Carrier`s Liability For Heat Damage To A Soybean Cargo When Caused By Excessive Heating Of The Ship`s Bunker Fuels
The English law case AMS Ameropa Marketing Sales AG & Anor v. Ocean Unity Navigation Inc.1 was a claim for the heat damage to a small part of a cargo of 49,574.949 MT of soybeans shipped from Convent Lousiana in United States to Abu Qir Port in Egypt.
In June 2020, the grain trading company Ameropa purchased a cargo of 50,000 MT of soybeans in bulk +/-10% on FOB terms from Zen-Noh Grain Corporation. Then on 15 July 2020, Ameropa re-sold the cargo on CIF terms to an Egyptian company called International Oil Multiseed Extraction Co., referred to as "Oilex".
The soybean cargo was loaded on board the vessel "Doric Valour" on 4 August 2020 from the Zen-Noh Grain Elevator at Convent Louisiana. The Bills of Lading for the soybean cargo were issued by the local agents on behalf of the Master. The Bills of Lading were issued to order, stating the FOB seller, Zen-Noh Grain Corporation as shipper and the CIF buyer, International Oil Multiseed Extraction Co. as the notify party.
On 25 August 2020, Ameropa issued an invoice to International Oil Multiseed Extraction Co. for the amount of USD 21,565,102.82, with the CIF sale price stated as USD 435 per MT. On 2nd September 2020, International Oil Multiseed Extraction Co. paid Ameropa the invoiced amount and became the lawful holder of the Bills of Lading and the owner of the soybean cargo.
On 30th August 2020, the vessel "Doric Valour" arrived at the discharge port, Abu Qir Port in Egypt. When the vessel`s holds were unsealed, in one of the five holds, the hold no.4, the surface of the cargo was lumpy, caked, rotten and discolored, having a temperature ranging between 32 and 47 degrees Celsius.
Initially, the vessel`s crew started to segregate manually the damaged cargo with buckets and shovels. By 10 September 2020, the vessel`s crew manually segregated a quantity of 15.92 MT of damaged cargo that was put into large bags and weighed ashore.
On 10 September 2020, another part of the cargo with discolored soybeans had been discovered, this time in the proximity to a fuel oil bunker tank, but the cargo owners objected to the crew continuing the manual segregation due to the risks of delays and further deterioration of cargo during the lengthy manual segregation of the damaged cargo.
From then on, the discharge of the portions of cargo with discolored beans was done with grabs using the vessel`s cranes. The portions of cargo with discolored beans were discharged into trucks parked alongside the vessel. By 12 September 2020, all visually damaged cargo in the hold no.4 had been removed and discharge of the whole cargo was completed by 14 September 2020.
Following the completion of discharge, the rejected parts of the cargo were sent by trucks to a warehouse, located about 100 km away from the port of discharge, where they were inspected and sampled by surveyors acting on behalf of the ship`s P&I Club, shippers, consignees, cargo underwriters and charterers.
Beside the quantity of 15.92 MT that had been manually segregated, it was recorded an additional quantity of 3,631.79 MT that was removed by grabs and subsequently rejected by the CIF buyer.
On 17th September 2020, the surveyors acting on behalf of the shippers, consignees and cargo underwriters issued a joint inspection report stating that a further segregation of the rejected cargo quantity of 3,631.79 MT was not feasible and that the respective cargo quantity had to be sold at the highest salvage bid that could be obtained.
A salvage tender followed where the highest bid for the cargo quantity of 3,631.79 MT was at the price of 355 per MT2. Subsequently, the quantity in question was sold to the bidder who offered that price.
Before the delivery to the salvage buyer, the respective quantity was sampled in the warehouse by surveyors acting on behalf of the ship`s P&I Club, shippers, consignees, cargo underwriters and charterers. There were six separate piles of soybeans of different sizes, of which one was the quantity of 15.92 MT that had been manually segregated. The pile with the quantity of 15.92 MT with visibly damaged soybeans was sampled separately from the other five piles. The cargo samples were then sent for laboratory analysis to Salomon&Seaber in London. Soon after that the rejected cargo quantity was delivered to the salvage buyer.
The results of the laboratory analysis of the cargo samples taken from the five piles representing the quantity of 3,631.79 MT showed that they were on-specification.
On 15 March 2021, Ameropa reimbursed International Oil Multiseed Extraction Co. the CIF price for the quantity of 15.92 MT of visibly damaged soybeans that had been manually segregated and the difference between the CIF price and the salvage price for the quantity of 3,631.79 MT that had been removed by grabs. In turn, International Oil Multiseed Extraction Co. assigned its rights under the contract of carriage evidenced by the Bills of Lading to Ameropa to enable the latter to recover the financial loss from the carrier (shipowner).
On 12 July 2021, Ameropa obtained a Court order in South Africa for the arrest of the vessel "Doric Valour" as security for the claim. Then on the following day, Ameropa sent to shipowner a notice of the assignment of the rights that the cargo owners, International Oil Multiseed Extraction Co., had under the contract of carriage evidenced by the Bills of Lading to Ameropa.
On 16 July 2021, the ship`s P&I Club issued a Letter of Undertaking to Ameropa to release the ship from arrest. On the basis of the P&I Club`s Letter of Undertaking, Ameropa brought the claim in the English Commercial Court as assignee of the rights of the Bills of Lading holder.
Ameropa`s right to claim damages depended on what International Oil Multiseed Extraction Co. would have been entitled to claim at the date of the assignment in July 2021.
