In the recent case of D'Amico Shipping Italia SPA v Endofa
DMCC & Anor (2016), the Commercial Court looked at the issue of
when freight is payable as a debt.
The case involved an application by the vessel owner for summary
judgment that a balance of freight was due and owing from the
voyage charterer. For the charterer successfully to defend the
application, they would have to show that:
freight was not recoverable as a
instead, that the charterer's
failure to give instructions to discharge was a breach of the
charterparty which prevented freight becoming due to the
Whether the charterer owed a debt or was liable in damages was
important because the issue of mitigation is relevant to a claim in
damages but not to a claim in debt. If the claim was in damages,
there would be a triable issue on whether the owner failed to
mitigate its loss and summary judgment would be inappropriate.
The Court was required to consider the question: When is freight
due? The issue at the centre of the matter was, "whether
freight only becomes payable once bulk is first broken, i.e., when
discharge begins, or... when the owner tenders the vessel to the
charterer and makes it available for discharge".
The answer depends on the words of the charter, which in this
case provided that freight is payable "BBB", or
"before breaking bulk". The judge drew a clear
distinction in time between "before breaking bulk" and
"on breaking bulk".
The judge also placed particular importance on a bespoke clause
"If the freight and any other amount due to the owners,
including, but not limited to accrued demurrage is not received by
the owners before notice of readiness is tendered, the owner may
... refuse to commence discharging the cargo until such time as the
payment due is received by the owners."
This clause clearly envisaged that freight would be due and
payable as a debt, not only before discharge commenced, but before
the NOR was issued, i.e. "when the vessel became an arrived
ship and was made available to the charterers for the charterers to
procure its discharge."
Although the case was decided on the particular terms of the
charterparty, the judge commented that the conclusion was in
keeping with the general law and commercial practice concerning the
payment of freight. For an owner to have a lien over cargo for
freight, i.e. a right to withhold discharge and to retain
possession of the cargo until freight which is due is paid, freight
must be due when the owner is ready to discharge and has signalled
his readiness to the charterer and not when the charterer is ready
to start discharge.
Not all charterparties provide that freight is payable
"BBB". Some charterparties, such as the widely used
Gencon form, provide that freight is payable on delivery. Under
such charterparties, it is the owner's obligation to commence
discharge only when the charterer is ready and able to pay for the
cargo as it is discharged. If the charterer does not do so then the
owner's entitlement to be paid freight accrues as a debt if the
owner is ready to make delivery.
In this case, the Court found that the owner's claim to be
paid the balance of freight was a claim in debt because under the
terms of the charterparty freight had become due.
However, situations arise whereby a breach on the part of the
charterer prevents the owner's entitlement to freight from
falling due under the charterparty terms and therefore from
accruing as a debt. In such circumstances, the owner's remedy
will be in damages, assessed upon the usual principles. As
mentioned above, whether an owner is able to mitigate his loss is
relevant to a claim in damages, but if the owner is unable to
mitigate his loss then the owner's damages should be equal to
the full amount of freight which otherwise would have been paid,
had it not been for the charterer's breach.
This article is part 4 of a quarterly issue covering transport and shipping cases from Australia and around the world.
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