ED&F Man Sugar Ltd -v- Unicargo Transportgesellschaft GmbH & Anr [2013]: Laytime exception ‘mechanical breakdown’

The Court of Appeal applied a strict interpretation to a laytime exclusion in this appeal by charterers against owners’ claim for demurrage.

The vessel was chartered on the Sugar Charter Party 1999 form, on terms which provided for the carriage of bulk sugar from ‘1-2 safe berth(s), 1 safe port (intention Santos) but not south of Paranagua…’. The charterparty also included the Sugar Charter Party’s standard laytime exclusion clause, 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 by any of the following occurrences: ... mechanical breakdowns at mechanical loading plants … time so lost shall not count as laytime …’

Upon concluding the fixture, charterers nominated Paranagua as the load port, but prior to the vessel’s arrival, a fire broke out at the terminal where charterers had intended to load and destroyed the conveyor-belt system linking the terminal to the warehouse where the sugar was stored. The vessel eventually loaded from a different terminal and owners claimed demurrage for the period during which loading was delayed.

In the ensuing arbitral proceedings, charterers argued (amongst other things) that the destruction of the conveyor belt by fire constituted a ‘mechanical breakdown’ within the meaning of the laytime exclusion clause and that the resulting delay in loading should therefore be excluded from demurrage.

The Court of Appeal - upholding the decision of the arbitrators and the Commercial Court - did not agree. It was not enough that, as a result of the fire, the machinery no longer worked. Citing the earlier case of The "THANASSIS A", the Court of Appeal held that, for there to have been a ‘mechanical breakdown’ within the meaning of the clause, the breakdown 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.’ There must, in short, be ‘an inherent mechanical problem, as distinct from a wider or external cause’. (This was not to say, however, that an external cause could never be relevant, if such external cause were to bring about a mechanical breakdown. Conversely, the court suggested that the position might have been different if there had been evidence that it was a mechanical breakdown which had caused the fire).

The Court of Appeal’s decision – like that of the Commercial Court before it – reflects the very strict approach which English courts take towards exclusion clauses in general. Accordingly, if you wish to limit or exclude your liability in particular circumstances, the time to do so is when the contract is drafted, and the way to do so is to use very clear language indeed.