Claims and Legal Volume 3: Number 2: July 2011
WHO PAYS FOR A 24 DAY DELAY IN DISCHARGING WET DAMAGED CARGO?
TITLE TO SUE – USEFUL CLARIFICATION
ARMED GUARDS AND PRIVATE MARITIME SECURITY COMPANIES – IMPLICATIONS ON CLUB COVER
COMPETING CAUSES FOR BAGGED RICE DAMAGE – THE BURDEN OF PROOF
WHO PAYS FOR A 24 DAY DELAY IN DISCHARGING WET DAMAGED CARGO?
This article concerns London Arbitration (2010) 869 LMLN1
Background Facts
The Port Health Organisation (PHO) refused to allow the discharge of an entire cargo, part of which had suffered minor wet damage as a result of a small amount of water leaking through the hatch seals when the ship encountered heavy weather. Tests conducted by the PHO indicated the presence of fungus and bad odour and the PHO concluded that the cargo was unfit for discharge. The quantity of cargo damaged was about 100kgs.
There was a difference in opinion between the parties as to the extent of the damage and the accuracy of the sampling carried out by the PHO. Eventually, after repeated submissions that the PHO should re-test the cargo, it was re-tested and was allowed to be discharged. In the meantime the ship had missed her berthing slot, resulting in a delay of almost 24 days.
The vessel was contracted under an amended NYPE 1946 form. It was clear that there were two potential causes of the delay: (1) the unseaworthiness and the resulting wet damage and (2) the actions of the PHO.
Charterers relied on the arguments set out in Chitty on Contracts paragraph 26-041 (30th edition, volume 1). They argued that a party will be liable for the loss resulting from his breach of contract if his breach was an effective cause of that loss, notwithstanding that there may have been another (coexisting and equally effective) cause of the loss. The Court need not choose which of the causes was the ‘more effective’.
The Owners did not dispute that they had breached their seaworthiness obligation under the charterparty. However they submitted that the delay was caused by the unreasonable actions of PHO and that these actions broke the chain of causation.
The Tribunal’s Decision
The Tribunal pointed out that the Courts have avoided laying down any formal test for causation preferring to rely on common sense to guide decisions as to whether a breach of contract is a sufficiently substantial cause of the claimant’s loss. The Tribunal nevertheless went on to address some of the principles of causation presented in argument. They rejected the analysis that the loss resulted from two co-existing causes of equal effect, preferring instead to consider that in the present case the Owners’ breach of contract (their breach of the seaworthiness obligation) had by the operation of some other cause (i.e. the actions of the PHO) been reduced in its effect. The Tribunal did not accept that it was sufficient for the claimant to merely establish the fact of the wet damage and that the Owners’ breach was an effective cause of it. For the claim to succeed it was necessary for the claimant to establish on the facts that the unseaworthiness was an effective or proximate cause of the loss and not one which, in the light of the actions of the PHO, was reduced in its effect to insignificance.
The Owner’s surveyor had been highly critical of the sampling and the Tribunal found that the PHO were not justified in prohibiting discharge of the whole cargo on the basis of limited and unrepresentative samples. Accordingly, the effect of the unseaworthiness (the water ingress) dwindled in significance to the extent that the chain of causation was broken.
The Tribunal went on to re-emphasise the previous observation on the dominance of common sense and decided that common sense told them that the Owners’ breach was not a cause of the delay and the Charterers’ claim to recover damages for such delay failed.
It appears that if the chain of causation had not been broken, the damages may, in any event, had been too remote for the purpose of assessing recoverable damages.
An alternative off-hire claim was presented. The off-hire clause was un-amended i.e. ‘whatsoever’ was not added to ‘any other cause’ in the off-hire clause. The Tribunal, having determined that the actions of the PHO were unreasonable and were causative, decided that if the Charterers wanted the Owners to absorb the risk of consequential delay from such a cause, they should have included the words ‘whatsoever’ in the offhire clause. Accordingly the off-hire claim also failed.
TITLE TO SUE – USEFUL CLARIFICATION
The distinction between a cargo owner and the lawful holder of a bill of lading made by the English Carriage of Goods by Sea Act 1992 (COGSA 92) and the additional rights given to the lawful holder are sometimes difficult to absorb. However, they have recently been illustrated in a concise and helpful article by Messrs Hill Dickinson (Stuart Armstrong), the contents of which they and the Submariner Newsletter of the London Institute Insurance Brokers’ Association (LIIBA) have allowed us to reproduce.
Pace Shipping -v- Churchgate Nigeria (2010)
This decision of the English Commercial Court serves as a reminder that under English law rights of suit (title to sue) under a bill of lading are not dependent upon ownership of the cargo.
