This case concerned loss resulting from a grounding caused by a defective passage plan. The issues before the court were

(i) Seaworthiness. Did a defective passage plan render the vessel unseaworthy for the purposes of Article III Rule 1 of the Hague Rules?

(ii) Carrier’s due diligence. Did the failure of the master and his officers to exercise appropriate skill in preparing the passage plan constitute a want of due diligence on the part of the carrier to make the vessel seaworthy?

Passage planning obligation

In 1999 the International Maritime Organisation (“IMO”) adopted  Guidelines for Voyage Planning. The guidelines identify four components of passage planning: appraisal, planning, execution and monitoring. The appraisal stage requires consideration of all available information including up to date charts and the ascertaining of all areas of danger and of those areas where it will be possible to navigate safely. The planning stage requires the making of a berth to berth passage plan on the basis of the appraisal and the marking of the intended route or track and identification of any areas of danger on the chart.

The court recognised that prudent passage planning would require due regard to these guidelines.

The factual background

On 18 May 2011 the vessel CGM LIBRA ran aground on a shoal whilst leaving the port of Xiamen, China. According to the passage plan the vessel was to have proceeded along the buoyed fairway. However the master took the decision to pass outside buoy 14.1 and leave the fairway resulting in the grounding.

The vessel had on board the latest chart and notices to mariners. However the latest applicable notice to mariners included the following warning:

“Numerous depths less than the charted exist within, and in the approaches to Xiamen Gang.”

This warning was not noted on the chart or included in the written passage plan. It was later found that had this warning been on the chart the master would have been unlikely to have navigated outside the fairway. The passage plan was thus defective and causative of the grounding.

The claim

The grounding led to the vessel being the subject of salvage. This in turn led to General Average being declared with the vessel owners seeking a contribution from cargo interests amounting to some US$13 million. Certain cargo interests resisted on the grounds that a ship owner is not entitled to recover general average contributions from the owners of the cargo where the loss or expenditure was caused by its “actionable fault” which includes any causative breach of the terms of the relevant contract of carriage. In the present case it was argued that the vessel owners were in breach by failing to exercise due diligence to make the vessel seaworthy by virtue of the defective passage plan.

Hague Rules

The contract of carriage was subject to the Hague Rules. Article III sets out the responsibilities and liabilities of the carrier:

“1. 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…

Subject to the provisions of article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.”

Article IV sets out the rights and immunities of the carrier. In relation to the obligation of seaworthiness under article III rule 1, the relevant provision is article IV rule 1 which provides as follows:

“1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied,  … in accordance with the provisions of paragraph 1 of article III. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this article.”

In relation to the obligation properly and carefully to care for the goods under article III rule 2, the relevant provision is article IV rule 2 which provides as follows:

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

(a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship.”

Held

The court held as follows:

ISSUE 1 – DID THE DEFECTIVE PASSAGE PLAN RENDER THE VESSEL UNSEAWORTHY FOR THE PURPOSES OF ARTICLE III RULE 1 OF THE HAGUE RULES?

The court held that the defective passage plan did render the vessel unseaworthy for the purposes of Hague Rules Article III Rule 1.

Negligent navigation. The court accepted that the preparation of a passage plan was a matter of navigation and also accepted that the failure to note or mark the uncharted depths warning in the passage plan and on the working chart could be regarded as an “act, neglect, or default” in “the navigation … of the ship” within the article IV rule 2(a) exception.

Seaworthiness an overriding obligation. However it held that Article III, rule 1, is an overriding obligation[2] and thus rejected owner’s attempt to rely on the negligent navigation exception. Where loss or damage was caused by a breach of the carrier’s obligation to exercise due diligence to make the vessel seaworthy under article III rule 1, the article IV rule 2 exceptions could not be relied upon, including where the excepted matter was the cause of the unseaworthiness.

