Tribunal: King’s Bench Division of the High Court of Justice, Commercial Court.

Date of the decision: December 19, 2023.

First Claimant: AMS Ameropa Marketing Sales AG, the assignee of the rights of International Oil Multiseed Extraction Co. (hereinafter referred to as “Oilex”). Oilex is the lawful holder of the bills of lading at discharge.

Second Claimant: Cargo insurer.

Defendant: Ocean Unity Navigation Inc., the registered owner of the vessel (hereinafter referred to as the “Owners”).

Claim: the claim is related to damage to a cargo of 50,000 metric tons of yellow soybeans (hereinafter referred to as the “Cargo”) carried from Louisiana to Egypt on board the vessel DORIC VALOUR. The Cargo was loaded in apparent good order but on discharge some of it was found damaged (emphasis added). The Owners had admitted breach of their contractual duty under the bills of lading to take reasonable care of the Cargo because crew on board has excessively heated fuel in the port topside fuel oil tank adjoining hold 4. The Owners accepted that this heating caused damage to a small part of the Cargo in that hold (emphasis added).

The Claimants were seeking damages for loss of value of nearly 3,600.00 metric tons of the Cargo

(hereinafter referred to as the “Rejected Cargo”) that contained both sound and damaged cargo. Oilex as receivers refused to accept the Rejected Cargo, and in reasonable mitigation of their loss it was sold in a salvage sale (hereinafter referred to as the “Salvage Sale”).

The Owners maintained that only around 15 to 88 metric tons of the Cargo had been damaged by reason of their breach.

Factual history

On July 15, 2020, the First Claimant sold 50,000 metric tons of the Cargo to Oilex.

On August 3–4, 2020, the Cargo was loaded on board the vessel “DORIC VALOUR” in Louisiana.

On August 4, 2020, fifty clean bills of lading were issued on behalf of the Owners. Oilex was identified as the notify party.

On around August 30, 2020, the vessel arrived at the port in Egypt. The cargo in holds 1, 2, 3, and 5 was found to be sound but damage was found on the surface of the Cargo in hold 4. The surveyors were not able to decide the exact quantity damaged and agreed that damaged cargo should be segregated with a view to determining the damaged cargo at the end of discharge. 15.92 metric tons of damaged cargo was manually separated into bags and weighed ashore.

On September 10, 2020, the crew stopped manual segregation on grounds it would cause delay and more costs. When it was decided to stop the manual segregation, the parties did not yet know the extent of the damage. A quantity of nearly 3,600.00 metric tons of the Cargo (described as the “Rejected Cargo”) was discharged from hold 4 and sent to a separate warehouse. The Rejected Cargo included the 15.92 metric tons that had been manually segregated.

On September 24, 2020, the Rejected Cargo was sold in the Salvage Sale at USD 355 per metric ton. Oilex received the money from the salvage buyer. By comparison, Oilex purchased the Cargo from the First Claimant at USD 433 per metric ton.

On March 8, 2021, Oilex presented a claim to the First Claimant requesting the difference between the Salvage Sale price and the sold price. The First Claimant paid this claim.

On July 13, 2021, Oilex assigned all rights to the First Claimant “to recover the loss suffered from the liable parties and in particular against the owner of the vessel m/v ‘DORIC VALOUR’”.

Issues (a) Does the First Claimant have title to sue for the damages claimed? (b) Were the losses claimed caused by the Owners’ breach? (c) What was the extent of physical damage to the Cargo caused by the Owners’ breach? (d) Was the Rejected Cargo sound? (e) Were the damages claimed incurred in reasonable mitigation of loss caused by the Owners’ breach? Do Owners have a defense of failure to mitigate losses? (f) Were the damages claimed adequately proven?

Rulings & Rationale

(a) As an assignee, the First Claimant was entitled to pursue claims that were available to Oilex pertaining to the Cargo.

First, the terms of the Assignment were wide enough to give the First Claimant the right to make its claim.

Second, the court rejected the Owners’ argument that “when Oilex assigned its rights to the First Claimant by way of the Assignment it had already been made whole and had no cause of action against the Owners.” The court concluded that Oilex retained title to the Cargo at all material times, and this gave Oilex title to sue under the bills of lading. Oilex’s recovery from the First Claimant or by way of the Salvage Sale did not mean it had no title to sue the Owners under the bills of lading, or that its recoveries would prevent it from establishing recoverable loss. According to The Baltic Strait, a bill of lading holder who has purchased goods may recover full damages for breach from the carrier under the contract of carriage despite making recovery from the seller by way of a settlement under its sale contract.

