Bunge SA v ADM DO Brasil Ltd & Ors
 EWHC 845  2 Lloyd’s Rep 175,  1 CLC 608,  EWHC 845 (Comm) Tomlinson J
Discussion and conclusions
(i) Dangerous cargo
Mr Berry submitted that cargo is dangerous if it is liable to cause delay to the vessel and/or to the carriage of other cargo. Mr Berry suggested that this principle is to be extracted from the judgment of Atkin J in Mitchell, Cotts & Co. v Steel Brothers & Co. Ltd  2 KB 610 at page 614 where he spoke of there being at the least an obligation on a shipper not to ship goods likely to involve unusual danger or delay to the ship without communicating to the owner facts which are within his knowledge indicating that there is such a risk. There was here, submitted Mr Berry, a risk of rejection of the cargo which did cause delay. The fact that fumigation can be expected to kill all rats does not mean that there will not be an unusual delay, as here occurred. The re-fumigation, found to have been a reasonable thing to do, was on any showing an unusual delay.
Miss Sara Cockerill for her part pointed out that it is a commonplace that cargo is loaded which carries with it a risk that it will cause delay to the ship or to other cargo. Sprouting potatoes was one example which she gave, whilst pointing out that there are always awkward receivers in awkward countries. She suggested that as long ago as 1922 in Transoceanica Societa Italiana di Navigazione v H.S. Shipton & Sons  1 KB 31 McCardie J had pointed out that if the rule as to dangerous goods is extended to matters not involving physical danger, “a wide vista of responsibility is opened as against the shippers of goods”. She suggested that whatever criticism might be made of the manner in which the arbitrators expressed their reasoning, they had nonetheless come to the right conclusion.
In order to evaluate these submissions it is necessary to return to first principles. Fortunately those principles have in large part recently been explored and restated by Longmore J, the Court of Appeal and the House of Lords in Effort Shipping Co. Ltd v Linden Management S.A., The “Giannis NK”  2 Lloyds Rep 171,  1 Lloyds Rep 577 and  AC 605.
In The “Giannis NK” at first instance Longmore J drew attention to the danger of confusing two distinct but allied principles in relation to the shipment of goods which cause loss to a shipowner. At page 179 he said this:
“The common law of England and Wales has for some time recognized two similar but distinct principles in relation to the shipment of goods which cause loss to a shipowner. There is first the principle that a shipper undertakes not to ship goods which are liable to cause damage to the vessel or other cargo shipped thereon without giving notice to the shipowner of the character of the goods. This proposition was laid down in, for example, Brass v. Maitland, (1856) 6 El. & Bl. 470, where the shipper was held potentially liable for shipping casks of bleaching powder which, unknown to the shipowner, contained lime chloride which damaged the casks and leaked out causing damage to other cargo on board.
There is also a second principle that the shipper undertakes not to ship goods which are liable to cause delay to the vessel. Examples of such goods are contraband cargo or cargo for which the cargo-owner requires a licence for import which he does not, in the event, obtain. An example of this second principle is Mitchell v. Steel,  2 KB 610, in which charterers had loaded a cargo of rice for Alexandria but then asked the shipowners to discharge the cargo at Piraeus instead. The shipowners agreed to this course but the cargo could not be discharged at Piraeus without the express permission of the British Government who controlled the port in the First World War. Permission was not granted and the vessel had to discharge at Alexandria after all. The charterers were held liable for the resulting delay by Mr Justice Atkin, who described the case as being analogous to a case of dangerous goods.
The second principle has been treated by authors and editors of books on carriage by sea as part of the law concerning dangerous goods and it seems that both principles may indeed have a common origin in a proposition set out in the fifth edition of Abott on Shipping (1825) at p. 270:
The general duties of the merchant … are comprised in a very narrow compass. The hirer of anything must use it in a lawful manner and according to the principle for which it is let. The merchant must lade no prohibited or uncustomed goods by which the ship may be subjected to detention or forfeiture.
See, also, the current 14th edition, published 1901, p. 643.
This passage was cited by both the majority judgment in Brass v. Maitland, (1856) 6 El. & Bl. 470 at p. 484 and the minority judgment given by Mr Justice Crompton, at p. 492, which Mr Justice Atkin preferred to follow in Mitchell v. Steel. After successful Counsel for the shipowners in that case himself became the Commercial Judge, he also referred obiter to the above statement of Lord Tenterden as constituting the true basis of the doctrine which ‘is apt to be a little obscured if one thinks only of dangerous goods’, see Rederii Aktiebologet Transatlantic v. Board of Trade, (1924) 20 Ll.L.Rep. 241 at p. 243, col. 1; (1924) 30 Com. Cas. 117 at p. 128.
This brief account of the development of English law helps to put Mr Matthews’ first two submissions into context and shows that there is a danger of confusing what are two distinct but allied principles.”
Longmore J concluded that the words “goods of a dangerous nature” in the Hague Rules are probably restricted to goods which are physically dangerous, i.e. liable to cause physical damage to some object other than themselves. In that case the Khapra beetle infested cargo, ground-nut extraction meal pellets, did not cause physical damage to the vessel. However it caused damage to the other cargo, wheat, because the shipment and voyage was to countries where the imposition of a quarantine and an order for the dumping of the entire cargo was to be expected. As a result of the exercise by the authorities of their statutory powers controlling importation, the other cargo had eventually to be dumped at sea. As Hirst LJ put it in the Court of Appeal, adopting the argument of Mr Alistair Schaff QC, the whole cargo, including the wheat, was blighted. From the moment the ground-nut cargo was loaded the wheat cargo was subjected to the physical peril of being dumped. The decision of the House of Lords on this point is summarised by the learned editors of Carver on Bills of Lading, 2nd Edition, at paragraph 9-280 as follows:
“It was held by the House of Lords that the word [dangerous] does not require that the goods cause or become capable of causing direct physical damage to persons, the ship or even to other cargo, and that it applies also to cargo liable to give rise to (physical) loss of other cargo on the same vessel by creating a situation (in the case in question, infestation) in which it was required by public authorities that all the cargo be dumped at sea. It appears that the words refer to cargo which directly or indirectly causes some sort of physical damage to life, the ship or other cargo, or raises a threat of it (for instance, in the case of a cargo of explosives), leading to delay and/or other expense for the carrier. Goods that merely cause delay to the carrier, for example because their import is prohibited, would probably not be within these words, though as stated in the previous paragraph they might rank as dangerous goods at common law.”
It is plain therefore that goods may be dangerous for the purposes of the Hague Rules if they have the capacity to cause physical damage in either a direct or an indirect manner. However as the learned editors of Carver point out, goods that merely cause delay to the carrier are probably not to be regarded as “dangerous” in the sense in which that word is used in the Hague Rules. Since all three courts in which The “Giannis NK” was considered concluded that the ground-nut cargo was the indirect cause of physical damage to the wheat cargo, it was unnecessary to decide whether goods which merely cause delay to the carrier fall within the Hague Rules definition of dangerous goods. Longmore J pointed out, at page 180 LH, that in the light of his earlier exposition, the owners would not in that case have been without a remedy even had he been unable to conclude that the cargo was physically dangerous, in the sense that it had the capacity to cause physical damage in either a direct or an indirect manner. However nothing said in any of the judgments or speeches in The “Giannis NK” gives any encouragement to the view that the word “dangerous” can in the Hague Rules carry a wider meaning than that discussed above. The learned editors of Scrutton on Charterparties and Bills of Lading, 21st Edition, at page 409, are at one with Carver in thinking that “dangerous” in Article IV Rule 6 “probably means physically dangerous, and does not extend to those cases where the ship suffers loss owing to legal obstacles to the carriage or discharge of goods”. I would however just observe that it is in my view most unlikely that the word “dangerous” can be intended when used in Article IV Rule 6 of the Hague Rules to bear a meaning going beyond physical danger. The owner has the right under the Rule at any time before discharge and without incurring a liability to pay compensation to land “dangerous” cargo at any place or to destroy it or to render it innocuous. Quite apart from the obvious pointer given by the expression “render it innocuous” it would be very surprising if the owner had the right without incurring any liability whatsoever either to land at a non-contractual destination or even to destroy cargo which posed no physical threat to either ship or other cargo carried.
Irrespective of the Hague Rules, there is of course at common law in a contract of carriage an implied term to the effect that the shipper will not ship dangerous goods without notice to the carrier. That is the first principle mentioned by Longmore J in the passage cited above. It is in my view clear that the meaning of the word “dangerous” in this term implied by the common law is the same as that which has been given to the same word in Article IV Rule 6 of the Hague Rules. The obligation is absolute, as is the liability of the shipper under Article IV Rule 6 – see The Giannis NK in the House of Lords per Lord Lloyd of Berwick at page 619 and Lord Steyn at page 624.
I turn then to the second principle mentioned by Longmore J. This principle is shortly summarised in Scrutton at Article 53, page 100 as being a particular incident of Longmore J’s first principle:
“Goods may be dangerous within this principle [Longmore J’s first principle] if owing to legal obstacles as to their carriage or discharge they may involve detention of the ship.”
The authority for this proposition is given as Mitchell Cotts v. Steel and The Giannis NK. In Mitchell Cotts v. Steel Atkin J expressed the principle in this way, at 614:
“I think there is no question that a shipment of goods upon an illegal voyage – i.e., upon a voyage that cannot be performed without the violation of the law of the land of the place to which the goods are to be carried – a shipment of goods which might involve the ship in danger of forfeiture or delay – is precisely analogous to the shipment of a dangerous cargo which might cause the destruction of the ship. I do not think there is any distinction between the two cases.”
The formulation in Scrutton of this principle, or sub-principle, is in my view instructive. The learned editors refer to legal obstacles. It was the local law at the port of discharge with which Atkin J was concerned in Mitchell Cotts v. Steel and to which he referred in the passage cited above. Charterers there loaded a cargo of rice for carriage to Alexandria, which at the time, 1915, was under British control. On passage from the load port it was agreed to vary the charterparty by changing the contractual destination to Piraeus. When negotiating with the owners for this variation the charterers were aware of the fact that they could not send the ship to Piraeus with the cargo of rice on board without the consent of the British Government. The shipowners did not know this and could not reasonably have known it and the charterers did not tell them. Whilst the charterers were endeavouring to obtain the relevant consent the vessel was detained at Port Said. Consent was not forthcoming and the cargo had in the event to be discharged at Alexandria. The owners claimed for detention at Port Said. The claim succeeded in arbitration and Atkin J upheld the award on an appeal by way of case stated. As Longmore J observed, Atkin J treated the case as analogous to one of shipping dangerous goods. Longmore J for his part did not discuss the ambit of this second or sub-principle, although the examples he gave of goods liable to cause delay to the vessel were contraband cargo or cargo for which the cargo owner requires a licence for import which he does not, in the event, obtain. Those are both examples of “legal obstacles” as to the carriage or discharge of the goods. Longmore J had already pointed out, at page 173 of his judgment, that both the USA and many Caribbean countries, including the Dominican Republic, the countries there concerned, had for many years exercised their statutory importation powers to exclude vessels and cargo infested with Khapra beetle. Thus when he later observed that in that case the owners were not without remedy even if the cargo was not physically dangerous, he was adverting simply to the fact that the case was in any event on all fours with Mitchell Cotts v. Steel in that it involved a violation of the law of the land of the place to which the goods were to be carried.
In The “Giannis NK” the House of Lords agreed with the courts below that the Khapra beetle infested cargo was “physically dangerous” because it was liable to give rise to the loss by dumping at sea of other cargo loaded on the same vessel. It posed, albeit indirectly, a physical danger to the other cargo. In those circumstances, as Lord Lloyd observed at page 613:
“… It is unnecessary to consider a further argument that goods may be of a dangerous nature even though they do not present any physical danger to ship or cargo, but are ‘legally’ dangerous in the sense that they are liable to cause delay to ship and cargo through the operation of some local law.”
The Court of Appeal in that case, having agreed with Longmore J that the relevant cargo was “physically dangerous” to the other cargo, went on to say that it would in any event uphold Longmore J’s judgment by reference to the principle stated in Mitchell Cotts v. Steel “seeing that, on any view, the shipment of the infested cargo was likely to involve detention and delay of the vessel, as in fact occurred”. See per Hirst LJ at page 588, with whom both Morritt and Ward LJJ agreed.
Mr Berry sought to extract from the judgment of Atkin J a principle much broader than that mentioned, although not discussed, by Lord Lloyd in The Giannis NK. He suggested that the principle enunciated by Atkin J was not dependent upon the existence of any legal obstacle such as one imposed by the local law at the port of destination. He founded in particular on the following passage in Atkin J’s judgment, at page 614:
“Whatever may be the full extent of the shipper’s obligations, it appears to me that it amounts at least to this, that he undertakes that he will not ship goods likely to involve unusual danger or delay to the ship without communicating to the owner facts which are within his knowledge indicating that there is such a risk, if the owner does not and could not reasonably know those facts. I think that is placing the obligation of the shipper within very moderate limits, and it may be considerably wider.”
In my judgment Mr Berry is misreading this passage and ignoring its context. Atkin J had in an earlier passage expressed his preference for the dissenting judgment of Crompton J in Brass v. Maitland, in which he had rejected the view of the majority that the duty at common law not to ship dangerous goods is an absolute duty, expressing his own view that the duty could only be one to take due and proper care and diligence not to ship dangerous goods without notice to the carrier. Then in the passage I have cited at paragraph 27 above Atkin J expressed the view that shipment of a cargo upon what he termed “an illegal voyage” is precisely analogous to the shipment of a dangerous cargo which might cause the destruction of the ship. The passage upon which Mr Berry relies immediately follows. It is plain in my judgment that Atkin J was not there intending to state a principle which was broader than that which he had stated in the previous paragraph – indeed in the previous sentence but one. That was a principle which involved illegality in performance. The later passage is intended to convey that whether the underlying obligation should be regarded as absolute or more limited, at the very least a shipper is liable in circumstances where he knows of the facts which give rise to the illegality and fails to inform the carrier who neither knows nor could reasonably know the facts out of which the illegality arises. That is why Atkin J concluded the passage in question with his remark “I think that is placing the obligation of the shipper within very moderate limits, and it may be considerably wider,” by which no doubt he meant to suggest that the obligation might in fact be absolute rather than a duty to take care. Furthermore, as Miss Cockerill pointed out, in The Lisa,  P 38, Sir Henry Duke P held reliance upon the judgment of Atkin J to be misplaced in a case where the risk of seizure of the cargo arose not from any municipal law or regulation in force at the two ports concerned, Kirkwall and Narvik, but rather from the possibility of the British Government seizing the ship as prize in exercise of belligerent rights.
In Transoceanica v. Shipton McCardie J regarded the decision of Atkin J in Mitchell Cotts as “undoubtedly enlarg[ing] the duty of a shipper” because the cargo of rice was not a dangerous cargo in itself. He considered that Atkin J had “gone one step beyond the dangerous goods principle”. He pointed out that “if the rule as to dangerous goods is extended to matters which do not involve danger, a very wide field is opened for discussion”. I do not need to discuss whether Atkin J’s decision in fact enlarged the duty beyond that which had been recognised in relation to the shipment of goods involving some illegality in performance. If regarded however as analogous to the shipment of dangerous goods, the principle espoused by Atkin J undoubtedly goes further than does the common law approach to physically dangerous goods, and if not confined to cases of “legal obstacle” would as McCardie J observed open a wide vista of responsibility. In the Shipton case a cargo of barley contained sand and stones which choked the suction pump used on discharge and thereby caused delay. McCardie J rejected an argument that the shippers were liable by analogy with the liability for the shipment of dangerous goods.
Accordingly I reject Mr Berry’s submission that the principle stated by Atkin J in Mitchell Cotts operates independently of legal obstacle, and I likewise reject his associated submission that shippers are liable if they load a cargo which is at risk of rejection which in turn causes cost and delay, in the shape here of the time spent fumigating the cargo and otherwise dealing with the cargo in a manner designed to reduce or eliminate the risk. In truth all or most cargo is at risk of rejection on discharge, whether justifiably or not, and the allocation of the risk of delay arising therefrom is dealt with in contracts of carriage quite independently of the regime as to dangerous cargo. The principle in Mitchell Cotts is concerned with the violation of or non-compliance with some municipal law which is of direct relevance to the carriage or discharge of the specific cargo in question.
Mr Berry submitted that the rats in the SBMP cargo presented an obvious physical danger to the maize cargo in that they were likely to eat it, excrete upon it and spread disease to it. He also submitted that the rats presented obvious legal danger in the shape of the risk, particularly in a voyage to Iran, of the arrest of the ship and condemnation of all cargo on board, reminding me of what the arbitrators had said about the consequences of the vessel arriving in Iran with live rats. The difficulty about these submissions is that they are precluded by the facts found by the arbitrators. Furthermore, Bunge did not before the arbitrators rely upon any principle of Iranian or indeed any other system of law, and there are accordingly no findings on that topic. The arbitrators specifically found that no rat presence was noted in the maize cargo in Holds Nos. 3 and 5. There is no express finding that the maize cargo was even at risk of rejection. Even if the arbitrators’ remarks at paragraphs 99 and 125 of the Reasons are to be taken as referring to all of the cargo, including the maize, they must be read in the context of the entirety of the arbitrators’ findings. The arbitrators found that fumigation was in any event routine. It could be expected to be 100% effective. “Mummified rats” were no more than a cosmetic problem. Bunge was no doubt genuinely concerned and could not be criticised for re-fumigating, but looked at objectively with the benefit of hindsight its concern was in fact groundless – the risk of a rat surviving the first fumigation was “non-existent”. At paragraph 99 of their Reasons the arbitrators did say, as I have mentioned above, that they could not accept the submission of shippers, made in relation to the deviation to Lisbon, that there was no likelihood of rejection of the cargo at the destination owing to the presence of rats. However the Reasons must be read as a whole in a fair, reasonable and generous manner. As Bingham J said in Zermalt Holdings v. Nu-Life Upholstery Repairs,  EGLR 14, the “courts do not approach [arbitration awards] with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults … and with the objective of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it.” Thus I do not consider it fair or reasonable to read this observation of the arbitrators as intended to be a considered conclusion which would be at odds with the broad thrust of their detailed findings, which I have summarised above. I suspect that they meant to say no more than that whilst the fumigation could be expected to be 100% effective, some residual risk could not entirely be discounted. I do not think that by not accepting the submission of no likelihood of rejection they intended to convey a finding that rejection was likely, particularly since in the same sentence they found the decision to deviate to Lisbon impossible to justify. Leaving aside the finding that the decision to deviate to Lisbon was in any event dictated by concerns about the bunkers rather than concerns about the cargo, it is in my view plain that the arbitrators considered that whilst Bunge was not to be criticised for re-fumigating, they nonetheless regarded it as an over-reaction. The key to understanding much of what the arbitrators said is I suspect to bear in mind that Bunge in relation to this venture wore two hats. For the purposes of the contracts with the shippers, it was the carrier of the goods. However Bunge was also, as expressly found, the ultimate purchaser of the cargoes being shipped and, as I infer, was the seller of the same to the Iranian interests. Much of what Bunge did was no doubt reasonable in its own interests as purchaser and seller of the cargo but was not necessarily the reaction to be expected of a reasonable carrier with no interest in the cargo itself.
