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STOPPAGE AND TERMINATION OF DEMURRAGE

PROF B. SOYER

Demurrage becomes payable by the charterers in the event they fail to complete cargo operations
within the laytime allowed. From this it follows that demurrage as a rule is only found in contracts,
which are based on fixed, defined laytime, typically F.I.O. terms fixtures. Contracts based on
undefined laytime tend to work on the basis of detention in specific situations.

It is probably few if indeed any one in the shipping industry who has not been acquainted fairly
early on in his or her career with the “once on demurrage, always on demurrage” maxim. When
taken at face value, the words appear clear and unequivocal. They should not be, however, taken
at face value, i.e. “once on demurrage, always on demurrage” is not a magic formula, which will
apply regardless of the circumstances. Imagine that the vessel’s gear breaks down during
discharging. If there is still laytime left, running of laytime is probably suspended during the
breakdown according to provisions that may be contained in the governing contract and why
should this be different because laytime has expired?

The general allocation of risk element is that matters pertaining to the vessel, which of course
includes its maintenance falls within the owners’ sphere of risk and responsibility whereas matters
pertaining to the arrangement of loading and discharging falls within the charterers’ sphere of risk
and responsibility. In a situation where the vessel’s gear is to be used, the charterers will arrange
and pay the stevedores and they will remain responsible for the stevedores in the event they are
negligent and this causes damage to the vessel (and or cargo). However, the functioning of the
vessel’s gear will, nonetheless, remain owners’ responsibility.

Most charter parties in one form or another cater for situations in which the stevedores damage
the vessel’s gear. In clause 5(b) of the GENCON 1994 the provision reads as follows:

Unless caused by negligence of the stevedores, time lost by breakdown of the

Vessel’s cargo handling gear or motive power….shall not count as laytime …
or time on demurrage.

This provision essentially turns it the other way around by providing that in the event the vessel’s
gear does break down; the time lost will not count against laytime or demurrage unless the
breakdown is caused by negligence of the stevedores. The provision clearly prescribes that not only
running of laytime but also demurrage is interrupted in the event of break down not caused by the
negligence of the stevedores. Hence, the GENCON 1994 clearly regulates the question of
suspension of demurrage in such case.

This indicates that the maxim “once on demurrage, always on demurrage” may not be a whole, an
indivisible period and this is, of course, also how it is. Running of demurrage may be interrupted by
specific provisions in the contract (as above) and in the event of loss of time through fault of the
owners of those for whom they are responsible, in the absence of specific provisions in the
contract.

As will be seen from the above, the principles for suspending running of laytime and suspending
running of demurrage are thus different. Laytime will run unabated save for the exceptions
expressly agreed in the contract and, to remain with the gear breakdown, there is in all probability
provisions in the contract, which will entitle the charterers to suspend counting of laytime in the
event of gear breakdown. What would the situation be in the event the above clause contained no
reference to gear break down when the vessel had come on demurrage? As there is no provision in
the contract this alternative is not available to the charterers, but would they then just have to sit

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back and pay demurrage? No, but they would have to show that the breakdown amounted to
“fault on the part of the owners or those for whom they are responsible”, i.e. when the vessel is on
demurrage the onus of proof is upon the charterers. If, however, the breakdown of vessel's gear
happens during laytime, when the salient exception is invoked as a matter of routine if you will, the
owners have the burden of proof in the event they think that the breakdown occurred as a result of
mishandling of the vessel's gear by charterers' servants, the stevedores.

Concluding this it should be kept in mind, therefore, that the “once on demurrage always on
demurrage” maxim is not an absolute, which brings us to the next issue, viz. the interrelation
between demurrage and exceptions clauses.

I. EXCEPTION CLAUSES

By and large it may be said that, in the present context – exception clauses come in three versions;
the type of clause that cannot be invoked once the vessel has come on demurrage, the type of
clause that applies also when the vessel is on demurrage and, lastly, the type of clause that is
unclear on this issue.

As an example of the first type, i.e. the type of exception clause that does not apply once laytime
allowed has expired could be a strike clause, such as clause 16(b) of GENCON 1994.

