UK: Deck Carriage: Contracting For The Carriage Of Goods On Usual Terms And Obtaining Appropriate Insurance

Last Updated: 13 January 2010
Article by Jeremy Farr and Jennifer Hughes

Geofizika DD v MMB International Limited 2009] EWHC 1675 (Comm)

The English Courts have recently considered a deck carriage case in a world where the containerisation of the carriage of manufactured goods is now well established. The case, which gave rise to what the Judge described as an "unusual combination of facts", is interesting not only for the points that were decided but also those that were not. Any party to a contract of carriage should never make assumptions as to the manner in which the contract of carriage is to be carried out. This case also highlights the fact that, where cargo insurance procured by a CIP seller does not cover the carrier's breach of the contract of carriage (on the basis that a seller ought not to be responsible for events occurring after the policy's inception), it is the buyer who is most exposed.

The facts

In early October 2006, the claimant, Geofizika DD ("Geofizika"), agreed to buy from the defendant, MMB International Limited ("MMB"), three Land Rover ambulances for delivery to Libya. The contract was "CIP Tripoli" and subject to Incoterms 2000, such that MMB was to contract for the carriage of the goods "on usual terms" and "in a customary manner", and was obliged to "obtain...cargo insurance...such that the buyer...shall be entitled to claim directly from the insurer". MMB approached the Third Party, freight forwarder Greenshields Cowie & Co. Ltd ("GSC"), for a quotation. GSC in turn contracted with a line it had not used before, Brointermed Lines Ltd ("Brointermed").

On 14 November, Brointermed sent GSC a booking confirmation stating, amongst other things, that "ALL VEHICLES WILL BE SHIPPED WITH 'ON DECK OPTION' this will be remarked on your original bills of lading..." Around 28/29 November, GSC was sent the draft bills of lading containing the usual details only. GSC did not ask to see Brointermed's standard terms, to be included on the reverse of the bills. The original bills subsequently arrived with Brointermed's standard terms printed on the back, clause 7 of which gave the carrier liberty to carry the cargo on deck. The vessel sailed on 29 November. The vehicles were stored on deck and two were washed overboard in the Bay of Biscay. On 4 December, GSC sent the normal documents to MMB, including an insurance certificate and an invoice for insurance cover. The insurance certificate stated "Warranted shipped under Deck".

The issues and the decision

In the litigation, all three parties agreed that the contract of carriage should have provided that the cargo be carried below deck. MMB and GSC claimed that it did, in effect, so provide.

Did MMB fail to procure a compliant  contract of carriage?

Geofizika argued that MMB had breached its duties in that the contract of carriage procured permitted the carrier to carry the cargo on deck, as demonstrated by clause 7 of the bills of lading and the booking confirmation. MMB argued that, before the bills were issued, there was an "antecedent agreement" that the cargo would be carried below deck. The booking confirmation, which provided for an on deck option, took priority over the standard terms of the bills such that the contract of carriage did not allow the cargo to be carried on deck without the bills being specifically claused to that effect. The Court found in favour of Geofizika, concluding that the wording in the booking confirmation was too ambiguous to constitute an agreement overriding the written terms of the bills. The terms of a contract of carriage would not be considered "usual" or a means of carriage "customary" if they provided for storage on deck when all parties have agreed that the cargo should be carried below deck.

MMB alternatively argued, in its closing submissions, that the contract of carriage was both usual and customary as Brointermed had no legal right to carry the vehicles on deck. Article III(2) of the Hague-Visby rules obliges a carrier to properly and carefully care for its cargo, a duty that cannot be excluded by contract (Article III(8)). It was not proper for the carrier to carry the vehicles on deck, therefore clause 7 of the bills cannot validly permit such carriage. Geofizika countered that the on deck option was not an exclusion prohibited by Article III(8), but an aspect of service that the carrier undertook to provide properly and carefully. Article III(2) is concerned with the manner in which obligations undertaken (such as the on deck option) are carried out, and the shipowner is prevented from excluding liability for doing what he undertakes properly and with care. Judge Mackie QC was inclined to agree with Geofizika, but declined to pass judgment on this issue until addressed in more detail by both sides.

Did MMB fail to procure a contract of insurance?

Geofizika argued that MMB had failed to procure a contract of insurance that matched the contract of carriage, as once the carrier exercised its option to ship on deck the policy was voidable given the term that the cargo was "warranted shipped under Deck". The Court found in favour of Geofizika, rejecting MMB's contention that it was only obliged to procure insurance to cover the whole period of the contract of carriage. MMB also argued that the insurance was only invalid due to Brointermed's breach of contract, for which MMB could not be held liable. Whilst Judge Mackie QC agreed that a seller is not bound to insure against losses arising out of breaches of the contract of carriage by the carrier, the buyer's remedy being against the carrier and not the seller, the seller remains under an obligation to procure insurance documents that are valid at the time they are obtained. On the facts of the case, there was never a proper contract of insurance as the policy was "doomed from the start". 

MMB's claim against GSC

MMB brought third party proceedings against GSC for an indemnity on the basis that, by giving a warranty that the goods would not be carried on deck, GSC had breached its obligations as a freight forwarder to use reasonable skill and care. GSC argued that it was entitled to expect the carrier to perform its normal duties competently, and that it had discharged its own responsibilities by identifying Brointermed in Lloyd's Loading List, a publication widely relied upon within the industry. Brointermed had advertised a RORO service where "RORO" necessarily meant carriage under deck, GSC's witness evidence describing RORO and on deck carriage as "completely exclusive concepts".  Judge Mackie QC found in favour of MMB. Although GSC may have genuinely believed that any RORO contract necessarily involved shipment under deck, there was no evidence that this was the case. If GSC had checked Brointermed's website, it would have been clear that it was at least in doubt that carriage would be on a RORO basis. The wording of the booking confirmation was ambiguous and the position should have been verified before the insurance warranty was given.

Comments

The outcome of this judgment is a lesson that any party to a contract of carriage should never make assumptions as to the manner in which the contract of carriage is to be carried out. This case also highlights the fact that, where cargo insurance procured by a CIP seller does not cover the carrier's breach of the contract of carriage (on the basis that a seller ought not to be responsible for events occurring after the policy's inception), it is the buyer who is most exposed. Although the fact that the policy was void from inception meant that this issue was not fully discussed, we hope that the point is clarified in more detail by the courts in the future. This case also raises the potentially significant issue as to whether the on deck option was an exclusion prohibited by Article III(8) or an aspect of service which the carrier undertook to provide. We and the industry await with interest to see if this point receives further judicial consideration.

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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