Beware informal agreements – £1.5m port charges upheld for lay-over cruise ships

The case demonstrates the continuing repercussions of the pandemic for the cruise ship industry and provides a cautionary tale for parties who may enter into informal agreements without realising the full implications.

The case of P&O Princess Cruises International Ltd v The Demise Charterers of the Vessel “Columbus”  concerned charges owed to the Port of Tilbury in relation to two luxury cruise ships that were impacted by the COVID-19 pandemic. The managing company of the vessels, part of the CMV Group, had to suspend their journeys in March 2020 as a result of the pandemic, resulting in the need for a lay-over at a port until they could resume trading again. Being a regular customer of the Port of Tilbury, they opted to use them and agreed a preferential weekly rate of £3,000 per vessel.

Some of the group companies went into administration in July 2020. At the same time, the port contacted CMV and stated that they no longer wanted to continue with the preferential agreed rate and that as of the following day the vessels would be charged at the rate of the port’s published tariffs, resulting in a thirty-fold increase. CMV confirmed that it was ceasing management of the Vessels with immediate effect and the Port wrote to the those now chartering the vessels, setting out the charges already owed and the new tariff being levied.

The Port argued that it was entitled to vary its charges on reasonable notice under their standard terms and conditions. The interested parties, however, maintained the port could only vary the rate by a reasonable amount under the terms and conditions and that reasonable notice had also not been given.

The Judge noted the Port’s standard terms and conditions clearly intended to give the port complete freedom to increase the charges at a rate it considered acceptable, on reasonable notice. What constitutes a reasonable notice period varies from case to case and is fact specific. The Court held a 28 day notice period to be reasonable in this case, apparently by reference to the usual payment period for the charges, and awarded the Port charges at the increased tariff 28 days from the date of the letter to the vessels.

The Judge commented that the charges were high and that by increasing the rate to the updated tariff, this put the port in a “privileged position at the expense of other creditors” that was “disproportionate to the services provided, the size of the available funds from the sales of the vessels and the other claims against those funds” but felt unable to lower the amount that was payable because the contract was very clear on what was payable.

The case referred to above is likely to be one of many judgments in the future on the COVID-19 pandemic’s impact on shipping. It further demonstrates the point that if a term in a contract has a clear and obvious meaning that will be applied; even where that results in perceived unfairness as in this case. The message which comes out loud and clear in this case is that parties need to review contracts carefully to avoid not only costly charges but also the time and expense of litigation.

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