Laytime and Demurrage: General Principles
Laytime and Demurrage represent an important area of English maritime law, particularly concerning Voyage Charters. The principles in this field have been shaped mainly by judicial interpretation of Charterparty provisions over the past one hundred and fifty years, although certain fundamental rules were established earlier, around the time Queen Victoria came to the throne.
The development of this branch of law has moved in parallel with wider historical and social shifts, first with the replacement of sail by steam and later with advances in communication, which gave those directing the commercial venture of a Voyage Charter greater central control. It is one of the few areas of English Common Law where statutory intervention has been minimal.
Although Standard Charterparty Forms have long existed, with nearly every word subject to judicial construction, the law has continued to evolve rather than becoming rigid. The growing use of Additional Clauses (Rider Clauses), some of which are drafted in ways that create ambiguity, ensures that disputes and litigation will continue to arise in this field.
Most disputes on Laytime and Demurrage occur under Charterparties, but these principles are also highly relevant in other commercial contexts, such as sale contracts. The task of interpretation rests with judges and increasingly Arbitrators, though in practice many of these clauses are applied by commercial men and only a small proportion of disputes progress to arbitration or higher courts.
Changes in Arbitral Law and procedure have reduced opportunities for appeal, which has increased the significance of publishing arbitration awards of general importance. Such awards, anonymized to protect confidentiality, are now commonly reported in Lloyd’s Maritime Law Newsletter, which serves as the established forum for limited publication.
Efforts to introduce standardized Laytime and Demurrage definitions have been made three times:
- Charterparty Laytime Definitions 1980
- Voyage Charterparty Laytime Interpretation Rules 1993
- Baltic Code 2007
These definitions apply only when expressly incorporated into a Charterparty, although they are often referred to as persuasive authorities on disputed wording.
Overall, this section aims to introduce Laytime and Demurrage, explain their General Principles, and provide an accessible overview of the subject for readers who are unfamiliar with it.
Before examining the General Principles of Laytime, it is essential to understand how Laytime fits within the framework of a Voyage Charter. The terms ‘‘Laytime’’ and ‘‘Demurrage’’ are expressly defined in the Voylayrules 1993 as follows:
‘‘LAYTIME’’ shall mean the period of time agreed between the parties during which the Shipowner will make and keep the ship available for loading or discharging without payment additional to the Freight.
‘‘DEMURRAGE’’ shall mean an agreed amount payable to the Shipowner in respect of delay to the ship beyond the Laytime, for which the owner is not responsible. Demurrage shall not be subject to Laytime exceptions.
The word Laytime is generally regarded as a shortened form of “Lying Alongside Time.”
In The Johanna Oldendorff case, Lord Diplock divided the adventure contemplated by a Voyage Charter into four distinct and consecutive stages:
(1) The loading or approach voyage – the voyage of the ship from wherever she is at the date of the Charterparty, or the completion of her previous fixture if later, to the agreed place of loading.
(2) The loading operation – the delivery of cargo to the ship at the loading place and its proper stowage on board.
(3) The carrying or loaded voyage – the voyage of the ship from the loading place to the designated place of delivery under the charter.
(4) The discharging operation – the delivery of the cargo from the ship at the place of discharge and its receipt by the Charterer or consignee.
Although there have been attempts to blur the boundaries between these stages, Lord Diplock’s judgment remains clear authority under English law that each stage is separate, consecutive, and must be completed before the next can begin. This interpretation means, for example, that a ship must first arrive at the specified destination before a Notice of Readiness (NOR) can be validly tendered, and a Notice of Readiness (NOR) cannot be presented while the ship is still underway. There can be neither overlap nor gaps between the stages.
In its basic form, a Voyage Charter stipulates that the ship shall proceed to the specified place of loading, load the designated cargo, and once loaded, proceed to the specified place of discharge to deliver the same.
Of the four stages, the voyage legs fall under the Shipowner’s control, while loading and discharging are joint operations between the Shipowner and the Charterer or their representatives. The Shipowner’s objective is to complete all stages with maximum efficiency, thereby securing the highest possible return on capital investment. The Charterer’s objective, however, is to ensure that the cargo is delivered to its destination at the lowest possible cost. For the Shipowner, time equates to money, whereas for the Charterer, cost may outweigh considerations of time.
