Maritime Law Container Detention Charges 1 June 2012
We have conducted many proceedings pertaining to detention costs and have successfully recovered detention costs owed to our clients.
On this issue, there has been a recent NSW District Court case of COSCO Container Lines Co Ltd & Five Star Shipping Agency Company Pty Ltd v Unity International Cargo Pty Ltd (unreported judgment, 26 March 2012) that dealt with issues of detention costs and whether they are categorized as a penalty or not.
In his judgment, Judge Rolfe concluded that container detention charges under relevant contracts are not penalties and that they are payable in full. The Judge held in this matter that container detention charges were not due to a breach of contract and therefore were not a penalty.
In this case, the containers were returned to COSCO/Five Star after the 10 days free time. Unity, being the consignee, was held liable to the detention charges even though a different entity called Global Fibreglass were the receiver of the goods. The conclusion of such findings is that the consignee will be held liable for detention charges even though they use a third-party agent.
In Australia, if a breach of contract is not the reason of the obligation to pay container detention charges, such charge is not considered a penalty. Rather, a penalty applies where the party who breaks the contract pays an agreed sum and the sum exceeds the genuine pre-estimate of the likely incurred damage under the contract.
There are two key elements that constitute penalty:
1) Contractual liability to pay the agreed sum is upon breach of contract1; and
2) The proposed sum is an unreasonable pre-estimate of the likely incurred loss as a result of breach2.
Clause 6 of the relevant agreement between the parties to this matter contained the following:
“That all equipment and/or containers, once emptied, are to be returned to the nominated container depot(s) in a clean, dry and undamaged condition within the time stipulated by the applicable tariff. Should this not occur, the charges as outlined in the said tariff governing the carriage of cargo will expressly apply”
Clause 9(2) of the same agreement stated:
“If Carrier’s Containers and equipment are used by the Merchant for pre-carriage or on-carriage or unpacked at the Merchant’s premises, the Merchant is responsible for returning the empty Containers, with the interiors brushed, cleaned and free of smell to the point or place designated by the Carrier, its servants or agents, within the time prescribed in the Tariff and/or required by the Carrier. Should a Container not be returned within the aforesaid time, the Merchant shall be liable for any detention, demurrage, loss or expense which may arise from such non-return”
Unity refused to pay these detention charges and therefore the matter was heard before the court. In its defence, Unity argued that Clause 6 implied a charge due to a breach of contract and was therefore a penalty.
COSCO/Five Star, on the other hand, claimed that the obligation to pay container detention charges arose from the agreed rates outlined in the tariff on the agreement by Unity and the late return of the containers does not give rise to a breach of contract. Essentially, what COSCO/Five Star argued was that the container detention charges were agreed rates for the loaned containers as they are returned after the period agreed between the parties.
Judge Rolfe agreed with COSCO/Five Star and held that even though Unity was obliged to return the containers within the 10 days free time, Unity agreed to hire the containers from COSCO/Five Star at the agreed contractual rates beyond the 10 days free time.
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Disclaimer: This publication is intended only to provide a summary of the subject matter covered. It is not intended to be comprehensive or to provide legal advice. Consult a legal professional.
1 O’Dea v Allstates Leasing System (WA) Pty Ltd (1982-1983) 152 CLR 359 2 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656