Classic Maritime Inc. v Limbungan Makmur SDN BHD & Anor

An exceptions or force majeure clause which excuses liability for breach ordinarily requires the party relying on it to establish factual causation. The party must show that, but for the specified event, it would have performed the obligation, and that the event caused the failure. This differs from a contractual frustration clause which brings future obligations to an end.

Where a contract permits alternative modes of performance, a party may rely on an excepted event after making reasonable efforts to use the alternatives. The compensatory principle nevertheless limits damages to the loss caused by the breach. Substantial damages are unavailable where the claimant would have suffered the same position even if the defendant had been willing and able to perform but for the excepted event.

The claimant shipowner sought damages under a long-term contract of affreightment for five shipments of iron ore pellets which the defendant charterer failed to provide after the collapse of the Fundão dam in Brazil. The charterer relied on an exceptions clause covering, among other matters, accidents at the mine or production facility and causes beyond the parties’ control.

The principal issues were whether the clause applied where the charterer had alternative sources of cargo, whether the charterer had to satisfy a but-for causation test, whether it had taken reasonable steps to obtain cargo from Vale, whether fault in the mine’s design or maintenance was relevant, and whether substantial damages were recoverable.

1. Alternative performance. The general principle illustrated by Brightman v Bunge Y Born [1924] 2 KB 619, European Grain & Shipping v J H Rayner [1970] 2 Lloyd’s Reports 239, The Furness Bridge [1977] 2 Lloyd’s Reports 367 and Warinco v Fritz Mauthner [1978] 1 Lloyd’s Reports 151 was capable of applying where the charterer could ship from either Ponta Ubu or Tubarao. A party need not make legally binding arrangements for every alternative in advance, but must make all reasonable efforts to use an available alternative after the first method is prevented (paras [57]-[66], [95]).
2. Causation. Clause 32 was an exceptions clause, not a contractual frustration clause. Its words requiring the failure to result from, and performance to be directly affected by, the excepted event required the charterer to show that, but for the dam burst, it would have supplied the cargoes. The contractual-frustration authorities, including Bremer Handelsgesellschaft v Vanden Avenne [1978] 2 Lloyd’s Reports 109 and Bremer Handelsgesellschaft v Westzucker [1981] 2 Lloyd’s Reports 130, concerned a different contractual context and did not govern (paras [71]-[87]).
3. The charterer bore the legal burden of proving the relevant facts. The evidential burden might shift during the trial, but the legal burden remained on the charterer. On the evidence, it was more likely than not that the charterer would not have supplied the cargoes even without the dam burst (paras [101]-[110], [128]-[132]).
4. The charterer also failed to establish that it could not have obtained cargo from Vale under a new long-term contract. The clause therefore did not excuse the breach. However, fault by Samarco in the design, construction or maintenance of the dam would not by itself prevent the charterer relying on the clause, since those matters were outside the obligations delegated to the shipper (paras [112]-[135]).
5. Damages. Applying the compensatory principle recognised in Flame SA v Glory Wealth Shipping [2013] EWHC 3153 (Comm) and Bunge SA v Nidera BV [2015] UKSC 43, the claimant could not recover substantial damages. The realistic counterfactual was that, but for the dam burst, the charterer would have been able and willing to perform, but the dam burst would then have prevented shipment and excused the failure. The claim for substantial damages for the five post-collapse shipments therefore failed. The parties were invited to agree damages for the two earlier shipments (paras [136]-[156]).

First-instance decision. No prior appellate decision is stated in the judgment.