Jindal Iron v. Islamic Solidarity HofL

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Jindal Iron and Steel Co. Ltd. and Others v. Islamic Solidarity Company Jordan Inc. – the "Jordan II"
English House of Lords: Lords Bingham, Nicholls, Steyn, Hoffmann and Scott: [2004] UKHL 49: 25 November 2004
Simon Rainey QC and Nicholas Craig, instructed by Jackson Parton, for the claimants
Timothy Young QC and Sudanshu Swaroop, instructed by More Fisher Brown, for Islamic Solidarity
In this decision, the House of Lords confirmed the decisions at first instance and in the Court of Appeal to the effect that cargo interests, and not the carrier, are responsible for loss of or damage to cargo occurring during the operations of loading, stowing, trimming and discharging the cargo, where - under the relevant contracts of carriage - cargo interests had undertaken a) to perform those operations and b) at their cost. This principle had been first enunciated by Devlin J. as he then was, in the case of Pyrene v. Scindia [1954] 2QB 402, and thereafter approved by the House of Lords in Renton v. Palmyra [1957] AC 149. The House held that a departure from these rulings was not justified but expressed no concluded view on the correct interpretation of Article III Rule 2 of the Hague-Visby Rules under English law

DMC’s Category Rating: Confirmed

The claimants (the shippers and receivers of a cargo of steel and the voyage charterer of the Jordan II) claimed against the defendant shipowners for damage to cargo, which, they alleged, was caused by defective loading, stowage, lashing, securing, dunnaging, separation and discharge. The owners argued that, under the terms of the charterparty and the contract of carriage evidenced by the bills of lading, they were not responsible for those cargo operations and, even if they were, they could recover an indemnity from the charterers.

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.

Clause 17 of the charter provided:
"Shipper/Charterers/Receivers to put the cargo on board, trim and discharge cargo free of expense to the vessel….Trimming is understood to mean levelling off of the top of the pile and any additional trimming required by the Master is
to be for Owners' account."

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 under 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.

Decision at First Instance
At first instance, the judge had held that, since it is the obligation of the shipowner at common law to load, stow and discharge the cargo, clear words would be needed if responsibility for the proper performance of this obligation was to be transferred to the shipper/charterer/receiver. The judge was satisfied this was the case here. Clause 17 expressly provided that certain activities were to be carried out by the shippers/charterers/receivers and so the responsibility for the proper performance of those tasks was transferred to them. Although the requirement for "trimming" made no sense in the context of a cargo of steel coils, clause 17 had to be read in conjunction with clause 3 where the words "lashed/secured/dunnaged" clearly referred to
the cargo activities that this particular cargo would require.

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 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.

Judgment of the House of Lords
The leading judgment was given by Lord Steyn, with whom the other four law lords agreed. The issue before the House was whether an agreement in a contract of carriage that transfers the responsibility for loading, stowage and discharge from the shipowners to the shippers, charterers and consignees is invalidated by Art.III R.8 of the Hague and Hague-Visby Rules, so as to render the shipowners responsible for cargo loss and damage if these operations are performed improperly or carelessly.

Lord Steyn noted that long-standing precedent is to the effect that such a reallocation of risk by agreement is permissible and that, in these circumstances, the carrier is not liable.

Before the House, the cargo owners argued that Art.III R.2 of the Hague/Hague-Visby Rules imposed upon the shipowners, as carrier of the goods under the bills of lading, the duty to perform the functions described in that rule (which include loading, stowing and discharging the cargo) and the responsibility for their proper and careful performance. Secondly, that the provisions of clauses 3 and 17 of the charterparty, transferring responsibility for those functions to the cargo interests, were invalidated by Art.III R.8. Recognising that the decision of the House in the Renton case stood in the way of this argument, Counsel for cargo interests invited the House to depart from that decision under the Practice Statement (Judicial Precedent) of 1966.

The shipowners position, on the other hand, was that whilst the carriage was subject to the Hague Visby Rules, the extent to which loading, stowage and discharging are brought within the carrier’s obligations may properly be a matter for agreement between the parties. Properly construed, the Rules do not invalidate an agreement transferring to the cargo interests the shipowner’s responsibility for those functions. Finally, they relied on the binding authority of the decision of the House in the Renton case.

