In the case of DGM Commodities Corp v Sea Metropolitan S.A. [2012], the Receivers' refusal to discharge a shipment of frozen chicken landed the Charterers with a demurrage bill in excess of USD 3.5 million.
Background
DGM Commodities (Charterers) chartered the vessel "ANDRA" from Sea Metropolitan SA (Owners) under a voyage charterparty on the Gencon form, to carry a cargo of frozen chicken from the United States to St Petersburg. The sales contracts between the Charterers and the Russian Receivers provided for release of the cargo against payment. The vessel arrived in St Petersburg in December 2007, but commencement of discharge was delayed whilst Receivers paid for the cargo in a piecemeal fashion. Once discharge finally commenced (after laytime had expired and the vessel was on demurrage), one hold was found to be contaminated with gasoil. Discharge from the rest of the vessel continued, but discharge of the contaminated hold ceased.
As the Owners were liable for the gasoil leak, the Receivers refused to accept the rest of the cargo until payment of a cash settlement was received. The Owners offered security for damages in the form of a letter of indemnity from their P& I Club, pending resolution of the dispute and full assessment of the extent of the damage. However, this was rejected by the Receivers, who continued to refuse to discharge the contaminated cargo. In the meantime, the Russian Veterinary Service placed an order over the cargo "suspending" its discharge.
Eventually, in October 2008, the Owners paid a cash settlement to the Receivers, the Veterinary Service lifted the order, and the contaminated cargo was re-exported. Charterers were held liable for demurrage to the tune of US$ 3,605,630.
The present case was the appeal by the Charterers to the Court of Appeal, under s69 of the Arbitration Act, whereby the Charterers sought to overturn the first instance decision by submitting that the arbitrators had erred in law in rejecting their submission of frustration of the Charterparty.
Findings
The appeal was dismissed. It was found that the true frustrating event was not the Veterinary Service order, which was a temporary prohibition of the discharge, but the act of the Receivers in refusing to discharge the contaminated goods. The Receivers could have procured the lifting of the order at any time, as they eventually did when they received the settlement sum demanded from the Owners in November.
Notwithstanding, the Charterers had no actual control over the Receivers in this case, the Receivers were not party to the Charterparty, and it was the Receivers' conduct which delayed the discharge. The charterparty was not deemed to be frustrated, and the Charterers were held liable for demurrage. The Charterers' duty to discharge under the Gencon charterparty is non-delegable. Even if the Veterinary Service order had been a frustrating event, the Charterers would not have been able to rely upon it to avoid liability for demurrage, because it was the Receivers' conduct in refusing to discharge that effectively kept the order in place.
Concluding advice to any charterer in light of this case
Check the terms of your charterparty carefully. If you are under a non-delegable duty to discharge (as you most probably are), you will need to ensure any corresponding sales contract acknowledges that and forces a receiver to discharge in any circumstances except force majeure, with an indemnification for any losses incurred as a result of receivers' failure to discharge for any other reason.
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.
