DMC Category Rating; Confirmed

This case note is based on an Article in the December 2005 2004 Edition of the ‘Marine Bulletin’, published by the Marine team at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA is an International Contributor to this website

Background
On 17 February 2003, SHV sold Naftomar a cargo of butane CIF Tunisia Port. The contract of sale included the following:

"Laycan: Feb 17-19th 2003 consequently ETA Gabes Feb 20 am La Goulette Feb 19 pm.

Force majeure: Neither seller nor buyer shall be liable in damages or otherwise for any failure or delay in the performance of any obligation hereunder other than the obligation to make payment, where such failure or delay is caused by force majeure, or any event occurrence or circumstance reasonably beyond the control of that party… The party whose performance is so affected shall immediately notify the other party … indicating the nature of such cause and, to the extent possible, inform the other party of the expected duration of the force majeure event".

In addition, Incoterms 2000 for CIF sales applied. Clause A4 of Incoterms 2000 provides that the seller must deliver the goods on board the vessel "at the port of shipment on the date or within the agreed period".

The vessel arrived at the loading port, Melilli, on 17 February and tendered a notice of readiness. But Melilli was experiencing an unusually long spell of bad weather, which meant that the jetty was inoperative for various periods from 17 February to 2 March. As a result, the vessel was not able to berth until 3 March. Loading began that day and was completed on 4 March.

On 25 February, however, Naftomar cancelled the contract, relying on clause A4 of Incoterms and the failure of SHV to ship within the agreed period, which it treated as 17-19 February. SHV disputed there was an agreed period for loading or that they were in breach and claimed damages.

Laycan
The term "laycan" is usually used in charterparties to refer to the earliest date at which laydays can commence and the date after which the charter can be cancelled if the vessel has not by then arrived. The term often appears in FOB sales so that the seller can cancel the contract if the vessel does not arrive at the port by the cancellation date. But it does not fit so easily into a CIF contract, where it is the seller's obligation to make a contract of carriage, ship the goods on board and tender the customary documents.

The term was used in this CIF contract because it appeared in SHV's purchase agreement and SHV wanted to ensure that an identical provision appeared in its sub-sale agreement with Naftomar. Because of the uncertainty of the term, however, Naftomar asked SHV to include the estimated time of arrival (ETA) at the discharge ports, Gabes and La Goulette.

Naftomar argued that "laycan" could be treated as a shipment period because that fitted in with the commercial background of the contract and the ETA.

The judge did not agree. The term "laycan" had been intentionally chosen and was consistent with the charterparty. It was perfectly capable of applying in its ordinary sense to the present contract. It did not mean "shipment period".

If no shipment period is specified, there is an implied term that the goods will be shipped within a reasonable time (section 29(3) of the Sale of Goods Act 1979). What was reasonable would depend on the circumstances. SHV could not be blamed for the weather or for the berthing difficulties and there was no evidence to suggest it had been dilatory in shipping the cargo. Consequently, there was no breach.

Force majeure
Even if SHV had failed to ship the goods within a reasonable time, the force majeure clause would not have prevented Naftomar from terminating the contract.

A force majeure clause acts as an exception clause and must be construed strictly. This one did not mean the seller was not in breach in failing to ship within the agreed time, it merely provided that the seller would not be liable "in damages or otherwise" for the delay.

Was compliance with the notice requirement condition precedent to the operation of the clause? The judge decided not. The clause required the cause of the delay to be notified immediately. Notice given at about noon the next day was sufficiently immediate. Even if this was not the case, there was nothing in the wording to suggest it was a condition precedent to the operation of the clause.

No grounds for estimate
But, having found SHV had shipped the goods within a reasonable time, the judge held it was in breach in respect of its estimated time of arrival.

ETAs must be given honestly and on reasonable grounds (The Mihalis Angelos [1971] 1 QB 164). SHV claimed the estimate was reasonable because there was nothing to put it on inquiry about the weather at Melilli. It was not bound to make positive inquiries. Naftomar, however, argued that the estimate was not given on reasonable grounds because no attempt was made to obtain any information about the situation. The judge agreed.

An estimate is not made on reasonable grounds if an enquiry which ought to have been made is not made and the answer would have invalidated the estimate. In this case, the estimate was given in the absence of any information whatever as to the berthing prospects at the loading port. A simple inquiry of someone with knowledge of what was happening at the port would have revealed that it was substantially inoperative on 15, 16 and 17 February and that there was no prospect of the vessel berthing immediately on arrival on 17 February.

Since the estimate was not given on reasonable grounds, SHV was in breach of condition and Naftomar was entitled to terminate as it did. SHV's claim for damages failed.