Final – University of Westminster Mooting Competition 2012/2013

Drafted by Rani Noakes & Andrew Leung (edited by Mark Jones) of Stone Chambers

Not to be used and/or reproduced without the express written permission of the above and Master of Moots, Khurram Ali

IN THE UK SUPREME COURT

AMERICAN OIL v BRITISH PETROLEUM

The Facts

America Oil, the owners of the Vessel, “LEAKY BARREL”, entered into a voyage charter with British

Petroleum, as charterers, to carry a first cargo of fuel oil from Rotterdam to Singapore, where the first

cargo would be discharged and a second cargo of fuel oil would be loaded and carried to Shanghai.

The voyage charter stated inter alia:

Clause 12:

“12 Laytime & Demurrage:-

(a) Demurrage US$100,000 per day pro rata

(b) Laytime 85 hours (Sundays and holidays included)

(c) Charterers shall pay demurrage at the rate of US$100,000 per running day and pro rata for

part of a running day for all time that loading and discharging and any other time counting as

laytime exceeds the laytime specified.

(d) Charterers shall be discharged from all liability in respect of any demurrage claim which

Owners may have under this charterparty unless a claim has been presented in writing to

Charterers with supporting documents substantiating each and every part of the claim within 45

days of completion of discharge.”

Clause 24:

“In the event of a Chinese prohibition on the import of fuel oil, Charterers have the option of

cancelling the voyage charter whereupon no further liabilities will accrue to either party.”

Final – University of Westminster Mooting Competition 2012/2013

Drafted by Rani Noakes & Andrew Leung (edited by Mark Jones) of Stone Chambers

Not to be used and/or reproduced without the express written permission of the above and Master of Moots, Khurram Ali

Clause 55:

“This charterparty is governed by English law and all disputes are to be determined by the

English court.”

After delivery of the vessel by America Oil, British Petroleum encountered difficulties at Rotterdam

which significantly delayed loading. Initially, water was pumped into the vessel’s cargo tanks instead of

fuel oil at the request of British Petroleum and notwithstanding the Master’s warning that this was the

wrong cargo. Moreover, one of the stevedores employed by British Petroleum eloped. It took some time

for British Petroleum to find a replacement. Another stevedore, also employed by British Petroleum,

was traumatized by the fact that his girlfriend had eloped with a fellow stevedore and worked at one-

tenth his normal speed. In the circumstances, British Petroleum exceeded laytime at the load port by 8

days.

The vessel then steamed to Singapore where she encountered further difficulties while discharging. The

stevedores (again, employed by British Petroleum) refused to work on Mid-Autumn Festival. Discharging

the first cargo took 5 days.

In total, then, 13 days of demurrage accrued – 8 days at Rotterdam and 5 days at Singapore.

Around this time, there were rumors (but nor more than rumors, albeit with some justifcation)

circulating in the maritime industry that a Chinese import ban on fuel oil was imminent. British

Petroleum, hoping to avoid having to pay any more demurrage for discharging in Shanghai, purported to

terminate the charterparty before the vessel started to load the second cargo at Singapore. America Oil

promptly deemed British Petroleum to be in repudiatory breach and terminated the charterparty on the

same day. One day later, the rumored Chinese import ban was implemented, but it lasted for only 12

hours and so would not in fact have affected discharging in Shanghai had the charter been performed

(as the ban would have been lifted again by the time the vessel arrived at Shanghai had the voyage been

performed, probably even before the vessel would have completed loading the second cargo at

Singapore).

10 days after the completion of discharge at Singapore, America Oil claimed demurrage from British

Petroleum for 13 days of demurrage, i.e. 8 at Rotterdam and 5 at Singapore, with all supporting

documents in respect of demurrage accrued at Rotterdam, but not in respect of that accrued at

Singapore. Realising its potential mistake two months later, America Oil submitted the missing

documents relating to Singapore. British Petroleum did not pay any demurrage, relying on Clause 12(d).

Final – University of Westminster Mooting Competition 2012/2013

Drafted by Rani Noakes & Andrew Leung (edited by Mark Jones) of Stone Chambers

Not to be used and/or reproduced without the express written permission of the above and Master of Moots, Khurram Ali

In the event, America Oil claimed for (1) demurrage accrued in both Rotterdam and Singapore and (2)

damages for British Petroleum’s repudiatory breach in the quantum of demurrage which America Oil

would have been earned had the contract not been terminated (i.e. such that the Vessel would have

loaded the second cargo in Singapore, carried it to Shanghai and there discharged it, with all the time

spent loading and discharging counting as demurrage).

High Court Proceedings

In the High Court (before Mr Justice Strident), America Oil withdrew its claim for demurrage at

Singapore, but pressed its claim for demurrage at Rotterdam, and the parties agreed that 11 days would

have been required to load and discharge the second cargo such that 11 days of demurrage would have

accrued had the second voyage been performed.

