Emeraldian Limited v Wellmix Shipping, the Vine
DMC/SandT/12/03
England
Emeraldian Limited Partnership v Wellmix Shipping Limited and Guangzhou Iron & Steel Corporation Limited (The “Vine”)
English Commercial Court: Teare J: [2010] EWHC 1411 (Comm): 17 June 2010
VOYAGE CHARTERPARTY: WHETHER VESSEL’S OBLIGATION TO OBTAIN CLEARANCE BY PORT AUTHORITIES BEFORE GIVING NOTICE OF READINESS WAIVED FOR PURPOSE OF COMMENCEMENT OF LAYTIME: WHETHER CHARTERERS COULD RELY ON EXCEPTIONS TO RUNNING OF LAYTIME: WHETHER CHARTERERS IN BREACH OF SAFE PORT WARRANTY: WHETHER DEMURRAGE RECOVERABLE FOR DETENTION OF VESSEL
Available on BAILII @ http://www.bailii.org/ew/cases/EWHC/Comm/2010/1411.html
Michael Coburn QC and Charlotte Tan (instructed by Holman Fenwick Willan LLP) for Emeraldian, Claimants/Owners
Lionel Persey QC and David Walsh (instructed by DLA Piper UK LLP) for Wellmix, First Defendants/Charterers, and GIS, Second Defendants/Charterers’ Guarantors
Summary
Validity of Notice of Readiness (“NOR”): on the vessel tendering NOR to the loadport terminal, the terminal, on behalf of Charterers, waived the requirement for prior port clearance to be obtained before NOR could be validly tendered by signing the statement of facts which recorded that NOR was accepted before port clearance was granted.
Whether Delay Counted as Laytime: laytime was interrupted where the delay was caused by the need of the loadport to undertake repairs to the berth, as this fell within the laytime exception “partial interruptions to [the business of the] port”;
Whether Nominated Berth Safe: the nominated berth was not prospectively safe at the time of nomination because the damage to the berth at that time was such that the dangers presented were not ones that could have been avoided by good/ordinary navigation and seamanship. Owners were consequently entitled to recover detention for the vessel at the loadport at the demurrage rate.
Case note by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor of England & Wales, Foreign Qualified Lawyer (Practising Foreign Law) in Singapore, Associate at Hill Dickinson LLP and International Contributor to DMC’s Case Notes
Background
Owners voyage chartered the Capesize bulk carrier “Vine” to Charterers, evidenced by a fixture recap dated 3 December 2007, for a voyage from “1 or 2 safe berths, 1 safe port Itaguai, Brazil, always afloat” to China, with a cargo of 120,000MT of iron ore.
The charter incorporated the “SCALE terms”, which were taken from a long-term iron ore supply contract between Charterers’ Guarantors, Guangzhou Iron & Steel Corporation (GIS) of China, and CVRD International SA (subsequently known as Vale SA) of Brazil.
By clause 4.1 of the SCALE terms, Charterers were given about two and a half laydays, which would commence six hours after tendering notice of readiness (“NOR”). NOR could be tendered at any time after the arrival of the vessel at the loadport, provided clearance by the port authorities had first been obtained.
Clause 5 of the SCALE terms dealt with laytime. Clause 5.10 in particular, and so far as relevant, provided:
“5.10 Time lost as a result of all or any of the causes hereunder shall not be computed as laytime, unless vessel is already on demurrage: … (iv) Accident at the mines, railway or ports; … (viii) Partial or Total interruptions on railways or port; … (ix) Any cause of whatsoever kind or nature, beyond the control of Seller, preventing cargo preparation, loading or berthing of the vessel.”
The claim arose in relation to a dispute concerning about US$5m demurrage accruing whilst the vessel awaited loading of the cargo from Vale’s terminal at Itaguai (also known as Sepetiba). The vessel arrived at the loadport on 8 January 2008 but did not commence loading until 15 February 2008.
The judge determined that the delay in berthing the vessel on and after 8 January 2008 (when NOR was tendered to the loadport terminal) was caused by two incidents at the Vale terminal berth:
(1) The “Pacific Fortune” incident on 19 July 2007. This had damaged and made inoperative berthing dolphin D3, which was one of three berthing dolphins at the berth. In consequence, there was a need to repair D3, although a contingency plan was put in place to continue berth operations in the meantime.
(2) The “Nordstar” incident on 8 December 2007. This damaged and substantially impaired the operability of berthing dolphin D2 and caused the loadport terminal to plan for and commence repair works to D2 and D3 on and after 7 January 2008.
