CSAV v. ER Hamburg

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DMC/SandT/06/09
Compania Sud American Vapores v MS ER Hamburg Schiffahrtsgesellschaft mbH & Co KG (The "ER Hamburg")
English Commercial Court: Morison J.: [2006] EWHC 483 (Comm): 14 March 2006
Simon Rainey QC and Nicholas Craig (instructed by Clifford Chance LLP) for the Applicant Charterers
Jeremy Russell QC and Robert Thomas (instructed by Norton Rose) for the Respondent Shipowners
TIME CHARTER: AMENDED NYPE FORM: CLAUSE 8 – "CHARTERERS ARE TO LOAD, STOW … THE CARGO … UNDER THE SUPERVISION OF THE CAPTAIN": PROPER CONSTRUCTION: DANGEROUS CARGO STOWED NEAR HEATED BUNKER TANK: UNSEAWORTHINESS: EXPLOSION: DAMAGE TO VESSEL AND CARGO: WHETHER OWNERS OWED CHARTERERS A DUTY TO INTERVENE IN STOWAGE TO ENSURE SEAWORTHINESS OF SHIP: WHETHER OWNERS HAD A DEFENCE UNDER ART. IV.2(a) OF HAGUE/HAGUE-VISBY RULES THAT CLAIM AROSE FROM "ACT, NEGLECT OR DEFAULT … IN THE MANAGEMENT OF THE SHIP"
Summary
Issue 1: Stowage & Seaworthiness
Where a charterparty allocated responsibility for the stowage to the charterers, the shipowners had no responsibility in law to the charterers for damages consequent on improper stowage, even if it rendered the vessel unseaworthy. Under such a charterparty provision, the shipowners owed no duty to the charterers to intervene in the loading process to ensure that the stowage was seaworthy.
Canadian Transport Ltd v Court Line Ltd [1940] AC 934, explained.The Imvros [1999] 1 Lloyd’s Rep 848, followed and applied.

DMC Category Rating: Developed

This case note was prepared by Jim Leighton, BSc (Hons) (University of Plymouth), LLM (Maritime Law) (University of Southampton) and Claims Consultant

Background
The trial was an appeal from a final declaratory arbitration award. The dispute arose due to an explosion on board the chartered vessel, which had been chartered under an amended New York Produce Exchange Form of charter. The explosion damaged the ship severely. The shipowners brought a claim for damages against the charterers for loss of hire and other loss and damage, which they contended had been caused by the loading of a dangerous cargo, a container of calcium hypochlorite. The container in question had been loaded, in accordance with the cargo plan prepared by the charterer’s ship planners, directly adjacent to a tank used to contain bunker fuel. The amount of the claim was US$63 million. The arbitrators found for the shipowners.

The cause of the explosion had not been determined by the arbitrators, but two rival contentions existed: (1) that the cargo was inherently unstable and volatile; and (2) that the cargo exploded due to the fact that it was stowed adjacent to a bunker tank which was heated during the voyage causing the cargo to become unstable and explode. The appeal was concerned with the second scenario. There were two issues:

(1) What is the proper interpretation of clause 8 of the charterparty, which places the responsibility for stowage on the charterers, in the light of clause 24 which expressly incorporated as a clause paramount the Hague/Hague-Visby Rules to the charter. In other words, if the stowage was done in such a way as to render the vessel unseaworthy, are the shipowners or charterers responsible under the contract for the loss? Clause 8 provides so far as is material that "Charterers are to load, stow and trim the cargo at their expense under the supervision of the Captain".

(2) Assuming as a fact that the bunkers were heated to a temperature above what was required to keep the fuel oil reasonably thin and that this was causative of the explosion, do the shipowners have a defence to a claim for breach of Article III.2 ["failing to care for … the goods carried"] by reason of Article IV.2(a); in other words was this an "act, neglect or default … in the management of the ship"?

The arbitrators had found that the container should not have been stowed next to a bunker tank and that the Chief Officer, had he understood the computer programme he was using, would have realised that the location of the container was close to a source of heat and not "away from" "sources of heat" as the IMDG Code required. Therefore, he was negligent and the ship was unseaworthy as a result.

