Deutsche Shell Tanker v. Placid Refining Co., Civ. A. No. 86-5683.

Decision Date08 July 1991
Docket NumberCiv. A. No. 86-5683.
Citation767 F. Supp. 762
PartiesDEUTSCHE SHELL TANKER-GESELLSCHAFT mbH v. PLACID REFINING COMPANY.
CourtU.S. District Court — Eastern District of Louisiana

Richard Ashworth, Michael Sommer, Haight, Gardner, Poor & Havens, New York City, Francis Barry, Deutsch, Kerrigan & Stiles, New Orleans, La., for plaintiff.

James G. Burke, Jr., Andrew C. Wilson, Burke & Mayer, New Orleans, La., for defendant.

OPINION

PATRICK E. CARR, District Judge.

This matter came before the Court for trial without a jury on the issue of liability only. The Court now rules as follows. To the extent the following findings of fact constitute conclusions of law, the Court adopts them as such; to the extent the following conclusions of law constitute findings as fact, the Court adopts them as such.

This is a general average case under maritime law. Shell seeks a general average contribution from Placid for expenses in degrounding Shell's tanker DIALA during a voyage in June 1983 when the DIALA grounded while carrying crude oil from Sullom Voe, United Kingdom to Placid's facilities in Port Allen, Louisiana. Placid defends on three general grounds: first, Shell's claim is barred by the admiralty doctrine of laches; second, Placid did not own any cargo on the DIALA at the time of the voyage when the DIALA encountered its difficulties; and third, the DIALA was unseaworthy when it began its voyage by being overloaded for travel on the Mississippi River and by having defective radar equipment.

The Court rejects Placid's first and second defenses and finds that the DIALA was not overloaded on this voyage. Concluding, however, that there was no general average act and alternatively that defective radar equipment from Shell's poor maintenance had made the DIALA unseaworthy before its voyage and was a proximate cause of the grounding, the Court holds that Placid is not responsible for a general average contribution here.

I.

The plaintiff in this action is Deutsche Shell Tanker-Gesellschaft mbH (Deutsche Shell),1 a German corporation with its principal place of business in Germany. Shell International Marine Limited (Shellimar) and Shell International Trading Company (Shell Trading) are separate divisions of Shell International Petroleum Company Limited, which is a corporate affiliate of Deutsche Shell (collectively, Shell).

At all material times, Deutsche Shell owned and operated the DIALA, an 800-foot long steam tanker built in 1966 and capable of carrying up to 70,000 tons of crude oil, and had the DIALA under a long-term time charter to Shellimar.

The defendant in this action is Placid Refining Company (Placid), a Delaware corporation with its principal place of business in Texas. Placid owns a crude oil refinery on the Mississippi River at Port Allen, Louisiana.

A. The CFSA contract

By the late 1970s, Shell had amassed one of the world's largest fleets of oil tankers. Shell Trading was formed, among other reasons, to offer crude-oil transportation and trading services to non-Shell entities. Among the services Shell Trading developed were "Crude Freight Service Arrangements" (CFSAs). Under a CFSA, Shell would buy oil in one location from a party at some established price and then later, when the party was ready for delivery of the oil at a different location, would sell and deliver at the different location an equivalent quantity of oil to the party under the same established pricing system, with an additional agreed-upon rate for freight, with or without insurance at the party's option. The oil that Shell would sell to complete a single CFSA transaction might or might not be the same oil that Shell had bought; generally, the oil Shell would buy passed into "the Shell system" for use by Shell or some third-party, and Shell would obtain another load of oil for delivery to the contracting party when the contracting party was ready for delivery. These contracts, which would generally apply over a six-month or one-year period, gave the contracting party a degree of flexibility in the timing between the production and delivery-for-refining of quantities of oil.

Sometime in late 1979, David J. Fruin of Shell Trading telephoned Paul B. Wehner, Placid's crude oil manager, to offer Shell's CFSA services to carry oil cargo for Placid. The call was successful. Shell Trading and Placid entered into a series of six-month or one-year term CFSAs, all of which Shell drafted. For the portion of the CFSAs whereby Placid would buy back the oil from Shell, Placid always agreed that it, and not Shell, would obtain insurance for Shell's carriage of such cargo. That is, Placid chose to buy the oil back on C & F terms, and not on CIF terms.

Over time, market conditions changed in the oil industry, and Placid and/or Shell no longer wanted to continue the CFSAs on an extended basis. Thus, by at least the beginning of 1983, the parties did not renew in effect any CFSA. The parties did not, however, intend to cease doing business. In January 1983, they agreed to a proposed "blanket" CFSA (to be completed with details on price, quantity, and time) for possible later use.

