Great Elephant v. Trafigura Beheer BV and Others (Crudesky)  EWHC 1745 (Comm) and  EWCA Civ 905
Ince & Co recently represented Vitol Asia and Vitol S.A. before the Court of Appeal in the matter of the Crudesky. The case arose out of the loading of a cargo of crude oil in late August/early September 2009 at the Akpo FPSO Terminal (the "Terminal") off the coast of Nigeria, which is operated by Total.
The background facts
The key facts, as summarised by the Court of Appeal, were as follows:
- China Offshore Oil ("COOSI") sold and Vitol Asia bought a parcel of 1 million barrels of Akpo Condensate for delivery FOB at the Terminal. Shortly thereafter, Vitol Asia sold the same quantity on the same terms to Vitol S.A., who in turn on-sold the cargo to Trafigura, also on FOB terms.
- Trafigura nominated the Crudesky ("the Vessel"), which it had already chartered from Great Elephant Corporation as disponent owners ("Owners"), on an amended BP Voy 3 form.
- The Vessel arrived at the Terminal on 29 August 2009. The Master tendered NOR at 00.01 on 30 August and laytime under the charterparty began at 06.01 that day. The Vessel berthed on 31 August and hose connection was made, but loading could not begin because the export valve was padlocked and no representative from the Department of Petroleum Resources ("DPR") was present with a key to unlock the padlock - the DPR representative at the Akpo Terminal having left the previous day without informing Total and without the permission or approval of the DPR in Port Harcourt.
- As a result, Total's lifting supervisor, Mr Bankole, telephoned the DPR office at Port Harcourt to ask when a DPR representative would arrive at the Terminal and was informed that a Mr Idoniboye would arrive sometime on 1 September. Mr Bankole then discussed the matter further with DPR's Head of Operations at Port Harcourt, Mr Pepple, and asked if it would be possible to begin loading while the DPR representative was not present at the FPSO. Later on 31 August, following that conversation, the padlock on the export valve was cut on Mr Bankole's instructions and loading began.
- Mr Idoniboye arrived at the Terminal on 1 September. At about the same time, Total's Lagos office asked for written clearance for loading from the DPR in Lagos. The Lagos office was the "official" office authorised to grant loading clearance, not the DPR in Port Harcourt which had been approached by Mr Bankole. Written clearance was granted by the DPR in Lagos later that afternoon and Mr Idoniboye was told to print out the clearance given but he was unable to do so because of printer issues with his computer. At 21.00 hours, loading was completed and, about that time, Mr Idoniboye received notification that the DPR in Lagos had revoked the clearance it had given earlier. At 21.54, hoses were disconnected and, at 22.18, the vessel was unmoored from the FPSO and began to drift. She could not leave because she had not received documents evidencing the loading of the cargo.
- At 09.19 on 3 September, the laytime allowed by the charterparty expired and the vessel was thereafter on demurrage.
- On 7 September, the DPR in Lagos sent two letters. The first was to Total noting that loading had proceeded without requisite clearance and saying that Total's actions were viewed by the Federal Government as an economic crime. They threatened appropriate sanctions. The second letter was addressed to the Chief of Naval Staff requesting the Navy's assistance in ensuring that the vessel be prevented from sailing away pending resolution of the matter by the Federal Government. Naval personnel proceeded to board the vessel on 9 September and remained on board after the time she dropped anchor at the Bonny offshore terminal, a distance away from the Terminal.
- Discussions on resolving the crisis continued until 9 October, when the Ministry of Petroleum Resources wrote to Total requiring them to pay a fine of US$12 million and requiring them to discipline the personnel of Total who had "perpetrated the dastardly act". The DPR also wrote to the Chief of Naval Staff to say that the vessel would be allowed to sail away once the fine was paid.
- On 13 October Total paid the required fine and the Vessel was released. She sailed back to the Terminal and disembarked the Nigerian naval personnel. Thereafter, the DPR completed the cargo documentation and the Vessel sailed for the port of discharge.
