An Exceptions or Force Majeure Clause is often agreed in voyage and time charter parties to protect both parties from being held liable for time loss arising out of occurrences such as act of God, enemies, fire, restraint of princes, rulers and people, strike, and government interferences. However, the concept of force majeure is interpreted very differently in practice. In a recent appeal – Sucden Middle-East v Yagci Denizcilik Ve Ticaret Ltd Sirketi (The MV “Muammer Yagci”) [2018] EWHC 3873 (Comm) – where the judge ruled against arbitrators, a delay in discharge resulting from the seizure of the cargo by local custom authorities was believed to be caused by government interferences and the charterer is exempted from the demurrage.

The Facts

The vessel was chartered to carry a cargo of sugar on a voyage charter party and when she arrived in Algeria for discharge, the cargo receiver submitted import documentation to the Annaba Customs Directorate (ACD) for clearance. ACD then noticed a discrepancy between the invoice price of the cargo and the market price, which led ACD to believe that there was a false declaration with a view to an illegal attempt to transfer capital aboard.

In consequence, the cargo was seized by ACD and later transferred to State Property Directorate (SPD) by local prosecutor’s order. As the cargo was perishable, the Governor of the Trade and Commerce Directorate confirmed permission to the SPD to sell the cargo by auction. The receiver then brought an action for an interim order for release of the cargo against the ACD and the SPD and for its re-export, but the application was rejected. Eventually, the cargo was sold and discharged with a 4.5-month delay. As both the ACD and SPD are run under the administrative supervision of the Ministry of Finance, superior authorities are probably involved.

The Argument

Where a cargo is seized by the local customs authorities at the discharge port causing a delay to discharge, is the time so lost caused by “government interferences” within the meaning of clause 28 of the Sugar Charter Party 1999 form?

Clause 28, Strike and Force Majeure is in these terms:

“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 Analysis

• Defining “government”

As the Owner identifies, the appeal concerns two words, “government interferences”. One of those words is about the actor and one is about the act(s). The two words inform one another, without controversy. The Judge agrees that the present case involves a government entity, even if one focuses only on the local Finance Authority.

• Defining “interference”

On all sides of the argument, the most important word is the word “interference”. The question put to the court concerns expressly and only the seizure of cargo – in the present case a seizure by local customs authorities at the discharge port. The ordinary meaning of the word “interference” is apt to include an intervention in this specific form, that is, by way of seizure. This action on the part of local customs authorities is, in this context, the action of government through its appropriate arm or agency.

The Owner emphasises that the clause in question is a clause concerned with laytime. A range of routine tasks will be involved in that context, including for example, the submission of documents or perhaps an inspection by surveyors. Those would not, he urges, represent any interference with the process of discharging cargo but rather are the process of discharging itself. The question is not just whether the government was involved but whether it was interfering. He further gave the example of “The Ladytramp” [2012] EWHC (Comm) where activity that involved a port authority might not amount to government interference.

The tribunal followed the argument, but the argument has to be applied to the specific circumstance of the seizure and not to the wider examples given by the Owner. The Ladytramp case did not define the complete ambit of the words “government interference”, only examples were being given of what would not amount to government interference. However, for the purpose of the present case, the important thing is that seizure is not one of the things that can be treated as routine.

In an effort to help the analysis of what is and what is not government interference, the arbitrators asked themselves whether the actions of the local customs authorities were “ordinary” and confirmed all the steps taken were in fact ordinary. The tribunal, however, disagree that seizure, which is a significant exercise of executive power, can be regarded as “ordinary”. Even the seizure was to be expected when false documents are presented, expected consequences are not the same as ordinary actions. In the usual course of things cargo is not seized and property rights are not invaded in that way.

The Owner draws a distinction between: “(i)…a government entity interfering in a manner that is unanticipated, officious and beyond the control of the parties and their proxies”; and, (ii) “the expected and routine application of pre-existing legislation to the cargo and cargo documents”. The former is termed as government interference in a force majeure sense but the tribunal did not see it as what the wording of the clause requires. And the (ii) under-describes the cargo seizure situation here.

The Owner further argues that only time lost because of seizure by customs, which happens as a result of matters outside the ordinary workings out of the application of law and regulations pre-existing the conclusion of the fixture, will constitute “government interference” within the meaning of clause 28. A conclusion that the seizure of cargo by local customs authorities falls within the language of the clause was a conclusion that offended commercial common sense.

The tribunal disagrees by saying the Owner was calling to view a seizure in the same way as when a vessel was ordered off-berth by reason of poor weather or where there was an administrative re-scheduling of the cargoes due to a fire. Both are situations identified by Eder J in The Ladytramp, but the circumstances here and those identified by Eder J are not comparable. In his judgment Eder J made clear that the distinction that he was drawing was between:

“… a state-sponsored port authority acting in the ordinary course of discharging its port or berth administrative function (in the same manner as any other, private, port authority), as distinct from a government entity acting specifically/peculiarly in a sovereign capacity which is independent of that ordinary administrative function.”

• Defining the cause

The Owner had a further tack to his argument. This involved relying on the submission of the false documents as the cause of the delay rather than the seizure by local customs authorities.

The tribunal disagree as the clause and the question are directed to the seizure. The seizure caused the delay, even if the submission of the false documents caused the seizure. A local customs authority or other government agency does not have to seize. Seizure involves a decision, even if it is the case that seizure could be expected in the circumstances.

The Decision

The tribunal decided that the seizure of cargo by local customs fall within government interference in clause 28. However, given the range of some of the arguments, the decision does not address all of the circumstances that may come within or fall outside clause 28. It is concerned only with the seizure of a cargo and with that seizure by a customs authority that is a state revenue authority acting in a sovereign capacity. The present case is regarded as a particularly strong example that falls within the clause considering the involvement by higher level government agencies. However, even without such involvement, the decision will not be different.

Advice to Members

The question on this appeal was whether government interference can be invoked to exempt liabilities under the circumstance of seizure of cargo by local custom authorities. But in many other cases handled by the Club, the question can be extended to whether the charterer should be responsible for third party failures.

Normally, even Exceptions cannot exempt the charterer from the liabilities if time loss is caused by his own fault, unless the clause is made just to target at such situations. But not every single step during the performance of the contract is carried out by the charterer himself, for example, the cargo receiver in the above case as a third party was responsible for the paperwork and cargo declaration. Then there comes the problem of whether the charterer should be imposed vicarious responsibility for the act or fault of the third party, as discussed in the recent The “Global Santosh” case.

As manifested in the present case, the charterer is not necessarily held liable for all third-party actions. Since the time loss was because of false submission of documents by the receiver and demanding the charterer to take vicarious responsibility was not expressly agreed in the contract, the charterer was exempted from demurrage based on the force majeure clause. Therefore, to better protect owner interests, proper wording should be fixed in the laytime and exception clause demanding charterers to be responsible for government interference caused by third-party actions.

For further information, please contact the FD&D team of the Association.