DMC/SandT/03/08
Daewoo Heavy Industries and Another v. Klipriver Shipping Ltd & Navigation Maritime Bulgares ("Kapetan Petko Voiveda")
English Court of Appeal: Lords Justices Aldous, Judge and Longmore: [2003] EWCA Civ. 451: 3 April 2003
Nicholas Hamblen QC and Robert Thomas, instructed by Clyde & Co, for the appellant cargo interests
Richard Lord QC and Lawrence Akka, instructed by Hill Taylor Dickinson & Jackson Parton, for the respondent ship interests
Bills of lading: breach of contract of carriage: cargo stowed on deck without authority: Hague Rules 1924, limitation of liability: application of Article IV rule 5: meaning of ‘in any event’: analogy with ‘deviation cases’

Case note contributed by Ann Moore, Law Correspondent, Fairplay International Shipping Weekly. Ann Moore is a contributor to this website.

Facts
The Kapetan Petka Voivoda was chartered by Klipriver from Navigation Maritime Bulgare on the Gencon form, dated July 20^th 2000. On August 22^nd 2000 the first claimant, Daewoo Heavy Industries, agreed a contract of carriage with Klipriver, on Conline terms, providing for new excavators to be carried from Korea to Turkey. Carriage was to be "underdeck only". The charterparty included the standard Conline General Paramount Clause under which the Hague (but not the Hague-Visby) Rules, as enacted in Turkey, applied.

Thirty four excavators were shipped on board at Inchon on 3 September 2000 in apparent good order and condition, and stowed and lashed underdeck for carriage to Istanbul. Six bills of lading, containing or evidencing the terms of the contract of carriage, were issued on 4 September. None stated the machinery was stowed on deck.

The vessel reached Xingang in China on about 5 September, where 26 excavators were restowed on deck. The cargo interests did not receive notice of this, nor consent to it. Two days after leaving Xingang, the ship encountered heavy weather in the Yellow Sea. Eight of the excavators on deck broke free and were lost overboard, and others suffered minor damage including the effects of wetting. The parties accepted that the loss was caused by one or more of the following: perils of the seas, within the Hague Rules, Art IV Rule 2(c); inadequate lashing at Xingang; carriage on deck; inadequate packing (relating to the remaining excavators). The Hague Rules have not been enacted in Korea.

At a trial of preliminary issues in the Commercial Court in 2002, Langley J decided:
1. deck stowage was a breach of the charter and the bills of lading, and
2. assuming that deck stowage was the effective cause of the loss/damage, the carrier could nevertheless rely on the limitation provisions of the Hague Rules 1924.
The judge held that the decision to the contrary in The ‘Chanda’ [1989] 2 Lloyd’s Rep 494 should not be followed.

The cargo interests appealed to the Court of Appeal on the issue whether a carrier by sea, who carried cargo on deck in breach of a contract of carriage which is governed by the Hague Rules 1924, was nevertheless entitled to limit his liability for loss or damage to that cargo under Article IV Rule 5. Article IV Rule 5 provides:
"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 or the equivalent of that sum in other currency, unless the nature and value of the goods have been declared by the shipper before shipment and inserted in the bill of lading ..."

Nigel Hamblen QC, for the appellant cargo interests, argued that a carrier’s obligation to carry underdeck was as important as the obligation not to deviate; deck carriage was a "quasi-deviation". The parties could not have intended to apply the Hague Rules limitation to such a serious breach. He relied on the House of Lords decision in Suisse Atlantic [1967] 1AC at 433-4, Evans v Merzario [1976] 1 WLR 1078, Scrutton on Charterparties and Bills of Lading (18^th and 19^th editions), The ‘Chanda’ [1989] 2 Lloyd’s Rep 494, and cited US authorities which had applied the principle.

