«Dead Freight»

The reason for writing this article was a series of lawsuits of P.TransCo LLC against Severstal PJSC arising from the relationship of cargo transportation by water, and, in particular, a relatively recent case No. A13-20252/2019 considered by the Vologda Region Commercial Court.

The background of the case is as follows. Severstal PJSC, acting as a charterer, concluded a long-term contract for carriage of its goods with P.Transco LLC, acting as a shipowner and a carrier.

Under the terms of the contract, Severstal PJSC undertook to provide 500,000 tonnes of cargo available for carriage evenly over the months of navigation in 2018.

In case of failure to provide the specified guaranteed volume of cargo for carriage, the charterer shall pay to the shipowner the so-called “dead freight”, which is the difference between the guaranteed volume of the cargo for carriage and that one actually provided at the agreed freight rate of 875 rubles per ton of cargo.

During the 2018 navigation season, the shipowner provided vessels to the charterer for loading, however, the charterer never provided the guaranteed volume of cargo.

The shipowner considered that the charterer had breached its obligation to provide the agreed volume of the cargo and brought against the charterer neither more nor less a claim for recovery of the “dead freight” in the amount of 437,500,000 rubles and approximately 26,000,000 rubles of interest for the use of another’s assets in the amount of “dead freight”.

The Vologda Region Commercial Court found in favour of the claimant only in respect of approximately 16,000 tonnes of undelivered cargo, stating that the claims in respect of the rest of the “dead freight” constituted an abuse of right aimed at obtaining double payment for the vessels placement services which have not been provided. In support of the abuse of right, the court referred to the creation of the appearance of the contract fulfillment and the formal nature of the notices of readiness (another purpose of the vessels’ arrival at the loading port, etc.) and the lack of the objective possibility of performing the contract since the claimant has entered into another contract for carriage of goods with another customer which coincided in time with the performance of the contract in dispute. The Court also noted that such conduct demonstrated the claimant’s acceptance of the respondent’s withdrawal from the contract in response to the charterer’s notice of no intention to apply for the carriage of goods.

The Thirteenth Commercial Court of Appeal changed the judgement, considering that half of the cases, in which the vessels were placed for loading, were under the terms of the contract. Herewith, the Court of Appeal agreed with the Court of First Instance in regard to the latter’s analysis of the “dead freight” legal nature.

It is noteworthy that the court of cassation has suspended the execution of the judgement, which in practice happens quite rarely and usually in circumstances where there are serious doubts in regard to the validity of the judgements under appeal. Nevertheless, the cassation court has agreed with the position of the court of appeal¹.

The case contains several interesting issues, such as the legal qualification of the contract disputed and the unilateral unmotivated withdrawal from it, and the consequences of such withdrawal.

However, within the framework of the present article we shall consider only one of them, which is the issue concerning “dead freight”, namely its legal nature, cases where such “freight” occurs, and we shall try to show below that depending on one or another approach to this issue, at least in quantitative terms, the outcome of proceedings in the above-mentioned case could have been quite different.

Contrary to its name, “dead freight” is not freight, i.e., payment for carriage, in the legal sense. Such an institution name can obviously be misleading.

Russian positive law does not use this wording, nor does the legislation of foreign jurisdictions which we know of. In other words, the term “dead freight” can hardly be called legal in the strict sense of the word, the term is rather of economic nature, though in the countries of the Anglo-Saxon legal system this term has been enshrined at the judicial practice level.

The term “dead freight” is also interesting from the linguistic point of view. In contrast to the English language, the “dead freight” is very successfully named in French, reflecting its true nature – le faux fret, which literally means false, fake, sham freight, or le fret sur le vide – freight for emptiness, empty space² or le vide pour le plein³. It seems that in English law the name is based on the idea that the freight, as a general rule, is paid almost in full in advance after loading and/or issue of the bill of lading, and in case of breach of the relevant obligation of the charterer the freight paid by it as thought “dies” for the charterer, remaining for the shipowner.