Attribute of the vessel. The concept of unseaworthiness is not subject to an attribute threshold requiring there to be an attribute of the vessel which threatens the safety of the vessel or her cargo. In the course of the judgment the court referred to earlier authorities confirming that seaworthiness is not limited to physical defects in the vessel and her equipment. Seaworthiness extends, for example,  to documentary matters such as having on board adequate and up-to-date charts[3] and  the mental abilities of the crew and whether they have a “disabling want of skill” or a “disabling want of knowledge”[4].

The prudent owner test. In  considering whether a defect rendered a vessel unseaworthy the court also referred with approval to the long established “prudent owner” test stating:

“Save for exceptional cases at the boundaries of seaworthiness, the well-established prudent owner test, namely whether a prudent owner would have required the relevant defect to be made good before sending the vessel to sea had he known of it, is an appropriate test of seaworthiness, well suited to adapt to differing and changing standards”.

Remediable defects. The fact that a defect is remediable may mean that a vessel is not unseaworthy. This is likely to depend on whether it would reasonably be expected to be put right any defect before any danger to vessel or cargo arose. The court rejected any distinction between providing the vessel with the materials and equipment required to make a vessel seaworthy and the use made of those materials by the crew. It stated that if it is necessary to make use of those materials in order to render the vessel seaworthy for the voyage then the carrier will be responsible for any negligent failure so to do.

Passage plan. The carrier’s obligation requires the carrier to ensure that a proper passage plan is prepared; not merely to provide a proper system to enable the crew to carry out the required planning exercise. The court stated:

“Given the “essential importance” of passage planning for the “safety … of navigation”, applying the prudent owner test, a vessel is likely to be unseaworthy if she begins her voyage without a passage plan or if she does so with a defective passage plan which endangers the safety of the vessel”.

ISSUE 2 – DID THE FAILURE OF THE MASTER AND SECOND OFFICER TO EXERCISE REASONABLE SKILL AND CARE WHEN PREPARING THE PASSAGE PLAN CONSITUTE WANT OF DUE DILIGENCE ON THE PART OF THE CARRIER FOR THE PURPOSES OF ARTICLE III RULE 2 OF THE HAGUE RULES?

The court  confirmed that the carrier has a non delegable obligation to exercise due diligence to make the vessel seaworthy.

The court rejected the argument that the crew failure to exercise due skill in navigation matters (here to prepare the passage plan) was not a breach of the carrier’s due diligence obligations on the basis that it was outside the orbit of the carrier.

It was confirmed that the carrier is responsible for any failure to exercise due diligence by those to whom he has entrusted the task of making the vessel seaworthy. It is the carrier’s contractual responsibility to ensure that due diligence is exercised in making the vessel seaworthy and he cannot contract out of that responsibility by delegation[5]. The court stated:

“The obligation on the carrier to exercise due diligence to make the vessel seaworthy requires that due diligence be exercised in the work of making the vessel seaworthy, regardless of who is engaged to carry out that task”

and

“The carrier is liable for a failure to exercise due diligence by the master and deck officers of his vessel in the preparation of a passage plan for the vessel’s voyage. The fact that navigation is the responsibility of the master and involves the exercise by the master and deck officers of their specialist skill and judgment makes no difference”.

“The carrier’s seaworthiness obligation in relation to passage planning is not limited to providing a proper system for such planning”.

On the subject of passage planning the court suggested that errors made by the master or officers in the later execution or monitoring stages of passage planning (i.e. navigation during the voyage) might fall within the nautical fault exception under Article IV whereas if such errors were attributable to the carrier’s failure to have proper systems in place that might be considered a failure on the part of the carrier to exercise due diligence to make the vessel seaworthy and thus not within the Article IV exclusion.

Conclusion

This is an important decision with comment that may be relevant for future cases involving consideration of the Hague Rules .

