Bankrupt Dynegy Danskammer LLC has gotten into a legal battle with the Peabody COALTRADE International Ltd. (PCIL) unit of Peabody Energy (NYSE: BTU) over what Dynegy Danskammer claims is a missed coal delivery in late 2011.
Dynegy Danskammer, which runs the Danskammer power plant in New York state, has been in Chapter 11 protection since November 2011 at the U.S. Bankruptcy Court for the Southern District of New York, along with affiliated companies like Dynegy Holdings LLC. These bankrupt companies are unit of Dynegy Inc. (NYSE: DYN).
Dynegy Danskammer filed its complaint, in what is called an adversary proceeding, against PCIL on June 4 at the bankruptcy court. Peabody had not replied as of June 13. A pre-trial conference has been set for July 24. Adversary proceedings are basically a speeded-up civil lawsuit, with a truncated evidence-gathering process and a final decision to be rendered by the bankruptcy judge.
This is an action for breach of contract for damages or, in the alternative, for anticipatory repudiation and liquidated damages and other relief arising out of PCIL’s failure to deliver a shipment of coal for loading at a port in Venezuela for transportation to the United States on a vessel hired by plaintiff, said the complaint. As a result of PCIL’s unlawful conduct and breach, Dynegy Danskammer said it has suffered damages in an amount to be proven at trial.
Contract dates back to 2008 and was nearly at an end
In January 2008, Danskammer entered into a contract to buy Guasare steam coal with PCIL. PCIL agreed to sell and deliver. This coal is produced by Carbones Del Guasare (CdG) in the Mina Paso Diablo operation in Venezuela. The contract designates the Bulk Wayuu Floating Storage Transfer Station at Lake Maracaibo, Venezuela, as the port where PCIL will load the coal shipments onto a vessel arranged by Danskammer to transport the coal.
On numerous occasions since the contract’s execution, PCIL has failed to timely and completely perform its obligations under the agreement, repeatedly delaying coal shipments or declaring force majeure, said Dynegy Danskammer. For example, in late 2008, PCIL repeatedly delayed the scheduled laycan for a coal shipment and further advised Danskammer on multiple occasions that the coal available for the delayed laycans would exceed the rejection limits established under the contract. As a result of this process, a shipment originally scheduled for November 11–20, 2008, was not completed until January 25, 2009.
A “laycan” is the period during which the vessel that will receive a coal shipment is expected to arrive at the loading port. “Demurrage” is money paid by a vessel’s charterer if the time to load or unload the vessel at a port takes longer than agreed in the charterer’s contract with the ship owner.
Similarly, after accepting a laycan of February 18–27, 2009, for the next shipment, PCIL advised Danskammer that labor issues at the mine would prevent it from delivering that shipment, Dynegy Danskammer wrote. As a result of this change, PCIL agreed to cover any demurrage.
In August 2010, Danskammer and PCIL executed a letter agreement to address problems like this. It amended the coal contract to require that any Type 1 coal offered for delivery must be available for loading at the load port and PCIL shall have delivered written assurance to Danskammer that such coal will be held for delivery to Danskammer before Danskammer will arrange for shipping. Any time periods specified for Danskammer’s arranging shipping for such shipments under the contract shall be waived.
Problems began last year over final two contract shipments
On July 11, 2011, Victor Soto of PCIL emailed Gina Guajardo of Danskammer to propose laycan dates for the two coal shipments remaining under the coal contract: Oct. 25–Nov. 3, 2011, and Nov. 14–23, 2011. Guajardo emailed Soto on Oct. 5, 2011, to confirm that the final shipment, for which PCIL had suggested a laycan of November 14–23, was awaiting delivery.
The next day, according to the Danskammer complaint, Soto responded that all is in order as far producing the coal for the next vessel under laycan of Nov 14-23. Accordingly, Guajardo responded that Danskammer would arrange shipping. Danskammer then arranged for the cargo ship MV Bahama Spirit to travel to the loading port and receive the coal shipment.
Then followed a series of emails that outlined a series of shipment delays. On Nov. 17, after the parties had exchanged further correspondence about billing and logistics, and after the MV Bahama Spirit was already en route to the loading port, PCIL finally notified Danskammer that the coal was not in fact being held at the loading port for delivery to Danskammer on Nov. 29. PCIL stated that rains and vessel congestion had impacted production of coal for the MV Bahama Spirit cargo and that CdG expected that the coal would be available for inspection at the mine on Nov. 30.
On Nov. 28, PCIL invoiced Danskammer for $1,992,245.00 for the final coal shipment, further representing that the delivery would be made as agreed, said the complaint. Danskammer said it paid this invoice in full on Dec. 1. The ship arrived in early December to pick up the coal, but that coal was not available to load.
On Dec. 13, PCIL proposed to replace the coal it was supposed to deliver for shipment with coal of such low quality that Danskammer would have been entitled under the contract to reject the shipment outright, the complaint said. On Dec. 16, in an attempt to mitigate the demurrage damages it was incurring as a result of the MV Bahama Spirit having to wait to load the shipment, Danskammer sent PCIL proposed price and quality requirements necessary for Danskammer to accept this out-of-specification coal. PCIL forwarded Danskammer’s requirements to its supplier, and never formally accepted or rejected Danskammer’s proposal, despite repeated requests from Danskammer for an update, the complaint said.
On Dec. 20, after the MV Bahama Spirit had been sitting empty for two weeks, PCIL delivered notice declaring force majeure under the contract based on a declaration of force majeure from its supplier, CdG. CdG’s declaration stated that its force-majeure condition resulted from rain disrupting coal transport on the road connecting the mine to the loading port. As a result, Danskammer said it had no choice but to release the MV Bahama Spirit on Dec. 20 without PCIL delivering any coal, even out-of-spec coal, for loading. PCIL’s and CdG’s force-majeure declarations both lasted until Jan. 9, 2012. On Dec. 21, Danskammer demanded immediate repayment of the $1,992,245 it had prepaid for the coal shipment that was never delivered. PCIL repaid that amount on Jan. 3.
On Jan. 19, Alex Baliff, Managing Director of PCIL, sent a letter to Danskammer admitting that PCIL had failed to hold the final shipment of coal for delivery to Danskammer, and asserting that PCIL was not required to do so under the letter agreement. He went on to assert that it was clearly unreasonable for Danskammer to have assumed that coal would continue to be dedicated and stockpiled at the loading port for Danskammer’s benefit for two extended delayed laycan periods.
On Feb. 3, in response to Baliff’s letter, Danskammer requested that PCIL provide evidence that coal meeting the coal contract’s specs had been available at the loading port during the period from November 14–23, in light of Soto’s Nov. 17, 2011, email stating that the coal was in fact not at the loading port and being held for delivery to Danskammer. “PCIL never provided any support for its assertion that coal had been available from November 14–23,” said the complaint.