ERG Raffinerie v. Chevron USA (CofA)
DMC Category Rating: Confirmed
This case note is based on an article that appeared in the August 2007 edition of the Shipping, Offshore and Transportation Bulletin produced by the London office of DLA Piper UK LLP
On 28 May, the vessel nominated by the buyers arrived at the port and gave notice of readiness but it could not begin to load because of the problems with the plant. On 3 June, loading had still not occurred and the buyers informed the sellers that they accepted their "failure to commence loading…as repudiatory of the sale contract, which is hereby terminated." The buyers ordered the vessel to leave.
The buyers contended that the sellers were obliged to begin loading the vessel at such a time as would permit it to complete loading by end of the delivery period, i.e. by the end of 30 May. Given that the contract provided for laytime of 36 hours plus 6 hours' notice period, this would mean that loading would have had to begin by 0600 hours on 29 May. Of course, for the reason set out above, it did not. In the buyers' view, the failure to load entitled them to terminate the contract, which they ultimately did on 3 June. In support of their stance, the buyers emphasised that:
The laycan provision thus gives the fob seller the right to cancel the contract and the other side of that coin is that the buyer is entitled to present the vessel at any time up to 2400 hours on the last day of the laycan period, in this case, 30 May. In those circumstances, the parties cannot also have intended that the seller must have completed loading by 2400 hours on 30 May as that would create an absurd situation.
The Court found instead that the seller would in fact be bound to load within the contractually agreed laytime (broadly 36 hours from NOR in this case) and a failure to do so will be a breach of contract, but not a repudiatory breach. That was primarily because terms as to delivery are not generally regarded as conditions of the contract entitling the innocent party to accept a breach as repudiatory. In addition, as the court pointed out, there would be great practical difficulties if the buyers were able to terminate the contract when the vessel had only partly loaded its cargo.
The court therefore dismissed the appeal, reminding the parties of the meaning of "condition" in its technical legal sense: If a party does not comply with a term of the contract which is a condition (as opposed to a warranty or innominate term), the "innocent party" can treat the "guilty party" as being in repudiatory breach, can accept the repudiation by bringing the contract to an end and sue for damages, if he has suffered any loss. The delivery clause in this contract was not a condition.
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