Suisse Atlantique Societe d’Armement SA v NV Rotterdamsche Kolen Centrale – Case Summary

Suisse Atlantique Societe d’Armement SA v NV Rotterdamsche Kolen Centrale

House of Lords

Citations: [1967] 1 AC 361; [1966] 2 WLR 944; [1966] 2 All ER 61; [1966] 1 Lloyd’s Rep 529; (1966) 110 SJ 367; [1966] CLY 1797.

Facts

In December 1956, the respondents contracted to charter the appellant’s vessel to carry coal from the US to Europe. The charter contract stated that it would remain in force ‘for a total of two years’ consecutive voyages’. The contract provided for fixed periods of lay-time in which the respondents would load and discharge the vessel on each voyage. The respondents were obliged to pay a demurrage of 1,000 a day. A demurrage is a fee payable to a vessel owner where the charterer fails to load or discharge the ship within the time agreed.

Between October 1957 and the charter end-date, the vessel made eight round trips. The appellant argued that the respondent could have made a further six-to-nine trips, but the respondents had been unreasonably slow in loading and discharging the vessel. In several cases, the respondents had failed to load and discharge the vessel within the lay-times provided. It was likely that the respondents had done this on purpose in response to the re-opening of the Suez Canal.

The respondents paid the demurrage in respect of these delays. However, the appellant contended that they were also entitled to the profit they would have made if the respondent had completed more voyages. They argued that the respondent’s delays amounted to a fundamental breach of contract, allowing the appellant to repudiate the contract. This would have the effect, they argued, of preventing the defendant from arguing that their liability for the delays was limited to the demurrage they had paid.

Issue(s)
  1. Did the contract require the respondents to make a particular number of voyages?
  2. Were the respondents’ delays a fundamental breach of contract?
  3. What would be the effect of a fundamental breach on the demurrage clause?
Decision

The House of Lords held that:

  • There was no express or implied term requiring the respondents to perform a particular number of voyages.
  • The respondents were entitled to rely on the demurrage clause. Whether there had been a fundamental breach of contract did not affect this.
  • In any case, the respondents’ breaches were not fundamental. The fact that the parties had included the demurrage clause indicated that they did not consider delay to be inherently fundamental.
  • The demurrage clause was an agreed damages clause, not an exclusion or limitation clause. Accordingly, the appellant was not entitled to recover more than the damages the parties had agreed – the amount that the respondents had already paid in demurrage.
This Case is Authority For…

Lord Denning in several prior cases argued that contract law has a doctrine of ‘fundamental breach’: J Spurling Ltd v Bradshaw [1956] 1 WLR 461. This doctrine meant that if a contract was terminated because of a repudiatory breach, the parties’ ability to rely on any exclusion or limitation clauses terminated also.

The House of Lords in this case rejected the doctrine of fundamental breach. They argued that the effect of a fundamental breach on an exclusion or limitation clause depends on the proper interpretation of the contract. There is no general rule that the termination of a contract prevents the parties from relying on these clauses.

Other

Lord Upjohn noted that the term ‘fundamental’ has been used in different senses in contract cases.

  • A ‘fundamental term‘ of a contract is a ‘condition’ – a clause which the parties have expressly or implicitly agreed will allow the innocent party to terminate the contract if it is breached.
  • A ‘fundamental breach‘ refers to a breach which goes to the root of the contract and therefore enables the termination of the contract whether or not the term breached is a condition (i.e. if it is an innominate term).