As will be seen from part (b) of the GENCON 1994 General Strike Clause, it will entitle the
charterers to decide whether they wish to order the vessel to another port or of keeping the
vessel waiting at the strike-bound port and pay half demurrage “after expiration of the time
provided for discharging” (which is a roundabout way of saying “laytime”). If, however, the strike
occurs when the vessel is on demurrage the clause cannot be invoked because the words “after
expiration of the time provided for discharging” presupposes that laytime has been running until
expiry where after charterers are entitled to keep the vessel waiting against paying demurrage at
half the agreed rate. However, if the vessel is on demurrage charterers are already in breach of
contract as indicated above and if they could rely on the strike clause and pay only half the agreed
demurrage, they would effectively benefit from their failure to complete cargo operations within
the laytime allowed and that would be inadmissible (The Saturnia [1984] 2 Lloyd’s Rep. 366).

Another type of clause that cannot be invoked once the vessel is on demurrage is the general
exceptions clause (clause 5) contained in the “C(Ore)7 Mediterranean Iron Ore”. Unsurprisingly the
clause outlines a number of events the happening of which will entitle the charterers to suspend
running of laytime, and the clause ends with the words “…unless steamer is already on
demurrage.” Hence, the clause contractually regulates the question of applicability of the clause; it
may be relied upon during laytime, but if laytime has expired charterers are precluded from
invoking the clause.

A clause of the second type mentioned above could be clause 5 of the “Stemmor Charter Party
(1983)”, which is an offspring of the “C(Ore 7) Mediterranean Iron Ore” that has been further
“improved” in charterers’ favour. The opening words of the list of exceptions read as follows:

“Time lost at any time by reason of…..the following causes shall not be computed in
the loading or discharging time or as demurrage.” (emphasis added)

Those words are clear and difficult to misunderstand: it does not matter when the delay occurs if
caused by either or more of the events enumerated in the clause, charterers may rely on the
clause.

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As an example of the third type of clause, clause 8 of the “Claychart” may be mentioned. It
provides that

“Charterers not to be liable for time lost or detention of the vessel by reason of…..”

This type of clause does not specify whether or not it is supposed to apply also after laytime
allowed has expired and thus leaves room for dispute, argument that it should apply. However, it is
submitted that the provision could not be applied when the vessel is on demurrage because

1. The clause does not specifically state that it also applies when the vessel is on demurrage
(Dias Compania Naviera SA v. Louis Dreyfus Corporation (The Dias) [1978] 1 Lloyd's Rep
325 (HL)).
2. Charterers would gain an unwarranted benefit if they could rely on the clause even though
they had failed to complete cargo work within the laytime allowed.
3. The clause is silent on absence of fault on the part of the owners and, hence, it can only
operate if there is indeed fault on the part of the owners or those for whom they are
responsible.

Yet another type of exceptions clause, which is not easily accessible, is the strike clause commonly
referred to as the “Centrocon strike clause” and since it appears in the NORGRAIN 89 a further
scrutiny of this clause may be warranted.

The clause reads as follows:

If the cargo cannot be loaded by reason of Riots, Civil Commotions or of a Strike or

Lock-out of any class of workmen essential to the loading of the cargo, or by reason of
obstructions or stoppages beyond the control of the Charterers caused by Riots, Civil
Commotions or a Strike or Lock-out on the Railways or in the Docks or other loading
places, or if the cargo cannot be discharged by reason of Riots, Civil Commotions, or
of a Strike or Lock-out of any class of workmen essential to the discharge, the time for
loading or discharging, as the case may be, shall not count during the continuance of
such causes, provided that a Strike or Lock-out of Shippers’ and/or Receivers’ men
shall not prevent demurrage accruing if by the use of reasonable diligence they could
have obtained other suitable labor at rates current before the Strike or Lock-out. In
case of any delay by reason of the before mentioned causes, no claim for damages or
demurrage shall be made by the Charterers/Receivers of the cargo or Owners of the
vessel. For the purpose, however, of settling despatch rebate accounts, any time lost
by the vessel through any of the above causes shall be counted as time used in
loading, or discharging, as the case may be.

We shall focus on the part of the above in italics.