For all these reasons as it seems to me Bunge simply lacked the factual findings on the basis of which it could hope to bring home liability to the shippers on the footing that the cargo shipped was dangerous. The arbitrators positively found that the cargo of SBMP did not pose a physical danger to the maize cargo. It plainly posed no threat of damage to the ship itself. The arbitrators made no finding that imposition of quarantine or dumping of the entire cargo was to be expected. They made no finding that the cargo was likely to involve the ship in unusual danger or delay, still less that such danger or delay would arise in consequence of the existence of some legal impediment to the carriage or discharge of the cargo. In my judgment in the light of their factual findings the arbitrators correctly applied the law. It may be that when they explained their reasoning they elided some of the concepts which I have discussed above. It is possible that in paragraph 79 the point that they were seeking to make is that the cargo, even with rats admixed, did not have some intrinsic property such as being inflammable or explosive or corrosive such as to render it likely to cause direct damage to the ship or to other cargo. That of course would not be conclusive of its ability to cause physical damage in an indirect fashion, or by “blighting” the other cargo with the risk of loss through dumping. But there are findings which preclude a conclusion that the cargo had this quality. As to the Mitchell Cotts principle, the arbitrators were quite right to say at paragraph 80 of their Reasons that it is insufficient to demonstrate a breach to prove simply shipment of a cargo which might possibly be subject to some legal challenge at the discharge port. It is not unusual for a cargo to be the possible subject of rejection or to give rise to a risk of arrest of the vessel by receivers. No attempt had been made before the arbitrators to demonstrate that shipment of the cargo in the condition in which it was shipped carried with it the risk of delay and expense in consequence of the operation of some specific municipal law or regulation.
Mr Berry did somewhat faintly suggest that the matter might be remitted to the arbitrators for further findings but this would be futile in the absence of further evidence. It would also be contrary to principle since the case was not argued before the arbitrators by reference to any specific local law. In any event the arbitrators’ findings in my view preclude the possibility of success of any argument based on local law, since the thrust of their findings is that fumigation was routine and intended and could be expected to eliminate all but cosmetic problems, which it did.
For all these reasons I conclude that the arbitrators made no error of law but on the contrary came to the correct conclusion that Bunge could not establish a breach of contract, or liability under the Hague Rules, even assuming that it could show that one or more of the shippers was responsible for the introduction of one or more rats. The second question of law does not therefore arise. I will however go on briefly to consider that question, which is essentially whether the arbitrators erred in their approach to the discharge of the burden of proof. I would start by observing that it would be surprising if experienced arbitrators fell into this error.
(ii) Discharge of the burden of proof
In my judgment the arbitrators approached their task in the orthodox and correct manner. Bunge’s dilemma was apparent from the manner in which it pleaded its case against the shippers, as the arbitrators record at paragraph 4 of their Reasons. Bunge’s case was:
“Many live rats were loaded by each, alternatively several, alternatively one or more of the Respondent Shippers, into each of Holds 1, 2, 4, 6 and 7 with their respective cargoes.”
It is also apparent, and the arbitrators effectively find at paragraph 11 of their Reasons, that for whatever reason Bunge’s case as to the number of rats involved, at any rate as it was advanced before the oral hearing, was exaggerated. Bunge’s case at the hearing was that each and every one of the SBMP parcels was infested – Reasons paragraph 20. The evidence having demonstrated the presence of only between 14 and 20 rats, that proposition became the more implausible.
At paragraph 20 of their Reasons the arbitrators formulated the issue which they had to decide as whether, if the rats had come on board the vessel with the cargo, there were rats present in every shipper’s cargo, or only some of them, and if so which? That was in my view precisely the issue which the arbitrators had to decide. Mr Berry submitted that the question which the arbitrators should have asked was “on a balance of probability, did the shipper in question load a rat?” Bunge, he said, needed only to prove on the balance of probabilities that each shipper probably loaded one rat. There is I think no difference in substance between the issue posed by the arbitrators at paragraph 20 and the question which Mr Berry submits they should have asked themselves.
Mr Berry submitted that Bunge’s point both at the arbitration and now on appeal is simple. Where 14-20 rats are loaded in cargo by nine shippers, it can and must be concluded that every shipper probably loaded at least one rat. In my judgment that is a wholly unsustainable proposition simply as stated, and it becomes even more unsustainable in the light of the facts found by the arbitrators. The only fact which supports Mr Berry’s conclusion is that 14 is a greater number than 9. He could not have made the same submission had there been 14 rats and 13 shippers.
The arbitrators were “inclined to agree with the submission that it might reasonably be inferred from the ‘fortuitous’ sighting of one rat [the first] that there were other earlier ‘missed’ occurrences” – see paragraph 34. That notwithstanding, since “only relatively modest numbers of rats had been observed in total” the arbitrators concluded that it was unsafe, in the legal context of application of the standard of proof, to infer that there must have been more rats. They concluded that it was only safe to proceed on the basis of actual sightings of rats – paragraph 35. In my judgment there is no inconsistency between these two passages in their Reasons and the arbitrators’ approach is, I consider, suitably cautious. The adage, if such it be, that where there is one rat there is more than one rat is not a sound basis upon which to found legal liability for multiple rats, and I do not think that the arbitrators were saying any more than that. The arbitrators were in my judgment perfectly entitled to conclude that they could not safely infer that rats must have come on board the vessel substantially before the first sighting late in the evening on 23 January. Indeed, in my judgment the arbitrators could legitimately be criticised had they attributed responsibility to the five shippers who had completed loading their parcels at least 24 hours and in some cases much longer before the first sighting of a rat. From this it follows that Mr Berry’s proposition resolves into “where 14-20 rats are loaded in cargo shipped by four shippers, it can and must be concluded that every shipper probably loaded at least one rat”. Although this is superficially a more attractive proposition than the first, logic still does not compel assent to it.
At paragraph 67 of their Reasons the arbitrators address the question whether the extent of the infestation was such that on a balance of probabilities there must have been rats in every parcel of cargo. That was of course the question which Bunge had required them to address by submitting that each and every one of the parcels was infested. In their table at paragraph 67 of their Reasons, as I understand it, they regarded each shipper contributing cargo to a given hold as contributing one parcel of cargo to that hold. It was on that basis, comparing I think the number of parcels loaded into each hold with the number of rats sighted in that hold, that they concluded that there were more shippers than rats. They might equally have said that there were more parcels than rats but the point is clear. Had they asked themselves whether on a balance of probabilities there must have been rats in each and every parcel of cargo which corresponded to the division of the cargo into the 30 parcels covered by the 30 bills of lading, they would obviously have reached the same conclusion. It is true that the arbitrators prefaced that section of the Reasons which began at paragraph 67 with the sub-heading question “for each of the rats for which ingress in the SBMP cargo can be established, is it possible to prove when or by whom that rat was loaded?” I would agree that the answer to that question would not in itself be determinative of the question whether liability could be established against any one shipper. Not unnaturally the arbitrators answered this question “no”. Furthermore the answer to this question would not have been “yes” even had the extent of the infestation been such that on a balance of probabilities there must have been rats in every parcel of cargo. Yet had the arbitrators concluded that on a balance of probabilities there must have been rats in every parcel of cargo, plainly they would have regarded liability as potentially established against every shipper, subject of course to the issue of dangerousness. What this demonstrates to my mind is that the question posed in the sub-heading immediately before paragraph 67 is not the only question which the arbitrators addressed. I do not think that they lost sight of the question for decision, which as they correctly posed it at paragraph 20 was whether on a balance of probabilities there were rats present in every shipper’s cargo, or only some of them, and if so which?
No doubt there might be cases of this sort where statistical evidence could be deployed in an effort to prove what on the balance of probabilities must have occurred. Here I suspect the number of rats involved is simply too small to permit any valid statistical approach. Furthermore, given that the arbitrators regarded it as unsafe to infer or to assume that rats were introduced substantially before the first sighting, and given that certain shippers completed loading long before others, and in some cases before others had even started loading, any attempt to show an even distribution of the introduction of rats over time could not give rise to an inference that all shippers were responsible for the introduction of at least one rat. As I understand it no attempt was made at the hearing to pursue some sort of statistical approach and this is unsurprising. However, as is reflected in paragraph 70 of the Reasons, Bunge’s expert witness Dr Sheard, who was apparently called to give evidence on technical aspects of loading, did offer some evidence in this area, and it was not suggested before me that he was unqualified so to do. As the arbitrators found at paragraph 70, Dr Sheard acknowledged that it was impossible to establish in the circumstances that a rat was shipped by each shipper. He accepted that “the distribution of any rats in the parcels of cargo could not be assumed to be even and that it was possible that whilst there might be several rats in one parcel, there would be many parcels which contained no rats”.
I do not agree with Mr Berry that the arbitrators approached the matter on the footing that Bunge had to show that there was no possibility that the rats were distributed unequally throughout the cargoes. Plainly they did not. Subject to dealing with the timing point, Bunge could as it seems to me have established liability against some of the shippers had they been able to demonstrate that on a balance of probabilities the distribution of the introduction of rats should be regarded as even, but they did not so demonstrate. The evidence of Dr Sheard was to the contrary effect.
Finally Mr Berry did not I think formally abandon the argument that at least Glencore should be regarded as probably having loaded a rat, being the shipper who had completed loading immediately prior to the first sighting. Mr Berry did not press this point in oral argument. It is I think unavailable to him in the light of the arbitrators’ clarification that they made no finding as to whether any particular party was the shipper whose cargo was last loaded before the first rat was sighted. The arbitrators did not suggest that they regarded the timings in Appendix A, to which they refer at paragraph 27 of their Reasons, as necessarily sufficiently accurate to establish which shipper was last loading before the first sighting, and Appendix A collates evidence from three sources, not always consistent. As it happens, Appendix A seems to suggest that Rutherford may have been loading in Hold No. 2 until 25 minutes later into the evening on 23 January than were Glencore – 2115hrs as opposed to 2050hrs, but equally the finding as to the first sighting is only that it was “late in the evening”. Had this been a live issue it might have been necessary to explore in a little more depth whether the arbitrators’ reluctance to infer that rats must have been loaded substantially prior to the first sighting necessarily leads to the conclusion that on the balance of probabilities the rat first sighted must have been introduced by the shipper or shippers who was or were loading immediately before that first sighting. As it is the point is not determinative and I need say no more about it.
For all these reasons I dismiss Bunge’s appeal against the eight awards.
Note 1 I do not propose to reproduce this table. However what it shows is that although there were thirty bills of lading, the cargo can be regarded as divided into twenty-four parcels, by reference to the number of shippers who introduced cargo into each hold. Thus three shippers introduced cargo into Hold No. 1, and two of them were during one period of loading doing so simultaneously. Seven shippers loaded cargo into No. 2 Hold, although there I detect no overlap. Five shippers loaded into Hold No. 4, three into No. 6 and four into No. 7. This table enabled the arbitrators to find at paragraph 68 of their Reasons that four of the shippers (ADM, C&A, Citrovita and Coimex) had completed loading respectively two days, three full days, one full day and three-and-a-half days prior to the first sighting of a rat. The arbitrators acknowledge in a subsequent e-mail sent to the parties on 7 February 2008 that they should have included MGT in this list, who completed loading more than one full day before the first sighting of a rat on board the vessel. [Back]
Note 2 The full text of the e-mail to which I referred at footnote 1 above was: “I confirm that our observations in relation to the ADM, C&A, Citrovita and Coimex cargoes would also apply to the MGT cargo, since loading of that cargo was completed prior to the first sighting on 23 January. The essential point was that we did not feel able to infer that any rats had been loaded prior to the first sighting. Clearly, it would be impossible to draw any inference in relation to any cargo, the loading of which was completed prior to the first sighting.” [Back]
Note 3 It is agreed that the reference to MGT is an error and that the reference should have been to Orlandia. [Back]
Note 4 This paragraph as a whole provoked a request for clarification which led to the following from the tribunal on 24 June 2008: “… If it is not apparent from paragraph 69 of the Reasons as it stands, we confirm that the text in question was not intended to ‘encapsulate a finding against Glencore’ (as it was put by Reed Smith Richards Butler in their fax of 26 March) but was no more than a statement of the submission made on behalf of Bunge. We made no finding as to whether any particular party (including Glencore) was the shipper whose cargo was last loaded before the first rat was sighted. Andersen Ballao (their fax of 3 April) understood our conclusion correctly in commenting that their understanding was that our conclusion was that ‘Bunge were unable to prove that any particular rat had been shipped by any particular shipper, irrespective of when their cargoes were loaded’.” [Back]
Note 5 In their summary of conclusions, the arbitrators found that on a balance of probabilities the number of rats which gained access to the vessel was less than 20 and probably no more than 14. Of these, only 11 seem actually have been seen, or captured, in the holds, the rest being on deck. [Back]
Northern Shipping Company v Deutsche Seereederei Gmbh & Ors
 EWCA Civ 400
NSC’s responsibility for unseaworthiness in the stowage of isopentane under deck – Article III, Rule 1, of the Hague Rules
The Judge found that the cause of the loss of the vessel and most of its cargo was the isopentane in CYL’s 8 tank containers stowed in the aft part of hatch 3 catching fire as a result of the explosion and fire on deck. He found that the stowage of the isopentane under deck made the vessel unseaworthy and that NSC had, in that respect, failed to exercise due diligence. He held, in consequence, that it could only recover against DSR for damage to the ship caused by the explosion and fire on deck and that CYL could recover on its counterclaim for its loss of cargo and an indemnity.
There is now no issue that the stowage of the eight tank containers of highly inflammable isopentane under deck contributed to – was a cause of – the loss of the ship by the flooding of fire-fighting water from hold 3 into hold 2. The issues are: 1) whether the Judge was correct in holding that the stowage of the isopentane under deck made the vesselunseaworthy within the meaning of Articles III and IV of the Hague Rules; 2) if so, whether, in accordance with Article IV, Rule 1, the unseaworthiness resulted from NSC’s lack of due diligence; and 3), if so, whether that deprived NSC from recovering damages against DSR for the loss of the vessel and for an indemnity against third party claims under Article IV, rule 6, or at Common law.
The international standards as to seaworthiness were those embodied in the International Convention for Health and Safety of Life at Sea 1974, as amended in 1981 and 1983 (“SOLAS”) and, in this case, the USSR’s, now the Russian Federation’s, version of the International Maritime Dangerous Goods Code (“the IMDG Code’), given the initials “MOPOG”. SOLAS and IMDG have been given effect to in the United Kingdom by regulations made under the Merchant Shipping Acts. SOLAS, in Cap. VII, Regulation 6.3, provided that “dangerous goods in packaged form which give off dangerous vapours shall be stowed in a mechanically ventilated space or on deck”, and in IMDG, Regulation 5, that class 3.1 liquids should be carried in a well ventilated space. MOPOG, the preamble of which stated that it complied with both SOLAS and IMDG, made similar provision.
On the issues of unseaworthiness and due diligence, NSC’s case is 1) that it was permissible for isopentane to be stowed under deck in the Kapitan Sakharov, despite its lack of mechanical ventilation, by virtue of the law and regulations of the Russian Federation, namely MOPOG, and in accordance with the vessel’s technical certificate; 2) that compliance with those instruments in the circumstances of the case constituted due diligence and that it did comply with them; or 3), that if it failed to comply with them, such failure was not a result of want of due diligence but of a reasonable misunderstanding of them, and that the decision as to stowage under deck was otherwise reasonable. DSR’s case is that neither MOPOG nor the technical certificate authorised such stowage and that, in any event, it was so plainly dangerous that to permit it amounted to want of due diligence. CYL does not challenge the Judge’s finding of unseaworthiness on this account, but joins with DSR in its argument on the issue of due diligence.
The Judge found:
1) that the poor natural ventilation in the vessel’s hold would not have effectively removed flammable vapour from the cargo spaces below deck and that the availability of fire-fighting equipment in the holds was no adequate substitute;
2) that the presence of isopentane below deck and its combustion by the initial fire and exacerbation of it, was responsible for the heating and explosion of one or both of the wing diesel tanks, causing, in turn, rupture of the bulkheads between holds 2 and 3, so allowing both holds to flood with fire-fighting water and the ship to sink;
3) that if the isopentane had been stowed on deck the vessel would not have been lost and it was, therefore “a cause of the sinking”;
4) that a reasonably prudent Russian shipowner and master could reasonably have relied upon MOPOG without checking it against the IMDG Code but should also have had regard to the circumstances of the particular case;
5) that neither SOLAS nor the IMDG Code nor MOPOG nor the vessel’s technical certificate permitted stowage of isopentane under deck in the inadequately ventilated hold of the Kapitan Sakharov; and
6), that in any event and in the particular circumstances, NSC’s master and cargo officer had not exercised reasonable skill and care in stowing it there.
As to the last finding, the Judge said, at page 118 of the judgment, that it was reasonably foreseeable that if a fire occurred in the hold from some other source a flammable liquid like isopentane stowed there would be likely to exacerbate it in a way in which it would not do if stowed on deck. He continued::
” In these circumstances it is not surprising that both SOLAS and the IMDG code did not permit stowage of this cargo under deck in this vessel. For the reasons which I have tried to give I do not think that either MOPOG or the technical certificate did so either. Moreover, I am unable to accept Mr Macdonald’s submission that it was reasonable for the master or cargo officer to think that it was proper to load a class 3.1 cargo under deck. In my judgment the isopentane should been stowed on deck. The vessel was not reasonably fit to withstand the ordinary incidents of the voyage with it stowed under deck because it might itself catch fire or, if another fire broke out, it would be likely to exacerbate it. It follows that it was unseaworthy in that respect because the master and cargo officer permitted the isopentane to be stowed under deck in circumstances in which, if they had exercised reasonable skill and care, they would not have done so. In all the circumstances I have reached the conclusion that the plaintiffs were in breach of Article III, rule 1 of the Hague Rules.”
The clear purpose of MOPOG was to reproduce without distinction the provisions of SOLAS and IMDG, its preamble expressly stating that it complied with them. Like SOLAS and IMDG, it regulates the carriage by vessels of dangerous cargo, including that in tank containers. It provides that specified dangerous cargoes, including isopentane, may be carried in tank containers and that if dangerous cargo is carried in a hold there must be a mechanical ventilation system. Particularly stringent provisions are made for highly inflammable liquids, including and without distinction, those carried in tank containers, and for the dangers of escape and ignition of flammable vapour in unventilated conditions (Article 13). It prescribes, by reference to an attached document called a “KTRP sheet” where particular types of cargo unit (i.e. packages and open and closed containers etc.) should be stowed on different types of ship.
The first question for the Judge was whether the ordinary restriction in MOPOG on the carriage of containers, including tank containers, containing dangerous cargo applied to the carriage of tank containers on container ships as well as to those carried on general cargo or passenger vessels. The answer turned on what is meant by open and closed containers as used in Appendix 1 to MOPOG and in the KTRP sheet.
Mr. Macdonald submitted that the intention and proper construction of MOPOG and the KTRP sheet were to exclude tank containers from the restriction when carried in container ships, because, as he maintained, the words “closed container” in Appendix 1 to MOPOG and in its use in the section of the KTRP sheet relating to container ships did not include tank containers. He compared the reference in the KTRP sheet to a “closed cargo container or tank container” in relation to, inter alia, general cargo ships and that to a “closed container” in relation to container ships. In support of his construction of the KTRP sheet he relied and continues to rely on the evidence of Mr Perfiliev, the NSC’s leading engineer technologist in its shipping management department, whose opinion to like effect on the matter the Judge did not accept.
Mr. Flaux and Mr Milligan took a common stand against Mr. Macdonald’s argument on construction of MOPOG and the KTRP, making a number of submissions, which the Judge accepted.
A fundamental shortcoming of Mr Macdonald’s submission on this point of construction is that, even if he were correct, it would only mean that the KTRP sheet made no provision for, and therefore did not permit, the carriage under deck of dangerous cargo in tank containers in container ships and, therefore, that it was not permitted in this case.