For the respondent carriers, Mr Richard Lord QC said there was no English authority for treating unauthorised deck stowage as a ‘deviation’. The concept that any deviation automatically deprived the shipowner of the right to rely on exceptions was "a peculiar doctrine of the common law and should not be extended". The passages cited from Scrutton had been considerably amended in the 20th edition. The force of the words "in any event" in Art IV Rule 5 had not been addressed by the appellant or by The ‘Chanda’ judgment. The obligation to stow underdeck was important, but not more so than other obligations covered by Art IV Rule 5, for example as to seaworthiness (Art III Rule 1). In The ‘Happy Ranger’ [2002] 2 Lloyd’s Rep 257 it was held that a carrier could limit his liability under Art IV Rule 5 for such breaches, and failure to carry underdeck was no different.

Judgment
1. Deviation
Lord Justice Longmore, giving the leading judgment with which Aldous and Judge LJJ concurred, said the Hague Rules, even if incorporated into an English law contract, was an international convention which must be interpreted "on broad principles of general acceptation" (per Lord Macmillan in Stag v Foscolo [1932] AC 328) rather than by rigid adherence to domestic precedents - Tilbury v IOPC (‘Sea Empress’)[2003] EWCA Civ 65. While European precedents were not binding, they showed the ‘deviation’ doctrine was not generally accepted. It was possibly no longer even a principle of English law.

Lloyd LJ had said in The ‘Antares’ [1987] 1 Lloyd’s Rep 424 that, whatever the position regarding deviation clauses, the unauthorised loading of deck cargo was not a special case. Longmore LJ ruled that the ‘deviation’ cases did not help the cargo owners. "The duty of the court is merely to construe the contract which the parties have made." Judge LJ said authority did not support the proposition that the common law’s "sensitivity" to protect against deviation from an agreed route made the limitation clause "impermissible, or unenforceable" in the case of unauthorised deck loading.

2. Construction of Art IV Rule 5
As in The ‘Happy Ranger’ case, this turned upon the words "in any event". Longmore LJ said the most natural meaning was "in every case" (as in the French "en aucun cas"). Though highly relevant, they were not discussed in The ‘Chanda’. He rejected the appellants’ submission that the phrase was "conjunctive and neutral", only meaning "notwithstanding the foregoing. In The ‘Happy Ranger’, the Court of Appeal decided the words "in any event" meant what they said: they were "unlimited in scope" and should be given their natural meaning. They were not intended to refer only to the events giving rise to the exemptions set out in Article IV itself. It was not a pre-condition of reliance that, in that case, the carrier had complied with his Article III seaworthiness obligations. Longmore LJ held the obligation to carry under deck was not of the same "overriding" importance as the seaworthiness obligation, so The ‘Happy Ranger’ was "a stronger case than the present" and he adopted its reasoning.

3. Authority
The judges rejected the Evans v Merzario precedent as the facts were different. In that case, there was a separate and collateral promise that containers would not be carried on deck, and the Hague Rules did not apply. Hirst J’s reliance on it in The ‘Chanda’ was misplaced. The Court approved both the reasoning and the decision of Langley J. in the present case and held that The ‘Chanda’ decision should be overruled. The conclusion that a package limitation clause was "repugnant and inconsistent" with the obligation to stow underdeck had not addressed the words "in any event". Longmore LJ said "the supposed repugnancy of Art IV Rule 5 cannot be justified as a matter of construction." Judge LJ said it could not be suggested that Art IV Rule 5 was somehow excluded from the contract; under that Rule, the limitation clause was expressed to take effect "in any event".

Longmore LJ dismissed as "exaggerated" the cargo interests’ fears of "dire consequences" for cargo owners if the appeal failed, the sum used in Art IV Rule 5 being 100,000 Turkish lira per package or unit, the equivalent of 5 pence for each lost excavator - amounting to "a total exemption from liability". Art IV Rule 5 provided that cargo owners could ensure recovery of the full value of their goods by declaring it, and having it inserted in the bills of lading. They could also demand the "more favourable" Hague-Visby limitation provisions, rather than those of the old Hague Rules. Judge LJ said the ultimate decision depended on the proper construction of the contract agreed by the parties.