Australia: Transport & Logistics News - March 2017: part 4

This article is part of a series: Click Transport & Logistics News - March 2017: part 3 for the previous article.

Atlasnavios-Navegacao, LDA v Navigators Insurance Co Ltd and Ors (The "B Atlantic") (2016) 2 Lloyds Rep 351

At first instance it was held that the owners of the vessel were entitled to recover for a constructive total loss following the confiscation of their vessel by Venezuelan authorities. The confiscation had taken place when, on completion of loading of a cargo of coal in Lake Maracaibo, Venezuela, for discharge in Italy, the vessel was subject to an underwater inspection by divers who discovered three bags of cocaine strapped to the vessel's hull. That had occurred on 13 August 2007. The vessel was detained on 16 August 2007 and the crew were arrested. The master and second officer were charged with complicity in the drug smuggling. A notice of abandonment was served on 18 June 2008 and the vessel remained in detention until after the trial of the two officers who were convicted in August 2010 and the Court ordered the confiscation of the vessel.

The insurers had denied liability in reliance on the following exception in clause 4.1.5 of the Institute War and Strikes Clauses Hull 1/10/83:

arrest, restraint, detainment, confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations.

In the Court of Appeal, the Court sought to identify, initially, the proximate cause of the loss and after considering the authorities reached the view that the detainment of the vessel was caused both by the malicious act of the drug smugglers and by the detainment of the vessel by reason of the infringement of customs regulations, which infringement was constituted by the concealment of the drugs. It was then necessary to consider whether clause 4.1.5 excluded liability. The leading judgment is given by Lord Justice Clarke, with whom the other two Lord Justices agreed, and it was held that clause 4.1.5 operated to exclude liability, and as one of the two identified causes of loss was excluded, insurers were not liable.

Imperator I Maritime Co Bunge SA (The "Coral Seas") (2016) 2 Lloyds Rep 293

This case was an appeal from arbitrators who had found that the vessel had not maintained the warranted speed under the charter party, that the reason it did not was underwater fouling of the hull and propeller by marine growth which had developed during a lengthy stay in tropical waters, and that the marine growth could not be regarded as unusual or unexpected but constituted fair wear and tear incurred in the ordinary course of trading. The arbitrators had concluded that the speed warranty included such conditions and it was the owners/head charterers who had assumed the risk of a fall-off in performance as a result of bottom fouling consequential upon compliance with the head charterers'/sub-charterers' lawful orders. Mr Justice Phillips in the High Court in England dismissed the appeals. While accepting that a shipowner had an implied right of indemnity against a time charterer in respect of the consequences of complying with the charterer's orders as to the employment of the ship, even if the orders were ones the charterer was contractually entitled to give, such indemnity, he held, did not extend to the usual perils of the voyage in respect of which the owner must be taken to have accepted the risk.

In concluding his judgment, Phillips J said:

...I consider that the proposition stated in para 3.75 of Time Charters is too widely stated. Where a vessel has underperformed, it is not a defence to a claim on a continuing performance warranty for the owners to prove that the underperformance resulted from compliance with the time charterers' orders unless the underperformance was caused by a risk which the owners had not contractually assumed and in respect of which they are entitled to be indemnified by the charterers.

Volcafe Ltd and Ors v Compania Sud Americana de Vapores SA (trading as CSAV) (2016) EWCA Civ 1103

We reported on the first instance decision of this case in Transport & Logistics News (30 September 2015) in which a cargo claimant had succeeded in recovering damages for condensate damage to nine consignments of washed Colombian green coffee.

The Court of Appeal allowed the appeal. The principal judgment was given by Justice Flaux with whom the other two Justices agreed. The carrier had denied liability and relied on inherent vice by way of defence to the claim. The cargo owner asserted that the carrier had failed to use adequate and/or sufficient kraft paper, strong corrugated paper or other insulating materials to line the containers and protect the cargoes from condensation.

The case turned on where the burden of proof lay. Was it necessary for the carrier to disprove negligence or was it up to the claimant cargo owner to prove the carrier's negligence? Flaux J regarded the first instance Judge, David Donaldson QC, as having taken the view that "once the claimants had shown that the coffee bags were delivered in a damaged condition the onus was on the carrier to establish the inherent vice or inevitability of damage and to disprove negligence".

