Notes - American Trading & Production Corp. v. Shell International Marine Ltd.

NOTE

1. In the paragraph of his opinion beginning "Mere increase in cost alone is not a sufficient excuse," Judge Mulligan refers to a trio of English cases that arose out of the closing of the Suez Canal from November, 1956 to April, 1957. These cases, which were widely commented on in both the English and the American law reviews, were, chronologically, Sidermar (Q.B. 1960), Tsakiroglou (H.L. 1961), and The Eugenia (C.A. 1963).

2. Sidermar, like the principal case, involved a voyage charter, the charter rate (134s. per long ton) having been calculated on the assumption that the voyage (from India to Italy) would be made via Suez. By the time the ship was ready to sail from India, the Canal had been closed to shipping for an indefinite period. The owners elected to make the longer voyage around the Cape of Good Hope and notified the charterers that they would be held liable for the increased costs; the charterers took the position that the owners were bound by the Suez rate specified in the charter. Pearson, J., held that the charter had been frustrated and that the owners were entitled to be compensated for their reasonable costs in going around Africa; he awarded them 195s. per long ton (the shipment amounted to approximately 5000 tons of iron ore).

3. Tsakiroglou, which reached the House of Lords, was a different type of case: an action by a buyer against a seller for nondelivery of 300 tons of groundnuts to be shipped from Port Sudan, on the east coast of Africa, to Hamburg, Germany. The contract of sale, executed about a month before the Canal was closed, was on c.i.f. (cost, insurance, freight) terms. In a c.i.f. contract the quoted price includes the freight to destination; the freight component in the price quotation in Tsakiroglou was based on the rate via Suez. The seller had booked space in vessels scheduled to sail from Port Sudan via Suez in November and December of 1956; those bookings were canceled when the Canal was closed on November 2. The seller, who had the groundnuts in a warehouse at Port Sudan, took the position that the c.i.f. contract had been discharged and made no shipment. The House of Lords, affirming the lower courts, held that the c.i.f. contract had not been frustrated and approved a damage award of £5,625, based on the differential between the contract price and the market price for shipments from Port Sudan c.i.f. Hamburg in January, 1957. Both Pearson, J., in Sidermar and the judges who read opinions in the House of Lords in Tsakiroglou suggested that the question whether a voyage charter party had been frustrated (as in Sidermar) was quite different from the question whether a c.i.f. contract had been frustrated (as in Tsakiroglou). Thus Tsakiroglou did not overrule, or even express disapproval of, Sidermar.

4. The Eugenia was another charter party case (like Sidermar) but both the charter party arrangement and the facts of the case were quite different from those in Sidermar. The Eugenia involved a time (not a voyage) charter; under a time charter, the charterer pays charter hire (usually monthly) for as long as it is entitled to use the ship and during the term of the charter, the ship is subject to the charterer's orders. (Under a voyage charter the freight payable is stated as a lump sum and the ship remains subject to the owner's orders.) The Eugenia sailed from the Black Sea port of Odessa on October 25, bound for India via Suez, and arrived at Port Said on October 30. It was then widely known that English, French, and Israeli forces were about to attack the Canal (which had been nationalized by Egypt a few months earlier). Over the owner's objections, the charterers (a Russian trading corporation) nevertheless ordered the ship into the Canal, which it entered on October 31. By the next day the Canal had been blocked and the Eugenia remained trapped until the following January' when a northward passage back to Port Said was cleared. The Russian charterers claimed that the charter had been frustrated when the Eugenia was trapped in the Canal, and refused to pay the charter hire for November, December, and January. The owners claimed that the charter had not been frustrated and, further, that the charterer's order that the Eugenia should enter the Canal on October 31 was a breach of the "war clause" of the charter party, which gave the owners the right to cancel the charter. The upshot was that a new charter, at much higher rates, was negotiated and the Eugenia completed the original voyage to India by way of the Cape of Good Hope. The owners then sued to recover the charter hire for the three months the ship had spent trapped in the Canal. In the Court of Appeal a three-judge panel, reversing the trial court, held for the owners. Lord Denning, M.R., delivered the principal opinion. The charterers, he said, could not claim frustration in the light of what had actually happened, since they had been responsible for sending the ship into the Canal and "self induced frustration" is unknown to the law. He also concluded that the order to enter the Canal was a violation of the "war clause," so that the owners had properly canceled the charter. He then went on to consider what the legal situation would have been if The Eugenia had not entered the Canal. Relying on Tsakiroglou, he concluded that the charter would not have been frustrated and, his colleagues concurring, overruled the decision of Pearson, J., in Sidermar. He could not, Denning wrote, see any difference between a c.i.f. contract of sale and a charter party or, for that matter, between a voyage charter and a time charter.