Submissions
The applicant charterers submitted, amongst other arguments, on issue 1:

• The incorporation of Article III.1 into the charter meant, absent any contrary provision in the charterparty, that the shipowners were required to intervene to correct bad stowage rendering the vessel unseaworthy at the beginning of each voyage;
• Article III.1 placed a non-delegable duty to make the vessel seaworthy upon the shipowners: Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807;
• Whilst the shipowner may divest himself of the task of making the vessel seaworthy, he could not divest himself of the consequences of operating an unseaworthy vessel under Article III.1;
• Clause 8 did not deal with unseaworthiness and could be read harmoniously with Article III.1. If there was a conflict between clause 8 and Article III.1, then Article III.1 prevailed by reason of Article III.8, which rendered null and void any provision relieving the carrier from his liability as laid down in Article III.
• The result contended for was neither bizarre nor un-commercial, because Canadian Transport Ltd v Court Line Ltd [1940] AC 934 arguably contemplated that the transfer of responsibility for stowage to the charterers would not divest the shipowners of their responsibility for the vessel’s seaworthiness;
• The Imvros [1999] 1 Lloyd’s Rep 848 should either be distinguished or was wrongly decided. [See the Judgment below for details of The Imvros case]

The respondent shipowners submitted, amongst other arguments, on issue 1:

• The relevant relationship with which the court was concerned was the contractual allocation of responsibility for stowage between the shipowners and the charterers. The fact that the shipowners may have had responsibilities to the bill of lading holders arising from unseaworthiness due to bad stowage was irrelevant to the present dispute;
• The argument that the responsibility for unseaworthiness became that of the shipowners when the stowage of the vessel became so bad as to make the vessel unseaworthy was absurd and commercially unreasonable;
• If the charterer’s arguments were right, the shipowners would effectively have to take on responsibility for the loading of the vessel, which would make clause 8 meaningless;
• On a proper interpretation of the contract, the responsibility for unseaworthiness due to bad stowage was transferred to the charterers and did not fall within the scope of Article III.1: Pyrene v Scindia [1954] 2 QB 402, approved in Renton v Palmyra [1957] AC 149. Article III.1 applies a non-delegable duty only to those functions or obligations in respect of loading and stowing which the shipowner has contracted to perform;
• The charterer’s contention that clause 8 would be inconsistent with Article III.8 if it relieved the shipowners of their seaworthiness obligations arising from the loading process was wrong;
• The approach of the US courts towards the unamended clause 8 should be followed. [See the Judgment below for details of the US cases]

Judgment
Issue 1: Stowage & Seaworthiness
The judge regarded the answer to this issue as dependent upon the true construction of the charterparty: The Imvros [1999] 1 Lloyd’s Rep 848. What did the parties intend by clause 8 and the paramount clause introducing the provisions of the Hague Rules into the contract?

The question was not whether the shipowners were under a duty to intervene in the loading process, but whether they owed that duty to the charterers. The judge held that there was no authority to assist the charterers to prove the existence of such a duty. The reliance of the charterers on certain passages from Canadian Transport Ltd v Court Line Ltd [1940] AC 934 was misfounded. The judge considered the relevant passages from the speech of Lord Atkin, in Court Line, to simply highlight that a master was entitled to seek to protect his vessel from stowage which rendered the vessel unsafe. A clear distinction was drawn between an entitlement to supervise and a duty to do so, owed to the charterers. There was no indication that their Lordships, in Court Line, did not have in mind the relationship between stowage and seaworthiness.

The other reason for rejecting the argument of the charterers was that they were contrary to authority. The Imvros was not to be distinguished on its facts or on grounds of construction. That case concerned a shipment of timber, which was loaded by the charterers on deck in contravention of the IMO Code of Practice for Ships Carrying Timber Deck Cargoes. In consequence of the bad stowage, which was held to amount to unseaworthiness, some of the deck cargo was lost overboard. The shipowners settled claims from the bill of lading holders and then sought and were awarded indemnity from the charterers under a clause 8 of the NYPE Form of charter worded similarly to that in the present case. The judge in that case, Justice Langley, said that expressions such as "under the supervision of the Captain" were not a qualification on the obligations of the charterers but denoted a right of the Captain to be satisfied with or to supervise the performance of the loading and stowing operations. "A right to intervene did not normally carry with it a liability for failure to do so, let alone relieve the actor from his liability" (at page 851).