On the appeal this was rejected. Interestingly, two Australian High Court decisions were discussed in some detail in Flaux J's judgment. The first was the seminal High Court decision of Shipping Corporation of India v Gamlen Chemical Co (1980) 147 C.L.R. 142. The High Court accepted in that case that the burden of proof was as it had been set out in the Glendarroch (1894) P226 which, as Flaux J said, contained "a classic exposition of the incidence of the burden of proof in cases of carriage of goods by sea at common law...". Lord Esher MR had said in that case:

...I think that according to the ordinary course of practice each party would have to prove the part of the matter which lies upon him. The plaintiffs would have to prove the contract and the non-delivery. If they leave that in doubt, of course they fail. The defendant's answer is, "Yes; but the case was brought within the exception - within its ordinary meaning." That lies upon them. Then the plaintiffs have a right to say there are exceptional circumstances, viz., that the damage was brought about by the negligence of the defendant's servants and it seems to me that it is for the plaintiffs to make out that second exception.

At the conclusion of their joint judgment in the Gamlen case, Mason and Wilson JJ said:

We may say, in passing, that we agree with Samuels JA in the Court of Appeal when he points out that the correct sequence of pleading is set out in the judgment of Lord Esher in the Glendarroch.

Stephen J, also in the Gamlen case, referred to what Professor Bill Tetley said in his book on Marine Cargo Claims (Second Ed) 1978 where he described the order of proof which prevails in all Hague Rules cargo claims: "a cargo owner must prove his loss, the carrier may then establish facts entitling him to rely upon exculpatory clauses, of which peril of the sea is one, but the cargo owner may then nevertheless succeed by proof of negligence, for example, proof of improper stowage".

The other High Court decision referred to by Flaux J is the Bunga Seroja (1999) 1 Lloyds Rep 512 which was also a peril of the seas case, where three of the six judges were supportive of what the High Court had said in the earlier Gamlen decision.

Flaux J then turned to consider the defence of inherent vice where he found also that the first instance judge had fallen into error. He went on to stress that inherent vice and inevitability of damage are not the same and referred to the well-known decisions in Soya GmbH v White (1982) 2 Lloyds Rep 136 where a loss by inherent vice was said to be "one which is approximately caused by the natural behaviour of the subject matter insured, being what it is, in the circumstances in which it was expected to be carried", and in which in the House of Lords (1983) 1 Lloyds Rep 122, Lord Diplock said "Inherent vice refers to a peril by which a loss is approximately caused; it is not descriptive of the loss itself. It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external act or casualty".

The second case that Flaux J referred to was Noten B.V. v Harding (1990) 2 Lloyds Rep 283 where a consignment of gloves carried in containers suffered moisture damage during the transit and the trial judge found that the moisture came from the gloves themselves and not from the air inside the containers at the time they were stuffed. The Court of Appeal had found in that case that the proximate cause of the damage was inherent vice.

In reliance on these decisions, Flaux J was satisfied that the carrier made out a defence of inherent vice under Article IV Rule 2(m) of the Hague Rules. The trial judge should then have gone on to consider whether or not that defence had been negatived by reason of the carrier not having employed a sound system in the carriage of the goods, the legal burden of which was on the claimants to establish. Flaux J identified the word "properly" under Article III Rule 2, in the context of the carrier's obligation to carry and care for the goods "properly" as meaning carrying "in accordance with a sound system". He emphasised that that does not require the carrier to employ a system which would prevent damage. The Court of Appeal found that the judge had been in error to conclude that at the time these consignments were shipped there was no general container industry practice in relation to the dressing of unventilated containers in preparation for the carriage of bagged coffee beans, and that the cargo owners had not proved that the carrier had been negligent in that regard. The Court of Appeal also found that the judge's rejection of the defence which was sought to show that the weight of the evidence pointed to minor condensation damage to coffee and bags carried in unventilated containers, whatever lining is used pursuant to the general practice of the container trade.

Interestingly, one aspect of the first instance decision which found favour with the Court of Appeal was that relating to the "temporal scope of the Hague Rules". At first instance the judge had found that the actions by the carrier in lining and stuffing the containers were part of the loading operation. The Court of Appeal quoted the well-known passage of Devlin J in Pyrene v Scindia (1954) 2 QB 402 in which the "tackle to tackle" rule had been modestly extended to catch cases in which the goods were lifted from the quay side by the vessel's own cranes. The Hague Rules could apply to that loading operation as well as once the goods had crossed the ship's rail. The Court of Appeal considered that Devlin J's analysis was also apt where the carrier had performed services such as those carried out in relation to these containers in this case. By shipping the goods on LCL/FCL terms, the Court of Appeal said that the carrier "assumed responsibility for the dressing and stuffing of the containers, so that those services formed part of the operation of "loading", to which the Hague Rules applied".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click Transport & Logistics News - March 2017: part 3 for the previous article.
This article is part of a series: Click Transport & Logistics News - March 2017: part 5 for the next article.
Andrew Probert
Andrew Tulloch
Marcus Saw
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