5. It can be argued that the three English cases digested above are entirely consistent with each other and that Lord Denning and his colleagues in The Eugenia need not have (and should not have) overruled Sidermar. See Schlegel, Of Nuts, and Ships and Sealing Wax, Suez and Frustrating Things — The Doctrine of Impossibility of Performance, 23 Rutgers L. Rev. 419,448 (1969), cited by Judge Mulligan, supra note 23. The argument for consistency rests on the observation that, in all three cases, the loss was cast on the charterer-shipper, who, it can be further argued, was the best candidate to saddle with the risk. The argument, evidently, did not prevail in the principal case or in the Transatlantic case (which arose from the 1956 closing of the Canal) discussed by Judge Mulligan in the first part of his opinion. In the last sentence of his opinion Judge Mulligan seems to suggest that, in the deep recesses of his mind, he was not altogether sure how the principal case should have been decided. On the whole, do you prefer the decision in Sidermar or the decision in the principal case?

6. Hellenic Lines, Ltd. v. United States, 512 F.2d 1196 (2d Cir. 1975) may have been the last of the 1967 Suez cases litigated in this country. Eighty percent of the capacity of the Italia, owned by Hellenic Lines, had been booked by the Agency for International Development to carry a cargo of flour from United States Gulf Coast ports via Suez to the Red Sea port of Aqaba. The flour was intended for distribution to Palestinian refugees. Having loaded the flour and cleared the last of the Gulf Coast ports, the Italia, instead of proceeding directly to Aqaba, made stops at Norfolk and Brooklyn for the purpose of picking up additional cargo (which had nothing to do with the AID shipment). These stops added six days' sailing time to the voyage. The Italia's transatlantic crossing. was further delayed by mechanical and navigational difficulties. If the Italia had sailed direct from the Gulf Coast to Aqaba, it might have arrived in time to go through the Canal and unload the flour at Aqaba. By the time it actually arrived the Canal had been closed. The owners of the Italia had the flour unloaded at the Greek port of Piraeus, where the Italia was docked for repairs. AID, which had not consented to the Piraeus unloading, eventually had the flour transported to the Mediterranean port of Ashdod where it was presumably distributed to Palestinian refugees. The freight to Aqaba, which had been prepaid by AID, was $114,301.51. The established "conference" rate for the shorter voyage to Piraeus was $215,403.54. Port expenses at Piraeus were $27,499.56. The freight charge for shipping the flour from Piraeus to Ashdod on an American-flag vessel was $140,178.81 (although the flour could have been shipped on a foreign-flag vessel for slightly more than half that sum). Hellenic started the litigation by suing the United States to recover the "conference" freight rate to Piraeus. The United States counterclaimed to recover the Piraeus expenses and the extra freight to Ashdod. A panel of the Second Circuit concluded that Hellenic could not recover the Piraeus freight rate (Hellenic's claim for the extra freight was described as "rather shocking") and that the United States could recover from Hellenic either (1) the prepaid Aqaba freight or (2) the Piraeus expenses plus what it would have cost to ship the flour to Ashdod in a foreign-flag vessel (The district judge, for reasons that the panel found inexplicable, had awarded the United States both the prepaid freight and the extra expenses of getting the flour to Ashdod in a foreign-flag vessel.) Friendly, J., devoted the bulk of an elaborate opinion to disposing of Hellenic's contention that it was protected by exculpatory clauses in the bill of lading, including the "liberties clause" (see note 24, supra). His conclusion on that branch of the case was that the calls that the Italia had made at Norfolk and Brooklyn constituted an unjustifiable "deviation" from the Aqaba voyage; the consequence of the deviation, under maritime law, was to "oust" the exculpatory clauses. He then briefly discussed the question whether Hellenic could claim discharge "on general principles of maritime contract law," — specifically the defense of "impossibility of performance." Citing the principal case, the earlier Transatlantic case, and "the leading English cases," he concluded that "the doctrine of impossibility has no application to the level of added expense here entailed." In a footnote Judge Friendly commented that evidence had been introduced at the trial (and apparently not refuted) to the effect that "no vessels which left port before the 1967 crisis were permitted to recover any surcharge for making the longer voyage around the Cape of Good Hope." As if all that was not enough, Judge Friendly added the further thought that "the doctrine of impossibility . . . applies . . . only when the promisor is not ‘in contributing fault' [citing Restatement First §457]" and that Hellenic had "made a considered decision to maximize its profits by stopping to take on additional cargo at Norfolk and Brooklyn" — a decision that led to the Italia's not being able to complete the Aqaba voyage.