The voyage stages, including time spent at sea, are generally required to be pursued with all Reasonable or Convenient Despatch. Nonetheless, depending on bunker price levels, the Shipowner may negotiate to perform the Laden Voyage at a slower pace, known as Slow Steaming, which takes longer but reduces overall costs through Bunker (Fuel) savings.
As far as the voyage stages underway are concerned, the adventure remains almost entirely under the control of the Shipowner, and it is therefore logical that the Shipowner assumes the risks of delay during this period. For periods not underway—such as time spent during loading and discharging—the allocation of risk rests on the terms agreed by the parties, covering both the duration permitted for these operations and responsibility for any delay. As Scrutton LJ stated in Inverkip Steamship Co Ltd v. Bunge & Co:
The sum agreed for Freight in a charter covers the use of the ship for an agreed period of time for loading and discharging, known as the Lay Days, and for the Voyage.
Ultimately, the allocation of risks will depend on the Freight payable and the prevailing conditions in the Freight Market, which determine the balance of commercial leverage between the parties.
Voyage Charters are classified into two principal forms based on the Laytime provisions they incorporate: Customary Laytime and Fixed Laytime.
1 – Customary Laytime
2 – Fixed Laytime
In a Customary Laytime charter, the Laytime permitted is defined as the reasonable period required in the circumstances prevailing at the relevant port with the particular ship at the time of loading or discharging. Since such conditions differ from ship to ship and from one occasion to another, the precise period cannot be determined beforehand. Unless the Charterer is at fault, the ordinary risks of delay—such as port congestion, weather, strikes, or holidays—fall upon the Shipowner. If the parties (Shipowners and Charterers) fail to specify the Laytime allowance, Customary Laytime will be implied by law.
Fixed Laytime, by contrast, provides for a period of predetermined duration. It may be expressed in days or hours, or alternatively as a rate of working cargo. Examples include “to load in 3 running Days,” “to discharge in 6 Weather Working Days (WWD),” “to load at an average of 9000 metric tons per day,” or “to discharge at 700 tons per working hatch per working day.” The distinctive feature of Fixed Laytime is that its duration can theoretically be foreseen in advance. In practice, however, the agreed unit of time—such as Weather Working Days (WWD)—and other Charterparty clauses may suspend the running of Laytime, thereby extending the actual time required to exhaust the agreed allowance. Unless expressly modified, the risk of delay under this type of Voyage Charter rests entirely with the Charterer, the reverse of the Customary Laytime charter. As Lord Selborne LC emphasized in Postlethwaite v. Freeland, the Charterer’s commitment to load within a fixed period is “an absolute and unconditional engagement, for the non-performance of which he is answerable, whatever may be the nature of the impediments which prevent him from performing it and which cause the ship to be detained in his service beyond the time stipulated.”
The reasoning behind this Absolute Liability was explained by Lord Diplock in The Johanna Oldendorff: “Charterparties originated at a period when contractual obligations were as a general rule treated as absolute. A party’s obligation was to secure that anything that he warranted should be done, was done. If it was not, then, unless this was the result of some default of the other party, he was liable in damages, even though circumstances over which he himself had no control and could not even have foreseen made it impossible for it to be done.”
Although Customary Laytime charters once held significant commercial importance, they are now encountered less frequently, surviving mainly in the form of Liner Terms, obligations to load or discharge with Customary Despatch, or the hybrid provision Customary Quick Despatch (CQD). Nonetheless, Customary Laytime has played a central role in the development of Laytime law.
Fixed Laytime charters are now generally preferred due to the greater certainty they provide in calculating the permitted duration of a charter and because they offer enhanced flexibility through the inclusion of Exception Clauses that allow the adjustment of risk allocation between the parties.
Whichever form of Laytime is agreed, Voyage Charters are also categorized into Berth, Dock, and Port Charters, depending on which of these three is designated as the place for loading or discharging.
Voyage Charter Types:
1 – Berth Charter
2 – Dock Charter
3 – Port Charter
It is entirely possible for a charter to be a Berth Charter for loading and a Port Charter for discharging. In general practice, Laytime begins when the Ship arrives at the named destination, after a valid Notice of Readiness (NOR) has been tendered (if required) and once any waiting period stated in the Charterparty has expired. From this point, the responsibility for delay may pass from the Shipowner to the Charterer, depending on the charter terms. This is why determining the exact moment of arrival at the specified destination is of critical importance. In Berth Charters and Dock Charters, this is usually straightforward since it is easy to establish whether the ship is in its Berth or Dock. In the case of a Port Charter, however, the position is more complicated.