The Inland Water Transport Code of the Russian Federation, to which the Court of First Instance referred in the above dispute, does not contain any rules in regard to “dead freight”. However, in this case, the court relied on the “dead freight” contract clause. In this sense, the passage in the ruling of the Court of Appeal that the “dead freight” provisions of the Merchant Shipping Code of the Russian Federation are applied by analogy because there is no relevant regulation in the Inland Water Transport Code of the Russian Federation is somewhat odd. Perhaps the court thus attempted to establish the meaning of the “dead freight” contractual term by comparing it with the statutory regulation of the matter.

However, even such an assertion of the Court of Appeal may be questioned. Paragraph 2 of Art. 115 of the Code of Inland Water Transport of the Russian Federation establishes the liability of the consignor under the contract of carriage of goods for the breach of obligation to deliver the cargo within the limits of the losses caused to the carrier. It follows that “dead freight” may arise not only in case of underloading of cargo onboard the vessel in the amount agreed but also in case of failure to present the cargo on the vessel at all⁴, which, however, does not exclude other kinds of losses, such as shipowner’s expenses on fuel to place the vessel to the loading port. The same opinion is expressed in the commentary to the Merchant Shipping Code of the Russian Federation⁵. Although in the pre-revolutionary times such a situation was regarded as a breach of contract with other consequences arising therefrom, at least in case the vessel was provided to the charterer in its entirety⁶.

For comparison, in English law this situation is not associated with the right to “dead freight”, the breach of obligation to provide the entire cargo is a breach of contract as a whole⁷. At the same time, in English law the “dead freight” is a liability for an independent breach of contract in the form of failure to provide the entire (“full and complete”) volume of cargo agreed, and therefore may be recovered from the charterer along with liquidated damages, such as demurrage⁸.

In the Merchant Shipping Code of the Russian Federation, “dead freight” is found in Articles 134 and 136 in the context of the situation where a vessel can be dispatched for sailing before the end of loading at the request of the carrier or charterer respectively. These two articles overlap with the more general rule in Art. 176 of the Merchant Shipping Code of the Russian Federation, according to which the consignor and the charterer shall bear liability for the losses caused to the carrier, unless they prove that the losses were caused through no fault of their and not through the fault of the persons for whose actions or inaction they are liable.

It is noteworthy that Articles 134 and 136 of the Merchant Shipping Code of the Russian Federation are not located in section 8 of Chapter XVIII in the structure of the Code which is specifically devoted to freight under the contract of carriage of goods by sea. This also indirectly confirms a different nature of “dead freight”.

The wording of Articles 134 and 136 of the Merchant Shipping Code of the Russian Federation which points out that the carrier retains the right to receive the full freight in the cases provided by these articles is extremely unfortunate.

The mistake lies in the fact that under the contract of carriage of goods by sea the freight is a payment for the carriage of goods, economically including the shipowner’s operating expenses, crew costs, fuel, and the shipowner’s own profit from the voyage. In other words, the freight is the payment for transportation of the specific volume of cargo X from point A to point B, it is the payment for the proper performance of the obligations under the contract and is not related to violation of its terms.

If so, how the service of the carriage of particular goods which has not been fully loaded onboard the vessel or has not been carried at all can be payable? In our opinion, it cannot. It already follows that the nature of “dead freight” does not refer to “normal” payments under the contract, not involving any breach thereof.

It appears that “dead freight” is closely related to the presence or absence of the charterer’s obligation to present the cargo for carriage under the contract.

In its turn, the existence of such an obligation may depend on whether the contract has been concluded under the consensual or real model. If it is a real contract, there is no obligation for the charterer to provide the cargo. The situation differs in the case of a consensual contract where one party is obliged to provide a vessel for carriage at a certain moment, and the other party ensures the provision of the goods for carriage.

In addition, “dead freight” cannot arise in a situation where the freight under the contract of carriage is not determined in the form of payment per tonne of cargo, but in the form of lumpsum since in this situation the charterer also has no obligation to provide a certain amount of cargo⁹. In such a case, the shipowner receives a fixed payment irrespective of the amount of cargo presented by the charterer.

