Ceval Alimentos S.A. v Agrimpex Trading Company Ltd (No. 2) (Northern Progress)
| Jurisdiction | England & Wales |
| Judge | Rix J. |
| Judgment Date | 18 April 1996 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 18 April 1996 |
Queen's Bench Division (Commercial Court)
Rix J.
Bernard Eder QC (instructed by Middleton Potts) for the sellers.
Roger Cordara QC (instructed by Ince & Co) for the buyers.
The following cases were referred to in the judgment:
Garbis Maritime Corp v Philippine National Oil Co (“The Garbis”)UNK [1982] 2 Ll Rep 283
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) LtdELR [1974] AC 689
Hogarth Shipping Co Ltd v Blyth, Greene, Jourdain & Co LtdELR [1917] 2 KB 534
Home Insurance Co of New York v Victoria-Montreal Fire Insurance CoELR [1907] AC 59
Interfoto Picture Library Ltd v Stiletto Visual Programmes LtdELR [1989] QB 433
Miramar Maritime Corp v Holborn Oil Trading LtdELR [1984] AC 676.
OK Petroleum AB v Vitol Energy Ltd [1995] CLC 850.
Pagnan SpA v Tradax Ocean Transportation SAUNK [1987] 2 Ll Rep 342.
Petraco (Bermuda) Ltd v Petromed International SAUNK [1988] 2 Ll Rep 357.
Socony Mobil Oil Co Inc v West of England Mutual Insurance Association Ltd (“The Padre Island”) (No. 2)UNK [1987] 2 Ll Rep 529.
Arbitration — Contract of sale C&f — Charterparty — incorporation of future contract — War risks premium — Clause agreed in charterparty for diversion of goods for delivery in event of additional war premium at nominated port — Clause unreasonable as between sellers and buyers — Clause unknown to buyers — Goods shipped from Brazil to Yugoslavia — State of war in Yugoslavia — Shipowners diverted vessel to discharge goods at Hamburg — Whether special diversion clause incorporated into contract of sale — Whether sellers in breach of contract.
This was a seller's appeal against an arbitration award of the board of appeal of the Grain and Feed Trade Association (“GAFTA”). The issue was whether an incorporation clause succeeded in incorporating into the sale contract a special diversion clause in the charterparty.
By a sale contract dated 13 September 1991 the sellers agreed to sell to the buyers 26,000 tonnes of soyabeanmeal pellets c&f. Delivery was to be one safe port Rijeka/Koper, Yugoslavia at buyer's option. On the same day the sellers entered into a charterparty with the owners of the “Northern Progress” for a voyage from Brazil to Yugoslavia. Clause 55 of the charterparty provided: “In the event that Yugoslavian ports are closed to merchant shipping or the area is subject to an insurance premium due to war-like conditions, then Owners to declare this to Charterers and Charterers to nominate alternative port within Italian Adriatic. Extra insurance premium for this to be for Charterers account. Any deviation incurred to be compensated to the Owners by the Charterers at cost duly substantiated.” The sale contract provided that five protective clauses, including the US War Risks 1 and 2, were deemed to be incorporated into the charterparty. The war risks clause provided that, in the event of the discharge port being closed to shipping or an additional war risk premium being imposed, the cargo was to be discharged at a port as ordered by the charterers. It further permitted the vessel to sail to places other than the contractual destination once an additional insurance premium had been announced.
Because of the worsening situation in Yugoslavia the sellers (the charterers) agreed on 16 September to an amendment of the charterparty to give charterers an option to declare Hamburg as the destination. On the same day an amendment to the sale contract was agreed between the buyers and sellers to declare Hamburg or Ravenna as the discharge port. The buyers were not aware either of the agreement between the sellers and the owners, or of cl. 55. On 18 September the sellers nominated the “Northern Progress” to the buyers. From 21 September Yugoslavia was added to the war risk additional premium areas. The owners invoked cl. 55 by telexing their charterers, the sellers, to request an alternative discharge port. The vessel completed loading and sailed on 15 October. The buyers nominated the discharge port as Rijeka, Croatia or, if problems arose, Koper, Slovenia. The sellers did not inform the buyers of cl. 55 until 29 October. The shipowners insisted on the right under the charterparty and under the buyer's bill of lading to divert the vessel so as to discharge the goods at Hamburg. The buyers accepted delivery under protest at Hamburg but sought an indemnity for the costs of diversion, refused by the sellers. The dispute was referred to arbitration.
