The Court of Appeal has now handed down its decision, dismissing charterer’s appeal against an earlier High Court decision and reaffirming the finding that charterers were liable to pay demurrage under the terms of a Sugar Charter Party 1999 for delays following a fire at a sugar terminal in Brazil in 2010. ED&F Man Sugar Ltd v Unicargo Transportgesellschaft GmbH [2013] EWCA Civ 1449. ED&F Man Sugar Ltd, chartered the “Ladytramp” from her disponent owners under an amended Sugar Charter Party dated 9 June 2010 to load at “1-2 safe berth(s)”. The intention had been to load at charterers’ normal terminal at Paranagua, but on 14 June 2010, a week before the vessel was scheduled to arrive at the load port, a fire destroyed the conveyor belt system that linked the terminal and warehouse.
As a result, and because according to local experts the terminal was rendered inoperative for at least three months, charterers ordered the vessel to load at a different terminal at Paranagua. The “Ladytramp” anchored off Paranagua on 20 June, tendered notice of readiness at 23:30 hrs that day, eventually berthed on 15 July, and completed loading and sailed on 20 July.
Owners claimed demurrage of almost $400,000 for the period waiting to load at Paranagua. Charterers denied any liability for demurrage on the basis that the delay did not count as laytime because it had been caused by a fire that had destroyed mechanical loading equipment.
Clause 28 of the Charter Party provided for the following exceptions to laytime:
"In the event that whilst at or off the loading place or discharging place the loading and/or discharging of the vessel is prevented or delayed by any of the following occurrences: strikes, riots, civil commotions, lock outs of men, accidents and/or breakdowns on railways, stoppages on railway and/or river and/or canal by ice or frost, mechanical breakdowns at mechanical loading plants, government interferences, vessel being inoperative or rendered inoperative due to the terms and conditions of employment of the Officers and Crew, time so lost shall not count as laytime."
The charterparty required disputes to be referred to arbitration in London. The tribunal decided that clause 28 did not apply because while the original berth was inoperative they were entitled to nominate any safe berth and therefore they were only “prevented or delayed” from loading because it was impossible to do so at the intended berth. Moreover, even if charterers could have brought themselves within clause 28, exception clauses are construed contra proferentem. The clause did not refer to fire, the breakdown of the conveyor belt system was the result of physical damage, not mechanical breakdown, and this was not a case of government interference.
Charterers appealed, unsuccessfully, to the English High Court. However, the Court did not agree with the tribunal that clause 28 did not apply since there was no requirement to nominate a berth as a precondition to the operation of clause 28. However, the appeal failed because none of the exceptions listed in clause 28 applied – for a discussion on the ‘Government Interference’ point, see: http://www.steamshipmutual.com/publications/Articles/Ladytramp0613.htm.
In their recent appeal to the Court of Appeal, charterers tried to persuade the Court that the delay in loading the vessel at Paranagua was caused by a "mechanical breakdown" and was thus within clause 28. Charterers argued that it was sufficient to show that the loading machinery was unable to perform its required function to establish that there was a “mechanical breakdown” at the loading plant, which would trigger clause 28.
Tomlinson LJ disagreed, noting:
“The arbitrators' finding is that there was complete destruction of the conveyor belt system, which on the approach of Robert Goff J, approved by the Court of Appeal, involves something more than a breakdown. However, in my view, by no stretch of the imagination can the arbitrators' finding be regarded as one of mechanical breakdown. The arbitrators' only finding is that the conveyor belt system was destroyed by fire. If that involves a breakdown it is not without more a mechanical breakdown. As Eder J rightly observed, this clause is concerned with the nature of the breakdown. Mr Young's argument amounts to saying that if machinery does not work, there has been a mechanical breakdown. I do not agree. That is not so where the only finding is that the machinery has been destroyed by fire.”
The reference to the approach of Robert Goff J in an earlier decision was in relation to The Thanassis A. In this case, the oil pier at the loading port was damaged by a tanker which collided with it and when addressing the question what was meant by “mechanical damage", Goff J said:
“In those circumstances, I turn back to the clause again, and I ask myself whether what occurred can reasonably be described as a case of a breakdown of machinery or equipment. In my judgment the answer must be in the negative. So far as the damage to the jetty is concerned, I do not see how that can properly be described as breakdown of machinery or equipment. Plainly the jetty is not machinery; plainly it is not equipment. Furthermore, complete destruction of part of the facility would appear to involve something more than a breakdown. In those circumstances I do not see that the words in question are wide enough to embrace what happened in the present case.”
As such, machinery destroyed by fire and a “mechanical breakdown” are not one and the same thing – “I would only add that complete destruction of part of a facility is not only something more than a breakdown, it is plainly something different in kind from a mechanical breakdown, although equally plainly a mechanical breakdown might lead to complete destruction of all or part of a mechanical loading plant, whether through fire or through some other mechanism.” (Tomlinson LJ) – and charterer’s argument that the cause of the lost time was within clause 28 was rejected. Therefore, they remained liable to pay demurrage for the time lost as a result of the delay in loading at one terminal that had its roots in an incident at another terminal.
In English law, if a party to a contract seeks to benefit from the terms of an exclusion, exception or exemption clause in the contract, such as clause 28 in this case, then they must bring themselves clearly within its terms, without the need to extend the meaning or imply additional wording. The decision in the “Ladytramp” illustrates this and is a useful reminder of this principle – the contra proferentem rule.
Can the matter be remitted to the arbitrators to consider new evidence?
The Court of Appeal’s decision in the “Ladytramp” also touched on an interesting side issue. Charterers of the “Ladytramp” had a different vessel, the “Ziemia Zamojska”, on charter, which had also suffered delays as a result of the same fire in Paranagua. The demurrage claimed by the owners of the “Ziemia Zamojska” as a result of the delays was subject to an entirely separate arbitration; however, subsequent to the award and appeal of the “Ladytramp”, charterers’ lawyers in the “Ziemia Zamojska” arbitration had attended in Brazil and obtained evidence that a mechanical breakdown may have started the fire. As such, because of the significance of a factual finding that the fire had been caused by a mechanical breakdown, charterers sought to argue that it was a matter for the “Ladytramp” tribunal whether this new evidence could be admitted for them to consider and if necessary make further findings of fact. The Court of Appeal disagreed:
“It would be highly inappropriate to remit the matter to arbitrators…It would be doubly inappropriate for the charterers now to be permitted to introduce fresh evidence which, had they thought it relevant, they could have obtained for use at the arbitration”.
As with any tribunal or court, decisions are made based on the facts as presented at the time of any hearing(s). However, an appeal from an English arbitration decision is only possible in limited circumstances as defined by the Arbitration Act 1996. These are set out at section 67 – substantive jurisdiction, section 68 – serious irregularity, and section 69 – on a point of law. The application for appeal had been made under section 69 alone, and charterers had previously sought to argue that the cause of the fire was irrelevant.
What about the recent fire at the Santos sugar terminal?
This recent decision is particularly relevant in light of the recent fire at Copersucar’s sugar terminal at Santos. The terminal was burnt to the ground, together with 180,000 tons of sugar and it is expected that it will be several months before the operations are restored. The consequences of the fire for owners and charterers who have agreed to carry sugar from the Copersucar terminal, usually under the Sugar Party Charter Party 1999, are discussed in a separate article: http://www.steamshipmutual.com/publications/Articles/SugarFire311013.htm.
Article by Alexandra Lamont.
