England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
Mr Justice Eder
[2012] EWHC 2879 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/11/2013

Lord Justice Tomlinson :

1. By a charterparty on the Sugar Charter Party 1999 Form dated 9 June 2010 the "Ladytramp" was chartered by her disponent owners Unicargo, the Respondents on this appeal, to the well-known sugar trader ED & F Man, the Appellants. I will refer to these parties hereafter as simply the owners and the charterers. The charter was for the carriage of bulk sugar on a voyage from 1-2 safe berth(s), 1 safe port (intention Santos) but not south of Paranagua to the Black Sea (intention Odessa). A dispute has arisen as to charterers' liability for demurrage at the load port, which was in the event Paranagua, as nominated by charterers on the day of the fixture itself. Owners claimed demurrage in the sum of US$ 397,912.77 in respect of a period spent waiting to load at Paranuaga. The dispute was referred to arbitration. The arbitrators, Mr John Tsatsas and Mr Christopher Moss, upheld the claim for demurrage and awarded the owners the amount claimed plus interest and costs. On an appeal brought pursuant to s.69 of the Arbitration Act 1996, Eder J, sitting in the Commercial Court, upheld the award, albeit not on the principal ground relied upon by the arbitrators. Now there is a further appeal to this court, brought with permission of the judge himself. He was persuaded to grant permission to appeal in the light of the circumstance that the charterers face other claims for demurrage arising out of the same circumstances as gave rise to the delay to the Ladytramp.
2. Clause 28 of the charterparty provides as follows:-

"In the event that whilst at or off the loading place or discharging place the loading and/or discharging of the vessel is prevented or delayed by any of the following occurrences: strikes, riots, civil commotions, lock outs of men, accidents and/or breakdowns on railways, stoppages on railway and/or river and/or canal by ice or frost, mechanical breakdowns at mechanical loading plants, government interferences, vessel being inoperative or rendered inoperative due to the terms and conditions of employment of the Officers and Crew, time so lost shall not count as laytime or time on demurrage or detention."

3. The issue in this case is whether the charterers have demonstrated, the burden being on them, that the delay in loading the vessel at Paranagua was caused by mechanical breakdown. There is no dispute that the mechanical breakdown, if there was one, was at a mechanical loading plant.
4. As is nowadays common in relation to a relatively modest claim for demurrage, the arbitration was conducted on the basis of written submissions and supporting documents without an oral hearing. The submissions on each side were prepared by experienced shipping solicitors, Messrs Waltons and Morse for the owners and Messrs Jackson Parton for the charterers.
5. At the time of the fixture the vessel was discharging at Abidjan. It was due to sail for Brazil on 10 or 11 June. The arbitrators made the following findings:-

"13. In an email dated 14 June 2010, namely a week before the vessel arrived at the loadport, the local agents (MARCON) advised the parties that a fire had occurred at the Compania Brasiliera Logistica S/A terminal (CBL) which, they later said, is the terminal normally used by the charterers and where, they stated, they had initially scheduled the vessel to load. The fire had destroyed the conveyor-belt system linking the terminal to the warehouse rendering it, in the opinion of local experts, inoperable for at least 3 months. They further expressed the view that charterers would need to transfer the cargo intended for the vessel to another terminal.

14. In an email dated 15 June 2010 the agents advised the parties that they were instructed to change the vessel's berthing programme to the Pasa terminal in Paranagua. On the same day the agents emailed the owners directly to say that they had spoken to the charterers and had persuaded them to change the berthing programme to said alternative terminal where "they also have enough cargo". The agents further informed the owners that the Pasa terminal had a long line up and that the contemplated berthing programme would be revised involving a long waiting time.

15. The vessel arrived on 20 June 2010 and tendered notice of readiness to load at 2330 hours. The Statement of Facts showed that in the absence of an available berth the vessel remained off the port until 14 July 2010, when she weighed anchor and entered the inner roads of the port awaiting berthing instructions.

