Case No: 2009 - FOLIO 687
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR JUSTICE HAMBLEN
Between :
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ONEGO SHIPPING & CHARTERING BV |
Claimant (Charterers) |
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- and - |
|
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JSC ARCADIA SHIPPING M/V “SOCOL 3” |
Defendant (Owners) |
Mr Luke Parsons QC and Ms Poonam Melwani (instructed by Reed Smith LLP) for the Claimant
Mr Chirag Karia (instructed by Bentleys Stokes and Lowless) for the Defendant
Hearing dates: 25th & 26th March 2010
Judgment
Mr Justice Hamblen :
Introduction
The Claimants appeal pursuant to section 69 of the Arbitration Act 1996 in respect of an Award published on 28 April 2009 (“the Award”) in a reference between Onego Shipping & Chartering BV as Charterers (“the Charterers”) and JSC Arcadia Shipping as Owners (“the Owners”) in relation to a time charter of the vessel “Socol 3” (“the Vessel”) dated 12 February 2008 (“the Charterparty”). The Charterparty was on the NYPE 1993 Form with certain additions and amendments.
The dispute between the parties concerned a casualty at sea on 1 March 2008 during which there was some loss of deck cargo and following which the Vessel had to take refuge at the port of Halmstad.
The Award was a First Final Award which allowed the Owners’ claim for hire during the Halmstad period, dismissed the Charterers’ claims for expenses relating to the Halmstad discharge and re-stowage of cargo and found that the Charterers were obliged to indemnify the Owners in respect of any cargo claims.
In their Reasons, the Tribunal found that the casualty was caused by a combination of: an inadequate method of stowage of the deck cargo and the use of unsatisfactory lashing equipment by or on behalf of the Charterers; inadequate care of the lashings during the voyage by the crew, and the instability and consequent unseaworthiness of the Vessel following the loading of the cargo, for which the Owners were responsible.
Permission to appeal in respect of the questions of law set out in paragraph 9 of the Grounds of Appeal was granted by Andrew Smith J on 30 July 2009. Those questions are:
Question 1
Where a Charterparty incorporates the Hague/Hague-Visby Rules and the Charterparty envisages deck cargo will or may be carried but does not state and/or identify what and/or how much deck cargo is being carried (“an on-deck statement”), do the Rules apply to the carriage of deck cargo or is their application excluded by virtue of Article 1(c) of the Hague/Hague-Visby Rules.
Question 2
In respect of what loss and/or damage and/or liability does Clause 13(b) of the NYPE 1993 Form, on its true construction, provide an indemnity. In particular does clause 13(b):-
Provide Owners with an indemnity even in respect of loss and/or damage and/or liability caused by negligence and/or breach of Article Rule 1 of the Hague/Hague Visby Rules on the part of Owners, their servants and agents;
Extend to situations where the loss and/or damage and/or liability is not related to risks inherent or peculiar to deck cargo;
Apply in respect of liabilities incurred by the Owners (as opposed to the Vessel) and in respect of liabilities incurred not just to third parties but also to the Charterers themselves;
Apply so as entitle Owners to claim hire against Charterers where the vessel was otherwise off-hire due to a default of officers and crew within the meaning of Clause 17 of the NYPE 1993 Form.
The Charterparty
The Charterparty was for one time charter trip from Finland/Sweden intention Loviisa and Kokkola to Egypt/Med with timber products and was on the NYPE 1993 form with additions and amendments. The most relevant provisions of the Charterparty are as follows:
“Clause 2 Delivery
The Vessel on her delivery shall be ready to receive cargo with clean-swept holds and tight, staunch, strong and in every way fitted for ordinary cargo service, having water ballast and with sufficient power to operate all cargo-handling gear simultaneously.
Clause 6 Owners to Provide
The Owners shall provide and pay for the insurance of the Vessel, except as otherwise provided, and for all provisions, cabin, deck, engine-room and other necessary stores, including boiler water, luboil and fresh water; shall pay for wages, consular shipping and discharging fees of the crew and charges for port services pertaining to the crew; shall maintain the Vessel’s class and keep her in a thoroughly efficient state in hull, machinery and equipment for and during the service, and have a full complement of officers and crew.
Clause 8 Performance of Voyages
(a) The Master shall perform the voyages with due despatch and shall render all customary assistance with the Vessel’s crew. The Master shall be conversant with the English language and (although appointed by the Owners) shall be under the orders and directions of the Charterers as regards employment and agency; and the Charterers shall perform all cargo handling, including but not limited to loading, stowing, trimming, lashing, securing, dunnaging, unlashing, discharging and tallying, at their risk and expense, under the supervision of the Master.
Clause 13 Spaces Available
(a) The whole reach of the Vessel’s holds, decks and other cargo spaces (not more than she can reasonably and safely stow and carry), also accommodation for supercargo, if carried, shall be at the Charterers’ disposal….
(b) In the event of deck cargo being carried, the Owners are to be and are hereby indemnified by the Charterers for any loss and/or damage and/or liability of whatsoever nature caused to the Vessel as a result of the carriage of deck cargo and which would not have arisen had deck cargo not been loaded.
Clause 17 Off Hire
In the event of loss of time from deficiency and/or default and/or strike of officers or crew, or …….. any other similar cause preventing the full working of the Vessel, the payment of hire and overtime, if any, shall cease for the time thereby lost.
Clause 27 Cargo Claims
Cargo claims as between the Owners and the Charterers shall be settled in accordance with the Inter-Club New York Produce Exchange Agreement of February 1970, as amended May 1984, or any subsequent modification or replacement thereof. See Clause 90.
Clause 28 Cargo Gear and Lights
The Owners shall maintain the cargo handling gear of the Vessel which is as follows …..
Clause 31 Protective Clauses
This Charterparty is subject to the following clauses all of which are also to be included in all bills of lading or waybills issued hereunder:
(a) CLAUSE PARAMOUNT
This bill of lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States, the Hague Rules, or the Hague-Visby Rules, as applicable, or such other similar national legislation as may mandatorily apply by virtue of origin or destination of the bills of lading, which shall be deemed to be incorporated herein and nothing herein contained shall be deemed a surrender by the carrier of any of its rights or immunities or an increase of any of its responsibilities or liabilities under said applicable Act. If any term of this bill of lading be repugnant to said applicable Act to any extent, such term shall be void to that extent, but no further.”