[1] [2021] UKSC 51

[2] Following Maxine Footwear Co Ltd v Canadian Government Merchant Marine Ltd [1959] AC 589

[3] Grand Champion Tankers Ltd v Norpipe A/S (The Marion) [1984] AC 563

[4] Papera Traders Co Ltd v Hyundai Merchant Marine Co Ltd (The Eurasian Dream) [2002] 1 Lloyd’s Rep 719

[5] Following the House of Lords decision in Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd (The Muncaster Castle) [1961] AC 807

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Legal characterisation

The background to the judgement is the legal characterisation of demurrage. The court confirmed earlier authority[2] that conceptually demurrage is, in the words of a leading textbook (Scrutton on Charterparties, 24th edition (2020),

 “a sum agreed by the charterer to be paid as liquidated damages for delay beyond a stipulated or reasonable time for loading or unloading, generally referred to as the laydays or laytime”

Demurrage is thus agreed damages. It is not money payable by a charterer as the consideration for the exercise by him of a right to detain a chartered ship beyond the stipulated lay days and thus to be characterised as a debt rather than damages.

Against this background the issue arising on appeal was whether demurrage is liquidated damages covering all the consequences of the charterer’s failure to load or discharge within the laytime or only some of them and thus whether further damages could be claimed in addition to demurrage.

The facts

The case arose out of a contract of affreightment between K Line as owner and Priminds Shipping as charterer. The dry bulk carrier “ETERNAL BLISS” was nominated for one voyage under this contract for the carriage of 70,133 MT soyabeans from Tubarao in Brazil to Longkou in China. Due to congestion at the discharge port and the lack of storage ashore the vessel was kept waiting for 31days before she could discharge thereby giving rise to demurrage. Following discharge the soyabeans were found to be caked and mouldy apparently as a result of the delay. This led to a claim by the receivers that the owners settled for US$1.1 million.  The owners sought to recover this sum from the charterers on the grounds that this loss was a consequence of the failure to discharge within the agreed laytime which was a breach of charter party.

The issue was whether the owners could recover damages (here US$1.1 million) in addition to the demurrage. It was not alleged that this further claim was caused by any breach of charter separate from the charterer’s obligation to discharge within the contractual laytime that gave rise to demurrage.

Held

The court held that:

” …, in the absence of any contrary indication in a particular charterparty, demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime and not merely some of them. Accordingly, if a shipowner seeks to recover damages in addition to demurrage arising from delay, it must prove a breach of a separate obligation.”

Accordingly the charterer was not liable to pay damages in addition to demurrage for its breach of contract in not completing discharge within the permitted laytime.

Comment

This decision has clarified the law on this subject unless, of course, this case is the subject of further appeal to the UK Supreme Court. Demurrage should be considered as an exclusive remedy for failure to load or discharge within the agreed laytime and proof of breach of a separate obligation will be necessary to sustain any additional claim for damages.

[1] [2021] EWCA Civ 1712

[2] AS Reidar v Arcos Ltd (1926) 25 Ll LR 32, [1927] 1 KB 352

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The Collision Regulations

The case concerned Rule 9 (Narrow Channels) and Rule 15 (Crossing Situation).

Rule 9(a) states:

A vessel proceeding along the course of a narrow channel or fairway shall keep as near to the outer limit of the channel or fairway which lies on her starboard side as is safe and practicable.

Rule 15 states:

When two power-driven vessels are crossing so as to involve risk of collision, the vessel which has the other on her own starboard side shall keep out of the way and shall, if the circumstances of the case admit, avoid crossing ahead of the other vessel.

The facts of the case

The case concerned a collision between the container ship EVER SMART and the VLCC (Very Large Crude Carrier) ALEXANDRA 1. The collision took place in the pilot boarding area just outside the outer end of the entrance channel into Jebel Ali. The EVER SMART was outward board proceeding down and out of the buoyed channel. The ALEXANDRA 1 was inward bound and was almost stationery in the pilot waiting area waiting to embark a pilot. Whilst doing so she made various adjustments to her heading and speed.

