Classic Maritime Inc. v Limbungan Makmur SDN BHD & Anor, Court of Appeal - Commercial Court, September 13, 2018, [2018] EWHC 2389 (Comm)

Resolution Date:September 13, 2018
Issuing Organization:Commercial Court
Actores:Classic Maritime Inc. v Limbungan Makmur SDN BHD & Anor

Neutral Citation Number: [2018] EWHC 2389 (Comm)

Case No: CL-2016-000421





Royal Courts of Justice

Rolls Building, 7 Rolls Buildings

Fetter Lane, London EC4A 1NL

Date: 13/09/2018

Before :


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Between :

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Richard Southern QC and Andrew Pearson (instructed by Winter Scott LLP) for the Claimant

Simon Rainey QC and Andrew Leung (instructed by Hill Dickinson LLP) for the Defendants

Hearing dates: 16-18, 23 and 25 July 2018

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Mr. Justice Teare :

  1. On 5 November 2015 the Fundao dam, in the industrial complex of Germano in Brazil where iron ore is mined, burst. According to one iron ore expert who knows this area well the slurry went right down to the ocean, villages were swamped and people lost their lives. The bursting of the dam also stopped production at the iron ore mine and it is that event which has fuelled this litigation between a shipowner and a charterer.

  2. The shipowner, Classic Maritime Inc., a Marshall Islands company working out of offices in Monaco, and the Claimant in this action, entered into a long term contract of affreightment (the ``COA'') for the carriage of iron ore pellets from Brazil to Malaysia. A Malaysian company, Limbungan Makmur Sdn Bhd (``Limbungan''), was the charterer under the COA and is the Defendant in this action. Limbungan has relied upon the dam burst as a force majeure excusing it from liability for failing to provide cargoes of iron ore pellets for shipment from Brazil to Malaysia. The shipowner does not accept that the charterer is entitled to rely upon the force majeure clause in the COA and has claimed damages for breach of the COA.

  3. In this action damages are claimed in respect of seven shipments. Judgment has already been given in respect of two shipments which should have taken place between July and October 2015 (prior to the dam burst). This judgment therefore concerns the claim in respect of five shipments which should have taken place between November 2015 and June 2016 (after the dam burst). The sum claimed is about US$20m. in respect of three ``scheduled shipments'' which should have been performed at a freight rate of US$45.50 per mt. That freight rate is to be compared with the market freight rate in March to June 2016 which was less than US$7 per mt. The other two shipments, known as ``index shipments'' (because they were to be performed at the market rate) give rise to modest claims of just over US$400,000. (The agreement for ``scheduled'' and ``index'' shipments arose out of earlier litigation in this court between the shipowner and the charterer in 2009 following the fall in freight rates driven by the collapse in the demand for raw materials. I am told that there is a separate action in respect of 14 further shipments which should have been performed before December 2017.)

    The charterer and its related companies

  4. Limbungan, the charterer, is a wholly owned subsidiary of Lion DRI Sdn Bhd (``Lion DRI'') which is, in turn, a wholly owned subsidiary of Lion Diversified Holdings BHD (``Lion Diversified''). Lion Diversified is the guarantor of the charterer and is sued as second defendant. If the charterer is liable so is Lion Diversified. There was evidence that Limbungan was a special purpose vehicle established in order to enter into and perform the COA.

  5. Lion DRI is the owner and operator of a Hot Briquetted Iron plant in Port Kelang in Malaysia. Its entire production was sold to a company called Megasteel.

  6. Antara Steel Mills Sdn Bhd (``Antara'') is the owner and operator of another Hot Briquetted Iron plant in Labuan in Malaysia. It sold its production on the open market.

  7. Antara is part of ``the Lion Group'' but is not a wholly owned subsidiary of Lion Diversified. It is ultimately owned by Lion Industries Corporation Bhd (``Lion Industries'') which I understand to have some connection with Lion Diversified. The precise connection was not in evidence but I understood it to be in the form of some common shareholders. There was evidence that Lion Industries was a substantial shareholder of Lion Diversified. A footnote to the statement of a witness, Mr. Lu, who made it clear in his oral evidence that he was unfamiliar with the detail of corporate matters, stated that Lion Diversified and Lion Industries ``are both publicly listed'' and that any dealings between them must be at arm's length.

    The mining companies in Brazil

  8. Iron ore pellets from Brazilian the mining company, Samarco Mineracao SA, were shipped through Ponta Ubu in Brazil and iron pellets from another Brazilian mining company, Vale SA, were shipped through Tubarao, also in Brazil.