16. In his written statement Mr Lemos, the agents' Operations Manager, explained that in fact, because the charterers "could not get sugar to the Pasa Terminal as quickly as hoped" yet another berth, the Centro Sul Serviços Mar?timos (Centrosul) Terminal, which is adjacent, but unconnected to the CBL warehouse, was judged to provide the charterers with the fastest option to obtain replacement sugar for loading. An application for berthing at Centrosul terminal was accordingly made to the port authority and the vessel berthed there (and not at the Pasa Terminal) on 15 July 2010. In the event, berth 212, that was ultimately used, was one of the three (212, 213 or 214) where the vessel would have berthed had the fire not taken place. Loading commenced on 18 July 2010 and was completed on 20 July 2010 at which time the vessel sailed for the discharging port in the Black Sea.

17. In accordance with the charter party terms (recital 9) the owners contended that time began to count at 1400 hours on Monday 21 June 2010 and that allowing for rain periods and permissible laytime (23,500 metric tons @ 6,000 metric tons per weather working day = 3.91666 days) laytime expired at 23.53 hours on 25 June 2010. Thereafter the vessel was on demurrage continuously up to 1300 hours on 20 July 2010, when loading was completed."

6. In answer to the owners' claim the charterers relied upon Clause 28 of the charterparty. They contended that "as a result of the fire the mechanical breakdown of the conveyor belt system meant that loading of the vessel was delayed" – Jackson Parton submissions of 6 September 2011 at paragraph 6. In the same document the charterers contended that "there are no restrictions on the nature of the breakdown or how it was brought about" – paragraph 7. The charterers pointed out that a mechanical breakdown could itself be a cause of a fire, or of the fire, but made no attempt to prove what had been the cause of this fire. Their submission was that "the result of the fire at the BCL terminal was that there was mechanical breakdown of the conveyor belt system at the load plant" – Jackson Parton submissions of 28 August 2011, paragraph 13. As to the precise nature of a mechanical breakdown, the charterers said this, at paragraph 9 of Messrs Jackson Parton's submissions of 6 September 2011:-

"It is submitted that if the relevant piece of machinery or equipment is unable to perform its required function then that is sufficient to establish mechanical breakdown and thereby bring the event within the ambit of Clause 28. This submission is supported in case law, namely The "Afrapearl", Portolana Compania Naviera Ltd v Vitol SA Inc [2004] EWCA Civ 864. [2004] 1 WLR 311, [2004] 2 Lloyd's Law Rep. In that case the test for breakdown was whether or not a sealine (a pipe) ceased to function as a pipe. Applying the same test here the fundamental question is, whether or not the conveyor belt system ceased to function as a conveyor belt system. The answer is irrefutable, it ceased to function as a conveyor belt system and therefore on any conceivable view there was mechanical breakdown."

7. As the judge records, in essence the tribunal concluded that the charterers were unable to rely upon Clause 28 of the charterparty for two reasons which are now relevant:

i) It was the obligation of the charterers, when the CBL terminal became unusable due to the fire, to nominate an alternative berth and the fact that the CBL terminal was unusable did not mean that the charterers were unable to perform their obligation to nominate "1-2 safe berths" for loading the contractual cargo. Clause 28 did not apply to that obligation unless the CBL terminal had been "named" in the charterparty so as to render the charterers unable (from a legal standpoint) to nominate an alternative berth. There were a number of alternative berths at which cargo could have been loaded. As it was not impossible for the charterer to nominate a "safe berth" where the cargo could be loaded, the only sense in which loading was "prevented or delayed" was that it was impossible to load at the berth originally intended. The arbitrators described this as "the short answer" to the charterers' reliance upon Clause 28;

ii) Clause 28 made no mention of "fires" as an excepted peril and "in common sense terms" the inoperability of the conveyor belt appeared to have been the result of physical damage due to the fire rather than any mechanical breakdown.