Although the right to “dead freight” should generally be connected with the breach of the obligation to ensure the agreed loading of the vessel, in one case, the arbitrators rejected a “dead freight” claim on the sole ground that there was no evidence that the master of the vessel had requested the charterer to load the agreed volume of the cargo within a reasonable time before the vessel left port¹⁰.

Of course, if the underload occurred due to the fault of the shipowner or to reasons depending on him, then the shipowner cannot rely on “dead freight”. However, this is not always the case, for example, the shipowner’s right to “dead freight” has been recognised in cases where the master of the vessel has reasonably refused to load the remaining amount of dangerous cargo for the reasons of navigational safety or stability of the vessel¹¹. At the same time, the charterer’s liability is also excluded, e.g. if his obligation to present the cargo was not fulfilled due to a strike in the mines and the charterer had no reasonable possibility of securing the cargo from another mine¹².

Specifics of “dead freight” as a claim is also found at the subject level since the claim for its payment in carriage relations may arise only from the shipowner. The position according to which the charterer’s right of claim for return or offset to the shipowner in connection with overpaid freight as a result of detection of actually less cargo than it was specified in the bills of lading can be referred to as a “dead freight” seems to be incorrect¹³.

The “dead freight” is also distinguished by the fact that it belongs to the category of so-called marine claims since it is a claim in connection with and arising from the performance of the contract of carriage of goods by sea. However, this feature hardly gives any special advantages to the shipowner in this respect, especially since such a claim is not secured by a maritime lien. However, as a rule, in practice contracts contain the rule on retention and lien of the cargo to secure the shipowner’s claims to recover, among other things, “dead freight” (e.g., § 8 of the well-known and applicable proforma GENCON 1994).

In the case commented upon, the “dead freight” arose under the contract on the organisation of carriage of goods by sea (at least it was how the court had qualified it), which was a consensual contract. Moreover, the law expressly indicates that the charterer has the obligation to provide the cargo for carriage (Art. 798 of the Civil Code of the Russian Federation, Art. 68 of the Inland Water Transport Code of the Russian Federation, Art. 118 of the Merchant Shipping Code of the Russian Federation).

In such a case, the breach of the obligation to provide the cargo for carriage in the volume agreed would constitute a breach of contract by the charterer.

Therefore, the reference in Art. 134 and 136 of the Merchant Shipping Code of the Russian Federation to reservation of the carrier’s right to receive full freight should be regarded as an indication of the obvious consequence of the breach of contract which is the right to recover losses in the amount equivalent to the amount of freight which the carrier would receive in case the charterer complied with the obligation to load the vessel with the agreed volume of cargo. The same idea should be followed in relation to Art. 68 of the Code of Inland Water Transport of the Russian Federation.

In the issue of the legal regulation of the “dead freight”, it has to be noticed the provisions of Art. 155 of the Merchant Shipping Code of the Russian Federation, which, at first sight, contain the idea of “dead freight”. The cases provided for by this article essentially constitute the right to unmotivated withdrawal from the contract. Nevertheless, such withdrawal shall be considered as a special case under § 3 of Art. 310 of the Civil Code of the Russian Federation and is conditioned by the necessity to pay a certain amount of money specified in subparagraphs 1–3 of § 1 of Art. 155 of the Merchant Shipping Code of the Russian Federation, depending on the particular circumstances. The legal nature of the payments provided in subparagraphs 1–3 of § 1 of Art. 155 of the Merchant Shipping Code of the Russian Federation, in our opinion, cannot be reduced to “dead freight” as losses (or “liquidated damages assessed by the law”)¹⁴.

The implications of qualifying “dead freight” as the payment for the carriage of goods or as liability for infringement are of practical significance. The case to which we referred at the beginning of this article can perfectly illustrate the importance of properly qualification of “dead freight”.

As a reminder, the Court of First Instance held that the “dead freight” is the payment by the charterer for the carrier’s obligation to provide the vessel for the carriage of goods, rejecting the respondent’s arguments in regard to the qualification of “dead freight” as losses or penalty. In other words, the court considered that the “dead freight” was a service charge.

