UK: The Petroleum Oil And Gas Corporation Of South Africa (Pty) Ltd v FR8 Singapore Ltd [2008] EWHC 2480 (Comm)

Last Updated: 27 October 2008

This dispute involved a voyage pursuant to a charterparty on an amended BPVoy4 form relating to the carriage of two cargoes, High Speed Diesel ("Gasoil Cargo") and Multiple Oil and Gas ("Mogas"). These cargoes were shipped on the "ETERNITY" from India and the UAE to South Africa in October 2006.

Upon the vessel's arrival at the intended discharge port of Mossel Bay, the Charterers found both cargoes damaged. Charterers contended this was due to the Owners' failure to adequately separate the two cargoes' vapour phases from the common Inert Gas (IG) line. They submitted that this was due to the unsatisfactory state of the vessel's IG isolation valves and / or control mechanisms and / or from the crew's inexperience and / or incompetence in handling two disparate cargoes. This, they alleged, was in breach of the strict obligations of Owners under clauses 12.1 and 12.2 of the charterparty (and the provisions of the IMO guidelines referred to therein) and / or their obligations under Article III of the Hague-Visby Rules.

The Charterers further contended that Owners were in breach of their duties as bailees and / or carriers for reward and or to deliver the cargoes in the same good order and condition as they were in when shipped. The size of the claim was significant; approximately US$8.3 million.

Clause 12.1 provided inter alia that "Owners undertake that the Vessel is equipped with a fully functional IGS which is in full working order, and is or is capable of being fully operational on the date hereof and that they shall so maintain the IGS for the duration of the charter, and that the Master, officers and crew are properly qualified (as evidenced by appropriate certification) and experienced in, the operation of the IGS...."

Clause 12.2 provided that the vessel was to fully comply with the relevant SOLAS regulations and subsequent amendments and that "Owners undertake that the IGS shall be operated by the Master, officers and crew in accordance with the operational procedures as set out in the IMO publication entitled "Inert Gas Systems" (IMO 860E) as amended from time to time...."

Clause 38 of the charterparty, an exceptions clause, stated that the provisions of Articles III (other than Rule 8), IV bis and VIII of the Schedule to COGSA 1971 should apply to the charterparty and be deemed "inserted in extenso herein. This charter shall be deemed to be a contract for the carriage of goods by sea to which the said Articles apply, and Owners shall be entitled to the protection of the said Articles in respect of any claim made hereunder".

The Owners argued that the obligations imposed under clause 12 were no more than "due diligence" obligations due to the partial incorporation of the Hague-Visby Rules. They also submitted that, to the extent the crew failed to close the isolation valves or take other steps to ensure the segregation of the vapour phases, such failure constituted an act, neglect or default of the Master and / or servants of the carrier in the management of the vessel and hence gave rise to a defence under Article IV rule 2(a).

Charterers on the other hand maintained that Owners' obligations under clauses 12.1 and 12.2 were absolute. In particular, they submitted that use of the words "undertake" and "shall" in 12.1 were consistent only with a strict and absolute obligation which conflicted with the "due diligence" provisions incorporated by clause 38. As clause 12 had specific application, the Charterers felt it should take precedence over clause 38 which was of general application. Furthermore, the Charterers referred to clause 1 of the charterparty which provided for owners to "exercise due diligence" before, at the commencement of and throughout the voyage to make and maintain the Vessel in every way fit for the voyage and fit to carry the intended cargo. Charterers' view was that using the word "undertake" was meant to distinguish the obligation in question from the alternative "due diligence" standard referred to elsewhere in the charterparty.

Owners countered by arguing that an undertaking is no more than a promise which may or may not import an absolute obligation. They added that whilst clause 38 did not refer to it being a clause paramount, it was deemed to be inserted "in extenso", therefore Owners were entitled to its protection. Finally, Owners argued there was no conflict between clause 12 and either clause 1 or clause 38. Clause 12 was intended to guarantee the existence of an IGS as required for vessels over 20,000 dwt. There was no necessary conflict with regard to the standard of care required in maintaining and operating the IGS, as per clauses 1 and 38.

Mr. Justice David Steel agreed with the owners. He referred to Langley J's decision in "The Leonidas" [2001] 1 Lloyd's Rep 533, concerning a speed warranty in a charter with a clause paramount. In that case, the judge held that the two clauses in question could sensibly and commercially be read together so that the speed warranty would apply but subject to the owners' ability to establish that the cause of the vessel's failure to reach the relevant speed as per the warranty was within one or more of the statutory exceptions.

Mr. Justice David Steel found a direct analogy in this case with the terms of the NYPE standard form, which imposed an apparently unqualified and absolute obligation to deliver the vessel "in every way fitted for the service" and to "keep the vessel in a thoroughly efficient state". He held that it was well established that the effect of clause 24 of the standard NYPE form, which contained a clause paramount, was not to establish any conflict but to replace those obligations with an undertaking that due diligence will be exercised to make the vessel seaworthy before and at the beginning of the voyage.

The judge then turned to the issue of whether a failure to close the isolation valves of the IGS or any failure to maintain the valves in good condition were to be characterized as a failure in the management of the vessel. He decided that the cause of the damage in the present case was indeed primarily a failure to care for the cargo. According to the IMO Publication on IGS, the separation valves had two purposes: one was to avoid contamination, the other to facilitate gas freeing. He referred to "Gosse Millerd v Canadian Government Merchant Marine" (1927) 29 Ll. L Rep 190, where the principle was set out as follows:

" If the cause of the damage is solely, or even primarily, a neglect to take reasonable care of the cargo, the ship is liable, but if the cause of the damage is a neglect to take reasonable care of the ship, or some part of it, as distinct from the cargo, the ship is relieved from liability; but for if the negligence is not negligence towards the ship, but only negligent failure to use the apparatus of the ship for the protection of the cargo, the ship is not so relieved".

Mr. Justice David Steel said that he had no doubt the failure to operate or maintain properly those parts of the IGS available for the purpose of avoiding contamination of cargo could not be categorized as neglect or default in the management of the ship.

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