Trafigura Beheer BV v Navigazione Montanari SPA

The question in this appeal is whether a loss by piracy falls within an “In-Transit Loss” clause in a voyage charterparty.

At common law, even a common carrier was exempted from loss or damage caused by the act of the Queen’s enemies. Not surprisingly this exemption was confirmed by international conventions. Both the Hague Rules and the Hague-Visby Rules contain an exemption in respect of loss or damage arising or resulting from “Act of public enemies”, see Article IV rule 2(f). It is an open question whether loss resulting from piracy falls within this exception but one possible view is that it does, since pirates are by international law enemies of the human race (or, as the old books put it, “hostes humani generis”) and thus, necessarily, enemies of the Queen. But if the loss does not fall within rule 2(f) it would fall either within Article IV rule 2(c) – “perils of the sea” or within the residual provision of rule 2(q).

The facts of the present case reveal that 5,291 metric tonnes of oil loaded on board the vessel Valle di Cordoba at Abidjan was lost because, at about 2300 hours on 24^th December 2010, 15 armed pirates took control of the vessel while she was on the way to Lagos. They transferred that quantity of oil, out of a total quantity on board of 33,460 metric tonnes, to an unknown lightering vessel and this “Transferred Cargo”, as it has been called, has never been seen again.

The charterer (Trafigura) of the vessel says that the shipowner is liable for the loss of this Transferred Cargo because the charterparty contained an In-Transit Loss clause (“ITL clause”) as set out in an amended version of clause 4 of the Trafigura Chartering Clauses in the following terms:-

“In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.5% and Charterers shall have the right to claim an amount equal to the FOB port of loading values of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port.”

The parties asked the Commercial Court to determine two preliminary issues in the following terms:-

“Are the defendants liable under the Charterparty to the claimants for the FOB Port of Loading Value of any proven difference between the net vessel volumes after loading at the loading port and the net vessel volumes before unloading to the order of the claimants at the discharge port, plus freight and insurance? In particular:

[1] on a true construction of the In-Transit Loss Clause, does the Transferred Cargo discharged from the Vessel … constitute “in transit loss” or “lost cargo” for the purposes of that clause?

And if the Transferred Cargo does so constitute:

[2] on a true construction of the Charterparty does the In-Transit loss Clause impose strict liability upon the defendants in respect of such Transferred Cargo, or do the exceptions of Clause 46 of the Charterparty apply to exclude that liability?”

Andrew Smith J answered the questions as follows:-

“i)

On the true construction of the ITL clause, the Transferred Cargo was not (and did not occasion) “in transit loss” or “cargo loss” within the meaning of the clause.

ii)

if (contrary to i) the Transferred Cargo was (or occasioned) “in transit loss” or “cargo loss” within the meaning of the ITL clause, on the true construction of the charterparty the clause imposed liability on the owners subject to the exceptions of clause 46.”

Tomlinson LJ gave permission to appeal and the charterer has to persuade this court that both answers given by the judge are wrong if it is to succeed.

The charterparty was contained in an email recap of 4^th November 2010 providing for the application of the Beepeevoy 3 form and Trafigura Chartering Clauses (“the Trafigura terms”) of 1^st August 2005 “with following alterations/additional clauses”.

The original clause 4 of the Trafigura terms had provided:-

“In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.3% and Charterers shall have the right to deduct from freight an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port.”

but the recap amended clause 4 of the Trafigura terms in the following way:-

“CLAUSE 4 – LINE 3 DELETE ‘0.3’, INSERT ‘0.5’

DELETE ‘DEDUCT FROM FREIGHT’ INSERT ‘CLAIM’.”

The agreed clause was therefore that set out in para 4 above.

Article IV of the Hague-Visby Rules as scheduled to the Carriage of Goods By Sea Act 1971 provides:-

“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from …

c)

perils, dangers and accidents of the sea …;

f)

act of public enemies;

q)

any other cause arising without the actual fault or privity of the carrier …”

Mr Jeffrey Gruder QC on behalf of the charterer submitted:-

Mr Michael Ashcroft QC on behalf of the owner submitted:-

The authority referred is Lakeport Navigation Company Panama S.A. v Anonima Petroli Italiana S.p.A. (The Olympic Brilliance) [1982] 2 Lloyd’s Rep 205. It is the only case to which we were referred which concerned an ITL clause and can usefully be referred to now.