(b) The First Claimant established that the defendant’s breach of contract caused its loss and that it took reasonable steps to mitigate its damages.

Relying on Borealis v Geogas Trading, the Claimants demonstrated that there was no break in the chain of causation between a breach and a loss. The defendant failed to rebut this argument.

The Claimants also demonstrated that the Rejected Cargo was sold in reasonable mitigation of loss arising from the Owners’ breach. The defendant did not satisfy its burden of proof to demonstrate that the Claimants had failed to mitigate loss. “The standard to be applied is a high one since the defendant is the wrongdoer and its breach may have placed the innocent party in a difficult situation.”

(c) Relying on the expert evidence, the court determined that the maximum amount of cargo affected by heat damage would be 88 metric tons, based on the area of the fuel oil tank and the likely spread of heat damage adjoining the heat source. Ultimately, the court found that 70–80 metric tons of the Cargo was physically damaged by reason of the Owners’ breach.

The Claimants maintained that the total amount of damaged/contaminated cargo attributable to the Owners’ breach was nearly 3,600.00 metric tons. They argued that it was not possible to separate the admixture of sound and directly physically damaged cargo within the Rejected Cargo and it should all be considered physically damaged.

The Owners maintained that the sums claimed were exaggerated since the Claimants failed to show that nearly 3,600.00 metric tons of cargo had been physically damaged, or that loss of value of that quantity (and all the ancillary costs claimed such as transport and storage fees) was attributable to their breach. They argued that the court should only find that around 70 to 100 metric tons of cargo was damaged by reason of their breach.

The court held that “[a]ssessing the extent of damage caused by the Owners’ breach depended on the mechanism by which damage occurred and also the assessment of the condition of the Cargo on discharge”.

Relying on the expert evidence, the court determined that “when a soybean cargo is damaged by tank heating, the bulk of damage is localized in close proximity to the overheated tank concerned,” and that “damage within the center of the stow caused by a heat gradient during this voyage would be limited” (emphasis added).

The court accepted the expert evidence stating that “heat damaged cargo would be within 50 cm of the heated tank” and that “the maximum amount of cargo affected by heat damage would be 88 metric tons, based on the area of the fuel oil tank and the likely spread of heat damage adjoining the heat source”. Ultimately, the court found that 70-80 metric tons of the Cargo was physically damaged by reason of the Owners’ breach.

(d) Denying the Claimants’ argument that “the sampling at the warehouse was not representative because the surveyors had only sampled by using a 2 m probe,” the court determined that “the sampling of the Rejected Cargo … was as representative as possible in the circumstances”.

The Claimants argued that “the heat damaged cargo was more likely to be in the deeper parts of the stockpiles” and that “the heat damaged beans must not have been accessible to the sampling probe.” The court gave little weight to these arguments, as Oilex and the First Claimant had chosen not to send their surveyors to attend the sampling without giving any obvious reason. The Second Claimant’s surveyor had not objected.

Relying on the expert evidence, the court found that “the piles had been sampled toward the edge so any heat damaged material at the bottom would have been tested” and that “the preferred method of sampling cargo [i.e., when it is flowing in motion] was not feasible.”

“Making allowance for some shortcomings in the representativeness of the sampling (the statistical reliability of which was not explored by the experts) the results would also be consistent with my conclusion as to the amount of physical damage (which includes the 15.9mt that was not sampled)”.

(e) The Owners failed to show that the Claimants had failed to mitigate their loss.

The court found that the Claimants had acted reasonably in stopping time- and labor-intensive manual segregation, not carrying out further segregation at the warehouse due to its impracticability, and promptly concluding the Salvage Sale without obtaining a certificate of analysis (i.e., before the sampling results were in hand). The latter was reasonable as there was a risk that a soybean cargo’s condition would deteriorate over time and that the Claimants would incur storage and financing costs. Accordingly, the Claimants took reasonable steps to mitigate their loss.

(f) The Claimants provided adequate evidence as to the sound value of the Rejected Cargo based on its actual CIF sale concluded on July 15, 2020. The actual salvage price achieved was adequate evidence of the value of the Rejected Cargo. The sound CIF invoice value and the salvage price achieved following a bid process adequately evidenced the difference in value. This difference reflected Oilex’s loss by reason of the Owners’ breach, and is recoverable in damages. The court rejected the claim in respect of the ancillary costs, such as SGS fees, survey fees, and warehouse rental, trucking, and stevedoring fees, as they were incurred by the Claimants, not by Oilex. ■