Title to sue is governed by the COGSA 92, which replaced the Bills of Lading Act 1855. The scheme underpinning COGSA 92 is that rights of suit (the right to bring a claim) in contract under a bill of lading should be vested in the lawful holder of the bill of lading, irrespective of ownership of the cargo. Further, as the lawful holder alone is entitled to bring a claim (even though some other party may have suffered the financial loss), ss2(4) of COGSA 92 provides that where a person with any interest in the cargo sustains loss, the actual lawful holder is entitled to exercise rights of suit for the benefit of that person to the same extent that those rights of suit could have been exercised had they been vested in that person.
In Pace -v- Churchgate the Arbitrators found Churchgate not to have been the owner of the cargo. Nevertheless, as a lawful holder of the bill lading, Churchgate was still entitled to claim the loss suffered by the actual owner.
The issue before the Court in Pace -v- Churchgate was whether Churchgate’s right of suit under ss2(4) of COGSA 92 constituted a separate cause of action from the right of suit which Churchgate had in respect of its own loss. The issue was of importance because, as Pace argued, Churchgate’s failure to fully particularise such a separate cause of action at an early stage of the Arbitration proceedings might have meant that Churchgate’s claim was time-barred. The Judge concluded, however, that there was no separate cause of action. Churchgate had but one cause of action under COGSA 1992 irrespective of whether (a) Churchgate was suing for its own losses or (b) for the losses of the actual owner or (c) for a combination of the two.
It is important, therefore, when pursuing a claim under a bill of lading, to establish the identity of the last lawful holder of the bill. It is that party alone who has the right to bring a claim under the bill of lading contract. The owner of the cargo and the identity of the person who suffered the loss, if different, should also to be ascertained, but only so as to decide whether the claim should properly be pleaded as a loss suffered by the lawful holder or by some other party. It is always in the name of the last lawful holder that the bill of lading claim must be pursued.
Position in respect of claims in tort and contractual claims under a charterparty
Different rules apply to claims in tort and to contractual claims under a charterparty.
Claims in Tort
In tort, the claim can only be brought in the name of the owner of the cargo at the time the loss occurred, or in the name of the party who had an immediate right to possession of the cargo at that time. The mere fact that a party suffered the loss (perhaps because he was a C&F buyer to whom risk passed on shipment), or eventually became the last lawful holder, is insufficient to substantiate title to sue in tort.
Claims under a Charterparty
Claims under a charterparty follow the usual rules of English contract law. The claimant must have been a party to the charterparty and he must have suffered the financial loss that he is claiming. However, he need not have been the owner of the cargo. It is sufficient, therefore, if the cargo was at his risk, even though he may never have acquired ownership.
There is an important exception to the rule that the charterparty claimant must have suffered the financial loss. If he was, at the time of the loss, the owner of the cargo, then it matters not that he did not suffer any financial loss. The owner of the cargo always has title to claim the financial value of lost or damaged cargo even though he has suffered no financial loss himself. Thus, a charterparty claimant who had sold C&F but who retained ownership at the time of the loss (perhaps because the bill of lading and other shipping documents were only taken up and paid for by his buyer in the latter part of the voyage) is entitled to claim the financial loss notwithstanding that his C&F buyer is contractually bound to pay him for the cargo (risk having passed from seller to buyer on shipment). This is even so if the claimant has in fact been paid by his buyer albeit that the claimant must hold the financial compensation recovered from the carrier as trustee for his buyer.
As has always been the case, care must be taken by those representing cargo insurers to ensure that they have authority (by subrogation or assignment) to pursue a claim in the name of those parties entitled to recover the loss and that extensions of time are obtained in the names of those same parties to avoid the claim being time-barred.
ARMED GUARDS AND PRIVATE MARITIME SECURITY COMPANIES – IMPLICATIONS ON CLUB COVER
Interest in private maritime security companies (PMSCs) has increased over recent months. This has resulted in many more enquiries relating to the employment of privately contracted armed security personnel (PCASPs) and the possible implications of such employment on Club cover. Some Members now consider that, by using PCASPs – whether armed or not – they are providing their ships, crew and cargoes with the highest degree of security when transitting high risk areas such as the Gulf of Aden.
The issue has been further drawn into focus by the recent meeting of the IMO’s Maritime Safety Committee, which approved interim guidelines on the use of PMSCs and PCASPs.
The issue of whether or not to employ PCASPs is not straightforward. The decision must always be taken with great care, having considered all the relevant issues.
We remind Members that the Club cannot give advice on the suitability of any individual PMSC. We do recommend, however, that Members should make detailed enquiries about potential PMSCs in an effort to ensure that the company is reputable and is financially sound. Furthermore, all employees should be properly trained, qualified and managed.
When contracting with PMSCs, the Club is keen to ensure that Members do not assume unacceptably onerous liabilities – liabilities that may fall outside Club cover. The Club therefore asks Members to submit all draft contracts for the employment of security personnel (whether armed or not) to the Club for review and approval. The Club has reviewed many such contracts and this should be a quick and simple process.
The following points outline some of the issues that the Club will consider when contacted by a Member wishing to contract with a PMSC:
- Currently, BIMCO neither endorses nor recommends the use of PCASPs. Britannia, along with all Clubs in the International Group has adopted the same position as BIMCO. The latest Best Management Practices (“BMP3”, dated June 2010) is silent on the use of armed guards.
