May 10, 2019

A Sticky Situation: The Sugar Charter Party 1999, “Government Interference” and Force Majeure

The Commercial Court recently handed down a significant judgment on the interpretation of Clause 28 of the Sugar Charter Party 1999 and the effect of "government interference" on the running of laytime. The decision in The Muammer Yagci [2018] EWHC 3873 (Comm) provides helpful clarification of the operation of Clause 28 and underlines the importance of ensuring that force majeure provisions in charterparties are drafted carefully.

Key Background

In December 2014, the MV "Muammer Yagci" carried a cargo of sugar to Annaba, Algeria, under a voyage charter on the Sugar Charter Party 1999 form. The cargo receiver submitted the required import documents to the Annaba Customs Directorate ("ACD") for customs clearance and the assessment of duties. However, there was a discrepancy between the invoice value of the cargo and the market value. This led the ACD to suspect that the receiver had falsely declared the cargo value in an attempt to illegally transfer capital abroad.

The ACD seized the cargo and placed it under the control of the State Property Directorate. It was then sold by the authorities and the proceeds held by the Treasury. A subsequent attempt to prosecute the receiver failed.

The authorities' actions resulted in a delay of about four and a half months causing, inevitably, a dispute between owners and charterers as to whether or not the time lost counted as laytime or time on demurrage.

In London arbitration, it was charterers' case that the delay did not count as laytime or time on demurrage under Clause 28 of the charter which stated (emphasis added):

“STRIKES AND FORCE MAJEURE

In the event that whilst at or off the loading place or discharging place the loading and/or discharging of the vessel is prevented or delayed by any of the following occurrences: strikes, riots, civil commotions, lockouts of men, accidents and/or breakdowns on railways, stoppages on railway and/or river and/or canal by ice or frost, mechanical breakdowns at mechanical loading plants, government interferences, vessel being inoperative or rendered inoperative due to the terms and conditions of employment of the Officers and Crew, time so lost shall not count as laytime or time on demurrage or detention.

The Tribunal found that the ACD and the State Property Directorate operated under the supervision and authority of the Algerian Ministry of Finance. They also found that the actions of the ACD had been the cause of the delay but did not amount to "government interferences" because they were an ordinary, foreseeable part of performing their functions. Time therefore continued to run in Owners' favour.

Charterers appealed to the Commercial Court. They said the Tribunal's interpretation of "government interferences" was wrong because:

  1.  It did not reflect the ordinary meaning of the language;

  2. The ordinary meaning of the language did not require the ACD's actions to be out of the ordinary or unforeseeable;

  3. The Tribunal had wrongly believed that the words "force majeure" in the heading of Clause 28 could only apply to acts which, like force majeure events, were out of the ordinary or unforeseeable. The heading "force majeure" was a label only and should not imply any such requirement; and

  4. The Tribunal had incorrectly focussed on "commercial common sense" when the language and meaning of the clause were clear and no such consideration was required. In any case, commercial common sense favoured charterers' position.

Owners said that the actions of the ACD did not amount to "government interference" because they had been an ordinary part of discharging the cargo. A distinction should be drawn between the process itself and interference with the process. Furthermore, commercial common sense supported the Tribunal's interpretation because, on charterers' analysis, a wide range of ordinary actions would interrupt the running of laytime.

Interestingly, both parties relied on the same authority – the judgment of Eder J in The Ladytramp [2012] EWHC 2879 (Comm) which was the only authority on the meaning of "government interferences" in Clause 28. Owners said that Eder J's judgment showed that the governmental act had to be out of the ordinary or unforeseeable. Charterers argued it primarily focussed on the meaning of "government" rather than "interferences", but that Eder J's decision was that all that was required for "government interferences" was a sovereign act by a government entity.

The Court's Answer

The question before the Court was whether the seizure amounted to "government interferences" for the purposes of Clause 28. In a concise judgment, Knowles J held that the Tribunal's interpretation of "government interferences" was wrong, essentially for the reasons advanced by charterers. In particular, the Court said it was unnecessary for it to produce a general definition of "government interferences". It was sufficient to show in this case that the cargo had been seized by a customs authority that was a state revenue authority acting in its sovereign capacity. That, in the Court's view, amounted to "government interferences" on a natural and ordinary meaning of those words.

Comment

Any call at almost any port worldwide involves interactions with local authorities, some more painful and protracted than others. For that reason, many charterparties and sale contracts include terms which seek to protect one or both parties from the actions of authorities and governments, and stop laytime or time on demurrage running whilst they persist.

In that context, this case provides three useful clarifications:

  1. Clause 28 of the Sugar Charter Party 1999, whilst labelled a force majeure provision, in reality operates as a standard exceptions clause. So long as the party relying on it can bring itself within the exception, there is no additional requirement of extraordinariness or unforeseeability;  

  2. Clause 28 will suspend the running of laytime and demurrage where government authorities acting in their sovereign capacity interfere with loading or discharging operations; and

  3. Simply heading a clause "force majeure" does not produce an operable force majeure provision, nor is it sufficient to imply a requirement of extraordinariness or unforeseeability.

It therefore bears repeating that "force majeure" is a civil law concept with no foundation in English law beyond any specific terms parties may agree in their contracts. Even then, such clauses must be clear if they are to have any effect. Language such as "usual force majeure clauses shall apply" will be void for uncertainty. The phrase "force majeure" in the heading of Clause 28 in the The Muammer Yagci was given equally short shrift.