UK: Destruction By Fire Not A Mechanical Breakdown Under A Laytime Exclusion Clause: Court Of Appeal Confirms Commercial Court Decision

E.D.& F.Man Sugar Ltd. v. Unicargo Transportgesellschaft GmbH (Ladytramp) [2013] EWCA Civ 1449

This was a dispute as to whether destruction by fire was a "mechanical breakdown" under Clause 28 (laytime exclusion clause) of the charter. The Tribunal and the Commercial Court applied a narrow construction of the laytime exclusion clause and concluded that fire was not "mechanical breakdown". The Court of Appeal upheld both the Tribunal's award and the Commercial Court's decision and, once again, ruled in favour of the Owners and found that they were entitled to demurrage.

The background facts

The Ladytramp was chartered on the Sugar Charter Party 1999 form for the carriage of bulk sugar from "1-2 safe berth(s), 1 safe port (intention Santos) but not south of Paranagua to the Black Sea (intention Odessa)". On 9 June 2010, the day of the fixture, the Charterers declared Paranagua as the loading port. On 14 June 2010, a week before the vessel arrived at the load port, the parties were informed that a fire had occurred at the terminal where they had initially scheduled the vessel to load the cargo. The fire had destroyed the conveyor belt system linking the terminal to the warehouse.

On 20 June, the vessel arrived at Paranagua and tendered notice of readiness. In the absence of an available berth, the vessel remained off the port until 14 July, when she entered the inner roads of the port awaiting berthing instructions. Loading commenced on 18 July and was completed at 1300 hours on 20 July. The vessel subsequently sailed for the discharge port in the Black Sea.

The Owners claimed demurrage and contended that time began to count at 1400 hours on 21 June 2010 and that laytime expired at 2353 hours on 25 June. Thereafter, the vessel was on demurrage continuously up to the time of completion at 1300 hours on 20 July. The Charterers disputed the claim, relying upon the laytime exclusion clause (Clause 28) of the charterparty, which provided:

The Charterers sought to rely upon Clause 28 on the basis that the loading of the vessel was prevented by "mechanical breakdown" (caused by the destruction of the conveyor belt system by fire) and also by "government interference" (resulting from the local port authority's refusal to allow loading by reason of the fire).

The arbitration award

The arbitrators found that the Owners were entitled to demurrage and made the following rulings:

1. The safe berth point: When the terminal intended to be used by Charterers became unusable as a result of the fire, the Charterers were still under an obligation to nominate "1-2 safe berths". The Charterers could have discharged their obligation to nominate a safe berth by nominating an alternative berth.
2. The fire and mechanical breakdown point: The inoperability of the conveyor belt was the result of the physical damage due to the fire rather than any mechanical breakdown.
3. The government interference point: The refusal of the port authority of Paranagua to permit vessels to load at the terminal in the light of the fire was not "governmental interference". The meaning of governmental interference in Clause 28 related to such things as embargoes and export bans rather than administrative decisions.

The Commercial Court decision

The Charterers appealed to the Commercial Court on the basis that the Tribunal had erred on all three points.

In relation to the "safe berth" point, Mr Justice Eder held that the Tribunal had asked the wrong question, i.e. whether the Charterers had a relevant legal obligation to nominate an alternative loading berth when the intended loading terminal became unusable by fire. This was not a case about berth nomination. It was about whether there was prevention or delay in loading caused by an excepted peril. There was no reason in principle nor in the charterparty wording that required the Charterers to nominate a berth as a precondition to the operation of Clause 28.

Most of the Commercial Court's judgment was focused on the mechanical breakdown point. The Judge upheld the Tribunal's decision. The Charterers argued that the Tribunal's finding was contrary to the Court of Appeal decision in the Afrapearl where it was held that the cause of the breakdown is immaterial and that there is a breakdown if the equipment does not function or if it malfunctions. The Court rejected this argument and held that as a matter of ordinary language and common sense, the destruction of an item was not within the scope of the term "breakdown", still less within the term "mechanical breakdown" (the Thanassis A (unreported) 22 March 1982, referred to in the Afrapearl). The inclusion of the word "mechanical" had the effect of restricting the scope of the "breakdown". What was required was a breakdown of a mechanical nature.

The "government interference" point was also upheld by the Judge. The Judge held that there was no finding that the port authority in Paranagua was a government entity or that the permission to berth at the intended terminal was suspended by the port authority. The Judge also agreed with the Tribunal that, as a matter of construction, the wording "government interference" requires more than an ordinary administrative act performed by a port authority as part of the day-to-day management operations.

The Charterers' appeal was dismissed but they continued with a fresh appeal to the Court of Appeal.

The Court of Appeal decision

The point of law before the Court of Appeal was whether the delay in loading the vessel at Paranagua was caused by "mechanical breakdown". The Charterers submitted that the Afrapearl led to the conclusion that there was a "mechanical breakdown" of the conveyor belt system, simply because as a result of the fire the machinery no longer functioned as a conveyor belt system. The Court of Appeal dismissed the appeal.

Lord Justice Tomlinson held that the clause under consideration in the Afrapearl (and in the Thanassis A) was concerned simply with "breakdown of machinery or equipment in or about the plant of the charterer, supplier, shipper or consignee of the cargo". In the present case, the clause under consideration was concerned with "mechanical breakdown at mechanical loading plants". It was not sufficient that the mechanical loading plant no longer functioned, or malfunctioned. The nature of malfunction had to be mechanical in the sense that it was the mechanism of the mechanical loading plant which ceased to function, or malfunctioned and caused the prevention of or delay to loading and the consequent loss of time. This connotes an inherent mechanical problem. Destruction of machinery by fire did not amount to a mechanical breakdown as "fire" was not an excepted peril under Clause 28.

Comment

This casedemonstrates the degree of scrutiny that the English courts are prepared to exercise when looking at exception clauses. Just because clauses are similarly drafted does not necessarily mean that they will be similarly interpreted. The Court of Appeal judgment in the Ladytramp emphasises this approach. Here, focus was placed upon the word "mechanical" to conclude that the nature of the breakdown is relevant. In addition, the cause of any delay must be capable of being brought within the ordinary meaning of the charterparty clause without any need to extend the meaning or imply additional wording. However, if the wording is ambiguous, the courts will apply the contra proferentem principle and will construe the clause against the party seeking to rely upon it.

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