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Cargo Damage Dispute Comes Down to Interpretation of Just One Word

Millions of pounds frequently hang on the interpretation of commercial contracts, but it is rare that a dispute comes down to the correct reading of a single word. That is what happened, however, in one case concerning a cargo of soya bean meal that suffered damage before its much delayed discharge at an Iranian port.

Due to a delay in payment for the cargo, the owner of the ship had been instructed by her time charterer to wait outside port for over four months before discharge. The charterer had, during that period, effectively used the vessel as cheap floating storage. When off-loaded, damage to the cargo was discovered by its purchaser.

Following negotiations, the ship owner agreed to pay the purchaser Euros 2,654,238 in respect of the damage. The ship owner subsequently launched arbitration proceedings against the charterer with a view to recovering that sum, plus Euros 1,012,740 in hire charges relating to the delay outside port.

The arbitrators found that the damage was due to the inherent oil and moisture content of the cargo and that neither ship owner nor charterer had been at fault. In upholding the ship owner’s claim, however, they ruled that it was the ‘act’ of the charterer in directing the delay in discharge that gave rise to the damage.

In challenging that decision before the Court of Appeal, the charterer argued that the word ‘act’ in the phrase ‘act or neglect’ within the relevant shipping agreement meant a culpable act. In dismissing the appeal, however, the Court found that the word should be given its natural and ordinary meaning and did not import any element of fault. The phrase merely represented a contractual mechanism by which liability for cargo claims could be assigned.

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