In the case commented upon, the court qualified the disputed contract as a contract on the organisation of carriage (Art. 68 of the Code of Inland Water Transport of the Russian Federation, Art. 118 of the Merchant Shipping Code of the Russian Federation, Art. 798 of the Civil Code of the Russian Federation), which expressly establishes the charterer’s obligation to provide the goods for carriage in the volume specified. The court in that case also found a breach of the charterer’s obligation to provide the volume of cargo agreed in the contract.

Since “dead freight” in such a case is losses, the related obligation of the carrier to mitigate losses also follows from this (Art. 404 of the Civil Code of the Russian Federation, § 5 of the Ruling of the Plenum of the Supreme Court of the Russian Federation dated March 24, 2016, N 7 “On application by courts of certain provisions of the Civil Code of the Russian Federation on liability for breach of obligations”). In the case under consideration as such an action can be assessed the entering into the substitute contract with another charterer by the claimant. A similar approach is also known in English law¹⁵.

In such a case, the carrier’s claim for recovery from the original charterer in the very substantial amount claimed could have been satisfied, but probably would have been less in view of the substitute agreement. Further, even taking into account the rules on the reasonableness of losses for recovery purposes, the amount of such losses must nevertheless be proved by the claimant, which also theoretically becomes an element of the respondent’s defense to the claim. In addition, the claimant’s mitigation of losses by other available means would need to be analysed, which could also potentially reduce their amount.

In practice, liquidated damages clause is used in the contract in order to facilitate the proof of this type of losses, in the absence of which the losses are usually calculated on the basis of the value of the freight for the relevant volume of cargo¹⁶. Such clauses are also referred to as dead freight clauses, by which the parties to a contract try to settle possible “dead freight” issues. In particular, the parties may set the amount of “dead freight” or limit the amount of “dead freight”. This is particularly relevant when a contractual and an actual carrier are involved¹⁷ and there is a need to reconcile the terms between the two contracts of carriage.

In foreign jurisdictions, for example, in English law, “dead freight” is considered as losses for breach of an obligation to provide an agreed volume of cargo for carriage. English judicial practice distinguishes between “dead freight” and freight as follows. “Dead freight” is a form of compensation to the shipowner when the charterer has breached his obligation to provide the full volume of the cargo agreed. Conversely, freight is a form of consideration or payment which the shipowner receives for the carriage of the cargo to the port of discharge. The two payments are entirely different in nature¹⁸. Solely to illustrate the approach to freight as payment for carriage, reference can also be made to the United Nations Convention on the Carriage of Goods by Sea, which in the section on definitions determines freight precisely as the remuneration payable to the carrier for the carriage of cargo under the contract of carriage¹⁹.

Domestic literature on the issue under consideration is extremely modest, although it tends to see “dead freight” as a loss, rather.

For example, it is noted that a “dead freight” is an “agreed freight as compensation for loss”²⁰ if the charterer breaches an obligation to present the agreed volume of cargo.

G. G. Ivanov contradictorily notes that the “dead freight” is to be recovered from the charterer as a property sanction, but then points out that the carrier has the right to receive full freight in case of departure of the vessel, if not all the vessel is provided for carriage. With respect to the charterer’s right to send a vessel on a voyage with an underload, the right to “dead freight” is also noted, i.e., that part of the agreed freight which is attributable to the cargo not loaded. The author’s use of the phrase “dead freight” in quotes allows to state that the author does not equate freight and “dead freight”, and this contradiction is probably due to the incorrect terminology in Articles 134 and 136 of the Merchant Shipping Code of the Russian Federation.

A similar position was expressed in the commentary to the Merchant Shipping Code of the USSR, where “dead freight” was named as some kind of compensation to the carrier²¹.

The judicial practice of that time noted the following. In the case No. 27/1982, considered by the Maritime Arbitration Commission, the arbitrators concluded that the income not received by the carrier, which he would have received if the obligation to load would have been executed, is a carrier’s forgone benefit, and, in freight practice, it is called “dead freight”²². In a similar vein “dead freight” was defined by English courts as liquidated damages for forgone benefit²³.

At the same time, even earlier arbitrators of the Maritime Arbitration Commission probably made some sort of distinction between “dead freight” and losses. This is illustrated by the case in which it was held that the shipowner was not entitled to “dead freight” or losses in the absence of evidence of a breach of contractual obligations by the charterer²⁴. However, the conjunction “or” may have been used not in the sense of opposition, but in the sense of synonymy.