  9. Lion DRI had a long term sales and purchase contract with Samarco dated 11 August 2006 for the sale and purchase of 1.2 million mt of DR-grade pellets per year between 2008 and 2018. Antara (by way of a novation) had a long term sales and purchase contract with Samarco dated 23 November 2004 for the sale and purchase of 640,000 mt of DR-grade pellets in 2005 and 800,000 mt of DR-grade pellets per year thereafter until, by an addendum, 2015. That contract expired on 31 March 2015. A replacement contract had almost been agreed when the dam burst in November 2015. DR-grade pellets are Direct Reduction pellets. They are to be contrasted with BF pellets, Blast Furnace Pellets. Both forms of pellets were contractual cargoes under the COA.

  10. Lion DRI also had a long term supply contract with Vale dated 1 November 2006 which was scheduled to last, by an addendum, until 2018. That contract was ``idle'', in the sense of not being used, from 2011. Antara (by way of novation) had a long term supply contract with Vale dated 1 April 2004 which was also scheduled to last, by an addendum, until 2018. That also appears to have been ``idle''.

    Previous shipments

  11. The COA dated 29 June 2009 provided for 51 shipments. Between July 2009 and July 2015 Limbungan, the charterer, made cargoes available for 38 shipments. All but 8 shipments were loaded at Ponta Ubu, the others being loaded at Tubarao, the last shipment from Tubarao being in July 2011.

  12. From August 2011 Samarco was the sole supplier of iron ore pellets shipped under the COA. Some shipments involved pellets bought by both Antara and Lion DRI. Thus some 16 shipments were discharged at both Port Kelang and Labuan. 2 shipments involved pellets bought by Antara and were discharged at Labuan. 3 shipments involved pellets bought by Lion DRI and were discharged at Port Kelang. From 2011 all shipments were of Samarco pellets ex Ponta Ubu.

    Antara's COA

  13. Antara also had a COA with PCL (Shipping) dated 31 January 2008 with the same loading and discharging ports as under the COA with Classic but with a different, and lower, freight rate.

    The present claim

  14. The claim in the present action arises under Addendum No.1 dated 30 June 2014 to the COA with Classic dated 29 June 2009. Limbungan, the charterer, had undertaken to ship further cargoes of iron ore pellets on tonnage provided by Classic, the shipowner, from Tubarao or Ponta Ubu in Brazil to Port Kelang or Labuan in Malaysia.

  15. Clause 32 of the COA with Classic provided as follows:


    Neither the vessel, her master or Owners, nor the Charterers, Shippers or Receivers shall be Responsible for loss of or damage to, or failure to supply, load, discharge or deliver the cargo resulting from: Act of God,...floods....accidents at the mine or Production facility....or any other causes beyond the Owners' Charterers' Shippers' or Receivers' control; always provided that such events directly affect the performance of either party under this Charter Party...''

  16. This clause was described during the hearing as a force majeure clause though that phrase is not used in it. It is in fact described as an exceptions clause. There is no dispute that the dam burst was an ``accident at the mine''. The mine was operated by Samarco. When the dam burst Samarco suspended its operations and subsequently ceased to be an available source of cargo.

  17. Operations at Vale were unaffected by the collapse of the dam. But it is the case of Limbungan, the charterer, that Vale was unable or unwilling to supply iron ore pellets to the Lion Group and so, as a result of the dam burst, the charterer found itself unable to supply cargoes for shipment under the COA.

  18. By contrast, it is the case of Classic, the shipowner, that the collapse of the dam had no causative effect on the charterer because the five shipments would not have been performed even if there had been no dam burst.

  19. Notwithstanding that both counsel described the case as ``straightforward'' the true construction of clause 32 gave rise to considerable legal argument. But it is first necessary to recount some of the facts relevant to this dispute.

    The position immediately before the collapse of the dam

  20. In the light of the respective cases it is necessary to review the positions of the charterer, Lion DRI and Antara before the collapse of the dam on 5 November 2015.

  21. The role of Limbungan, the charterer, within ``the Lion Group'' (a phrase used to describe both the corporate groups to which I have referred), was to load cargoes at Punta Ubu and Tubarao for Lion DRI and Antara. Mr. Dominic Lu was the senior commercial manager of Antara and was responsible for purchasing and arranging shipments of iron ore pellets for both Antara and Lion DRI.

  22. Mr. Lu gave oral evidence. He was a good witness in that when he knew the answer to a question he answered it clearly and without hesitation. When he did not know he said so. When he had difficulty in remembering he said so. When he proffered an opinion as to what was likely to have happened he was anxious to emphasise that it was only an opinion...

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