Phibro Renewables AG v. Formosa Plastic Marine Corp. – SMA No. 4462, 25 July 2023

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This arbitration centered on disputes arising from a charterparty agreement between Phibro Renewables AG (“Charterer” or “Phibro”) and Formosa Plastic Marine Corporation (“Owner” or “FPMC). The charterparty, evidenced by a fixture recap dated September 23, 2019, involved the transportation of a cargo of 5,000 MTS of UCOME. Phibro contended that FPMC breached the charterparty by failing to timely deliver the cargo, leading to a claim for damages totaling $147,933.04 plus additional costs. FPMC disputed the breach’s time-sensitive nature and challenged Phibro’s claims for damages while also counterclaiming for $86,505.59 due to Charterer’s alleged failure to receive 7 metric tons of cargo.

Background Facts

The charterparty established the transportation terms, specifying the cargo’s characteristics, loading and discharge ports, laycan dates, freight rate, and vessel name. It also designated New York as the jurisdiction for arbitration and applied U.S. law. Notably, the agreement specified that pumping the cargo into the vessel was the Charterer’s responsibility while pumping it out of the vessel was the Owner’s responsibility.

Disagreements arose when Owner informed Charterer that the initially designated vessel might not be able to perform the loading. Phibro insisted on adhering to the charterparty’s terms, while FPMC proposed an alternate vessel (the M/T FORMOSA 33) and modified itineraries due to weather conditions. After several communications, the vessel was agreed upon by Phibro and the laycan was extended with Phibro reserving the rights to claim damages. However, after all of this was agreed upon, FPMC substituted the agreed upon Vessel for the M/T FORMOSA THIRTEEN without Phibro’s consent.

Complications further arose due to adjustments in the cargo’s specifications. Initially specified as having a Cold Filter Plugging Point (CFPP) of maximum 3°C, Phibro later altered to CFPP 0°C even though this would negatively impact the sale price for Phibro. This change was prompted by the vessel’s adjusted itinerary and potential delays, causing concerns about the cargo’s acceptability in the “winter market.”

Upon the vessel’s arrival at Pyeongtaek, the loading commenced, and 5,249.883 metric tons of UCOME with a CFPP of 0°C were loaded. However, during discharge at Long Beach, 7 metric tons remained on board due to tank capacity constraints. This situation led to disputes about the failure to deliver the full cargo.

The Arbitration

This arbitration’s central issues revolved around whether the charterparty breach occurred, whether time was of the essence for delivery, and the validity of the claimed damages. The conflicting interpretations of the charterparty’s terms, as well as the adjustments to the cargo’s specifications and subsequent impact, further complicated the matter. The proceeding involved a thorough examination of the contractual obligations, factual events, and evidence presented by both parties to determine liability, damages, and potential remedies.

Ken Biase, who was responsible for trading the tank assets in Long Beach on behalf of the receiving party (IPC/TAC) testified before the tribunal. He noted the creation of a new sale contract with TAC after TAC purchased IPC, and clarified the inclusion of CFPP in the contract was at Phibro’s request.

Jeremy Lunot, who was Phibro’s managing director, testified next. He explained that his request to change the CFPP specification from +3°C to 0°C was due to concerns about late delivery of the cargo. Lunot was worried that IPC/TAC might cancel their sales contract due to the late delivery, and in this case, the adjusted specification would make the cargo more sellable in the winter market.

Phibro claimed damages due to alleged breaches by FPMC, including late delivery, vessel substitution, and deviation from the itinerary. They argued the change in CFPP specification was due to concerns about delivery and resale options, and they disputed FPMC’s claims related to ROB and the alleged negotiations with IPC.

FPMC contested Phibro’s claims of damages, arguing that there was no evidence to support IPC would cancel the contract. FPMC claimed that Phibro had no real reason to alter the specification and therefore could not claim damages for lost profit due to these changes. FPMC also claimed that they were owed damages for discarding the 7 MTs of ROB when Phibro allegedly abandoned them because they could not be discharged at Long Beach.

The Panel’s Findings

The unanimous conclusion of the Panel was that FPMC breached the charterparty. This conclusion was based on the following:

1. Within four days of agreeing to the charterparty, the FPMC modified its estimated itinerary for loadports in Korea and the discharge port in Los Angeles.

2. On October 1, 2019, FPMC withdrew the vessel initially named in the fixture, MT Formosa 33, and replaced it with MT Formosa 13.

3. FPMC also unilaterally requested an extension of the laycan dates.

4. The Vessel experienced delays and reached the discharge port at Long Beach on December 1, 2019, significantly later than the original “L.A. 10/28 – 30” itinerary stated in the fixture recap.

FPMC did not dispute these breaches but rather argued that time was not of the essence for the delivery of the Charterer’s shipment of UCOME and that the damages claimed by the Charterer were unsupported by the evidence. The Panel, regardless of the essence of time, ruled that FPMC breached the terms of the charterparty agreed upon on September 23, 2019, and was thus liable for reasonable damages resulting from these breaches.

The Awards

The Charterer asserted a claim for a lost discount of $110,247.54. Phibro initially instructed to load the vessel with UCOME at +3°C, which would have granted them a $21 per metric ton discount. However, Phibro claimed to have later verbally instructed to load the vessel with UCOME at CFPP 0°C instead. The Panel relied on the previous decisions from Sprague Energy Corp. v. Levco Tech Inc., (D. Conn. May 11, 2009), and BP North Am. Petroleum v. ST Solar, 2000 U.S. Dist. LEXIS 623 (E.D. La. Jan. 25, 2000) in arriving at this conclusion.

Despite these claims, Phibro failed to provide any documented evidence of such instructions or corresponding communications, and the Sale Contract’s terms did not grant the Charterer an option to select a specific CFPP. The Panel concluded that the evidence did not support Phibro claim for the lost discount.

Phibro also sought damages of $30,867.50, representing the difference between the purchase price paid by TAC under the replacement contract and the price it would have paid under the IPC sale contract. FPMC argued that Charterer’s hedging activities should have been considered, but the Panel dismissed this argument, relying on precedent cases that similar hedging losses do not absolve the breaching party from liability. Consequently, the Panel awarded Phibro the claimed price differential damages.

The Panel agreed that discharge operations at Long Beach led to missteps on both sides. Phibro’s appointed surveyor failed to promptly inform them about the remaining 7 metric tons (MTs) of UCOME on board, while FPMC did not make an effort to clarify the situation before the vessel sailed. However, the arbitrators decided that it was the Owner’s responsibility to discharge the same quantity of cargo as loaded. The Panel ruled in favor of Phibro’s claim for non-delivery of the 7 MTs of ROB in the amount of $6,818.00, and FOMC’s counterclaim for damages related to disposal costs of the ROB and loss of slop tank use was rejected.

The charterparty’s arbitration clause permitted awards to include costs and reasonable attorney’s fees. Despite the breach being established, Phibro only proved a portion of its claimed damages, and FPMC’s counterclaim was unsuccessful. Both parties’ fees and expenses exceeded the principal claims. Thus, the Panel ruled that each party should bear its own fees and costs, with the Panel’s fees split evenly between them.