The Award
The Vessel is a multi-purpose general cargo ship with capacity for deck cargo. Pursuant to the Charterparty, packs of timber were loaded under deck at Loviisa and the Vessel then proceeded to Kokkola where packs were loaded under deck and on deck. It was whilst en route to the discharge port of Alexandria that the casualty occurred (paragraph 1 of the Award):
“The vessel then sailed, departing Kokkola at around 1600, 27th February, bound for Alexandria. Owners said that at 1930, 1st March, the cargo shifted to starboard in heavy WSW winds and high seas, causing cargo to be lost overboard. Power was lost on the main engine and the Master was forced to anchor with 8 shackles in the water in what were plainly unpleasant conditions. Having sorted out the engine problems the vessel then proceeded to nearby Halmstad as a port of refuge. There all the remaining deck cargo was discharged and most of it subsequently reloaded.”
This gave rise to various claims and cross claims. As the Tribunal found (paragraph 1):
“The diversion and stay in Halmstad took both time and money. Charterers made deductions from hire in respect of off-hire, bunkers and alleged costs incurred and additionally claimed further expenses of €305,455.55. Owners in turn counterclaimed for hire and expenses totalling €403,931.71. Owners further sought an indemnity in respect of any cargo claims that might be brought against them arising out of the loss.”
The arbitration was primarily concerned with the likely cause of the shift of cargo and subsequent loss of part of it. In that regard “attention focused on three elements: the stowage of the cargo, the lashing of it and the stability of the vessel” (paragraph 2 of the Award).
The Tribunal’s conclusion on this central issue is set out in paragraphs 14 and 15 of the Award as follows:
“14. Pulling the somewhat limited factual evidence together, based largely as it was on photographs taken at Kokkola and Halmstad and the survey reports made whilst the vessel discharged and reloaded the deck cargo at Halmstad, and taking all the expert evidence into account we reached two firm and one perhaps not so firm conclusions. Firstly we had no doubt that the method of stowage was unsatisfactory. The excess height of the “special” packages on the first tier in deck meant that it was not possible to bind in the outboard tiers tight with the hatch cover tiers. There was some indication that some void spaces had been left in the tiers: again unsatisfactorily. Lastly there was the excessive height of the stow caused by the fourth tier on the hatch covers. Poor stowage was a cause of the casualty (despite the evidence that the stevedores had extensive experience exporting sawn timber cargoes). We also concluded, again without hesitation, that the use of container lashing equipment rather than employing the recommended conventional lashings with turnbuckles was unsatisfactory…Lastly, as we have already observed, we rather doubted the evidence in the log book that the lashings were checked the two days following departure from Kokkola and the failure to do so on 1st March with ferocious weather forecast was inexcusable. Whilst we do not criticise the crew for not checking the lashings immediately on sailing from Kokkola, we could but conclude that faulty lashing was also a factor in this casualty.
15. This leaves us with our marginally less firm views as to stability or rather instability being a factor in what occurred. The fact that the vessel did not record uncomfortably and disconcertingly long roll periods was relied upon by Mr Boyd but we discounted this: the log book and statement of evidence of the Master and Chief Officer was unreliable and more remarkable for what it did not say than what it did. One thing was clear: the vessel was far less stable than the Chief Officer calculated it was and it seems probable that if he had known the true nature of the vessel’s condition he would not have permitted the fourth tier of deck cargo to be loaded. It may have been the blatant breach of the vessel’s own loading manual that caused Owners to be less than frank in their account and record of events. However, in such circumstances, Owners should not expect to receive the benefit of any doubts when we have to determine, on the balance of probabilities, whether or not instability was a causative factor in this case. We concluded that it must have played a role (no pun intended): extreme rolls first to one side then another, particularly in the oblique seas encountered in the turn to starboard, must have imposed additional strains on an already unsatisfactory stow. We so find.”
The Tribunal accordingly held that there were three effective causes of the casualty, namely: an inadequate method of stowage of the deck cargo; unsatisfactory lashing equipment and inadequate care of the lashings during the voyage, and the instability of the Vessel.
As to the legal consequences of these findings, the Tribunal held (paragraph 17):
“The fact that the Master has the right to supervise does not relieve Charterers of their primary duty to stow safely, even if the Master or other relevant crewmember ought reasonably to have detected the defects and acted to remedy them. Charterers remain responsible for proper loading/stowage/lashing.”
They then pointed out that there are (paragraph 18):
“two well known exceptions to all this, as explained in Court Line: where the Master actively ‘intervenes’ and this intervention leads to a casualty which would not have otherwise occurred absent his involvement and, secondly, where there are matters that are uniquely within the vessel’s knowledge. The vessel’s stability, of course, is such a matter.”
In relation to stability they concluded that the Charterers could bring themselves within the exception (paragraph 19):
“The vessel’s stability is another issue altogether and, of course, is indeed uniquely within (in this case) the Chief Officer’s knowledge, no doubt in conjunction with the Master. The lack of evidence in this regard was striking, in the extreme…… We know nothing about any exchanges between the shippers, stevedores and the vessel regarding the loading operations: who gave what weights or volumes to whom, in particular, how it was agreed (as presumably it was) that a fourth tier should be loaded on the hatch tops? A startling lack of evidence indeed. We must assume that there were such exchanges and that it was determined that a fourth tier was permissible in the vessel: a classic case therefore of the second Court Line exception. Given our finding that the vessel’s instability was a cause of the casualty, we could but conclude that Charterers were able to bring themselves within that exception.”
They then went on to consider whether the Hague-Visby Rules incorporated into the Charterparty might have provided Charterers with an “additional such route given that the vessel was, on our analysis, unseaworthy on sailing”, and concluded that it did not (paragraph 20).