8. In the light of the argument before this court, I set out below the arbitrators' reasoning on the mechanical breakdown point. This was founded of course upon their finding at paragraph 13 as to the destruction of the conveyor belt system linking the terminal to the warehouse. I should also explain that paragraph 69 of the arbitrators' reasons deals with charterers' attempted reliance upon "government interferences" as additionally bringing them within the protection of Clause 28, an argument not pursued before us following its rejection by both the arbitrators and the judge. Paragraph 70 of the arbitrators' reasons, which I set out below, is therefore dealing with both mechanical breakdown and government interferences:-

"68. However, as the owners emphasised, exception clauses such as Clause 28 in any event have to be construed strictly against the party relying upon them and Clause 28 contained no mention of 'fires'. Nor was it easy to see how the phrase "mechanical breakdowns at mechanical loading plants" could apply in the present case, since in common sense terms the inoperability of the conveyor belt appeared to have been the result of physical damage due to the fire rather than any mechanical breakdown.

. . .

70. Even if the charterers had been in a position to invoke Clause 28, we concluded therefore that they would nevertheless have faced considerable difficulties in persuading us that they were entitled to rely upon any of the specific force-majeure events set out in that clause."

9. The question of law upon which the charterers sought and were granted permission to appeal to the High Court was:-

"Whether delay in loading caused by and/or in consequence of a fire which destroys mechanical loading equipment (and/or a port authority's re-scheduling of loading following such destruction) counts as laytime under the Charterparty and whether the fact that loading thereunder at "1-2 safe berths" is lawfully relevant to the operation of Clause 28 of that Charterparty." (sic)

It should be noted that whilst that question encompasses the debate whether what here occurred resulted in a mechanical breakdown, consistently with the way in which the charterers put their case before the arbitrators it does not suggest that it is relevant to investigate the cause of the fire.

10. The judge decided that the arbitrators' first reason for concluding that the charterers were unable to rely upon Clause 28 was flawed. Even if the charterers were under an obligation to nominate an alternative berth (which in fact they were not, see the Vancouver Strikes Case, Reardon Smith v The Ministry of Agriculture [1963] AC 691) still it would not follow that there could be no prevention of or delay in loading while that is being done or that charterers are necessarily precluded from reliance upon Clause 28. There is no challenge to the judge's conclusion in this regard.
11. It was because the arbitrators thought that there was a short answer to charterers' reliance upon Clause 28 that they dealt "as succinctly as [they could]" with the mechanical breakdown point. However, in agreement with the judge, I consider that they came to the right conclusion. On the facts which they were invited to and did find, there was in my view no mechanical breakdown of the conveyor belt system. It is possible that further investigation, not undertaken by the parties before the arbitration, might have revealed that the fire had itself been caused by mechanical breakdown, but the charterers advanced no evidence before the arbitrators with a view to establishing that this was the case. Indeed, as I have shown, the charterers asserted that the cause of the fire was irrelevant. Accordingly, in my view the charterers have simply failed to establish that they are entitled to invoke the protection of Clause 28.
12. It was the submission of Mr Timothy Young QC for the charterers before us, as it had been before the judge, that the decision of this court in The "Afrapearl" compels the conclusion that there was, on the arbitrators' findings, a mechanical breakdown of the conveyor belt system, simply on the footing that as a result of the fire the machinery no longer functioned as a conveyor belt system. I do not agree. It seems to me that Mr Young's argument overlooks that the clause under consideration in The "Afrapearl", and in the earlier decision of Robert Goff J in Olbena SA v Psara Maritime Inc, The "Thanassis A" unreported, 22 March 1982, was concerned simply with "breakdown of machinery or equipment in or about the plant of the charterer, supplier, shipper or consignee of the cargo". The clause which we have to consider is concerned with "mechanical breakdown at mechanical loading plants". The judge put his finger on the point when he observed, at paragraph 24 of his judgment, that unlike in The "Afrapearl" and The "Thanassis A" the nature of the breakdown is here relevant. He went on, at paragraph 24 of his judgment:-

". . . In other words, it is not enough that the mechanical loading plant in question simply no longer functions, or malfunctions (irrespective of the cause of the malfunction). The nature of the malfunction must be mechanical in the sense that it is the mechanism of the mechanical loading plant which ceases to function, or malfunctions, and causes the prevention of or delay to loading (and the consequent loss of time). This connotes an inherent mechanical problem, as distinct from a wider or external cause."

