Caseflicks

Court of Appeals for the Second Circuit • 1972

American Trading and Production Corporation v. Shell International Marine Ltd.

453 F.2d 939 | 1972 A.M.C. 318 | 1972 U.S. App. LEXIS 11995

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Takeaway

In short, this case holds that a foreseeable or expected route is not necessarily an exclusive contractual condition: a commercially reasonable alternate route does not excuse performance or justify extra freight merely because it costs more.

Background

American Trading and Production Corporation, the vessel owner, chartered its tanker, the WASHINGTON TRADER, to Shell International Marine Ltd. to carry lube oil from Beaumont/Smiths Bluff, Texas, to Bombay, India. The agreed freight rate was based on the American Tanker Rate Schedule, plus 75 percent, and included a separate charge associated with transit through the Suez Canal.

The vessel sailed from Texas in May 1967. As Middle East tensions escalated, the owner warned the master that diversion might be necessary. After the Suez Canal closed on June 5 because of war, the vessel—then near Port Said—returned through the Mediterranean and sailed around the Cape of Good Hope. It delivered the cargo in Bombay about thirty days late after traveling 18,055 miles rather than the approximately 9,709 miles anticipated through Suez.

Shell had already paid the invoiced freight of $417,327.36. The owner demanded an additional $131,978.44 for the added costs of the Cape route. The Southern District of New York, Judge Harold R. Tyler Jr., rejected the claim on stipulated facts. The owner appealed, and the Second Circuit affirmed.

Issues

Issue #1

Whether closure of the Suez Canal made the charter party impossible to perform because passage through the Canal was an agreed, exclusive means of performance.

Holding

No. The contract required delivery from Texas to Bombay, not delivery by the exclusive route of the Suez Canal.

Reasoning

The charter party contained no term fixing the Suez Canal as the mandatory route. Although the parties plainly expected that route, expectation is not the same as making a particular route a condition of contractual performance.

The ATRS-based rate, the separate Suez toll charge, and the vessel's initial course toward Port Said showed that a Suez transit was the probable, shortest, and cheapest route. They did not establish that the parties allocated the risk of canal closure to the charterer or agreed that no alternative route could satisfy the owner's duty.

The court followed the reasoning of Transatlantic Financing Corp. v. United States, which treated the Cape of Good Hope as a generally recognized alternative means of performing a voyage to the relevant region. Because the owner could still carry the cargo to Bombay by that accepted route, the closure did not discharge its delivery obligation or create a quantum-meruit right to added compensation.

Issue #2

Whether the Canal closure and the increased cost of sailing around the Cape commercially impracticable performance and excused the owner from performing at the agreed freight rate.

Holding

No. The Cape route was commercially feasible, and the less-than-one-third increase in cost was not extreme and unreasonable enough to establish commercial impracticability.

Reasoning

Commercial impracticability requires more than an increase in expense. Performance must become so difficult or costly that the added burden is extreme and unreasonable, or changes the essential nature of what the promisor agreed to do.

Nothing about the vessel, crew, or cargo made the Cape route unusually dangerous or onerous. The alternate route was well known in shipping practice and allowed the owner to deliver the oil at the contracted destination.

The claimed additional expense, $131,978.44, was less than one-third of the original freight charge. That increase did not meet the demanding standard for impracticability, particularly in light of authorities finding no frustration even where Suez closure doubled freight costs.

The owner also had notice before crossing the Mediterranean that a diversion was possible. Had the vessel turned toward the Cape from Ceuta rather than proceeding toward Port Said, some of the added distance and expense could have been avoided. That fact further weakened the owner's claim that the full added cost should be shifted to Shell.

Issue #3

Whether the charter party's Liberties Clause authorized reasonable extra compensation because the owner delivered the cargo by the Cape route after the Suez Canal closed.

Holding

No. The Liberties Clause applied to alternative handling or discharge of cargo, not to extra payment for reaching the agreed port by a longer route.

Reasoning

The clause authorized the owner, when danger or delay made the normal voyage imprudent, to discharge cargo at another safe place, retain it, forward it by other means, or take related measures. It provided reasonable extra compensation for services rendered to cargo under those alternatives.

Here, however, the owner did not discharge the oil at an intermediate or substitute port and did not make another disposition of it. The vessel carried the cargo to Bombay, the exact port specified in the charter party.

Unlike the bill of lading language considered by the Federal Maritime Commission in C. H. Leavell & Co. v. Hellenic Lines, this Liberties Clause did not expressly authorize the vessel to proceed by any route. Its text therefore did not support a surcharge merely because the vessel used the Cape route to reach the agreed destination.