In general, the Maritime Arbitration Commission’s practice on the issue of “dead freight” is not very extensive²⁵. For example, a claim against a charterer for demurrage and “dead freight” from a shipowner who had sent a vessel in ballast on a voyage was satisfied because the charterer refused to load since he had not been provided with a letter of indemnity from the buyer of the cargo²⁶. In another case, the arbitrators noted the shipowner’s obligation to prove the losses incurred as a result of the underloading of the vessel and dismissed the shipowner’s claim due to the fact that the vessel was unseaworthy²⁷. In the “dead freight” cases, arbitrators also noted that the shipowner has no right to “dead freight” until he proves that the underload of the vessel arose precisely from the charterer’s breach of his obligations under the contract²⁸.

The modern judicial practice on the matter of interest is also far from being more or less extensive. The courts, as a rule, correctly determine the economic meaning of “dead freight”, but not always its legal nature. The true purpose of “dead freight” is to put the shipowner in a position as if the charterer’s obligation to provide the agreed amount of the cargo had been fully discharged²⁹.

Accordingly, for example, in case No. A32-5629/2012, the courts, denying the counterclaims for the recovery of “dead freight”, noted that the “dead freight” is essentially losses arising from the underload of the vessel, “dead freight” is the freight payment made by the consignor for the freighted but unused space on the vessel³⁰.

In case No. A56-1661/2018, the court considered a claim for recovery of losses, which was expressed in the claimant’s payment of “dead freight” to the carrier. The court pointed out that the carrier had made a claim for losses to the claimant (payment for “dead freight”)³¹.

In some cases, the courts have referred to “dead freight” as a penalty. For example, the court refused to include in the debtor’s list of creditors’ claims the applicant’s claim in the form of his losses expressed in payment to a third party (a carrier) of a penalty for undercharging for unused space on a merchant vessel³².

It should be noted that the qualification of “dead freight” as a loss does not prevent a charterer from being held liable in the form of a fine for improper performance of the obligation to load a specified amount of the cargo. For example, in the Soviet times, such a fine was set at a certain percentage of the carriage charge for all the undelivered amount of cargo³³.

In case No. A53-1504/2020³⁴, considering the claim for recovery of demurrage and “dead freight” from the cargo bailee paid by the claimant to a third party, who was the buyer of the cargo, which, in turn, apparently paid these amounts to the shipowner. The court determined demurrage and “dead freight” as punitive damages.

However, such cases can be attributed to specific contractual terms where the parties mistakenly refer to the real penalty as the “dead freight”. A similar problem is often encountered in practice in relation to the vessel demurrage charges.

In practice, it is most commonly accepted to mention the “dead freight” specifically in relation to the carriage of goods by sea. However, due to its nature as losses, it seems that the “dead freight” as a more general category can also be referred to within the framework of relations, for example, on the chartering of vessels or even towing³⁵. Accordingly, e.g. it follows from § 2 of Art. 115 of the Code of Inland Water Transport of the Russian Federation that the shipper of the towed object is liable for it was not provided to be towed to the extent of the losses caused to the tower.

In a case before the Maritime Arbitration Commission, the arbitrators analysed the “dead freight” in the unusual context of a time-charter contract and unexpectedly as a kind of compensation for withdrawal from the contract set out in the parties’ agreement³⁶. Consequently, “dead freight” may not only be assessed as an institution of relations for the carriage of goods by sea precisely because of its legal nature as losses.

A claim for “dead freight” can be closely related to the disputes over the loss of the cargo and the determination of the actual amount of the cargo loaded onboard the vessel. It is not uncommon in practice for a bill of lading to include the amount of the cargo determined by shore measurements rather than reflecting its actual amount loaded onboard the vessel³⁷. If as a result of shipboard measurements and determination of the fact of absence of cargo loss or liability for its loss of the shipowner it will be determined that cargo is loaded in less amount than it was agreed in the contract, we consider that the “dead freight” can be said to be occurred.