But, as the Judge ruled, such a distinction would, in any event, be contrary to the intent of MOPOG, which was to reproduce SOLAS and IMDG, the terms of each of which permitted of no such linguistic distinction and would have prohibited the stowage of the isopentane in the hold, as Mr Macdonald conceded. It would lead, improbably and inconsistently with the general thrust of Article 13 of MOPOG, to the conclusion that the Russian authorities deliberately excluded tank containers carried on container ships from the general stowage precautions otherwise applicable. On the evidence before the Judge, there is no sensible basis upon which it could be said that the carriage under deck of highly flammable liquid in tank containers is less dangerous on container ships than on other types of ships, especially where, as here, the holds are unventilated. The equipment of the vessel with cell guides to hold the containers secure, upon which Mr. Macdonald relied for this part of his submission, is no protection against the activation of pressure valves by heat or against the resultant accumulation of highly combustible vapour in the holds.
As to construction, the use of the term “closed cargo container or tank container” in the part of the KTRP sheet relating to, inter alia, general cargo ships necessarily allowed for other types of packaging in addition to containers on such vessels, whereas in the case of container ships it was only necessary to refer to containers. In addition, Appendix 1 to MOPOG contains a separate definition of “closed container” which is clearly capable of including tank containers. Finally, tank containers would not satisfy the definition of its opposite, “open container”, also defined in the Appendix. As the Judge said, DSR’s construction made “good sense and brings MOPOG clearly into line with IMDG, as intended and as one would expect”.
Mr Macdonald also attempted a connected argument of construction based on Kapitan Sakharov’s technical certificate, a computer generated document recording various technical data of the vessel as authorised and required by the Russian authorities. I say “a connected argument” because, as he conceded, the certificate should be construed in the same way as MOPOG. It, therefore, depended for its success on his submission that under MOPOG a tank container was not a “closed container”, a submission that I have rejected. The certificate prescribed where in the vessel cargoes of various classes in open and closed containers could be carried. Save in one respect, it made no separate reference to tank containers. The learned Judge held, in my view rightly, that the prescriptions in the certificate as to where closed containers of various sorts of cargo could and could not be stowed included tank containers. On that construction it did not permit the carriage of tank containers under deck on the Kapitan Sakharov save for those containing certain miscellaneous cargoes, which did not include isopentane.
The certificate, towards its end, did refer specifically to tank containers in the following standard provision applicable to various types of vessel:
“Transportation of specific hazardous cargo in tank containers, special liquid and solid bulk containers, and in rail containers on ferries is permitted if the cargo in question is indicated in Appendix 17 [which includes isopentane] or Section 8 of the Regulations on Transportation of Hazardous Cargoes by Sea”.
Mr Macdonald relied on the lack of assignment in that general provision of such dangerous cargo to any particular stowage space, and submitted that the certificate did not, therefore prohibit the carriage by the Kapitan Sakharov under deck of tank containers carrying it. In so submitting, he found comfort in Mr. Dudnikov’s evidence that he had read it as permitting the stowage under deck of any cargo listed in Appendix 17, provided it was in a tank container. Mr. Flaux submitted that this general provision deals only with whether the vessel may carry dangerous cargo in certain types of package, not where on the vessel they may be carried. It does not add to or qualify MOPOG or the KTRP sheet. It simply confirms that the Kapitan Sakharov, like other types of vessel, may in principle carry dangerous cargo in containers, but does not say where on the vessel they may be carried. That is governed by MOPOG and the body of the certificate, which is to be read in the light of MOPOG. I agree with the Judge, who held in favour of Mr. Flaux’s submission. The technical certificate did not qualify the general prohibition in MOPOG and the KTRP sheet from carrying tank containers of isopentane in an unventilated hold whatever the nature of the vessel.
Accordingly, I agree with the Judge that the stowage of the tank containers of isopentane under deck in the circumstances clearly contravened SOLAS , the IMDG and MOPOG and was not permitted by the technical certificate, as the Judge found. Even if there were room for another view on the question of construction of MOPOG and the technical certificate, there is Mr. Milligan’s further submission, which I accept, that it was a finding of fact as to the meaning of a foreign instrument. The Court may have greater latitude to interfere with a finding of fact on a question of foreign law where expert evidence as to it is lacking than with other findings of fact; see MCC Proceeds Inc. v. Bishopsgate Investment Trust PLC 4 November 1998, CA (unreported). However, there was, as I have mentioned, much to support DSR’s and CYL’s case on this issue in the clear purpose of MOPOG to conform with SOLAS and IMDG and, on the expert evidence, that it conformed with common-sense and good seamanship. NSC relied on, and maintains that the Judge should have given greater weight to, the evidence of Mr. Perfiliev of how he and his colleagues in the office understood MOPOG and the technical certificate. But he was an engineer, not a lawyer competent to give evidence as to the legal effect in Russia of those documents.
I conclude, therefore, that the Judge correctly found that the stowage of the isopentane below deck rendered the Kapitan Sakharov unseaworthy.
NSC was required under Article III, Rule 1, of the Hague Rules to exercise due diligence to make the vessel seaworthy. The Judge correctly took as the test whether it had shown that it, its servants, agents or independent contractors, had exercised all reasonable skill and care to ensure that the vessel was seaworthy at the commencement of its voyage, namely, reasonably fit to encounter the ordinary incidents of the voyage. He also correctly stated the test to be objective, namely to be measured by the standards of a reasonable shipowner, taking into account international standards and the particular circumstances of the problem in hand.
The Judge held that NSC was in breach of Article III, Rule 1, of the Hague Rules in failing to exercise due diligence to make the ship seaworthy in respect of the stowage of the isopentane below deck. In doing so, he said, rightly, that the true construction of MOPOG and the technical certificate was not on its own determinative of that issue. He found that the master and Mr. Dudnikov, when dealing with the stow, had consulted and genuinely misunderstood the effect of both those instruments. However, he said that when considering them they should have kept in mind the particular problem facing them and made a reasonable decision in the circumstances. He considered and accepted the main body of expert evidence in the case that the stowage of isopentane in an unventilated hold should have struck a prudent shipowner and/or master as obviously dangerous regardless of the precise wording of the Codes. He also had regard to acknowledgement of the master and Mr. Dudnikov in evidence of the potential risks of storing the isopentane below deck in a hold without mechanical ventilation. Although there was evidence that the tank containers were well (hermetically) sealed, he was of the view that allowance had to be made for the risk of leakage and its possible serious consequence if there was a source of ignition present.
The Judge accepted the evidence of Mr. Dudnikov that he had consulted the certificate and, in an important passage as to his and the master’s state of mind, continued, at pages 117-9 of the judgment:
” … He [Mr. Dudnikov] thought that it was all right to stow the isopentane under deck because of the provisions of the technical certificate, although both he and the master appreciated the potential risks. …
… the position may be summarised as follows. Mr. Dudnikov consulted the technical certificate from time to time and had formed the view (probably on an earlier occasion) that it was permissible to carry class 3 cargoes in tank containers under deck. He realised that there were risks and there was no ventilation, although he said that the access hatches could if necessary be opened. He stressed that they had a very good fire fighting system and that the voyages were very short. Moreover he checked the tank containers from time to time during loading. I see no reason to reject that evidence as untrue.
There was no stability reason why these tank containers should not have been stowed on deck. Although the tanks were supposed to be sealed, there was always the risk of leakage, any vapour would not be readily dispersed because of lack of ventilation and there was a risk of ignition, however unlikely it was to occur. Moreover, an explosion could have disastrous consequences. It also seems to me to have been reasonably foreseeable that if a fire occurred in the hold from some other source a flammable liquid like isopentane would be likely to add significantly to it in a way which would be likely to be much worse than if it was stowed on deck.
… I am unable to accept Mr. Macdonald’s submission that it was reasonable for the master or cargo officer to think that it was proper to load a class 3.1 cargo under deck. … The vessel was not reasonably fit to withstand the ordinary incidents of the voyage with it stowed under deck because it might itself catch fire or, if another fire broke out, it would be likely to exacerbate it. It follows that she was unseaworthy at the commencement of the voyage. Moreover the plaintiffs failed to exercise due diligence to make the vessel seaworthy in that respect because the master and cargo officer permitted the isopentane to be stowed under deck in circumstances in which, if they had exercised reasonable skill and care, they would not have done so. In all the circumstances I have reached the conclusion that the plaintiffs were in breach of Article III, rule 1 of the Hague Rules.”
Mr Macdonald warned of the danger of relying on hindsight to convert an understandable mistake into a lack of due diligence. He suggested that, whatever the true construction of MOPOG and the technical certificate, their meaning was not clear and was open to misunderstanding by a Russian shipowner and its seamen, citing e.g. Richardson v. London County Council  1 WLR 751, CA., per Parker LJ at 761. More precisely, he submitted that, as NSC’s and its seamen’s understanding of the instruments did not produce an absurd result, they were entitled to rely on it. As instances of imperfection not amounting to lack of due diligence or – in other contexts – negligence, he cited Union of India v. N.V. Reederiji Amsterdam  2 Ll.R. 223, HL, per Lords Reid Evershed and Devlin at 230-1, 232 and 235 respectively, and authorities on solicitors’ negligence, including Bell v. Strathairn & Blair (1954) 104 LJ 618, Ct. of Sess; and Simmons v. Pennington  1 WLR 183, CA, per Denning LJ at 186.
In support of his submission as to the reasonableness of the decision to stow isopentane under deck, Mr Macdonald referred to: the attention given by the master and Mr. Dudnikov to MOPOG and the technical certificate; the intrinsic safety of the tank containers in question; evidence as to regular checks on them; the fact, as he maintained, that there was no reason to foresee any source of ignition in the hold; the shortness of the voyage, the availability of some natural ventilation in the holds; the vessel’s good fire-fighting system; and evidence that the Russian Maritime Register had certified an identical sister ship of the Kapitan Sakharov to carry tank containers of class 3.1 cargoes under deck, even though she had no mechanical ventilation. He submitted, in summary, that, but for the explosion and fire on deck caused by DSR’s undeclared dangerous cargo, the isopentane would not have caught fire and exacerbated it, and there was no reason why anyone should have foreseen that initiating event.
Mr. Flaux submitted in reply that the SOLAS, IMDG and MOPOG codes and the technical certificate are not to be read as parts of a “complex mesh of legislation” or to have their meaning determined by minute legalistic and linguistic analysis, but as practical working guides for the use of seamen exercising ordinary nautical prudence. So read here, he submitted, it would not have been reasonable for NSC or the Kapitan Sakharov’s master or Mr. Dudnikov to have concluded that MOPOG or the technical certificate would have permitted the obviously imprudent and dangerous stowage of a highly flammable liquid like isopentane in an unventilated hold.. He added that, if and to the extent that MOPOG or the certificate left NSC or the master or Mr Dudnikov uncertain, prudence would have required them to consult SOLAS or IMDG, which would have put the matter beyond all possible doubt.
On the broader question, Mr. Flaux adopted the reasoning and conclusions of the Judge. In particular, he referred to his analysis of and reliance on the factual and expert evidence as to the obvious dangers, regardless of any misunderstanding of the technical certificate, in stowing under deck 8 containers containing, under pressure, a substance more inflammable than petrol and liable to escape and accumulate as highly inflammable vapour in a poorly ventilated hold. He submitted, in short, that, however genuine may have been the misunderstanding, it was not a reasonable construction and produced an absurd result.
Compliance or otherwise with codes like MOPOG is not necessarily determinative of the issue of due diligence. Depending on the facts of the case, a reasonable misconstruction or misunderstanding of such an instrument may not amount to want of due diligence. Here, though the Judge found that there had been a genuine misunderstanding of the document, it was coupled with what, on the evidence before him, he was entitled to find was plainly unreasonable conduct in stowing isopentane below deck. It was an obvious risk notwithstanding the claimed inherent safety of the tank containers since their hermetic sealing would not overcome the danger of the valves operating, true to their intention, in the event of their over-heating and thereby increasing the pressure on their contents so as to expel them as highly inflammable vapour.
As at least one of the expert witnesses said, nobody knew whether in fact any of the containers leaked; it was the risk that mattered – small maybe – but if it occurred in conjunction with a source of ignition, potentially catastrophic. The weight of the expert evidence was that these were factors and possibilities that should have made it obvious to shipowners and experienced seamen that such cargo should not be stowed in a confined space unless it was efficiently ventilated. And it was implicit in such evidence that it was also obvious that escape and accumulation of inflammable gases would be likely, not only to combust on contact with a source of ignition, but also to exacerbate an existing fire originating from another source. In my view, the Judge’s holding that NSC had not exercised due diligence in this respect is unassailable, both on the expert evidence and as a matter of common sense on the strength of his findings of primary fact.
NSC’s entitlement to an indemnity from DSR – Article IV, Rule 6
As I have already mentioned, Article III, Rule 1, of the Hague Rules requires a carrier before and at the beginning of a voyage to exercise due diligence to make the ship seaworthy. Article IV, Rule 6, of the Rules renders the shipper of inflammable, explosive or otherwise dangerous goods, who gives no notice of their nature and dangerous character, liable to the carrier “for all damages and expenses directly or indirectly arising out of or resulting from … [their] shipment”. The shipper is so liable irrespective of its knowledge of the dangerous nature of the goods; see Effort Shipping Co. Ltd. v. Linden Management SA (The Giannis NK)  AC 605, HL. But what if another effective cause of the loss is the carrier’s want of due diligence in providing an unseaworthy ship?
The Judge held that, as NSC’s want of due diligence in failing to render the vessel seaworthy was an effective, albeit not the only, cause of its loss of the ship and most of the cargo, it could not recover damages for, or an indemnity in respect of, that loss against DSR under Article IV, rule 6, or at common law. He applied The Fiona  2 Ll.R 506, CA; Canada Steamship Line Ltd. v. The King  AC 192, PC; and Smith v. South Wales Switchgear Co. Ltd.  1 WLR 165, HL, holding that the facts were indistinguishable from those in The Fiona. In consequence, he held that NSC could only recover against DSR for the loss caused by the initial explosion and fire. He said, at pages123-4 of the judgment:
” …the correct analysis on the facts of the instant case is as follows. There were two causes of the sinking, namely the initial explosion, for the direct and indirect consequences of which the shippers are in principle liable under Article IV, rule 6, and the unseaworthiness of the vessel, for which the plaintiffs are liable by reason of Article III rule 1. There is no distinction in principle between the cause of the explosion in The Fiona and the cause of the sinking in the instant case. In The Fiona the explosion was caused by the unseaworthiness and (at least indirectly) by the shipment of dangerous cargo. Here the sinking (as opposed to the explosion) was caused by the unseaworthiness and (at least indirectly) by the shipment of dangerous cargo. Since the Court of Appeal held that Article IV rule 6 could not be construed as giving an indemnity to the shipowners in respect of the consequence of the explosion in The Fiona, it follows that it cannot be construed as giving an indemnity to the plaintiffs in respect of the consequence of the sinking here. It makes no difference that it was held on the facts of The Fiona that the dominant cause of the explosion was unseaworthiness. It is sufficient if an effective or proximate cause of the relevant loss is unseaworthiness.”
The Judge held that that outcome was the same at common law. He said, at page 125:
“… the position at common law is as follows, assuming for present purposes that the shippers were in breach of a common law duty not to ship dangerous cargo. If (as here) there were two effective causes of the relevant loss, which in this context was the sinking, one of which was the plaintiffs’ breach of Article III rule 1 and the other of which was a breach of duty at common Law on the part of the shippers, the plaintiffs’ claim fails. It fails because, just as the plaintiffs can say that they are entitled to recover damages for the shippers’ breach of their duty at common law, so the shippers can say that they are entitled to recover by reason of the breach of Article III rule 1. Both claims would fail, as it were, for circuity of action. I would add in passing that I do not think that this is a situation in which the plaintiffs’ claim can properly be said to have failed by reason of a break in the chain of causation, although the result is the same.”
Mr Macdonald submitted that the Judge should have held DSR liable to NSC under Article IV, Rule 6, and at common law for the total loss of the vessel and its cargo, and the consequences of such loss, notwithstanding his findings as to unseaworthiness and lack of due diligence in respect of the stowage of the isopentane. He sought to distinguish The Fiona on the grounds that it concerned concurrent causes of the disaster and all its consequences whereas this case does not, and that the dominant cause there was the shipowner’s fault and the undeclared cargo only contributory. Here, on the Judge’s finding, DSR was solely responsible for the initial explosion and resultant fire on deck and, without that, the unseaworthiness represented by the stowage of the isopentane below deck would have been no threat to the vessel. Accordingly, he submitted, DSR’s original shipment of the undeclared dangerous cargo continued to be an indirect cause of the whole loss entitling NSC to recover in full, notwithstanding the later contribution caused by unseaworthiness for which it was responsible.
Mr. Flaux submitted that this distinction is bad, both factually for the reasons given by the Judge in the passage that I have just cited, and because the rationale of the judgments of Hirst and Hoffmann LJJ in The Fiona is not to confine it to original concurrent causes but to apply it wherever the shipowner’s want or due diligence or negligence is a cause of the damage.
Hirst LJ said, at 519:
” Mr Boyd’s … argument, which suggests that a shipper who places dangerous goods on board without the consent of the shipper places himself outside the pale of art. III, r. 1, I find wholly unacceptable. Far from that being a proper interpretation of art. IV, r. 6, it seem to me that art. IV, r. 6 proceeds on the assumption that dangerous goods have been loaded without the shipowner’s consent, and then lays down a code of rules for dealing with that eventuality, which do not touch on art. III, r. 1.
… I hold that art. III, r. 1 is the overriding article, and that, seeing that the shipowners were in breach of their obligations under art. III, r. 1 to exercise due diligenceto make the ship seaworthy, they are not entitled to invoke the indemnity under art. VI, r. 6.”
And Hoffmann LJ said, 521-2:
” BP rely on the well established rule that exemption and indemnity clauses are, in the absence of a contrary intent, not construed as applying to loss cause by the negligence of the party who invokes them … Article IV, r. 6 is in my judgment an indemnity clause to which this principle of construction applies. It is not framed simply as a contractual duty on the part of the shipper to disclose the nature and character of dangerous goods. …
In this case the owner’s negligence was only one of the causes of the explosion. Another cause was the shipment of the dangerous fuel oil. But Walters v. Whessoe Ltd and Shell Ltd  6 BLR 23 shows that the principle also applies when the negligence of the party relying on the indemnity is one of the causes of the damage.”
In my view, the Judge was correct for the reasons he gave. The essential question was whether NSC’s lack of due diligence in the stowage of the isopentane – breach of contract – causing unseaworthiness in the vessel was an effective cause of the fire in hold 3 and her loss. The Judge held that it was and that, therefore, NSC was not entitled to rely on Article IV, Rule 6, to seek an indemnity against DSR in respect of loss caused by that breach. It is immaterial that there was another cause or as to which of them was the dominant cause or their respective timings. The principle is the same as that applicable to a breach of Article III, Rule 1, resulting in damage to or loss of cargo where the shipowner pleads an excepted peril under Article IV, Rule 2, where it is for the shipowner to establish that the whole or a specific part of the damage or loss was caused by the excepted peril. See e.g. The Torenia  2 Ll.R 210, per Hobhouse J at 219. As the House of Lords held in the pre Hague Rules case of Smith, Hogg & Co. Ltd v. Black Sea & Baltic General Insurance Co. Ltd.  AC 997, the obligation to furnish a seaworthy ship is the “fundamental obligation” or, now, as Lord Somervell in Maxine Footwear Co. Ltd. V. Canadian Merchant Marine Ltd.  AC 589, at 602-3, and Hirst LJ in The Fiona, at 519, put it, Article III, Rule 1, is the “overriding” obligation.
