The Decision in M/T Crudesky
Owners (“O”) chartered the vessel to Trafigura (“T”) on a BEEPEEVOY 3 form to load a cargo of crude oil at an FPSO terminal off Port Harcourt, Nigeria between 31 August– 1 September 2009. The charter provided that if the vessel was delayed for more than three hours after hoses were disconnected whilst “awaiting cargo documentation” then full time was to count in full for the purposes of laytime. Clause 21 provided:
“any delay(s) arising from…restraint of princes…shall, provided…that the cause of the delay(s) was not within the reasonable control of charterers…count as one half laytime, or if the Vessel is on demurrage, at one half of the demurrage rate”
T purchased the crude from Vitol SA (“V”) under FOB terms which incorporated the Nigerian National Petroleum Corporation (“NNPC”) conditions which were effectively “back to back” with the seller (an affiliate of V) and the affiliate’s seller, China Offshore (“CO”). The dispute followed a decision by the local authorities not to permit the vessel to leave Nigeria until mid- October 2009, following payment of a “fine” of US $12 million imposed by a Minister and which was actually paid by Total.
Was the “fine” a restraint of princes within clause 21?
Two sets of Procedural Guides applied to crude loading and administered by the Nigerian Department of Petroleum Resources (“DPR”). T and O had believed that permission to load the crude was granted (which it had been, but not in strict compliance with the Procedural Guides). Upon completion of loading on the 1 September, the DPR recognised that the strict procedure had not been followed and refused clearance for the vessel to leave Nigeria. The necessary cargo documents for departure were not completed and signed by the DPR until 16 October and only after a US$ 12 million “fine” was paid by Total. The Court made the following findings:
- One of the two Procedural Guides was a regulation issued by the DPR under S.9 of the Nigerian Petroleum Act 1969, but the other was not. However, no criminal offences under Nigerian law were committed when loading without clearance of the DPR.
- Levying a US$ 12 million fine by the Minister was an abuse and arbitrary exercise of its power by the Nigerian Authorities. They had taken four steps in response to the alleged infringement: (i) revoking the clearance to load previously given, (ii) refusing to issue the cargo documents, (iii) instructing the Navy to prevent the vessel’s departure from Nigeria and (iv) requiring payment of a fine of US$ 12 m. Although the DPR was found to have the power to request the Navy to prevent the vessel’s departure, the Court did not consider that the imposition of a US$ 12 m was lawful. In the Court’s view no offence had been committed and payment of the US$ 12 m fine seemed to be grossly excessive and beyond what was provided under Nigerian law. It was also clear to the Court that the decision by Total to pay the US$ 12 m fine was recognition of the imposition as the “lesser of two evils”.
- Withholding the issue of the cargo documents on 1 September, however, was not arbitrary and unlawful and the Court found that, had the question of the US$ 12 m fine not arisen, cargo documents would have been provided and the vessel allowed to leave on the 7 September.
- The delay from 1–7 September was therefore not caused by an “arrest or restraint of princes”, but the subsequent delay was.
What was the effect of that finding?
Upon the Charter?
- Although loading was T’s responsibility and risk under clause 15 of the charter, T could still rely on clause 21 and pay demurrage at only the half rate. The detention of the vessel after 7 September was caused by the unlawful action of the Minister, and but for that, the cargo documents would have been issued by the 7 September.
- Clause 46 of the charter provided an exclusion from charterers for any responsibility for damage etc. resulting from “…arrest or restraint of princes”. Therefore, although there was implied into the charter a term that charterers would not load any cargo in breach of a municipal law which is of direct relevance to the carriage of the cargo (under the principle set out in Bunge SA v Adm Do Brasil Ltda ), the finding that the delay was caused by the “restraint of princes”, afforded T a defence.
Upon the Sale Contracts?
- Article 18 of the NNPC Conditions required seller’s compliance with all laws, rules, regulations and byelaws applicable. Because of the breach of the Procedural Guides in, Article 18 was breached but only in respect of the delay to the vessel from the 1–7 September 2009. After this date the effective cause of the delay was the unlawful intervention by the Minster in imposing the fine.
- T claimed that V was in breach of S.12 of The Sale of Goods Act 1979 in that because of the restraint on the vessel leaving; (a) S did not have the right to sell the cargo at the time when property was to pass under S.12(1), (b) that the cargo was free of any charge or encumbrance (under S.12(2)(a)) and (c) T had the right to acquired possession under S.12(2)(b). After finding that the terms of an entire agreement clause did not exclude those terms implied by S.12 of the SGA 1979 the Court found:-
- The actions of the DPR and the Minister did not affect the right to sell under S.12(1) of the SGA.
- There was no breach of S.12(2)(a) of the SGA. The DPR had no charge or encumbrance over the cargo.
- V had breached S.12(2)(b) because T did not enjoy “quiet possession” of the oil once the DPR refused to issue the cargo documents and prevented the vessel and oil from leaving Nigeria. However, that only applied with respect to the period of 1–7 September. Thereafter, the reason for the interference was the unlawful demand by the Minister for payment of the “fine” and the Court found that S.12(2)(b) did not extend to interference with possession resulting from an unlawful demand.
- The Court found that V had not taken all necessary action to perform its obligations, contrary to Article 30 of the NNPC Conditions which was construed as a continuing warranty from the effective date and up to the passing of property from V to T.
Article 21 of the NNPC Conditions provided a force majeure clause covering an act which was; “unforeseeable…or…beyond the reasonable control of either party …”. Article 21 also provided an event constituting force majeure would include an; “Act of Government intervention…”. The Court found:
- The failure to comply with the Procedural Guides was beyond the party’s “reasonable control” so that the breach causing the delay from 1–7 September was caused by an event beyond the reasonable control of either V or T.
- The actions of the DPR in withholding the cargo documents, was unforeseeable. On the facts of this case, the DPR representative from the FPSO at the time had given permission to load the cargo and break the padlock such that it was not foreseeable that the DPR would then refuse to issue cargo documents and prevent the departure of the vessel and its cargo.
- Article 21.2 of the NPPC Conditions provided that notice be given; “immediately on the occurrence of force majeure…promptly notify…”. The Court found that this clause was not framed as a condition precedent and only required a notice which was prompt and immediate. Since that notice required details of the event, the notice implied that there might be some delay between the event and notice being given to enable the required information to be provided in the notice.
In the circumstances, T’s claim against V failed completely, as did V’s claim against COO.