The detention of the Vessel gave rise to a claim by Owners against Trafigura under the charterparty, for demurrage and other sums. The charterparty provided:
"21. Laytime/Demurrage/Force Majeure
Any delay(s) arising from adverse weather or sea state conditions, fire, explosions, breakdown ... or failure of equipment, plant or machinery in or about ports or places of loading and/or discharge, Act of God, act of war, labour dispute, strike, riot, civil commotion or arrest or restraint of princes, rulers or peoples shall, provided always that the cause of the delay(s) was not within the reasonable control of Charterers or Owners or their respective servants or agents, count as one half laytime or, if the Vessel is on demurrage, at one half of the demurrage rate."
Trafigura sought to pass on its liability, if any, to its sellers Vitol S.A. The contract between these parties provided for certain exceptions to laytime and demurrage which included:
"Article 21 (the Force Majeure clause):
"Neither the Seller nor the Buyer shall be held liable for failure or delay in the performance of its obligations under this Contract, if such performance is delayed or hindered by the occurrence of an unforeseeable act or event which is beyond the reasonable control of either party ("Force Majeure") ...
The act or event constituting Force Majeure shall include, but not [be] limited to
i.Act of God
ii.Act of Government intervention, directive, or policy (whether war, Federal or State Government)."
Vitol Asia in turn sought to pass that down the chain to its supplier COOSI.
There was no dispute between the Vitol companies, which had bought and sold on back to back terms, but there were some differences between the terms of the Vitol S.A./Trafigura and the Vitol Asia/COOSI contracts, which gave rise to further disputes relating to the Vitol parties' ability to pass claims up and down the sale and purchase chain.
The first instance decision
At first instance, Mr Justice Teare held that the Vessel was on demurrage from 3 September until 7 September 2009. However, he held that, from 7 September 2009 onwards, the delay was caused by an "arrest or restraint of princes" in that the underlying reason for the delay was an abuse or arbitrary exercise of power by the Nigerian Minister of Petroleum Resources, such that Owners were only entitled to half-demurrage from that point forwards.
The Judge further held that, as between Trafigura and Vitol, Vitol were contractually required to comply with the Terminal Procedure Guides and Vitol could only comply with the Guides through the Terminal Operator. Since Total had not complied with the Guides, Vitol were themselves in breach which caused delay to the Vessel at any rate until 7 September. He also found that Vitol were in breach of s.12(2)(b) of the Sale of Goods Act 1979 (relating to quiet possession) on the grounds that, as the Vesselwas prevented from leaving Nigeria once loading was complete, Trafigura's possession of the goods was not "quietly enjoyed" but rather was forcibly interrupted in the period 1-7 September 2009.
COOSI was, in turn, also held to be in breach of s.12(2)(b) as regards the contract between it and Vitol. Further, COOSI had failed to obtain loading clearance, which was an "official authorisation" of the kind referred to in clause A2 of Incoterms for FOB contracts (which were incorporated into the contract between Vitol and COOSI); the duty to obtain that clearance before loading was an absolute obligation, not one of "best endeavours" and, accordingly, COOSI was in breach of that obligation.
However, Mr Justice Teare also held that since Mr Pepple had given permission to load the cargo and to break the padlock it was not foreseeable that the DPR would refuse to issue cargo documents and so prevent the departure of the Vessel and her cargo. As a result, Vitol was entitled to rely on the force majeure clause in the contract between itself and Trafigura, which operated to prevent Trafigura from making any recovery from Vitol, despite Vitol's breaches. Vitol did not, therefore, have any liability to pass on to its FOB sellers, COOSI.
Trafigura appealed. Vitol brought a contingent appeal against COOSI, in the event that they were held, on appeal, to have a liability to Trafigura, and Owners brought a cross-appeal in relation to the finding by the Judge that they were only entitled to half-demurrage from 7 September onwards.
The Court of Appeal decision
The appeal was heard by Lords Justice Longmore, Underhill and Tomlinson.
Giving the leading judgment, with which both Lord Justice Tomlinson and Lord Justice Underhill agreed, Lord Justice Longmore held as follows:
- The delay was not beyond Total's reasonable control: it was within Total's control to choose whether to seek clearance from the DPR representative in Port Harcourt rather than via the official channel of communication with the DPR in Lagos before the vessel began to load. That choice carried a risk and it was within Total's control to choose whether or not to take that risk.