Prior to the Court of Appeal decision in Leonis Steamship Co v. Rank, there was uncertainty, but the court clarified that in a Port Charter the destination is reached once the ship enters the commercial area of the port, not only when it reaches a Berth, as had been suggested in earlier rulings. Later uncertainty as to what constituted the “commercial area” and whether the usual waiting place fell within it was resolved by the House of Lords in The Johanna Oldendorff. Lord Reid there set out what became known as “The Reid Test”:
Before a ship can be said to have arrived at a port she must, if unable to proceed directly to a berth, have reached a position within the port where she is at the immediate and effective disposition of the Charterer.
The assumption is that if the ship is lying in a location where vessels of her type customarily wait and this is within the port, then she is at the “immediate and effective disposition of the Charterer.”
The parties (Shipowner and Charterer), however, may agree to alter the point at which Laytime begins. For instance, in a Berth Charter, they may stipulate that Laytime is to commence “Whether In Berth Or Not (WIBON),” thus covering delays caused by congestion. Similarly, they may allow Laytime to start once the ship ceases to be underway, even outside port limits, by using a clause such as “Whether In Port Or Not (WIPON).”
Once Laytime has started to run, it may still be suspended either through an Interruption or by an Exception to Laytime. The difference is that an Interruption excludes periods which fall outside the definition of Laytime in the Laytime Clause, whereas an Exception excludes periods that are within the definition but are expressly carved out. For instance, adverse weather would constitute an Interruption under Weather Working Days (WWD), while a clause excluding time lost due to Strikes would be treated as an Exception. The key distinction is that, with an Interruption, it is only necessary to prove that the condition exists, whereas with an Exception it must also be demonstrated that the excluded circumstance directly prevented cargo operations.
As Lord Diplock explained in The Johanna Oldendorff case:
“In the case of maritime carriage this rule (as to Absolute Liability) was subject to the exception that performance was excused if it were prevented by Act of God or of the King’s Enemies or by Inherent Vice in the goods carried. At a very early date it became usual to incorporate in Charterparties express exceptions for other maritime perils, and in modern Charterparties these have been extended to strikes and other hindrances to performance which take place on land.”
Laytime, once commenced, continues until the loading or discharging operation is finished, or until the allowance expires if completion does not occur sooner. In tanker trades, completion is often defined as the disconnection of hoses.
Laytime may be agreed as a single continuous period covering both loading and discharging, or it may be divided with separate calculations for each operation. If calculated separately, the Charterparty may allow unused Laytime from loading to be carried forward to discharging, or vice versa, under arrangements commonly known as Averaging or Reversing.
In some sectors, such as the parcel tanker trade, a single ship may be operating under several charters at the same time, each covering a portion of the cargo.
Where loading or discharging is not completed within the agreed Laytime, the Shipowner is entitled to compensation for the excess time. This compensation may take the form of Liquidated Damages (Demurrage) or, alternatively, Unliquidated Damages in the form of a Detention claim. Demurrage is normally fixed in the Charterparty at a daily rate, with the parties (Shipowner and Charterer) agreeing either to a Limited Period on Demurrage or, more commonly, to an Unlimited Period. It is now firmly established that a Charterer’s failure to complete loading or discharging within the agreed Laytime amounts to a Breach of Contract.
The daily Demurrage rate agreed between the parties (Shipowner and Charterer) is designed to cover the ship’s running costs plus the profit the Shipowner would have earned had the ship been released in time. Some charters, however, are structured so that Demurrage is seldom incurred, as the Laytime provided is more than adequate to cover normal delays in cargo operations. Such cases are referred to as Despatch Business.
As a Liquidated Damages mechanism, the Demurrage rate must be fixed in advance, but like Freight, it remains subject to fluctuations in freight market conditions.
A frequently cited expression in connection with Demurrage is “Once on Demurrage, Always on Demurrage.” This is meant to convey that Demurrage accrues on a Running Day basis and that Laytime Exceptions no longer apply once Demurrage has started. It requires very clear wording to persuade a court that the parties (Shipowner and Charterer) intended a specific exception to continue after the ship has gone on Demurrage.
