Factual and Procedural Background
On 5 November 2015, a dam burst at an iron ore mining complex in Brazil, causing loss of life and halting production at the mine. This event triggered litigation between a shipowner and a charterer arising from a long-term contract of affreightment ("COA") for the carriage of iron ore pellets from Brazil to Malaysia. The shipowner (Plaintiff), a Marshall Islands company, claimed damages for breach of contract against the charterer (Defendant), a Malaysian company, which invoked a force majeure clause in the COA to excuse failure to provide cargoes after the dam burst. The claim concerns five shipments scheduled between November 2015 and June 2016, with damages claimed of approximately US$20 million for three scheduled shipments and just over US$400,000 for two index shipments. Previous judgment had been given on two shipments scheduled before the dam burst.
The charterer is a wholly owned subsidiary of another Malaysian company, which in turn is a wholly owned subsidiary of a holding company that guaranteed the charterer's obligations. The charterer was described as a special purpose vehicle for performing the COA. Related companies within the same corporate group operated Hot Briquetted Iron plants in Malaysia and were involved in purchasing iron ore pellets from Brazilian mining companies Samarco and Vale.
The COA required shipments of iron ore pellets sourced from these Brazilian suppliers, with the charterer responsible for providing cargoes. The dam burst caused Samarco to suspend operations, eliminating it as a source of cargo. The charterer contended that this event excused non-performance under the COA’s exceptions (force majeure) clause. The shipowner disputed this, arguing the charterer was liable for damages for failure to supply cargoes.
The legal dispute focused on whether the charterer could rely on the exceptions clause given its arrangements and conduct before and after the dam burst, including the availability of alternative suppliers and the application of causation principles. The court was asked to determine liability and the recoverability of damages.
Legal Issues Presented
- Whether the charterer had "relevant arrangements" to provide cargoes and if failure to perform was excused by the exceptions clause due to the dam burst.
- Whether the "but for" test of causation applies to reliance on the exceptions clause, requiring the charterer to prove it would have performed but for the dam burst.
- Whether the charterer took all reasonable steps to obtain cargoes from an alternative supplier (Vale) after the dam burst, including the burden of proof on securing a long-term supply contract.
- The construction of the exceptions clause regarding whether the dam burst was beyond the control of the shippers, particularly considering any fault by the mining company Samarco.
- The extent to which substantial damages are recoverable by the shipowner given the factual findings and application of the compensatory principle.
Arguments of the Parties
Shipowner's (Plaintiff's) Arguments
- The charterer had no relevant arrangements to provide cargo and thus cannot rely on the exceptions clause.
- The "but for" test applies, so the charterer must prove that but for the dam burst it would have performed its obligations.
- The charterer failed to secure cargo from alternative suppliers, notably Vale, and the dam burst is not causative of the failure to perform.
- Any failure by Samarco to prevent the dam burst means the event was not beyond the control of the shippers, negating reliance on the exceptions clause.
- Substantial damages should be recoverable because the charterer breached its obligation to supply cargoes.
Charterer's (Defendant's) Arguments
- The charterer had alternative modes of performance and made arrangements to ship from one port, and after the dam burst took reasonable steps to ship from an alternative port.
- The "but for" test does not apply; it is sufficient that the dam burst rendered performance impossible.
- The charterer made reasonable efforts to obtain cargo from Vale but was unable to secure a long-term contract.
- The dam burst was beyond the control of the charterer, irrespective of any fault by Samarco.
- Substantial damages are not recoverable as the compensatory principle precludes recovery where performance was impossible due to the dam burst.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Cowden v Corn Products (1919-1920) |
Force majeure defence requires showing availability or preparedness to provide goods and prevention by external authority. |
Principles applied to assess whether charterer had made arrangements and was prevented from performing by force majeure. |
| Brightman v Bunge Y Born [1924] 2 KB 619 |
Charterer’s absolute duty to provide cargo; exceptions must be clearly expressed; alternative modes of performance principle. |
Supported the court’s view that charterer must have made arrangements and acted reasonably to perform via alternative ports. |
| European Grain & Shipping v J.H.Rayner [1970] 2 Lloyd's Rep 239 |
Consideration of intentions and arrangements when applying exceptions and causation. |
Used to explain that arrangements and intentions are relevant to relief under exceptions clause. |
| The Furness Bridge [1977] 2 Lloyd's Rep 367 |
Reasonable businessman test for causation; alternative modes of performance; cause of non-performance is the excepted peril. |
Applied to conclude dam burst could be cause of failure if reasonable efforts to use alternative modes were made. |
| Warinco v Fritz Mauthner [1978] 1 Lloyd's Rep 151 |
Burden on party relying on exceptions clause to show reasonable efforts to perform via alternative ports. |
Supported the burden of proof on charterer to show inability to perform despite efforts. |
| The Kriti Rex [1996] 2 Lloyd's Rep 171 |
Event beyond control excludes responsibility for aspects directly controlled by party. |
Referenced to clarify limits of exceptions in relation to party’s own responsibility. |
| The Nikmary [2004] 1 Lloyd's Rep 55 |
Charterer's non-delegable duty to provide cargo; exceptions must be clear and distinct. |
Supported the strict interpretation of exceptions clause regarding failure to provide cargo. |
| The Mary Nour [2008] 2 Lloyd's Rep 526 |
Seller’s obligation to procure delivery; failure of supplier usually not excused except in rare cases. |
