Classic Maritime Inc v Limbungan Makmur Sdn Bhd and Another – Court of Appeal (Haddon-Cave, Males and Rose LJJ) [2019] EWCA Civ 1102 – 27 June 2019

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CONTRACT OF AFFREIGHTMENT – FORCE MAJEURE – CLAIMED DAMAGES – CHARTERERS OBLIGATION TO PROVIDE CARGO – “BUT FOR” TEST – COMPENSATORY PRINCIPLE – OWNER’S APPEAL – CHARTERER’S CROSS-APPEAL

After Charterers were found not liable for the damages incurred due to their failure to provide cargo for multiple shipments, Owners then appealed to the Court of Appeal on the damages incurred from the missed shipments whilst Charterers cross-appealed on their liability to provide the cargoes basis the agreed force majeure clause.

[dropcap]U[/dropcap]nder a long-term contract of affreightment (hereinafter, “COA”) for the carriage of iron ore pellets from Brazil to Malaysia, Owners claimed damages against Charterers in respect of five shipments that would have taken place between November 2015 and June 2016. The iron ore pellets were sourced and shipped through from two different Brazilian mining companies, Samarco Mineracao SA (hereinafter, Samarco), and Vale SA (hereinafter, Vale).

However, on 5 November 2015 the Fundão dam in Brazil, where iron ore was mined, collapsed, and subsequently stopped production. As a result of the dam burst, Samarco was no longer an operable source of cargo for the Charterer. And although operations at Vale was not affected by the dam burst, Vale was unable or unwilling to supply the iron ore pellets to Charterers. Ultimately leaving Charterers unable to supply cargoes for the shipments under the COA.

Charterers relied on Clause 32 of the COA, stating that the dam burst was considered a force majeure event, and as a result of such event, Charterers were to be omitted from the liability for failing to provide the cargoes of iron ore pellets. The relevant clause in part is as follows:

Clause 32 – Exceptions: Neither the vessel, her master or Owners, nor the Charterers, Shippers or Receivers shall be Responsible for loss of or damage to, or failure to supply, load, discharge or deliver the cargo resulting from: Act of God … floods …. accident at the mine or Production facility … or any other causes beyond the Owners’ Charterers’ Shippers’ or Receivers’ control; always provided that such event directly affect the performance of either party under this Charter Party …

There was no dispute as to whether the dam burst qualified as an “accident at the mine”. Rather, the dispute arose in determining whether the dam burst had any causative effect on the shipments that should have otherwise occurred between November 2015 and June 2016.

Given the five shipments would still have not been performed even if the dam collapse had not occurred, it was Owner’s position that the dam collapse did not allow the Charterer to rely on Clause 32 as the dam collapse had no causative effect. Although the dam collapse may have explained why Charterers failed to obtain the cargo from Samarco, such an event was not legally relevant in terms of Charterer’s new sole supplier, Vale. Charterers assumed an absolute obligation under the COA to provide the cargo and ultimately failed to make adequate arrangements to do so when it came time for such shipments. Owners test to determine the appropriate reliance on Clause 32 was the “but for” test. Of which Charterers failed to prove that “but for” the dam collapse Charterers would have still been able to supply the cargo for the five shipments in question.

However, Charterers argued it was not required for them to make any alternative arrangements in anticipation that the original arrangement may fail. Rather, in the case that the original arrangement failed due to an excepted peril, the Charterers would then be excused from the liability given the Charterers promptly respond in acquiring the cargo by alternative means. Charterer’s test to determine the appropriate reliance on Clause 32 was to prove the dam collapse made it impossible for the Charterers to fulfil their obligation to provide the cargo. Of which Charterers claimed that, as a direct result of the dam collapse, they were unable to provide the cargo.

Originally held, the evidence showed Charterers could not prove that “but for” the dam collapse Charterers would have still been able to provide the cargo of iron ore pellets. As a result, Charterers were found not entitled to rely on Clause 32 in efforts to excuse their failure to supply the cargoes for the five shipments in question.

Regarding Owners efforts to recover the substantial damages for the freight that was not earned due to Charterers failure to provide the cargoes, the Judge applied the compensatory principle of comparing Owners present position with the position of what Owners would have been in had Charterers been able and willing to supply the cargo for the five shipments “but for” the dam collapse. If Charterers had been willing and able to supply the cargoes “but for” the dam collapse, such cargoes would not have been shipped as a direct result of the dam collapse and no freight would have been incurred regardless. Thus, it was originally held that Owners were not entitled to the substantial damages caused from Charterer’s failure to provide cargo for the missed shipments despite Charterers being found unable to rely on Clause 32 to excuse such failure.

Owners then appealed to the Court of Appeal for the damages incurred from the five missed shipments whilst Charterers cross-appealed on their liability to provide the cargo for such shipments.

It was held, that Charterer’s cross-appeal would be dismissed on the basis that the dam collapse was found not to have directly affected Charterers obligation to provide cargo for the missed shipments under the COA. Likewise, Charterer’s failure to fulfill such obligation was found not to have been a direct result of the dam collapse.

Whereas the Court of Appeal found that the judge originally misapplied the compensatory principle in regards to the issue of damages. The correct comparison that was to be made in this case was between Owner’s present position as a result of Charterer’s failure to supply the cargoes and Owner’s position had the shipments occurred. If Charterers would have supplied the cargoes, Owners would have then earned over $19M in freight from the five shipments in issue. As such, Owner’s appeal was allowed and was found entitled to the $19,869,573.00 in damages in respect to the five missed shipments of iron ore pellets under the COA.