The GAFTA board of appeal found in favour of the buyers. Clause 55 was found to be unreasonable and unusual in the trade. It was reasonable as between the sellers and owners but not between the sellers and the buyers. Clause 55 had not been incorporated into the sale contract on the ground of inconsistency with specific contract clauses. Although cl. 55 had been incorporated into the bill of lading, that incorporation was improper and uncontractual. That led to the tender of uncontractual bills of lading which provided the buyers with a claim to damages. The buyers had named Hamburg as a destination port on 9 October under reservation of rights and therefore the sellers could not rely on waiver. The sellers appealed.
Held, dismissing the sellers' appeal:
1. The sale contract itself contemplated that a charterparty might be fixed only after the sale contract had been made. It was not uncommon for an incorporation clause to contemplate a future contract, as was typical of cif contracts. The incorporation was not therefore on that ground ineffective.
2. Although an incorporation clause would not readily be understood as referring to future as distinct from existing contracts, an incorporation clause was not necessarily ineffective to incorporate any terms of a contract not yet in existence. In the case of a c&f sale, the sale contract naturally looked forward to a future charterparty. The incorporation therefore did not fail on that broad ground.
3. The sellers were under a duty to procure a reasonable and usual contract of carriage. The fact that cl. 55 was an unreasonable and unusual term in the trade might be sufficient to exclude its incorporation. In any event it was a highly relevant consideration in relation to what the parties intended by their incorporation clause.
4. Where the parties contracted on an issue as specific as the effect of war on an obligation as important as the place of delivery, there was no room for the incorporation of further and fundamentally different detailed provisions not subject to negotiation between the parties. Particularly having regard to the amendments to the sale contract and charterparty agreed between the parties, a proposal to amend the sale contract to bring in an obligation to renominate merely because of the imposition of an additional premium would have been unacceptable to the buyers. Clause 55 was accordingly inconsistent and repugnant with the sale contract.
5. In arriving at the true intention of the parties rationality and commercial commonsense played appropriate and fundamental roles. Unreasonable terms contrary to commercial reality would not be implied by the imprecise means of an incorporation clause, but only by clear words. That was especially so where the effect of incorporation would be to override a fundamental implied or statutory duty. The incorporation of cl. 55 into the sale contract, and a fortiori into the sale contract as amended, lacked rationality and commercial commonsense. It followed that cl. 55 had not been incorporated into the sale contract.
6. There was no evidence to support the argument that the buyers had waived their rights to treat the bills of lading as non-contractual, nor that the buyers were estopped from contending that they were non-contractual. No waiver or estoppel was therefore established against the buyers.
Rix J:
This dispute, as do so many in the maritime field, arises out of war, in this case the conflicts which engulfed what used to be called Yugoslavia. A c&f buyer of goods shipped in Brazil for delivery in the former Yugoslavia found that the owners of the ship engaged by his seller to carry the goods to the c&f destination, in the light of the warlike situation in the region, insisted upon a right, both under the relevant charterparty and under the buyer's bill of lading, to divert the voyage so as to discharge the goods in the event at Hamburg. The question in this case lies between the c&f seller and buyer of those goods and raises the issue whether the buyer had agreed in his sale contract or by waiver to take the risk of that diversion.
This issue comes before this court by way of an appeal from the arbitration award of the board of appeal of the Grain and Feed Trade Association (GAFTA). The board of appeal found in favour of the buyer, and the seller appeals with the leave of Gatehouse J. The seller had agreed in his charterparty with the owners a clause to the effect that, if the primary destination in Yugoslavia became subject to an additional war risk insurance premium, then the seller qua charterer was obliged to nominate an alternative discharge port. The owners relied on that clause and its alleged incorporation into the bill of lading to insist on an alternative destination. The buyer took the point that under his sale contract with the seller there was no such obligation to divert, at any rate in the absence of the unsafety of the nominated Yugoslavian ports, and submitted to a diversion only under protest. The seller for his part took the point that the special clause found in the charterparty had also been incorporated into the sale contract by reason of an incorporation clause which provided:
“All other terms, conditions and exceptions as per Charter Party.”
Although the seller has been granted leave to appeal on three questions of law, the essential issue argued before me was whether that incorporation clause succeeded...
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