Around May 9, 1983, Wehner of Placid telephoned Fruin of Shell Trading to hire Shell's services for the transportation of a single load of crude oil from Sullom Voe, Shetland Islands, United Kingdom to Placid's refinery at Port Allen, Louisiana. Rather than use a voyage charterparty more typical for a spot contract for the carriage of a single shipment of cargo,2 Fruin suggested to use the proposed CFSA from January as the basis for the governing terms, notwithstanding that the CFSAs were designed for term, and not spot, contracts; Fruin agreed.

The parties reached an agreement by telephone on May 10, 1990. The following day, Fruin sent a telex, which reads in whole:

We confirm telecon Wehner/Fruin on May 10th in which we agreed a spot fixture under the C.F.S.A. arrangements between us whereby we shall purchase from you F.O.B. Sullom Voe 60000 tonnes plus/minus 5 percent Brent Blend and sell to you C and F Port Allen 60000 tonnes plus/minus 5 percent. The C and F price will include a freight component equivalent to 47 points of the worldscale basic rate from Sullom Voe to Port Allen. The parcel of crude is available for loading ex Sullom Voe May 21-23 and we intend to load this parcel on the DIALA due Sullom Voe May 21 and due Port Allen June 7th. Owing to the 40 foot fresh water draught in the Mississippi, the DIALA will not be able to load anything much in excess of 60000 tonnes. Secundo. We have amended the C.F.S.A. terms handed to you on 14th January 1983 as follows, in order to reflect the agreed conditions for this particular spot purchase and sale:
Sets forth enumerated changes to five clauses. All other clauses and sub-clauses remain unchanged.
Tertio. We are very pleased to have arranged this business with you and look forward to when we may resume our cooperation on a term basis. We request your telexed advice that you agree to all the above.

See Exh. P1, at 2-3. Concurring in the confirmation, Wehner sent a reply telex, which reads in whole:

We hereby agree to the C.F.S.A. terms as stated in your telex of 11 May 1983, whereby Shell International Trading Company lifts 60,000 tonnes of Brent crude oil from Sullom Voe terminal 21-23 May on vessel DIALA for delivery to Placid Refining Company at Port Allen, Louisiana.

See Exh. P1(1). Soon thereafter, Fruin mailed Placid a written CFSA, effective May 10, 1983, to reflect fully the terms of the parties' contract; both Shell Trading and Placid signed this CFSA, which, like all the earlier CFSAs, Shell Trading had drafted. This CFSA contains the following pertinent terms:

WHEREAS it is agreed as follows that in order that Shell Trading may effect a complete freighting service on behalf of Placid for the shipment of the latter's Brent blend crudeoil from Sullom Voe, U.K. to Port Allen, Louisiana, USA, Shell will purchase Placid's availability of Brent blend crudeoil FOB Sullom Voe and will sell to Placid an equal quantity of the same grade of crudeoil C & F Port Allen.
DEFINITIONS
For the purposes of this Agreement the terms "Buyers" and "Sellers" and "Oil" shall be defined as follows
Sellers: â The selling party, either Shell or Placid as the case may be. Buyers: â The buying party, either Shell or Placid as the case may be. The Oil: â Brent blend crude oil
TYPE, QUANTITY AND PERIOD OF DELIVERY
1.(1) Placid shall sell and Shell shall purchase 60,000 tonnes of the oil plus or minus 5 per cent for shipping operational purposes FOB (free on board) Sullom Voe in one parcel.
(2) Shell shall sell and Placid shall purchase 60,000 tonnes of the oil plus or minus 5 per cent for shipping operational purposes C & F Port Allen in one parcel.
. . . .
PRICE
4.(1) Subject as hereinafter provided Shell will pay to Placid for each barrel (of 42 U.S. Gallons) of clean oil ... purchased by Shell under this Agreement, a price equivalent to the British National Oil Company's official Selling Price ruling on the day on which loading of the parcel was completed FOB Sullom Voe....
(2) Subject as hereinafter provided Placid will pay to Shell for each barrel (of 42 U.S. Gallons) of clean oil ... purchased by Placid under this Agreement, a price equivalent to the British National Oil Company's official Selling Price for the Oil ruling on the day on which loading of the parcel was completed FOB Sullom Voe ..., plus a freight component equivalent to 47 points of Worldscale applicable as at 1st January, 1983 for the voyage Sullom Voe to Port Allen.
. . . .
PAYMENT
. . . .
6.(4) Depending on the circumstances prevailing for each individual shipment, payment will be required by either of the two following methods:
. . . .
(ii) In instances where Shell loads Placid's oil and takes the aforesaid oil direct to Placid's requested post of discharge the FOB invoice issued by Placid can be "offset" against the C & F invoice issued by Shell thereby resulting
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