Demurrage Claims in International Arbitration
In international shipping and commodity sales arbitrations, demurrage claims (called surestaries in French) are a common feature—so much so that Professor Charles Debattista has described them as “the staple diet of shipping lawyers the world over.”[1]
Though demurrage is rarely defined in charterparties or sale contracts—which usually only set the rate—the Baltic Code (2020) defines it as:
“An agreed amount payable to the owner in respect of delay to the vessel beyond the laytime, for which the owner is not responsible.”
In simpler terms, demurrage is a pre-agreed payment—usually owed by the charterer to the shipowner—when the time allowed for loading or unloading the cargo (laytime, or jours de planche in French) is exceeded. Below, we explore the key legal features of demurrage claims in arbitration.
The Legal Nature of Demurrage
There are two main schools of thought regarding the legal nature of demurrage:
1. Demurrage as a Contractual Payment (Not Damages)
This view sees demurrage simply as an additional freight cost—agreed in the contract—owed for using the vessel beyond laytime. This is the approach adopted in France under Article R5423-23 of the Code of Transports, which states:
“For each day exceeding the agreed laytime in the charterparty, the charterer owes demurrage, which is considered a supplement to freight.”
In this view, demurrage is not treated as compensation for breach of contract. This was reaffirmed by the Rouen Court of Appeal on 10 September 2020, which held that a demurrage claim does not prevent a party from also seeking compensation for separate losses caused by delay—because the two have different legal grounds.[3]
2. Demurrage as Liquidated Damages
The second view, more common in English law, treats demurrage as pre-agreed damages for breach of contract. As Lord Guest put it in The Spalmatori case:
“If [laytime] is exceeded the charterers are in breach; demurrage is the agreed damages to be paid for delay.”[5]
In this interpretation, laytime represents the contractual boundary, and any overrun constitutes a breach for which demurrage is payable.
Exception Clauses and Demurrage
Charterparties often include exception clauses, which specify events (like bad weather or strikes) that suspend the running of laytime. But it's important to distinguish these from interruptions to laytime.
As explained by John Schofield:[6]
- Interruptions arise when events fall outside the defined scope of laytime.
- Exceptions apply to events that fall within laytime but are nonetheless excluded due to a clause.
This distinction is more than semantic. For exceptions, a causal link must be shown between the excepted event and the delay in cargo handling. For interruptions, it’s enough to show that the event occurred at the relevant location.[7][8]
Do Exception Clauses Apply Once the Ship Is on Demurrage?
This depends entirely on the clause’s wording. If it explicitly states that it applies to both laytime and demurrage, the shipowner may not be entitled to demurrage during the excepted event. Otherwise, the default rule applies:
“Once on demurrage, always on demurrage.”
This principle, upheld by English courts, means that once laytime has expired, demurrage continues to accrue unless the exception clause clearly says otherwise. As Lord Reid noted in The Spalmatori:
“No exceptions will operate to prevent demurrage continuing unless the clause is clearly worded to that effect.”[9]
Similarly, Lord Diplock in The Dias observed that:
“It is possible by apt words […] to provide that, notwithstanding the continuance of the breach, demurrage shall not be payable.”[10]
Demurrage in Charterparties vs. Sale Contracts
While it’s usually the charterer who pays demurrage under the charterparty, this becomes more complex when a charterparty is used to fulfill obligations under a separate sale contract. Delays caused by the seller or buyer under a sale contract can trigger demurrage liabilities for the charterer.
This raises the question: does a demurrage clause in a sale contract mirror the one in the charterparty?
Lord Justice Mance, in The Devon case, outlined two main scenarios:[11]
- Indemnity-Based Clauses
The sale contract ties the buyer or seller’s liability for demurrage to the existence of actual liability under the charterparty. - Independent Demurrage Clauses
The sale contract includes its own demurrage terms (sometimes incorporating the charterparty rate), but operates independently.
Unless expressly stated otherwise, courts generally treat demurrage clauses in sale contracts as self-contained. That means liability under the charterparty does not automatically trigger liability under the sale contract—they each follow their own terms and conditions.[12]