It starts off reasonable well by providing that if one of the events outlined in the clause occurs,
laytime shall not count during the continuance of such causes”. It then becomes complicated in that
it now kicks in a proviso to the effect that even though running of laytime is suspended, demurrage
may, nonetheless, accrue, “if by the use of reasonable diligence they could have obtained other
labor at current rates before the Strike…” The intention of this seems to be that demurrage will
accrue if the charterers could have employed “other suitable labour before the Strike…” but failed
to do so. Strictly speaking, this does not appear very realistic, particularly in situations in which the
strike occurs without warning and this will thus bring us back to the starting point.

This being so, the general approach to this provision appears to be that, as a starting point, running
of laytime will be suspended in the event of a strike, i.e. the risk of loss of time because of a strike

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will rest with the owners and since laytime is suspended, the question of demurrage does not arise.

If, however, charterers could have obtained other suitable labour “before the Strike…”, demurrage
may accrue. One may pose the question whether all of this is particularly relevant since it would be
expected that if such other labour has been employed there would be no strike. But, of course, in
the unlikely event such other labour would go on strike, we are - again - back to the starting point.

The clause becomes even more obscure in that in the last sentence it prescribes that if any of the
events mentioned in the clause occurs “no claim for….demurrage shall be made….” This would
seem to form a second line of defence for the charterers, i.e. even in the unlikely event demurrage
is incurred in the present context, “no claim for… demurrage shall be made” “in case of any delay
by reason of the before mentioned causes”.

In The Spalmatori [1962] 2 Lloyd’s Rep 175 (HL) the English court system was confronted with the
unenviable task of trying to reconcile the various provisions of the “Centrocon Strike Clause”. The
case in the main focused on whether or not charterers were able to rely on the clause when a
strike occurred a couple of days after the vessel had entered on demurrage. For the purpose of
construing the clause, the High Court divided the clause into three parts and the Court of Appeal
and House of Lords followed that approach. In the circumstances it was part three, which attracted
interest. Part three for the present purposes was the last sentence of the clause reading

In case of any delay by reason of the before mentioned causes, no claim for damages
or demurrage shall be made by the Charterers/Receivers of the cargo or Owners of the
vessel.

Which the charterers said protected them from liability to pay demurrage also as regards delay
occurring after the vessel had come on demurrage.

In the High Court, McNair, J. held that charterers could not rely on the strike clause; the “general
rule” applied, viz. the “once on demurrage always on demurrage” maxim.

On appeal by the receivers the Court of Appeal reached the opposite conclusion reasoning, inter
alia, that

“…the words of Part 3 of the Clause should be construed as intended to apply to a situation in
which, but for their presence, one party or the other would be exposed to a claim, and the words
could be most naturally construed as relieving the receivers of cargo from liability for demurrage,
to the extent that the delay was due to the strike, although the strike did not occur until the vessel
was already on demurrage; and that, therefore, receivers of cargo were entitled to the declaration
(that they were not liable to pay demurrage) claimed.”

On appeal by the owners the House of Lords in a majority decision held that

“…to prevent demurrage arising, receivers of cargo had to bring themselves within a clearly worded
exceptions clause, and Part 3 (which was ambiguous) provided no protection to receivers of cargo.”
Lord Reid commented inter alia, that “there is no wholly satisfactory interpretation or explanation
of the third part of the Clause and one must choose between two almost equally unsatisfactory
conclusions.”

The House of Lords thus restored as it were the decision of the High court holding that the clause
was unavailable to the charterers if the event occurred after laytime allowed had expired.

In summary, if the charterers wish to be able to rely on laytime exceptions also when laytime

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allowed has expired, the provisions in the governing contract must clearly reflect this. The decision
in The John Michalos [1987] 2 Lloyd’s Rep. 188 is the only one which went in favour of the
charterers even though the wording was not explicit but it is often contended that it was wrongly
decided. There, the ship in question was delayed by a strike at the discharging port after the
laytime had expired. The charterparty contained a modified Centrocon strike clause relating to
discharge, and express clause expressly referring to interruptions in loading caused by a variety of
causes, including strikes, and a further additional clause, which in essence read:

“ Charterers shall not be liable for any delay in loading or discharging including delay due to the
unavailability of cargo which delay or unavailability is caused in whole or in part by...”

There followed a whole range of exclusions, including strikes, ending with “and any other causes
beyond the control of the charterers”.

As to this clause, Leggatt, J, held that it was more naturally to be read as a corollary to the other
two exclusion clauses, which excluded laytime, thereby extending the specified exclusions to
demurrage.

