TT Talk - Legal Eagle: A collateral payment for damaged cargo does not affect a damage claim

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A cargo of yellow soybeans was partially damaged being shipped from the USA to Egypt. 

AMS AMEROPA MARKETING & SALES AG & Anor v OCEAN UNITY NAVIGATION INC (“Doric Valour”)  [2024] EWCA Civ 1312 

The Facts 

AMS Ameropa Marketing and Sales AG voyage chartered the bulk carrier Doric Valour to carry 50,000 tonnes of a cargo of yellow soybeans which it had sold to an Egyptian buyer from Louisiana in the USA to Abu Qir in, Egypt. The contract of sale provided that the quality and condition of the cargo would be final at the load port and verified by a surveyor. The Egyptian buyer paid the seller’s invoice based on a rate of US$435 per tonne.  

On arrival at Abu Qir, a portion of the cargo was found to be damaged. The seller completed a salvage sale at $355 per tonne and gave this to the buyer. The seller also credited the buyer with US$284,015, this being the difference between the salvage price and the price payable under the contract of sale. As assignee under the bill of lading, the seller then arrested the vessel and claimed against the owners, Ocean Unity Navigation Inc. 

At first instance, the shipowner admitted that the cargo had been damaged by the heating of fuel oil in an adjacent tank, and that this was a breach of the contract of carriage. The seller recovered $293,755 from the shipowner, calculated as the difference between the contract value of the cargo and its actual value on discharge. The shipowner appealed on the grounds that, if the buyer had brought the claim against the shipowner directly, it would have had to give credit for the $284,015 it had received from the seller. The seller, as assignee of the buyer’s rights, could not be in a better position than the buyer, as the assignor, would have been.

The Judgment 

The shipowner’s appeal was dismissed. There is established law that collateral payments are an exception to the general rule that ‘avoided loss’ (a loss that has been offset or mitigated) is not recoverable as damages.  The $284,015 paid by the seller to the buyer was collateral for these purposes because it was made as a commercial settlement under the contract of sale and not under the contract of carriage. The buyer, if it had acted as a direct claimant, would therefore not have had to give credit for this payment. 

The shipowner argued that risk had passed to the buyer on CIF terms on loading, and that the seller therefore had no liability to the buyer in view of the surveyor’s certificate on loading that the cargo was sound. This distinguished the case from precedent cases where the sellers had guaranteed the condition of the cargoes on arrival at the discharge port. The shipowner’s argument failed because, at the time the collateral payment was made, it had not been established whether the damage was caused by inherent vice or by the shipowner’s breach of the contract of carriage.  

Comment 

This judgment on its particular facts is clearly fair.  But in a wider context it illustrates that, whether rights are assigned or not, courts are reluctant to interfere with existing law on collateral benefits. This is partly driven by a desire for commercial certainty and potentially impacts on all cargo liability claims. 

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