America Oil was successful, and British Petroleum was ordered to pay

(1) unpaid demurrage at the first load port, Rotterdam, in the sum of US$800,000 (i.e. 8 days @

US$100,000/day), and

(2) damages equal to the demurrage which would have accumulated during loading and discharge

operations during the second leg of the voyage (agreed by the parties to have been US$1,100,000; i.e.

11 days @ US$100,000/day).

British Petroleum appealed.

The Court of Appeal Decision

The Court of Appeal allowed the appeal (by a majority: Lord Justice Stonenose giving the lead judgment,

with whom a somewhat reluctant Lord Justice Shilly-Shally agreed; Lord Justice Beabonnett dissenting),

ruling that:

(1) America Oil’s demurrage claim failed.

As they had done before the High Court, British Petroleum relied on the decision of Mrs Justice Gloster

in Waterfront Shipping Corp Ltd v Trafigura AG, The “Sabrewing” [2007] EWHC 2482 (Comm), [2008] 1

Lloyd’s Rep 286, [2007] 2 CLC 763, whereas America Oil relied on the decision of Mr Justice David Steel

in Petroleum Oil & Gas Corp of South Africa v FR8 Singapore Pte Ltd, The “Eternity” [2008] EWHC 2480

(Comm), [2009] 1 All ER (Comm) 556, [2009] 1 Lloyd’s Rep 107, [2008] 2 CLC 535.

Final – University of Westminster Mooting Competition 2012/2013

Drafted by Rani Noakes & Andrew Leung (edited by Mark Jones) of Stone Chambers

Not to be used and/or reproduced without the express written permission of the above and Master of Moots, Khurram Ali

The majority of the Court of Appeal preferred the views expressed in The Sabrewing, declined to follow

the decision in The Eternity, and held that, on a proper construction of Clause 12(d), the demurrage

claim was to be treated as a single composite claim, and that, as America Oil had not presented such a

composite claim with all supporting documentation within 45 days, British Petroleum had been released

from liability for the whole of what they said was a single composite claim.

In his dissenting judgment, Lord Justice Beabonnett said little, merely stating that he preferred the type

of approach taken by Mr Justice David Steel in The Eternity and that he would have allowed the claim

for demurrage at Rotterdam.

(2) America Oil’s claim for damages failed.

The majority of the Court of Appeal felt bound to apply the House of Lords’ decision in Golden Strait

Corp v Nippon Yusen Kubishika Kaisha, The “Golden Victory” [2007] UKHL 12, [2007] 2 A.C. 353 (despite

the trenchant criticism of that decision made in the High Court by Mr Justice Strident), and held that

damages in respect of the second leg of the voyage were irrecoverable on the basis of Mr Justice

Strident’s findings of fact that, on implementation of the 12-hour export ban, British Petroleum (a) could

have cancelled the charter under the cancellation clause (Clause 24), and (b) would probably have done

so.

In a very strongly worded dissenting judgment in what was his last case before retirement, Lord Justice

Beabonnett said that the decision of the majority in The Golden Victory was an offence to well-

established commercial and legal principle, and that the powerful dissenting judgment of Lord Bingham

in that case had clearly reflected what should have been the correct result in that case.

The Appeal to the Supreme Court

America Oil now appeals to the Supreme Court on the following two grounds:

(1) The Court of Appeal was wrong to treat its demurrage claim as one composite claim. The Court of

Appeal should have concluded there were two separate demurrage claims, one in respect of Rotterdam,

and one in respect of Singapore. Therefore, even though (as it had conceded) the Singaporean

demurrage claim failed due to the failure to supply all documents on time, that did not affect the

Rotterdam demurrage claim, which should succeed as documents supporting it had been supplied in

time under Clause 12(d).

Final – University of Westminster Mooting Competition 2012/2013

Drafted by Rani Noakes & Andrew Leung (edited by Mark Jones) of Stone Chambers

Not to be used and/or reproduced without the express written permission of the above and Master of Moots, Khurram Ali

(2) The decision in The Golden Victory is contrary to principle, should be reviewed by the Supreme

Court, and should be overruled such that no account should be taken of the import ban and so America

Oil’s claim for damages should succeed.

In giving permission for the appeal on ground (2), two of the Justices of the Supreme Court, who had

been part of the majority in The Golden Victory, expressly acknowledged the strongly-worded views

expressed by Mr Justice Strident and Lord Justice Beabonnett and said that, exceptionally, they now

took the view that the decision would benefit from a review (but refrained from expressing any further

views on the subject, preferring to leave that review to the Supreme Court Justices who would hear the

full appeal). [NOTE: This final paragraph is entirely fictional, but is intended to trigger a free debate

about the decision in The Golden Victory in the moot.]