt  EWCA Civ 789
The UK Court of Appeal recently handed down a decision which
considered the right to affirm a repudiated contract in cases where
the commercial purpose of the venture has become frustrated.
The dispute involved a shipment of cotton in containers to
Bangladesh in June 2011. The only part of the contracts of carriage
left unfulfilled was redelivery of the empty containers. However,
the containers were effectively detained by customs and unable to
be returned. The carrier made a claim against the shipper for
demurrage (charges for detention of containers after designated
'free time' has expired), which by the time of the claim
had risen to around $1 million and continued to accrue at US$840
The Court of Appeal held that the contract of carriage came to
an end at the time that the commercial purpose of the adventure had
become frustrated and further performance was impossible, just as
if the containers had been destroyed. As such, the option to affirm
was not available to the carrier.
In coming to effectively the same decision, the lower court
applied the 'legitimate interest' principle. Justice
Leggatt held that the carrier could not affirm the repudiated
contract as the only interest in keeping the contract alive was to
"generate an unending stream of free income" in
demurrage. The Court of Appeal agreed that this was the case, but
came to their decision on the basis of frustration.
As a side note, the Court of Appeal reined in Leggatt J's
application in the lower court of a general duty of good faith in
discretional contractual dealings, including the election to affirm
a repudiated contract, noting the danger of such a general duty
being undermined by frequent invocation.
Findings relating to demurrage
The Court of Appeal affirmed a number of findings made by
Leggatt J, including:
While a failure to nominate a place might relieve the shipper
of a liability for demurrage if it prevented him from redelivering,
demurrage begins to accrue regardless of whether the carrier has
nominated a place for redelivery;
Free time starts to run on discharge of the containers from the
vessel, not upon delivery of the containers to the merchant;
Ordinary principles relating to mitigation of loss do not apply
in a case in which the parties had agreed a daily rate of demurrage
as liquidated damages for the detention; and
While a clause in a voyage charter providing for the payment of
demurrage at a daily rate will not be regarded as penal simply
because it fixes no express limit on the period of the
charterer's liability, such a clause may be held to be penal if
the effect in the circumstances is for demurrage to accrue
This case makes the interesting proposition that a repudiated
contract ends once the remaining commercial purpose of the
adventure has become frustrated, and thus an innocent party will
not have the option to affirm. As such, an innocent party to a
repudiated contract may only be able to recover damages up until
the time that the contract became frustrated.
To deal with this development, carriers should consider whether
a contract has become frustrated in determining whether to affirm a
contract, such as for demurrage, when there are indications that
performance has become impossible. This decision may also provide
an avenue for container detention charges to be held penal, albeit
in limited circumstances.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).