Case note contributed by Ann Moore, Law Correspondent for Fairplay International Shipping Weekly and contributor to this website

Facts
In July 1988 the tanker Romina G, owned by Monsoon Shipping Ltd, was assisted to enter the Kharg Island Terminal by four tugs, two of which, including Borvigilant, were owned by Borkan General Trading and timechartered to National Iranian Tanker Co (NITC), a subsidiary of the Terminal operator, National Iranian Oil Co (NIOC). NIOC supplied tugs to enable tankers to berth. In addition to its own tugs, it chartered others through NITC.

The Romina G, a regular user of the terminal, needed a pilot and tugs in order to berth to load crude oil. As usual, the master had first to sign the Terminal’s ‘Conditions of Use’, and the ‘Tug Requisition Form’. The Requisition requested NIOC to supply a tug, the master and crew of which were to be under the hirer’s control as its ‘servants’ during towing (Clause 2(a)). Clause 2(b) provided that "the Company" (defined in cl.8 as NIOC) "shall not bear or be liable for damage of any description done by or to the tug or done by or to the Hirer’s vessel or for loss of or damage to anything on board the Hirer's vessel or for any personal injury or loss of life arising from any cause whatsoever, ……. and the Hirer shall pay for and indemnify the Company against all such loss, damage, personal injury and loss of life as… aforesaid and the consequences thereof."

Clause 4(a) then provided "Nothing in the preceding paragraphs shall (a) make the Hirer liable to pay for or indemnify the Company against any loss, damage, personal injury or loss of life caused by want of reasonable care on the part of the Company to make the tug seaworthy….

Clause 7 provided that the Company should "have the right to perform their obligations under this contract by using a tug or tugs not owned by themselves but made available to the Company under charterparty or other arrangement. In such circumstances…. The Hirer agrees to the Owners or Charterers of such tug or tugs have (sic) the benefits of and being bound by these conditions to the same extent as the Company."

The Borvigilant and Romina G collided. Both vessels were damaged, and the tug’s skipper and some of its crew were lost. Each ship claimed damages from the other, Borkan for Monsoon’s alleged negligence and breach of contract, and the tanker owner for negligence by Borkan. Monsoon also alleged the tug was unseaworthy due to Borkan’s "want of reasonable care", and that this caused the accident. Losses claimed by Monsoon included detention at Kharg and Fujairah, the cost of permanent repairs and associated delay. Losses claimed by Borkan included the loss of the tug, loss of her use and an indemnity against claims and legal expenses in respect of the lost seafarers.

Monsoon contended that Borkan was not entitled to the benefits of the Requisition terms as it was not party to them. If the terms did apply to Borkan, then the indemnity in cl.2(b) was nullified by the unseaworthiness provisions in cl.4.

Although the incident occurred in Iranian waters, the parties agreed the consolidated actions should be decided in London under English law. At first instance, the Admiralty judge, David Steel J., was asked to decide two preliminary issues as to liability. Was Borkan a party to the Tug Requisition form? If so, did it protect Borkan against liability for the losses claimed by Monsoon if the Borvigilant’s crew’s negligence caused or contributed to the collision? What was the effect of cl.4 if the accident was caused by the tug’s unseaworthiness because of the owner’s want of due diligence?

1. Was Borkan entitled to rely on and benefit from the conditions in NIOC’s Tug Requisition Form – particularly cl.2(b), signed by Romina G’s master?

2. If so, and if the collision was caused or contributed to by the negligence of the tug or its crew, was (a) Borkan exempt from liability for the losses claimed by Monsoon; (b) Monsoon liable to indemnify Borkan for its losses?

The Admiralty judge answered (1): "Yes" on the grounds that the agreement contained in the Tug Requisition Form was made by the master of the Romina G with both NIOC and with Borkan as Borvigilant’s owner. He held that NIOC had implied actual authority to contract on Borkan’s behalf; alternatively, Borkan had ratified the contract following the casualty.

As for question (2), he found that both the exemption and the indemnity were effective, unless the collision was caused by a want of reasonable care to make the tug seaworthy, in which event neither the exemption nor the indemnity applied.

