In the recent case of MSC Mediterranean Shipping Company S.A. v. Cottonex Anstalt  EWCA Civ 789 the Court of Appeal ruled that the commercial purpose of the contract had been frustrated and that demurrage on detained containers which could not be redelivered to the carrier did not accrue indefinitely.
What were the facts?
The carrier, MSC Mediterranean Shipping Company S.A. (“MSC”), and the shipper, Cottonex Anstalt (“Cottonex”), contracted for the carriage of 35 containers of raw cotton from Bandar Abbas, Iran and Jebel Ali, Dubai to Chittagong, Bangladesh.
The containers were discharged in May and June 2011. Cottonex received payment for the goods and title passed to the consignee. The consignee never took delivery of the goods. MSC insisted on redelivery of their containers and claimed demurrage under the bill of lading until 30 April 2013, and continuing thereafter at a daily rate until redelivery.
What was decided?
In the Commercial Court, it was held that (i) Cottonex had repudiated the contracts of carriage on 27 September 2011 when it informed MSC that there was no realistic prospect of it being able to redeliver the containers; (ii) the delay at that point was so long that the commercial purpose of the adventure was frustrated; and (iii) once there was no realistic prospect of Cottonex redelivering the containers (its remaining primary obligation) MSC no longer had any legitimate interest in keeping the contracts alive in the hope of future performance. Therefore, MSC was entitled to demurrage only until 27 September 2011.
The Court of Appeal agreed that the claim for demurrage could not continue for an indefinite period of time but its reasons were somewhat different. It held that the adventure was frustrated at a later date, on 2 February 2012, when MSC had unsuccessfully attempted to sell the containers to Cottonex. From that time Cottonex was in repudiatory breach, and the contract was frustrated as a result of that breach. There was nothing left to perform. MSC was therefore not entitled to further demurrage. The Court did not therefore consider the legitimate interest point but indicated that if it had had to do so it would have agreed with the Commercial Court judge that “this is a classic case in which it would have been wholly unreasonable for the carrier to insist on further performance”.
If you are interested in a more detailed analysis of this case please see our client alert here.