Suisse Atlantique Societe D'Armament SA V NV Rotterdamsche Kolen Centrale
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''Suisse Atlantique Societe d'Armament SA v NV Rotterdamsche Kolen Centrale'' 9671 AC 361 is a landmark
English contract law English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the Industrial Revolution, it shares a heritage with countries ...
decision of the
House of Lords The House of Lords is the upper house of the Parliament of the United Kingdom. Like the lower house, the House of Commons of the United Kingdom, House of Commons, it meets in the Palace of Westminster in London, England. One of the oldest ext ...
, concerning the notions of fundamental breach of contract and
inequality of bargaining power Inequality of bargaining power in law, economics and social sciences refers to a situation where one party to a bargain, contract or agreement, has more and better alternatives than the other party. This results in one party having greater power ...
. It was subsequently upheld by another House of Lords case, '' Photoproductions v Securicor'', and together these two cases form the definitive statement of the
common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
prior to the
Unfair Contract Terms Act 1977 The Unfair Contract Terms Act 1977 (c. 50) is an act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most ...
.


Facts

The case involved a two-year time charter to export coal from Europe to the USA. The ship was to make as many trips as possible, and the owners were to be paid an agreed
freight rate A freight rate (historically and in ship chartering simply freight) is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport (truck, ship, train, aircraft), the ...
according to the amount of cargo carried. If the
laytime __NOTOC__ In commercial shipping, laytime is the amount of time allowed, measured in days (or portions thereof), hours, or even tides, within a voyage charter for the loading and unloading of cargo. Under a voyage charter or time charter, the s ...
were exceeded, the charterers were to pay
demurrage "Demurrage" in vessel chartering is the amount of liquidated damages owed by a charterer to a shipowner when the charterer remained in possession of the vessel for the purpose of loading and unloading ( laytime) beyond the time allowed by con ...
of $1000 per day. Serious delays occurred because the charterers had difficulty both in getting cargo to the port, and in loading and unloading efficiently. Nevertheless, the shipowner did not cancel the contract, but allowed the charter to continue for the remainder of the two years. In all, only eight round trips were made, whereas the owners claimed that, without delays, a further six trips were feasible. The total demurrage payable amounted to only $150,000. The owners sued for damages, saying their claim should not be limited to the demurrage amount because the charterer's gross delays amounted to a fundamental breach of the contract. (To explain the financial background: from the charterer's point of view, it may have been economically more efficient to delay loading and unloading, and deliberately act in breach of the contract rather than to carry it out by making more voyages, because, after the contract had been made, the re-opening of the
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had led to a fall in freight rates).


Judgment

The owners claimed that the delays were so great as to constitute a fundamental breach of the
charterparty A charterparty (sometimes charter-party) is a maritime contract between a shipowner and a hirer ("charterer") for the hire of either a ship for the carriage of passengers or cargo, or a yacht for leisure. Charterparty is a contract of carria ...
. They argued that the $1000 per day
demurrage "Demurrage" in vessel chartering is the amount of liquidated damages owed by a charterer to a shipowner when the charterer remained in possession of the vessel for the purpose of loading and unloading ( laytime) beyond the time allowed by con ...
was so derisory that the term amounted to an exclusion clause denying the shipowner appropriate compensation; and further, that the case of '' Karsales Ltd v Wallis'' meant that in the event of a fundamental breach, the law ''automatically'' denied such protection of any exclusion clauses. The House of Lords observed that since the charterparty did not prescribe a minimum number of voyages, there was no inherent breach by the charterers undertaking only 8 voyages rather than the 17 that the owners claimed were possible. Rather, if the delays meant that the charterer had exceeded laytime, then demurrage would be payable; and since the demurrage clause plainly showed that the parties had contemplated the possibility of delay, it followed that the delays did not amount to ''fundamental'' breach. (Nevertheless, the demurrage clause was in effect a limitation clause restricting the ability of the shipowner to claim actual losses). The court added that ''Karsales v Wallis'' had overstated the law, and that whether or not a fundamental breach extinguishes any protection that the defendant might rely on was a "question of construction" and not a "question of law". Therefore, the shipowners were entitled only to claim charterparty demurrage of $1000 per day, not full compensation for their actual loss.


Commentary

In his judgment, Lord Reid said of the charterparty terms, “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.” It was plain from Lord Reid's comments that he viewed the shipowners to be the stronger contractual party, so that neither law nor equity could come to their aid once they had prescribed demurrage terms that were insufficient. Their Lordships distinguished this case from " deviation" cases, such as ''Glynn v Margetson'', and ''Leduc v Ward''. After the ''Suisse Atlantique'' decision, there was a series of cases where the
Court of Appeal An appellate court, commonly called a court of appeal(s), appeal court, court of second instance or second instance court, is any court of law that is empowered to Hearing (law), hear a Legal case, case upon appeal from a trial court or other ...
patently ignored the findings of this case. One such case was '' Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd''. 9701 QB 447 The House of Lords was less than amused, and in the ''Photo Productions'' case they emphatically reaffirmed the principles of the ''Suisse Atlantique''.


See also

* Efficient breach *
Deviation (law) The doctrine of deviation is a particular aspect of contracting for the carriage of goods by sea. A deviation is a departure from the "agreed route" or the "usual route", and it can amount to a serious breach of contract. The consequences of unj ...
* Fundamental breach *
Charterparty A charterparty (sometimes charter-party) is a maritime contract between a shipowner and a hirer ("charterer") for the hire of either a ship for the carriage of passengers or cargo, or a yacht for leisure. Charterparty is a contract of carria ...


Notes


References

{{reflist English unfair terms case law English termination case law House of Lords cases 1967 in United Kingdom case law