Whilst waiting the ALEXANDRA 1 was presenting her starboard side to the EVER SMART as she came down the buoyed channel and was thus prospectively a crossing vessel under Rule 15. The master of the ALEXANDRA 1 had overheard a radio conversation between Jebel Ali Port Control and a tug in which Port Control advised the tug to pass at least one mile astern of the tanker (i.e. ALEXANDRA 1). He mistakenly assumed that this was a direction to the EVER SMART and that once she had existed the buoyed channel she would come to port and pass astern of him. In the event the EVER SMART did not alter to port and her port bow of the EVER SMART collided with the starboard bow of the ALEXANDRA 1.

Issues

There were two issues before the court:

(i) In determining whether the crossing rules are applicable, is there a requirement for the putative give-way vessel (here the ALEXANDRA 1) to be on a steady course before the crossing rules can be engaged?

(ii) Are the crossing rules inapplicable or should they be disapplied where an outbound vessel is navigating within a narrow channel and has a vessel on her port (or starboard) bow on a crossing course approaching the narrow channel with the intention of and in preparation for entering it?

Findings of the court

The Importance of Understanding Collision Regulations in Maritime Law

The court made it clear that fundamental to the construction of the Rules is the need to apply them by reference to what is reasonably apparent to those navigating each vessel about the conduct of the other.

(i) Crossing situation.  As background the court observed[3] that the interpretation of the crossing rules should have due regard to the well-known judicial statement that “wherever possible” the crossing rules “ought to be applied and strictly enforced because they tend to secure safe navigation and  that it had “been found advantageous” for a “wider scope to be given to the crossing rule” in cases of doubt on a strict application of the rules[4].

How Collision Regulations Can Help Ensure Safe Navigation

The court held that for the crossing rule to apply there is no additional requirement that either vessel must be on a steady course in addition to the express requirements for engagement (two power-driven vessels, crossing, so as to involve a risk of collision) under Rule 15.

As regards the give way vessel the court stated:

 “…  if two vessels, both moving over the ground, are crossing so as to involve risk of collision, the engagement of the crossing rules is not dependent upon the give-way vessel being on a steady course. If it is reasonably apparent to those navigating the two vessels that they are approaching each other on a steady bearing (over time) which is other than head-on, then they are indeed both crossing, and crossing so as to involve a risk of collision, even if the give-way vessel is on an erratic course. In such a case, unless the overtaking rule applies, the crossing rules will apply.“[5]

As regards the stand on vessel the court held the requirement for the stand-on vessel to keep her course and speed is not a condition for the engagement of the crossing rules, but a qualified obligation imposed on her once the crossing rules are engaged. It stated:

“… we also consider that the stand-on vessel need not be on a steady course …, even though, once the crossing rules are engaged, she must then keep her course and speed. It does not follow that she should already have been on a steady course, or speed, before the crossing rules could become engaged.“

In short the test for the engagement of the crossing rule was whether the vessels were approaching each other on a steady bearing and there was no additional requirement that the vessels be maintaining steady courses.

(ii) Interplay between Rule 9 (Narrow Channel) and Rule 15 (Crossing situation)

A further question about the application of collision regulations was the interplay between the rules covering narrow channels and crossing situations where vessels meet at the end of a narrow channel. Where one vessel is proceeding along a narrow channel towards its exit and another vessel is approaching the entry of the channel with a view to proceeding along it which rule was to apply?

The court held that the crossing rule should apply until such time as the approaching vessel was actually shaping a course to enter the narrow channel. Intention to enter the narrow channel was not itself enough. The court stated:

“…where an outbound vessel in a narrow channel is crossing with an approaching vessel so as to involve a risk of collision, the crossing rules are not overridden by the narrow channel rules merely because the approaching vessel is intending and preparing to enter the narrow channel. The crossing rules are only overridden if and when the approaching vessel is shaping to enter, adjusting her course so as to reach the entrance on her starboard side of it, on her final approach.[6]“

Held

The court held that the crossing rules (rather than the rules for narrow channels) applied to the ALEXNDRA 1 and EVER SMART. Under the crossing rules the ALEXANDRA 1 was the give-way vessel and EVER SMART was the stand-on vessel. ALEXANDRA 1 should therefore have kept well clear of EVER SMART.

