Unpaid Freight - A Debt or Claim in Damages?

December 2016

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In the recent case of D’Amico Shipping Italia SPA v Endofa DMCC & Anor (2016) the vessel owner applied for summary judgment that a balance of freight was due and owing from the voyage charterer. The Court was required to consider if the freight was payable as a debt or as damages. Whether the claim was for a debt owed or in damages was important because the issue of mitigation is relevant to a claim in damages but not to a claim in debt.

Facts

This claim concerned a voyage to carry a cargo of crude oil from Ghana to Germany.

On the vessel’s arrival at the discharge port freight had not been paid and neither Charterers nor Shippers gave any instructions for the discharge of the vessel. Owners eventually obtained the permission of the court to discharge the cargo and sold it for US$3.2 million.

Owners had claims for load port demurrage and detention and the balance of freight due and commenced proceedings against both the Charterer and the Shipper. The Shipper did not acknowledge service and judgement against them was entered in default.

On an application made on notice to Charterers, an order was sought from the court to use the cargo sale proceeds to satisfy the claims. This article discusses the claim for freight and in respect of which Owners sought summary judgment.

Commentary

For Charterers to successfully defend the claim for freight they would have to firstly show that freight was not recoverable as a debt and that instead their failure to give instructions to discharge was a breach of the charterparty which prevented freight becoming due to Owners. If so this would, therefore, give rise to a claim in damages and in respect of which a triable issue of a failure to mitigate that would mean summary judgment was inappropriate.

Whether freight had become due under the charterparty and was recoverable as a debt turned on when freight was payable. Charterers’ position was that this was once bulk is first broken i.e. when discharge begins, or as Owners argued when the vessel was tendered to the Charterer and made available for discharge.

The charterparty provided that freight was payable BBB, or "before breaking bulk", and a separate bespoke term of the charter was construed by the court to mean that freight had become due and was thus payable as a debt at the point when the vessel became an arrived ship and was made available to Charterers. The clause stated:

"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

Accordingly the freight was owed as a debt. The court also went on to say this conclusion not only reflects the contractual construction of the relevant charterparty but was “also in keeping with the general law and commercial practice so far as payment of freight is concerned. The owner has a lien for freight, that is a right to withhold discharge of and retain possession of the cargo until freight which is due is paid. That presupposes that freight is ordinarily payable when the owner is ready to discharge the cargo and has signalled that to the charterer, not when the charterer chooses to start the discharge of it.

Conclusion

When freight is payable will depend on the terms of any applicable charterparty.

Not all charterparties provide as in this case that freight is payable BBB - ‘before breaking bulk’. Under the “Gencon” form charterparty, the general rule is that payment of freight and delivery of the cargo are acts which are to be performed concurrently. It is however important to note that an Owner’s obligation to commence discharge is conditional on the Charterer being ready and able to pay for the cargo as it is discharged. If the Charterer is not ready or willing, the Owner accrues his entitlement to receive freight as a debt if he holds himself ready to make delivery for a reasonable period of time. Charterers cannot simply refuse to accept delivery and expect that Owners will never receive entitlement to freight as a debt.

  

Article by Rebecca Penn-Chambers

Syndicate Executive
Eastern Syndicate