Case Study A Typical Cargo Claim in relation to a charterparty

A vessel was chartered under a time charterparty on the NYPE form for a period of 24 months. The charter provided, amongst other things:Clause 1: The Owners shall keep the vessel in a thoroughly efficient state for and during service. Clause 8: Charterers are to load stow lash the cargo at their expense under the supervision of the Captain. Clauses 21-22: Vessel on her delivery to be ready to receive cargo and tight, staunch, strong and in every way fitted for service Clause 24: was deleted, thus the United States Carriage of Goods Act (which gives effect to the Hague Rules) was not applicable. Additional Clause Clause 48: Lashing although done by crew, crew to be considered as Charterers servants. Facts: In San Francisco the ship Beltimber loaded, amongst other things, timber for discharge in Sydney. The timber was loaded on deck. The loading and stowage of the cargo was carried out under the direction of the charterers. The lashing of the cargo was carried out by the crew. The lashings were generally spaced at three-meter intervals. Such lashings for deck cargoes, to the height to which the timber was loaded, were in contravention of the IMO Code of Practice for ships carrying timber deck cargoes. During the course of the voyage part of the vessels deck cargo was lost overboard during heavy weather. The Beltimber was also damaged and was forced to deviate to a port on route for emergency repairs. The dispute: A dispute arose between the parties in relation to liability for the lost cargo. Advise the owner and the charterer

Discussion/Advice
Key principles in relation to charterparties Parties to charterparties are presumed to be of equal or similar bargaining strength. Charterparties are contractual creatures. Disputes under them are therefore resolved by applying pure contract law. The Hague, Hague-Visby Rules, Modified Hague-Visby Rules or the Hamburg Rules do not mandatorily apply to charterparties. In order for the rules to have any work to do they must be incorporated into the charterparty.

Identify the type of charterparty that is relevant to the problem and understand the key difference between it and other forms of charterparty. Types of charterparties: Demise or bareboat charter in exchange for payment of hire, possession of the ship is given to the charterer who crews and runs it. However, the charterer does not own the ship (lessee only). Voyage charter in return for payment of freight, the shipowner agrees to perform one or more voyages and to carry identified cargo. Time charter in exchange for the payment of hire the commercial disposition of the ship is put at the disposal of the charterer. However, the owner or demise charterer retains possession of the ship and continues to crew and see to its ordinary running costs. Specific costs connected with the commercial use of the vessel (e.g. fuel, cargo handling and port charges) will generally be to the charterers account.

Identify the positions that parties have taken or are likely to take: Owners Reliance on contractual terms: Owners are likely to submit that the terms of the charterparty read as a whole make it clear that the responsibility for the proper loading and lashing lay with the charterer. Seaworthiness: the contractual position remains unaltered regardless of whether or not the consequences of bad loading or lashing were to make the ship potentially unseaworthy.

The charter is therefore liable for any damages arising from the lost cargo. Charterer The charterer is likely to submit as follows:

Seaworthiness - the Beltimber was unseaworthy because of the loading technique adopted which made the ship unstable. There was an absolute obligation on the owner to intervene and prevent the vessel sailing in an unseaworthy condition. Reliance on contractual terms The obligation to provide a seaworthy ship was absolute and ongoing by virtue of clause 1 of the charter. Furthermore, under clause 8 of the charter the Captain had a responsibility to intervene and ensure that the correct lashing technique was adopted.

The owner was in breach of these obligations and is liable for any loss the charterer may suffer. First consideration: The concept of seaworthiness and its application in relation to charterparties The common law (as opposed to the Hague-Visby Rules) applies to charterparties unless the rules are incorporated into the charterparty. Putting it another way: The Hague-Visby Rules do not apply to a charterparty by force of Australian law unless the charterparty provides that they are to govern it as if it were a bill of lading. 1 There is therefore an implied obligation in every time charterparty to provide a seaworthy vessel fit to meet and undergo the perils of the sea and other incidental risks to which of necessity she must be exposed in the course of a voyage. 2 This implied warranty when applied to contracts of carriage has been defined as "being absolutely responsible for the safe arrival of the goods unless the damage was caused by an Act of God, the public enemy or inherent vice and the carrier was not negligent." 3The undertaking is not merely that the shipowner will do and has done his best to make the ship fit, but that the ship really is fit in all regards to carry her cargo safely to its destination4. It is a personal warranty, i.e. the duty cannot be delegated 5. It does not depend on the owner's knowledge. For instance, if a reputable yard makes a
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COGSA 1991 (CTH), ss 10(1)(b)(iii),(2); Sched 1, Art 5(Hague-Visby rules); Sched 1A, Art 5, Art 10 rr 5, 6 (Australian modification).
Kopitoff v Wilson (1876) 1 QBD at p 380 per Field J