In The Spalmatori case, when considering whether the Centrocon Strike Clause applied to strikes beginning after Demurrage had already commenced, Lord Reid remarked:
“. . . if it occurs after Demurrage has begun to accrue the owner might well say: ‘True your breach of contract in detaining my ship after the end of the Laytime did not cause the strike, but if you had fulfilled your contract the strike would have caused no loss because my ship would have been on the high seas before it began: so it is more reasonable that you should bear the loss than that I should.’”
The same rationale applies to all exceptions, and it is also established that Laytime Exceptions and even Demurrage Exceptions normally do not apply to Claims for Detention.
By default, liability for Demurrage lies with the Charterer. Even if the Charterparty provisions are incorporated into the Bills of Lading (B/L), this is not sufficient on its own to make the Receiver jointly liable unless there is a clear clause providing for it. One way of making the Receiver responsible for Demurrage, especially Demurrage at the discharge port, is through an Express Lien granted on the cargo in favour of the Shipowner. If this is paired with an effective Cesser Clause, then full liability for Demurrage is transferred to the Receiver. It must be noted, however, that a Lien for Demurrage is merely a Possessory Lien. Once the Shipowner loses possession of the cargo, he loses the lien, and the Receiver can no longer be held accountable for any Demurrage that may be due. In such a scenario, the Shipowner would lose the right to recover Demurrage from both the Charterer and the Receiver.
If loading or discharging operation is completed within the Laytime allowed, and the Charterparty provides for it, Despatch becomes payable either on the basis of All Time Saved (ATS) or, less commonly, on the basis of All Working Time Saved (AWTS).
As Devlin J observed in Compania de Navigacion Zita SA v. Louis Dreyfus & Cie:
“The Shipowner’s desire is to achieve a quick turn-round; time is money for him. The object of fixing lay days and providing for Demurrage (D) and Despatch Money (DM) is to penalize dilatoriness in loading and to reward promptitude.”
Where Despatch Money (DM) is agreed, it is almost always set at Half the Demurrage Rate, commonly expressed as DHD (Despatch Half Demurrage) or D1/2D.
A claim for Detention arises when a ship is delayed due to the Default of the Charterer, or those acting on his behalf, while the charter is still in effect. In such cases, Unliquidated Damages may be recovered for the delay, except where it occurs after the ship has arrived at its agreed destination and loading or discharging has not been completed. In those circumstances, any remaining Laytime may be used to offset the delay, and if the ship is already on Demurrage, then Demurrage will apply.
After Laytime has expired, if the Charterparty contains a Demurrage clause, Demurrage becomes payable until loading or discharging is finished, or until the charter ends—either by becoming impossible to perform due to Frustration, or by one party showing an intention to Repudiate the charter and the other accepting that Repudiation. For example, if the Charterer failed to provide cargo and demonstrated an intention never to do so, the Shipowner could claim that this constituted Repudiation of the Charterparty and Accept it. However, if the Shipowner did not accept the Repudiation, Demurrage would continue to accrue until he did accept, or until the Charterparty was terminated by Frustration. The distinction lies in the fact that Frustration arises from an External Event, whereas Repudiation and its Acceptance depend on the actions of the Parties (Shipowner and Charterer).
The Construction of Laytime Clauses
Certain General Principles guide the interpretation of Charterparty Clauses, including Laytime Clauses. These include:
1- clauses in a Charterparty should, wherever possible, be read together in harmony;
2- where there is inconsistency, Additional Clauses (Rider Clauses) override Printed Clauses;
3- where conflict persists, clauses appearing later in the Charterparty prevail;
4- clauses may be construed Contra Proferentem against the party for whose benefit they were inserted.
Courts have also given guidance on how the intentions of the parties (Shipowner and Charterer) should be understood from the language used in the Charterparty.
In Storer v. Manchester CC, Lord Denning MR stated:
“In contracts you do not look into the actual intent in a man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract. A man cannot get out of a contract by saying ‘I did not intend to contract’ if by his words, he has done so. His intention is to be found only in the outward expression which his [words] convey. If they show a concluded contract, that is enough.”