Very often in practice contracts contain the a clause whereby that the charterer has the right to deviate more or less from the total amount of the cargo at his discretion, for example, 1000 tons +/– 10% of the agreed volume of the cargo (option clause). In such a situation the provision of 950 tonnes of the cargo by the charterer will not constitute the “dead freight” for the shipowner. However, in determining the amount of freight to be provided based on the amount of the cargo, it is incorrect to assert the existence of the “dead freight” for the shipowner if the charterer pays for 1,000 tonnes and actually submits 1,100 tonnes (subject to the maximum option). The difference of 100 tonnes in such a case does create a right of claim for the shipowner, but it is the freight debt because the “dead freight” is associated with the breach of contract. The implementation by the charterer of his option is not a breach of contract. In Russian law, this idea is confirmed by § 2 of Art. 164 of the Merchant Shipping Code of the Russian Federation, according to which if cargo is loaded abroad a vessel on larger amount than it is provided for under the contract of carriage of goods by sea, the amount of freightage shall be increased accordingly.

The dead freight shall also be recovered to the shipowner if the cargo has been loaded onboard the vessel in the volume agreed, but prior to the voyage was partially unloaded through no fault of the shipowner. Such a situation may arise, for example, as a result of analysing of the cargo and identification of its damaged condition. Accordingly, if the cargo is replaced with the cargo of proper quality, the shipowner will not be entitled to a “dead freight”.

Another common situation where “dead freight” may arise relates to the allowable draught of the vessel in the port and the corresponding allowable amount of the cargo affecting the draught of the vessel and the performance of the charterer’s obligation to provide the agreed amount of cargo. The problem arises when, from the point of view of navigation safety and seaworthiness of the vessel, based on the current draught, the master of the vessel cannot accept more cargo even if it does not reach the amount agreed in the contract and the charterer is ready to provide such cargo³⁸.

Therefore, it should be stated that courts do not fully understand the legal nature of the “dead freight”. However, the issue may have arisen from the perspective of recovery of “dead freight” as losses of a person who has already paid for “dead” freight, rather than specifically within the framework of the charterer-carrier relationship, as, for example, in case No. A56-84816/2015 where the court satisfied the claim for recovery of losses in the form of payment for freight to the sea carrier for unused space on the vessel (“dead freight”)³⁹. It is fair to note that in the prevailing judicial practice, claimants recover precisely losses in the form of payment of dead freight to a third party, while the court does not go into a detailed analysis of the nature of the dead freight in relationship with the carrier. In this sense, the case commented upon could be of practical significance for the purposes of clarifying the legal nature of “dead freight”.

In the case referred to at the beginning of the article, it is interesting to note the following circumstance. The Court of Appeal confirmed the erroneous, in our opinion, qualification of the “dead freight” as a freight. Without going into the reasons why the “dead freight” was qualified as a payment under the contract, the Court of Appeal evaded the answer in regard to this issue with reference to a previously considered similar case between the claimant and the respondent (“since the assessment of the parties’ relations as obligatory was given earlier in judgements on case № A13-2003/2018, based on which the dead freight on the results of navigation in 2017 and interest under Art. 395 of the Civil Code of the Russian Federation was recovered from the respondent.”). How the assessment of the relationship between the claimant and the respondent as obligatory affects the qualification of the “dead freight” as a payment under the contract or as losses in connection with its breach is absolutely unclear. It is fair to mention judgements in case No. A13-2003/2018 do not explain why the respondent’s argument is without untenable.

And yet, it seems that the legal nature of “dead freight” has never caused any significant difficulties and disputes in the international community. At the same time, it is striking that the issues lying in the more practical field of “dead freight” application still relevant today were discussed in detail in a comparative legal vein as far back as 110 years ago within the framework of the Comité Maritime International activities.

For example, the international community discussed the possibility of harmonization of national legislations of member countries in terms of regulation of freight (including “dead freight”) in 1909 at the Conference of the Comité Maritime International in Bremen. This initiative partly belonged to the French Maritime Law Association, which prepared a preliminary text of the proposed regulation.

