AMS Ameropa Marketing and Sales AG & Anor v Ocean Unity Navigation Inc (The “Doric Valour”)

DMC/SandT/24/16

England

AMS Ameropa Marketing and Sales AG & Anor v Ocean Unity Navigation Inc (The “Doric Valour”)

English Court of Appeal: Males, Snowden and Underhill LJJ [2024] EWCA Civ 1312: 1 November 2024

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2024/1312.html

Craig Williams (instructed by Hughes & Dorman) for AMS Ameropa Marketing and Sales AG (Sellers)

David Semark (instructed by Wikborg Rein LLP) for Ocean Unity Navigation Inc (Owners)

CARRIAGE OF GOODS BY SEA: BILLS OF LADING ISSUED FOR CARGO OF SOYBEANS: UPON DISCHARGE CARGO FOUND TO BE HEAT DAMAGED: SALVAGE SALE ARRANGED FOR DAMAGED CARGO: SELLERS OF CARGO PAID SUM TO CONSIGNEES UNDER SALE CONTRACT AND CONSIGNEES’ RIGHTS UNDER BILLS OF LADING WERE ASSIGNED TO SELLERS: SELLERS BROUGHT CLAIM AGAINST OWNERS: OWNERS ARGUED CREDIT SHOULD BE GIVEN FOR SUM  SELLERS HAD PAID TO CONSIGNEES: SELLERS ARGUED THAT THEIR PAYMENT TO CONSIGNEES WAS A COLLATERAL BENEFIT AND THAT THEY WERE ENTITLED TO CLAIM THE ENTIRE DIFFERENCE BETWEEN SOUND ARRIVED VALUE AND DAMAGED VALUE OF CARGO

Summary

Owners appealed the first instance decision of the High Court on the issue of whether bill of lading holders making a claim against shipowners for damage to cargo that occurred during the voyage must give credit for a payment received by them from the sellers of the damaged goods, pursuant to the separate contract for the sale of the goods.

The Court of Appeal unanimously held that no such credit needed to be given where the credit received by the buyers from the sellers could properly be construed as a collateral benefit (or res inter alios acta).

Case note contributed by Sheridan Steiger, LLM (International Trade and Commercial Law), LLB (Hons), BA (Hons), Solicitor of England & Wales, and International Contributor to DMC’s CaseNotes

Background

AMS Ameropa Marketing and Sales AG (“Sellers”) bought a cargo of soybeans from Zen-Noh Grain Corporation (“Zen-Noh”) on FOB terms (free on board). Sellers then arranged to voyage charter the bulk carrier “DORIC VALOUR” (“Vessel”) from Owners for the carriage of the soybeans from Convent in Louisiana to Abu Qir Port in Egypt.

Under the terms of a sale contract (“Contract”), Sellers then sold a quantity of the soybeans (“Cargo”) to an Egyptian company, International Oil Multiseed Extraction Co (Oilex) (“Buyers”) on CIF terms (Cost, Insurance and Freight).  The Contract provided that the quality and condition of the Cargo would be final at loading as per an independent approved surveyor’s certificate.

The Cargo was loaded on board the Vessel and clean bills of lading (“Bills”) were issued by Owners.  The Bills named Zen-Noh as shippers, stated ‘To Order’ in the consignee box and identified Buyers as the party to notify.

Sellers then issued an invoice to Buyers for USD21,565,102.82 with the sale price identified as USD435 per MT. Buyers paid the invoice, took delivery of the Bills and became the owners of the Cargo.

Following the Vessel’s arrival at Abu Qir Port a portion of the Cargo was found to be damaged in hold no.4.  The Vessel’s crew worked to segregate the damaged portion (“Damaged Cargo”) and a total of some 3,632 MT of Damaged Cargo was identified and sent to a separate warehouse.  It was later identified that the Damaged Cargo had been adjacent to the no.4 port topside fuel oil tank.

Buyers rejected the Damaged Cargo and Sellers arranged for trucks to carry the Damaged Cargo to a warehouse and paid for the subsequent storage charges.

Following an inspection of the Damaged Cargo, the parties agreed that further segregation was not possible, and that it would be necessary to arrange for a salvage sale.  Bids were sought and Sellers arranged to sell the Damaged Cargo for USD355 per MT.

Sellers and Buyers then agreed that the payment received for the Damaged Cargo would be remitted to Buyers, and that Sellers would compensate Buyers for the difference between the salvage price and the price Buyers had paid under the Contract.  As a result, the Sellers provided Buyers with a credit note for USD284,015.08.

