Claims & Liability
Cases
Geldof Metaalconstructie NV v Simon Carves Ltd
[2010] EWCA Civ 667 [2011] Bus LR D61, 130 Con LR 37, [2010] EWCA Civ 667, [2010] 4 All ER 847, [2010] CILL 2880
Rix LJ
The jurisprudence of equitable set-off
Although most of the written and oral submissions before us on this appeal related to the correct test for equitable set-off, at the end of the day it was not clear either how the parties differed from one another as to the test, or how the test, when identified, would affect its application on the particular facts of this case.
Nevertheless, if only because there appears to be some uncertainty on the subject, I would hazard the following observations as to the jurisprudence.
It is generally considered that the modern law of equitable set-off dates from Hanak v. Green [1958] 2 QB 9. Morris LJ’s judgment there has been described as a masterly account of the subject (Gilbert Ash (Northern) v. Modern Engineering (Bristol) Ltd [1974] AC 689 at 717 per Lord Diplock). In Dole Dried Fruit v. Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309 at 310 Lloyd LJ said that for all ordinary purposes, the modern law of equitable set-off is to be taken as accurately stated there. Morris LJ set out the law in these terms:
“The position is, therefore, that since the Judicature Acts there may be (1) a set-off of mutual debts; (2) in certain cases a setting up of matters of complaint which, established, reduce or even extinguish the claim; and (3) reliance as a matter of defence upon matters of equity which formerly might have called for injunction or prohibition…The cases within group (3) are those in which a court of equity would have regarded the cross-claims as entitling the defendant to be protected in one way or another against the plaintiff’s claim” (at 23).
However, that did not mean that all cross-claims may be relied on as defences to claims. In his examination of Bankes v. Jarvis [1903] 1 KB 549, Morris LJ identified two factors as critical: it would have been “manifestly unjust” for the claim to be enforced without regard to the cross-claim; and “there was a close relationship between the dealings and transactions which gave rise to the respective claims” (at 24).
For these purposes the facts of Bankes v. Jarvis, which Morris LJ set out, are instructive. There were two separate but related transactions. The plaintiff was acting as agent or trustee for his son. The son had bought a veterinary surgeon’s practice from the defendant. As part of that transaction he had also agreed to pay the rent and otherwise indemnify the defendant against liability under a lease of premises from which the practice was carried on. That was one transaction. However, the son decided to leave the country, and gave the plaintiff authority to sell the practice. The plaintiff sold it on his son’s behalf back to the defendant. That was the second transaction. The defendant owed £50 under that second transaction, but the son owed the defendant £21 for rent and a further £30 for failure to perform covenants in the lease, under the first transaction. That was a quantified counterclaim for unliquidated damages. When the plaintiff sued the defendant for the £50, the defendant claimed to be able to set off the £51. As Morris LJ explained: “It was held that the defendant could set up as a defence to the claim against him that the plaintiff’s son (the cestui que trust of the plaintiff) was indebted to the defendant in a sum for unliquidated damages exceeding the amount of the claim.”
In Hanak v. Green itself the claim was against a builder for failing to complete the works. The builder made three counterclaims and relied on them by way of set-off. One arose under the building contract itself, for loss caused by the plaintiff’s refusal to admit the builder’s workmen; a second arose out of a quantum meruit for extra work performed outside the contract; and the third was for trespass to the builder’s tools, and thus arose in tort. Morris LJ left the third item aside, for the first two by themselves overtopped the plaintiff’s claim. He said, “it seems to me that a court of equity would say that neither of these claims ought to be insisted upon without taking the other into account” (at 26). Sellers LJ considered that all three items could be set off, for the first “arises directly under and affected the contract on which the plaintiff herself relies”, and the other two were “closely associated with and incidental to the contract” (at 31).
Some twenty years later in Aries Tanker Corporation v. Total Transport [1977] 1 WLR 185, the House of Lords had to consider the long-standing historical rule that a cargo owner or charterer could not set off a claim for damage to cargo against the shipowner’s claim for freight. Lord Wilberforce said (at 191):
“One thing is certainly clear about the doctrine of equitable set-off – complicated though it may have become from its involvement with procedural matters – namely, that for it to apply, there must be some equity, some ground for equitable intervention, other than the mere existence of a cross-claim (see Rawson v. Samuel (1839) Cr. & Ph. 161, 178 per Lord Cottenham L.C., Best v. Hill (1872) L.R. 8 C.P. 10, 15, and the modern case of Hanak v. Green But in this case counsel could not suggest, and I cannot detect, any such equity sufficient to operate the mechanism, so as, in effect, to over-ride a clear rule of the common law on the basis of which the parties contracted.”
Lord Simon of Glaisdale spoke to similar effect (at 193).