Used to distinguish exceptions clause from frustration and support causation requirement. |
| Bremer Handelsgesellshaft v Vanden Avenne [1978] 2 Lloyd's Rep 109 |
Contractual frustration clause does not require "but for" causation test. |
Considered in context of force majeure clause construction; distinguished from exceptions clause. |
| Continental Grain v STM Grain [1979] 2 Lloyd's Rep 460 |
Frustration clause excusing performance without "but for" test. |
Supported the distinction between frustration and exceptions clause. |
| Bremer Handelsgesellschaft v Westzucker [1981] 2 Lloyd's Rep 130 |
Rejected "but for" test in contractual frustration clause context. |
Distinguished exceptions clause requiring "but for" causation. |
| Seadrill v Tullow [2018] EWHC 1640 |
Causation questions resolved by broad common sense in contractual context. |
Applied to interpret causation requirement in exceptions clause. |
| Flame SA v Glory Wealth Shipping [2013] EWHC 3153 |
Damages assessed by compensatory principle comparing actual position with hypothetical performance. |
Applied in assessing recoverability of damages. |
| Bunge SA v Nidera BV [2015] UKSC 43 |
Compensatory principle governs assessment of damages for breach of contract. |
Used to conclude substantial damages not recoverable where performance would have been prevented by dam burst. |
| Tandrin Aviation Holdings v Aero Toy Store [2010] 2 Lloyd's Rep 668 |
Interpretation of contractual clauses protecting non-party shippers and receivers. |
Supported construction of exceptions clause protecting charterer despite fault of shipper. |
| NZ Shipping v Societe des Ateliers et Chantiers de France [1919] AC 1 |
Principle that no one can rely on their own wrong or act to excuse non-performance. |
Rejected application where no wrongful act by party seeking excuse. |
| Owners of The Matheos v Louis Dreyfus and Company [1925] AC 654 |
Burden of proof considerations in exceptions clause cases. |
Determined legal burden remains on party relying on exceptions clause. |
Court's Reasoning and Analysis
The court began by examining whether the charterer had made relevant arrangements to provide cargo. Although Limbungan had no direct contracts with the Brazilian suppliers or its related companies, it was part of a corporate group and had historically supplied cargoes using contracts of related entities. The court found Limbungan had chosen to perform via Ponta Ubu and had arrangements through related companies but was dependent on their demand. Before the dam burst, demand was low and Limbungan defaulted on shipments. After the dam burst, Antara’s demand resumed, and attempts were made to source iron ore pellets from alternative suppliers including Vale.
The court then considered the "no relevant arrangements" issue, the principle of alternative modes of performance, and the "but for" causation test. It accepted that Limbungan was required to make reasonable efforts to perform by alternative means (e.g., shipping from Tubarao). However, the critical question was whether Limbungan would have performed but for the dam burst. The court held that the exceptions clause, as an exceptions clause (not a contractual frustration clause), requires satisfaction of the "but for" test. Limbungan must prove that but for the dam burst it would have performed its obligations.
On the facts, the court found it more likely than not that Limbungan would not have performed the five shipments even without the dam burst, given the lack of demand and commercial considerations within the corporate group, including the internal arrangements and freight rate differentials. The court was not persuaded by the charterer's evidence that Antara would have continued to use the COA with the shipowner.
The court also addressed whether Limbungan took reasonable steps to obtain cargo from Vale after the dam burst. It found that Limbungan, through Mr. Lu, did not seek to negotiate a long-term supply contract with Vale, which was the only means by which Vale would supply pellets. Expert evidence favored the conclusion that Vale would likely not have agreed to supply the Lion Group in the required timeframe, preferring existing customers. The legal burden of proof lay with Limbungan to show it could not have secured such a contract, which the court found was not discharged.
Regarding whether the dam burst was beyond the control of the shippers, the court held that although Samarco operated the mine, the charterer was entitled to rely on the exceptions clause because the design and maintenance of the mine were not part of the charterer's delegated obligations. Fault by Samarco in this regard did not preclude reliance on the clause.
Finally, on damages, the court applied the compensatory principle, concluding that although Limbungan could not rely on the exceptions clause, the shipowner was not entitled to substantial damages. This was because if Limbungan had been able and willing to perform but for the dam burst, the dam burst itself would have prevented shipment, excusing non-performance. The realistic comparison for damages was therefore between the shipowner’s position with and without the dam burst, not simply with and without breach.
Holding and Implications
The court held that the charterer cannot rely upon the exceptions clause (clause 32) to excuse its failure to supply cargoes for the five shipments between December 2015 and June 2016 because it failed to prove that but for the dam burst it would have performed its obligations under the COA.
However, the shipowner is not entitled to recover substantial damages for these breaches because, applying the compensatory principle, the dam burst itself would have prevented performance even if the charterer had been willing and able, thus negating recoverable loss.
The court also decided that the exceptions clause protects the charterer despite any fault by the mining company in the dam burst, as the design and maintenance of the mine were not within the charterer's delegated obligations.
The direct effect is that the charterer remains liable for breach but benefits from a limitation on damages recoverable by the shipowner. No new legal precedent was established; rather, the court applied established principles on force majeure, causation, and damages assessment to the complex facts.