They then considered whether the Owners were in any event protected by Clause 13(b) of the charterparty and held that they were (paragraph 22):
“However, we are here concerned with a deck cargo, improperly stowed and lashed and probably causing stability problems to a vessel that would have had no such problems, absent a deck cargo. Shipping law, since time almost immemorial, has always put deck cargoes into a special category. One only has to look at the Hague or the Hague-Visby Rules to see that even these legislators (we do not mean this in any pejorative sense, but it highlights the point we are making) go out of their way to distinguish between under and on deck stowage. So putting Clause 13(b) into the context we believe it should inhabit, and having regard to its clear wording, we concluded that it was wide enough to protect or provide an indemnity for Owners from every aspect of this case: damages, off-hire, expenses, and any cargo claims, all resulting from “the carriage of deck cargo and which would not have arisen had deck cargo not been loaded”.
Question 1
Where a Charterparty incorporates the Hague/Hague-Visby Rules and the Charterparty envisages deck cargo will or may be carried but does not state and/or identify what and/or how much deck cargo is being carried (“an on-deck statement”), do the Rules apply to the carriage of deck cargo or is their application excluded by virtue of Article 1(c) of the Hague/Hague-Visby Rules.
It was common ground between the parties that the Hague-Visby Rules were incorporated into the Charterparty by virtue of the standard Clause Paramount at Clause 31 of the Charterparty, Finland being a contracting state to the Hague-Visby Rules.
However, although the Hague-Visby Rules were incorporated into the Charterparty the Tribunal concluded that they did not apply to the carriage of deck cargo for the reasons set out in paragraph 20 of their Award:
“The problem of adapting rules designed for bills of lading into this charter was particularly acute. The Rules expressly do not apply to deck cargo, so do we simply ignore them?...We concluded that we did and the Rules did not apply to this incident.”
The Hague-Visby Rules provide as follows :-
“Article 1
In these Rules, the following words are employed with the meaning set out below:-
….
(b) “Contract of carriage” applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea including any bill of lading or any similar document as aforesaid issued under or pursuant to a charterparty…..
(c) “Goods” includes goods, wares, merchandise and articles of every kind whatsoever except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried.
Article II
Subject to the requirements of Article VI, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth
Article III
1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to
(a) Make the ship seaworthy….
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.”
Pursuant to Article II the obligations under Article III Rule 1 apply to every contract of carriage of goods by sea. Goods are defined in Article 1(c) as including all types of articles and goods etc whatsoever, except animals and cargo which :-
is carried on deck; and
by the contract of carriage is stated as being carried on deck – the necessary “on-deck statement”.
The Charterers contended that the “contract of carriage” referred to in Article I (c) is the Charterparty and that since the Charterparty does not contain the necessary on-deck statement, the exclusion of deck cargo does not apply. The Owners contended that the “contract of carriage” refers to the bill(s) of lading issued for the deck cargo, not the Charterparty.
As was common ground between the parties, where the Hague/Hague-Visby Rules are incorporated into a charterparty:
The charterparty “must . . be read as if the provisions of the Act were written out therein and thereby gained such contractual force as a proper construction of the document admits.” Only provisions in the Rules that are “insensible” or “inapplicable” in the context of a time charter will be disregarded - see Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Ltd [1959] AC 133, 152, 155 (per Viscount Simonds); “The provisions of the Act are, therefore, to be incorporated as terms of the contract [i.e. the Charterparty] as far as applicable” - Adamastos (Lord Somervell at 184).
As the House of Lords made clear in Adamastos, an important purpose of incorporating the Rules into a charterparty is “to import into the contractual relation between owners and charterers the same standard of obligation, liability, right and immunity as under the rules subsists between carrier and shipper” – (Viscount Simonds at 154).
The Charterers submitted that Adamastos supported a further “principle”, namely that to give effect to the Rules as incorporated words will be manipulated so that (1) references to “this bill of lading” will be read as references to “this charterparty” and (2) references to “the contract of carriage” will be read as references to the charterparty.
In support of that argument they relied in particular on the following passages from the Adamastos case:
“By the paramount clause, the provisions just quoted are deemed to be incorporated in the charterparty. It is only by virtue of section 2 that the rights and immunities on which the owners rely can come into operation, since it is section 2 which confers these rights and immunities; and it is impossible to incorporate section 4 in the charterparty without also incorporating the section which provides that the "carrier" shall be entitled to the rights and immunities set forth in section 4.
Applying section 2 to the present charterparty, which is, of course, a contract for the carriage of goods by sea, the section only brings these rights and immunities into operation….” (Lord Morton at 163-4) ….
“As the parties have chosen to incorporate in a charterparty provisions which are designed to apply, and only to apply, to bills of lading, one must, I think, infer that they intended these provisions to be incorporated mutatis mutandis; and in order to see what this involves I would begin by trying to read references to bills of lading in the Act as if they were references to charterparties. That necessarily involves the rejection as insensible of the provisions of section 5 of the Act that its provisions shall not be applicable to charterparties, and I find little difficulty in taking that step.
Then there are a number of provisions in the Act which, from their very nature, can only apply to bills of lading, and which become meaningless if one tries to make them apply to a charterparty...”(Lord Reid at 170)
…
“Turning to the document incorporated by the paramount clause, namely, the United States Act, one finds, as was to be expected, that it applies only to contracts of carriage of goods by sea covered by a bill of lading or similar document of title, and the outlook of the various sections of the Act is necessarily on such contracts. To give any effect to the contractually incorporated document it must be construed, so far as possible, with reference to a charterparty and not a bill of lading. This is necessarily involved in the step that has already been taken of regarding as inapplicable the words, "The provisions of the Act shall not be applicable to charterparties." The next step, in my opinion, is to read "contract of carriage" as meaning a contract between a carrier and a charterer and not one between a carrier and a shipper. A charterparty is one form of contract for the carriage of goods by sea.” (Lord Keith at 178)
The Charterers further submitted that:
It is Article II of the Hague/Hague Visby Rules which imposes the responsibilities of Article III and the immunities of Article IV to “contracts of carriage of goods by sea” with “contracts of carriage” having been defined by Article 1(b).
