In the summer of 2010, a fire occurred at the Paranagua Port, Brazil, destroying the conveyor belt system which linked the terminal used by the charterers to the warehouse where their sugar cargo was usually stored. Local agents therefore advised the charterers to load at another terminal, however their vessel was required to wait exactly one month before being able to load. Naturally, laytime was exceeded and the vessel owners claimed demurrage.

The case turned on the interpretation of the laytime exclusion clause (Clause 28) in the concerned charterparty, which read that, “in the event that whilst at or off the loading place…the loading…of the vessel is prevented or delayed by…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 [issue 1], government interferences [issue 2], vessel being inoperative or rendered inoperative due to the terms and conditions of appointment of the Officers and crew…time so lost shall not count as laytime.”

The Commercial Court (Mr Justice Eder in E.D.F. & Man Sugar Ltd. v Unicargo Transportgesellschaft mbH (Ladytramp), [2012] EWHC 2879, 23 October 2012) was confronted with two issues.

The first issue was whether destruction of the conveyor belt system by fire could constitute a “mechanical breakdown at a mechanical loading plant”? The Court said no, stating that the inoperability of the conveyor belt was the result of physical damage due to fire rather than a mechanical breakdown.

The Court distinguished two earlier cases on the matter: The Afrapearl (2004) and The Thanassis A (1982). The principle in The Afrapearl was that cause of a breakdown is immaterial and that there is a breakdown if the equipment does not function/malfunctions. The Judge firmly rejected this on the basis that destruction of an item (or even its partial destruction) does not fall within the scope of the term “breakdown”, and even less within the term “mechanical breakdown”. The latter term suggests that a defect of machinery or a mechanical malfunction caused prevention or delay of loading, and this cannot be applied to fire. Indeed, the Judge went on to clarify that the complete destruction of a facility involved something more than a breakdown.

Despite the laytime exclusion clause in The Thanassis A being drafted similarly, the Court distinguished it on the basis of its specific wording, which covered “the breakdown of machinery and equipment”. While the breakdown of machinery was confined to mechanical malfunctions, the inclusion of “equipment” compelled a different and broader construction potentially encompassing a wider external cause.

The Judge then examined the Charterparty as a whole to support his conclusion. He noted that Clause 28 excluded “accidents” with regard to railways and Clause 6 provided an exception of a different nature with regard to “fire on board, in hulk, or on shore”. Therefore, he deduced that the lack of mention of fire in Clause 28 meant that it was not intended to be an exception to the running laytime.

Finally, in relation to this first issue, the Commercial Court held that there was no requirement that the excepted event must occur (i.e. commence) while the vessel was “at or off the loading place” (see wording of Clause 28 above). He stated that such a construction would be inconsistent with a sensible commercial risk allocation and agreed that the said event may start before.

The second issue was whether the decision of the port authority to reschedule the loading in light of the fire constituted “government interference” ?

The Court also said no, stating that the phrase was suggestive of an embargo or export ban, rather than simply an administrative rescheduling of cargoes due to a fire. The Judge held that, to amount to government interference, what was required was an act by a port authority (which was also a government entity – not the case for the port authority at Paranagua) which amounted to the discharge of a sovereign function and which differed from an ordinary administrative act of which any port or berth authority would be capable in the day-to-day management of a berth.

Concluding remarks

The Ladytramp case demonstrates that English courts pay great attention to the wording of clauses in a charterparty and that just because clauses of different contracts are similar does not mean that they will lead to the same conclusion. The case also reveals that, in the event of ambiguity of a contractual clause, the English courts shall follow the contra proferentem principle and construe the provision against the party relying on it.

This case is one that should be borne in mind by charterers and ship-owners who have negotiated charterparties governed by English law, notably in light of the developments over the past few months at the ILVA Taranto steel plant in the south of Italy. This plant, which also contains a berth for the loading of the raw materials it produces onto ships, has been facing a number of difficulties in guaranteeing timely provision of such materials to its clients due to a series of events, including interference by both the executive and judiciary, workers’ strikes and an unfortunate tornado in November last. Perhaps the details of any affected laytime exclusion clauses governed by English law ought to be examined to determine exactly what events they cover and how their specific wording, in light of Ladytramp, may affect their interpretation by an English Court.