The primary dispute (the recoverability of demurrage/damages for delay caused to “Vine”) broke down into three sub-issues:
(i) The time when a valid notice of readiness was given;
(ii) Whether the delay in berthing count as laytime; and
(iii) If the delay in berthing did not count as laytime, whether the cause of that delay was a breach by Charterers of their obligation to nominate a safe berth.
This note focuses on the primary dispute. There was also a secondary dispute on the enforceability of GIS’s guarantee of Charterers’ obligations. In summary, a guarantee was issued in contravention of Chinese exchange control regulations, for want of GIS obtaining prior approval from the State Administration of Foreign Exchange, but this did not affect civil liability/enforceability of the guarantee against GIS under Chinese law. Further information on the secondary dispute can be read in the law report on BAILII.
Judgment
Validity of NOR
The vessel tendered NOR at 0038 hours on 8 January 2008, and the port authority granted clearance at 1020 hours on 12 January 2008. The statement of facts - signed by two representatives of the loadport terminal, CPBS (a company wholly owned by Vale) - recorded that port clearance was given at 1020 hours on 12 January 2008 but that the NOR was accepted at 0038 hours on 8 January 2008. The judge considered this to be clear evidence that CPBS had waived the requirement to obtain port clearance before tendering NOR. In applying The “Northgate” (fn.1), the judge held that laytime commenced 6 hours after the vessel tendered NOR to the loadport terminal on 8 January 2008.
Whether Delay Counted as Laytime
Charterers primarily relied on clause 5.10(viii) to argue that there was a partial interruption of the business of the port, which stopped laytime from running. Charterers alternatively submitted that there was an accident at the port under clause 5.10(iv) or there was a cause beyond Charterers’ (or Vale’s) control preventing berthing and loading of “Vine” under clause 5.10(ix). In relation to the latter, Charterers argued that “Seller” was to be read as “Charterers” or, if read as Seller, it was to mean Vale only, and not CPBS, the terminal operator. CPBS was, therefore, to be considered as separate from Vale. That in turn meant that the repairs that CPBS had instituted was a cause was beyond the control of Vale.
Owners took the position that clause 5.10(iv) and (viii) were, as a matter of construction or implication, subject to sub-clause (ix), which required an event to be beyond the control of the Seller. Because CPBS was a wholly owned subsidiary of Vale, to whom Charterers and Vale had delegated their loading obligations, none of the events or causes was beyond Seller’s control, since it was CPBS’s decision to instigate repairs when they did.
The judge had no problem in finding that there had been an interruption to the running of laytime under clause 5.10(viii) due to partial interruption of the business of the port by the implementation of repairs to the berth, which had in turn interrupted the berthing and loading of “Vine”. As the Vale/CPBS berth was only one of several berths at Sepetiba, the repairs to it did not amount to a total interruption of port business.
The judge did not consider that clause 5.10(ix) required that a cause, such as the ‘interruption of the port’ under clause 5.10(viii), had to be ‘beyond the control of the Seller’. This followed as a matter of construction, since not all events listed in clause 5.10 would have a connection with the actions of the Seller, and this conclusion did not flout business common sense.
However, the judge accepted Owners’ submission that the principle in B&S Contracts v G. Publications (fn.2) applied to clauses which stated which events did not count as laytime. That principle was that “for a party invoking exceptions such as are invoked by the Charterers [it was necessary] to show that the event in question was beyond his control and there were no reasonable steps he could have taken to avoid or mitigate the event or its effects”.
Owners argued that the charterparty placed on Charterers the duty to load the cargo and to do so within the laydays. The berth was operated by CPBS and not by Charterers. Charterers therefore had to delegate the performance of their duty to CPBS. That was the only way in which they could discharge their duty to load. Thus, as between Owners and Charterers, CPBS was under the control of Charterers. In consequence, Charterers had to take responsibility for CPBS’s decision to effect the repairs to the berth at the time they did. However, the judge held that the duty which Charterers had delegated to CPBS was the duty to load a cargo of iron ore on “Vine” when she issued her NOR on 8 January 2008. He accepted that if, during the course of such loading CPBS delayed in completing loading, Charterers would not be permitted to say that the delay was beyond their control. But it did not follow that an earlier failure to repair D3 by November 2007 had to be attributed to Charterers. When failing to repair D3 by that date, CPBS was not performing a duty, or failing to perform, a duty delegated to them by Charterers.
