American Trading and Production Corp. v. Shell Int’l Marine Ltd.

Brief Fact Summary. Generally, oil shipped between Texas and India travels through the Suez Canal.  Two parties contracted to ship oil between these two places, but due to strife in the Middle East, the tanker had to go through the Cape of Good Hope (the "Cape"), which was more expensive and not accounted for in the contract price.

Synopsis of Rule of Law. The doctrine of commercial impracticability will relieve a party of its responsibility to perform if performance "can only be accomplished with extreme and unreasonable difficulty, expense, injury or loss."

Facts. The Plaintiff, American Trading and Production Corp. (the "Plaintiff"), and the Defendant, Shell International Marine, Ltd. (the "Defendant"), contracted on March 23, 1967 for the Plaintiff to deliver oil from Texas to India by way of the Suez Canal.  The contract required the Defendant to charter the Plaintiff's "tank vessel, WASHINGTON TRADER" to transport the oil.  The freight weight was to be "in accordance with the then prevailing American Tanker Rate Schedule ("ATRS"), $14.25 per long ton of cargo, plus seventy-five percent (75%), and in addition there was a charge of $.85 per long ton for passage through the Suez Canal."  On May 26, 1967, the total freight was $417,327.36.  On May 29, 1967, the Plaintiff was put on notice about an impending crisis and possible diversion in the Suez Canal, but despite this possibility, the Plaintiff continued on the same route.  War broke out in the Middle East, and passage through the Suez Canal became impossible.  Instead, the Plaintiff was forced to travel to Bombay via the Cape.  Prior to traveling via the Cape, the Plaintiff reserved the right for extra compensation.  The trip through the Cape added over 9,000 miles to the original voyage.  As such, the Plaintiff billed the Defendant $131, 978.44 as extra compensation.  The Defendant refused to pay and this suit followed.  The Plaintiff argued that the closure of the Suez Canal made this trip impossible, but the trial court disagreed.

Issue. Was passage through the Suez Canal the exclusive method by which the Plaintiff was to perform?  In other words, was the Plaintiff's obligation conditioned upon the canal being passable?
•    Does the doctrine of commercial impracticability apply here?

Held. No.  The parties' agreement made no reference to a fixed route.  The contract only specified that the cargo was to go from Texas to India at a set rate.  The court refused to find that the route through the Suez Canal "was to be the exclusive method of performance".  The agreement does not say so and "it seems to have been well understood in the shipping industry that the Cape route is an acceptable alternative in voyages of this character."  The fact that the parties thought the route through the Suez Canal was the most probable does not resolve this issue.  Neither does the fact that the ATRS rate was based on a Suez Canal passage.
•    The doctrine of commercial impracticability will relieve a party of its responsibility to perform if performance "can only be accomplished with extreme and unreasonable difficulty, expense, injury or loss." The court found that there was no "extreme or unreasonable difficulty apparent here."  Further, "[m]ere increase in cost alone is not a sufficient excuse for non-performance."  There must be an "extreme and unreasonable" expense.  The increase in expense here, 1/3 of the contract price is not significant.

Discussion. This case demonstrates that the doctrine of commercial impracticability is not very forgiving in that a 1/3 increase in the parties' contract price is not actionable.