I respectfully agree, save only that I would accept Mr Young's point that one cannot rule out all external causes, such as for example the proverbial "spanner in the works" which could properly be described as giving rise to a mechanical breakdown. It is no doubt unwise to essay an all-embracing definition. It is sufficient to dispose of this appeal to hold that destruction of machinery by fire does not without more amount to a mechanical breakdown for the purpose of Clause 28.

13. In The "Thanassis A" the oil pier at the loading port was damaged by a tanker which collided with it. The damage included damage to the jetty and to oil pipes running along it. The arbitrator found that there had been "complete destruction of part of the facility", which might have been a reference to a destruction of part of the jetty itself, and possibly also to destruction of part of the piping. Robert Goff J first rejected an argument that breakdown should in this context be limited to something involving an inherent defect in the machinery or equipment. It appears that he might well have accepted that argument had the clause referred simply to breakdown of machinery. However, since the clause envisaged that there might be a breakdown of "equipment", which might include, for example, a pipe, Robert Goff J could see no reason why a breakdown should not in this context include a breakage in the pipe. He went on to observe that in construing that particular clause, the cause of the breakdown is immaterial. It had been similarly immaterial in construing the words "detention by ice to be for account of charterers, unless caused by breakdown of steamer" in Re an Arbitration between Traae and Lennard & Sons Limited [1904] 2 KB 377. There a ship on a voyage from Spain to St Petersburg stranded in the Baltic and was so damaged as to be unfit to continue without repairs. She put into Copenhagen for repairs and, after the necessary repairs had been effected, sailed for St Petersburg. However on arrival at Rival she was unable to proceed further by reason of ice at St Petersburg. Had she not grounded she would have reached St Petersburg, discharged her cargo and got away from that port before it was closed by ice. Ridley J and the Court of Appeal rejected the argument that "breakdown of steamer" is not an apt term by which to describe damage caused by stranding. Sir Richard Henn Collins MR observed succinctly that "This steamer, in my opinion, undoubtedly broke down in consequence of stranding." The precise cause of breakdown was evidently regarded as irrelevant. It was in this context that Robert Goff J observed, in The "Thanassis A" at page 4 of the transcript:-

"In my judgment, although I am not dealing with the same clause and I must construe this particular clause in its context, here too the cause of the breakdown is immaterial. It could be some external agent, or it could be some internal defect in the machinery or equipment, but if the machinery or equipment does not function, and possibly also if it malfunctions, then there is a breakdown of the machinery or equipment. So I reject the first argument advanced by Mr Gross."

14. None of this in my judgment casts very much light on what is meant by "mechanical breakdown in mechanical loading plants". Of rather more relevance however is the manner in which Robert Goff J dealt with the next argument, that the damage to the jetty and oil pipes should be regarded not as a breakdown of machinery or equipment but rather as a complete destruction of part of the facility. In that regard Robert Goff J said this:-

"In those circumstances, I turn back to the clause again, and I ask myself whether what occurred can reasonably be described as a case of a breakdown of machinery or equipment. In my judgment the answer must be in the negative. So far as the damage to the jetty is concerned, I do not see how that can properly be described as breakdown of machinery or equipment. Plainly the jetty is not machinery; plainly it is not equipment. Furthermore, complete destruction of part of the facility would appear to involve something more than a breakdown. In those circumstances I do not see that the words in question are wide enough to embrace what happened in the present case. As I read the Award, I think this is the approach which the arbitrator himself adopted. So, on that simple ground, it seems to me that Mr Tomlinson's appeal must fail."