Article II needs to be satisfied since “It is only by virtue of [Article] 2 that the rights and immunities on which the owners rely can come into operation since it is [Article] 2 which confers these rights and immunities.”- Adamastos per Lord Morton at 164.
It is because one reads the references to contract of carriage as being a reference to the charterparty that the Rules apply at all. Just as the “contract of carriage” in Article II is the charterparty and not the bill of lading so too the “contract of carriage” in Article 1(c) is also the charterparty and not the bill of lading.
I accept that in order to make sense of the Rules as incorporated it will generally be necessary to read “bill of lading” or “contract of carriage” as referring to the governing charterparty. However, there is no “principle” or “rule” that this must always be so. Verbal manipulation is a process which should be carried out intelligently rather than mechanically and only in so far as it is necessary to avoid insensible results.
I also accept that Lord Keith puts the matter generally when he says that the “next step is to read "contract of carriage" as meaning a contract between a carrier and a charterer and not one between a carrier and a shipper” and that, given the wording used at the beginning of the paragraph, he may well have been here referring to the definition set out in Article 1(b). However, the House of Lords were not considering the specific issue of construction which arises in the present case. Further, given the general principle that provisions which are “insensible” or “inapplicable” to a charterparty are to be disregarded, Article 1(b) might well be regarded as being such a provision, and indeed Cooke on Voyage Charters (6th edition) cites it as a “clear example” of this (para. 85.10).
In my judgment whether “contract of carriage” in the Rules refers to the bill(s) of lading or the charterparty depends on the context in which it is being used. Unlike in relation to the opening paragraph of Article II, there is no necessary reason for construing “contract of carriage” in Article I(c) as referring to the charterparty as opposed to the bill of lading. Indeed it is a provision which can only sensibly apply to the bill of lading since it is only the bill of lading which is ever likely to contain an on-deck statement.
Time charters are, by definition, entered into before any cargo is loaded on to the vessel. Time charters can last for a few weeks or months or for years. Unless the contract in question happens to be a trip time charter (as the present one happened to be) the charter will be concluded before it is even known what voyages are to be undertaken or (save in the case of specialist tankers/carriers) what cargoes are to be carried. Although a time charter might give liberty to carry cargo on deck, in most cases it will be not be known whether any cargo is ever going to be loaded on deck at all at the time the charter is concluded. Further, it will in any event be virtually impossible for the parties to know at the time the time charter is concluded how much cargo is actually going to be loaded on deck. The practical effect of the Charterers’ construction would therefore be that the carriage of deck cargo under the NYPE charterparty will almost invariably be subject to the Hague/Hague-Visby Rules and to render the Article I(c) liberty to contract out of the Rules illusory.
Moreover, it makes good sense for the liability for deck cargo under the time charter to be co-extensive with that under the bill of lading. As was made clear in Adamastos, the parties incorporate the Rules because “they wish to import into the contractual relation between owners and charterers the same standard of obligation, liability, right and immunity as under the rules subsists between carrier and shipper” - [1959] A.C. at 154, per Viscount Simonds.
As stated by Clarke LJ in The Fjord Wind [2000] 2 Lloyd’s Rep. 191, 197, para 15:
“The general approach in Adamastos would to my mind be included in the background knowledge (referred to by Lord Hoffmann) which the parties would have had in mind if they had thought about it. In short I accept the submissions made by Mr. Hamblen, Q.C. that it is extremely unlikely that the parties would have agreed a different regime for cargo damage under a bill of lading and the charter-party. They would be expected to apply a Hague or Hague-Visby Rules’ regime and not to have agreed an absolute warranty of seaworthiness. In particular they would not be likely to have agreed a different regime for different voyages which were both subject to the same contract in respect of which the charterers were to pay freight.”
These considerations equally apply in the present case. The consequence of the Charterers’ construction is a dislocation between the contractual regime applicable to the carriage of deck cargo under the bill of lading and that under the Charterparty. Under the bill of lading an on-deck statement means that the Rules are inapplicable and that a different regime of responsibility applies, whilst under the Charterparty the Rules will invariably govern the carriage.
Further, it is the Charterers’ case that the effect of Article III Rule 8 is to render null and void any provision in the charter “relieving the carrier or the ship from liability for loss or damage to or in connection with the goods arising from the negligence, fault or failure in the duties and obligations provided in this Article”. This means that, in contrast to the position under the bill of lading, owners would not be free to carry deck cargo on their own conditions or as may be differently stipulated for in the Charterparty.
Nor do I accept the Charterers’ argument that there is anything uncommercial about the terms governing carriage of deck cargo being determined by the bill(s) of lading rather than the Charterparty. It is generally appropriate that the terms governing carriage of a particular deck cargo should be related to the cargo in question, and in any event under a time charter the terms of the bill(s) of lading will generally be a matter within the control of the Charterers since the Master is obliged to sign bills “as presented”.
For all these reasons I conclude that when written out in the Charterparty, Article I(c) requires the bill(s) of lading rather than the Charterparty to contain the on-deck statement and that this is the relevant “contract of carriage”.
The Charterers sought to raise a further argument that even if the “contract of carriage” refers to the bill of lading the Owners do not have a finding in the Award that the bills of lading contained an on-deck statement. However, I am not satisfied that this falls within the question of law for which permission to appeal was given. Further, it is by no means clear that this was a question of law which the Tribunal was asked to determine, in which case it would not be open to the Charterers to raise it on any appeal. In any event, I agree with the Owners that this is necessarily implicit in the Tribunal’s conclusion. Although they have not spelled this out, the only way in which the Tribunal could conclude, as they did, that the Rules “do not apply to deck cargo” is on the basis that there was an on deck statement in the bill of lading as required by Article I(c).
For completeness, I would add that I agree with the Tribunal’s conclusion that the Rules applied to the Kokkola voyage (paragraph 20):
“Owners said that [the Rules] did not apply in any event as they bit “before and at the beginning of the voyage”, that is Loviisa, not at Kokkola. This was ingenious but flawed, in our view: the voyage for the cargo loaded at Kokkola commenced at Kokkola”
Where there is loading at more than one port under a charterparty, the relevant “voyage” is the voyage for the cargo in question and the duty of due diligence therefore arises at each different load port - see Cooke on Voyage Charters at para. 85.106.