Also, some provisions may not be as far-reaching as envisaged when they were drafted whereas
others may afford wider coverage than may have been intended initially. Part of this may be
caused by archaic and complex or even incomprehensible language possibly obscure even to those
who drafted the particular documents had they been alive today (the "Centrocon" dates back to
1914).

II. WHY LAYTIME EXCEPTIONS DO NOT AUTOMATICALLY APPLY TO DEMURRAGE

The general rule is that, if the charterers breach the contract one way or another, they are liable in
damages, which means unliquidated damages. However, it seems that demurrage is firmly rooted
in history. Inter alia The Statute of Duke Zenon from 1255 provided that if the merchant did not
take delivery of his goods within the day after notice of readiness to discharge had been given, he
would have to pay a certain sum for each following day (weather permitting….). Up through history
demurrage seems to have found a place of its own and rather than unliquidated damages,
demurrage is termed “liquidated damages”. As the words suggest, unliquidated damages will
entitle the carrier to claim proved damages, which need not be confined to the agreed rate of
demurrage if the damages suffered are greater than the agreed rate of demurrage, whereas
liquidated damages are confined to the amount agreed.

However, whether it be liquidated or unliquidated damages, they both apply if charterers breach
the contract, i.e. even of the parties have agreed to a specific compensation to be payable to the
owners, i.e. demurrage in the event laytime allowed is exceeded, this will nevertheless be
tantamount to breach of contract.

It is a well established rule that a contracting party may not profit from its own fault. Although a
charterer may not be involved in, for instance, a strike at the discharge port still, since it is at least
so far as "FIO" terms charters are concerned, the charterers who enter into a contract with the
stevedores, i.e. the contractual relation is between the charterers and the stevedores the latter
being considered the servants of the former, the charterers are in - technical - breach of contract if
they fail to complete cargo operations within the laytime allowed. In such case they would in effect
benefit from their own fault if they were entitled to rely on the strike exception when the vessel
had entered on demurrage.

Arguably, both parties may be penalised by a strike, but from a contractual allocation of risk point
of view either owners or charterers have to foot the delay of the strike and it would be a greater

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injustice if the owners were to face the consequences of a strike preventing the loading or
discharging of the cargo because it is, formally, the charterers' servants that are on strike and,
hence, the demurrage would run unaffected by the strike, i.e. the “once on demurrage always on
demurrage” maxim would prevail.

III. WHEN DOES DEMURRAGE STOP RUNNING?

It is not unusual to come across the argument that, since the vessel is on demurrage it will be
payable until the vessel sails from the loading or discharging port. This is, however, not the case.
The general rule in English law is that laytime will cease to run on completion of cargo operations.
This rule also applies when the vessel is on demurrage.

The reason why demurrage (or laytime) ceases on completion of cargo work is that the obligation
to load or discharge has been complied with at that point in time and since laytime/demurrage is
inextricably connected to loading and discharging, it is logical that it is so. This does not mean that
the owners will have to defray subsequent delay; they may still be in a position to claim damages
for detention if the vessel is wrongfully detained after completion of cargo operations.

Another alternative is that the demurrage period is contractually capped, i.e. the charterers are
allowed a specified period of demurrage. This is the case with the 1976 edition of GENCON. The
opening words of clause 10 read:

"Ten running days on demurrage…"

The implication of this is that charterers are allowed to keep the vessel on demurrage for ten days
after laytime allowed has expired. If the vessel is detained beyond those ten days on demurrage
owners' remedy is to claim damages for detention for the delay in excess of the ten days.

However, realising that those opening words were frequently deleted, it was decided not to
maintain the provision in the 1994 edition of the GENCON and the contract now reflects what is
believed to constitute the common approach, which is not to put a cap on the period of demurrage
the effect of which is that the demurrage period is, in principle, unlimited and will run until the
contract is consummated or frustrated.

PROF. B SOYER

No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including
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author

The information contained in this paper is based on English law and has been gathered as carefully as possible. However, the
author does not assume responsibility for the accuracy of this information.

Nothing in this paper constitutes legal advice.

For information on any specific legal matter, readers must always consult a lawyer qualified to give advice on the specific issues
under the applicable law.

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