TOYOMENKA PACIFIC PETRO. v. Hess Oil VI Corp., 90 Civ. 3720 (MGC).

• Decision Date: 24 July 1991
• Docket Number: No. 90 Civ. 3720 (MGC).,90 Civ. 3720 (MGC).
• Citation: 771 F. Supp. 63
• Parties: TOYOMENKA PACIFIC PETROLEUM, INC., Plaintiff, v. HESS OIL VIRGIN ISLANDS CORP., Defendant.
• Court: U.S. District Court — Southern District of New York

771 F. Supp. 63

TOYOMENKA PACIFIC PETROLEUM, INC., Plaintiff, v. HESS OIL VIRGIN ISLANDS CORP., Defendant.

No. 90 Civ. 3720 (MGC).

United States District Court, S.D. New York.

July 23, 1991.

As amended July 24, 1991.

Burlingham Underwood & Lord by Michael Marks Cohen, John G. Ingram, New York City, for plaintiff.

Hill, Betts & Nash by John F. Keating, New York City, for defendant.

AMENDED OPINION AND ORDER

CEDARBAUM, District Judge.

Plaintiff Toyomenka Pacific Petroleum, Inc. ("Toyomenka") is a California corporation. Defendant Hess Oil Virgin Islands Corp. ("Hess") is a U.S. Virgin Islands corporation. Toyomenka brings this diversity action to recover demurrage for Hess's delay in taking delivery of a cargo under a contract for the sale of crude oil. Both parties have moved for summary judgment. Because the material facts are not in dispute and I conclude that Hess's delay is excused by the force majeure clause of the contract, Hess's motion for summary judgment is granted and Toyomenka's motion is denied.

FACTS

The following facts are undisputed except where noted.

Hess owns an oil refinery on St. Croix with a terminal for receiving crude oil. On September 11, 1989, Toyomenka contracted to sell crude oil to Hess and to deliver the oil by ship to Hess's St. Croix terminal between October 25 and November 7, 1989. (Contract, Cl. EEE.)¹ Toyomenka provided the wording of the Contract. (Toyomenka Rule 3(g) Counterstatement, ¶ 2.)

The Contract provided that Hess would pay demurrage for the ship's laytime at the terminal. (Contract, Cl. JJJ, KKK.) The Contract fixed the rate of demurrage "as per charter party demurrage rate." (Contract, Cl. KKK.) On September 15, 1989, Toyomenka chartered the Edenburgh Fruid ("Fruid") to deliver the oil to Hess under a charter party which set daily demurrage at $17,500. (Toyomenka Ex. 2, Part I, Clause I.)

The Contract also included a force majeure clause, Clause QQQ, which reads as follows:

Neither seller nor buyer shall be liable for damages or otherwise for any failure or delay in performance of any obligation hereunder other than the obligation to make payment, where such failure or delay is caused by force majeure, being any event, occurrence or circumstance reasonably beyond the control of the party claiming force majeure, including without prejudice to the generality of the foregoing, failure or delay caused by or resulting from acts of God, strikes, labor disputes, fires, floods, wars (whether declared or undeclared), riots, destruction of the product, delays of carriers due to breakdown or adverse weather, perils of the seas, embargoes, accidents, restrictions imposed by any governmental authority (including allocations, priorities, requisitions, quotas and price controls). The party claiming force majeure shall give written notice thereof to the other party within forty-eight (48) hours of the occurrence thereof, stating in reasonable detail the cause and the expected duration. The affected party shall use reasonable diligence to remove the force majeure situation as quickly as possible.... The time of the seller to make or buyer to receive delivery hereunder shall be extended during any period in which delivery shall be delayed or prevented by reason of any of the foregoing causes, up to a total of thirty (30) days. If any delivery hereunder shall be so delayed or prevented for more than thirty (30) days, either party may terminate this contract with respect to such delivery upon written notice to the other party.

(Contract, Cl. QQQ.)

On September 17 and 18, 1989, Hurricane Hugo passed over St. Croix, causing damage to Hess's terminal and refinery. Toyomenka does not dispute that its personnel "were in nearly daily contact with Hess following the hurricane, were apprised of this circumstance," and that "information regarding the condition of the refinery was communicated to them as such became available." (Hess Rule 3(g) Statement, ¶ 14.)

On September 26, 1989, Hess telexed a notice to Toyomenka which read:

As you know, as a consequence of Hurricane Hugo which devastated St. Croix, USVI, our facility there suffered substantial damage and is completely inoperative.

Following our survey of the facility, it has been determined that we are unable to receive or process captioned cargo, and we are presently unable to advise as to the duration and consequence of this force majeure event. We shall advise you when we are in a position to do so.

