News / 09-05-2022 / London

Laysun Service Co Limited v. Del Monte International GMBH [2022] EWHC 699 (Comm)

This was a dispute under a contract of affreightment, in which the arbitral tribunal made an award in the Charterers’ favour. The Owners subsequently appealed, alleging that the tribunal had erred in its findings on issues of law. The Court, however, dismissed the challenge, concluding that the Owners were in fact seeking to impugn the arbitrators’ findings of fact, which were not open for appeal.

The background facts

On 29 December 2017, Laysun Service Co Ltd as the Owners and Del Monte International GmbH as the Charterers entered into a contract of affreightment (COA) for the carriage of refrigerated bananas from the Philippines to Bandar Bushehr, Iran during the period between 1 January 2018 and 31 December 2018. There were to be a total of 36 voyages, which worked out at three voyages per month.

The bananas were sold by the Charterers’ sister company, Del Monte UAE, to two UAE based customers: Prime International Fruit LLC (“Prime”) and Marhaba MTA General Trading LLC (“Marhaba”). Prime and Marhaba then sold the bananas on to receivers in Iran. After 17 shipments, the Charterers stopped providing fruit for shipment and the Owners sought to claim their losses arising from the remaining unperformed 19 shipments.

The Charterers’ defence was based on the force majeure (FM) clause, clause 8, of the COA. They argued in essence as follows:

1. US sanctions on Iran, enforced in May 2018, made it impossible to effect payments from Iran to a bank in another country and/or for international banks to facilitate or finance any transaction with an Iranian link. Therefore, Prime and Marhaba could not pay Del Monte UAE (“Payments Issue”).
2. Due to various restrictions on import permits imposed by the Iranian Government, it was impossible to import bananas into Iran between April and at least June 2018 (“Import Permits Issue”).

The arbitration award

On the Payments Issue, the tribunal found that Prime and Marhaba were unable to make payments to Del Monte UAE as no bank in the UAE would accept an Iranian payment and, in turn, Del Monte UAE was unable to receive payments from Prime and Marhaba.

On the Import Permits Issue, the tribunal found that the Iranian Government stopped issuing new import permits towards the end of June 2018 until 31 July 2018 and that it was impossible for the Charterers to perform their obligations at least during that time by delivering either to Prime or to Marhaba and they could not find alternative customers in time to continue performing under the COA before it expired.

With regard to the FM provision:

1. Clause 8.1 set out what constituted a FM event e.g. “any circumstances beyond the reasonable control of that party that prevents such party, practically or legally, from performing any or all of its obligations…”
2. Clause 8.3 provided that a “Party affected by a force majeure event will use all endeavours to mitigate the effect of the force majeure event to carry out its obligations under this Agreement in any way that is reasonably practicable and to resume the performance of its obligations as soon as reasonably possible”.

The tribunal concluded that clause 8 was engaged; the Charterers were unable to perform their obligations under the COA and it was not possible for them to do anything reasonably practicable in mitigation.

The Owners appealed under s.69 of the Arbitration Act 1996, which allows an appeal from an arbitration award to the Court on the ground that the tribunal has made a mistake in law.

The Commercial Court decision

The Court dismissed the appeal because the purported questions of law that the Owners had raised were either premised on factual findings, or were not questions of law at all but were thinly veiled challenges to the tribunal’s findings of fact.

Payments Issue

The Owners queried whether the Charterers could rely on clause 8, because payment difficulties might result in the bills of lading not arriving at the discharge port and the Owners declining to permit delivery until surrender of the bills of lading. The Court decided, however, that this question was based on an entirely false factual premise as the tribunal had found that the goods could not be discharged because they had to clear customs prior to discharge, which could not be done without the bills. Therefore, no question of an error of law arose.

Although it did not then need to decide the point, the Court also dismissed the argument that the Charterers had an absolute obligation to discharge the cargo and if the bills were necessary to do so, then the Charterers were also contractually responsible for ensuring that the bills were available. Whilst charterers might have an absolute obligation to provide cargo, to which the usual charterparty exceptions did not apply, the obligations to load and discharge cargo were not absolute and were subject to charterparty exceptions, in this case the FM provision.

Import Permits Issue

The Court found that the “suggested” questions of law were in fact impermissible attempts to reopen the tribunal’s findings of fact. Among others, the issues raised were:

1. What the Charterers needed to prove on the question of whether or not Marhaba and Prime could use existing import permits, or obtain new permits, in order to invoke clause 8.1. The Court said this was an issue of fact that the tribunal had already determined, finding that there was no evidence that Prime or Marhaba had existing permits they could use or that they could obtain new permits at the relevant time.
   
2. Whether the FM clause could be invoked on the basis that Prime and Marhaba terminated their purchase contracts with Del Monte UAE or stopped trading in bananas. However, the Charterers had not argued that clause 8 was triggered on this basis. Rather, FM was invoked because of the tribunal’s findings on the Payments Issue and also because the tribunal found, as a matter of fact, that Prime and Marhaba (and their Iranian receivers) were not permitted to receive cargo in Iran without import permits. That Prime and Marhaba may subsequently have made a commercial decision to cease trading in the goods was not the point.

A final point was whether clause 8.3 was only engaged if the FM event under clause 8.1 was continuing and whether, if it was over, the Charterers had to resume performance. The FM event in this case was over by the end of July 2018 and the Owners contended that the Charterers should have resumed performance thereafter and mitigated their loss. Both the tribunal and the Court disagreed, with the Court commenting that clause 8.3 was focussed on the effect of the FM event on the party’s obligations. The tribunal had found that, in this case, the effect of the FM event had continued after the event was over and prevented the Charterers from resuming contractual performance. Therefore, in the circumstances, they had not failed to mitigate.

Comment

The decision is a reminder that the Court will not tolerate attempts to appeal arbitration awards on findings of fact dressed up as issues of law. An attempt to do so is likely to fail and result in wasted costs.

The Court’s analysis of the scope and effect of the FM clause is also useful, as is its confirmation that a charterer’s duty to discharge is not absolute.