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Shipping Update: ‘Valle Di Cordoba’ - Owners’ relief and Charterers’ concern

  • United Kingdom
  • Shipping
  • Transport

04-02-2014

Introduction

In the recent case of Trafigura v Navigazone Montanari, the Commercial Court was asked to decide whether, on its true construction,  an amended Trafigura In-Transit Loss clause (the “ITL Clause”) (as inserted into a Beepeevoy 3 charterparty) rendered vessel owners (“Owners”) strictly liable to the charterers (“Charterers”) for any difference between net volumes after loading port and before unloading at the discharge port.

The brief facts were that Owners loaded 33,459mt of premium motor spirit at Abidjan for carriage to Lagos. While offshore Lagos the vessel was boarded by pirates who compelled the crew to move the vessel to a place where the pirates performed an STS transfer of approximately 5,300mt of cargo. The vessel was then released and prior to discharge at the nominated port the net volumes were measured which indicated the vessel had only some 28,180mt on board. Charterers claimed for the difference under ITL clause.

The questions for the court involved both an assessment as to the definition of what constitutes “in-transit loss” and, if the cargo lost during a voyage was determined to constitute such a loss whether, in any event, Clause 46 of Beepeevoy 3, which effectively incorporated the Hague-Visby Rules, excluded any such liability.

The ITL Clause

 The ITL Clause stated:

“In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.3% 0.5% and Charterers shall have the right to deduct from freight 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 amendments to the ITL clause were agreed between the parties during contractual negotiations. Further the parties also gave consideration to CL.46 of the Beepeevoy 3 agreeing that it should be “maintain[ed] as printed”.

The Arguments

Charterers argued:

  • On its true construction, in situations where there was a difference between the net vessel volume after loading at the loadport and the net vessel volume before unloading at the discharge port, such difference constituted an “in-transit loss” and “lost cargo” within the meaning of the ITL Clause, therefore rendering Owners strictly liable for any losses outwith the proscribed de minimis percentage.
  • Liability is strict because the ITL Clause:

    • was a term amended by the parties and should therefore prevail over Clause 46 (which was not stated to be a clause paramount and was unamended);
    • was intended to confer on Charterers benefits that they would not otherwise have had under the charterparty; and
    • includes the benefit that Owners are “responsible” for in-transit losses.

Owners argued:

  • “In-transit losses” cover only losses that occur as a direct result of the transit, for reasons internal to the transit, during the course of a routine/ordinary voyage.
  • In any event the ITL Clause does not apply when cargo has been discharged from the vessel before she has arrived at her discharge port.
  • That any liability under the ITL Clause was subject to this exceptions of Cl.46.

The Judgment

The Judge found:

  • In-Transit Loss clauses stipulate a cut-off point above which vessel owners may not explain or excuse differences in volumetric measures simply on the basis that they reflect such incidents of carriage (or transit) that are not attributable to fault on their part and that expressions such as “in-transit loss” connote loss that is incidental to the carriage of goods and does not extend to losses occasioned by external factors.
  • Clause 46 provides that Owners are entitled to the protection of the relevant articles of the Hague-Visby Rules “in respect of any claim made” under the charterparty, and there was no valid reason to limit the natural meaning of “any claim” by excluding claims under the ITL Clause.

Comment

In-Transit Loss clauses have been used in oil transportation charterparties for a number of years and this decision is but the most recent in a number of cases designed to test the meaning and extent of the operation of such clauses.

From a construction perspective, the judge focused primarily on the commercial context within which the ITL Clause operated.  He emphasised the allocation of risk that takes place between an Owner and Charterer and given the competing arguments as to meaning stated “if apparently impossible commercial consequences flow from an interpretation of contractual wording and another is available the court takes account of this”. Further the judge highlighted the inconsistencies that would flow from accepting Charterers arguments in particular losses incurred before or after measurement. The judge said that as the clause did not specify the kinds of loss that qualify as “in transit loss” the court would give the expression its natural business sense. The result is a huge relief to Owners who otherwise would in effect have underwritten the value of the cargo on a strict liability basis during transit.

For Charterers the greater concern is the second limb of the judgement. The essence of an In-Transit Loss clause is to ensure that, in situations where an in-transit loss (which occurs for reasons internal to the transit) is in excess of a proscribed limit, vessel owners are strictly liable for such loss (thereby negating the need to litigate). However, following this judgment, it appears that vessel owners may be able to mount a defence based on the Hague-Visby rules.

Conclusion

What is clear is that a clause may not always operate in the manner envisaged by the parties and, as a result, it is imperative that care is taken in both the negotiation and  drafting of clauses in order to effect the intentions of the parties.

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