Suisse Atlantique Societe d'Armament SA v NV Rotterdamsche Kolen Centrale

Facts

The case involved the charter of a ship for two years’ consecutive voyages between US and Europe. The ship was to be loaded at a specified rate. The owners were to be paid according to the number of voyages made during the two-year period. If the time taken for loading and unloading was longer than required, the charterers were to pay $1000 per day by way of demurrage. The charterers were taking many extra days in loading and unloading but were allowed to continue to have the use of the ship for the remainder of the two years. Eight round trips were made. However, the owners alleged that the charterers delay in loading and unloading had made a further six trips impossible and sued for damages. The owners claimed that they were not bound by that clause because the charterers by their extraordinary delays had committed a fundamental breach of the contract.

The total demurrage, at $1000 per day, was $150,000. Because of a fall in freight rates upon the re-opening of the Suez Canal, after the contract had been made, it may have been more efficient from the charterers' point of view to delay loading and unloading, and therefore breach their contract, than to carry it out by making more voyages.

Judgment

Lord Reid said, notably, “In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand and object to any of them, he would generally be told he could take it or leave it. And if he then went to another supplier the result would be the same. Freedom to contract must surely imply some choice or room for bargaining.”

The House of Lords held that the contract did not in fact prescribe a minimum number of voyages. Therefore, there was no breach by the charterers merely by undertaking only eight voyages instead of the 14-17 voyages that the owners claimed were possible.

The owners had also argued that the delays were so significant as to constitute a fundamental breach of the provision of the contract regarding time spent loading and unloading. Their Lordships held that the delays by the charterers were not a fundamental breach. Rather, as a matter of construction, the contract contemplated the possibility of delay and fixed damages ("demurrage") to compensate the owners for that delay.

Therefore, the ship owners were only entitled to claim the demurrage of $1000 per day, not their actual damages.

Their Lordships distinguished the present case from the "deviation" cases. In a typical deviation case, a party would take a ship off the pre-agreed route. Upon doing so, that would take the party's conduct outside that contemplated by the contract, and so the party could not rely on a clause in the contract limiting their liability for damages. Their Lordships distinguished the present case on the grounds that the delays were contemplated by the contract.