As to Mr. Macdonald’s submission that the general rule does not apply where the co-operating causes are concurrent, as causes they are almost never truly concurrent though they may be in their consequences. The unseaworthiness, where it is a cooperating cause of loss, will in all or most cases precede other cooperating causes, since it must exist at the commencement of the voyage. As Lord Wright put it in Monarch Steamship Co. Ltd. v. Karlshamns Oljefabriker (A/B)  AC 196, HL, at 226-7:
“From one point of view, unseaworthiness must generally, perhaps always, in a sense be a ‘remote’ cause. To satisfy the definition of unseaworthiness it must exist at the commencement of the voyage. It must, however, still be in effective operation at the time of the casualty if it is to be a cause of the casualty, and from its verynature it must always, or almost always, operate by means of and along with the specific and immediate peril. That is because the essence of unseaworthiness as a cause of loss or damage is that the unseaworthy ship is unfit to meet the peril. In other words, the vessel would not have suffered the loss or injury if she had been seaworthy.
…unseaworthiness as a cause cannot from its very nature operate by itself; it needs the ‘peril’ in order to evince that the vessel, or some part or quality of it, is less fit than it should have been and would been if it had been seaworthy, and hence casualty ensues. A fitter ship would have passed through the peril unscathed. In this way unseaworthiness is a decisive cause or as it is called a dominant cause. If it is not expressly excepted, the shipowner cannot excuse himself by any specific exception for a loss for which he is himself responsible, because he is responsible for unseaworthiness.”.
The isopentane unseaworthiness as a novus actus Interveniens
This issue would only have arisen for decision in the double event of our upholding the Judge’s finding that DSR is liable for the initial explosion and fire and if The Fiona had been distinguishable so as to render DSR liable under that rule for the loss of the ship and all its cargo. In that event DSR would have contended that the total loss of the vessel is still the responsibility of NSC because its wrongful act in stowing the isopentane under deck was a novus actus, so entitling it to recover the whole of its loss from NSC.
Mr. Flaux submitted that any explosion or fire on deck for which DSR might be responsible did not of themselves cause the vessel to sink. The true and intervening cause of that was the plaintiff’s stowage of isopentane below deck in hold 3 in breach of its duty under Article III, Rule 1 of the Hague Rules to exercise due diligence to make the vesselseaworthy. He argued that the significance to causation of such breach is that it is a finding of a wrongful act vis-a-vis DSR, including an awareness or imputed awareness of its breach of MOPOG and duty of due diligence, and also of a reasonable foreseeability that it would exacerbate any fire and/or make its consequences more serious. Such intervening conduct, especially by reason of its element of breach of duty, should, he submitted, relieve DSR from liability for the damage and losses caused by the isopentane fire. He relied upon The Sivand  2 Ll.R. 97, in which this Court held that the defence is available where the intervening act is the effective – in effect the exclusive – cause of damage.
Mr Macdonald essentially repeated his submissions on the Article IV, Rule 6, issue, namely that, but for the initial explosion and fire on deck the isopentane would never have become involved in the fire or would never have had any fire to fuel. As there was such an initial explosion and fire, the isopentane did become involved and both together caused the ultimate loss of the vessel and most of its cargo. On that basis, he submitted, the Judge correctly held that the chain of causation would have been unbroken.
As Evans LJ said in The Sivand, at 104 and 105, whether an intervening act is truly the sole effective or independent cause is a question of fact to be resolved on a common-sense basis to which issues of foreseeability and fault may be, but are not necessarily relevant. In my view, the Judge correctly held that if the question had arisen for decision NSC’s claim against DSR would not have failed by reason of a break in the chain of causation.
NSC’s “non-delegable” duty of due diligence in respect of DSR’s undeclared and dangerous cargo
CYL appeal against the Judge’s finding that NSC exercised due diligence in connection with DSR’s shipment of the undeclared dangerous cargo on deck and that, therefore, NSC was responsible only for that part of CYL’s loss caused by the isopentane fire.
The Judge held that CYL’s counterclaim failed in relation to the damage and loss caused by the initial explosion and fire because, although the undeclared dangerous cargo of DSR on deck had made the vessel unseaworthy,
“there … [was] no suggestion that by the exercise of reasonable care and skill they could have identified the dangerous cargo concerned.”
Mr. Milligan submitted that the Judge should have found that NSC had not exercised due diligence in relation to DSR’s undeclared dangerous cargo since it had a non-delegable duty to exercise such due diligence in all the stages of progress of the cargo to shipment. He argued that it was not enough for NSC to show that it could not itself have reasonably known what was in the offending container; it had to establish that due diligence was exercised by all concerned in the manufacture, packing, transport and storage of the cargo before shipment. He said that NSC was thus liable to CYL, even if not on notice of the undeclared and dangerous cargo, for the acts of DSR or of some other third party previously concerned with the cargo or DSR’s container, and that it had a corresponding right of indemnity against DSR as contemplated by Article IV, Rule 2, of the Hague Rules.
The sole authority upon which Mr Milligan relied for that ambitious proposition was Riverstone Meat Co. Pty Ltd. v. Lancashire Shipping Co. Ltd.  AC 807, HL, which concerned a claim by a shipper for damage to cargo as a result of unseaworthiness of the carrier’s vessel caused by negligence of a firm of ship repairers instructed by the carrier. The House held that the carrier was liable since it could not discharge its obligation to prove due diligence by delegating its responsibility for the seaworthiness of the vehicle to an independent contractor. Their Lordships relied on a number of authorities, all concerned with a carrier’s responsibility under the predecessor of the present Article III, Rule 1, for repairs to its ship done by its employees or independent contractors. The case did not concern – nor did any of the authorities upon which their Lordships relied – unseaworthiness by reason of stowage of dangerous cargo of which neither the carrier nor its servants or agents was on notice. Mr Milligan was unable to cite any such case and was frank enough to describe his submission as “at the frontier of the due diligence argument”. He referred the Court to a number of passages in their Lordships’ speeches, all to similar effect and of which the following of Lord Keith of Avonholm, at 871, is representative:
“We are not faced with a question in the realm of tort, or negligence. The obligation is a statutory contractual obligation. The novelty, if there is one, is that the statutory obligation is expressed in terms of an obligation to exercise due diligence etc.. There is nothing … extravagant in saying that this is an inescapable personal obligation. The carrier cannot claim to have shed his obligation to exercise due diligence to make his ship seaworthy by selecting a firm of competent ship repairers to make his ship seaworthy. Their failure to use due diligence to do so is his failure. The question, as I see it, is not one of vicarious responsibility at all. It is a question of statutory obligation. Perform it as you please. The performance is the carrier’s performance. … I should … add that when I refer to repairers I include sub-contractors brought on to the ship by the repairers to enable them to perform the work which they contracted to do.”
Mr. Macdonald, whose submissions Mr Flaux adopted, had two main arguments in reply. The first was that the Judge wrongly found or assumed that DSR’s undeclared dangerous cargo on deck made the vessel unseaworthy. He accepted that bad stowage which endangers a ship renders it unseaworthy. But he submitted that bad stowage was not the cause of the danger here, but the presence in an otherwise good stow of concealed, dangerous cargo. The second was that if, contrary to that submission, the vessel was unseaworthy, the Judge correctly found that it was not as a result of any lack of due diligence by NSC; DSR or its agents, not NSC, had stuffed the containers; NSC was responsible only for its role as a carrier, not for that of the shipper.
Bad stowage which endangers a ship may render it unseaworthy. Ingram & Royle Ltd. v. Services Maritimes Du Treport  1 KB 538, per Scrutton J at 543. Bad stowage endangering a ship may take the form of stowing an otherwise harmless cargo in a place which renders it dangerous, say, because of its weight and the effect of that on the stability of the ship or because of its nature which may be adversely affected by the place of stowage, or simply because it is dangerous wherever and however it is stowed. Uneaworthiness is a physical state. The shipper’s knowledge or ignorance of characteristics of the cargo which make it dangerous if stowed in the wrong place or anywhere on its ship cannot determine that state, as suggested by Mr. Macdonald. But it is material to the question whether the carrier has exercised due diligence and, therefore, of his responsibility for the unseaworthiness. Thus, in Elder Dempster & Co, Ltd. v. Paterson Zochonis & Co. Ltd  AC 522 , HL, Viscount Finlay, at 535, cited with approval the following words of Lord Blackburn in Steel v. State Line Steamship Co. (1877) 3 App Cas, 72 and 86:
“… where there is a contract to carry goods in a ship …there is a duty on the part of the person who furnishes or supplies that ship … unless something be stipulated which should prevent it, that the ship shall be fit for its purpose. That is generally expressed by saying that it shall be seaworthy; and I think also in marine contracts, contracts for sea carriage, that is what is properly called a ‘warranty’ not merely that they do their best to make the ship fit, but that the ship should really be fit.”
And Lord Sumner, in the same case, at 561 said:
“Unseaworthiness is a quality of the ship, however arising … Bad stowage, which endangers the safety of the ship, may amount to unseaworthiness.”
An apt illustration is Ingram & Royle Ltd. v. Services Maritimes Du Treport, in which Scrutton J held, at 543-5, that the careless stowage and inadequate packaging of sodium saturated with petrol, resulting in the sodium exploding on contact with water, rendered the ship unseaworthy, notwithstanding that the crew were unaware of that dangerous characteristic of sodium or of the aggravating feature that it was saturated with petrol. This and earlier decisions are instances of the former absolute duty at common law to provide a seaworthy ship in the absence of contractual exceptions. However, the distinction between such duty and that since imposed by the Hague Rules, as qualified by the due diligence rule and the specific exceptions set out in Article IV, Rule 2, “may be a fine one”, as Lord Keith observed in Riverstone Meat Co v. Lancashire Shipping Co., at 871.
The Judge, on my reading of his judgment, clearly found it beyond argument that the vessel was unseaworthy because of the dangerous and undeclared cargo on deck. On the evidence before him and on the authorities to which I have referred, I consider that he was right to do so.
As to the separate question of due diligence, which it is for the carrier to prove, Article III, Rule 1 provides:
“The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to – (a) make the ship seaworthy
(b) properly man, equip and supply the ship
(c) make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.”
Lord Keith, in Riverstone Meat, at 871, described the duty as “an inescapable personal obligation”. However, it is plain from the context of the case – disrepair of a ship – and of his reasoning in the passage from his speech I have set out, that he did not extend it to a responsibility for the conduct of manufacturers or exporters, or of shippers in their stuffing of containers and description of their contents; see also Maxine Footwear Co. Ltd. v. Canadian Government Merchant Marine Ltd., per Lord Somervell at 602. In my view, there is no warrant in the facts of those cases or the rationes of them for extending a carrier’s duty of due diligence as to the structure and stowage of its ship to a physical verification of the declared contents of containers or other packaging in which cargo is shipped, unless put on notice to do so. As Mr. Macdonald observed, in the case of shipper-packed containers – the norm nowadays – the containers are, in any event, closed with a customs seal and are not capable of internal examination by the carrier or his agents.
In addition, to impose such a responsibility under Article III, Rule 1, on a carrier for the shipment of undeclared dangerous cargo in a sealed container would run counter to the scheme of Article IV, Rule 2 which excepts him in general terms from liability in a number of respects, including:
“(b) Fire, unless caused by the actual fault or privity of the carrier;
(p) Latent defects not discoverable by due diligence;
(q) Any other cause arising without the actual fault or privity of carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.”
Mr Milligan sought to overcome that difficulty by submitting that the Article IV, Rule 2, exceptions are concerned with the carrier’s responsibility for the careful handling of cargo under Article III, Rule 2, not its obligation to provide a seaworthy ship under Article III, Rule 1. His argument, therefore, was that where the issue is one of due diligence in providing a seaworthy ship, as distinct from one of the careful handling of cargo, the carrier has an absolute duty rendering it responsible for the misconduct of shippers and others over whom it has no control and whether or not it is on notice of such misconduct. The difficulty in that submission, as he acknowledged, involves an open ended extension of Riverstone Meat, itself an unseaworthiness case, the ratio of which was that a carrier cannot absolve itself from its personal duty of due diligence by delegating its responsibility as a carrier to an independent contractor. The shipper’s and the carrier’s respective orbits of responsibility are normally quite distinct and neither is agent of the other outside its own orbit; cf per Lord Radcliffe in Riverstone Meat, at 863. Those responsible for the manufacture, stuffing and shipping of containers are plainly not carrying out any part of the carrier’s function for which he should be held responsible. I can find nothing in the Hague Rules or at Common law to make a carrier responsible for the unseaworthiness of its vessel resulting from a shipper’s misconduct of which it, the carrier, has not been put on notice. Nor can I see any reason in principle or logic why a carrier should be exposed to such an infinite liability in time, place and people. It is not liable for latent defects in a vessel before it acquired it; see Riverstone Meat, per Lord Radcliffe at 867 and cf. W. Angliss & Co. (Australia) Pty v. Peninsular & Oriental Steam Navigation Co. (1927] 2 KB 456. So why, as a matter of unseaworthiness, should it be liable for latent defects in cargo shipped on it?
On the facts found by the Judge – a shipper-packed and sealed container containing undeclared dangerous cargo – he was clearly justified in finding that NSC could not, with the exercise of reasonable skill and care have detected the presence of that cargo. Accordingly, I am of the view that he was justified in holding that NSC had exercised due diligence in this respect.
For all those reasons, I would: 1) dismiss NSC’s appeal against the Judge’s finding that it had failed to exercise due diligence to make the ship seaworthy in respect of the stowage of isopentane; 2) dismiss DSR’s appeal against the Judge’s finding that the initial explosion and fire occurred in one of its containers on the forepart of hatch 3; and 3) dismiss CYL’s appeal against the Judge’s finding that NSC exercised due diligence in respect of DSR’s shipment of undeclared and dangerous cargo.
Tradigrain SA & Ors v King Diamond Marine Ltd “The Spiros C”
 EWCA Civ 217 Rix LJ
Is there an implied term in every bill of lading, in the absence of contrary provision, that a shipper will discharge the goods and will do so in a reasonable time?
59. The sub-charter’s laytime and demurrage regime is set out principally in the following clauses:
“5. Cargo shall be loaded, spout-trimmed and/or stowed at the expense and risk of Shippers/Charterers at the average rate of 2,250 metric tons per weather working day of 24 consecutive hours or prorata, Saturdays, Sundays and Holidays excepted, even if used. See cl no 8.
“Cargo shall be discharged at the expense and risk of Receivers/Charterers at the average rate of See clause no 49.”
(Clause 8 contains a detailed laytime clause which I need not set out, not least because it says “For discharge, see clause 49.”)
“9. Demurrage is payable by Charterers at the rate of USD 4,200…per day of 24 consecutive hours or pro rata. Owners shall pay to Charterers despatch money for working laytime saved in loading/discharging at the rate of USD 2,100…per day of 24 consecutive hours or pro rata.
“49. Discharging terms:
(a) Vessel to be discharged at the average rate of 2,000 metric tons per weather working day of 24 consecutive hours, Saturday noon, Sundays and Holidays excepted, even if used.
(b) Time from Saturday noon or from 5 pm on days preceding a Holiday until Monday 8 am or next working day at 8 am not to count even if used, unless vessel already on demurrage.
(c) Notice of Readiness to be tendered by cable only during official working hours and laytime shall start to count at 08:00 hours next Working day following presentation of Notice of Readiness, whether in berth or not, whether in port or not, whether in free pratique or not, whether custom cleared or not.”
60. In The Miramar  AC 676 the House of Lords had to consider whether the incorporation of a charterparty in a bill of lading was effective to incorporate laytime and discharging provisions which made demurrage payable by the “Charterer”. If the incorporation of such clauses was to be effective, then the word “Charterer” would have to be manipulated so as to read “bill of lading holder”. In declining to manipulate this language and thus to give effect to the incorporation of such provisions, Lord Diplock said this (at 685):
“My Lords, I venture to assert that no business man who had not taken leave of his senses would intentionally enter into a contract which exposed him to a potential liability of this kind; and this, in itself, I find to be an overwhelming reason for not indulging in verbal manipulation of the actual contractual words used in the charterparty so as to give to them this effect when they are treated as incorporated in the bill of lading. I may add that to do so would raise a whole host of questions as to how the liability is to operate as between different consignees of different parts of the cargo, to which questions no attempt has been made to vouchsafe any answer, let alone a plausible one. To give some examples: is any personal liability for demurrage incurred by consignees of cargo which has been discharged before the expiry of laytime? If the discharge of a consignee’s cargo takes place after the vessel is on demurrage is his liability to pay demurrage limited to the amount of demurrage accrued after the expiry of laytime and up to the time when the discharge of his part of the cargo is complete? Is each consignee liable for all demurrage accrued while his cargo remains on board? Is the liability of each consignee to pay demurrage several? If the shipowner chooses to sue one consignee of part of the cargo for the full amount of demurrage has that consignee any right of contribution against consignees of other parts of the cargo and, if so, against which of them and upon what basis?”
61. Although the laytime and demurrage provisions of that charterparty and the sub-charter in the present case are not identical, enough of what Lord Diplock there said is applicable to make it sensible to ask whether the shippers in this case can as reasonable businessmen be thought of as intending to enter into obligations to discharge in accordance with the sub-charter terms in circumstances where it could be contemplated that they, as distinct from their receivers, would have no control over such discharge, and where the sub-charter itself refers to the charterer, or the receiver/charterer, as being responsible, but not the shipper (see clauses 5 and 9). It was for such reasons that Mr Justice Colman held that such terms were not to be incorporated into the bill of lading. I do not dissent from that view, but an alternative possibility might well be that the sub-charter’s laytime and demurrage code is incorporated into the bill of lading, with the effect that shippers (and the sub-charterer Tradigrain Shipping) are to be responsible for laytime and demurrage in loading and receivers (and the sub-charterer) are to be responsible accordingly in discharge. In that case, the only manipulation necessary would be for “Charterers” in clause 9 to be read as meaning “Charterers and Shippers or Receivers as the case may be”, which would perhaps not be difficult.
62. However, it seems to me to be unnecessary to choose between these alternatives. In any event, the shippers would not be responsible under the terms of the incorporated sub-charter for demurrage at discharge.
63. Nevertheless, Mr Justice Colman decided that a term should be implied that the shippers would discharge the vessel in a reasonable time. I agree that if a term is to be implied making the shippers responsible for discharge, then it would also have to be implied that such discharge should be performed in a reasonable time. But the question is whether the responsibility of discharging the wheat and corn parcels is to be imposed on the respective shipper.
64. In one sense it might be said in the abstract that a shipper ought to undertake to discharge a ship which he has loaded. In another sense, it might be thought to be unreasonable for him to undertake a liability over which he has no control, and to be unnecessary if the correct implication is that the receiver will discharge. It is classic law that no term should be implied which is not both reasonable and necessary. If therefore any term is to be implied, then it might seem preferable to formulate it in terms that the receiver would discharge in a reasonable time; alternatively that the ship would be discharged in a reasonable time by the holder of the bill of lading, be he shipper or receiver.
