ARTICLE
2 January 2013

Force Majeure Clause Breaks Demurrage Indemnity Chain

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An FOB buyer at the top of a chain of sale contracts was unable to pass demurrage liability to its seller because the force majeure clause in the sale contract applied.
United Kingdom Transport

An FOB buyer at the top of a chain of sale contracts was unable to pass demurrage liability to its seller because the force majeure clause in the sale contract applied.

The Great Elephant Corp v Trafigura Beheer BV & Others [2012] case concerned a claim brought by the owners of the oil tanker "CRUDESKY" against the charterer, Trafigura, for demurrage and other sums incurred when the vessel was not permitted to leave Nigeria by the local authorities.

Trafigura bought a cargo of crude oil from Vitol on FOB terms and chartered the "CRUDESKY" to lift the cargo. Vitol had bought from China Offshore (Singapore) International Pte Limited ("COOSI") which in turn contracted with Total as the ultimate supplier.

When the vessel arrived at the Total terminal off Port Harcourt, Nigeria, the representative of the Nigerian Department of Petroleum Resources (the "DPR") was absent. Total sought clearance to load, by telephone, and, believing that verbal authorisation was given by the DPR's head of operations at Port Harcourt, the lifting supervisor gave instructions for loading to commence. The DPR's head office then issued clearance to load but later the same day the clearance was revoked. As a result, the necessary cargo documents were not completed and the vessel was, both practically and by law, prevented from leaving the terminal.

The Minister of Petroleum Resources required Total to pay a 'fine' of US$12m before the "CRUDESKY" was allowed to sail back to the terminal where the cargo documents were put on board. The vessel was therefore detained for a month and a half and the shipowner claimed demurrage from Trafigura.

The Court held that the vessel was on demurrage from the time laytime expired until the time when cargo documentation was put on board the vessel. The court further held that the first seven days' delay was caused by the lack of documentation and therefore the shipowner was entitled to demurrage at full rate. However, the subsequent delay was caused by an abuse or arbitrary exercise of power by the Minister in imposing the 'fine' which amounted to "arrest or restraint of process". Demurrage therefore counted at half the full rate under the vessel charter.

Trafigura sought to pass its demurrage liability to Vitol. Trafigura's claim was made on several bases, the first of which was Article 18 of the Nigerian National Petroleum Corporation ("NNPC") Conditions, which formed part of the sale contract. Trafigura alleged that there was a failure to comply with all relevant rules and regulations necessary for the performance of Vitol's obligations under the contract. Teare J accepted that Vitol (through Total) acted in breach of Article 18 but held that this caused the vessel's delay for the first seven days only and, thereafter, the delay was caused by the improper actions of the Minister.

Trafigura also sought to rely on the terms implied by the Sale of Goods Act 1979 alleging that Vitol had no right to sell the cargo, that the goods were not free from encumbrances and that Vitol breached the implied term of quiet possession. Teare J rejected the first two allegations and accepted the last but held that this only caused the first week's delay.

The court then considered the force majeure clause in the sale contract and concluded that Vitol's breaches were caused by an unforeseeable act or event which was beyond its reasonable control. Therefore Trafigura's claims against Vitol failed.

Whilst the decision is largely dependent on the facts, the case provides a useful illustration of the issues that an FOB buyer should be aware of when seeking to avoid demurrage liability incurred under the charterparty.

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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