Incofe v. Mermaid
DMC Category Rating: Developed
This is an award of the Society of Maritime Arbitrators in New York
The ship arrived in Vancouver on 25 November 1997 and loaded three grades of Muriate of Potash totalling 16,524 tonnes. Bills of lading for the cargo were issued on 28 November, but not released. Incofe paid its supplier, Campotex Ltd, in May 1998, in accordance with the 180 days credit terms of the sale contract.
Although loading was completed on 28 November, the ship was not permitted by the Canadian authorities to sail, until certain repairs had been effected to make her seaworthy. Delays occurred for reasons beyond the control of either Mermaid or Incofe. On 10 December 1997, Incofe notified Mermaid that receivers were pressing to know the vessel’s expected departure date and, in the event of further delay, the receivers would have to use other means to transport the cargo intended for loading at Lazaro Cardenas. Delays continued throughout December ánd into January. On 26 January 1998, various unpaid vendors arrested the ship. The owners were unable to pay the vendors and the ship remained under arrest.
In May 1998 the Canadian court ordered the ship to be sold to satisfy the creditors. This was duly done. In August 1998, Incofe entered into a new charterparty with the successful buyer of the vessel, now named World Amber, to carry the cargo to Puerto Quetzal in Guatemala and Caldera in Costa Rica. Bills of lading for this voyage were signed on 27 August 1998.
The Items of Claim
In relation to Item 1, Mermaid contended that the deductions made by Abopac in relation to the procurement of replacement cargo were not foreseeable and so not recoverable, since the sale contract between Incofe and Abopac, the receivers, had been entered into some to ten days after the date of the charterparty itself. As for item 2, Mermaid accepted that interest was payable but asserted that the rate claimed was too high. Mermaid rejected both items 3 and 4 - the claims for loss of profits – on grounds of unforeseeability. As for item 5, the costs of counsel, Mermaid maintained that whilst an indemnified party may recover fees incurred in defending a claim against which it is indemnified, it may not recover fees incurred in order to establish the right to indemnity. Mermaid asserted that, in the Canadian proceedings, Incofe was not defending claims against it but was actively litigating its right to collect against the vessel.
On item 2, the panel upheld the 8.5% rate of interest claimed by Incofe, as it represented the prime rate charged by US banks during the relevant period.
As regards the claims for loss of profits, a majority of the panel awarded Incofe its loss of profits for 1997, since this was a reasonably foreseeable consequence of the vessel’s inability to deliver the cargo loaded in November of that year. On the other hand, the panel unanimously rejected the claim for loss of profits in 1998, on the grounds that this was totally unforeseeable by Mermaid. Incofe’s lost profit for 1998 ‘had more to do with its own decision how best to deal with a perceived possibility of market disruption than any default on the part of Mermaid’.
As regards the legal costs under Item 5, the panel found that, in the Canadian proceedings, Incofe was in fact defending its rights and interest as to the value of its cargo on board Atlantis Two. The panel regarded the action taken by Incofe in Canada not as one of establishing a right to indemnity. Rather, it was an effort to mitigate damages. The panel found that a large portion of the costs were imposed on all parties by the behavior of the owner. Had it been necessary to discharge, store and reload the cargo, these expenses, the panel found, would have fallen on Mermaid and would have far exceed the sum claimed under Item 5. The panel therefore allowed these legal expense claims in full, with interest from 1 December 1999 to the date of the award.
The panel also awarded Incofe US$20,000 in respect of its legal fees in the arbitration. Mermaid had contended that the panel was not entitled to make a costs award because, firstly, there was no enabling provision in the charterparty arbitration clause itself and secondly, the arbitration was not being conducted under the Rules of the Society of Maritime Arbitrators of New York. In dismissing this contention, the panel noted that it had been ‘the practice in New York for several years that arbitrators have awarded legal fees to the successful party, regardless of whether the SMA Rules were applicable.’
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