Lord Steyn noted that under the common law, the duty to load, stow and discharge the cargo rested in the first place on the shipowners but it could be transferred by agreement to the cargo interests. Further, that in Pyrene v. Scindia, above, Devlin J had observed that the effect of Art.III R.2 of the Hague Rules was not to override freedom of contract to reallocate responsibility for the functions described in that Rule. Strictly speaking, this was an obiter dictum (not part of the reasoning on which the case was decided and, therefore, not a binding precedent) but two years later the same point was before the House of Lords in the Renton case, where, Lord Steyn held, the principle set out by Devlin J. was clearly adopted as part of the ratio decidendi (the grounds on which a case is decided) of that case.

Before considering the arguments on interpretation, Lord Steyn noted that the rule in Renton had stood for almost fifty years and referred to the well-known quotation from Lord Mansfield in Vallejo v. Wheeler [1774] 1 Cowp 143 to the effect that "in mercantile transactions the great object should be certainty". That did not mean that the House would not depart from an earlier precedent where that decision had been demonstrated to work unsatisfactorily in the market place and to produce manifestly unjust results. But he held that, if that high threshold requirement is not satisfied, it would not be proper to reverse the earlier decision. In the present case, the House was satisfied that it had not been shown that the Renton decision had worked unsatisfactorily and led to unjust results.

On the issue of interpretation, Lord Steyn acknowledged that the language of Art.III R.2. appears to provide for a single standard of carrying out properly and carefully not only loading and discharging but also the caring for the goods carried and that the French text, which for the Hague Rules was the authoritative text, tended to support the cargo interests’ position in the present case. On the other hand, Devlin J.’s interpretation was not based on linguistic matters. The Hague/Hague-Visby Rules represented a pragmatic compromise between the interests of owners, shippers and consignees. They were designed to achieve a part harmonisation of the diverse laws of trading nations. They achieved this by regulating freedom to contract on certain topics only. In interpreting Art.III R.2, its purpose and context was all important. The purposive interpretation of that Article, preferred by Devlin J., avoided the unreasonable result of holding the shipowner responsible for the improper/negligent performance of functions carried out by stevedores appointed and paid for by cargo interests.

Lord Steyn concluded that it may be right to say that, "where conflict arises between purely linguistic considerations and the broad purpose of an international convention, the latter should generally prevail." In his view, the case for the adoption of the Devlin interpretation, if it were proper to consider the matter afresh today, was "formidable" but he did not venture a "concluded view".

Returning to the issue whether a departure from Renton was justified, Lord Steyn noted that when, in 1968, the opportunity arose to review the operation of the Hague Rules, leading to the eventual adoption of the Hague Visby Rules, no changes were made to the wording of Art.III R.2. One would have expected, he said, that if Renton worked unsatisfactorily in practice, that would have emerged at the diplomatic conference. Similarly, had there been dissatisfaction with the effect of Renton, one would have expected British cargo interests to have raised it when Parliament was considering the Bill which was to become the Carriage of Goods by Sea Act 1971. But the matter was not raised at all. Nor was there discussion of the issue in trade journals and publications and since the decision in Renton, no academic writers had argued that it should be reversed.

Since Renton was decided, he continued, shipowners, charterers, shippers and consignees had acted on the basis that it correctly stated the law. It had formed the basis of countless thousands of bills of lading, voyage charterparties and time charterparties. "Similarly," he continued, "insurances have been placed, Protection and Indemnity Club Rules have been drafted and the Inter-Club New York Produce Exchange Agreement concluded…. But for the reliance upon Renton, it is likely that different freight rates and insurance premiums would sometimes have been charged. Moreover, at the very least, there must be many outstanding disputes that would now be affected by a departure from Renton." For these reasons, he concluded, that – even if he had been convinced that the cargo owners’ interpretation of the Hague/Hague-Visby Rules was correct, the case against departing from Renton "is nevertheless overwhelming."

Finally, he noted another factor, namely that the operation of the Hague/Hague-Visby Rules is under constant review, referring in particular to the current revision of the rules governing the international carriage of goods by sea being undertaken by the United Nations Commission on International Trade Law – UNCITRAL – as the way "in which such problems are best addressed". This made it, he concluded, "singularly inappropriate to re-examine the Renton decision now."


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