Tue, Oct

Damages for detention


Damages for detention. "Damages" is the legal word for compensation or indemnity for loss suffered for a breach of contract. (It is also payable for breach of "tort", another branch of law, but this does not concern us here.) The amount of damages is, generally, the amount of loss actually suffered by one party by the failure of the other party to perform the contract. The contract is the charter. Damages can be "liquidated", that is, agreed by the parties as compensation.

The obvious sample of liquidated damages for delay is "demurrage".

"Unliquidated damages" is the amount that has not been ascertained in advance or agreed in the contract. It is left to an arbitrator or judge to decide the amount based on the actual loss suffered by the shipowner, for example, the ship's running expenses plus any Loss caused by the time lost. "Damages for detention" is an example of unliquidated damages.

If the charterer delays (or "detains") the ship by loading or discharging in a longer time than agreed or for any other reason, he has breached the contract and must compensate the shipowner. Normally, if the Charterer exceeds the laytime allowed in the charter, he pays compensation at an agreed rate of demurrage. However, if demurrage is not agreed at the time of entering into the contract, or if the agreed excess time more than the agreed laytime is exceeded, damages for detention is the name given to the compensation. For example, if the Charterer agrees that laytime is x days, and agrees to pay a fixed sum of $A per day for y days maximum time on demurrage, and the actual cargo handling time is x + y + z days, the Charterer will have to pay demurrage for y days at the agreed rate and damages for detention for z days at a rate that is reached by negotiation, settlement or imposed by an arbitrator or by a judge if a dispute arises and has to be decided. Usually, a judge decides damages for detention at the same rate as the agreed rate of demurrage.

Suppose a ship has already spent some reasonable time on demurrage, "reasonable" being a difficult word to define, the shipowner may wish to claim a higher rate of damages for detention. However, if the charterparty does not specify a fixed demurrage period, the shipowner can only claim demurrage at the agreed rate for the time lost. If the Charterer delayº the ship before laytime begins, for example, because of failure to nominate a loading/discharging port, damages for detention becomes payable, perhaps at the demurrage rate.

Another example of a shipowner's claim for damages for detention may be where a ship is chartered to discharge (or load) at berths which are "always accessible" and the charterparty contains a clause allowing the Notice of Readiness to be given and laytime to commence whether in berth or not (WIBON)-but the ship cannot proceed to the berth for example, because of fog and the consequent closure of the port. The shipowner may not be able to claim for demurrage for any reason but may claim for damages for detention on the ground that in breach of the charter the berth nominated by the Charterer was not "always accessible". (This was one claim on appeal by the shipowner in a case reported in 1989 concerning the ship Kyzikos.) It is submitted that the shipowner would fail in this situation because the accessibility ("approachability") of the berth was not obstructed. The fog conditions would be outside the charterer's control. In the Kyzikos case the shipowner did fail in his claim because they could not show the judge that the Charterer failed to nominate a berth that was "always accessible".

Yet another example where an Owner can claim for damages for detention, perhaps at the rate of demurrage, would occur if the ship arrived at the discharge port and the receivers or charterers wanted the cargo discharged without their presenting original bills of lading. Normally, the master of the ship can refuse to discharge cargo unless the original bills of lading for the cargo are presented. In modern practice, if the bills have not arrived before the ship's arrival, the receivers or consignees sometimes offer the master or ship's agent a "letter of indemnity" or "letter of guarantee" usually with a (bank) guarantee. However, the master still remains free to insist on the presentation of the original bills of lading in case the guarantee is unacceptable for any reason. If the charterers refuse to discuss the issue of a bank guarantee, the delay because of non-presentation of the original bills of lading would have to be compensated by payment of damages for detention.

Damages for detention. This expression is used to refer to the compensation payable by a Charterer if a vessel is delayed without agreement. This type of "delay" can be known as "wrongful detention" and can occur, for example, if the agreed laytime expires and no rate of demurrage (or "liquidated damages") has been agreed. It can also arise if laytime expires and any agreed, fixed demurrage period also expires. In modern chartering, fixed demurrage periods would be unusual, demurrage being payable for all time lost at the agreed rate. One use of damages for detention may be where the vessel is delayed because the Charterer fails to nominate a berth, which is reachable on the vessel's arrival; end the vessel arrives and has to wait. However, if the charterparty contains a clause dealing with "time lost waiting for berth" being counted as laytime, then demurrage would be more applicable than damages for detention.