With regard to clause 5.10(iv) – “Accident at the mines, railway or port” – the burden on Charterers to show that the time was lost by reason of “accidents” required them to adduce evidence that the repair work to D3 could not realistically have been done before January 2008 with the result that, notwithstanding the passage of time, the “Pacific Fortune” accident in July 2007 was a cause of the lost time in January 2008. No such evidence was adduced. In those circumstances, the judge concluded that Charterers were unable to bring the loss of time within the accident exception.
As regards clause 5.10(ix) - “Any cause of whatsoever kind or nature, beyond the control of Seller, preventing cargo preparation, loading or berthing of vessel” – the judge held that Charterers were unable to show that the time lost in January 2008 was beyond the control of the Seller. The “Seller” was Vale SA and the berth was operated by its subsidiary CPBS. There was no evidence that CPBS could not have repaired the berth in 2007 had it wished to do so.
Safety of Loadport
Charterers warranted the prospective safety of the CBPS/Vale berth when they nominated that berth on 3 or 4 December 2007 for the expected visit of “Vine”.
Owners said that it was not safe and that, as a result of that unsafety the “Nordstar” incident was caused, which in turn led to delay in berthing “Vine”. The judge noted that this was a somewhat unusual use of the safe berth warranty, since it applied the warranty to events concerning a vessel other than that in respect of which the warranty was given.
In applying the classic definition of a safe port in The “Eastern City” (fn.3), the judge held that, on the factual and expert evidence, the circumstances that led to the necessity to repair berthing dolphin D2 were such as to make the nominated port prospectively unsafe for the period when “Vine” would be there at the time the nomination was made. Two incidents prior to the “Nordstar” incident had exerted excessive force on D2, causing it to lose its original capacity to absorb force, so that, in the event that a berthing vessel made contact first with D2, the risk of damage to D2 was greater than it would otherwise have been. This, in the judge’s view, contributed to the unsafety of the berth.
That the berth was in fact unsafe followed from a number of additional factors:
(1) The requirement to berth by the stern at a slight angle by contacting D1 first was unsafe because ordinary navigational skill and care could not guarantee that this would always be achieved (to achieve this required “very careful control”);
(2) The port “set up” was defective in that:
(i) There was no system for advising the master of “Vine” that D3 was a potential hazard, that D2 was not adequate to receive the first contact from a Capesize bulk carrier (such as “Vine”) and the berthing plan was to contact D1 first;
(ii) The pilots were not aware of the danger to D2 in contacting it first;
(iii) The combined effect of (i)-(ii) made the safe execution of a stern-on berthing less
likely than would otherwise have been the case.
The judge further held that these aspects of port unsafety were the cause or, at least, an effective cause of the “Nordstar” incident, which in turn caused the delay in berthing “Vine”. The judge consequently gave judgment against Charterers on the basis that the delay in berthing “Vine” was caused by the unsafety of the berth. The demurrage rate was the agreed rate of damages for delay/detention, in accordance with Inverkip Steamship v Bunge (fn.4).
Comment
In relation to the safe port warranty, the judge considered this to be a “somewhat unusual use of the safe berth warranty, which applied the warranty to events concerning a vessel other than that in respect of which the warranty was given”. While counsel for Charterers argued that use of the safe berth warranty had been challenged in closing submissions, the judge pointed out that the objection had not been developed, so considered that this argument was not challenged as a matter of law. As a result, this point may be open to challenge on a full hearing of substantive argument if/when in contention in future. On the other hand, the use of a safe port/berth warranty where the cause of delay is another vessel and there is no physical damage to the delayed vessel is not unprecedented: see The “Count” (fn.5).
Footnote 1: [2007] EWHC 2769 (Comm), [2008] 1 Lloyd’s Rep 511, [56]-[115] – as to which see DMC’s CaseNotes @ http://archive.onlinedmc.co.uk/OceanPride%20v%20QingdaoOcean.htm.
Footnote 2: (1984) ICR 419.
Footnote 3: [1958] 2 Lloyd’s Rep 127 (HL), 131, a safe port is “one which the particular ship can reach, use and return from without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship” - note that “good” and “ordinary” navigation and seamanship are the same thing: The “Carnival” [1994] 2 Lloyd’s Rep 14 (CA), 30.
Footnote 4: [1917] 2 KB 193 (CA), 203.
Footnote 5: [2006] EWHC 3222 (Comm), [2008] 1 Lloyd’s Rep 72.