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The Muncaster Castle (Riverstone Meat Co. Pty. v. Lancashire Shipping Co.), [1961] 1 Lloyd's Rep. 57, (H.L.) 237 where the ship repairers had not been diligent and the carrier was quite properly held responsible. An earlier decision to the same effect was Intl. Packers London, Ltd. v. Ocean S.S. Co. Ltd., [1955] 2 Lloyd's Rep. 219; Firemans Fund Insurance Co. v. Vigsnes, 1986 AMC 1899 (N.D. Fla. 1985). 238. The Muncaster Castle is supplemented by The Amstelslot (Union of India v. N. V Reederij Amsterdam) where the House of Lords ruled that the carriers had exercised due diligence to make the vessel seaworthy, because they had employed skilled and competent persons to carry out necessary inspections and those persons had acted carefully and competently. Although the inspectors had not discovered a crack in a helix tire of the drum in the reduction gear, they had been diligent, and that was sufficient. There were 3 methods of inspection. As the method used was acceptable, due diligence had been exercised, even though other methods were more thorough.

Gilmore & Black, 2d. ed., p139 Scrutton, 16th ed., p.98

bad repair and the ship has an ingress of water damaging cargo, the owner is responsible even though it could not have discovered the faulty repair by the reasonable exercise of care. At common law the obligation of the owner to provide a seaworthy ship is therefore absolute and, in the event of breach, the owner will be liable irrespective of fault. However, in relation to time charterparties, the obligation of seaworthiness implied by law does not extend beyond the time of delivery of the vessel at the commencement of the charterparty. The majority of charterparties therefore contain express clauses imposing an ongoing obligation on a shipowner to provide a seaworthy ship for the duration of the charter. By way of example the NYPE form states that the vessel be tight, staunch, strong and in every way fitted for service. There is authority for the view that such clauses do not impose an absolute obligation to keep the ship seaworthy for the whole of the charter period 6. However, there appears to be other authority of equal or greater weight for the proposition that they do, unless the charterparty also contains an exclusion clause protecting the shipowner against consequences of unseaworthiness arising during the charter period 7. The obligation is wide: it covers not only the physical state of the vessel but also the competence and adequacy of the crew, the sufficiency of fuel and other supplies, and the facilities necessary and appropriate for the carriage of the cargo. The obligation is said to be a two-fold obligation: The vessel must be suitably manned and equipped to meet the ordinary perils likely to be encountered while performing the services required of it; and It must be cargoworthy in the sense that it is in a fit state to receive the specified cargo.

Examples of vessel having been found to be unseaworthy: Defective engines 8 Defective compass 9 Employing of an incompetent engineer or other officer 10 Deck cargo is stowed in such a way as to render the vessel unstable 11

Snia Societa di Navigazione Industria e Commercio v Suzuki & Co (1924) 17 LI L Rep 78 at 88 per Greer J; Also see dictum by Lord Roche in Tynedale Steam Shipping Co v Anglo-Soviet Shipping Co (1936) 54 LI L Rep 341 at 344 7 Minister of Materials v Wold Steamship Co Ltd [1952] 1 Lloyds Rep 485 at 497-498, per Sellers J; Anglo-Saxon Petroleum Co Ltd v Adamastos Shipping Co Ltd [1957] 2 QB 233 at 255 (CA)(reversed on other grounds [1959] AC 133; Also see discussion by Davies and Dickey Shipping Law (3rd Edition) at p 354 -355) 8 Hong Kong Fir Shipping Co v Kawasaki [1962] 2 QB 26; The Amstelslot [1963] 2 Lloyds Rep 223. 9 Paterson Steamships Ltd v Robin Hood Mills (1937) 58 LILR 33 10 The Makedonia [1962] 1 Lloyds Rep 316; Hong Kong Fir