Further comments

In addition to providing conclusions on the two issues referred to above the judgment also includes useful commentary on words used in connection with the Collision Regulations such as “heading”[7], “course”[8], “leeway”[9], “bearing”[10], “approaching”[11] and “crossing”[12].

The court also considered the words “keep her course and speed” in Rule 17 (Action by Stand-on Vessel). It affirmed an earlier judicial statement that this, “…means the course you were going to take for the object you had in view – not the course and speed you had at any particular moment”[13].  However for such purposes “object you had in view” must be reasonably apparent to the give-way vessel.

This judgment may provide useful assistance in future consideration of the Collision Regulations.

[1] The Savina [1976] 2 Lloyd’s Rep 123

[2] Evergreen Marine (UK) Limited v Nautical Challenge Ltd [2021] UKSC 6

[3] para 43

[4] Lord Wright in The Alcoa Rambler [1949] AC 236 (PC) at p 250

[5] para 111

[6] para 145

[7] para 48

[8] para 49

[9] para 50

[10] para 52

[11] para 55

[12] para 57

[13] The Taunton (1928) 31 Ll L Rep 119

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The Facts

The claimants were the owners of nine consignments of bagged green coffee beans shipped from Colombia to Bremen in twenty separate unventilated containers. The bills of lading incorporated the Hague Rules, were subject to English law and jurisdiction and were on LCL/FCL (less than full container load/full container load) terms. Under these terms the carrier had responsibility for preparing the containers for reception of cargo.

Coffee is a hygroscopic cargo that absorbs, stores and emits moisture. In order to protect against the resulting condensation it was normal to “dress” the interior surfaces of the containers with Kraft paper or similar covering. This was done in the present case. However when the containers were opened after discharge it was found that the coffee beans in eighteen of the containers had been damaged by water.

Analysis by the Supreme Court

1. Carriage of goods by sea is a form of bailment

The Supreme Court confirmed that under English common law the legal relationship between a shipper and a carrier is one of bailment. In the words of the court:

“The delivery of goods for carriage by sea is a bailment for reward on the terms of the bill of lading. Bailment is a transfer of possession giving rise to a legal relationship between the bailor and the bailee which is independent of contract, although in practice it is commonly contractual and the terms of the contract will commonly modify its incidents”.

The court went on to state that as bailee the carrier:

(a) has a duty to take reasonable care of the goods; and

(b) in the event of loss or damage bears the legal burden of proving the absence of negligence

“He need not show exactly how the injury occurred, but he must show either that he took reasonable care of the goods or that any want of reasonable care did not cause the loss or damage sustained.”

The court remarked that this was not a peculiarity of the common law as the duty of a depositary to justify his inability to deliver the goods in the condition in which he received them is also a basic feature of the civil law.

2. Impact of the Hague Rules and the burden of proof

Was the position changed by the incorporation of the Hague Rules? Any previous statutory application of the Hague Rules under English law ended with their replacement by the Hague-Visby Rules under the Carriage of Goods by Sea Act 1971 which would not apply to this shipment. Accordingly the Hague Rules had effect only by virtue of their contractual incorporation into the bill of lading and not by operation of law.

The court held that nothing in the Hague Rules alters the common law status of the contract of carriage by sea as a species of bailment . Accordingly where goods were shipped in apparent good order and condition but were discharged damaged the carrier bears the burden of proving either that it was not due to its breach of the obligation in Hague Rules Article III.2 to take reasonable care or that it was caused by an excepted peril.

3. Hague Rules Article IV – Inherent vice

The further question was whether the damage was caused by an inherent characteristic of the cargo and thus carrier could exclude liability under Hague Rules Article IV.2. This states:

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

(m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods.

