Lockdown: Release of Cargo without Claiming demurrage

All over India, various Courts are occupied with the question Whether the Shipping Lines are entitled to claim demurrage for the period of extended lockdown. There are Applications under Section 9, Arbitration and Conciliation Act, 1996 filed in High Court of Delhi, Writ Petitions filed in High Court of Kerala and other Courts are also deciding on the same. It is safe to say that the General tendency of Court is not to grant a waiver of demurrage on the basis of High Court of Delhi’s refusal to provide a relief under Section 9 and High Court of Kerala’s refusal to provide a waiver in a similar writ petition. The case of Rashmi Cement Ltd. vs. World Metal & Alloys is a quick and comprehensive read to understand the dispute between importers and shipping Lines. The case is briefly summarised here below:

On 18.06.2020, the High Court of Delhi in Rashmi Cement Ltd. vs. World Metal & Alloys (FZC) and Ors. dismissed  an application filed under Section 9 (Arbitration and Conciliation Act, 1996) which was filed in order to seek release of cargo without claiming any demurrage. The Claimant contended the delay in having the cargo discharged was a direct consequence of the national lockdown and the sudden and unexpected suspension of all commercial establishments and transport services due to lockdown constituted a force majeure event as per the contract between the parties. The respondent contended that it was open for the petitioner, who was always aware of its own contractual liability for payment of demurrage, to take delivery of the cargo if it so desired and force majeure is not applicable in the present situation.  The Respondent relied on M/s. Haliburton Offshore Services Inc. Vs. Vedanta Limited & Anr. OMP(I) (COMM.) 88/2020 and M/s. Polytech Trade Foundation Vs. Union of India & Ors. WP(C) 3029/2020, wherein the Court, while dealing with a similar plea by a petitioner claiming exemption on account of the same circulars on which the petitioner is seeking to rely, found the same to be wholly misplaced by holding that these circulars were merely advisories and could not exempt parties from performing their obligations under a valid contract.

After hearing the parties, the Honourable Court found that applicability of Force Majeure clause cannot be decided in the abstract and has to be decided after an examination of the facts and circumstances of each case. Mere difficulty in performing the contractual obligations cannot be a ground for invoking a Force Majeure Clause and it has to be decided in the Arbitration.

The Petitioner prayed that the goods may be released on the furnishing of Bank Guarantee. The Court held that it is only when, in the opinion of the Court, the party seeking interim reliefs under Section 9 of the Act satisfies the three pronged test for grant of the same, viz., prima facie case in its favour, balance of convenience in its favour and, most importantly, that it would suffer irretrievable injury unless such relief is granted, that interim protection is granted under this provision and these requirements are not met by the Petitioner. Even the petitioner’s offer to furnish a bank guarantee in exchange for payment of demurrage, is not a convincing ground in support of its case considering that the liability of paying demurrage has been placed on the petitioner under the express stipulations of the contract between parties.

The Court held that it would not be fair to direct the respondent to await conclusion of arbitration to receive demurrage as per the contract. This Court has to respect the sanctity of the contract signed between the parties and cannot, at this stage, permit demurrage payment to be substituted with a bank guarantee of the same amount, when the contract does not provide for it.

Thus, the Court dismissed the application with a direction stating that in case it were to be held in the arbitration proceedings that no demurrage was in fact payable by the petitioner or it turns out that the vessel owner is exempted from the liability of paying demurrage, the amount paid by the petitioner to the respondent by way of demurrage would be refunded with interest at a rate determined by the learned Arbitrator.

The Courts denial to provide a waiver without detailed hearing is welcoming as the financial crunch it would have caused would have resulted in adverse effects on the global supply chain. It would be interesting to see how the Arbitrators and Courts decide the question of Force Majeure.

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