TOTAL TRANSPORT CORPORATION v. ARCADIA PETROLEUM LTD. (THE “EURUS”)

A charterparty term making owners responsible for loss due to failure to comply with voyage instructions does not, without sufficiently clear language or purpose, create an indemnity for every causally connected loss. The ordinary contractual rule of remoteness therefore continues to limit recovery to loss within the parties’ reasonable contemplation.

Contractual causation is determined by common sense. A pre-existing event is not excluded from consideration merely because it preceded the breach, although foreseeability may guide the causal inquiry. The presumption against surplusage carries little weight when construing commercial contracts, whose provisions often repeat existing legal duties and remedies.

Arcadia Petroleum Ltd chartered the Eurus from Total Transport Corporation under a voyage charterparty. Clause 36 made the owners responsible for loss due to failure to comply with the charterers’ voyage instructions. The vessel loaded too early to avoid a Nigerian rule under which completion before 8 am on the first day of a month resulted in a bill of lading dated on the last day of the preceding month. Arcadia consequently paid the higher January price for its oil.

A majority of arbitrators awarded Arcadia US$681,934.05 under clause 36, although they rejected its damages claim because the loss was unforeseeable. Rix J set aside the award and dismissed the claim: [1996] 2 Ll.R. 423. Arcadia appealed. The principal question was whether clause 36 allowed recovery of causally connected loss outside the parties’ reasonable contemplation. The Court also considered, obiter, whether the pre-existing Nigerian rule could be a cause of the loss.

1. Appeal dismissed unanimously. Staughton LJ delivered the leading judgment. Auld LJ agreed, and Sir John Balcombe delivered a concurring judgment. Clause 36 did not entitle the charterers to recover loss which the arbitrators had found was outside the parties’ reasonable contemplation.

2. Clause 36 required the owners to be responsible for loss due to failure to comply with the charterers’ voyage instructions. Its language imported causation but did not clearly displace the ordinary contractual rule of remoteness. The clause did not use the word “indemnity”, and its commercial purpose did not justify imposing liability for every unforeseeable consequence of this one category of breach while leaving other breaches subject to ordinary damages principles.

3. The charterparty itself gave the charterers certain rights to nominate matters such as loading and discharge ports, cargo quantity and grades. Corresponding duties to obey arose without clause 36. The proviso that instructions must accord with the charterparty and trade custom showed that clause 36 did not enlarge the charterers’ authority to give orders.

4. Commercial contracts, including charterparties, frequently repeat or emphasise liabilities already arising at common law. The presumption against surplusage therefore provided little assistance. The words making the owners “responsible” could confirm ordinary legal liability without creating a distinct indemnity against unforeseeable loss.

5. Staughton LJ added, obiter, that contractual causation is determined by common sense rather than an inflexible metaphorical chain. No rule of law prevents an antecedent event from being a cause. Had clause 36 created the indemnity alleged, the matter would have required remission because the arbitrators had wrongly treated themselves as unable to consider the pre-existing 8 am rule as a possible cause.

6. Foreseeability is relevant to contractual causation as a useful guide, but it is not the governing criterion for deciding how damage was caused. The Court did not decide which of the master’s failure to obey instructions and the Nigerian rule was the operative cause.

Order: appeal dismissed with costs; leave to appeal refused.

1. Court of Appeal (Civil Division): Dismissed Arcadia Petroleum Ltd’s appeal and upheld Rix J’s decision that clause 36 did not permit recovery of unforeseeable loss.
2. Queen’s Bench Division, Commercial Court: Rix J set aside the arbitral award and dismissed the charterers’ claim: [1996] 2 Ll.R. 423.
3. Arbitration: A majority awarded the charterers US$681,934.05 plus interest under clause 36. The damages claim failed for remoteness. The dissenting arbitrator would also have rejected the claim because the instructions did not accord with trade custom.