In this case the relevant clause read:-

“If there is a difference of more than 0.50% between B/Lading figures and delivered cargo as ascertained by Customs Authorities at discharging port, Charterers have the right to deduct from freight the C.I.F. value for the short delivered cargo. Owners have the right to appoint independent surveyor in order to check cargo figures in conjunction with Custom Authorities.”

The critical difference from the present clause is that in that case the charterer merely had a right to make a deduction from freight and the question for the court was merely whether the deduction was a temporary deduction pending determination of the question whether the shipowner was liable for the loss or a permanent deduction which would mean, in effect, that the owner was liable for the loss up to the amount of the freight. This court held that the deduction was a permanent deduction.

Both Parker J at first instance and Kerr LJ in this court explained that the reason for the existence of this clause in cases where oil is being carried is that claims for shortage are frequent and their determination is notoriously difficult. Thus Parker J said [1981] 2 Lloyds Rep. 176 at 178 (lhc) that the commercial background to clauses of this kind is that

“claims for shortage on the carriage of large quantities of oil are frequent occurrences. It is part of the practice in the trade generally to recognize that there is no absolutely correct measurement and to make allowances of about ½ per cent to account for discrepancies which inevitably take place when measurements are made.”

Kerr LJ explained the matter a little bit more fully in describing the argument of the charterer who was held entitled to retain the full amount of the deduction [1982] 2 Lloyds Rep. at 209 (lhc):-

“… the ascertainment of any short delivery after a normal voyage is notoriously difficult in the bulk carriage of oil. It depends on complex calculations comparing the quantity apparently loaded with the quantity apparently discharged, with some additional allowances for undischargable quantities of sediment and for oil remaining in the ship’s lines, and also possibly for apparent losses due to evaporation. At the end of the day, as in the present case, there may remain an apparent, but inexplicable, short delivery. Such disputes are commonplace, and they are strikingly illustrated by the unexplained disparity of 2420 tonnes in the present case, albeit that this was less than 1 per cent of the total cargo. Accordingly what the charterers contend is that the object of cl.7 was that it was designed for a normal voyage in circumstances where the charterers have a refinery at a discharging port mentioned specifically in the charter, as in this case, with consequently little likelihood of negotiation of the bill of lading, and that the clause did not contemplate some major casualty …”

It is of more than passing interest to note, therefore, that in The Olympic Brilliance it was the charterer who was arguing that the clause was “designed for a normal voyage with little likelihood of negotiation of the bill of lading”. That is what has happened in the present case because it is the charterer who sues and claims to have suffered the loss, not any bill of lading holder. That does not, of course, mean that a charterer, relying on a clause in rather different terms from that in The Olympic Brilliance, must be wrong when it submits that the clause covers any loss in transit however it occurs. But it certainly makes one pause to consider if that can be right.

Mr Gruder does not shrink from submitting that the clause makes the carrier the insurer of any short delivered cargo whatever the circumstances of its loss. I do not consider Mr Gruder can be right about that.

The commercial reason for the clause has been held to be that it is notoriously difficult to determine oil shortage claims. In those circumstances it is sensible for the parties to agree that an unexplained difference between volumes measured on board the vessel after loading (or figures contained in the bill of lading as agreed in The Olympic Brilliance) and volumes measured on board the vessel before unloading of less that x% should not be recoverable by the charterer but that a difference of more than x% should be recoverable by the charterer from the owner. But the clause only applies to shortage claims arising from a normal voyage usually, no doubt, when the loss is otherwise unexplained. The fact that “in transit loss” is defined for the purposes of the clause as the difference between the volumes after loading and before unloading seems to me to support the conclusion that the clause is looking only to a short delivery loss of a kind encountered in a normal voyage. It can hardly be supposed for example that, if the vessel was ordered by the charterer to effect part discharge into lighters before arriving at a discharge port and arrangements could not be made to take measurements until arrival at the discharge port, the owner could be liable for the difference between measurements taken at the loading port after loading and measurements taken before unloading at the discharge port; yet that is what Mr Gruder’s argument apparently entails.

It is a further curiosity of Mr Gruder’s argument that the owner is to be liable for all loss in transit however it occurs but not for any damage or contamination however it occurs. It is difficult to see a rational basis for any such distinction.

The result of the argument, moreover, is to make the owner who agrees to this clause (very arguably) liable for losses to a greater extent even than that of a common carrier since, as stated above, the common carrier was always excused if the loss was caused by the Queen’s (or King’s) enemies, see the Case of the Marshalsea (1455) Y.B. 23 Hen VI 1 pl.3 and Holmes, The Common Law, chapter V. This can hardly have been the intention of the parties.