The court commented that the mere fact that coffee beans are hygroscopic and emit moisture as the ambient temperature falls may constitute inherent vice if the effects cannot be countered by reasonable care in the provision of the service contracted for, but not if they can and should be.

“It follows that if the carrier could and should have taken precautions which would have prevented some inherent characteristic of the cargo from resulting in damage, that characteristic is not inherent vice. Accordingly, in order to be able to rely on the exception for inherent vice, the carrier must show either that he took reasonable care of the cargo but the damage occurred nonetheless; or else that whatever reasonable steps might have been taken to protect the cargo from damage would have failed in the face of its inherent propensities.”

In the present case the carrier had the burden of proving that it had applied sufficient layers of suitable lining paper in the containers to protect against condensation. It was could not discharge this burden and was accordingly unable to rely on the inherent vice exception in Article IV.2.

Comment

This decision provides clarity on the subject of burden of proof in cargo claims generally and on the subject of the inherent vice exception in particular. It will probably assist cargo interests in the pursuit of future claims for loss or damage.

¹ Volcafe v. CSAV [2018] UKSC 61

² Volcafe v. CSAV [2018] at para 19

³ Volcafe v. CSAV [2018] at para 37

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The Interclub Agreement

The ICA first came into being in 1970 as a means of resolving liability for cargo claims as between owners and charters under the New York Produce Exchange (“NYPE”) form of charter party. Since then it has been revised on a number of occasions notably in 1996 and more recently in 2011 when provisions for security were added. The ICA has been described² as : “…an agreement which is primarily for the benefit of the respective parties’ insurers that is of the character of a knock-for knock agreement. …and is not concerned with such considerations as hardship or lack of moral culpability”.

Clause 8 of the ICA provides for various apportionment scenarios and concludes as follows:-

d) All other cargo claims whatsoever (including claims for delay to cargo):
50% Charterers
50% Owners
unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.”

The facts of Transgrain Shipping (Singapore) Pte Ltd v. Yangtze Navigation (Hong Kong) Co Ltd

Yangtze Navigation chartered the vessel “YANGTSE XING HUA” to Transgrain Shipping for a time charter trip carrying soya bean meal from South America to Iran. The charter party was on a NYPE form. The charterers had not been paid for the cargo and accordingly ordered the vessel to wait off the discharge port for over four months. When the cargo was finally discharged it was found to be damaged as a result of overheating. The owners Yangtze Navigation settled the claim of cargo interests and then claimed against the charterers Transgrain Shipping. It was common ground that liability was to be settled in accordance with the ICA. The issue was interpretation of clause 8 of the ICA.

The claim was referred to arbitration. The arbitrators found that the cause of the damage was a combination of the inherent nature of the cargo ( its oil and moisture content) together with the prolonged period at anchor at the discharge port. They concluded that under the ICA the Charterers’ decisions were an “act” falling within clause 8(d) and thus they should bear 100% of the consequences.”

The charterers appealed. At first instance the judge upheld the decision of the arbitrators. In doing so he expressed a view that clause 8 of the ICA was not concerned with fault but was rather a mechanism for assigning liability for cargo-claims by reference to the cause of the damage to the cargo regardless of fault. He took the view that the word “act” should be given its natural meaning.

The Court of Appeal decision

The Court of Appeal have now upheld the first instance decision and also concluded that that the word “act” in the context of the ICA should be given its natural meaning, and that there is no need to confine it to “culpable act”.

Comment

This decision from an appellate court provides a useful interpretation as regards the ICA. However, caution must be exercised if a wider application is to be considered. As stated by the Court of Appeal “everything must depend on the context”. Different views on the meaning of the term “act” have been taken by the courts in other cases involving different circumstances.

¹Transgrain Shipping (Singapore) Pte Ltd v. Yangtze Navigation (Hong Kong) Co Ltd (Yangtze Xing Hua) [2017] EWCA Civ 2107

²The Benlawers [1989] 2 Lloyd’s Reports 51 at p. 60

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