I would only add that complete destruction of part of a facility is not only something more than a breakdown, it is plainly something different in kind from a mechanical breakdown, although equally plainly a mechanical breakdown might lead to complete destruction of all or part of a mechanical loading plant, whether through fire or through some other mechanism.

15. I do not consider that Mr Young derives any support from The "Afrapearl". That case was concerned with a gap in a flange connecting two sections of pipeline. At first instance, [2003] 2 Lloyd's Rep 671, I considered it inappropriate to describe as a breakdown the gap in the flange which permitted a leak which delayed loading. The Court of Appeal disagreed however, in part and perhaps principally on the basis that the cause of the malfunction was irrelevant. At paragraph 21 Clarke LJ said:-

"It does seem to me that a distinction should be drawn between a breakdown and its cause. To my mind Mr Justice Robert Goff was right to draw that distinction. As I see it a breakdown of equipment such as the discharge pipe occurs when it no longer functions as a pipe. The cause of the breakdown may be a hole in the pipe or, as here, a gap in way of the flange which prevents the pipe operating as a discharge pipe. The hole may of course be caused in a number of different ways and for a number of different reasons. One of those reasons will commonly be the fault of someone concerned with the operation of the equipment, here the pipe."

However, to my mind the more relevant part of the judgment of Clarke LJ for present purposes is paragraph 10, where he said this:-

"It is not, as I see it, possible to define the expression "breakdown of equipment in or about the plant of the consignee" in a vacuum. It is necessary to consider whether there was such a breakdown by reference to the facts of that particular case and in the context of the particular charterparty. Like any provision of a contract it must be considered in the context of the contract as a whole, which in turn must be viewed against its factual matrix or surrounding circumstances."

So here, the emphasis must be on the particular words used in the clause and the facts as found by the arbitrators. Neither The "Thanassis A" nor The "Afrapearl" are authority for the proposition that the result of the fire was that there was a mechanical breakdown of the conveyor belt system. For my part I do not consider that those authorities justify the conclusion that there was here a breakdown of the conveyor belt system. The arbitrators' finding is that there was complete destruction of the conveyor belt system, which on the approach of Robert Goff J, approved by the Court of Appeal, involves something more than a breakdown. However, in my view, by no stretch of the imagination can the arbitrators' finding be regarded as one of mechanical breakdown. The arbitrators' only finding is that the conveyor belt system was destroyed by fire. If that involves a breakdown it is not without more a mechanical breakdown. As Eder J rightly observed, this clause is concerned with the nature of the breakdown. Mr Young's argument amounts to saying that if machinery does not work, there has been a mechanical breakdown. I do not agree. That is not so where the only finding is that the machinery has been destroyed by fire.

16. Polska Zegluga Morska PP were permitted to intervene in this appeal. They are the owners of a vessel, The "Ziemia Zamojska" which was chartered to ED&F Man on similar terms on 18 May 2010. It arrived at Paranagua on 9 June 2010 and thereafter had to wait to load cargo. The owners' claim for demurrage is the subject of on-going arbitration proceedings before arbitrators other than Mr Tsatsas and Mr Moss. The two arbitrators so far appointed have not yet had need to appoint an umpire. Polska Zegluga placed a skeleton argument before us which supported the judge's reasoning and we were briefly addressed by Mr Mark Jones on their behalf. Although it is hardly necessary to do so, I would point out that we do not know what issues arise in that separate arbitration and we should certainly not trespass on the arbitrators' fact finding function. The arbitrators in the present case have made no finding even as to when the fire occurred, and even if they had done the evidence deployed before the second tribunal may be different.
17. In the context of the application to intervene the charterers placed before the court a witness statement of their solicitor, Mr Alexander Askew of Messrs Jackson Parton. At paragraph 5 he said this:-

