American Trading & Production Corp. v. Shell International Marine Ltd.

453 F.2d 939 (2d Cir. 1972).

One-Sentence Takeaway: An increase in expense is not sufficient to constitute commercial impracticability.

Summary:  The parties contracted for transportation of cargo from Texas to India for a specific price, expecting that delivery would occur through the Suez Canal. But, the Suez Canal was closed due to the state of war that had developed in the Middle East, and Plaintiff delivered the goods instead by sailing around the Cape of Good Hope.

Plaintiff sued Defendant to recover the additional costs it incurred in delivering the cargo.

Plaintiff first attempted to use the impossibility of performance doctrine by arguing that the unanticipated closure of the Suez Canal made it impossible for Plaintiff to perform its contract obligation for the amount set forth in the contract.  The court concluded, however, that there was no evidence that the alternative route was “unreasonably difficult, dangerous or onerous,” and that the only support for impracticability was the additional expense, approximately 1/3 over the agreed upon rate.  The court concluded that an “increase in expense is not sufficient to constitute commercial impracticability.”

Plaintiff also claimed that the contemplated means of performance, i.e. passage through Suez, had been rendered impracticable. The court rejected the shipowners’ arguments: the fact that both parties to each of the  contracts contemplated the Suez route “is not at all equivalent to an agreement that it be the exclusive method of performance”

Plaintiff further contended that because the shipping rate was based on a Suez passage, the availability of that route was a basic assumption of the contract. The court responded that “all that the … rate establishes is that the parties obviously expected a Suez passage but there is no indication at all in the instrument or dehors that it was a condition of performance.”

Finally, as an alternative to its impossibility/impracticability argument, Plaintiff attempted to invoke the liberty clause of its bill of lading to recover the additional costs. That liberty clause authorized reasonable extra compensation for additional services rendered. The court rejected that argument as well and found the liberty clause inapplicable.  The court explained:

We construe it [the liberties clause] to apply only where the master, by reasons of dangerous conditions, deposits the cargo at some port or have other than the designated place of discharge. Here the cargo did reach the designated port albeit by another route, and hence the clause is not applicable.

Related entries