The decision in DGM Commodities Corp V Sea Metropolitan Sa (2012) is one which will be of interest to any commercial entity purchasing FOB and selling CIF. In discharging a cargo, a charterer could not rely on an event as frustrating a charter party when the event was the responsibility of the receivers, acting as the charterer’s agents. The Charterer’s duty to discharge was paramount and could not be delegated.
The vessel MV Andra was chartered to carry a cargo of frozen chicken leg quarters from the US to St Petersburg. The vessel arrived at St Petersburg on 26 December 2007. Due to delay in berthing, laytime expired before the commencement of discharge which did not begin until 23 February 2008. On 8 April some cargo in the vessel was found to be damaged from gasoil which had leaked from an adjacent bunker tank. This was caused by the unseaworthiness of the vessel the legal effect of which was to interrupt the Charterer’s demurrage liability.
On 15 April 2008 the cargo receivers (who had purchased the cargo from the charters and were bill of lading holders with a claim against the vessel owners) demanded a cash settlement of US $2 million for the damaged cargo and rejected Owner’s offer of a P&I Club letter of undertaking. Shortly after the damage was noticed and during this time the Russian veterinary authority imposed an order the effect of which was suspend the movement of the remaining cargo on the vessel and therefore preventing discharge.
Six months later, the Owner agreed and paid a cash settlement of US$2.3 million to the receivers after which veterinary authority withdrew the order and allowed the vessel to sail. Such permission was granted on 13 November 2008.
Were charterers liable for demurrage for the entire period of the suspension?
This turned on whether the suspension was a frustrating event as the charterers argued. The arbitration award found that the charter party had not been frustrated and the Court agreed. Whist the veterinary order could have amounted to a frustrating event the Court found that it could have been released if receivers requested it. However, the receivers decided not too and in refusing a P&I Club letter and insisting on a cash payment it ensured that the veterinary authority order remained. The Court found this decision to be unreasonable, and amounted to a form of self-induced frustration. Since the obligation was upon the Charterer to discharge cargo and which was not delegable the charterer remained liable in demurrage or damages for detention whilst the cargo was not discharged albeit the charterers had arranged discharging to be provided by the receivers as agents.
It is perhaps to be noted that as between the charterer and its buyer the question of demurrage payable by the charterer seller to its owner where the buyer acts unreasonably in arranging discharge needs to be addressed. Otherwise, the charterer seller remains exposed to a demurrage liability to the owner (and where the seller is under no liability to the buyer under the sale contract) but with no means of ensuring that its buyer is liable to indemnify it for such liability. Here, the buyer sought to use the suspension as a bargaining chip against the Owner, but left the Charterer with the bill.