I therefore agree with the Tribunal’s conclusion that the Hague-Visby Rules did not apply to the carriage of the deck cargo.
The principal significance of that conclusion is that the Charterers cannot rely on Article III Rule 8 either as an aid to the proper construction of clause 13(b) or as rendering it null and void in so far as it relieves the Owners “from liability for loss or damage to or in connection with the goods arising from the negligence, fault or failure in the duties and obligations provided in this Article”. However, it does not mean that there is no relevant negligence or breach of duty by the Owners.
As the Tribunal explained, under the unamended clause 8 the Charterers are responsible for proper loading/stowage/lashing even if it renders the vessel unseaworthy. In general, the Master’s right to supervise these operations and intervene if the seaworthiness of the vessel is affected does not involve a duty to Charterers to do so. This is made clear by the two recent decisions referred to by the Tribunal: The Imvros [1999] 1 Lloyd’s Rep 848 and Compania Sud American Vapores v MS ER Hamburg [2006] 2 Lloyds’s Rep 66.
Nevertheless, in the leading case of Court Line v Canadian Transport Co. Ltd [1940] AC 934 it was recognised that there are two situations in which responsibility for loading/stowage/lashing will shift to the Owners. These were referred to by the Tribunal as the “two well known exceptions”. In the Compania Sud case, in a passage taken from Wilford on Time Charters (5th ed) para. 20.18, they were expressed as follows:
“(1) where the master actually supervises the cargo operations and loss or damage is attributable to that supervision; and
(2) where loss and damage is attributable to the want of care “in matters pertaining to the ship of which the master was (or should have been) aware but the charterers were not, such as for example, the stability characteristics of the particular ship.”
These exceptions are derived in particular from the judgment of Lord Porter in Court Line at 951–952:
“In my opinion by their contract the charterers have undertaken to load, stow and trim the cargo, and that expression necessarily means that they will stow with due care. Prima facie such an obligation imposes on them the liability for damage due to improper stowage. It is true that the stowage is contracted to be effected under the supervision of the captain, but this phrase does not, I think, make the captain primarily liable for the work of the charterers' stevedores. It may indeed be that in certain cases as, eg, where the stability of the ship is concerned the master would be responsible for unseaworthiness of the ship and the stevedores would not. But in such cases I think that any liability which could be established would be due to the fact that the master would be expected to know what method of stowage would affect the ship's stability and what would not, whereas the stevedores would not possess any such knowledge. It might be also that if it were proved that the master had exercised his rights of supervision and intervened in the stowage, again the responsibility would be his and not the charterers. The primary duty of stowage, however, is imposed upon the charterers and if they desire to escape from this obligation they must, I think, obtain a finding which imposes the liability upon the captain and not upon them.”
The Tribunal found that the Charterers could bring themselves within the second exception and that this was a “classic case” of the application of that exception.
The legal consequence of that finding is that the Owners were contractually responsible for the improper loading/stowage of the cargo in so far as it resulted in the instability and consequent unseaworthiness of the Vessel. As the Tribunal observed, the Hague-Visby Rules potentially provided an “additional” route to fix Owners with such responsibility, but on the Tribunal’s findings such responsibility was already established.
Although these were not matters addressed by the Tribunal, there were various other ways in which it might be said, on the Tribunal’s findings, that there was a breach of duty by Owners regardless of the conclusion that the Hague-Visby Rules did not apply to the carriage of deck cargo. For example, it could be said that the Owners would in any event be under a duty under the Charterparty to take reasonable care of the cargo: even if the Owners did not owe duties as a common carrier, they would probably in any event owe a duty to take reasonable care of the cargo as bailees and under the general term implied into any contract of services to perform those services with reasonable skill and care.
The significance of these matters is that, in relation to Question 2, even if the Hague-Visby Rules do not apply to the carriage of the deck cargo, this is a case in which the Charterers can contend, on the Tribunal’s findings, that the casualty was effectively caused by Owners’ negligence in both the factual and the legal sense and by unseaworthiness for which Owners were contractually responsible.
Question 2
In respect of what loss and/or damage and/or liability does Clause 13(b) of the NYPE 1993 Form, on its true construction, provide an indemnity?
Approach to Construction
The Owners stressed that in Photo Production v Securicor Transport Ltd. [1980] A.C. 827 the House of Lords rejected the use of strained constructions to prevent an exclusion clause from excluding liability for a fundamental breach of contract. The House of Lords held that, since Parliament had by the Unfair Contract Terms Act 1977 legislated to provide the protection it deemed necessary, there was no need, especially in the context of commercial contracts, for the courts to give exclusion clauses anything other than their natural meaning.
However, it is clear that the House of Lords were not casting any doubt on the well established guidelines in relation to the construction of exclusion and indemnity clauses set out in Canada Steamship Lines Ltd v The King [1952] AC 192 – see, for example, Lord Wilberforce at 846E. These had recently been confirmed and applied by the House of Lords in Smith v South Wales Switchgear [1978] 1 WLR 165 and have been applied in many subsequent cases.
An authoritative modern statement of how these guidelines are to be applied is provided in Lord Bingham’s judgment in HIH Casualty & General v Chase Manhattan Bank [2003] 2 Lloyds Rep 61 (at para. 11):
“There can be no doubting the general authority of these principles, which have been applied in many cases, and the approach indicated is sound. The Courts should not ordinarily infer that a contracting party has given up rights which the law confers upon him to an extent greater than the contract terms indicate he has chosen to do; and if the contract terms can take legal and practical effect without denying him the rights he would ordinarily enjoy if the other party is negligent, they will be read as not denying him those rights unless they are so expressed as to make clear that they do. But, as the insurers in argument fully recognized, Lord Morton was giving helpful guidance on the proper approach to interpretation and not laying down a code. The passage does not provide a litmus test which, applied to the terms of the contract, yields a certain and predictable result. The Courts’ task of ascertaining what the particular parties intended, in their particular commercial context, remains.”
