Should a bill of lading holder give credit for sums received under a sale contract when claiming against a ship owner for cargo damage? The question was considered by the Court of Appeal in the Doric Valour1, where a cargo damage claim had been paid under a sale contract and the recipient also pursued a similar claim against the ship owner under the bills of lading. As CJC Claims Manager Alex Bailey explains, Court of Appeal decided that no such credit was necessary.
The facts
The first claimant and respondent to the appeal AMS Ameropa Marketing and Sales AG (“Ameropa”) purchased a cargo of soybeans ex-Convent, Louisiana, and entered into a voyage charter with the appellant Owners to transport the cargo to its intended buyers on board the M/V Doric Valour (the “Vessel”).
Ameropa then entered into a CIF sale contract with buyers International Oil Multiseed Extraction Co (“Oilex”) whereby Ameropa agreed to sell to Oilex 50,000 metric tonnes of yellow soybeans in bulk +/- 10% for US$435/mt (the “Sale Contract”). A cargo of 49,574.949 metric tonnes of yellow soybeans was duly loaded on board the Vessel at Convent and transported to Oilex at Abu Qir Port, Egypt. Bills of lading were issued by the shippers made out “to order”, and Oilex was the Notify Party.
Before the Vessel’s arrival in Abu Qir Port, Ameropa invoiced Oilex the full sale price of US$21,565,102.82 and this was paid around the time of the Vessel’s arrival at Abu Qir Port, on 30 August 2020.
During discharging, damaged cargo on the surface of the cargo loaded in hold 4 was discovered. The cargo in holds 1, 2, 3 and 5 was sound. The damaged cargo was removed from hold 4 and taken by Ameropa to an off-site warehouse for later inspection. The remaining cargo in hold 4 was discharged, and the Vessel sailed on 15 September 2020.
A salvage solution was sought by Ameropa for the damaged cargo, on behalf of Oilex. Bids were obtained and Ameropa accepted the highest bid, which was US$355/mt. On 24 September 2020, Ameropa notified Oilex about the finalised salvage sale, and informed them that the salvage buyer would transmit the price directly to Oilex. At the same time, Ameropa added that they undertook to compensate Oilex for the difference between the salvage sale price and the final sale price of the yellow soybean cargo. This price difference was not transferred immediately to Oilex but on 15 March 2021 Ameropa provided a credit note to Oilex for US$284,015.08 (the “Ameropa Payment”), this being the difference between the full price under the Sale Contract of US$433.20/mt and the salvage sale price of US$355/mt.
The Commercial Court case
On 12 July 2021, Ameropa arrested the Vessel in South Africa on the basis that Oilex had assigned its rights of recovery by reason of the Ameropa Payment. At that date, Oilex had not in fact assigned its rights, but did so the following day on 13 July 2021 (and backdated these to 7 September 2020). The Vessel was released in return for a letter of undertaking issued by the Vessel’s P&I Club.
Ameropa filed its claim before the High Court on 2 December 2021. Owners sought to argue that the late assignment of rights by Oilex meant that since Oilex had been reimbursed by 13 July 2021, there was no remaining cause of action to assign. This was rejected by the judge based on previous case law that a party to a bill of lading may recover full damages despite making a separate recovery before then. Owners also sought to argue that the damages claim was overstated. However, the judge considered that cargo interests had acted reasonably regarding the damaged cargo and in securing the salvage sale. Owners had also admitted liability for the cargo damage during the proceedings, because the heating of fuel oil in the fuel oil tank adjacent to hold 4 had taken place while the cargo was on board.
Deputy High Court Judge Ms Clare Ambrose found that Ameropa was entitled to recover the sum of US$293,755.10 (the “Judgment Amount”) on the conventional basis, this being the sound value on arrival of the amount of damaged cargo less its actual value on discharge. The price under the Sale Contract less the price achieved by the salvage sale was found by the judge to be the best evidence of the aforementioned values.
