Armada v. A.R de Velasco

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Armada Bulk Carrier Ltd, as Disponent Owner of M/V Moondance v. Andres Ruiz de Velasco, as Charterer
United States of America: Arbitration Award: Society of Maritime Arbitrators of New York: Michael A van Gelder, Chairman, Klaus C J Mordhorst and A J Siciliano, arbitrators: 19 June 2007
William J Honan, of Holland & Knight LLP, Counsel for Armada
Richard A Zimmerman, Counsel for Andres Ruiz de Velasco
In this arbitration, the Panel unanimously awarded the Owner its claim for deadfreight arising under a Contract of Affreightment for the carriage of coal in bulk, where the Charterer had failed to load a given parcel that had been stemmed for the vessel, on the grounds that an accident at the mine from which it was sourced had prevented the coal being loaded onto rail wagons for transport to the loading port. The Panel held that the Charterer was, in these circumstances, obliged either to provide a substitute cargo, or to establish that it was either impossible or commercially impractical to do so, which – on the evidence produced - the Charterer failed to do.

DMC Category Rating: Confirmed

Pursuant to a Contract of Affreightment ("CoA") on a revised form of AMWELSH Coal charterparty, dated 11 January 2005, the M/V Moondance was fixed by her Disponent Owner, Armada, to Charterer, Andres Ruiz de Velasco, to carry four cargoes of coal in bulk at various dates from Hampton Roads in Virginia, USA to Gijon in Spain.

In September 2005, Armada nominated Moondance to load 25,000 metric tonnes of coal, 10% more or less in Armada’s option, expected cargo intake 27,500 tonnes. Charterer thereupon advised it would load the required quantity of cargo from three different suppliers. Unfortunately, shortly before the vessel was due to load, an accident occurred at the Buchanan mine, from which the parcel of cargo intended for the vessel’s no.4 hold, in the amount of about 6,150 tonnes, had been sourced. As a result, it could not be loaded into rail wagons for transport to the ship. The vessel completed loading on 27 September 2005 and sailed with only some 21,109 metric tonnes on board. The Owner accordingly claimed deadfreight for the 6,145 tonnes representing the parcel from the Buchanan mine, in the amount of some US$145, 636.

The Charterer contested this claim, asserting that the accident at the Buchanan mine was a ‘force majeure’ situation, for which it was not responsible in accordance with clause 10 of the CoA. This read in material part:

"Neither the… Owners nor the Charterers shall, unless otherwise expressly provide[d] in this charter party, be responsible for…failure to supply…the cargo resulting from…accident at the mines or to machinery…or any other causes beyond the Owners[‘] or the Charterers[‘] control: always provided that such events directly affect the loading and/or discharging process of the Vessel, and its performance under this Charter Party."

In support of its claim, Owner argued that, in order to avoid liability for failing to produce cargo, a Charterer must show both that an excepted event occurred and that no other permissible cargo was available. It emphasised that the CoA described the cargo as "coal in bulk", rather than any specific grade of coal. Therefore, Charterer was required to provide a full cargo of any coal in bulk. It could not argue that the non-availability only of that specific grade of coal for which the vessel was stemmed, namely that sourced from the Buchanan mine, relieved it from the obligation to pay deadfreight.

The Charterer replied that a charterer will be excused from his obligation to provide a cargo if it is impossible or unreasonable in a business sense to obtain replacement cargo from an alternative source, which, it said, was the case here. The coal stemmed for the Moondance had specific characteristics essential to making furnace coke and it could not therefore be replaced with untested/unproved coal. Further, Charterer claimed that it had tried its best, but without success, to find a suitable replacement for the Buchanan mine parcel.

The Award
The Panel unanimously found in favour of the Owner.

Once the vessel nominated had been accepted under the CoA, the Charterer had an absolute obligation, subject to any exception clauses in the contract, to load the cargo. Whilst the Panel accepted that the accident at the Buchanan mine fell within the wording of clause 10 of the CoA, in that it did interrupt Charterer’s intended coal supply and that, in turn, directly affected its ability to load that coal parcel on the vessel, that was not the end of the matter.

The Panel noted that the CoA only described the cargo as "coal", without any other qualification. "It is well established," said the award, "that a charterer is obligated to furnish the cargo as described in the contract. Absent clear language to the contrary, a charterer may not unilaterally impose its personal preferences as to what specific cargo was intended."

Unless otherwise excused, the Charterer remained responsible to supply a full cargo from other sources and could be relieved from that obligation only when that was shown to be impossible or commercially impractical. That the Charterer, in the circumstances of this case, had failed to establish to the satisfaction of the Panel.

Whilst the Panel found for the Owner on the deadfreight issue, it did, however, require the demurrage and despatch calculations to be adjusted in Charterer’s favour on the basis of the full cargo for which the Owner had been paid freight, namely, 27,500 tonnes, there being no provision in the CoA for laytime to be based on loaded quantities.

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