It follows that I agree with the judge that words “in transit loss” in a clause such as the present connote loss “incidental to the carriage of the cargo”. The way I have put it is to call it “loss of a kind encountered on a normal voyage” echoing the submission of the charterer in The Olympic Brilliance. But I do not think there is any difference of substance between us.

Mr Gruder criticised this definition as being “incoherent” since it leaves too many questions unanswered. How would a case in which the owner used the cargo as bunkers or erroneously operated the valves during the voyage or in which the crew stole some of the cargo be answered by such a vague definition as “loss of a kind encountered on a normal voyage”? I do not share Mr Gruder’s qualms. Such cases will have to be determined on their own facts as they arise. If a charterer really wants to make an owner an insurer of the cargo and the owner agrees to become such insurer it would be easy enough to draft a clause to that effect but the ITL clause in the present case is not clear enough, in my judgment, to achieve that effect.

Mr Ashcroft’s second submission need not therefore be considered. But if I had been in the charterer’s favour on its construction of the ITL clause, I would not have accepted it because it would be loss, however it was caused, that would be covered.

But even if the charterer were right about the construction of the ITL clause, it still has to find some reason to disapply clause 46. It is common ground that loss by piracy is excluded by one or other of the provisions of the Hague-Visby Rules set out above. It is true that the recap fixture deletes some words and figures in the unamended Trafigura clause 4 and substitutes others and to that extent the parties can be said to have directed their minds at the time of the recap agreement to that particular clause but it does not follow that, by reason of that fact, they agreed further to disapply clause 46. If clause 46 and the ITL clause in its unamended form had to be read together so would clause 46 and clause 4 in its amended form have to be read together. Neither clause makes the other otiose. Losses of a kind encountered in a normal oil carrying voyage will be covered by the clause; losses of other kinds will be excused pursuant to the exceptions clause if the facts of the case enable the owner to rely on the exceptions contained in the clause.

It is, moreover, clear that the parties also considered clause 46 at the time of the recap agreement because they agreed that the amendment to line 559 (in fact 558) of clause 46 which would have been introduced by the original Trafigura terms should not be made and that clause 46 should be “maintain[ed] as printed”.

That leaves Mr Gruder’s somewhat intricate argument that, because this court decided in The Olympic Brilliance that the true construction of the ITL clause in that case was that the deduction from freight was a permanent deduction not depending on showing that the owner was liable for the shortage under the charterparty, it must follow that, if the clause allows the charterer to claim the entirety of a shortage or loss, the Hague Rules exceptions do not apply to such a claim.

But the conclusion does not follow from the premise. What this court held in The Olympic Brilliance was that the clause giving the right to deduct was a right to make a permanent deduction and that it was therefore irrelevant whether the charterer had a good claim for the loss of cargo or whether the owner had a good defence to the claim. The court made it clear that any claim for the loss of the cargo would be a different claim, subject to the Hague Rules which were incorporated into the Olympic Brilliance charter (just as the Hague-Visby rules are incorporated into the charter in the present case). Eveleigh LJ said (page 208 lhc) that if the clause dealt with loss (as opposed to deductions from freight) the conflict with the Hague Rules would be apparent. Kerr LJ (page 209 rhc) pointed out that in that case the ITL clause was in Part I of the charter which was to prevail over Part II of the charter (which incorporated the Hague Rules) in the event of a conflict, but said that there was no conflict because the Hague Rules provision

“only deals with the carrier’s liabilities and not in any way with his entitlement to freight.”

It is therefore tolerably clear that, if the clause had been dealing with claims for loss rather than merely deductions from freight, this court would have applied the Hague Rules if the facts had brought the case within them. In this case the facts relating to piracy do bring the case within the Hague-Visby Rules and, even if the ITL clause has the meaning for which the charterer contends, the Hague-Visby Rules will apply to exempt the owner from liability.

Mr Gruder submitted that, if that were so, the clause would be deprived of its intended effect. But that is not so for, at least, two reasons. First the loss might be unexplained; if it were unexplained, it is unlikely that the owner could avail itself of the Hague-Visby exceptions. Second, as stated by the judge at the end of para 21 of his judgment the clause provides for a conventional compensation based on the FOB value at the port of loading regardless of subsequent market movements. On a falling market that could be of considerable benefit to the charterer.