Second consideration Application of concept of seaworthiness to the particular facts In this particular case, the three meter lashing interval was in contravention of the IMO Code of Practice for ships carrying timber deck cargoes. On the face of it, this therefore constitutes bad stowage. However, bad stowage may not of itself amount to unseaworthiness 12. The position was summarised by Lord Sumner as follows: Bad stowage, which endangers the safety of the ship, may amount to unseaworthiness, of course, but bad stowage, which affects nothing but cargo damaged by it, is bad stowage and nothing more 13. There is no single standard of fitness, rather the carrier is expected to ensure that the ship is in a condition to encounter whatever perils of the sea of a ship of that kind, and laden in that way, may be fairly expected to encounter during the voyage 14 Given the common purpose to carry the cargo safely to its destination, the requisite fitness of the ship depends on 15: the particular voyage; the type of cargo on carriage; and and the time of the year.

The Beltimber will therefore only be regarded as being unseaworthy should the bad stowage adversely affect the vessels safe arrival at its destination 16. For instance, due to the instability of the vessel caused by a loading technique adopted at the port of loading. (the problem of obtaining Burden of proof information/documentation to discharge the burden) the necessary

The burden of proof of unseaworthiness will rest on the party alleging it. In casu, the charterer. This may be difficult to do as the documents that may show this will be in the hands of the shipowners. The role and importance of expert evidence Often the raw information obtained will need to be provided to an expert for an opinion as to its meaning and effect in relation to the issue of the seaworthiness of a vessel. This is as a result of the inevitably technical nature of the factors relevant to this issue (i.e. stresses and strains, stability,
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Kish v Taylor [1912] AC 604; The Friso [1980] 1 Lloyds Rep 469 Elder Dempster & Co v Paterson Zochonis & Co [1924] AC 522 13 Elder Dempster (supra) 14 Great China (supra) at 1597 per Gaudron, Gummow and Hayne JJ. 15 Commonwealth v Burns Philip & Co Ltd (1946) 46 SR (NSW) 307 at 313 per Jordan CJ. 16 See Great China (supra) at 1598 per Gaudron, Gummow and Hayne JJ and at 1622 per Kirby.

buoyancy that different cargoes and different loading techniques will exert on a vessel). Evidence relevant to this issue may therefore include the following: Timber is often carried on the decks of ships and sometimes causes the combined centre of gravity of ship and cargo to rise, which adversely affects stability, a situation made worse when the deck cargo absorbs rain and seawater during the voyage, especially when freezing occurs and ice accumulates on deck. However, there is usually an increase in buoyancy and the timber also gives the ship greater protection against the rough sea conditions. The Code of Safe Practice for Ships Carrying Timber Deck Cargoes gives further information and guidance on this subject. The Code is intended to apply to ships of 24 meters (79 feet) in length and over. General precautions - It is of fundamental importance that bulk cargoes be properly distributed throughout the ship so that the structure is not overstressed and the ship has an adequate standard of stability. The initial transverse stability of a ship is usually expressed as the metacentric height or GM. A large distance between the centre of gravity of ship and cargo (G) and the metacentre[1] (M) means that the ship has adequate stability. As G approaches M, i.e. when the centre of gravity of ship and cargo rises, ships, when forced from a position of equilibrium, recover this position sluggishly. Generally speaking, high density cargoes should be loaded in the lower hold spaces rather than the 'tween decks[2]. Particular care should be taken when a ship has a high GM. In order to prevent cargoes from shifting the considerations dealt with below under the heading Bulk cargoes having an angle of repose greater than 35 degrees[3] should also be taken into account.

As hull arrangements vary, it is not possible to establish overall rules applicable to all types of ships. Modern methods of seaworthiness. Because of the advances of science, new methods of ship construction and new standards of seaworthiness are available each year. Arguably the standard of acceptable seaworthiness therefore gets higher with time and progress. However, new standards may not necessarily be imposed on old ships. New standards appear to be required on old ships only during major repairs or construction.

