DMC Category Rating: Developed

This case note was prepared by Jim Leighton, BSc (Hons) (University of Plymouth), LLM (Maritime Law) (University of Southampton) and Claims Consultant

During the currency of the charter, a lentil cargo of some 2,843 metric tonnes, destined for Bejaia, Algeria, was wetted due to the unseaworthiness of the number 2 hatch covers, which were not completely watertight. The wetting affected approximately 30 metric tonnes or just over 1% of the cargo. On arrival at the discharge port, the receivers complained to the Algerian Authorities ("the DCP") who inspected and rejected the entire cargo. The vessel was arrested and the shipowners suffered financial loss in the region of US$379,356. The shipowners sought an indemnity from the charterers. Whilst the shipowners accepted that they must bear a tiny proportion of the loss caused by the minimal amount of damage to the cargo [some US$9,268] they disputed the balance of some US$369,988.

The dispute went to arbitration. The schedule of assumed facts included:
"Given the very small (and in relative terms, insignificant) amount of cargo wetted … it was not within the reasonable contemplation of the parties that [a request by the receivers for the DCP to inspect the cargo] would be made;
The decision of the DCP to prohibit the import of the total cargo (comprised of about 30 tonnes of damaged cargo and about 2,765 tonnes of sound cargo) was irrational and/or unjustified and/or unreasonable;
It was not within the reasonable contemplation of the parties that the presence of such a small amount of wetted cargo would lead to a prohibition in respect of the total/sound cargo."

In arbitration, the dispute focused on the application of the ICA. It was the shipowner’s case that the charterers and the receivers, whom they alleged were the charterer’s agents, did not take any or any adequate steps to reverse or set aside the decision of the DCP not to permit the cargo to be discharged. If that proposition were correct then the third party cargo claims settled by the shipowners had to be regarded as a claim for shortage due to the act, neglect or default of the charterer’s agents, the receivers. On the basis of the ICA, the charterers were then to bear 100% of the liability arising from the settlement with the cargo interests. Alternatively, if the claim were to be properly categorised as a short delivery claim, under the ICA, then the charterer’s liability was no more than 50%. The charterers, on the other hand, argued that because the loss or damage was caused by the vessel’s unseaworthiness, the shipowners were to bear 100% of the loss, in accordance with the ICA.

The arbitrators found in favour of the charterers. In particular, the arbitrators highlighted that the ICA prevailed over the charterparty, since it represented an agreed interpretation of the provisions of the charterparty dealing with liability for loss of or damage to cargo. As a result, any questions of interpreting the ICA depended on the construction of the ICA itself and not on the construction of the charterparty. The arbitrators also pointed to the fact that the courts had repeatedly acknowledged that the working of the ICA was an attempt to cut through the legal and factual problems and to provide a form of "rough and ready justice". The arbitrators agreed entirely with the charterers "that it would be contrary to the underlying objective of the ICA to read into it a legal requirement such as forseeability and remoteness which did not expressly appear in the ICA itself and which were likely to give rise to complex factual and legal disputes." They continued: "We have never previously encountered the argument that because … the consequences of a situation involving damage to cargo as a result of the undeniable unseaworthiness of the vessel were far greater than any reasonable person could have anticipated, the basic responsibility of the shipowner for damage due to unseaworthiness should somehow be qualified." The arbitrators therefore rejected the shipowner’s attempts to read into the ICA the requirement to consider issues of foreseeability and remoteness, whilst at the same time remarking that the situation in which the owners found themselves as a result of the decision of the DCP to reject the cargo was "by no means unprecedented in our collective experience."

On the appeal the shipowners sought to argue that the arbitrators had erred in law by (i) excluding consideration of certain agreed facts, particularly those referred to above; (ii) applying the ‘but for’ test, rather than the ‘proximate cause’ test, to the issue of causation; and (iii) through excluding consideration of remoteness.

Judgment
The judge held that the test for causation was whether the act or default complained of was a ‘proximate cause’ of the alleged damage. The ‘but for’ test was appropriate to establish whether there was a causal link between the act or default and the alleged damage – although the ‘but for’ test was necessary it was not a sufficient test in itself.

The judge suspected that the charterers appeared to have espoused the ‘but for’ test in the light of the equally erroneous approach of the shipowners, who had argued before the arbitrators that as the damage was not reasonably foreseeable, it could not have been caused by the cargo wetting due to the vessel’s unseaworthiness. Foreseeability however, the judge said, "is not the criterion for deciding whether a person caused something or not. People often cause things which they could not have foreseen": Environment Agency v Empress Cars Co (Abertillery) Ltd [1999] 2 AC 22, 34, per Lord Hoffmann.

Leaving aside, however, the way in which the various arguments arose and were initially presented, the judge agreed with the charterers, that the arbitrators applied the correct test of causation when they found that "provided the unseaworthiness of the vessel could be said in a practical sense to be a [indefinite article] cause of the loss, it was not appropriate to embark upon a further enquiry as to whether it was the [definite article] effective cause of the loss" [emphasis added]. As a result, the judge held that the arbitrators had dealt with the question of causation in precisely the way required by law and had not been distracted from their task by the incorrect submissions of counsel.

The shipowner’s argument about remoteness or the intervention of a new cause (novus actus interveniens), which was the point being made under the foreseeability umbrella, was answered by the arbitrators who considered that what happened at the discharge port was "by no means unprecedented in our experience". The arbitrators also dismissed cause and effect from being coincidences when they said "the admitted unseaworthiness in this case and the decision of the DCP to prohibit the import of the cargo were not mere coincidences". Despite the objection of the shipowners, due to the magnitude of the loss compared to the damage caused, the judge stated, in agreement with the arbitrators, that the seaworthiness was an effective cause of the whole loss, even if some of the loss came as a surprise to the shipowners.

In the light of the arbitrators’ findings, the judge considered that they were right in the way they approached the question as to the impact of those findings on the ICA. Therefore the alleged damage was comprised in the claim due to unseaworthiness. The judge could not, in particular, fault the arbitrators approach to the ICA set out in paragraph 32 of their findings.³ The judge stated, however, that he did not need to decide whether the words "due to unseaworthiness" (from the ICA) would require consideration of whether damage was too remote to be recoverable as a head of damage, because he had determined that the arbitrators had rejected the shipowner’s arguments on remoteness as presented to them.

It followed that the appeal was to be dismissed.

Comment
Caution should be used in placing reliance on this case to establish that there is no need to consider the issues of remoteness and novus actus interveniens in relation to the words "due to unseaworthiness" in the ICA. Although the judge appeared to indorse the arbitrators’ approach to the ICA and issues of remoteness of loss, the correctness of this approach was not a live issue in this case.

100% Owners

Claims for damage (including slackage/ullage) due to bad stowage or handling

100% Charterers

Except as provided in the succeeding paragraphs of this clause, short delivery claims (including pilferage), and claims for over-carriage, and claims for condensation damage

50% Owners

50% Charterers

As regards short delivery and over-carriage claims, where there is clear and irrefutable evidence that the shortage or over-carriage, as the case may be, was to due to act, neglect or default on the part of Owners’ or Charterers’ servants or agents, then the party whose servants or agents were at fault shall bear the claim in full.  Thus, if there is corroborated eye witness evidence that the shortage was due to pilferage by a stevedore, the claim will fall 100% to the account of Charterers, but if by a crew members, then 100% to Owners, subject in the latter case to Charterers’ contribution under the Berth Standard of Average Clause/Charterers’ Contribution Clause (1971).