Shipping Contracts: Affirming the Contract

/images/uploads/blog/iStock_000037516504_Medium.jpg
A recent High Court judgment in the UK highlights the difficulties that can arise when unexpected problems strike. In the case of MSC Mediterranean Shipping Company, the courts looked at the implications of a party who, when faced with potential repudiation, chose instead to affirm a contract and claim demurrage charges.

If you are involved in the maritime and shipping industry, you will know that complex contracts can lead to disputes and problems – and that you need swift, incisive legal advice in order to protect your company, and your interests. At top Bahamas law firm ParrisWhittaker, our expert lawyers have many years’ experience in handling shipping contract disputes, and are waiting to act on your behalf.
A recent High Court judgment in the UK highlights the difficulties that can arise when unexpected problems strike. In the case of MSC Mediterranean Shipping Company¹, the courts looked at the implications of a party who, when faced with potential repudiation, chose instead to affirm a contract and claim demurrage charges.

WHAT WERE THE ISSUES?

An issue arose during the transport of a cargo of cotton to Bangladesh. The carrier owned the containers in which the cotton was transported. The seller had 14 days to return the containers. After this period had lapsed, a demurrage charge (calculated at a daily rate) would apply.

On arrival at Bangladesh, however, the buyer refused to take possession of the cotton, since the price of cotton had collapsed while the cargo was still in transit. As a consequence of the ensuing litigation, there was an injunction made preventing either the seller or the carrier from dealing with the containers – including returning them to the owner (the carrier).

The effect of this was to place the seller in repudiatory breach of contract, leaving the carrier with the right to terminate the contract. However, the carrier opted to remain in contract with the seller and thus claim the daily demurrage rate (which amounted to a sum ten times the value of the containers themselves).

The issue for the court was whether the carrier was reasonable in wishing to keep to the contract, and thus claim demurrage.

WHAT DID THE COURT DECIDE?

The judge ruled that the principle of good faith meant that the carrier did not have an absolute right to ignore the repudiation and claim demurrage; rather, it was reasonable that he should exercise contractual discretion in good faith. The judgment affirms that an attempt to keep a contract ‘alive’ despite a repudiatory breach is not appropriate without the consent of the other party.

HOW CAN WE HELP?

At ParrisWhittaker, we understand the complexities and difficulties of contract negotiations, including the problems that may arise out of a repudiatory breach. If you are looking for expert, incisive legal advice on shipping law, contract law or any other matter, our award-winning lawyers are ready to advise.

1 MSC Mediterranean Shipping Company SA v Cottonex Ansalt [2015] EWHC 283 (Comm)