The three stage guidance set out in Canada Steamship [1952] AC 192 at 208, is as follows:
“(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter the “proferens”) from the consequence of the negligence of his own servants, effect must be given to that profession.
(2) If there is not express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens…….
(3) If the words used are wide enough for the above purposes, the court must then consider “whether the head of damage may be based on some ground other than that of negligence”….. The other ground must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification…the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants.”
That the Canada Steamship guidance is an aid to construction and not a rigid code to be mechanically applied has been emphasised in a number of cases – see, for example, HIH v Chase, paras 11-12 (Lord Bingham), 61-62 (Lord Hoffman), 95 (Lord Hobhouse) & 116 (Lord Scott); Smith v South Wales Switchgear at 168G-H (Viscount Dilhorne) & 177H (Lord Keith); Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 at 414G-H (Lord Denning); The Raphael [1982] 2 Lloyd’s Rep. at 45, col. 1 (Donaldson LJ) and 49, col. 1 (May LJ); BHP Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep. at paras 47 (Evans LJ) and 73 – 74 (May LJ).
In relation to the first principle, the cases show that in order to expressly cover negligence it will generally be necessary for the clause to contain the word “negligent”, “negligence” or some synonym for these words. As stated by Lord Fraser in Smith v South Wales Switchgear at 173B:
“I do not see how a clause can “expressly” exempt or indemnify the proferens against his negligence unless it contains the word “negligence” or some synonym for it”.
In relation to the third principle, the other head of damage must be realistic. The court should disregard other proposed grounds of liability to which “it is unlikely the parties would have addressed their minds” - see, The Raphael [1982] 2 Lloyd’s Rep. at 45, col. 1 (Donaldson LJ), 49, col. 1, 50, col. 1 (May LJ).
If the words are wide enough to cover negligence and liability may realistically arise otherwise than through negligence, it is now clear that this will not necessarily be “fatal” to the proferens. The clause will ordinarily be construed as not covering negligence, but not if the words used in their contractual setting make it clear that the parties intended to cover such liability.
That the existence of a realistic liability which arises otherwise than through negligence will ordinarily but not necessarily mean that negligence is not covered has been stated in a number of cases. For example:
“if the only liability of the party leading the clause is a liability for negligence, the clause will more readily operate to exempt him” – per Scrutton LJ in Rutter v Palmer [1922] KB 87
“The law reflects this fact by assuming that if there are two potential grounds of liability, both of them real and foreseeable, prima facie any words of exemption will be directed at the non-negligent ground of liability” – per Donaldson LJ in The “Raphael” [1982] 2 Lloyd’s Rep. 42 at p45. As May LJ stated at p49 of the same case, it “should usually” do so (emphasis added).
That it is necessary that it be made clear that negligence is covered is borne out by the passage from Lord Bingham’s judgment in HIH v Chase as set out above. As Buckley LJ noted in Gillespie Bros [1973] QB 400 at 419:
“It is however a fundamental consideration in the construction of contracts of this kind that it is inherently improbable that one party to the contract should intend to absolve the other party from the consequences of the latter’s own negligence. The intention to do so must therefore be made perfectly clear, for otherwise the court will conclude that the exempted party was only to be free from liability in respect of damage occasioned by causes other than negligence for which he is answerable.”
That inherent improbability equally applies to indemnity clauses, if not more so. As Lord Dilhorne stated in Smith v South Wales Switchgear at 168A-E:
“one must, I think, regard it as even more inherently improbable that one party should agree to discharge the liability of the other party for acts for which he is responsible. In my opinion it is the case that the imposition by the proferens on the other party of liability to indemnify him against the consequences of his own negligence must be imposed by very clear words.”
How inherently improbable it is that negligence should be excluded will depend on all the circumstances, including the contractual context and admissible background – see Lord Hoffman in HIH v Chase at para. 63.
The Canada Steamship line of cases have primarily been concerned with the issue of whether the clause covers negligence of the proferens. However, in the context of carriage of goods by sea, similar principles would apply to whether it covers a breach of the “fundamental” or “overriding” duty of seaworthiness. As Bigham J said in Sleigh v Tyser [1900] 2 QB at 337-338: “To exclude the implied warranty of seaworthiness the words used must be express, pertinent and apposite.” – see also The Gallileo [1914] P 9 (“at shippers risk” did not exclude liability for unseaworthiness) and Steel v State Line SS Co [1877] 3 App. Cas. 72 (an express exception of negligence did not cover loss due to unseaworthiness).
Construction of clause 13(b)
Applying the Canada Steamship principles to clause 13(b):
it is not merely an exclusion clause but also an indemnity clause;
there is no express reference to negligence on the part of Owners being exempted/indemnified;
there is no express reference to unseaworthiness being exempted/indemnified;
the words used are nevertheless wide enough to cover negligence/unseaworthiness; and
(for reasons set out below) Owners may realistically incur loss, damage or liability (and be indemnified for them under the clause) without negligence or a breach of the seaworthiness obligation.
This is therefore a clause of a kind which “would usually” be construed as not covering negligence or unseaworthiness and which needs to make that intent clear if it is to do so.
Turning to consider the language of the clause, the kinds of loss covered are expressed in wide terms – “any loss and/or damage and/or liability of whatsoever nature” – but that is then linked to a causal requirement which is quite narrowly defined – “as a result of the carriage of deck cargo and which would not have arisen had deck cargo not been loaded”.
The natural construction of this causal requirement is that the carriage of the deck cargo has to be an effective cause of the loss, damage or liability. A mere “but for” causal requirement is generally insufficient in law, and this is borne out by the express “but for” requirement of the last phrase in the clause – “and which would not have arisen had deck cargo not been loaded”. That is a necessary but not sufficient causal requirement and its inclusion makes it clear that the “as a result of” requirement is different and additional.
The context of the clause is the carriage of deck cargo which, as the Tribunal observed, has long been considered as a special case. That is because it is recognised as being more hazardous and involving different and greater risks than the carriage of under deck cargo. Regardless of fault, carriage on deck and the exposure to the wind, waves and weather which it involves, carries with it obvious risks of loss and damage. The most obvious risk is of loss of or damage to the deck cargo itself but a shifting cargo may equally cause damage to other cargo or to the vessel itself or indeed to the crew. It may also give rise to the need to seek a port of refuge and to liabilities in salvage or general average. It is therefore perfectly understandable for the Owners to wish to be protected and indemnified against the risks inherent in the carriage of deck cargo.