Similarly, in Schuler AG v. Wickman Machine Tool Sales Ltd, where the issue was whether a term expressly described as a Condition entitled the other party to terminate on any breach, Lord Reid, giving the first judgment, explained:
“But we must remember we are seeking to discover intention as disclosed by the contract as a whole. Use of the word ‘condition’ is an indication—even a strong indication—of such an intention but it is by no means conclusive. The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they should make that intention abundantly clear.”
Attention should also be drawn to a Dictum of Lord Diplock in Antaios Compania Naviera SA v. Salen Rederierna AB, where Lord Diplock observed:
“. . . if a detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”
A related Dictum was given by Lord Mustill in Torvald Klaveness v. Arni Maritime, where he remarked:
“Naturally, no judge will favour an interpretation which produces an obviously absurd result unless the words used drive him to it, since it is unlikely that this is what the parties intended. But where there is no obvious absurdity, and simply assertions by either side that its own interpretation yields the more sensible result, there is room for error.”
In Reardon Smith v. Hansen-Tangen, Lord Wilberforce stressed the importance of the surrounding circumstances and commercial purpose of a contract, stating:
“No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as ‘the surrounding circumstances’, but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the Court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively—the parties cannot themselves give direct evidence of what their intention was—and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties.”
In several subsequent House of Lords decisions, Lord Hoffmann expressed the principle more broadly. In Investors Compensation Scheme v. West Bromwich Building Society, he explained:
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce \[in Prenn v. Simmonds \[1971] 1 WLR 1381] as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include: subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same as the literal meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not only enable the reasonable man to choose between possible meanings of ambiguous words but may even (as sometimes occurs in ordinary life) lead to the conclusion that the parties must, for whatever reason, have used the wrong words or syntax; (see Mannai Investment Co Ltd v. Eagle Star Life Assurance \[1997] 2 WLR 945).”
To appreciate Lord Hoffmann’s point in the final sentence of paragraph (4), it is necessary to consider the Mannai Investment case. This was a landlord and tenant dispute in which the House of Lords, by majority (including Lord Hoffmann), reversed the Court of Appeal’s finding that a tenant’s notice was invalid. The notice sought to terminate a lease on 12 January 1995, instead of 13 January 1995, the correct third anniversary date stipulated by the lease. The House of Lords held that the notice was nevertheless effective, since both parties would have understood from the lease terms that the intended expiry date was 13 January 1995.
Previously, the Court of Appeal, relying on its earlier ruling in Hankey v. Clavering and other similar authorities, had determined that in relation to lease clauses—such as notices under a break clause, options to purchase, and notices to quit—the notice must be given in the exact terms required by the lease. The House of Lords, however, by majority, held that this decision should be overturned. Their view was that if it was evident that the party serving the notice intended to comply with the clause, then he should be regarded as having done so even if the notice specified an incorrect date for it to take effect.
In his speech, Lord Hoffmann illustrated this principle with examples from everyday language where people communicate their meaning clearly despite using incorrect words. He mentioned malapropisms, noting that the intended meaning can remain obvious even when the words are wrong. He also referred to cases where mistakes occur in names, descriptions, days, or times—for instance, when someone asks, “And how is Mary,” while both participants in the conversation understand that Jane was meant. Even if the recipient does not correct the error, both parties recognize that the message has been received and understood without ambiguity.
Another example cited by Lord Hoffmann was of two people arranging to attend a concert on a certain date, with one later saying he would see the other on a particular date, but mistakenly giving the wrong one.
In suitable circumstances, courts are now more prepared, where necessary, to adjust the wording used by the parties or even substitute alternative words in order to identify their true intention in a way consistent with commercial sense, rather than interpreting the words strictly at face value. Nevertheless, judges have also sounded a note of caution.
Lord Mustill in the Torvald Klaveness case referred to the “room for error,” and similar observations were made by Mr Justice Steyn in Pagnan v. Tradax Ocean Transportation and Mr Justice Saville in The Sea Queen, emphasizing that interpretation begins with a general understanding of how risks are allocated. What courts or arbitrators cannot do, however, is to rewrite the bargain that the parties themselves agreed.
Whether a charter is Frustrated is a matter of law, though courts will not interfere with a Tribunal’s finding of Frustration if it is demonstrated that the correct legal test was applied. The specific date on which a charter becomes Frustrated is a question of fact. Importantly, the Law Reform (Frustrated Contracts) Act 1943 does not apply to Voyage Charters.
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