65. In this connection it is worth considering what other remedies a shipowner has in relation to discharge. Where at any rate the ship is under charter, the shipowner’s principal remedy is under his charterparty. Such a charterparty, where it is a voyage charter, will be able to make detailed provisions for laytime and the calculation and payment of demurrage both at loading and discharge, and such provisions are commonly incorporated into bills of lading – even if The Miramar has now indicated limits to the incorporation of inappropriately drafted clauses. Even where the bill of lading does not incorporate the voyage charter demurrage provisions, the shipowner will still have an equivalent remedy to enforce payment of demurrage from the bill of lading holder in the form of a lien on the cargo for demurrage: The Miramar at first instance and in the court of appeal (the point was no longer live in the House of Lords) demonstrates that the voyage charter’s lien clause will be incorporated even where its demurrage provisions are not, see at  2 Lloyd’s Rep 319 at 324/5 per Mr Justice Mustill and  1 Lloyd’s Rep 142 at 144 per Sir John Donaldson MR. Mr Justice Mustill said (at 324) that
“It has been a feature of shipping practice for many years that the shipowner looks primarily to his lien in case of dispute, and no doubt has ever been raised about the acceptability of a situation where the lien is more extensive as against consignees than their own direct personal liability…”
Where, on the other hand, as in the present case the voyage charter is a sub-charter, the shipowner has no charter claim for demurrage, and therefore no lien for demurrage under the incorporated lien clause, unless he has a direct claim for demurrage under the incorporated provisions of his bill of lading. Nevertheless, he has chosen to trust to his time charterer under his time charter, under which the expenses of discharge will be imposed on his time charterer and he will be compensated for delay at the discharge port in the form of daily hire.
66. In these circumstances, where the risk of delay at discharge is typically provided for either under specific fixed laytime and demurrage provisions or in the form of time charter hire, the imprecision of a demurrage term based on a reasonable time seems to have an old-fashioned ring. SCRUTTON comments (at footnote 57 on page 317) that it is now “extremely rare” for (voyage) charters not to make specific provision as to the time for loading and unloading. The reason is that where laytime is fixed, the risk of delay from any cause (typically congestion) is on the charterer/consignee, absent agreed exceptions. Where, however, the laytime is not fixed but the test is that of a reasonable time, the risk of delay, other than that caused by the charterer/consignee is, broadly speaking, on the shipowner. That is why provisions for a fixed laytime have almost entirely superseded the former regime. It follows that where a liability for demurrage has to be found by way of implication, although there is nothing whatsoever strange in principle with the implication of a reasonable time, for that is the classic implication where the time for performance is left at large, it results in a situation which is at odds both with modern shipping practice and also with the demurrage calculations which will otherwise be made at the discharge port under the voyage charter.
67. Mr Meeson nevertheless submits, and it is true, that an obligation to discharge within a reasonable time avoids the most perverse of the effects to which Lord Diplock drew attention in The Miramar. Moreover Mr Meeson points out that in the ordinary case the liability for discharge will in any event fall on the receiver, but still contends that that is no reason why there should not also be a residual liability on the shipper, who remains liable even after transfer of the bill of lading. The shipper, he further submits, will have his remedy against the receiver, his buyer, under his sale contract.
68. Mr Meeson also complains that part at least of the reason for the delay in discharge of the vessel in the present case was that there was (at any rate for a time) no receiver for the wheat parcel. The evidence concerning such matters is not before the court. The fact is, however, that the Congenbill form contemplates that there will be a consignee. Moreover, the implication of the term found by Mr Justice Colman was derived as a matter of general principle, and was not ad casum. Nor is the owner’s case based on an allegation that Tradigrain was the receiver, or still the holder of the wheat bill of lading at any relevant time. On the contrary, Mr Meeson was at pains to emphasise that under the terms of the Carriage of Goods by Sea Act 1992 a shipper remains liable for his obligations even after transfer of the bill: see section 3(3). Thus it is that the owner seeks the same implied term against both shippers, Tradigrain and Finagrain, irrespective of particular circumstances relating to any dealing with the bills of lading or difficulties at the discharging port.
69. The real basis of Mr Justice Colman’s implied term was the authority of Fowler v. Knoop and SCRUTTON. I have cited the relevant passage of his judgment above.
70. Mr Males submits, however, that Fowler v. Knoop is not authority for Mr Justice Colman’s holding, and that the entry in SCRUTTON is in error, even though it originates in an edition for which Lord Justice Scrutton had responsibility.
71. In Fowler v. Knoop the plaintiff owner sued the consignee for demurrage at the discharging port. There is nothing in the facts to suggest that the terms of a charterparty were incorporated in the bill of lading, other than as to freight (“they paying freight for the goods as per charterparty”). Nevertheless the consignee sought to derive advantage from the charterparty provision that the cargo was to be discharged “as fast as the custom of the port will allow”: he submitted that this superseded the implied contract in the bill of lading to deliver the cargo within a reasonable time. It appears that it was common ground that the bill of lading contract contained such an implied obligation. The jury had found, however, that there was no custom of the port. The court of appeal therefore held that it need not decide on the consignee’s contention, since there was nothing in the charterparty (“even under the charterparty, reasonable despatch should be used” (at 304)) to vary the implied bill of lading contract. It may be said therefore that the case is an authority for nothing, since the only point in dispute was made redundant by the jury’s finding. At most the case demonstrates that the court was prepared to sanction the common ground position that the bill of lading contained an implied contract to take delivery of the cargo within a reasonable time. Since, however, the defendant was a consignee, not a shipper, it is not clear that the implied contract would embrace the shipper. It is true that the implied contract was expressed in the passive, without reference to party (“The implied contract is that the ship shall be discharged within a reasonable time…” , at 304), but the position remains that the effect of this implication on a shipper never had to be considered.
72. Nevertheless, the case of Fowler v. Knoop led SCRUTTON to say, as it has done from the time when it was edited by Lord Justice Scrutton down to the present day, that “There is contained in every bill of lading an implied contract by the consignor to unload the goods in a reasonable time” (emphasis added). Apart from Fowler v. Knoop two other authorities are mentioned at footnote 73 on page 319 of the current edition (20th Edition, 1996) in support of that proposition. The first, The Clan Macdonald (1883) 8 PD 178, is principally a case on section 67 of the Merchant Shipping Amendment Act, 1862, and to that extent has little to do with the issue under discussion. However, at page 184 and again at page 185 Sir James Hannen remarked that it was the duty of the consignees to take delivery of their goods within a reasonable time after they were on notice that they could receive them. That again takes the matter no further, especially as under the express terms of the bills of lading (see at 179) the obligation of discharge was upon the consignee. The third of the authorities cited at footnote 73 is Tillett v. Cwm Avon (1886) 2 TLR 675. That was again a case involving consignees. As in Fowler v. Knoop, none of the provisions of a charterparty had been incorporated save as to freight. The shipowner contended that the consignees were under an implied obligation to discharge within a reasonable time; the consignees did not dispute that proposition, but denied that there had been any delay. The court disagreed, and Manisty J with whom Hawkins J agreed said that there was a “general principle of law that where a person undertook to discharge a vessel he must do so within a reasonable time”. Again, nothing was in dispute but the facts. The nature of these cases support the concept that, where there is an obligation to discharge, there is an obligation to discharge within a reasonable time. The question remains as to who has (implicitly) the obligation to discharge. Mr Justice Colman spoke (at 100) of “shippers or receivers”, but that may be said to leave the question unanswered. Of course, if the shipper is also the receiver, so that the bill of lading is never transferred, then the obligation will fall on him in any event.
73. Mr Meeson did not disagree that there was little or nothing in those three authorities to support the implied term spoken to by SCRUTTON, but submitted that the term was nevertheless well founded. He sought to support it on the basis of a further authority in the form of Cawthron v. Trickett (1864) 15 CB (NS) 754, since that case concerned a shipper: but the decision turned on an express term in the bill of lading that “the vessel to take her regular turn in unloading”, and the court not surprisingly read that as a “contract on the consignor’s part that the ship shall take her regular turn in unloading” (per Erle CJ at 758).
74. Thus far I would conclude that an implied term binding the shipper is not impossible, but that there is no authority (other than SCRUTTON’s) to support it. I would agree with Mr Justice Colman that there is nothing in The Miramar that deals directly with the question of such an implied term. But equally there is no support there for the suggestion that such an implied term underlies a failed attempt to incorporate a charterparty’s demurrage provisions into a bill of lading; and the discussion focuses generally on the unreasonable results that may occur if a party is held responsible for activities at a port where it has no business.
75. I would be inclined to say that the most that could be implied into a bill of lading which was otherwise silent as to the matter of discharge is that the holder of the bill of lading who presents the bill of lading in order to obtain delivery of the cargo is responsible, irrespective of whether that is the shipper or receiver: see, for instance, Blackburn J in Ford v. Cotesworth (1868) LR 4 QB 127 at 137, a case which, although not mentioned in the judgment in Fowler v. Knoop, was cited to the court (see at 303). But that is not the implied term for which Mr Meeson has contended.
76. Be that as it may, and even if SCRUTTON’s implied term does bind the shipper, its implication has to be capable of surviving the incorporation of the sub-charter terms. Mr Justice Colman held that the sub-charter’s laytime and demurrage provisions were not effectively incorporated, and that that left the implied term in place. I do not see, however, how clause 5, with its division of responsibility for loading and discharging the vessel between shipper and receiver respectively, can be used as a reason for refusing to incorporate the sub-charter’s discharging provisions into the bill of lading and yet disregarded for the purpose of implying a term that the shipper, as distinct from the receiver, is to be liable for discharge of the vessel. There is no discussion in the judgment below of the effect of the sub-charter terms on the implication in the bill of lading of a term relating to discharge by the shipper.
77. Mr Meeson submitted that it was illegitimate to look at the non-incorporated terms of the sub-charter in order to construe the bill of lading. He says that such terms are res inter alios acta and irrelevant. He cited no authority for that proposition.
78. In my judgment his submission is not well founded. The first rule relating to the incorporation of one document’s terms into another document is to construe the incorporating clause in order to decide on the width of the incorporation. Thus in the shipping context it is now well established that a general incorporation of a charterparty’s terms into a bill of lading is only apt to incorporate terms relating to the shipment, carriage and discharge of the cargo, and not other terms, of which (in the absence of express provision) a famous example is the arbitration clause: see T W Thomas & Co Ltd v. Portsea Steamship Co Ltd  AC 1. A second rule, however, is to read the incorporated wording into the host document in extenso to see if, in that setting, some parts of the incorporated wording nevertheless have to be rejected as inconsistent or insensible when read in their new context: see eg Porteus v. Watney (1878) 3 QBD 534 at 542, per Brett LJ:
“But then there is another rule which applies, which is, that if taking all the conditions to be in the bill of lading, some of them are entirely and absolutely insensible and inapplicable, they must be struck out as insensible; not because they are not introduced, but because being introduced they are impossible of application.”
79. Sometimes the two rules have been read together, as in Hamilton & Co v. Mackie & Sons (1889) 5 TLR 667, but more recently they have been recognised as distinct approaches, see Skips A/S Nordheim v. Syrian Petroleum Co (The Varenna)  1 QB 599. In determining that second question, the court has to have regard to the wording of both documents, to the extent that the charterparty is prima facie incorporated. In such circumstances if a demurrage regime which would put the responsibility of discharging upon a shipper has to be first considered and then rejected, as it was below, inter alia because of a clause (clause 5) which would place such responsibility only upon a receiver or charterer and not upon a shipper, I do not see what room there remains for implying a clause which would make a shipper liable for discharge. The discharge regime of the incorporated sub-charter, although (or even if) ineffective in the bill of lading and thus ultimately discarded, sufficiently negatives the implication in the bill of lading of a liability for discharging which is to rest on the shipper. It would after all be entirely anomalous if a shipowner, who was content to leave his bill of lading terms to be defined by his time charterer’s sub-charter, should be able to say that it was necessary and reasonable to imply into his bill of lading a term which ran counter to the structure of that sub-charter. I know of no case in which a term relating to discharge port demurrage has been implied into a bill of lading which has sought to incorporate in general the terms of a charterparty.
80. On the contrary, in SA Sucre Export v. Northern River Shipping Ltd (The Sormovskiy 3068)  2 Lloyd’s Rep 266 at 285/6 Mr Justice Clarke considered a somewhat similar question. There a shipowner was claiming discharge port demurrage from a receiver under a bill of lading with a general charterparty incorporation clause. As in this case the charterparty provisions imposed liability upon the charterer but otherwise divided responsibility for loading and discharge between shipper and receiver. However, in the critical demurrage clause, mention was only made of the charterer and the form’s reference to “receivers at discharging port” had been deleted. Mr Justice Clarke therefore held that the clauses, which he seems prima facie to have considered to have been incorporated, did not make the receiver liable for demurrage; alternatively, he held that the laytime and demurrage provisions were not incorporated (at 286). It is true that there was no further argument by the shipowner in favour of an implied term, but that case would seem to illustrate how the idea of such an implication is absent from the situation there, as here, under consideration. It also demonstrates how the difference between ultimate incorporation and rejection may be a fine one.
81. For these reasons, I conclude that even if a term that a shipper is responsible for discharging can be implied into a standard bill of lading, it is not to be implied in a bill of lading which seeks to incorporate, albeit ineffectively, a regime which would excuse a shipper from liability for discharge and place it solely on a receiver or charterer.
82. In conclusion, the shippers’ appeal succeeds. The owner’s claim to freight fails as to the $35,931.59 paid by way of set off of the advances made by Tradigrain Shipping on Mercator’s express agreement to permit such advances to be deducted from freight. Moreover, there is no liability on the shippers to discharge the vessel within a reasonable or any other time. It follows that the owner’s counterclaim for discharge port demurrage against the shipper must fail.
Lord Justice Brooke:
83. I agree.
Lord Justice Henry:
84. I also agree.
Order: Appeal allowed. Claimant’s costs summarily assessed in the sum of £32, 00. Orders made under paragraphs 2 & 3 of minute of order. Application for permission to appeal to the House of Lords refused.
Samsun Logix Corp v Oceantrade Corp
 EWHC 2372 (Comm)  ArbLR 50,  EWHC 2372 (Comm),  1 Lloyd’s Rep 450,  1 All ER (Comm) 673
ISSUE (II): PRINCIPLE: CONTRACTUAL RIGHTS AND THIRD PARTIES
It will be recollected that Mr. Happé’s submission proceeded as follows: the arbitrator’s decision was conclusive as to the validity of Deval’s exercise of the cl. 18 lien; he alone had jurisdiction in the matter; there had been no appeal by OTC; this Court had no jurisdiction to interfere; any remaining issues were for the US Court if or when it came to consider enforcement of the Deval award under the New York Convention.
With the last point – as to the appropriateness of this Court making any ruling at all – I have already dealt. So far as concerns the balance of Mr. Happé’s submissions under this heading, I am, with respect, wholly unable to accept them. My reasons follow.
First, as a matter of principle, I find it difficult to conceive of a situation where a decision in rem, or binding on the world, could be made, without the opportunity for those affected to be heard. That, however, would be the effect of Mr. Happé’s submission, if well-founded. The arbitrator’s decision, right or wrong, would be conclusive as against Samsun, even though Samsun was not a party to the arbitration. I do not think that can be right.
Secondly, Mr. Happé’s submission would lead to a surprising conclusion, in that it is established, at least as a matter of English law, that the cl. 18 lien creates rights only as between the parties to the contract in which it is contained. This is so, both insofar as cl.18 provides a lien over cargo and a lien over sub-freights. Wilford, Time Charters (5th ed.), puts the matter this way (at pp. 531 and 534):
“….Under English law the liens are contractual only…and no maritime liens are created.
The nature of the owners’ lien upon cargoes
30.2 In English law liens may be maritime liens in admiralty or may be granted by the common law, by equity, by statute or by contract. The lien of owners over cargoes, given by …[cl.18]…is a contractual lien only. It has no independent root in admiralty, common law, equity or statute. Consequently it creates a right only as between the parties to the contract in which it is contained. So it does not give the owners any right, as against bill of lading holders other than the time charterers, to exercise a lien over their cargo….
The nature of the owners’ lien upon sub-freights
30.16 This lien is similar to the owners’ lien upon cargoes….in that it is contractual only. It differs, however, in that it operates not as a right to retain possession of something already in the owners’ possession but as a right to intercept that which is moving from a third party to the charterers. Indeed, this makes it doubtful whether it can properly be described as a ‘lien’ at all…”
Thirdly, as it seems to me, these considerations point to the true scope of the arbitrator’s decision in the Deval award. The arbitrator’s decision, that Deval had validly exercised the cl. 18 lien in the Deval charterparty, is conclusive but between and only between, Deval and OTC (subject only to any appeal by OTC, now well out of time). This Court has no jurisdiction to interfere in that process, as between those parties, even if it was minded to do so (which it is not). Conversely, however, the arbitrator’s decision does not, without more, bind anyone other than the parties to the Deval arbitration – and certainly not without any non-party, thus affected, having the opportunity to be heard.
I therefore conclude that in considering whether, as a matter of English law, by virtue of the purported exercise of the cl. 18 lien, the Deval claim to the funds in the Mills account, enjoys priority as against Samsun, the Deval award does not preclude further argument.
ISSUE (III): TIMING
The short question which arises here, as between Samsun and Deval, is whether, by the time Deval purported to exercise its cl. 18 lien, it was too late to do so.
In English law, it is settled (i) that the lien on sub-freights operates by giving owners a right to intercept the sub-freights before they are paid by a shipper or other third party to charterers or their agents; and (ii) that this lien is lost if the sub-freights have already been thus paid: Wilford (op cit), at pp. 537-8. In Tagart Beaton & Co v James Fisher  1 KB 391, Lord Alverstone CJ put the matter this way (at p.395):
“A lien such as this on a sub-freight means a right to receive it as freight and to stop that freight at any time before it has been paid to the time charterer or his agent; but such a lien does not confer the right to follow the money paid for freight into the pockets of the person receiving it simply because that money has been received in respect of a debt which was due for freight.”
Much more recently, in The “Spiros C”  2 Lloyd’s Rep 319, Rix LJ said this (at p.323):
“….The shipowner perfects his right of lien by giving notice to the debtor; if the notice is in time to pre-empt payment of the relevant sub-freight, then the shipowner is entitled to payment from the debtor, even though he otherwise has no direct contractual relationship with him. But if the shipowner’s notice to pay comes too late, and the sub-freight has already been paid, then the lien fails to bite on anything….”
On the facts of the present case, Ms Melwani submitted that by the time the lien was purportedly exercised by Deval on the 9th September, 2005, it was too late; the sub-freights had already been paid to Mills on the 7th September. Mr. Happé submitted that the cl. 18 lien had been validly exercised; but, as already underlined, he relied solely on the decision by the arbitrator in the Deval award to this effect.
As will be seen, I have come to the clear conclusion that as between Deval and Samsun, it cannot be said that Deval validly exercised its cl.18 lien. I preface the reasons which follow by emphasising that the conclusion to which I have come involves neither disrespect for nor criticism of the decision of the arbitrator. I acknowledge that the Deval award was before the Court de bene esse, even though OTC had not given consent for such a course. I read and considered the award and the arbitrator’s reasons de bene esse, though I have little doubt that, notwithstanding OTC’s stance, I would have acceded to a formal application for the award to be before the Court had one been made. However, I have not seen the submissions advanced to the arbitrator nor am I aware of the evidence or other materials before the arbitrator.
Dealing with the matter on the materials before me, I am amply satisfied that, on the true interpretation of the scheme of the Smith order, Helm made the 7th September payment of the “ORHAN DEVAL” freight to Mills as OTC’s agent but subject to the terms of the freezing injunction. The constraints of the freezing injunction do not in any way tell against the conclusion that the funds in the Mills account were OTC’s funds; they simply regulate the uses which could be made of those funds.
