Sucden Middle-East v Yagci Denizcilik ve Ticaret Limited Sirketi (The Muammer Yagci) [2018] EWHC 3873 (Comm)

On 2 November 2018, the Commercial Court allowed an appeal under section 69 of the Arbitration Act 1996 relating to the meaning of the phrase “government interferences” in clause 28 of the Sugar Charter Party 1999. The question of law for the Court was whether a seizure of the cargo by customs authorities at the discharge port amounted to “government interferences”. The Court held that such a seizure did amount to “government interferences”, so that time lost as a result would not count as laytime or time on demurrage. The formal judgment has only now been made available by the Court.

Simon Rainey QC and Andrew Carruth represented the successful Appellant, instructed by Nicholas Fisher and Henry Clack of HFW.

The Seizure of the Cargo

In December 2014, the vessel “Muammer Yagci” arrived at Annaba, Algeria carrying a cargo of sugar under a voyage charterparty on the Sugar Charter Party 1999 form (the “Charterparty”). The receiver of the cargo submitted import documents to the Annaba Customs Directorate (the “ACD”) for clearance and the assessment of customs duties. A discrepancy between the invoice value and market value of the cargo led the ACD to suspect that there had been a false declaration in an illegal attempt to transfer capital abroad.

After consulting with the Central Customs Administration in Algiers, the ACD seized the cargo. It was then placed under the control of the State Property Directorate (the “SPD”). The Governor of the Trade and Commerce Directorate gave permission for it to be sold, which it eventually was, with the proceeds to be held by the Treasury. The receiver of the cargo was prosecuted, but the prosecution failed.

As a result of the actions of the authorities, the discharge of the cargo was delayed by about four and a half months. A dispute arose between the owners and the charterers as to whether that time counted as time on demurrage.

The Arbitration and the Award

The demurrage dispute was referred to arbitration. The charterers said that the time lost as a result of the seizure did not count as laytime or time on demurrage. They relied upon clause 28 of the Sugar Charter Party 1999, which states (with the relevant words emphasised):

STRIKES AND FORCE MAJEURE

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, lockouts 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.

The Tribunal found that the ACD and the SPD operated under the umbrella of and were supervised by the Algerian Ministry of Finance. Moreover, their actions had caused the delay to discharge of about four and a half months. However, this did not amount to “government interferences” because the actions of the authorities had been an ordinary, foreseeable performance of their appointed functions.

The Appeal to the Commercial Court

The charterers appealed to the Commercial Court under section 69 of the Arbitration Act 1996. They said that the Tribunal’s interpretation of “government interferences” was wrong. The Tribunal had failed to consider the ordinary meaning of the language of the provision, which ought to have been the starting point for the interpretative exercise. The ordinary meaning of the words “government interferences” did not require the governmental acts to be out of the ordinary or unforeseeable.

The charterers also said that the Tribunal had been influenced by the incorrect belief that the words “force majeure” in the heading of clause 28 meant that it could only apply to acts which were out of the ordinary or unforeseeable. The words “force majeure” in this context were merely a label which denoted that what followed was a list of events beyond the control of the parties. They did not imply any requirement of extraordinariness or unforeseeability.

Finally, the charterers said that the Tribunal had incorrectly focussed on considerations of commercial common sense, when in fact the language of clause 28 was clear and there was no scope for such considerations. At any rate, commercial common sense favoured the charterers’ interpretation. It would be difficult to produce a laytime and demurrage statement if doing so required factual enquiry into whether the actions of the authorities had been “ordinary”. The parties could not have intended to introduce such uncertainty.

The Owners argued that the Tribunal’s interpretation was correct. The actions of the authorities did not amount to “interference”, they were simply an ordinary part of the process of discharging the cargo. There was a difference between the process itself and interference with the process. As such, the Tribunal’s interpretation was consistent with the language of the provision. Moreover, commercial common sense supported the Tribunal’s interpretation. If the charterers were correct, a wide range of ordinary actions would interrupt laytime.

Both parties relied upon the judgment of Eder J in The Ladytramp [2012] EWHC 2879 (Comm); [2012] 2 Lloyd’s Rep. 660, which was the only previous decision on the meaning of “government interferences” in clause 28 of the Sugar Charter Party 1999. In that case, the port authority carried out an administrative rescheduling of berthing following a fire which damaged a conveyor belt at the loading terminal. The charterers argued that this amounted to “government interferences”.

Eder J held that: (1) the charterers’ argument failed in limine because there was no finding in the award that the port authority was a government entity; and (2) what was required, at the least, was an act of a government entity which amounted to the discharge of a sovereign function and which differed from an ordinary administrative act which any port authority (state-owned or otherwise) would be capable of.

The owners said that Eder J’s judgment supported their argument that the governmental act had to be extraordinary or unforeseeable. The charterers, for their part, said that The Ladytramp was a case about the meaning of “government” rather than “interferences”. Furthermore, it supported their argument that all that was required was a sovereign act by a government entity.

The Judgment of the Commercial Court

Knowles J held that the Tribunal had erred in law by finding that the phrase “government interferences” only applied if the governmental acts were extraordinary or unforeseeable. In particular:

  1. The ordinary meaning of the language of the provision did not require the governmental acts to be extraordinary or unforeseeable;
  2. The Tribunal had been entitled to refer to the heading of clause 28 when construing the provision. However, in this context the phrase “force majeure” did not mean that the clause could only apply to acts which were extraordinary or unforeseeable. It meant only that what followed was a list of events which were beyond the control of the parties and would trigger the operation of the clause;
  3. Considerations of commercial common sense favoured the charterers’ argument. It would not be clear to the parties how the clause was to apply if there was a requirement that the relevant acts be extraordinary or unforeseeable;
  4. It was unnecessary for the Court to produce a general meaning of the phrase “government interferences”. It was sufficient to say that on the facts of the present case, in particular the seizure of the cargo, the discharge of the cargo had been delayed by “government interferences”.

A copy of the judgment can be found here.