Classic Maritime Inc. v Limbungan Makmur SDN BHD

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Haddon-Cave,Lord Justice Males
Judgment Date27 June 2019
Neutral Citation[2019] EWCA Civ 1102
Date27 June 2019
Docket NumberCase No: A4/2018/2365
Between:
Classic Maritime Inc
Appellant
and
(1) Limbungan Makmur SDN BHD
(2) Lion Diversified Holdings BHD
Respondents

[2019] EWCA Civ 1102

Before:

Lord Justice Haddon-Cave

Lord Justice Males

and

Lady Justice Rose

Case No: A4/2018/2365

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Mr Justice Teare

[2018] EWHC 2389 (Comm)

Royal Courts of Justice

Strand, London, WC2A 2LL

Richard Southern QC and Andrew Pearson (instructed by Winter Scott LLP) for the Appellant

Simon Rainey QC and Andrew Leung (instructed by Hill Dickinson LLP) for the Respondents

Hearing dates: 11th and 12th June 2019

Approved Judgment

Lord Justice Males

Introduction

1

This is an appeal from a judgment of Teare J in which he held that the charterer under a contract of affreightment was not entitled to rely upon an exceptions clause referring to “accidents at the mine” because it would not have been ready and willing to provide cargoes for shipment even if the accident had not occurred, and was therefore in breach of an absolute duty to provide such cargoes; but that nevertheless the shipowner was not entitled to recover substantial damages because this would put it in a better financial position than it would have been in if the charterer had been ready and willing to provide cargoes. As a result the judge awarded nominal damages of US $1 for each shipment in issue.

2

The shipowner appeals on the issue of damages. The charterer and its ultimate parent company (which acted as a guarantor) cross appeal on the issue of liability.

3

I shall refer to the appellant as the shipowner and to the respondents together as the charterer. There is no need to distinguish between the two respondents. It is accepted that if the first respondent, the actual charterer, is liable, the second respondent is also liable on its guarantee.

The facts

4

At the trial there were a number of factual issues but, as a result of the judge's clear findings, which are not challenged on appeal, the facts can be shortly stated. They raise starkly two issues of law.

5

The contract between the parties was a long-term contract of affreightment providing for shipments of iron ore pellets from Tubarao or Ponta Ubu in Brazil to Port Kelang or Labuan in Malaysia on tonnage to be provided by the shipowner. The contract (in fact an addendum to a previous contract) was dated 29 June 2009. The present action was concerned with seven shipments which should have taken place between July 2015 and June 2016. In the case of the first two shipments during that period, the charterer failed to provide a cargo and has no defence. It accepts that it is liable to pay substantial damages in respect of the first shipment, which should have taken place between July and October 2015, although only nominal damages are payable in respect of the second shipment as the shipowner suffered no loss. The trial was, and this appeal is, concerned with what should have been the third to seventh shipments.

6

The issues arise out of a dam burst which occurred on 5 November 2015. As the judge described it:

“1. On 5 November 2015, the Fundao dam, in the industrial complex of Germano in Brazil where iron ore is mined, burst. According to one iron ore expert who knows this area well the slurry went right down to the ocean, villages were swamped and people lost their lives. The bursting of the dam also stopped production at the iron ore mine and it is that event which has fuelled this litigation between a shipowner and a charterer.”

7

The mine in question was operated by Samarco Mineracao SA, which was the sole supplier of iron ore pellets for shipment from Ponta Ubu. Since August 2011 all shipments under the COA had been of pellets shipped from Ponta Ubu, although in fact no shipments had taken place during the second half of 2015 due to a collapse in demand at the Malaysian steel mills for which the cargoes were intended.

8

As a result of the catastrophe it was impossible to ship iron ore pellets from Ponta Ubu between November 2015 and June 2016, the period during which the five shipments in issue in this action should have taken place. Shipments from Tubarao, where Vale SA was the supplier, were not affected by the dam burst, but the judge found that Vale was unwilling to supply pellets from Tubarao to the group of which the charterer was a part, and would have been unwilling even if the charterer had made reasonable efforts to persuade it (which it did not). Thus he concluded at [132] that “it is more likely than not Vale would not have agreed to supply iron ore pellets to Antara (and hence Limbungan) to enable the five shipments in question to have taken place”.