Monsoon appealed against the judge’s ruling on Question 1 and Borkan cross-appealed against his ruling in Question 2 that the exemptions and right to indemnity in cl.2 were not available to Borkan, "in the event of causative unseaworthiness attributable to the want of due diligence" under cl.4(a).

Judgment
Lord Justice Clarke gave a judgment with which his colleagues agreed.

Agency
Monsoon had submitted that two of four essential requirements (per Lord Reid, Midland Silicones v Scruttons [1962] AC 446 at 474) were not met., namely a) that the Form did not make it clear that NIOC was also contracting as agent for Borkan, so that it could benefit from its terms and b) it had not been shown that NIOC had the tugowner’s authority to contract on its behalf, or that Borkan had later ratified the contract.

On the first point, Clarke LJ agreed with the judge that it was not necessary for the Form to state expressly that NIOC was acting as agent; it was enough that the contract make that clear. In this case, the appropriate degree of authority "was clearly implicit in the provision (clause.7) that the owners of the non-NIOC tugs were to have the ‘benefit’ of and to be ‘bound’ by the conditions". He held that the judge was correct to conclude that NIOC purported to contract on behalf of Borkan, noting that the Form had been signed on behalf of Monsoon, as it had been on at least twenty occasions since 1994. The judge’s approach was, he held, consistent with the subsequent development of Lord Reid’s Midland Silicones criteria by the Judicial Committee of the Privy Council in The ‘Makhutai’ [1996] AC 650 (per Lord Goff at p 661 sq).

In reaching his conclusion, Clarke LJ felt it legitimate, in construing the terms of the Form and deciding whether NIOC purported to be acting on behalf of Borkan, "to have regard to the intention to benefit (and bind) Borkan, to the fact that in the absence of such agency that intention would be thwarted and to the commercial good sense in so holding as recognised by the Privy Council in the cases since Midlands Silicones."

Actual Authority
In finding that NIOC had the authority of Borkan to contract on its behalf, the Admiralty Judge had relied on the course of dealing between the parties and his conclusion that it was "inconceivable that the General Manager of Borkan at Kharg Island… was not aware of the terms of the Form." As regards the course of dealing, David Steel J had found that Borkan had no opportunity to deal directly with individual tanker owners as NIOC was in operational control of the terminal; that Borkan tugs were chartered to NITC which supplied them to NIOC, which then obtained the master’s signature; that the Requisition’s terms as to liability and indemnity were standard in the industry (being based on an earlier edition of the UK Standard Towage Conditions); that this process had been frequently followed over a period of four years; and according to a deposition by the Terminal’s Head of Marine Services, "NIOC considers the terms of the [Requisition] document apply both to NIOC and all tugs involved in tug operations in an equal manner."

Clarke LJ found that these factors, taken together, supported the conclusion that NIOC had the necessary implied authority to contract on behalf of Borkan, and concluded that it was "more probable than not" that Borkan’s general manager on Kharg Island had the relevant knowledge of the terms. He therefore held that David Steel J’s conclusions were justified. The answer to Question 1 was "yes", and the appeal should be dismissed.

Ratification
While it was now unnecessary to decide this point, Clarke LJ upheld the judge’s conclusion that Borkan had validly ratified the contract after the casualty, for the factual reasons he gave in his judgment.

Unseaworthiness of the Tug
It was accepted that the cl.2(b) provision that "the Hirer shall pay for and indemnify the Company" against specified losses, would have no effect in the event of causative unseaworthiness due to want of due diligence, under cl.4(a). Monsoon argued that the cl.4(a) provisions also applied to the liability exemption in the first part of cl.2(b).

Clarke LJ adopted the judge’s construction of cl.4(a), namely that the two elements in cl.2(b) (exemption and indemnity) must be read together, to "give sensible meaning to the contract as a whole ... if loss or damage to ship or tug or the personnel of either, is caused simply by the events set out in clause 2(b), the tugowners are protected unless caused by ‘want of reasonable care’" on their part to make the vessel seaworthy. Furthermore, any ambiguity in the clause should be construed against Borkan, since it was Borkan that was seeking to rely on it. Accordingly, he held that the cross-appeal should be dismissed.