It is therefore important that the master be provided with loading information sufficiently comprehensive to enable him to load the ship without overstressing the structure. This applies to localised stresses on the structure as well as on the bending stresses. The master must also be able to calculate the stability of his ship for the anticipated worst conditions during the voyage. In this particular case, the insufficiency of the lashings may therefore have affected the vessels overall stability and have been the dominant cause of the loss which was only waiting on heavy weather for it to take effect 17. It can be inferred that the master of the vessel would have known the IMO guidelines in relation to lashing of timber. It is probable that the on deck stowage manual would incorporate them. In the event that the master was not aware of the guidelines it is likely that a Court would rule that he should have been aware of them. Importantly, however, a finding that the vessel was unseaworthy at the loading port does not end the matter. The shipowner may still be able to avoid liability! In this regard, it still needs to be determined who assumed responsibility for loading and/or securing of the cargo. This is relevant because under common law there is nothing to stop a carrier from modifying, reducing or excluding any implied terms (including the undertaking as to seaworthiness) by incorporating an appropriately worded clause or clauses.

Third Consideration The meaning and effect of any exemption clauses in the charterparty on the positive obligation on the shipowner to provide a seaworthy ship General principles

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Shipping Corp of India Ltd v Gamlen Chemical Co (A/Asia) Pty Ltd (1980) 147 CLR 142 per Jordan CJ at 154-155.

Charterparty clauses imposing an obligation of seaworthiness are intermediate terms. 18 Consequently, they do not give rise to an automatic right of cancellation and refusal to perform on the part of the charterer. The usual remedy for unseaworthiness of the chartered ship is damages. The charterer is entitled to terminate the contract only if the shipowners breach of the seaworthiness obligation is such as to go to the root of the contract. [In casu, should it be found that there was a breach by
the shipowner it does not appear that it goes to the root of the contract as it only related to bad stowage of one shipment of timber. However, if the timber caused serious damage to the vessel when it broke free requiring the vessel to undergo substantial repairs then this may go to the root of the contract)].

Exemption clauses are presumed not to cover a breach of a carriers obligation to supply a seaworthy vessel. Clauses purporting to modify, reduce or exclude a carriers liability will be construed contra proferentem in case of ambiguity (i.e. against the party seeking to rely on them). In Darlington Futures Ltd v Delco Australia Pty Ltd 19 the High Court held as follows: the interpretation of an exclusion clause is to be determined by construing
the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.

Exemption clauses must be therefore be clearly and precisely worded.

In casu - meaning and effect of the charterparty clauses It appears that the express obligations of "seaworthiness" on the shipowner, imposed by clauses 21-22 and clause 1 of the NYPE charterparty were in limited terms, and were not broken by the shipowner for the following reasons: The obligation to load and lash was expressly placed upon the charterer by clause 8. The words "under the supervision of the Captain" do not qualify the obligation of the charterer. They do not impose any positive duty on the Captain to supervise the loading and stowage of the cargo. Such words merely gave the Captain the right to intervene 20. A right to intervene does not carry with it a liability for failure to do so, let alone relieve the actor from his liability. The owner was therefore not liable for the lost cargo or the damage to the vessel.

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Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 (1986) 161 CLR 500 20 The Panaghia Tinnou 1986 2 Lloyds Rep 568

Note: In making these findings the following factors are also relevant: Charterparties containing a clause substantially in the same terms as clause 8 of the NYPE are often amended to include additional words such as "responsibility". The insertion of the word "responsibility" after "supervision" will transfer all responsibility to the owner for loss or damage to the ship or cargo as a result of improper loading, stowage or trimming, unless the charterer in some way interfered and such interference caused the loss or damage to either the cargo or the ship. 21 Difficulties arise where clause 8 or similar clauses may have been amended differently, for instance by inserting the word "discretion". The general rule is that absent such emphatic wording as "responsibility", liability attaches to the owner only if the Captain positively intervenes in loading operations 22.

See The "Shinjitsu Maru No.5" (1985) 1 Lloyds Rep 568, The "Argonaut" (1985) 2 Lloyds Rep 216, and The "Alexandros P" (1986) 1 Lloyds Rep 421. 22 Canadian Transport Co Ltd -v- Court Line Ltd (1940) 67 Lloyds Rep 161

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