17 March 2011

Shifting cargo leads to marine charterer's liability insurance dispute

The recent decision in the Supreme Court of Victoria in Orica Australia Pty Ltd v Limit (No.2) Ltd (2011) VSC 65 dealt with issues regarding policy liability and the insured’s obligation in relation to loss mitigation and the currency of the judgment amount. While not establishing new principles of law it provides useful guidance to claimants and their opponents.
Australia Transport
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The recent decision in the Supreme Court of Victoria in Orica Australia Pty Ltd v Limit (No.2) Ltd (2011) VSC 65 dealt with issues regarding policy liability and the insured's obligation in relation to loss mitigation and the currency of the judgment amount. While not establishing new principles of law it provides useful guidance to claimants and their opponents.


In late 2004, a cargo of bagged ammonia nitrate shifted in stow during a voyage from Three Rivers Quebec, Canada to Port Alma, Australia necessitating the vessel to deviate from its planned course to resecure the stow.

The vessel had been chartered by Orica Australia Pty Ltd from Spliethoff Transport BV as agent for the vessel owner.

The vessel's owner claimed compensation from Orica for costs associated with the incident and was paid US$2,422,228.20.

Orica in turn sought insurance indemnity under its Charterers Liability Policy and was paid only part of the sum claimed prior to commencement of proceedings.

Accordingly, Orica brought proceedings against Limit (No 2) Ltd seeking full indemnity for the loss it had sustained.

The charterer's liability for owner's claim

Justice Pagone looked first at Orica's liability to the owner of the vessel for the losses which it had suffered.

It was accepted that Orica had a liability to the owner of the vessel under Clause 5(a) of the charter party in respect to the negligent stowage of the cargo on the vessel, that clause requiring the cargo to be loaded, stowed and discharged 'by the charterer, free of any risk, liability and expense whatsoever to the owners'.

The cargo had shifted during the voyage causing the vessel to list to port by 25 to 30 degrees when steaming in heavy weather in the North Atlantic Ocean. It was admitted that the flexible intermediate bulk containers were lashed and secured in a manner inadequate to prevent them from shifting within the vessel at sea.

Policy Liability


In relation to the policy liability, the Charterer's Liability Policy provided:

This policy is to pay such sum or sums as may be necessary, required or deemed appropriate in the settlement of amounts of Compensation to third parties following an accident or occurrence involving a vessel chartered by the Insured for the carriage of a cargo owned by or consigned to or sold by the Insured or in which the Insured has any interest whatsoever.

For the purpose of this policy the Compensation referred to in the immediately preceding paragraph shall include:

(1). In consideration of the premium charged, Underwriters agree to indemnify the Insured in respect of:

(a). their legal and/or contractual liabilities to third parties, owners and/or disponent owners of the Chartered Vessel(s) ...

(c). their legal and/or contractual liabilities for physical loss of or physical damage to the Chartered Vessel, including demurrage payments.

(2). It is further agreed to reimburse the Insured for an amount not exceeding AUD10,000,000 in respect to payments made by the Insured in the nature of social, moral or sympathy payments, or where the commercial interest of the Insured depend upon such payments being made, all following an accident or occurrence causing claims under (1) above.

Orica maintained that the claim against underwriters fell within the first paragraph without the need to consider the impact or effect of sub-paragraphs (1) or (2) after the word 'include'. Alternatively, it maintained the claims may properly be made under sub-clauses (1)(a) or (c). Underwriters maintained that it was necessary for the claim to fall within sub-paragraphs (1) and (2) and that the terms of the first paragraph do not provide independent coverage beyond the coverage provided after the word 'include'.

Justice Pagone noted that the words of the policy were to be given their ordinary meaning unless there is reason to do otherwise and given a businesslike interpretation. He voted the word 'include' was used rather than 'mean' and thought should be given its usual meaning. Orica's losses claimed in the sum of US$2,422,228.10 were made up of a substantial sum for berthing costs and further substantial charges for detention costs, additional stevedoring costs.


The underwriters maintained that under the UK P&I Club rules for charterers risk the liability did not extend to the vessel detention charges because any payment had to be made with the consent of the underwriters.

Justice Pagone rejected this argument on a strict construction on Rule 5G(viii) which provided:

Claims by or against the Owner relating to demurrage on, detention of or delay to an entered ship unless such demurrage, detention or delay forms part of a claim recoverable from the Owner for liabilities in respect of cargo within the scope of these rules or is, within the consent of the Managers, included in the settlement of such claims.

He noted that the provision in relation to consent of the Managers followed the word 'or' and so consent was not necessary if the claim fell under the first limb. Further, the exclusion in Rule 5G was not engaged if Orica was obliged to make the payments.


Underwriters then maintained that Orica had failed to mitigate its loss as it could have accepted an offer by owners that the cargo be discharged at Providence in the United States where delivery would be taken of it by Orica, that Orica would then take responsibility for future dealings with the cargo and with local authorities and owners would in turn waive their detention claim. The offer was not accepted and underwriters maintain that Orica incurred more liabilities than it would have incurred had the offer been accepted.

Justice Pagone stated that Orica's obligation to the underwriters did not require it to sacrifice its commercial interest in favour of the insurers. He noted that the insurers must be able to make an affirmative case that causally links the loss and the insured event and the insurers had not achieved this in this case.

The evidence was that the option of complete discharge of the vessel was simply not available. Justice Pagone found that all of the costs incurred were causally occasioned by the incident and flowed reasonably from Orica's attempt to minimise losses.


Finally the currency of judgment was considered. The case had been prepared on the basis of a claim in US currency but at the conclusion of the evidence Orica sought an entitlement to an order for judgment in Australian dollars rather in US dollars.

The judge noted that the guarding principle was that judgment should be entered in the currency which best reflects the plaintiff's loss. Orica carried the burden of proving its loss and the burden of proving that the loss was suffered in Australian currency. In the absence of evidence on this point the judge considered it appropriate to make the order in United States currency as claimed.


There should be some satisfaction for claimants in the approach adopted by Justice Pagone, particularly in relation to the mitigation of loss point. There is clearly sense in the proposition that a claimant should not be expected to sacrifice its commercial interests to minimise underwriters' exposure. There is also clearly a need to call evidence on the currency of loss if the claimant wishes to alter the currency of claim at the eleventh hour.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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