The issue on the agenda was whether legislate the compensation to the shipowner (in the amount of half or all of the due freight) in case of breach by the charterer due to provision of only part of the cargo or avoidance of the contract, or whether to leave this issue within the existing law of compensation⁴⁰. It was emphasised that leaving the issue of the amount of “dead freight” in line of losses was more characteristic of English law, while legislation of continental law countries tended more towards the statutory system of assessing such compensation since the former way could lead to greater injustice than the latter.

As far as we are aware, the issue of “dead freight” was not specifically raised later in the Comité Maritime International deliberations⁴¹. It should be noted that the international community was far from unanimous on the issues of this regulation, and nevertheless, the Comité noted the significance of the discussions for the purposes of legal harmonization.

Finally, the second important issue should be concerned, which can be considered by the example of the case given at the beginning of the note, because the approach to it could affect such consideration. This is an issue of distinction between two situations: when the charterer either does not deliver the cargo for loading at all or deliver the cargo, but in a smaller quantity than was agreed by the parties.

We have already found out that in the latter case the consequence for the charterer is the liability for damages to the shipowner in the form of payment of “dead freight”. Is it possible to talk about “dead freight” in the first case?

A positive answer could be found to this question in the early literature: the authors pointed out that dead freight takes place if the charterer rescinded the contract before the expiration of the loading period⁴².

In fact, the answer to the first question may have two approaches. The first is the preservation of the contract and the payment of the “dead freight” in the amount of the value of the total shortfall. In such case, however, it is not clear what the economic purpose of the contract is if the carriage does not actually take place and the vessel leaves in ballast. This approach seems incorrect (and seems to have been chosen by the courts at the beginning of the case).

The second approach may consist of qualification of such actions of the charterer as refusal to perform the contract. Moreover, the failure to provide the cargo for carriage in one case may indicate the realization by the charterer of the right to an unmotivated waiver of the contract (Art. 155 of the Merchant Shipping Code of the Russian Federation), while in another case – a significant violation of the contract (this is always a matter of the court’s assessment of the specific circumstances of the case).

If, according to the circumstances of the case, it is clear that the charterer does not intend to transport the cargo, then it seems that it is precisely about the exercise of his right to unilaterally waive of the contract. If reasonable expectations, which are created for the carrier, depicts that the cargo will be delivered for carriage according to the contract, then it should be a significant breach of the contract by the charterer. Of course, in each specific case, taking into account the circumstances of the case, the answer may vary from one to the other.

Nevertheless, it is important that in two situations the consequences will be different. They will fit Art. 155 of the Merchant Shipping Code of the Russian Federation or, if there are no special rules on unilateral lawful refusal, consequences in the form of compensation to the contractor for the expenses actually incurred (§ 1 of Art. 782 of the Civil Code of the Russian Federation; or the application of Art. 155 of the Merchant Shipping Code of the Russian Federation by analogy). If there is a case of a material breach of the contract – recovery of damages to the contractor.

With regard to the legal dispute described at the beginning, it seems obvious that such refusal on the side of the charterer exists – a notification, stating that applications for transportation in navigation 2018 will not be submitted. However, the court assessed this evidence differently and did not see in it the will for unilateral unmotivated refusal of the contract, considering it as an unlawful refusal to perform the contract. It is obvious that with a different assessment of such evidence (in our opinion, evidently testifying to an unmotivated lawful refusal of the contract), the size of the penalty in favor of the plaintiff would be absolutely different.

* * *

Therefore, the following main brief conclusions can be drawn:

1. “Dead freight” is not a legal term used in the law, but rather an economic designation of some type of compensation, reimbursement to the shipowner for the difference between the volume of the cargo guaranteed by the charterer for transportation and the volume actually provided.

2. The claim for compensation of “dead freight” arises in the situation of breach of contract by the charterer and on the shipowner’s side only. It is a marine claim not secured by a maritime lien.

3. The legal nature of “dead freight” in Russian law is that it represents ordinary civil law losses with all the consequent requirements to their proof, as well as the need to comply with the obligation to mitigate them. However, “dead freight” can also take the legal form of liquidated damages and even a fine (penalty). ■

Notes