Note: this decision has now been upheld by the House of Lords,  in a decision delivered on 25 November 2004. For a note on the House of Lords  judgment, click  here

The charterparty was on the Stemmor Voyage Charterparty form, designed for the carriage of ore, but on this occasion, used for the carriage of steel coils from India to Spain. It was expressly governed by English law. Clause 3 was entitled "freight" and provided "Freight to be paid at and after the rate of US$… per metric tonne F.I.O.S.T. ["free in and out stowed and trimmed"] - lashed/secured/dunnaged….". The term F.I.O.S.T meant that the shipowner did not have to pay for the work of loading, stowing [and trimming, had it been relevant for the cargo in question – which it was not] including the work of lashing, securing, and dunnaging, and discharging the cargo.

The bills of lading were in the Congenbill form incorporating the terms of the charterparty (including clauses 3 and 17) and the Hague-Visby Rules. The claimants argued that, once incorporated into the bills of lading, clauses 3 and 17 of the charter were inconsistent with Article III Rule 2 of the Hague-Visby Rules, which provides that "the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried". As such, the clauses would be invalid in accordance with Article III Rule 8, which renders null and void any provision in a contract of carriage relieving or lessening the liability of the carrier as set out in the Rules.

The combined effect of clauses 3 and 17 was, therefore, to transfer the obligations to load, stow and discharge the cargo to shippers/charterers/receivers. Consequently, the charterers could not now claim against the shipowners for any damages alleged to have occurred during those operations.

The cargo interests’ arguments in relation to Article III Rule 2 of the Hague-Visby Rules rested on the assumption that the Rules placed an obligation on the carrier to load, stow, carry and discharge the goods. But the judge held that, following the judgment of the House of Lords in Renton v Palmyra [1957] AC 149 (approving Pyrene -v- Scindia [1954] 2 QB 402), that provision only set out the standard to which the carrier must perform those duties, if the carrier has undertaken to perform them, which in this case it had not. The judge therefore found that clauses 3 and 17, incorporated into the bills of lading, effectively transferred responsibility for cargo work to the shippers at the port of loading and to the receivers at the port of discharge. Consequently, neither shippers nor receivers could claim against the shipowners under the bill of lading for damage to the cargo that had occurred during the cargo handling operations.

Judgment of the Court of Appeal
The issues to be determined on appeal were: (i) whether the charter transferred the obligation to load, stow and discharge from owners to charterers; (ii) the effect on the bills of lading contract of Art.III rr.2 and 8; (iii) whether the carrier had to rely on defences under Art.IV Rule 2 of the Hague-Visby Rules to avoid liability to the receiver for damage caused by the negligence of the shipper in loading, stowing and securing the cargo and to the shipper for damage caused by the negligence of the receiver in discharging it.

As regards the first issue, the court noted that there were three facets of the cargo operation to be considered under the charter. Who is to pay for it? Who is to carry it out? Who is liable for it not being done properly? On the first question, the court held that the use of the word "free" in clause 3 meant only at no cost to the shipowners and the fact that charterers were to pay for the cargo operation did not mean that they had also agreed to carry it out or be liable if it was done badly. As the judge at first instance had held, "FIOST" in this case was simply a "who is to pay" provision. As for the remaining questions, these were determined by Clause 17. Although the word "trim" in that clause was inappropriate, effect should be given to the rest of the clause, which clearly imposed on the charterers the obligation to put the cargo on board and discharge it. No trimming was required but clause 3 showed that the parties had put their minds to what was required to stow the steel coils – namely, lashing, securing and dunnaging. Clauses 3 and 17 could and should be read together. The parties intended to transfer the obligation to perform all cargo work to the charterer. If all the cargo work had to be performed by charterers, it followed that they would be liable if it was not properly or carefully carried out.

As regards the second point, the court held that it was was bound by the House of Lords decision in Renton v Palmyra to hold that in English law Art.III Rule 2 related only to the manner in which the obligations undertaken by the shipowner were to be carried out. It did not oblige the shipowner to carry out those functions, nor did it make him responsible for the manner in which other parties carried out those functions. Therefore, the obligation under the bills of lading for shippers/charterers/receivers to load, stow and discharge was not invalidated by Art.III Rule 8. In this case, Clauses 3 and 17 of the charter were intended to relieve the shipowners of all responsibility for cargo operations. Those clauses were incorporated into the contract of carriage contained in the bills of lading. There was no reason for denying them their intended effect. The defendant shipowners were not responsible for any failure of the shippers, receivers or charterers to carry out any part of the loading or discharging operations properly or carefully.

As to the third point, the finding in point (ii) meant that the shipowners did not need to rely on the defence of Art.IV Rule 2(i) – Act or omission of the shipper – to avoid liability to the receivers or on the defence of Art.IV Rule 2(q) – Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier – to avoid liability to the shipper.