The Court of Appeal case
The only ground of appeal for which permission was granted to Owners was whether Oilex should have given credit for the Ameropa Payment which effectively was the full value of Oilex’s claim, and consequently Ameropa as assignee of Oilex’s claim could be in no better position. Owners submitted that, by the Ameropa Payment, a) the loss had been avoided and b) that Oilex’s loss was not collateral but arose out of Owners’ breach of the contract of carriage.
Owners’ appeal was dismissed by the Court of Appeal. The starting point by the Court of Appeal was the general rule on avoided loss, which is that,
“Loss that has been avoided is not recoverable as damages, although expenses reasonable incurred in avoiding it may be recoverable as the costs of mitigation. To this there is an exception for collateral payments which the law treats as not making good the claimant’s loss.” (Swynson Ltd v Lowick Rose LLP [2017] UKSC 32, [2018] AC 313)
The Ameropa Payment was made by reason of the Sale Contract and the Court of Appeal took the view, after considering various cases but in particular the reasoning of Mr. Justice Goddard in R & W Paul v National Steamship Co (1937) 59 Ll LR 28, that the Sale Contract was another transaction entered into by the bills of lading holder which did not affect its right to recover full damages under the bills from Owners.
Therefore, the Ameropa Payment was irrelevant to the current case as between Owners and Ameropa under the bills of lading, and it could not be said that by the Ameropa Payment the loss had been avoided. Indeed, the Court noted that it was a “clear and well established principle” of shipping law that when cargo is damaged in the course of a voyage, a bill of lading holder with title to sue is usually entitled to recover damages without giving credit for a payment received pursuant to a sale contract to which the bill of lading holder is a party.
The Court of Appeal separately considered if the Ameropa Payment was not a collateral payment, as asserted by Owners. A collateral payment or “benefit” is one for which receipt by the claimant arose independently of the circumstances giving rise to the loss, for example under an insurance contract in return for an insurance premium. The Court of Appeal disagreed with Owners and decided that the Ameropa Payment was indeed a collateral payment. The significance of this was that there was then no requirement to consider the Ameropa Payment when assessing the damages to be paid to Ameropa. The Court of Appeal also considered that Deputy High Court Judge Ms Clare Ambrose was right to describe the Ameropa Payment as a “commercial settlement” because it was directly linked to rights under the Sale Contract and was therefore a collateral benefit. The point was also made that if it had not been for the existence of the Sale Contract, there would have been no Ameropa Payment because the damaged cargo would have been Oilex’s problem, and Ameropa would have had no involvement.
So, on both counts, Owners failed, and their appeal was dismissed. It was unanimously decided by the Court of Appeal that Oilex had a valid claim against Owners, against which it did not need to give credit for the Ameropa Payment (which was a collateral benefit), and that Oilex had validly assigned its claim to Ameropa.
Comment
At first blush, this judgment appears counterintuitive because Oilex appears (had they not assigned their rights to claim to Ameropa) able to make a double recovery, firstly via the Ameropa Payment under the Sale Contract and secondly from Owners under the bills of lading.
However, as the Court noted, it has long been accepted under English shipping law that the position under any sale contract is irrelevant to the right of a lawful bill of lading holder with title to sue to recover for cargo damage from the shipowner. This case is therefore in accordance with a long line of authority.
Further, the apparent unfairness may well be mitigated in such circumstances by a duty on the part of the bill of lading holder to account to their sale contract counterparty. As the Court stated, had there been no assignment “The fact that Oilex may have had a liability to account to Ameropa for any damages received from the shipowner would not have affected the shipowner's liability”.
This case is therefore perhaps best seen as a restatement of existing principles – the Court declined to depart from previous practice.
1 AMS Ameropa Marketing and Sales AG and another vs. Ocean Unity Navigation Inc (Doric Valor) [2024] EWCA Civ 1312
For any questions about this article or if you find yourself in similar circumstances, in the first instance please contact the Alex Bailey, Claims Manager, CJC.