The various risks inherent in the carriage of deck cargo means that the clause has realistic content regardless of negligence or breach of the seaworthiness obligation. General average and salvage are particularly good examples of no fault liabilities which may arise from the carriage of deck cargo. In extreme bad weather a well stowed deck cargo may nevertheless shift, and, for example, require jettison of cargo leading to a liability in general average. Equally a vessel may, without fault, suffer a main engine breakdown which leads to shifting of the exposed deck cargo and the need for salvage. As stated in the arbitrator’s award in The Darya Tara [1997] 1 Lloyds Rep 42, itself an example of a case involving shifting of a deck cargo resulting in the need to go to a port of refuge where no fault was involved:
“Any passage across the Bay of Biscay in winter with a deck cargo involves an obvious degree of risk. Deck cargoes shift even on vessels which are purpose built and fully equipped for the stowage of deck cargoes…if a deck cargo shifts beyond a certain point not only is cargo likely to be lost or damaged but also the safety of the vessel is likely to be put in danger – with the inevitable result that she will have to put into a port of refuge”.
There is therefore substantial and realistic loss, damage and liability which may be caused to the Owners as a result of the inherent risks involved in the carriage of deck cargo without any negligence or breach of the seaworthiness obligation being involved.
As to the inherent probabilities, the extreme width of the indemnity provided on the Tribunal’s construction of the clause is striking. Any loss, damage or liability which would not have occurred if the deck cargo had not been loaded is covered. This would potentially give rise to wide ranging, surprising and unpredictable liabilities.
As the Charterers point out, and was not seriously challenged, the effect of the Tribunal’s construction is that Clause 13(b) :-
Enables Owners to recover all manner of loss and damage, including any physical damage to the vessel, any liabilities to salvors or in general average, any liabilities to other third parties and any liabilities to the Charterers themselves, as well as hire for any periods of off-hire.
Provides these exceptions and indemnities even where the cause of the incident was :-
a matter for which Owners are otherwise responsible under the terms of the Charterparty; and
negligence on the part of Owners, their servants or agents; and
a breach of the overriding duty of seaworthiness; and
regardless of whether or not the incident was proximately caused by any characteristics or dangers inherent to deck cargo.
If, by way of example, one takes the case of a collision for which Owners would otherwise be responsible due to a breach of the seaworthiness obligation and that as a result of the collision, deck cargo shifts and falls causing damage to the carrying vessel and the colliding vessel. On the Tribunal’s construction of Clause 13(b), Owners would be entitled to an indemnity from Charterers in respect of the loss and damage to the deck cargo and also in respect of the loss and damage which the deck cargo, in falling, caused to the carrying vessel and colliding vessel. Further, if the loss of the deck cargo caused the vessel to be unstable so that salvage assistance was needed, Owners could claim against Charterers in respect of their salvage liability. Further for the entire period, Owners would also be entitled to re-claim hire.
By way of further example, if one assumes an incident due to a breach of Owners’ seaworthiness obligation (say instability as here) as a result of which deck cargo was lost, the vessel became further unstable, the vessel capsized and all cargo was lost. Again, on the Tribunal’s construction Owners would be indemnified in respect of all the consequences of the capsize including the loss of the under-deck cargo.
The Charterers forcefully submitted that these would be very surprising results. It is extremely inherently improbable that the parties would intend these wide ranging liabilities to fall on Charterers merely because they would not have occurred if deck cargo had not been loaded and notwithstanding that the effective cause of the loss was the negligence of the owners and/or unseaworthiness of the Vessel.
The Owners laid great stress on the wide language of the clause and in particular the reference to “any loss and/or damage and/or liability of whatsoever nature”.
It is correct that there have been a number of cases in which wording of a wide nature such as this has been held to cover negligence – for example: HIH v Chase (“no liability of any nature”); Gillespie Bros v Roy Bowles (indemnity against “all claims or demands whatsoever by whomsoever made”).
On the other hand, there have also been cases where it has been held not to do so – for example, Smith v South Wales Switchgear (an indemnity for “any liability, loss, claim or proceedings whatsoever under statute or common law”); Thomas Henry Jose v MacSalvors Plant Hire Ltd [2009] EWCA Civ 1329 (an indemnity for “all claims by any person whatsoever for injury to person or property”). These diverging outcomes illustrate how the crucial question is the meaning of the words used in their context, not merely whether a particular phrase has been used.
The Owners placed reliance on a number of cases relating to deck cargo in which it has been held that words such as “howsoever caused” are sufficiently clear to cover negligence and indeed unseaworthiness. In this connection they referred in particular to The Danah [1993] 1 Lloyd’s Rep. 351 and The Imvros [1999] 1 Lloyd’s Rep. 848.
In The Danah the deck cargo clause (cl. 72) provided that the deck cargo was “carried on deck at Shipper’s risk with responsibility for loss or damage howsoever caused”. Saville J rejected the charterers’ argument that clause 72 did not cover negligence, explaining (at 354, col. 1) that it seemed clear to him that the deck cargo clause was “apt to exclude loss of or damage to deck cargo caused by want of care on the part of the owners”. He referred to and relied upon the earlier case to like effect of Joseph Travers & Sons Ltd v Cooper [1915] 1 KB 73.
The “Bills of Lading” clause (clause 62) in The Imvros [1999] 1 Lloyd’s Rep. 848 provided that cargo “carried on deck at Shippers’ risk without responsibility for loss or damage however caused”. Langley J held (at 852, col. 2 – 853) that that clause was broad enough to cover both negligence and unseaworthiness. He held that the exclusion covered “any cause and there is no justification for excluding unseaworthiness as a cause”. He also held that “since the widespread adoption of the Hague Rules there was no need for the Courts to be astute to restrict the usual meaning and extent of words of exclusion where the rules permitted exclusions to be agreed, and particularly so where under the rules the obligation to provide a seaworthy ship is not an absolute one but a due diligence one.”