Justice Langley continued that "it would be a remarkable construction which produced the result that so long as the loading was carried out by the charterers badly enough to put the, or the other, cargo but not the vessel at risk, the charterers would be liable but the moment the loading was so badly carried out that it made the vessel unseaworthy the entire responsibility fell upon the owners and the charterers were relieved of it". Any construction which had that effect should be resisted, said Justice Morison, because in reality no shipowner could safely and properly leave the stowage to the charterers. Court Line, when properly understood, was also a complete answer to the charterer’s main submission.

It was also appropriate for the English courts to construe the same contract in the same way as the US courts. The decisions in Nichimen Co Inc v MV Farland 462 F 2d 319 [1972] 2nd District Court of Appeal, Fernandez v Chios Shipping Co Ltd 458 F Supp 821 [1976] District Court and Duferco SA v Ocean Wilde Shipping Corp 210 F Supp 2d [2000] District Court were compelling. The US court decisions indicated that making the shipowner responsible for the effects of the charterer’s improper stowage would undermine the purpose of the unamended clause 8. These decisions clearly recognised the difference between a right to supervise and require re-loading, on the one hand, and a duty to do so, on the other.

The judge considered the unseaworthiness argument to be "something of a red herring" because it was entirely the fault of the charterers if their improper stowage caused the vessel to become unseaworthy. "Making the vessel unseaworthy through improper stowage does not, contractually, make the shipowners liable; on the contrary, all damage caused directly by improper stowage will be for the charterer’s account."

As a result The Imvros decision was plainly right and should be followed; the arbitrators’ reasoning and conclusions therefore could not be faulted.

Issue 2: Bunker Tank Heating
The judge considered this ground of appeal to be hopeless and that it should be dismissed. The thrust of the charterer’s argument was that the shipowners ought to have realised that by heating the bunkers adjacent to the dangerous cargo they were creating a risk of damage to cargo; therefore, what they were doing was directly affecting the cargo and thus the act was done as part of the care of the cargo. But asserting that an act directly caused damage to the cargo did not alter the nature of the act itself – the submission perverted the structure of Article IV.2(a), as interpreted by the courts.

The judge indicated that the question was whether the act [heating the bunker tank] was done as part of the care of the cargo or as part of the running of the ship not specifically related to the cargo: Gosse Millard Ltd v Canadian Government Merchant Marine Ltd [1929] AC 223. The unequivocal answer was that the heating of the bunker tank was done as part of the running of the ship not specifically related to the cargo (i.e. the heating of the bunker tank was done in order to enable the provision of fuel to the main engines of the vessel for the primary purpose of propelling the vessel through the water). The shipowners could therefore rely upon Article IV.2(a) as a complete defence.

The judge specifically approved of the passage in Cooke, Voyage Charters (2^nd edn.), para. 85.261, where it states: "The principal enquiry, therefore, is whether the act or default which caused the loss of damage was done (or left undone) as part of the care of the cargo or as part of the running of the ship, not specifically related to the cargo. Some functions of machinery on board are clearly related only to cargo."

Comment
Issue 1: Stowage & Seaworthiness
The decision appears to have extended the result of The Imvros, which was considered, by some, to have limited scope for application, due to the restricted seaworthiness obligations upon the shipowners under the charterparty.

The lesson to be learnt was that the charterers, during the negotiation of the charterparty, could have ensured the effect they now sought to achieve by negotiating for the well recognised amendment to clause 8: "Charterers are to load, stow and trim the cargo at their expense under the supervision and responsibility of the Captain" [emphasis added].

Issue 2: Bunker Tank Heating
The distinction drawn between the management of the ship as a ship and the management of the ship in relation to the cargo is a clear one. While the exception blatantly applied in the present case, note that difficulties can arise when deciding whether or not the exception applies, because each decision is dependent on its own facts.

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