UK: London Arbitration 2/18 – Sellers V Buyers: Who Pays For Demurrage?

Last Updated: 9 March 2018
Article by Joshua Fraser

Most Read Contributor in UK, November 2018

A recent decision has settled a dispute that arose between cargo sellers/charterers, and cargo buyers as to who was liable for the consequences of delay caused by shipowners not receiving freight by the agreed date, where the buyers had committed, but failed, under the sale contract, to pre-pay the freight.


Sellers entered into a voyage charterparty with owners of a vessel, on 8 September 2014, for the carriage of 3,000 m.t. of Ukrainian feed barley from Kiliya, Ukraine to Benghazi, Libya, under CFR (cost and freight) terms of Incoterms 2000 (the Contract). The sellers and the buyers agreed under the Contract that the buyers would pay the freight in advance.

The vessel was loaded and set sail on 14 September with an ETA of 19 September. The bill of lading was marked ''Freight Prepaid''.

On 15 September, the owners invoiced the sellers for freight of US$131,550.01. The sellers, in turn, invoiced the buyers for the same amount, plus the full price of the goods (US$ 705,586.42), requesting payment within three banking days. They pointed out 17 September was the last day for payment, and warned the buyers that owners would not release the bill of lading until they received full payment.

Buyers requested a change to the issued invoice, so that payment could be routed via New York. The buyers sent a copy of a SWIFT payment order for US$100,000. However, the payment order had a value date for only Monday 22 September.

The sellers emailed the buyers stating that the vessel could not proceed to berth until owners had received 100% freight under the charterparty, and discharge would not begin until sellers had received full payment for their goods under the Contract.

When the vessel arrived at Benghazi, the funds had still not been received. The sellers asked the buyers to investigate. It transpired that payment had not been completed by the bank in New York because of sanctions requirements in relation to Iran and Syria.

Six days later, the sellers finally received the US$100,000 less bank charges, and paid the owners, however, a balance of US$31,610.01 for freight remained unpaid. The owners released the original bill of lading after the sellers gave the owners a guarantee for payment of the outstanding freight.

The sellers were then able to present the documents required by the sale contract at the buyers' bank, which they did on 30 September. They received payment from the buyers the next day. Discharge was finally completed on 11 October.


Owing to the significant delay, owners claimed demurrage of US$70,917.84 against the sellers. The sellers brought arbitration proceedings against the buyers for the demurrage, arguing that the delay was due to the buyers' failure to promptly pay the full freight. They argued if this had been done at least before the vessel reached Benghazi, the sellers would have been in a position to pay freight to the owners, which would have led to a speedier discharge and no losses.

The buyers denied liability. They argued that, whether or not they complied fully with their obligations under the Contract, the delay in discharging the vessel was due to the sellers' failure to meet their obligations to pay freight due to the owners under the charterparty; an obligation independent of the Contract.

The freight invoices sent by the sellers required the buyers to make payment to the sellers, not to the owners - their obligation to pay the charterparty freight under the Contract was to pay it "as soon as possible". Interpreted objectively, it followed that the buyers were also in breach of their obligations, though under the Contract, for not remitting the full freight to the sellers when requested, and in delaying the initial remittance of the US$100,000 part payment until 22 September 2014. But it did not follow from the buyers' breach that they were responsible for demurrage.


The Tribunal held that, as CFR sellers and charterers of the vessel, the owners' contractual partner was the sellers, not the buyers. Therefore, paying freight under the charterparty remained the sellers' responsibility. As such, the tribunal found that instead of taking steps to remit the overdue freight to the owners themselves, the sellers had wrongly decided to take the risk of the vessel's discharge being delayed for non-payment. The sellers could not excuse themselves either by relying on cash flow difficulties. If they did not have sufficient working capital to meet their obligations under the charterparty, they should not have entered into the Contract. As it was, they did manage to find sufficient resources to arrange a guarantee for the balance of the freight, once an on-account payment had been made on 26 September 2014.

As for the buyers, their obligation to pay the charterparty freight under the Contract was to pay it "as soon as possible" which meant that the buyers also breached their obligations under the Contract for, firstly, not remitting the full freight to the sellers when requested, and, secondly, for delaying the initial part payment of US$100,000 until 22 September 2014. This did not, however, mean that the buyers were responsible for demurrage under the charterparty.

Accordingly, the sellers' decision not to promptly pay freight to the owners, or seek agreement with them to release the bill of lading, broke any chain of causation that existed between the buyers' breach and owners under the Contract. The sellers, thereby, incurred a liability for demurrage that could have been otherwise avoided, and their claim against the buyers failed in its entirety.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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