The Charterers pointed out that The Imvros has been the subject of academic criticism - see “Problems with Deck Cargo” [2000] LMCLQ 295. It has also been disapproved and not followed by the Court of Appeal in Singapore - see Sunlight Mercantile v Ever Lucky [2004] 2 Lloyds Rep 174.
However, these cases were concerned with a much narrower scope of responsibility for loss or damage than that contended for in this case, namely loss or damage to the deck cargo itself. Further, they concerned clauses which defined the causes of loss covered in the widest possible terms. In the present case there is no equivalent language to “howsoever caused”. On the contrary the operation of the indemnity is limited to a single, stated cause.
As Gillespie Bros v Roy Bowles illustrates, a clause which defines the losses covered in wide terms such as “whatsoever” may be held to be equivalent to a clause which covers all losses “howsoever caused”. As Buckley LJ stated at 421A:
“The nature of any claim is essentially linked with and dependent on the cause from which it arises, and any indemnity extending in express terms to all claims and demands of whatsoever kind must, in my opinion, extend to all claims and demands however caused, including claims for negligence”.
But, that line of reasoning does not apply in this case where it is made clear that the indemnity does not cover all causes, but rather only one cause.
Having regard to the language of clause 13(b), its context, the fact that it has realistic and meaningful content if negligence and breach of the seaworthiness obligation is not covered, the inherent probabilities and the relevant case law, I have reached the clear conclusion that it only covers loss, damage or liability effectively caused by the carriage of deck cargo and that it does not cover loss, damage or liability effectively caused by negligence or unseaworthiness.
This conclusion is further borne out by the Canada Steamship guidance that a clause of this kind will ordinarily not cover negligence.
Alternatively, on any view it is not clear that the clause covers negligence or unseaworthiness and, in accordance with the Canada Steamship guidance, that means that it does not do so.
In reaching their contrary conclusion the Tribunal relied on the fact that shipping law has always put deck cargo “in a special category.” However, as Cooke on Voyage Charters points out at para 6.32: “where goods are lawfully carried on deck, the responsibility of the shipowner with regard to their safety is, generally speaking, the same as with regard to any other cargo”; and as Mance J noted in The Darya Tara [1997] 1 Lloyds Rep 42 at p46: “In the absence of some specific provision indicating the contrary, the owners by permitting the carriage of deck cargo should be taken as having accepted the associated risks, of which the owners would in the circumstances have been well aware.”
If exclusion and indemnity clauses relating to deck cargo are to cover negligence they must be sufficiently clearly drafted and there is no reason to construe exclusion clauses more leniently or differently where they relate to deck cargo. Thus, for example, clauses relating to deck cargo which provide that they are carried “at charterers’ risk and expense” do not exclude Owners’ responsibility for their own negligence or unseaworthiness. Further, even where the carriage of deck cargo is a matter for which Owners are exempt, this relates only to loss of or damage to the deck cargo itself and does not entitle the Owners to recover expenses relating to any consequent damage to the vessel -see The Darya Tara.
In any event the “special category” referred to by the Tribunal, as borne out by their reference to the Hague or Hague-Visby Rules, is the ability for the Owners to choose the contractual scheme of liability and indemnity applicable to the carriage of deck cargo. There are various different ways in which this may be done and there is no “special category” that this will always or even usually be done by conferring a wide range exemption, still less indemnity, which applies regardless of negligence or unseaworthiness. Whilst this background therefore explains why deck cargo may be treated differently contractually to other cargo, it does not assist in determining in any particular case how it has been chosen to be treated differently.
For all these reasons I conclude that clause 13(b) only applies to loss, damage or liability which is effectively caused by the carriage of deck cargo and not to loss, damage or liability effectively caused by negligence or breach of the obligation of seaworthiness.
For completeness, I note that this conclusion accords with that of the leading textbook of Wilford on Time Charters at p363 where the editors note that: “It remains to be seen whether [clause 13(b)] would be effective to exclude liability for loss of or damage to deck cargo resulting from crew negligence. It is suggested that it would probably not do so.” It also avoids a conclusion which the Tribunal reached with “reluctance” and is likely to lead to a result which, as the Tribunal noted, would be more “equitable”.
The consequence of my conclusion on Question 2 is that the Tribunal erred in law in relation to their conclusion as the construction and application of clause 13(b). Although the Tribunal state in paragraph 22 of the Award that the Owners’ claims resulted from “the carriage of deck cargo and which would not have arisen had deck cargo not been loaded”, it is clear that this was on the basis that it was a ‘but for’ cause. The whole focus of the arbitration was what were the effective causes of the loss and the Tribunal found them to be inadequate method of stowage of the deck cargo, inadequate care of the lashings during the voyage and the instability and unseaworthiness of the Vessel.
There is therefore (1) no finding that loss, damage and liability was effectively caused by the carriage of deck cargo but (2) is a finding that it was effectively caused by the Owners’ negligence and unseaworthiness of the Vessel for which the Owners were at fault and contractually responsible. In such circumstances, in the light of my conclusion on Question 2, it is clear that the Tribunal’s conclusion on clause 13(b) cannot stand.
Conclusion
I accordingly answer the Questions of law as follows:
Question 1
Where a Charterparty incorporates the Hague/Hague-Visby Rules and the Charterparty envisages deck cargo will or may be carried but does not state and/or identify what and/or how much deck cargo is being carried (“an on-deck statement”), the Rules apply to the carriage of deck cargo unless the bill(s) of lading issued for the cargo contain an on-deck statement as required by Article 1(c) of the Hague/Hague-Visby Rules.
Question 2
Clause 13(b) of the NYPE 1993 Form, on its true construction, provides Owners with an indemnity in respect of loss and/or damage and/or liability effectively caused by the carriage of deck cargo but not for loss and/or damage and/or liability caused by negligence and/or breach of the obligation of seaworthiness on the part of Owners, their servants and agents.
I will hear counsel further as to what consequential orders I should make in the light of those conclusions of law.