368. Great Elephant Corporation v Trafigura Beheer BV (The “Crudesky”) [2012] EWHC 1745 (Comm); [2013] EWCA Civ 905

Demurrage – delay caused by Terminal Operators’ failure to adhere to loading regulations – liability for demurrage ensuing for TO’s principals

 The Facts

 The vessel loaded crude oil at the Akpo FPSO (Floating Production Storage and Off-loading unit), Port Harcourt, Nigeria, pursuant to a BP Voy 3 form contract.

Loading was subject to extensive governmental regulation which required inter alia, the presence of an official to unlock the padlock securing the export valve through which the oil was pumped onto the vessel.

In the absence of the designated official, the Terminal Operator severed the padlock and loaded the vessel in violation of the regulations.  This violation led to the vessel being detained by the authorities for 7 days in which the circumstances of the loading were investigated.  After this, and once the facts had been established, a demand was made by the Nigerian government for the payment of a heavy fine to secure the release of the vessel.  The imposition of the fine, which was paid by the TO,  delayed the vessel for a further 7 days.

The following clauses of the charterparty were relevant:

“If vessel delayed for more than 3 hours after hoses disconnected for charterers’ purposes or waiting cargo documentation, then full time to count”; and

“Any delay(s) arising from arrest or restraint of princes shall provided always that the cause of the delay(s) was not within the reasonable control of charterers count at one half laytime, or if the vessel is on demurrage at one half of the demurrage rate”.

In a trial involving multiple parties, disponent owners claimed demurrage from charterers who claimed indemnities from a chain of FOB sellers of the cargo.

Findings

Teare J upheld the claim for demurrage in respect of the first seven days.  He considered the imposition of the fine as restraint of princes (based on expert evidence of Nigerian law) and held that the appropriate rate was half the demurrage rate.

Notwithstanding that he found that violation by the Terminal Operator was a breach of the charterparty (the TO’s conduct being attributed to the charterers) rendering charterers liable for demurrage, he found that the effect of the same violation, i.e. refusal by the authorities to allow the vessel to leave, was an event beyond the reasonable control of the sale parties, and so, force majeure for the purposes of the sale contracts.  On this basis he refused indemnity up the chain of FOB sales.

Longmore LJ, in the Court of Appeal (Tomlinson and Underhill LJJ concurring), found that the fine imposed by the Nigerian Government was neither “restraint of princes” nor was it sufficient to break the chain of causation arising from the Terminal Operator’s violation, a breach attributable to the charterers.

In the result, the shipowners were entitled to full demurrage for the entire period of delay.

Also, he held that the effect of the violation, i.e. the refusal on the part of the authorities to allow the vessel to sail, was not an event beyond the reasonable control of the FOB sale parties (their agent, the TO’s conduct being the subject of the enquiry).

In the result, liability could be passed up to the original FOB sellers.

Commentary

 The difference between the two courts, ultimately rested on the estimation of the violation.

Longmore LJ was not impressed by the Terminal Operator’s exculpatory account of events.  Teare J, on the other hand, did not view this stark instance of self-help in a serious light.

Longmore LJ resolved the inherent contradiction in Teare J’s approach which labeled the Terminal Operator’s violation as a breach in respect of the one contract but at the same time grounds for force majeure in the others.

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