Daewoo v. Klipriver

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Note: the decision in this case has been confirmed on appeal. The judgment of the Court of Appeal was delivered on 3 April 2003. To access that judgment, click here

Daewoo Heavy Industries Limited v Klipriver Shipping Limited
English High Court, Commercial Court: Langley J.: 11 July 2002 
Mr R Thomas, instructed by Clyde & Co, for Daewoo 
Mr R Lord QC and Mr L Akka, instructed by Hill Taylor Dickinson and Jackson Parton, for Klipriver Shipping 
This case addressed the issue whether a carrier by sea can rely on the exception and limitation provisions of the Hague Rules when, in breach of contract, he carries cargo on deck. In a judgment on preliminary issues, Mr. Justice Langley said ‘No’ as to the exceptions, but ‘Yes’ as to the limitation.

DMC Category Rating: Confirmed

This case note is based on an Article in the August 2002 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website

In August 2000, Daewoo chartered the Kapitan Petco Voivoda to carry a cargo of 34 new excavators from Korea to Turkey. The contract of carriage was partially evidenced by a fax dated 22 August 2000, which provided that the carriage would be "under deck only". Six bills of lading were issued, none of which referred to the goods being carried on deck.

Initially, all 34 excavators were stowed under deck, but during the voyage, 26 were re-stowed on deck. Eight broke free of their lashings and were lost overboard and some of the remaining 18 suffered minor damage.

The contract of carriage was subject to and/or incorporated the Conline terms. These included a General Paramount Clause, the effect of which was that the Hague Rules (but not the Hague-Visby Rules) as enacted in Turkey applied.

Under Article III Rule 1(a) of the Hague Rules, the carrier is bound to exercise due diligence before and at the beginning of the voyage to make the ship seaworthy. Under Article III Rule 2, the carrier, shall, subject to the provisions of Article IV, properly and carefully load, stow, carry, care for and discharge the goods carried. However, neither the ship nor the carrier will be responsible for loss or damage resulting from perils of the sea (Article IV Rule 2 (c)) or insufficiency of packing (Article IV Rule 2(n)).

In addition, under Article IV Rule 5 "neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding £100 per package or unit", unless the shipper has made a special declaration of value and this is referred to in the bill of lading.

The carrier interests argued that they were not liable because the loss was caused by perils of the sea, and/or that the minor damage to the excavators on deck was due to insufficiency of packing. In any event, they maintained that any claim for loss and damage was limited to £100 per excavator. The cargo owners argued that deck stowage was in breach of the contract of carriage and this meant that the carrier could not rely on the exceptions in Article IV Rule 2 or on the limitations in Article IV Rule 5 of the Hague Rules.

There was no real dispute that there had been a breach of the terms of the contracts of carriage. The question was rather, did the breach preclude reliance on the exceptions and limitations in the Hague Rules?

The question whether breach of a "fundamental term" negates the effect of an exclusion clause has been the subject of much judicial debate, and has been held to be a matter of construction of the contract in question (Photo Production Limited v Securicor Transport Limited [1980] AC 827). In The Chanda [1989] 2 Lloyd's Rep 484 (where cargo wrongfully stowed on deck became a total loss), the judge held that the limitations in the Rules did not apply because it could hardly have been intended that the Rules would protect a shipowner who wrongfully exposed the cargo to such risk of damage. To find otherwise would be inconsistent and "repugnant".

But the Chanda decision failed to address the words "in any event" that appear in Article IV Rule 5. The Court of Appeal recently considered this expression in the case of The Happy Ranger (Parsons Corporation and others v CV Scheepvaartonderneming CA, 17 May 2002) in the context of unseaworthiness due to a want of due diligence under Article III Rule 1 of the Hague-Visby Rules. (The wording of this particular provision is the same in both the Hague and the Hague-Visby Rules). In that case, cargo interests argued that the limitation did not apply because the obligation under Article III Rule 1 was overriding. But the Court of Appeal found that the words "in any event" meant exactly what they said and that the limitation did therefore apply.

The judge agreed and held that the limitation provision applied in this instance also. But the "repugnancy principle" applied in the case of the exceptions. An owner who contracts to carry goods under deck but wrongfully carries them on deck, cannot avoid liability for any loss or damage that occurs as a result by relying on either the perils of the sea or the insufficiency of packing exemptions.

CommentWhat would be the case with the other exceptions under Article IV Rule 2, such as Act of War, Act of Public Enemies? Presumably these would continue to apply, provided that the cargo carried on deck in breach of contract was not more affected by these perils than the cargo carried under deck.  


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