Sellers subsequently arrested the Vessel and later took a back-dated assignment of Buyer’s rights under the Bills.  Sellers then brought a claim against Owners as assignee of the rights of Buyers under the Bills.

During the trial at first instance, Owners had admitted that the Cargo had been damaged by the heating of the fuel oil in the tank adjacent to hold no.4, and that this was a breach of the contract of carriage contained in the Bills.

The Judge at first instance held that Sellers were entitled to recover the sum of USD293,755.10 as assignee of Buyers’ rights under the Bills.  The sum was calculated as the difference between the sound value on arrival of the Cargo and the actual value of the Damaged Cargo discharged.  On the facts, the Judge used the price of the Cargo under the Contract and the sum received for the salvage sale of the Damaged Cargo.

The Judge held that Buyers did not have to give credit to Owners for the payment of USD284,015.08 that Buyers had received by way of Sellers’ credit note, holding that this payment was a collateral benefit (or res inter alios acta).

Owners were granted leave to appeal on the issue of whether Buyers would have been obliged to give credit for the payment of USD284,015.08 made by Sellers, had Buyers brought the claim against Owners directly.  If so, Owners argued that Sellers should not be in a better position as assignee of Buyers’ rights.

Judgment

The Law

In writing the Court of Appeal’s unanimous judgment, Males LJ began by setting out the legal principles that were relevant to this matter.

Reference was made to the leading judgment of Lord Sumption (fn.1):

The general rule is that loss which has been avoided is not recoverable as damages, although expense reasonably incurred in avoiding it may be recoverable as costs of mitigation. To this there is an exception for collateral payments (res inter alios acta), which the law treats as not making good the claimant’s loss…collateral benefits are those whose receipt arose independently of the circumstances giving rise to the loss.”

In setting out how the Court would assess whether the benefit was collateral, Males LJ held that the Court needed to determine the effective (or proximate) cause of the receipt of the benefit.

Turning to consider the specific legal principles applicable to shipping law, Males LJ noted that:

…there is a clear and well established principle that when cargo is damaged by a shipowner in the course of a voyage, a bill of lading holder with title to sue is…entitled to recover damaged based on the difference between the sound arrived value and the actual value of the damaged cargo, without giving credit for a payment received pursuant to a contract of sale to which the bill of lading holder is a party…such a payment is regarded as collateral…[and] the effective cause of the payment is the relationship of the parties to the sale contract and not the shipowner’s breach.

In support of this statement, Males LJ referred to previous case law (fn.2).

Owners’ Submissions

Owners looked to distinguish this case from the previous cases by noting that previous cases involved instances where the sellers had guaranteed the condition of the cargo upon arrival at the discharge port.  Conversely, in this instance, the Contract provided for CIF terms and risk for the Cargo passed to Buyers on shipment.  Owners argued that Sellers had no liability to make any payment to Buyers (citing as evidence the independent surveyor’s certificate of cargo quality issued at the loadport).

This argument was rejected by Males LJ, who held that the payment was made under the Contract and, whilst the evidence was limited, Buyers had demanded compensation under its terms.  At the time payment was made, it had not been established whether the damage arose from an inherent vice of the Cargo or had occurred whilst on board the Vessel.  Accordingly, there had at least been a possibility of a liability for Sellers at the time they compensated Buyers.

The Decision

Having set out a detailed summary of the existing case law on collateral benefits, Males LJ identified that the key question in this appeal was whether the payment was indeed collateral.

Males LJ held that the Judge at first instance had been right to describe the payment from Sellers to Buyers as a ‘commercial settlement’, and that it was clear that Buyers had demanded compensation under the Contract.

Therefore, the credit note was not a benefit obtained in the course of mitigation for which credit had to be given but was a collateral benefit that the Buyers had obtained.  On the facts, Buyers had a valid claim against Owners for cargo damage that had been properly assigned to Sellers who were, as a result, then entitled to pursue a claim under the Bills.

Accordingly, Owners’ appeal was dismissed.

Comment

This judgment makes express the lack of appetite on the part of the Court of Appeal to accept a weakening of the state of the law on collateral benefits.  The Court noted that the current position promotes certainty in commercial life and is straightforward to apply, and so firmly rejected Owners’ arguments.

Whilst this judgment does provide a useful summary of the English law position on collateral benefits, it is rather surprising, in the writer’s view, that Owners chose to pursue this appeal given the likely costs incurred to do so.

Footnote 1:  Swynson Ltd v Lowick Rose LLP [2017] UKSC 32, [2018] AC 313

Footnote 2:  R & W Paul v National Steamship Co (1937) 59 Ll.L.Rep. 28