Regrettably, under the circumstances of this force majeure event, and in accordance with Clause QQQ of captioned contract, please accept this as our notice of such force majeure.

(Toyomenka Ex. 3A.)

Two days later, on September 28, Hess again telexed Toyomenka, this time stating that it appeared that the harbor's ship channel would be reopened on October 3 and that Hess "can discharge crude oil into our refinery to be held in storage until some future date when the refinery will process same." Hess concluded: "In view of the above, it appears now, and we will make our best efforts to discharge the SS Fruid Edenburg with cargo of duri crude oil on arrival." (Toyomenka Ex. 3B.)

On September 29, Toyomenka telexed Hess acknowledging receipt of both telexes and saying:

.... We are pleased that you anticipate being able to meet the contract schedule, however, you will appreciate that in view of the limited information available to us, we must reserve judgement as to whether force majeure excuses any failure to receive delivery when due. In any event we would expect Hess to pay any demurrage that may accrue under the charter party, as provided in our subject sale contract.

We request that you continue to keep us informed of the status of your facility. We trust that Hess will treat all shippers fairly and equitably during this period.

(Toyomenka Ex. 9.)

Hess telexed Toyomenka once more on October 25, 1989, saying: "Chtr advised receivers still intending to berth VSL on arrival for discharge." (Toyomenka Ex. 3C.)

The Fruid arrived at St. Croix and gave notice of readiness on October 28, 1989, but did not berth until November 9. (Norwood Aff., ¶ 11-12.) It completed discharging its cargo on November 13. (Norwood Aff., ¶ 13.)

It is undisputed that the first ship to discharge its cargo at Hess's facilities after the hurricane did so on October 2, 1989. However, it is also undisputed that 6,000,000 barrels of storage capacity lost as a result of the hurricane were not restored by November 9, 1989 and the refinery was not restored to its full processing capabilities until December 9, 1989. (Hess Rule 3(g) Statement, ¶¶ 11, 12.) Nor does Toyomenka dispute that following the hurricane, Hess "received cargoes as they arrived to the extent that it was able to do so given its considerably diminished storage and refining capacity." (Id., ¶ 23.)

In January, 1990, Toyomenka billed Hess for demurrage of $243,019 for the Fruid's laytime at St. Croix from its notice of readiness on October 28, 1989 through the completion of the cargo discharge on November 13, 1989, less deductions for allowed laytime. (Toyomenka Exs. 5A, 5B, 5C.) Hess responded that it was "not responsible for demurrage on above vessel by reason of force majeure." (Toyomenka Ex. 6.)

Toyomenka then brought this diversity action against Hess seeking $243,019 in demurrage under the Contract. Hess subsequently paid Toyomenka $45,694 in demurrage for laytime after November 9, 1989, when the Fruid was in berth at St. Croix. (Norwood Aff., ¶ 18.) Thus, Toyomenka now seeks only demurrage for laytime from October 28 through November 9, 1989, when the Fruid was waiting to berth, in the amount of $197,325. (Toyomenka Rule 3(g) Statement, ¶ 17.)

DISCUSSION

The Contract provides that it is to be governed by and construed in accordance with the laws of the state of New York without reference to any conflict of laws rules. (Contract, Cl. OOO.)

Toyomenka argues that full demurrage accrued under its charter from October 28 through November 9, 1989 and the Contract entitles it to demurrage from Hess during this period. Toyomenka also contends that Hess waived the force majeure defense by failing to give timely notice; that Hess is estopped from invoking force majeure by its September 28 notice that it would use its best efforts to take delivery; that the delay was not covered by the force majeure clause; and that even if applicable, the force majeure clause does not excuse liability for demurrage.

Hess argues that the force majeure clause excuses it from liability for demurrage for the disputed period because its delay in taking delivery was caused by a force majeure event, that it did not waive the defense of force majeure and is not estopped from invoking it, and the force majeure clause does excuse liability for demurrage. Hess also argues that it is not liable because demurrage did not accrue under the charter while the Fruid was awaiting berth, or alternatively, that demurrage accrued at only one-half the normal rate.

A motion for summary judgment shall be granted if the court "determines that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56. See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir.1988). The test for granting a summary judgment motion parallels the standard for a directed verdict. If the evidence is such that a reasonable finder of fact could return a verdict for the nonmoving party, then there is a genuine factual dispute and summary judgment should not be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986); see also Blum v. Koch, 716 F.Supp. 754, 757 (S.D.N.Y.1989).

I. Force Majeure as a Cause of the Delay

The force majeure clause extends for up to thirty days the time of the buyer to take delivery, where such delay is...