Select Commodities v. Valdo

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Select Commodities Ltd v Valdo SA (The "Florida")
English High Court; Queen’s Bench Division: Tomlinson J.: [2006] EWHC 1137 (Comm): 26 May 06
Sean O’Sullivan, instructed by Ince & Co. for the Applicant
Dominic Happé, instructed by Jackson Parton, for the Respondent

The Court considered whether a liberty clause in a voyage charter was so comprehensive that, even though what would otherwise have been a frustrating event had occurred, neither party could rely on the doctrine to avoid its liabilities under the contract. In setting aside the arbitrator’s award, the Court held that clause 29(a) of the Vegoilvoy standard form did not exclude the operation of the doctrine of frustration, because it did not make full and complete provision for the specific circumstances that occurred.

DMC Category Rating: Developed

This case note is based on an Article in the August 2006 Edition of the ‘Marine Bulletin’, published by the Marine team at the international firm of lawyers, DLA Piper. DLA Piper is an International Contributor to this website.

By a charterparty dated 30 January 2003, the owners chartered the Florida to the charterers for the carriage of a cargo of vegetable oil from Dumai "for discharge at one safe berth Lagos." On 21 March 2003, a few days before the vessel was due to arrive at Dumai, the charterers informed the owners that they were cancelling the voyage because the authorities in Nigeria were not allowing vessels to discharge cargoes of vegetable oil. A few days later they provided a copy of a letter from the Federal Ministry of Finance in Nigeria confirming the government's policy to ban the bulk importation of vegetable oil as from 1 March 2003.

The owners managed to fix the vessel elsewhere after a delay of some eight days and at a substantial loss. They now claimed damages under the charterparty.

The charterers argued that the contract had been frustrated by the government ban. Discharge of the cargo in Lagos would have been illegal. The owners, however, maintained that the event fell within the terms of a liberty clause in the charterparty, so that the charterers could not rely on the doctrine of frustration. The arbitrator found in the owners' favour. The charterers appealed.

The liberty clause
The charterparty was in the Vegoilvoy standard form of tanker voyage charter party. The liberty clause at 29(a) set out various steps the owners could take "in any situation whatsoever and wheresoever occurring and whether existing or anticipated before commencement of or during the voyage, which in the judgment of the Owner or Master is likely to give rise to risk of capture, seizure, detention, damage, delay or disadvantage to or loss of the Vessel or any part of her cargo, or to make it unsafe, imprudent or unlawful for any reason to commence or proceed on or continue the voyage or to enter or discharge the cargo at the port of discharge…"

The clause provided that in such circumstances the owner could, before loading or before the commencement of the voyage, require the shipper to take delivery and, failing that, warehouse the cargo at the cargo's expense, or alternatively, discharge the cargo elsewhere at the risk and expense of the cargo. The owners argued that this clause showed the parties had contemplated the very event that occurred and set out various alternative means of performance.

The judge disagreed. Frustration occurs if an event effects so radical a change in the contract that it ceases to bind the parties. But if the contract makes full and complete provision for just such an eventuality, it has not been radically changed (Bank Line Lid v Arthur Capel and Company [1919] AC 435, The Evia No.2 [1981] 2 Lloyd's Rep 613).

Clause 29(a), however, did not make full and complete provision for the simple reason that there was no cargo. The clause gave the owner a wide liberty as to how to deal with the cargo when certain circumstances arose. But it presupposed that there was actually a cargo that must be dealt with if, for whatever reason, it was not to be delivered at the discharge port.

In this case, however, the contract was rendered impossible at an earlier stage, before cargo was designated and brought forward for loading. Consequently, the terms of clause 29(a) clause could have no application and the charters could still rely on the doctrine of frustration. The arbitrator's award was set aside.

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