Mr Ashcroft persuaded the judge to listen to expert evidence from Mr Gretton as to the meaning of the ITL clause. The judge seems to have found it helpful in illustrating the uncertainties to which the clause would give rise if the charterer’s construction were correct (para 16). He later doubted if it was admissible (para 27) but did not, in the end, find it useful in determining the interpretation of the clause. I indicated to the parties (a) that I shared the judge’s doubts as to its admissibility and (b) that I had not therefore read it. In the event neither party referred to it.

For these reasons I agree with the judge, would uphold his order and would dismiss this appeal.

I agree with Lord Justice Longmore’s construction of the ITL clause in the voyage charterparty. For the reasons he gives, the words used in clause 4 of the Trafigura terms as amended connote loss ‘incidental to the carriage of the cargo’ not loss caused by piracy.

If, contrary to that conclusion, the ITL clause did cover piracy, then I would also conclude that loss by piracy is excluded by one or other of the Hague-Visby Rules which are incorporated into the charterparty by clause 46 of Beepeevoy 3. I do not accept that there is any reason to disapply or amend clause 46. The clause was specifically considered by the parties at the time of the recap agreement which left it in place. There is no other reason which prevents clauses 4 and 46 being read together, they are not incompatible and neither clause makes the other otiose.

Mr Ashcroft submits that if clause 4 is applicable to loss by piracy then the owner can rely on clause 46. I agree. That leaves the question whether The Olympic Brilliance applies to the ITL clause in the manner submitted by Mr Gruder, namely that the Hague-Visby Rules do not apply to liabilities for loss as distinct from an entitlement to freight.

Acknowledging as I do the experience that has hitherto been brought to the consideration of this issue, and with some hesitation I have come to the view that clause 46 applies to any claim made under the charterparty. The clause recites in terms that it applies to ‘any claim made hereunder’. That has the effect that the Hague-Visby exceptions apply to liabilities for loss. The Olympic Brilliance is authority for the proposition that the owner cannot rely on the Hague/Visby Rules to claim back freight which has been rightly deducted in accordance with an ITL clause but it does not necessarily follow that the Rules cannot be relied upon in respect of a claim otherwise made.

For these reasons I would dismiss this appeal.

I agree that the appeal should be dismissed. In particular I agree that, whether or not falling within the ITL clause of the charter party, the claim was excluded by the Hague-Visby exceptions, because of the clear terms of clause 46, which apply those exceptions to any claim made thereunder.

I have encountered more difficulty than my Lords with the question whether the loss of cargo which occurred in transit in this case fell outside the ITL clause, regardless of clause 46. As a matter of language, the ITL clause appears to me to impose liability for loss of cargo in transit regardless of the cause of that loss, provided that it exceeds 0.5%. Furthermore the explanations given in The Olympic Brillianceof the usual circumstances which parties agreeing an ITL clause may be taken to have had in mind as its subject matter do not in my view afford a reliable basis for treating all ITL clauses as being subject to an unspoken restriction on their ambit, for example to ‘normal’ voyages, still less one which is referable to the cause of the loss.

I fully recognise the surprising commercial consequences which would flow from an unconstrained approach to the ambit of the ITL clause, viewed on its own, and without reference to the very large constraints upon its effect constituted by the incorporation of the Hague-Visby exceptions in clause 46. The question whether a particular construction causes uncommercial results is not in my view to be answered by reference to the relevant clause read in isolation, but by reference to its effect in the context of the relevant contract read as a whole.

On that approach the ITL clause would not make the owner liable to a greater extent than the common carrier, still less for loss arising from piracy, since they are excluded claims. Nor would it make the owner the insurer of the short-delivered cargo, because all types of no-fault loss are also excluded. Of course Mr Gruder had to make that uncommercial submission because he was also submitting, wrongly, that the Hague-Visby exceptions did not apply.

By the same token, an in-transit loss occasioned by a partial discharge into lighters on the instructions of the charterer could not lead to a successful claim. There would again be no fault by the owner.

I do agree that, even if constrained by clause 46, it is curious that in transit loss is covered, but not in transit damage or contamination. But that curiosity seems to me to be an inevitable consequence of the plain language of the ITL clause, however construed. Damage or contamination to cargo in transit may occur in normal voyages, just like in transit loss.

All that said, these considerations lead me to difficulty, rather than outright dissent, on this aspect of the appeal. The contrary view on this point reached by a triumvirate of my Lords and the trial judge, two of whom have deep experience of charterparties of this type which I entirely lack, is entitled to the greatest respect, even if I have not been entirely convinced by it.