By way of brief elaboration:
i) So far as relevant to questions concerning the cl.18 lien, it was neither here nor there that Helm paid the “ORHAN DEVAL” freight to Mills rather than to OTC. The reason for paying the “ORHAN DEVAL” freight to Mills was because of the risk of dissipation by OTC had it received the moneys directly. Mills was designated as the recipient of the moneys for OTC because of the understandable confidence placed in the integrity of solicitors holding the money to the order of the Court. These arrangements were of the essence of the freezing injunction, as encapsulated in the Smith order but they do not alter the underlying nature of the Helm payment.
ii) There is nothing in the Smith order to suggest that the moneys were deemed to remain Helm’s moneys; to the contrary, the scheme of the Smith order suggests otherwise. Para. 3(ii) of the Smith order gives rise to the natural inference that Helm was now out of the picture. If so and if payment to Mills had the effect of discharging Helm’s obligations as regards the payment of the “ORHAN DEVAL” freight, as of the 7th September that could only be because the payment was to be treated as a payment to OTC; as of that date Deval had not yet purported to exercise its cl. 18 lien.
iii) The subsequent payments out of the Mills account, permitted by the Court, are difficult to explain save on the basis that the funds were OTC’s to disburse – subject only to the constraints of the freezing injunction.
Accordingly, as a matter of English law and as between Deval and Samsun, my conclusion is that by the time Deval purported to exercise the cl.18 lien under the Deval charterparty, on the 9th September, 2005, it was too late to do so, the sub-freights in question having already been paid by Helm to Mills, as agent for OTC. Therefore, under English law, Deval does not enjoy priority over Samsun to the funds in the Mills account. That conclusion is sufficient to decide the present matters before me in Samsun’s favour.
For completeness, I add that having reached this conclusion it is unnecessary to express any views on the following:
i) Ms Melwani’s further submission, as expressed in her skeleton argument, that whatever the true role or status of Mills:
“…payment to [Mills] constituted payment of freight under the charter so as to discharge Helm’s obligations. Accordingly, it was too late thereafter to exercise their lien.”
Notwithstanding the attractions inherent in the simplicity of this submission, a full consideration of an argument of this breadth should await an occasion when its resolution is necessary.
ii) The difference of opinion as to the true juristic nature of the lien on sub-freights, exemplified in particular by the observations (with respect, most probably obiter) of Lord Millett in Agnew v CIR  UKPC 28;  2 AC 710 (PC), at  –  on the one hand and the decision of Nourse J (as he then was) in In re Welsh Irish Ferries  Ch 471, esp. at pp. 374-5. In In re Welsh Irish Ferries, Nourse J, concluded, rejecting in the course of doing so the submissions of Mr. Millett QC (as he then was), that the cl. 18 lien on sub-freights created an equitable charge. In Agnew v CIR, Lord Millett said that the cl. 18 lien on sub-freights was not a charge at all but gave a merely personal right to intercept freight before it was paid, analogous to a right of stoppage in transitu. In the course of the hearing, I had wondered aloud as to whether, if I followed the observations of Lord Millett in Agnew v CIR, that might provide a short answer to this dispute, even if (contrary to my earlier conclusion), Deval had validly exercised the cl. 18 lien. In the event, I am not attracted to pursuing this line of thinking. First, to enter into territory disputed by (inter alia) Lord Millett and Nourse J, when it is unnecessary for my decision to do so, would seem at least rash. Secondly, even if the cl. 18 lien is not a charge because, in accordance with Lord Millett’s opinion, it confers no proprietary rights, if it is analogous to a right of stoppage in transitu, it is likely in any event to accord priority in bankruptcy: see, Benjamin’s Sale of Goods (5th ed.., 1997), at para. 15-062. If so, then a consideration of this issue takes the resolution of the present dispute no further.
Finally, it is also correct to say that in terms of enforcement in this jurisdiction, Samsun, as a judgment creditor, is procedurally a step ahead of Deval – but that consideration has played no part in my decision.
I shall be grateful for the assistance of counsel in drawing up an appropriate order both reflecting my decision on the question of priority and making clear the limited nature of that decision. I shall also be grateful for the assistance of counsel on all questions of costs.
Eridania Spa & Ors v Oetker & Ors
 EWCA Civ 184
184 Clarke J
18. The judge held that the FJORD WIND was unseaworthy on leaving Rosario. He first set out at page 315 what he correctly described as one of the classic tests of seaworthiness from the judgment of Scrutton LJ in FC Bradley & Sons v Federal Steam Navigation Co (1926) 24 Ll L Rep 446, approving a statement from Carver on Carriage by Sea:
The ship must have that degree of fitness which an ordinary careful owner would require his vessel to have at the commencement of her voyage having regard to all the probable circumstances of it. Would a prudent owner have required that it (sc the defect) be made good before sending his ship to sea, had he known of it?
The judge further correctly stressed that seaworthiness is not an absolute concept but is relative to the nature of the ship, to the particular voyage and even to the particular stage of the voyage.
19. Under this heading, between pages 315 and 318, the judge considered in detail the history of earlier failures of crankpin bearings, to some of which it is necessary to return briefly below, but his conclusion that the vessel was unseaworthy when she left Rosario was not dependent upon that analysis, but on the following reasoning at pages 318 to 319:
The history of crankpin bearing failures is of particular significance in relation to the question whether the owners exercised due diligence to make the vessel seaworthy. However, as far as unseaworthiness at the commencement of the voyage is concerned, the most telling evidence in my view is the very fact that there was a failure of No 6 crankpin bearing within a few hours of the vessel’s departure from the loading port. There is nothing to suggest that the conditions which the vessel encountered in the river were in any respect unusual or that the casualty was the result of any outside intervention. In these circumstances, although it has been impossible to identify the precise cause of the bearing failure, the inference must be that there was a defect of some kind in the bearing itself or the lubricating system which rendered the vessel unfit to encounter the ordinary incidents of the voyage. Mr Tomlinson submitted that without knowing what the defect was in this case, one could not be satisfied that it was likely to lead to a casualty within 24 hours, or indeed at any stage during that voyage. The most that could be said was that there was a propensity for failures to occur at unpredictable, though extended, intervals, usually without serious consequences. In those circumstances, he submitted, the prudent owner would not think it necessary to withdraw the ship from service altogether which, he said, was the only practical alternative open to him.
I am unable to accept that submission. The yardstick of the prudent owner in this context simply reflects the fact that seaworthiness is to be judged by reference to the realities of commercial life and does not require absolute perfection. Thus it might be the case that a prudent owner when told about the existence of a particular defect might quite properly decide that the risk of its causing loss was so remote that it need not be made good immediately but could be left to a more convenient occasion. It remains the case, however, that seaworthiness as such is concerned with the condition of the vessel herself at the relevant time rather than with whether the owner has behaved prudently in sending her to sea in that condition. Where, as here, a vessel suffers a serious casualty without any outside intervention, the natural inference is that there was something wrong with her which a prudent owner would have rectified if he had known about it. I do not think it makes any difference for this purpose whether the defect is one which can subsequently be specifically identified, such as a crack in a component, or is one which cannot be specifically identified but whose existence can be inferred from a propensity for failures to occur for unknown reasons and at unpredictable intervals. What matters is whether such a defect actually exists, and if it does, whether the risks involved in leaving it unrepaired are sufficiently serious to require remedial action to be taken before the ship proceeds farther. In this case I think it is clear that there was a defect, albeit unidentified, in the vessel’s propulsion equipment which was liable to result in a crankpin bearing failure at some time during the voyage without warning and with potentially disastrous consequences. It had manifested itself as a propensity for crankpin bearings to fail at unpredictable intervals, and I have little doubt that a prudent owner, if he had been aware of the nature of the defect, would have taken steps to correct it rather than risk the consequences. I am satisfied, therefore, that the vessel was unseaworthy both when she left Rosario and, for that matter, when she left Barcelona at the beginning of her approach voyage.
20. Mr Tomlinson QC repeated before us the submissions which had failed before the judge. I say nothing about the position at Barcelona because it is not necessary to do so, but I entirely agree with the judge that the vessel was unseaworthy when she left Rosario for the reasons which he gave in the passage which I have just quoted. When she left Rosario she was not in a fit condition to navigate down the River Paraná in ordinary weather conditions because within a few hours her no 6 crankpin bearing failed with the results described by the judge at the beginning of his judgment on page 310, which may be summarised in this way.
21. At 1908 on 1st July as she was passing down the River Paraná there was an automatic reduction in the speed of the main engine as a result of the operation of the high temperature alarm at the thrust bearing. About 40 minutes later at 1950 the main engine was automatically stopped following the activation of an oil mist detector alarm in the crankcase. At that time the vessel was navigating a dangerous stretch of the river and the master therefore ordered the main engine to be restarted so that the vessel could continue to a place at which it would be safe to anchor. Subsequently the main engine was automatically stopped four more times and on each occasion except the last the master ordered that the engine be restarted to enable the vessel to continue her progress towards a safe anchorage. On the last occasion the vessel was already close to a place of safety and it was not necessary to start the engine again. She anchored in a safe place. When the ship’s engineers opened up the main engine they found that no 6 crankpin bearing had failed and that there was also damage to no 5. They tried to carry out repairs, but the bearing failed again very soon after the engine was restarted and it became apparent that it would be necessary to remove the crankshaft for repairs to be carried out in a workshop ashore. The repairs took much longer than anticipated and the cargo was subsequently transshipped, which involved considerable delay and expense.
22. No-one criticised the master for any of the actions which he took in difficult and potentially dangerous circumstances, so that it can fairly be said that all those consequences flowed from the defect which caused the no 6 crankpin bearing to fail. Moreover, it would have been reasonably foreseeable to an owner who knew that the bearing might fail, that consequences of such a kind might occur. This is, I think, an important consideration because, as the judge pointed out, an owner informed of some types of defect might properly decide that the risks were such that its repair could be left for future action. This was not, however, such a defect, as appears from a later passage in the judgment, which although it was written under the heading of due diligence seems to me to be relevant here. The judge said at page 321:
However, if, as the authorities indicate, it is necessary when considering this question to take into account the seriousness of the consequences which may flow from a failure to identify and remedy the defect, one must recognise that a bearing failure in the main engine is potentially very serious. Whether it proves to be so or not will depend largely on the circumstances under which it occurs. The history of the earlier bearing failures indicates that on this ship any significant overheating of a crankpin bearing was likely to activate the Graviner alarm and shut down the engine before any serious damage was caused to components other than the bearing shells themselves. The incidents in the Mississippi and at Port Kamsar are examples of such cases. However, as this case and the incident at Tarbert show, the failure of a crankpin bearing could have very serious consequences because it could result in the vessel’s being without motive power altogether in circumstances which endangered both the ship and cargo. A prudent owner would not, therefore, regard a potential bearing failure as a matter of minor significance. How far he would go in seeking to identify the cause of a problem of this kind would depend in part on the likelihood of a failure occurring, which in turn would depend to a significant extent on the particular vessel’s operating history.
23. In these circumstances the judge was in my opinion right to hold that the vessel was unseaworthy when she left Rosario because there was present a defect which meant that it could not operate on an ordinary voyage, since it failed on the voyage down-river, with the consequences described above, which were entirely foreseeable. Thus, if the owners had known that such a defect was present the bearing would fail in those circumstances, they would have rectified the defect.
24. I agree with the judge that seaworthiness is concerned with the state of the vessel rather than with whether the owners acted prudently or with due diligence. The only relevance of the standard of the reasonably prudent owner is to ask whether, if he had known of the defect (my emphasis), he would have taken steps to rectify it. In the instant case, there can I think be no doubt that he would, if he had known that there was a defect which would cause the bearing to fail as it did, which it seems to me is the relevant state of knowledge for these purposes. It follows that the vessel was unseaworthy when she left Rosario because she was not in a fit condition to withstand an ordinary voyage down the River Paraná.
25. It is not in dispute that, once the claimants have proved unseaworthiness, the burden of establishing due diligence is on the owners. It is also common ground that they must establish that due diligence to make the vessel seaworthy was exercised, not only by themselves, their servants and agents, but also by their independent contractors. That has been accepted to be the correct position since the decision of the House of Lords in Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd  AC 807. That is a very important principle on the facts of this case because the judge held that the owners had shown that they and their servants or employees had exercised due diligence, but had failed to show that their independent contractors MAN had done so.
26. The principal problem which bedevilled this whole case was that, despite a considerable amount of investigation both before and after the casualty the owners never succeeded in discovering the cause of the problem which led to the defect or defects in the no 6 crankpin bearing which in turn led to failure. As the judge pointed out, this made it difficult for the owners to prove that due diligence had been exercised. He referred in this connection to the following passage from the judgment of Staughton LJ in The Antigoni  1 Lloyd’s Rep 209 at 213:
Of course a judge may be so impressed by the evidence of those whose task it was to exercise due diligence as to find that they did so, even though he is totally mystified as to how the vessel became unseaworthy; he may think it right to believe that evidence, while not being able to identify any possible latent defect which they can reasonably have overlooked. There may indeed be cases where a judge has reached that result. But in practice the shipowner will wish, if he can, to lead evidence of such a latent defect and the judge must necessarily have regard to that evidence before deciding whether due diligence has been exercised. If he concludes that there is no possibility of a latent defect which could be overlooked in the exercise of due diligence, he will find it very difficult to accept that due diligence was in fact exercised, if not wholly impossible. . . . . . . There is not imposed on the shipowner in law any burden to establish a latent defect if he seeks to rely on Art. IV,r.1. But he will find it much easier to establish due diligence if he can point to the likelihood of a latent defect, and much more difficult if he can suggest none, or only one which is wholly implausible.
As the judge pointed out at page 319, the problem facing the owners here was that they sought to show that they had exercised due diligence to make the ship seaworthy but they were unable to identify the latent defect which was said to be responsible for the crankpin bearing failure.
27. Mr Tomlinson stressed the principle that the exercise of due diligence means no more than the exercise of reasonable care and skill and that want of due diligence involves negligence. In this regard it is helpful to consider the decision and reasoning of the House of Lords in Union of India v NV Reederij Amsterdam (The Amstelslot)  2 Lloyd’s Rep 223. In that case a vessel had suffered a fatigue crack of unknown origin in the reduction gear of the main engine and the main question was whether the defect which caused the failure could have been discovered by the exercise of due diligence. That question was answered no. Lord Reid said at page 230:
The question always is whether a reasonable man in the shoes of the defendant, with the skill and knowledge which the defendant has or ought to have had, would have taken those extra precautions.
That statement requires some refinement to take account of the fact that the question was whether surveyors employed by the owners were negligent. In this regard Lord Devlin said at page 234:
But it is for the appellants to prove that the surveyors they employed made as thorough an examination as, in the circumstances, they could reasonably be expected to make and that it revealed nothing suspicious. It is not disputed that the examination was conducted efficiently and that it revealed nothing. The question to be decided is whether, in the circumstances, it was thorough enough.
Lord Devlin added on page 235:
Proof of unseaworthiness fulfills, as Mr Brandon says, the same function in this type of case as res ipsa loquitur does in the ordinary case of negligence. But where, as here, the defendant meets the prima facie case against him by calling two surveyors of unchallenged reputation who are found by the judge to be impressive and who say what they did and why they did it and why they did not do more, then, unless they can be successfully criticised for their omissions, a judge is entitled to say that due diligence was exercised. No doubt he must remember that if, in the end, he is unable to make up his mind whether or not the criticisms are weight enough to disturb his confidence in the surveyors’ judgment, he must find for the plaintiff and not for the defendant. But that is not the sort of situation that often arises.
Those principles are to my mind of particular assistance in considering the issues in this appeal.
28. As indicated above, between pages 315 and 318 the judge considered the history of crankpin failures and their causes. He later considered the owners’ response to those failures. He first did so by asking whether the owners themselves had responded properly. In this connection it is important to note that the owners were responsible owners doing their best to respond to the problems as they arose. They consulted the engine builders MAN for advice and assistance as the problems arose. However, one of the problems which faces the owners here, as it did before the judge, is their failure to adduce evidence from MAN as to what they did at crucial stages.
29. An example of that problem arose out of the failure of the no 6 crankpin bearing at Tarbert in April 1985. On that occasion there was damage to the bearing shells which was partly due to the need to restart the engine many times. What then occurred is described by the judge at page 321:
As a result it was more difficult to identify the cause of the original failure. The owners clearly took the right step in consulting MAN and having repairs carried out by their service engineers. No explanation for the failure was ever put forward and in the absence of any evidence or contemporaneous documents emanating from MAN themselves I am in no position to judge whether proper steps were taken at that time to investigate the cause of the casualty. From the point of view of the owners, however, I do not think there was any reason at that stage to doubt the quality of MAN’s investigation and I am unable to accept the suggestion made by Mr Todd [the claimants’ expert] that they should have commissioned an independent inquiry following this incident. Mr Todd also suggested that the owners could be criticised for failing to inform the vessel’s classification society of the casualty promptly with the result that the local surveyor did not see the damage in its original form and so did not have the opportunity of giving his own advice about the investigations which ought to be undertaken. However, with the engine builder’s service engineers already present, I think it unlikely that the local classification society surveyor would have suggested any line of investigation over and above that which MAN themselves considered appropriate.
As can be seen from that passage, the judge acquitted the owners themselves of responsibility but was or would have been unable to do the same for MAN because there was no evidence of what investigations they carried out.
30. The next crankpin failure occurred in the Mississippi in May 1987 when there was again a crankpin bearing failure at no 6 unit. It is not necessary to consider this failure further because the judge concluded (at page 322) that it was not ultimately of great significance since both experts, namely Mr Todd for the claimants and Mr Vince for the owners, agreed that an investigation was called for after a further series of failures which occurred in 1988. Three such failures occurred in 1988. Although none of them involved the no 6 crankpin bearings, they involved the nos 5, 4 and 2 crankpin bearings and occurred at Port Kamsar, Gibraltar and during a voyage from Venice to Trincomalee respectively. They occurred in circumstances which were broadly similar to those of the failure in the Mississippi in 1987, but for reasons which could not be satisfactorily determined. The judge held that (whatever might be said about earlier failures) those failures ought to have alerted them to the fact that there was an underlying problem. He added (at page 322):
Indeed, it seems that it did so, because they took the matter up with MAN. In February 1988 the bearing shells which had been removed following the incident at Port Kamsar were sent to MAN for examination together with those removed following the earlier incident in the Mississippi, but MAN appear to have been unable to identify the cause of either failure. Mr. Petarius [the owners’ superintendent] said that the owners worked very closely with MAN throughout this period and that all their discussions were conducted orally. I have no reason to doubt what he said, but the fact remains that Mr Petarius himself was unable to recall these discussions in any detail. In these circumstances and in the absence of any evidence from MAN themselves or even any contemporaneous notes or correspondence dealing with these matters it is very difficult for me to form a view about the nature of the investigations which were undertaken and whether it was reasonable for the owners to leave matters in the hands of MAN rather than instruct an independent expert. However, I can well understand that an owner who has had a good relationship with first class engine builders such as MAN over many years would be slow to commission an independent expert to undertake an investigation into a problem of this kind, and I should be slow to criticise Mr Petarius or the owners for continuing to rely upon them at that stage. I did not understand Mr Petarius to say that he had by that time lost confidence in MAN’s ability to get to the root of the problem (though later on and with the benefit of hindsight he did think that they had not done as much as they should have done), and if he had done so, I think he would probably have sought independent advice. As it was, his discussions with MAN led to the decision to undertake the overhaul of the vessel’s engine which was carried out at Durban in November 1989.
Again it can be seen from that passage that the owners did not put before the court any evidence from MAN as to what investigations they carried out at that time.
31. The reason (or one of the reasons) for the overhaul of the engine at Durban in November 1989 was that there was yet another failure in February 1989, this time of the no 5 connecting rod head and the no 5 crankpin bearing. As in the case of some of the previous failures the first indication of the problem was the shut down of the main engine as a result of the operation of the Graviner alarm. The owners now realised that, as the judge put it at page 322, a determined effort was needed to ensure that the recurrent problem with the crankpin bearings was resolved. They accordingly provided MAN with information relating to the failures between 1983 and 1989. MAN then drew up a table of failures. The judge noted that it was apparent that the failures tended to occur when the vessel was manoeuvring and the load on the engine fluctuating. The only suggestion that MAN made at that time as to the possible cause of the bearing failures was the presence of a section of piping which might act as a trap for particles of dirt.