9

The judge found also, at [110], that even if the dam burst had not occurred, it was “more likely than not that Limbungan would not have been able and willing to supply cargoes for shipment pursuant to the Classic COA in the months between November 2015 and June 2016”.

10

Accordingly, on the facts found by the judge:

(1) As a result of the dam burst it was impossible for the charterer to perform the contract in respect of the five shipments in issue; but

(2) Even if the dam burst had not occurred, the charterer would have defaulted anyway.

The exceptions clause

11

The charterer's defence was that it was protected from liability for breach of what was otherwise an absolute duty to supply cargoes by clause 32 of the contract. This provided:

“EXCEPTIONS

Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be Responsible for loss or damage to, or failure to supply, load, discharge or deliver the cargo resulting From: Act of God, act of war, act of public enemies, pirates or assailing thieves; arrest or restraint of princes, rulers or people; embargoes; seizure under legal process, provided bond is promptly Furnished to release the Vessel or cargo; floods; frosts; fogs; fires; epidemics; quarantine; Intervention of sanitary, customs or other constituted authorities; Blockades; Blockages; riots; insurrections; civil commotions; political disturbances; earthquakes; Landslips; explosions; collisions; strandings, and accidents of navigation; accidents at the mine or Production facility or to machinery or to loading equipment; accidents at the Receivers' works, Port, wharf or facility; or any other causes beyond the Owners', Charterers', Shippers' or Receivers' Control; always provided that any such events directly affect the performance of either party under This Charter Party. If any time is lost due to such events or causes such time shall not count as Laytime or demurrage (unless the Vessel is already on demurrage in which case only half time to count).”

12

I have set out the clause with its somewhat idiosyncratic capitalisation, but as it was not suggested that this has any significance, I can ignore it for the remainder of this judgment.

13

It was common ground that the dam burst qualified as an “accident at the mine” and the judge found at [135] that it was “beyond the … Shippers' control”. That finding is not challenged. The main focus of the argument on appeal has been on the words “resulting from” and the concluding proviso, “always provided that such events directly affect the performance of either party under this Charter Party”, although the final sentence, dealing with the impact on laytime of time lost due to such events or causes is also relevant.

The judgment

14

The first issue addressed by the judge, described as the “no relevant arrangements” issue, was whether the charterer was entitled to rely on this clause in circumstances where it had made no arrangements to provide cargoes for the shipments in question at either of the two load ports. Ultimately, the judge's conclusion at [66] was that this was essentially part of the next issue, described as the “but for” issue, so that if the charterer had in fact made no arrangements to provide cargo at either load port, “that circumstance may make it more difficult for Limbungan to establish that its failure to supply cargoes for the disputed 5 voyages resulted from the dam burst”. That was, as already noted, the factual finding which the judge went on to make.

15

However, the “but for” issue was whether it was necessary for the charterer to prove that, but for the dam burst, it could and would have performed the contract in accordance with its terms. The shipowner submitted that it was. The charterer disputed this, submitting that while the clause imposed a causation requirement in the sense that it had to be shown that the dam burst rendered performance of the charterer's obligations impossible, it was not necessary for it to show also that, but for the dam burst, it would have performed its obligations. The judge accepted the shipowner's submission, holding at [71] that:

“All must depend upon the wording of the clause. In this case clause 32 imports a causation requirement by the use of the words ‘resulting from’ and by the requirement that the force majeure must directly affect the performance of Limbungan's obligations.”

16

He concluded at [73] that a reasonable and realistic businessman “would see the broad common sense of saying that if, but for the dam burst, Limbungan would not have performed its obligations, its failure to perform cannot fairly be said to have ‘resulted from’ the dam burst and the dam burst cannot fairly be said to have ‘directly affected’ the performance of Limbungan's obligations”.

17

However, Mr Simon Rainey QC for the charterer relied before the judge (as he has done before us) on a line of authority stemming from the decision of the House of Lords in Bremer Handelsgesellschaft mbH. v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109and dealing with the prohibition clause in the then current version of GAFTA 100. This was said to establish that it is...

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