The rule on payment of lump freigh is based on the following principle: the ship owner undertakes that he will carry the goods to the place of destination and the charterer undertakes that if the goods be delivered at the place of their destination he will pay the stipulated freight. Since sum which was agreed to pay as freight is fixed, two other factors, i.e. delivery of cargo at destination place play crucial role – the owner either paid in full or paid nothing.
Per Coleridge CJ in Merchant Shipping Co v Armitage (1873) LR 9 QB 99 at p.107:
To avoid all risk and all inconvenience between the parties to the contract, the lump sum was taken to represent that at which the one party was willing to hire and for which the other was willing to lend the ship for the stipulated voyage.
That being the interpretation of the contract, the question is, whether the non-delivery of a certain portion of the cargo interferes with the shipowners' right to this lump sum under the contract, whether in the terms of the contract "the cargo has been entirely discharged a delivered."
If it were a matter entirely free from authority there might be some ground for saying that "entire discharge and right delivery of the cargo" meant the entire discharge and right delivery of the cargo originally put on board. But the fair and reasonable construction of it, regard being had that the contract being for a lump sum, seems to me to be that which the Courts have already put upon similar contracts, - that the cargo is entirely discharged and rightly delivered, if the whole of it not covered by any of the exceptions in the contract itself is delivered. Now, in this case, the cargo which was not delivered and which was not discharged was not so delivered and was no discharged by reason of perils within the exceptions of the very contract itself; and, therefore according to these authorities, and according to the reason of the thing, it appears to me that the contract was complied with, and that the lump sum was earned, and that what has not been paid of the lump sum ought to be paid.
Per Coleridge CJ at pp.110-111:
The clause is: "A lump sum freight of 5000£, to be paid after entire discharge and right delivery of the cargo, in cash, two months after the date of the ship’s report inwards at the custom-house." Now, Mr. Williams says that, until the ship is discharged and there is a right delivery of the cargo, the lump sum is not due. It may possible be that verbally he is right. If so, what is the meaning of "the cargo"? In my opinion it is the cargo which she has to deliver. It does not mean the cargo she has shipped, but which she is not bound to deliver, which the shipowner is excused from delivering; it means the right delivery of the cargo which is to be delivered, not the right delivery of the cargo which was originally shipped on board of her. No there is a cogent argument in favour of this construction. Suppose that 5£ worth of these goods had been stolen by the crew, that would not be within the exceptions; then would it have possible to have said that the whole lump sum was lost? Would not the common rule have applied? The defendants would have had to pay the freight and seek their remedy by a cross action. If that is so, is it not very odd that the shipowner is worse off because he is not subject to an action than if he had been subject to an action, that is to say, he is worse off because fir caused the loss than he would have been if he had been owing to a depredation of the crew venture to think some interpretation must be put upon the clause to preclude the entire delivery of the whole cargo being a condition precedent.
Then Mr. Williams asks what would happen if nothing were delivered? I say, if that was so, then date from which payment was to be received would never have arrived, because it is a lump sum to be paid in cash after the entire discharge and right delivery of the cargo, two months after date of the ship’s report inwards at the custom-house. It must be after the right delivery of cargo, which supposes there would be a right delivery of the cargo before it is payable, and if there was none delivered, I suppose the event would never happen upon which the lump sum was to be paid. It may be said, it is a very odd thing that, if the ship brought in safety an hundred part of the cargo home, the entire 5000£ should be paid, whereas, if that hundredth part was lost, nothing should be paid. That, no doubt, may be a difficulty.