UK: Destruction By Fire Not A Mechanical Breakdown Under Laytime Exclusion Clause

Last Updated: 25 December 2012
Article by Jamila Khan and David Goldsmith

E.D. & F. Man Sugar Ltd v. Unicargo Transportgesellschaft mbH (Ladytramp) [2012] EWHC 2879 (Comm)

The Commercial Court has applied a narrow construction in this case to a laytime exclusion clause in respect of time lost at the load port. The delays were due to a fire that had completely destroyed the conveyor belt system linking the terminal normally used by the charterers to the warehouse where the sugar cargo was stored. Nonetheless, the court upheld the owners' claim for demurrage because it found that the destruction by fire was not a "mechanical breakdown", nor were the subsequent actions of the port authority "government interferences" under the relevant clause.

The background facts

The owners originally commenced arbitration against the charterers under a charterparty based on the Sugar Charter Party 1999 Form, claiming demurrage for a period of waiting at the load port at Paranagua, Brazil.

The charterparty provided for the vessel to "proceed to 1-2 safe berth(s), 1 safe port (intention Santos)...". Clause 28 was an exceptions clause, stating that time was not to count as laytime in certain specified circumstances:

"Clause 28: In the event that whilst at or off the loading place...the loading...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 appointment of the Officers and crew time so lost shall not count as laytime."

The charterers declared Paranagua as the load port at the time of the fixture. Prior to the vessel's arrival, however, there was a fire at the terminal normally used by the charterers. The fire destroyed the conveyor belt system linking the terminal to the warehouse where the sugar was kept. As a result, the charterers had to use a different terminal, although the berth they used was in any event one of the three which they would have used even if the fire not happened. The charterers sought to rely on clause 28 to avoid the owners' claim for demurrage in relation to the delays in loading.

The Commercial Court decision

Issue 1 – Should the charterers have nominated an alternative safe berth?

Mr Justice Eder held that the charterers did not need to nominate an alternative berth in order to rely upon the exceptions in clause 28. He disagreed with the tribunal's finding that the charterers had an obligation to nominate a berth where the cargo could be loaded and the fire and its effects did not make it impossible for the charterers to do so. There were a number of alternative berths at which the vessel could have loaded and, in the arbitrators' opinion, the charterers could not therefore invoke clause 28 because loading was only prevented or delayed in the sense that it became impossible to load at the berth originally intended.

The judge, however, said that the case was not about berth nomination but about whether there was prevention or delay in loading caused by a relevant excepted peril. There could be prevention or delay in loading prior to any valid nomination of a berth and delays consequential on the operation of an excepted peril may be covered by exceptions clauses. The charterers would have been entitled to require the vessel to wait until the original terminal was again usable, and the only question would have been whether there was "prevention or delay" during that period.The fact that the charterers could have made alternative arrangements and redirected the vessel did not mean that an excepted peril under clause 28 could not apply.

The difference in opinion between the tribunal and the judge on this issue proved to be irrelevant, however, as the judge then went on to agree with the tribunal that the wording of clause 28 did not cover the events in question.

Issue 2 – Did the destruction of the conveyor-belt system by fire fall within the words "mechanical breakdowns at mechanical loading plants"?

The tribunal and the judge both agreed that the destruction of the conveyor-belt system by fire was not a "mechanical breakdown". Clause 28 made no mention of fire as an excepted peril. Therefore, the question arose as to whether the phrase "mechanical breakdowns at mechanical loading plants" in clause 28 could apply to the damage in this case. It was held that it did not so apply, since the inoperability of the conveyor belt was a result of physical damage due to the fire rather than mechanical breakdown. The destruction of the conveyor belt system did not qualify as a "mechanical breakdown at mechanical loading plants", since destruction or even partial destruction is not within the term "breakdown".

Mr Justice Eder distinguished both The Afrapearl and the Thanassis A, where the relevant exceptions clause covered "breakdown of machinery or equipment". The present clause lacked the words "and equipment" and that pointed in favour of a narrower meaning. Furthermore, in the present case, the nature of the malfunction had to be "mechanical", which restricted the scope of the "breakdown" that must be established. Additionally, given that the exceptions clause made no mention of fire, the judge concluded that fire was not intended to be an exception to the running of laytime pursuant to clause 28.

The judge did, however, reject the owners' alternative argument that the exceptions clause only applied when the vessel became an arrived ship and the laytime clock started to run. Rather, he said, there was no requirement that the excepted event must occur (i.e. commence) while the vessel was "at or off the loading place" (the words used in clause 28).

Issue 3 – Did the decision of the port authority or other body responsible to reschedule loading/discharging at Paranagua in the light of the fire fall within the words "government interferences"?

Both the tribunal and the judge agreed that the phrase "government interferences" referred to an embargo or export ban, rather than administrative decisions such as re-scheduling. The tribunal had not found, as a matter of fact, that the port authority at Paranagua was a government entity, which would have been a requirement for the charterers to rely upon this clause. The court also agreed that the words "government interferences" were not intended to encompass a port authority performing its administrative functions. What was required was an act by a port authority, which was also a government entity, which amounted to a sovereign function and which differed from an ordinary administrative act of which any port or berth authority would be capable in the day-to-day management of a berth.

Comment

This case highlights that the English courts will analyse the precise wording of laytime exclusion clauses very carefully and that the outcome will depend to a great extent on the individual wording of the clause in question The overriding principle for construing limitation or exclusion clauses under English law remains, however, that, in the case of any ambiguity, they will construed against the party relying on them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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