32. The judge held that the overhaul at Durban under the supervision of MAN was designed to eliminate any possible causes of future bearing failure. There was an issue between the experts as to whether the owners should have allowed the vessel back into service after the overhaul, given that MAN had still not identified the cause of the bearing failures in the past. The judge acquitted the owners of blame in this respect. He said this (at pages 322 to 323):
Mr Vince expressed the view that after this major overhaul had been carried out the owners had every reason from a technical point of view to think that adequate steps had been taken to cure the problem and that there were no grounds for instructing an independent consultant to investigate the cause of the earlier bearing failures. Mr. Todd on the other hand suggested that the owners ought not to have been willing to allow the vessel back into service until they had obtained some explanation of the earlier bearing failures and could be satisfied that steps had been taken to avoid them in the future. I think that would be to impose too high a burden on the owners. If it was reasonable for them to entrust the investigation to the engine builders at all, as I think it was given that MAN probably had as much, if not more, expertise in the field than any other body, I cannot see that the owners had any substantial grounds for thinking that the work carried out under MAN’s supervision was inadequate to deal with the problem if MAN said it was. It is true that MAN had been unable to identify the cause of the earlier failures, but one has to have some regard to the practicalities of life when dealing with questions of this kind. I am unable to accept, therefore, that the owners themselves were in breach of their duty to exercise due diligence by failing at that stage to commission further independent investigations into the problem.
33. The judge’s conclusion that MAN told the owners that the work carried out under their supervision was adequate to deal with the problem must I think have been based on the evidence of Mr Petarius, who said that the work done at Durban was carried out according to normal technical standards and nothing was found at the time. He said that nothing more could have been done. The crankshaft was inspected, all the bearings were replaced and the work was accepted by Germanische Lloyd. He said that he was convinced that the damage would not recur, but that to be sure he decided that the bearing shells should be replaced after 10,000 running hours, which would be the equivalent of two years’ operation. He relied upon the fact that MAN had sent Mr Schnoor to Durban to deal with the problem. He described Mr Schnoor as a service engineer in the service department in Hamburg and as “the person with the most experience of medium speed engines”.
34. The respondent claimants have not sought to challenge the judge’s finding that the owners were not personally at fault for failing to commission a further investigation after Durban. I therefore assume that it is correct. The question then arises whether the owners have discharged the burden identified by Lord Devlin in the passages from his speech in the Union of India case quoted in paragraph 27 above.
35. The question is whether the owners have proved that MAN conducted as thorough an investigation as they could reasonably have been expected to conduct in the circumstances. In this connection it is, to my mind, important to note that this is not a case like that being considered by the House of Lords because, whereas in that case, as Lord Devlin pointed out in the second of the two passages which I have quoted, the owners called two surveyors of unchallenged reputation who were found by the judge to be impressive and who said what they did and why they did it and why they did not do more, in the instant case the owners did not call anyone from MAN to tell the court what they had done and why. Thus, as on the earlier occasions identified by the judge to which I have referred above, no evidence was called from MAN and the court does not have available to it MAN’s documents or any clear account of what investigations were thought necessary and what investigations were carried out in order to identify the cause of the bearing failures.
36. There may of course be many reasons why the owners did not adduce any evidence from MAN. The owners have chosen not to explain the reasons and I do not think that we should speculate about them, but it does mean that it makes it more difficult for the owners to discharge the burden of proof. That is in my judgment so, even though I accept Mr Tomlinson’s submission that the court must determine the question whether the owners have discharged the burden on the evidence before the court. In doing so the starting point seems to me to be the judge’s finding that, in the light of the previous bearing failures, detailed investigation was called for. Given that the owners do not purport to have carried out such investigations themselves, it follows that the only way in which they could discharge the burden would be if they could show both that they delegated to MAN the responsibility of carrying out a thorough investigation into the true position and that MAN themselves exercised all proper care and skill in doing so. I shall assume that they asked MAN to carry out the detailed investigation required and turn to the question whether, on that assumption, it is shown that the MAN carried out the necessary investigations.
37. The judge expressed his conclusions on this part of the case in this way at page 323:
That still leaves the question whether the investigations carried out by MAN were as complete and thorough as the situation demanded. Here I have greater difficulty because there was very little evidence of any kind before me to indicate what steps MAN had taken to investigate this problem. Mr Todd attempted to describe certain investigations which he suggested might have given rise to valuable information or which might have led to fruitful lines of further enquiry, but in the absence of any reliable indication, even at the time of the trial, of the true nature of the problem, it was inevitably difficult for him to say that any particular kind of specialist or any particular line of investigation would be likely to have yielded the desired information. However, the history of bearing failures was in my view sufficiently serious to call for a very thorough investigation into, among other things, the physical condition of the failed bearing shells, the lubrication conditions, and the operating conditions under which the failures had occurred. That might have called for investigations by engineers, metallurgists, tribologists or specialists in other disciplines; the precise nature and course of the investigations would no doubt have been determined by what was discovered at each stage. One specific investigation which could have been, but it seems was not, carried out at Durban was a check on the alignment of the crankpins relative to the crankshaft, although there is no reason to think that there was in fact any misalignment and Mr Todd himself accepted that the casualty with which I am directly concerned is unlikely to have been caused by relative misalignment of no 6 crankpin. Mr Tomlinson submitted that the very fact that no one had been able to identify the cause of the failures, either at the time or in the years since the casualty, makes it very difficult to say that anything more should have been done which would be likely to have provided an answer to the problem, but I think that approaches the matter from the wrong end. It is for the owners to show that they themselves and those for whom they were responsible exercised due diligence to make the ship seaworthy, or that any failure to do so, if there was one, did not cause or contribute to the casualty. Since the cause of the casualty remains unknown, the owners can only discharge that burden by showing that they and MAN between them did not overlook any lines of enquiry which competent experts could reasonably be expected to have pursued, but in the absence of evidence as to what investigations were in fact carried out and why, I cannot be satisfied that that is so. In these circumstances the owners are unable to discharge the burden of showing that they exercised due diligence to make the ship seaworthy.
38. I agree with those conclusions, which are really the crux of this part of the case. A very thorough investigation was required in order to identify the cause of the problems which had occurred on a number of occasions. In this regard it is important to reiterate the point made by the judge on page 321 in the passage which I have quoted in paragraph 22 above, namely that a bearing failure may have very serious consequences, including the shutting down of the main engine in dangerous circumstances. I accept Mr Gee’s submission that the more serious the possible consequences the greater the effort that must be made to identify the cause of the problem and, if possible, to eradicate it. It was partly for this reason that the experts agreed that a full investigation of the possible causes of the earlier failures should be carried out.
39. It is true that Mr Schnoor of MAN went to Durban, together with one or more fitters, and carried out certain work, but there is no document evidencing what investigations the owners asked MAN to carry out or what MAN asked Mr Schnoor to do and there is no report of detailed investigations in fact being carried out. There is no evidence of any scientific study of the possible causes of the problem and no report of the likely causes. Indeed there is only one document emanating from MAN which simply refers to “overhaul work”, and not to the kind of investigation which the evidence shows was required. It states that because of repeated bearing damage, crank bearings were opened up. It also includes the following:
The visible wear on the bearings indicates that wear in the upper and lower shells is abnormally high after a short working period. All bearings were renewed because of the expected service life of 15,000 hours, resulting from abrasion already visible.
In particular bearing no 1 was extremely worn, although it is fair to say that that bearing had been running for 32,000 running hours (which may have been a mistake for about 24,000 running hours). It was then said that “the removed bearing and connecting rod head were despatched to Hamburg for inspection”. It may be that it was no 1 bearing that was sent to Hamburg, but it is not clear and there is in any event no report of any inspection in Hamburg of any of the bearings that were removed.
40. As the judge observed in the passage just quoted, there is no evidence of an investigation into the physical condition of the failed (or indeed worn) bearing shells or the lubrication conditions and the operating conditions when the failures occurred. There is no evidence of what, if any, thought was being given to these problems by MAN in Hamburg and there is no suggestion that Mr Schnoor or anyone else from MAN who was sent to Durban considered any of them. Mr Tomlinson submitted that it was reasonable of the owners to decide to renew the bearing shells every 10,000 running hours, but there is no support for the conclusion that that decision was made as a result of a proper scientific study of the causes of the bearing failures carried out by MAN. On the contrary, it was Mr Petarius’ own idea, after discussion with the MAN engineer. It was not based upon any reasoned view as to the causes of the earlier failures because the causes had still not been identified. In these circumstances the owners did not in my judgment demonstrate that it was reasonable simply to limit the life of a bearing to 10,000 running hours.
41. Mr Tomlinson further submitted that it is a reasonable inference that MAN did all that a reasonable engine builder would have done and that there is no basis for holding that they were guilty of such a negligent act or omission as no reasonably competent engine builder would commit or fail to commit; cf Saif Ali v Sydney Mitchell & Co  AC 198 per Lord Diplock at 220. However, I am unable to accept that submission. It was agreed between the experts that a thorough investigation was called for and, to my mind, there is no or no sufficient evidence that such an investigation was carried out. There is no sufficient evidence upon which the court could draw the inferences suggested by Mr Tomlinson.
42. In short I agree with the judge that the owners failed to demonstrate that a proper investigation was carried out. They adduced no evidence from MAN, with the result that they have not demonstrated what was done, so that it is not possible to say that due diligence was exercised. As I see it, there are three possibilities. The first is that the owners failed to give MAN sufficient instructions to carry out a proper and thorough investigation, the second is that MAN failed to carry out the owners’ instructions and the third is that MAN did carry out a proper and thorough investigation but no or insufficient evidence of it was put before the court in order to enable the court to say that due diligence was exercised.
43. For these reasons I am not persuaded that the judge was wrong to hold that the owners had failed to discharge the burden of proving that they exercised due diligence, through themselves, their servants, their agents and their independent contractors, to make the vessel seaworthy before she sailed from Rosario by responding sufficiently to the earlier bearing failures. That conclusion makes it unnecessary to consider the other bases upon which the judge found a failure to exercise due diligence. I shall not therefore further lengthen this judgment by doing so.
44. It follows from the conclusion that the owners have failed to show that due diligence was exercised to make the vessel seaworthy before she sailed from Rosario that, given the further conclusion that the vessel was unseaworthy at that time, the defendants are liable for any loss caused by that unseaworthiness as damages for breach of the charter or of the contract of carriage contained in or evidenced by the bill of lading as the case may be. On that basis I do not understand the defendants to challenge the conclusions reached by the judge on questions of causation or quantum and none of the interesting questions arising out of the abandonment of the voyage and the law of frustration arise. In all the circumstances I would dismiss the appeal.
Jindal Iron and Steel Co Ltd & Ors v. Islamic Solidarity Shipping Company Jordan Inc
 UKHL 49 :  WLR 1363,  1 All ER 175,  UKHL 49,  1 WLR 1363
This appeal concerns the interpretation of the Hague and Hague-Visby Rules. By article III, r. 2 and 8, they provide as follows:
“2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.”
“8. Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect.”
Article IV, r. 2, reads as follows:
“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from –
(i) Act or omission of the shipper or owner of the goods, his agent or representative;
(q) Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier . . .”
The central issue is whether (as shippers and consignees argue) article III, r. 2 of the Rules defines the irreducible scope of the contract of service to be provided by the carrier by sea or (as the carrier argues) article III, r. 2 merely stipulates the manner of performance of the functions which the carrier has undertaken by the contract of service. In cases where the parties to a contract of carriage agree that loading, stowage and discharge are to be performed by shippers, charterers, and consignees, the specific question is whether the carrier is nevertheless liable to cargo owners when the latter, or their stevedores, perform those functions improperly or carelessly. In other words, the question is whether such an agreement, which transfers responsibility for these operations from the shipowners to shippers, charterers or consignees, is invalidated by article III, r. 8.
Long-standing precedent is to the effect that such a reallocation of risk by agreement is permissible and that in the postulated circumstances the carrier is not liable: Pyrene Co Ltd v Scindia Navigation Company Ltd  2 QB 402 per Devlin J; G H Renton & Co Ltd v Palmyra Trading Corporation of Panama  AC 149. Cargo owners unsuccessfully challenged the existing rule in the High Court (before Mr Nigel Teare QC, sitting as a Deputy High Court Judge) and before the Court of Appeal (Waller and Tuckey LJJ and Mrs Justice Black): Jindal Iron & Steel Company Limited and Others v Islamic Solidarity Shipping Company Jordan Inc. and Another (The Jordan II)  EWCA Civ 144;  2 Lloyd’s Rep 87. Cargo owners invite the House to reverse the existing rule.
I. The Charterparty and Bills of Lading.
Islamic Solidarity Shipping Company Jordan Inc are the owners of the vessel Jordan II. By a charterparty on the Stemmor form dated 4 December 1997 at Hamburg the owners chartered the vessel to TCI Trans Commodities A.G. for a voyage from Mumbai in India to Barcelona and Motril in Spain. Jindal Iran and Steel Company Limited and Hiansa S.A. are respectively the sellers and purchasers of 435 steel coils. The goods were shipped from Mumbai aboard the vessel as evidenced by two bills of lading on the Congenbill form, both dated 2 January 1998, which were issued on behalf of the shipowners at Mumbai. The bills of lading contained or evidenced contracts of carriage to Motril, in Spain. The bills of lading named Jindal Iron and Steel Company Limited as the shippers and Hiansa S.A. as consignees. The relevant provisions on the face of the bills of lading were as follows:
“Freight payable as per CHARTERPARTY dated 04.12.97”
On the reverse of the bill of lading, the relevant terms of the contact of carriage provided as follows:
“(1) All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, are herewith incorporated … “
(2) General Paramount Clause
The Hague Rules contained in the International Convention for the Unification of certain rules relating to bills of lading, dated Brussels the 25 August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.
Trades where Hague-Visby Rules apply.
In trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on February 23 1968 – the Hague-Visby Rules – apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of Lading.”
The bills of lading incorporated the voyage charterparty. The Hague-Visby Rules as enacted in Indian legislation were applicable to this shipment. They correspond to the draft Hague Rules as enacted in the United Kingdom by the Carriage of Goods by Sea Act 1924, which in material respects are the same as the Hague-Visby Rules scheduled to the Carriage of Goods by Sea Act 1971.
Clauses 3 and 17 of the charterparty, so far as material, provided:
“3. Freight to be paid at the after the rate of US$ … per metric ton F.I.O.S.T. – LASHED/SECURED/DUNNAGED … “
17. Shippers/Charters/Receivers to put the cargo on board, trim and discharge cargo free of expense to the vessel.”
The acronym F.I.O.S.T. stands for Free In and Out Stowed and Trimmed. There was, therefore, under the charterparty an agreement that the “Shippers/Charterers/Receivers” were to put the cargo on board, stow it, lash it, secure it, dunnage it and discharge it free of expense to the vessel. It was plainly an agreement designed to transfer responsibility for these particular functions from the shipowners to shippers, charterers and consignees. The cargo owners no longer contest the decisions at first instance and in the Court of Appeal to this effect.
Both the bills of lading and the charterparty are governed by English law.
II. The claims.
In February 1998 the cargo was discharged at Motril. The shippers and consignees alleged that the cargo was damaged by rough handling during loading and/or discharging, and/or inadequate stowage due to failure to provide dunnage, failure to secure the coils and/or stacking them so that the bottom layers were excessively compressed.
III. The preliminary issue.
Title to sue has been assumed to vest in either the shippers or consignees. On the assumption that the allegations of the claimants are correct the parties agreed to the trial of a preliminary issue. The principal issue was whether the agreement in the charterparty (evidenced by clauses 3 and 17), which purported to transfer responsibility for loading, stowage and discharge from the shipowners to shippers, charterers and consignees, is invalidated by article III, r. 8. That is now the only issue before the House.
IV. The Submissions in Outline.
The dispute before the House is between shipowners, shippers and consignees: the voyage charterers did not take part in the appeal. The principal submissions of cargo owners (the appellants) were as follows. First, that article III, r. 2 of the Hague and Hague-Visby Rules imposed upon the shipowners as carrier of the goods under the bills of lading the duty to perform the functions described therein and the responsibility for the proper and careful performance of those functions (which involve loading, stowing and discharging the cargo). Secondly, that the agreement evidenced by clauses 3 and 17 of the charterparty transferring responsibility for handling, stowing and discharging the cargo is invalidated by article III, r. 8. Recognising that the decision of the House in Renton stands in the way of this argument, counsel for cargo owners invite the House to depart from that decision under the Practice Statement (Judicial Precedent)  1 WLR 1234. The shipowners’ position is straightforward. While they accept that the whole contract of carriage is subject to the Hague-Visby Rules, they contend that the extent to which loading, stowage and discharging are brought within the carrier’s obligations may properly be a matter for agreement between the parties. They say that properly construed the Rules do not invalidate an agreement transferring the responsibility of the shipowners for those functions to the shipper, charterer or consignee. In any event, they rely on the binding authority of the decision of the House in the Renton case to that effect.
V. The Existing Rule.
Under the common law the duty to load, stow and discharge the cargo prima facie rested on shipowners but it could be transferred by agreement to cargo interests. In Pyrene v Scindia Navigation  2 QB 402 Devlin J observed that the effect of article III, r. 2 of the Hague-Visby Rules was not to override freedom of contract to reallocate responsibility for the functions described in that rule. He said (417-418):
“The phrase ‘shall properly and carefully load’ may mean that the carrier shall load and that he shall do it properly and carefully: or that he shall do whatever loading he does properly and carefully. The former interpretation perhaps fits the language more closely, but the latter may be more consistent with the object of the Rules. Their object, as it is put, I think, correctly in Carver’s Carriage of Goods by Sea, 9th ed (1952), p 186, is to define not the scope of the contract service but the terms on which that service is to be performed. The extent to which the carrier has to undertake the loading of the vessel may depend not only upon different systems of law but upon the custom and practice of the port and the nature of the cargo. It is difficult to believe that the Rules were intended to impose a universal rigidity in this respect, or to deny freedom of contract to the carrier. The carrier is practically bound to play some part in the loading and discharging, so that both operations are naturally included in those covered by the contract of carriage. But I see no reason why the Rules should not leave the parties free to determine by their own contract the part which each has to play. On this view the whole contract of carriage is subject to the Rules, but the extent to which loading and discharging are brought within the carrier’s obligations is left to the parties themselves to decide.”
It is true that, in the language of precedent, this was an obiter dictum. But it was a carefully considered statement by one of the most distinguished commercial judges of the twentieth century, who believed firmly in the principle that it is the task of a judge to administer the law as it stands: see the entry for Lord Devlin, written by Professor Tony Honoré, in the Oxford Dictionary of National Biography, 2004, Vol 15, pp 985-988.