- When considering whether to engage PCASPs, Members should confirm with the ship’s flag state that it is legal for the ship to carry guards with weapons. Owners should also check the legality in the relevant jurisdictions where it is intended for weapons to be placed on board/taken off the ship.
- When assessing the possible implications for P&I cover, the starting point is the contract with the PMSC regardless of whether the guards are armed or not. As mentioned above, the Managers of the Club should be provided with a copy of the proposed terms and conditions of the PMSC at the earliest opportunity.
Generally, the most important aspects of the contract (from a P&I perspective) are:
i) The Master must retain overall command of the ship and crew but should not be the person to decide if and when PCASPs should open fire (though he should be entitled to order PCASPs to cease firing);
ii) Members must not be required to indemnify the PMSC for their liabilities to their employees; nor must Members be required to indemnify either the PMSC or the PCASPs for any liabilities they may incur to third parties. Rather, a knock-for-knock approach to the respective parties’ losses and liabilities is preferred;
iii) Members must not waive any applicable right to limit their liability;
iv) The PMSC must not limit its liability to unacceptably low limits; and
v) Where possible, the PMSC should provide evidence of adequate insurance at least equivalent to their contractual limit of liability.
- Piracy is not an excluded risk. Therefore, subject to the specific Members’ terms of entry and the Club’s Rules, cover will ordinarily extend to:
i) Liabilities to crew members that are injured or killed, or to cargo that is damaged or destroyed during a fire-fight between PCASPs and pirates; and
ii) Members’ liabilities to guards (armed or unarmed) within the context of normal supernumerary cover i.e. standard “trip and slip” type incidents.
In order to ensure that supernumerary cover applies, Members must declare the presence of all onboard PMSC personnel, with details of where they are to embark and disembark from the vessel. Cover will be confirmed by an endorsement to the relevant Certificate of Entry.
- The International Group of P&I Clubs strongly recommends compliance with current Best Management Practices. It is also recommended that Members comply with the interim guidelines on the use of PMSCs and PCASPs. Although compliance with current Best Management Practices and the interim guidelines is not a condition of cover, compliance is likely to be a factor taken into account by the Committee when considering any discretionary claim.
- Finally, Members are reminded of the exclusion from P&I cover of any liability, costs or expenses incurred as a result of:
i) Terrorism; or
ii) The use of weapons of war.
COMPETING CAUSES FOR BAGGED RICE DAMAGE – THE BURDEN OF PROOF
The case of the ‘Angeliki B’ illustrates that where there is a shortage of evidence, it is likely to count against a carrier.
Background Facts
The ship had loaded a cargo of bagged rice in Thailand for discharge in Nigeria. After discharge, cargo interests brought claims for alleged wet and caking damage to the rice. At the load port, the ship had been found to be (a) clean, (b) dry and (c) suitable for bagged rice. However during loading rain had entered the cargo holds damaging some of the cargo. There was also evidence that some of the damage also resulted from condensation or sweating during the voyage.
Owners argued that the sweat damage occurred from a variety of physical causes and that some of these causes, at least, should be considered inherent vice and thereby provide a defence.
Arbitrator’s findings
The Tribunal found there was improper stowage and that the Master and crew could have done more to ventilate the cargo. They also found that the owners had some protection under The Hague Rules as the Master did not have mechanical ventilation available to him and, presumably, therefore was not able to entirely prevent the cargo from sweating.
The Tribunal appeared to take a broad commercial view and apportioned the damages between those caused by failure of the Master and those which were unavoidable. The owners were found liable for just 38% of the damage.
Proceedings in the High Court
The claimant appealed to the High Court and argued that the Tribunal had erred in law in that they had failed to require the owners to prove that the damage had been caused by matters covered by The Hague Rules exceptions i.e. inherent vice and to prove the extent of that damage. The High Court agreed with the claimant and allowed the appeal.
Comments on the case
This case shows that where there is a shortage of evidence, it is likely to count against a carrier. This is especially true where there are different potential causes of the cargo damage. The example extends beyond a cargo of bagged rice to any example of collapsed stows of cargo including the collapse of container cargo.
On a different issue, the claimant was not a party to the Bill of Lading but the case being subject to English law, the effect of the English Carriage of Goods by Sea Act 1992 (COGSA 92) was to give the claimant a right of claim. The claimant was fortunate to be allowed by the Tribunal to submit their arguments in respect of COGSA 92 after the Tribunal, had previously, indicated that pleadings were closed.
Possibly also of interest and something which may have influenced the High Court was that the receivers apparently had knowledge of the fact that the ship had no mechanical ventilation. How they came into possession of that knowledge is unknown but the effect appears to have been that they had to accept that some cargo damage would occur by virtue of the ship’s natural ventilation not having the capacity to prevent all the cargo from sweating.