- For the purposes of the charterparty, Total were Trafigura's agents in relation to the loading of the cargo. Further, Total were both Vitol's agents insofar as the contract between Vitol and Trafigura was concerned and COOSI's agents insofar as the contract between Vitol and COOSI was concerned in relation to loading.
- The parties could not take advantage of the force majeure clauses in the various contracts since to do so would be to allow the parties to rely on those clauses to excuse their own breaches in circumstances where the breaches had in fact given rise to the alleged force majeure event. We discuss this further below.
- The chain of causation was not broken from 7 September onwards by reason of the actions of the Minister of Petroleum Resources, since those actions could not be said to "wholly supplant" the original cause of the delay - Total's breaches of the applicable Procedure Guides. Accordingly, Owners were entitled to full demurrage for the entirety of the period of delay.
In reaching his decision, Lord Justice Longmore also considered the force majeure clause contained in the contract between Vitol and COOSI, which differed from the force majeure clause in the Trafigura/Vitol contract in that in the former, the force majeure event had to be unforeseeable.
During the hearing, Counsel for Vitol had argued that the reasoning in Fyffes Group Ltd v. Reefer Express Lines Ltd (Kriti Rex)  2 LLR 171 should be applied and that an FOB seller could not excuse itself from performance of a contractual obligation following a failure on the part of its agents properly to load the cargo with all necessary consents; such a failure would not bring a seller within the ambit of a force majeure clause. In contrast, Counsel for COOSI had argued that the decision in Coastal (Bermuda) Petroleum Ltd v. VTT Vulcan Petroleum S.A. (No.2) (Marine Star)  2 LLR 383 was authority for the fact that a reference to "sellers" in a force majeure clause, should be restricted to the sellers themselves and not their agents, such that an FOB seller would be able to bring itself within the ambit of a force majeure clause where the failure was not a direct failure by the seller, but rather a failure by its agent.
Lord Justice Longmore found against COOSI on this point, approving the Kriti Rex judgment and holding that if a party is contractually responsible to do something (for example to load a cargo or obtain clearance to load), then it cannot rely on its own absence of control where it has delegated responsibility for that obligation to a third party. The position in this case could be differentiated from that in the Marine Star No. 2, since that was a CIF contract concerning a sale of goods that had already been shipped and, accordingly, questions of delegation of personal contractual responsibility did not arise. COOSI had not proved that Total's actions were beyond its reasonable control and, accordingly, could not rely on the force majeure clause to excuse its breaches.
The Judge also dismissed COOSI's arguments on s.12(2)(b) of the Sale of Goods Act 1979 and the interpretation of Incoterms, upholding Mr Justice Teare's findings that: (i) there had been a breach of Vitol's quiet possession (and dismissing COOSI's argument that since Vitol had immediately resold on the same terms to Trafigura, there was no "possession" by Vitol at any relevant time), and (ii) the obligation to obtain official authorisations as set out in clause A2 of Incoterms for FOB contracts was an absolute obligation, not one of "best endeavours", such that COOSI was in breach of that obligation.
Whilst eventually the Owners' claim succeeded and was passed down the contractual chain in full, this case illustrates the potential pitfalls of having a string of contracts which are not quite back to back.
Further, a party seeking to rely on a force majeure clause will not be able to do so where it has delegated responsibility to a third party for an obligation that it has contractually undertaken to fulfil, and the events were not beyond the control of that third party. The case of the Marine Star No. 2 does set out a possible exception to this where, on a true construction of the contractual wording, a reference to the "sellers" was held to be restricted to the selling party in the relevant contract, such that the seller in question was able to rely on the force majeure clause even though the events in question were not outside the reasonable control of a seller further up the contractual chain. However, the judgment in the Marine Star No. 2 was based on the particular facts of that case and the wording of the sale contract in question and it appears that this exception is likely to be narrowly construed by the courts.
The Court of Appeal's decision is also reassuring for a party in the middle of a chain of sale and purchase contracts in that it confirms that such a party does have a right to quiet possession, pursuant to s.12(2)(b) of the Sale of Goods Act 1979, even if that possession is only momentary before it passes on to a party further down the chain. And, finally, there is now authority for the proposition that, unless the contrary is expressly stated, obligations under Incoterms are absolute and not limited to "best endeavours".
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.