"There is no necessary reason to think that the findings of fact of the two tribunals will be the same. Indeed, there is every reason to believe that the findings of fact could be significantly different. The cases both concern the serious fire on a conveyor belt at a loading installation and the resulting delay to the loading of a number of vessels. Evidence as to the precise mechanics of the cause of the fire in The "Ladytramp" matter was not extensive; Man had (erroneously perhaps) thought that the fact of the disabling of the conveyor belt was enough. Following The "Ladytramp" Award and appeal, I travelled to Paranagua to see what further materials might be available, not least for use in the Ziemia arbitration. After considerable searches, I obtained a copy of an official Report of the Forensic Science Institute of the Ministry of Public Security (which, together with translations is attached as "AA1"). It reveals that there were no signs of short-circuiting but that there had been heat generated by excessive friction between a sugar-encrusted rubberised belt and one or more seized metal cylinders which produced what is described as "an incandescent belt"; it then melted into the (or other) cylinders which then generated yet more heat. Fire and complete disabling of the belt resulted."

18. We were shown the Report to which Mr Askew there refers. In the run-up to this appeal there was naturally debate as to its status. The Report was not before the arbitrators and it is of no relevance to this appeal. In the context of this debate Mr Askew on 29 August 2013 emailed his opposite number at Messrs Waltons & Morse to this effect:-

"As you will be aware we are currently acting on behalf of our clients in a separate arbitration involving the same set of facts. The exact cause of the fire has become central to that arbitration in a way that it was not in this one. We have therefore gone to considerable effort to ascertain the cause and have recently obtained the attached report . . ."

19. Mr Young contended that the arbitrators' finding at paragraph 68 of their Reasons that "the inoperability of the conveyor belt appeared to have been the result of physical damage due to the fire rather than any mechanical breakdown" was "provisional" as underscored by what they went on to say at paragraph 70 as to the difficulties which charterers would have faced in persuading them that they, the charterers, were entitled to rely upon Clause 28. Mr Young submitted that we should, in these circumstances, remit the matter to the arbitrators to enable them to make further findings of fact. It was of course his principal submission that the cause of the fire was irrelevant since it led, on his case, to mechanical breakdown. But if that be wrong, then so it followed, he contended, that the arbitrators were in turn wrong to have regarded it as unnecessary to investigate the cause of the fire. They had therefore approached their task upon the basis of an erroneous view of the law. Mr Young pointed out, rightly, that we do not know precisely what evidence was before the arbitrators which might have borne on this topic. He suggested that it would be a matter for the arbitrators whether they were prepared to admit fresh evidence not hitherto adduced before them.
20. In my judgment it would be highly inappropriate to remit the matter to the arbitrators. The original arbitration Claim Form sought only remission of the Award for reconsideration in the light of the judgment of the court, which judgment in turn could be expected only to deal with the question of law identified in the application made pursuant to s.69 of the Arbitration Act 1996. As I have already pointed out, that question does not suggest that the cause of the fire is of any relevance. The charterers made no attempt to establish the cause of the fire, which they contended was irrelevant to the question whether they could rely upon Clause 28. There was no application for remission for further findings of fact. The charterers took their stand upon an erroneous view of the law. It would not be appropriate to permit them now to re-open the arbitration and to seek from the arbitrators findings which they had contended at the arbitration were irrelevant and unnecessary. That is sufficient to dispose of Mr Young's application. However, I would go further, as I suspect that a remission would in any event be to no purpose. Whilst mindful that we do not know precisely what evidence the arbitrators had before them, I infer that the charterers in fact adduced no evidence on the basis of which the arbitrators could have made a finding as to the cause of the fire. Mr Askew described the evidence on this point as "not extensive" and that may be a euphemism. It would be doubly inappropriate for the charterers now to be permitted to introduce fresh evidence which, had they thought it relevant, they could have obtained for use at the arbitration.
21. For all these reasons I would dismiss the appeal.

Lord Justice Christopher Clarke :

22. I agree.

Lord Justice Patten :

23. I also agree.