Two years after the decision in the Pyrene the very same point came before the House for decision in the Renton case. In the present case the Court of Appeal held (at paras 33 and 34 of the judgment of Tuckey LJ), and it is now common ground, that the ratio decindendi of the House in Renton, is to the effect that an agreement transferring responsibility for loading, stowage and discharge of the cargo from the shipowners to shippers, charterers and consignees is not invalidated by article III, r. 8. In these circumstances it is not necessary to analyse the facts of the case and the detailed treatment of the issues by the Law Lords sitting in Renton. Such an analysis is to be found in the lucid judgments of the judge (at paras. 49-55) and Tuckey LJ in the Court of Appeal (at paras 30-34). The majority in Renton consisted of Lord Morton of Henryton, Lord Cohen and Lord Somervell of Harrow. Lord Morton of Henryton cited the observation of Devlin J in Pyrene in full: at 169 and 170. He expressed agreement with it but added that “not only is the construction approved by Devlin J more consistent with the object of the rules, but it is also the more natural construction of the language”: at 170. Lord Cohen agreed with Lord Morton of Henryton: at 173. Lord Somervell of Harrow referred to article III, r. 2, and observed (at 174):
“It is, in my opinion, directed and only directed to the manner in which the obligations undertaken are to be carried out. Subject to the later provisions, it prohibits the shipowner from contracting out of liability for doing what he undertakes properly and with care. This question was considered by Devlin J in Pyrene Co Ltd v Scindia Navigation Company Limited in relation to the words ‘shall properly and carefully load’. I agree with his statement, which has already been cited.”
Thus there was a clear ratio decidendi in Renton. That Viscount Kilmuir L.C. and Lord Tucker decided Renton on a different ground does not detract from the controlling force of the decision.
This view has consistently been applied in subsequent cases: see The Ciechocinek  1 Lloyds Rep 489, 493 per Lord Denning MR; The Arawa  2 Lloyd’s Rep 416, 424-425, per Brandon J; The Filikos  2 Lloyd’s Rep 555, 557-558, per Lloyd J; The Strathnewton  1 Lloyd’s Rep 219, 222, per Kerr LJ; The Panaghia Tinnou  2 Lloyd’s Rep 586, 589 (my judgment); The Holstencruiser  2 Lloyd’s Rep 378, 380, per Hobhouse J; The Coral  1 Lloyd’s Rep 1, 5, per Beldam LJ.
The existing position is summarised in the 20th edition of Scrutton on Charterparties and Bills of Lading, 1996, as follows [at 430-431]:
“The whole contract of carriage is subject to the Rules, but the extent to which loading and discharging are brought within the carrier’s obligations is left to the parties themselves to decide. Thus, if the carrier has agreed to load, stow or discharge the cargo, he must do so properly and carefully, subject to any protection which he may enjoy under Article IV. But the Rules do not invalidate an agreement transferring the responsibility for these operations to the shipper, charterer or consignee.”
In my view this is an accurate statement of the existing law.
VI. The course of the argument in the House.
Before considering the arguments on interpretation, it is necessary to draw attention to the fact that the rule in Renton has stood for almost fifty years. It is probable that an enormous number of transactions have taken place on the assumption that Renton represents the law. Moreover, it seems likely that there are many open transactions, not yet finalised by judgment, arbitration award or settlement, which were concluded in reliance on the rule in Renton. Against this background, counsel for cargo owners invited the House to rule that Renton was wrongly decided. Even if exceptionally a prospective overruling of a decision of the House could be permitted, it would be of no use to cargo owners: compare R v Governor of Brockhill Prison, Ex p Evans (No 2)  2 AC 19, at 27B (per Lord Slynn of Hadley); 27E (per Lord Browne-Wilkinson; at 29F, (my opinion); at 36E (per Lord Hope of Craighead); at 48H-49C (per Lord Hobhouse of Woodborough). Cargo owners ask the House not to regard the impact of past transactions as a factor of significance and to decide retrospectively that Renton was wrongly decided in 1957.
Against this background an observation in Vallejo v Wheeler (1774) 1 Cowp 143 is apposite. Lord Mansfield observed (at 153):
“In all mercantile transactions the great object should be certainty: and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon.”
Recently, in Homburg Houtimport BV and Others v Agrosin Private Limited and Another  1 AC 715, para 13, at 738, Lord Bingham of Cornhill reaffirmed in an international trade law case the importance of this consideration. That is, of course, not to say that the House might not be persuaded under the Practice Statement to depart from an earlier decision where that decision has been demonstrated to work unsatisfactorily in the market place and to produce manifestly unjust results: see R v G and Another  1 AC 1034, para 35, at 1056, per Lord Bingham of Cornhill. But, in a case such as the present, if that high threshold requirement is not satisfied, it would not be proper to reverse the earlier decision.
At the end of the oral argument of counsel for the appellants, the House was satisfied that it had not been shown that the Renton decision worked unsatisfactorily and led to unjust results. Despite the careful and helpful arguments placed before the House by counsel for cargo owners, the House decided that it was unnecessary to call on counsel for the shipowners to address the House on any aspect of the case. I will explain my reasons for agreeing to this decision more fully later in this judgment. But it is necessary to set out the shape of the arguments on interpretation. It is, however, necessary to emphasise again that the House did not hear any oral argument on behalf of the shipowners. But the House did have the benefit of studying in advance the excellent printed cases prepared by both sides.
VII. The Interpretation of the Rules.
In interpreting article III, r. 2, the starting point is the language of the text. Counsel for cargo owners was assisted by the fact that in Pyrene Devlin J accepted that the phrase “shall properly and carefully load” fits more closely the interpretation which he rejected. Moreover, at first instance the judge similarly accepted that this is so:  2 Lloyds Rep 87, para 62, at 97. It is true that in Renton Lord Morton of Henryton (with whom Lord Cohen agreed) thought that Lord Devlin’s interpretation was also supported by the natural construction of the language. I would not accept this part of the reasoning in Renton. Two points in particular made by counsel for cargo owners militate against it. First, the language appears to provide for a single standard of carrying out properly and carefully not only loading and discharging but also caring for the goods carried. Devlin J certainly did not suggest that the owner may by agreement under article III, r. 2, transfer responsibility for caring for the cargo during the voyage. Secondly, the French text of the Hague Rules and Hague-Visby Rules provide as follows:
“Le transporteur sous réserve des dispositions de l’article 4, procédera de façon appropriée et soigneuse au chargement, à la manutention, à l’arrimage, au transport, à la garde, aux soins et au déchargement des marchandises transporteés.”
In context the word “procédera” means “to undertake”: Robert-Collins, Dictionnaire Français~Anglais, Anglais~Français, s.v. “procéder”, p 560; Le Nouveau Petit Robert, s.v. “procéder.” The French text is the authoritative language of the Hague Rules and the English and French texts are equally authentic in the case of the Hague-Visby Rules. The French text tends to support the interpretation put forward by cargo owners. (It is to be noted that in Pyrene Lord Devlin referred to the French text: at 421.) For my part, the concession of Devlin J was realistic. It follows that the common thread and ratio decidendi of the majority judgments in Renton is a purposive rather than literal reading of article III, r. 2.
Devlin J did not base his interpretation on linguistic matters. He relied on the broad object of the Rules. It has often been explained that the Hague Rules and Hague-Visby Rules represented a pragmatic compromise between the interests of owners, shippers and consignees. The Hague Rules were designed to achieve a part harmonisation of the diverse laws of trading nations. It achieved this by regulating freedom to contract on certain topics only: Chandris v Isbrandtsen-Moller Co Inc  1 KB 240, at 247. In interpreting article III, r. 2, its purpose and context is all important. For example, it is obvious that the obligation to make the ship seaworthy under article III, r. 1, is a fundamental obligation which the owner cannot transfer to another. The Rules impose an inescapable personal obligation: Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd  AC 807. On the other hand, article III, r. 2, provides for functions some of which (although very important) are of a less fundamental order e.g. loading, stowage and discharge of the cargo. Those who are not attracted to literal interpretations of an international Convention, reliant principally on linguistic matters, may find it entirely possible to conclude that the context and purpose of article III, r. 2, would not be undermined by permitting owners to transfer responsibility for loading, stowage and discharge to shippers and others. Devlin J thought that it was difficult to believe that the Rules were intended to impose a universal rigidity about such essentially practical secondary functions. This reasoning is supported by the reality that in practice shore based stevedores rather than the crew load and discharge vessels. Who must pay them? This can not unreasonably be viewedas an economic matter which the parties may determine by their specific contracts. A literal interpretation of the Rules no doubt leads to the conclusion that, where shippers and consignees select and pay for stevedoring, as they often do in practice, cargo claimants may recover compensation from owners for the negligence of cargo owners or the negligence of their stevedores. The point was touched on by Greer J in Brys & Gylsen v J and J Drysdale & Co (1920) 4 Ll L Rep 24. He said, at p 25:
“It would be an odd state of things if one were to hold that a shipowner who has no contract whatever with the stevedore, and who cannot say to the stevedore: You have broken your contract with me, and therefore I will not have you any longer in my vessel; and who has no control over what is to be paid to the stevedore, should be responsible for the failure of the stevedore to do his duty.”
A purposive interpretation such as Devlin J preferred, which permits transfer of the responsibility for such functions to the party who selects and pay for the stevedores, avoids these unreasonable results. On balance I am satisfied that Devlin J adopted a principled and reasonable approach to the interpretation of article III, r. 2. And his interpretation was not based on any technical rules of English law: it was founded on a perspective relevant to the interests of maritime nations generally. Moreover, it may be right to say that where conflict arises between purely linguistic considerations and the broad purpose of an international convention, the latter should generally prevail. In my view the case for the adoption of Lord Devlin’s interpretation, if it were proper to reconsider the matter afresh today, is formidable.
With the aid of Michael F Sturley’s The Legislative History of the Carriage of Goods by Sea Act and the Travaux Préparatoires of the Hague Rules (1990), Vols1 to 3, counsel for cargo owners took the House on an extended tour of the travaux. It is, of course, a well established supplementary means of interpretation: article 32 of the Vienna Convention on the Law of Treaties, Vienna, 23 May 1969 (Cmnd 4140); Fothergill v Monarch Airlines Limited  AC 251. It is, however, equally well settled that the travaux can only assist if, as Lord Wilberforce put it in Fothergill, they “clearly and indisputably point to a definite legislative intention”: 278B. The general thrust of the travaux closely match the interpretation put forward by cargo owners. The judge recognised this. But he also pointed out that nowhere in the travaux is there any statement that article III, r. 2, prevents an owner and merchants from reallocating responsibility for loading, stowage and discharge of the cargo to the merchants. It is not enough to show that the draftsmen proceeded on the basis of the normal common law rule that loading stowage and discharging is the duty of the shipowner, without considering the effect of different contractual arrangements. If the issue had been directly confronted by draftsmen, it is far from obvious that they would have concluded that a shipowner should be liable to cargo owners for damage caused by cargo owners themselves when they undertook the relevant duty and did it badly. In these circumstances the judge held that the requirements enunciated in Fothergill were not satisfied. In my view he was entirely right to do so. The travaux cannot therefore assist the argument of the cargo owners.
Since the decision of the House in Renton in 1956 no English textbook writers have challenged its correctness. The editors of Scrutton on Charterperties, 20th ed. 1996, at pages 430-431 treat it as correctly stating the law; the editors of Contracts for the Carriage of Goods By Land, Sea and Air 1993-2000, Lloyds, para 126.96.36.199, is to the same effect; the editors of Carver on Bills of Lading 2001 discuss the rival arguments (at paras 9-114 – 9-115) but do not argue that Renton should be reversed.
The decisions in foreign jurisdictions.
Counsel placed great reliance on decisions of the Second Circuit Court of Appeal in Associated Metals and Minerals Corp v M/V The Arktis Sky 978 F.2d 47 (2nd Cir 1992) and the Fifth Circuit Court of Appeal in Tubacex Inc v M/V Risan 45 F 3rd 951 (5th Cir 1995) in which it was held that loading, stowing and discharging under section 3(2) of the United States Carriage of Goods By Sea Act are “non delegable” duties of the carrier. In neither of these decisions is there any reference to the earlier English decisions in Pyrene and in Renton. Counsel for the cargo owners pointed out that The Arktis Sky has been followed at first instance in South Africa: The Sea Joy (1998) (1) SA 487 at 504. And with reference to Tetley, Marine Cargo Claims, 4th ed in preparation, chapter 25, at p 21, he said that in France a shipowner may not contract out of responsibility for improper stowage by an F.I.O.S.T. clause.
On the other hand the Renton decision has been followed in Australia: Shipping Corporation of India v Gamlen Chemical Co A/Asia Pty Ltd (1980) 147 CLR 142 and Hunter Grain Pty Ltd v Hyundai Merchant Marine Co Ltd (1993) 117 ALR 507; compare, however, doubts expressed in Nikolay Malakhov Shipping Co Ltd v SEAS Sapfor Ltd (1998) 44 NS WLR 371, per Handley JA, at 380, Sheller JA at 387-388, and Cole JA, at 418. Similarly, New Zealand courts have applied Renton: International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd  1 NZLR 9. In Pakistan the English rule has been adopted: see e.g. East and West Steamship Co v Hossain Brothers (1968) 20 PLD SC 15. In India (the country of shipment in the present case) the English rule is followed: see The New India Assurance Co Ltd v M/S Splosna Plovba (1986) AIR Ker 176 (Court: Balakrishna, Menon and K Sukumaran JJ).
Internationally there is no dominant view. The weight of opinion in foreign jurisdictions is fairly evenly divided. The argument that the law as enunciated in Renton ought to be brought into line with subsequently decided United States decisions, which did not address the arguments in Pyrene and Renton, is rather weak. This plank of the cargo owners case cannot therefore materially assist in the challenge to the decision of the House in Renton.
Third party bill of lading holders.
It is true, as counsel for cargo interests emphasised, that third party bill of lading holders will in practice often not have seen the charterparty or had advance notice of relevant charterparty clauses. This is a point of some substance. It is, however, an inevitable risk of international trade and cannot affect the correct interpretation of article III, r. 2.
No concluded view.
Everything ultimately turns on what is the best contextual interpretation of article III, r. 2. I have already discussed this matter without venturing a concluded view.
VIII. Is a departure from Renton justified?
It is now necessary to return to the question whether, if it is to be assumed that the cargo owners interpretation is correct, it would be right to depart from a decision of the House which has stood for nearly half a century. An opportunity arose in 1968 to improve the operation of the Hague Rules. But an international conference took the view that only limited changes were necessary: Carver’s, Carriage by Sea 13th ed 1982, Vol 1, para 448. If the decision in Renton had worked unsatisfactorily in practice, one would have expected that to have emerged at the conference which led to the Protocol signed at Brussels on 23 February 1968 and the adoption of the Hague-Visby Rules. The interpretation assigned to article III, r. 2, by the English courts was an important part of the corpus of law governing the application of the Hague Rules. It would have been well known in shipping circles. Yet article III, r. 2, remained in unaltered form in the new Rules. The issue was not raised in any way: Anthony Diamond Q.C. The Hague-Visby Rule, 1978 Lloyd’s Maritime and Commercial Law Quarterly, 225. If in the United Kingdom there had been dissatisfaction with the effect of the Renton decision, one would have expected British cargo interests to have raised it when Parliament considered the Bill which was to become the Carriage of Goods by Sea Act 1971. If invited to do so, Parliament could have considered whether Renton should be reversed. The matter was not raised at all. Instead, article III, r. 2, was re-enacted in unaltered form: see for the best account of the position placed before Parliament the speech of Lord Diplock, Hansard (HL Debates), 25 March 1971, cols 1028-1034. If there had been dissatisfaction with the impact of the Renton decision, one would have expected it to have been a matter of discussion in trade journals and publications in the United Kingdom. There have been no such criticisms. And since the decision in Renton no academic writers have argued that Renton should be reversed.
Since Renton was decided shipowners, charterers, shippers and consignees have acted on the basis that it correctly stated the law. It has formed the basis of countless bills of lading, voyage charterparties and time charterparties. Charterparties would frequently have incorporated the Hague or Hague-Visby Rules on the express basis that the shipowner transferred responsibility for stowage of cargo to cargo interests. Similarly, insurances have been placed, Protection and Indemnity Club Rules have been drafted, and the Inter-Club New York Produce Exchange Agreement concluded (see Wilford Coghlin and Kimball, Time Charters, 5th ed, 2003, at para 20-39), on the basis that Renton accurately reflected the law. Risks would often have been assessed in reliance on the decision of the House in Renton as to how they should be borne. But for the reliance on Renton it is likely that different freight rates and insurance premiums would sometimes have been charged. Moreover, at the very least there must be many outstanding disputes which would now be affected by a departure from Renton. After all F.I.O.S.T. clauses are in wide use. And cargo damage caused by loading, stowage and discharging is an everyday occurrence in maritime transport. The House has no idea how many such transactions are still open. There may be many.
For these reasons, even if I had been persuaded that the cargo owners’ interpretation of the Hague and Hague-Visby Rules was correct, in my view the case against departing from Renton is nevertheless overwhelming.
There is, however, another factor. The operation of the Hague Rules and Hague-Visby Rules is under constant review. On 22 October 1990, at Geneva, the United Nations Conference on Trade and Development (UNCTAD) published Charterparties: A Comparative Analysis. With specific footnote references to Pyrene and Renton the report stated:
“341. … charterparty terms relating to the loading, stowing and discharge of cargo may have a profound effect upon third party holders of charterparty bills of lading (even if the bill of lading is subject to the Hague and Hague-Visby Rules) where the words in the bill of lading incorporating the charter are widely framed. If the incorporating words in the bill of lading are sufficiently widely framed the third party bill of lading holder may find for example that he is unable to claim against the shipowner under the bill of lading for damage to cargo caused in the course of loading or stowing the cargo. This would be so if the charterparty contained terms removing from the shipowner the responsibility for loading and stowing. These terms, if there was a wide incorporating clause, would be read as part of the bill of lading contract. They would not be nullified by the requirements of article [III], r. 2 of the Hague Rules that ‘the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried’ because according to English law those words do not define the scope of the contract service but the terms upon which the agreed service is to be performed.
342. In regard to loading, stowage or discharging, the Hague Rules, on these authorities, only impose obligations if the shipowner has contractually undertaken to perform those obligations. If under the terms of a charterparty the shipowner is relieved to that extent of the obligations of performance, the shipowner will also be relieved of responsibility for loading, stowing or discharging as against a third party bill of lading holder, always providing that the bill of lading and charter contain sufficiently widely drawn clauses. This will be so even if the bill is subject to the Hague or Hague-VisbyRules: and even if the third party bill of lading holder has neither seen the charterparty referred to, nor has any advance notice of the relevant charterparty clauses.
343. Other charterparty clauses which may affect a third party bill of lading holder particularly are law clauses, lay time and demurrage clauses and lien clauses.”
The report showed in successive paragraphs how the position of third party bill of lading holders is part of a larger picture affecting, for example, lay time and demurrage clauses and lien clauses: paras 346 and 347. The report concluded:
“354. It can be seen from the foregoing that charterparty terms can have an impact upon third party bill of lading holders in several important respects and it is suggested that in considering in any standardisation, harmonisation or improvement of charterparty terms and the necessity for international legislative action, due account should be taken of the interests of third party bill of lading holders as well as those of charterers and shipowners.”
That is, of course, the way in which such problems affecting international trade law are best addressed.
The United Nations Commission on International Trade Law (UNCITRAL) is currently undertaking a revision of the rules governing the carriage of goods by sea. This exercise involves a large scale examination of the operation of the Hague-Visby Rules. It apparently extends to article III, r. 2. It will take into account representations from all interested groups, including shipowners, charterers, cargo owners and insurers. By itself this factor makes it singularly inappropriate to re-examine the Renton decision now.
I would express no concluded view on the issue of the interpretation of article III, r. 2. I would refuse to depart from the Renton decision. I would dismiss the appeal.
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Steyn. For the reasons he gives, with which I agree, I would dismiss this appeal.
LORD SCOTT OF FOSCOTE
I have had the advantage of reading the opinion prepared by my noble and learned friend Lord Steyn. For the reasons he has given, with which I agree and to which I have nothing to add, I too would dismiss this appeal.