In the Court proceedings, the shipowner contended that Ameropa did not have the obligation to reimburse International Oil Multiseed Extraction Co. the CIF price for the quantity of 15.92 MT and the difference between the CIF price and the salvage price for the quantity of 3,631.79 MT, because the sale contract was on CIF terms so that the risk of damage to the goods passed at the time of shipment at loading port.
The English Commercial Court and subsequently the English Court of Appeal3 held that whatever the reason for the reimbursement by Ameropa of the amount claimed by International Oil Multiseed Extraction Co., recovery of that amount from Ameropa did not affect International Oil Multiseed Extraction Co.`s right as the lawful holder of the Bills of Lading to recover full damages under the contract of carriage from the shipowner. The fact that the Bills of Lading holder was previously able to recover the financial loss from a salvage buyer and the seller of goods did not affect his right to recover full damages under the contract of carriage from the shipowner.
A Bills of Lading holder who recovers the financial loss arising from the cargo damage from a salvage buyer and/or the seller of goods by way of a commercial settlement under the sale contract retains the title to sue the carrier under the contract of carriage contained or evidenced by the Bills of Lading4.
The Difficulty Of Assessing The Extent Of Physical Damage To A Soybean Cargo When Caused By The Excessive Heating Of The Ship`s Bunker Fuels
Ameropa sought to recover the entire amount reimbursed to International Oil Multiseed Extraction Co., that is, the CIF price for the cargo quantity of 15.92 MT of visibly damaged soybeans that had been manually segregated and the difference between the CIF price and the salvage price for the cargo quantity of 3,631.79 MT that had been removed by grabs and subsequently rejected.
In addition to that amount, it sought to recover the expenses incurred for the transport of the rejected quantity of the rejected quantity from the discharge port to the warehouse, along with the storage costs and survey fees.
By the time of trial, the shipowners had admitted that the excessive heating of the ship`s bunker fuels caused damage to a small part of the cargo in the hold no.4 and this was a breach by the shipowners of the contract of carriage evidenced by the Bills of Lading. But the shipowners contended that the damages claimed were overstated and that the true extent of the damaged cargo was no more than 300 MT.
The shipowners alleged that the cargo owners acted unreasonably when asked the segregation of the heat damaged soybeans with the use of grabs and when concluded the salvage sale for the rejected cargo quantity of 3,631.79 MT before obtaining the results of the laboratory analysis of the cargo samples.
The English Commercial Court held that based on the evidence from the photos taken by surveyors at the time of discharge, the part of the cargo damaged by heat was within 50 cm of the heated fuel oil tank and based on the area of the fuel oil tank, the maximum quantity of cargo affected by heat damage could not have been more than 80 MT. Nonetheless, the Court held that the use of grabs for the segregation of the heat damaged soybeans from the sound soybeans was not unreasonable because the cargo owners could not know at the time of discharge the extent of the heat damage and the surveyors acting on behalf of the ship`s P&I Club did not propose an alternative method of segregation at the time of discharge. This method of segregation avoided the risk of substantial delay and significant admixture throughout the whole cargo stow in the hold no.4.
Once the sound and heat damaged soybeans were admixed at the time of discharge by grabs, it was not practical to attempt to further segregate them.
The segregation of the heat damaged soybeans by grabs and the subsequent sale of the segregated quantity at a discount of 18% of the invoice price was a direct consequence of the shipowners` breach of the contract of carriage.
The cargo owners` decision to sell the rejected cargo quantity through a salvage tender without obtaining first a certificate of analysis was reasonable, because it was not known at the time the actual condition and moisture content of that cargo quantity.
Even though it was later find out that the rejected cargo quantity was actually in a sound condition at the time of the salvage sale on 24-25 September 2020, it could not have remained in that condition if it had been left in the warehouse until early December 2020 when the certificates of analysis were issued due to the improper storage conditions (water leaking from the warehouse ceiling) and the storage costs.
While the risks of further cargo deterioration due to the improper storage conditions were not the shipowners` responsibility, a prompt sale at a discount of 18% on the invoice price protected against further deterioration attributable to the shipowners` breach, including ongoing storage conditions.
As a result, the judge held that Ameropa, as assignee of the Bills of Lading holder rights, was entitled to recover the sum of USD 293,755.10 as contractual damages based on the difference between the CIF invoice value of a sound cargo and the actual value of the cargo on arrival at discharge port5.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Grain Trade Review Edition No.10.
Endnotes:
1. [2023] EWHC 3264 (Comm)
2. It was actually the CIF seller, Ameropa, who arranged the salvage tender and the subsequent sale of the quantity of 3,631.79 MT, but it did so on behalf of the CIF buyer.
3. See AMS Ameropa Marketing and Sales AG & Anor v. Ocean Unity Navigation Inc. (Re "Doric Valour"), [2024] EWCA Civ. 1312
4. See Sevylor Shipping And Trading Corp v. Altfadul Company for Foods, Fruits & Livestock & Anor, [2018] EWHC 629 (Comm); [2018] 2 Lloyd`s Rep. 33
5. The claim for the transport, storage and survey costs was rejected because the transport, storage and survey invoices showed that those costs were incurred by Ameropa and not by International Oil Multiseed Extraction Co.. The transport, storage and survey costs could have been recovered only if the claimant have proved that such costs were incurred by the Bills of Lading holder, International Oil Multiseed Extraction Co.