In the previous Asdem Newsletter No. 54, we referred to the High Court case of Proton Energy Group SA v. Orlen Lietuva  EWHC 2872 (Comm) as an illustration of how the courts may decide that a trading contract has been concluded, even though some of the terms have yet to be agreed. Another recent example in the High Court was Glencore Energy UK Ltd v Cirrus Oil Services Ltd  EWHC 87 (Comm).
The judge in this case held that the emailed firm offer had set out all the main terms necessary to conclude a contract including the BP's GTC's for CFR sales. This had been accepted by a"good news" email from Cirrus Oil on the morning of 4 April 2012 before the deadline for acceptance of 11.00 that day. Glencore were entitled to damages which were not restricted by clause 32.1 of BP's 2007 GTC's as they only applied to indirect or consequential damages and did not exclude damages under sections 50(2) and (3) of the Sale of Goods Act 1979.
The conclusion is that binding contracts will often be formed before the finer details have been agreed. It is not uncommon for negotiations to continue after the deal has been made and sometimes long after the cargo has been delivered. However, if there is no agreement on these "additional" terms, the contract will exist without them and the court will only intervene when it is necessary to construe terms in order to make the contract commercially viable.
Article from Andrew Wilding - Managing Director, Asdem Asia Pte. Ltd.
The expression "due diligence" is commonly found in oil voyage charter parties. Clause 1 of BPVOY4, for example, states that the ship owners are under an obligation to "exercise due diligence to make and maintain the vessel, her tanks, pumps, valves and pipelines tight, staunch, strong, in good order and condition, in every way fit for the voyage and fit to carry the cargo..., with the vessel's machinery, boilers and hull in a fully efficient state...". If the owners do not satisfy this obligation, and the vessel breaks down, charters are often reluctant to pay demurrage for time lost by what they are likely to perceive to be owners' failure to exercise the appropriate level of care.
Another example where this expression often appears, is in relation to the obligation upon the charterers to exercise due diligence to order the vessel to a safe port/berth. The consequences of a charterer's failure to satisfy this obligation can be financially devastating – in Gard Marine & Energy Ltd v China National Chartering Co Ltd (The Ocean Victory)  EWHC 2199 (Comm) insurers successfully claimed US$138 million from the charterers following the loss of a bulk carrier which sank at Kashima, Japan.
Asdem is often asked to consider the standard imposed by the due diligence obligation and whether or not it has been satisfied. The answer is that the obligation is broadly the same as the common law duty of care; a duty to exercise the care and forethought that would be reasonably expected to be exercised by the ordinary shipowner or charterer in the same circumstances. For example, storm covers must be tightened securely for the possibility of bad weather on a voyage, inert gas systems and other machinery must be checked to ensure they are in good operating condition (The Muncaster Castle  1 LR 57).
The courts have made it clear that the degree of care required to satisfy the due diligence obligation depends in each case upon the terms of the contract in question and the context in which the duty is to be exercised must be considered. In the recent case of Sabic UK Petrochemicals Limited v Punj Lloyd Limited  BLR 43,TCC the High Court in London made some interesting observations on this duty. The court held that in a contract for engineering works, due diligence required the contractor to carry out and complete the works "industriously, assiduously, efficiently and expeditiously". The degree of proactive behaviour that that the court considered to be implied in the obligation is notable. A charterer who is under an obligation to exercise due diligence to order a vessel to a safe port/berth can now be considered to be under an active duty to check the safety of the port/berth when the fixture is made and when voyage orders are issued. A ship owner will need to be similarly proactive in ensuring his vessel is seaworthy.
The recent High Court case of Trafigura Beheer BV v. Navigazione Montanari SPA "The Valle Cordoba"  EWHC 129(Comm) has helped to define the meaning of what constitutes an in-transit loss (ITL). The facts were as follows. A cargo of gasoline was loaded in Abidjan for delivery to Lagos. The vessel tendered its NOR offshore at Lagos and then sailed to Cotonou, Benin, to await further orders. While waiting, the vessel was boarded by fifteen armed pirates who took over the ship and arranged for a ship-to-ship transfer of part of the cargo to a lighter. The remaining cargo was subsequently discharged in Lagos. The charterers brought a claim against the ship owners for the loss of cargo under the ITL clause which said "... Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.5% and charterers shall have the right to claim an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port."
The Judge, Mr. Andrew Smith, held that the ITL clause related specifically to a loss which was incidental to the carriage of oil products. An "in-transit loss" or "cargo loss" did not cover the quantity of cargo stolen by pirates.
He further concluded that even if the stolen oil had been accepted as an in-transit loss, the ship owners' liability would have been subject to the exceptions in clause 46 of BPVOY3, the prevailing charter party. These gave the owner protection of the relevant articles of the Hague-Visby Rules "in respect of any claim made" under the charter party. He pointed out that if this had not be the intention of the parties, they could have excluded the provisions of clause 46 as has been done explicitly in clause 20 of BPVOY3.
In Asdem's Newsletter No. 51 we referred to the High Court case of ED&F Man Sugar Ltd v. Unicargo Transport Gesellschaft mbH (The "Ladytramp")  EWHC 2879 (Comm). The charterers subsequently took their case to the Court of Appeal (the reference is  EWCA Civ 1449). This is worth noting as there are very few court cases on the subject of breakdowns of machinery.
The charterers' argument was that the case of The "Afrapearl"  2 Lloyd's Rep 305 must lead to the conclusion that there was a mechanical breakdown of the conveyor-belt system on the basis that as a result of the fire the machinery had ceased to function as a conveyor-belt. The Court rejected this argument and dismissed the appeal. They concluded that there was a clear distinction between the wording in this case where the exception referred to "mechanical breakdown at mechanical loading plants" and the clause in The "Afrapearl" where the exception referred to "breakdown of machinery or equipment in or about the plant of the charterer, shipper or consignee of the cargo".
The clause in the charter party (Sugar Charter Party 1999 form) for the "Ladytramp" required a mechanical breakdown before it would apply. It was not sufficient that the plant no longer functioned; the nature of the breakdown had to be mechanical, i.e. an inherent mechanical cause. Destruction of the conveyor-belt by fire did not constitute a mechanical breakdown.