Shortly thereafter in Federal Commerce & Navigation Co Ltd v. Molena Alpha Inc [1978] 2 QB 927 (The “Nanfri”) this court had to consider whether claims against a shipowner could be set off against time charter hire. The issue had to be decided against the background of the historical rule excluding set-off against voyage charter freight (see The Aries just cited) and special terms in the time charter in question permitting deductions in certain circumstances. That therefore was a special case arising in a one contract only situation. This court fashioned its own solution to that problem, which does not concern us here. However, The Nanfri’s importance is that it was the occasion for a further consideration of the doctrine of equitable set-off. Lord Denning MR said (at 974G/975A):
“It is now far too late to search through the old books and dig them out. Over 100 years have passed since the Judicature Act 1873. During that time the streams of common law and equity have flown together and combined so as to be indistinguishable the one from the other. We have no longer to ask ourselves: what would the courts of common law or the courts of equity have done before the Judicature Act? We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties? See United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C. 904 per Lord Diplock. This question must be asked in each case as it arises for decision: and then, from case to case, we shall build up a series of precedents to guide those who come after us. But one thing is clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff’s demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim. Such was…Hanak v. Green…”
In Leon Corporation v. Atlantic Lines and Navigation Co Inc [1985] 2 Lloyd’s Rep 470 (The Leon), in another case which raised the issue of the extent to which a time charterer could set off a counterclaim against time charter hire, Hobhouse J refused to depart from the line drawn by this court in The Nanfri, although he was pressed to do so on the ground of “fairness”. The submission led to the following observations (at 474/5):
“It is also correct that equitable principles derive from a sense of what justice and fairness demand and should therefore include the capacity to develop and adapt as the need arises…But this does not mean that equitable set-off has been reduced to an exercise of discretion. Since the merging of equity and law, equitable set-off gives rise to a legal defence. This defence does not vary according to the length of the Lord Chancellor’s foot. The defence has to be granted or refused by an application of legal principle.
The relevant principle is that identified by Lord Cottenham in Rawson v. Samuel (1841) Cr. & Ph. 161, at p. 179: “The equity of the bill impeached the title to the legal demand”. What this requires is that the Court or arbitrator should consider the relationship between the claim and the cross-claim. This is why not every cross-claim, even though it arises out of the same transaction, necessarily gives rise to an equitable set-off. This element of the cross-claim impeaching the plaintiff’s demand is to be found in all the modern cases and is a recognition that the principle being applied is essentially the same as that stated by Lord Cottenham.”
In Bank of Boston Connecticut v. European Grain and Shipping Ltd [1989] AC 1056 (The Dominique) the House of Lords held that the historical rule of no set-off against voyage-charter freight extended to a counterclaim for damages for repudiation of the charterparty. It was another single contract case. It was decided on the basis that there was no good reason to distinguish between the case of a counterclaim for mere breach and the case of a counterclaim for repudiatory breach: see at 1106E/1109C. Therefore the historical rule prevailed. In reaching this conclusion, Lord Brandon of Oakbrook, with whose speech the rest of their Lordships agreed, dealt with three reasons which had been advanced by the counterclaiming charterers for making the distinction which the House ultimately rejected. The first reason was that a repudiatory breach satisfied the impeachment test for a defence by way of equitable set-off laid down in Rawson v. Samuel. That had been the major submission of counsel for the charterers, see Mr Eder arguendo at 1079:
“It was said in The Leon that the suggestion of manifest injustice being the relevant test was wrong and that the proper test was impeachment of title whatever that might mean, and when one looks at The Nanfri, pp. 974-975, the test is; does the cross-claim go directly to impeach the plaintiff’s demands?”
Lord Brandon dismissed this primary argument of the charterers head-on, and swiftly. He said (at 1106F):
“I find it difficult, however, to see how, when a charterparty expressly provides, in effect, that the legal title to advance freight is to be deemed to be complete on the signing of bills of lading, a subsequent breach of the charterparty, even one of a repudiatory character, can properly be regarded as impeaching that title.”
Despite this direct treatment of the charterers’ major argument, Lord Brandon had in fact gone out of his way in the course of his speech to displace the impeachment rationale of Rawson v. Samuel. He said it was necessary to explain briefly the “nature, origins and basis of a defence by way of equitable set-off” (at 1101E). Making no express mention of Morris LJ’s judgment in Hanak v. Green, nor of The Nanfri, he reached back to “see whether such cross-claim is of such a character that it would before the coming into force of the Supreme Court of Judicature Acts 1873 and 1875 have led a court of equity to prohibit by injunction the enforcement of the common law claim” (at 1101G). He referred to Rawson v. Samuel as the authority “most relied on as providing the relevant test” (at 1101H). However, he rejected that test as of continuing use in the modern world in the following passage:
“The concept of a cross-claim being such as “impeached the title of the legal demand” is not a familiar one today. A different version of the relevant test is to be found in the decision of the Judicial Committee of the Privy Council in Government of Newfoundland v. Newfoundland Railway Co. (1888) 13 App. Cas. 199…It is to be observed that the criterion which Lord Hobhouse applied, 13 App Cas 199, 213, in deciding whether the government’s cross-claim for unliquidated damages could be set off against the company’s claim was not that the cross-claim “impeached the title to the legal demand,” as in Rawson v. Samuel, 1 Cr. & Ph. 161, 179, but rather that it was a cross-claim “flowing out of and inseparably connected with the dealings and transactions which also give rise” to the claim.”
However, even though Lord Brandon had gone out of his way to dethrone the rationale of impeachment, he did not use that dethronement as an answer to Mr Eder’s submission in the dispositive part of his speech (see at para 28 above). Indeed, he only returned to the Newfoundland Railway case in order to deal with a separate point (“Question (4): Set-off as between charterers and bank”, see at 1109Hff), which was whether the plaintiff bank, as assignee of the shipowner’s claim for freight, could equally rely on the shipowner’s immunity from set-off against freight. That, however, followed from, or at any rate as a rational counterpoint to, the decision in the Newfoundland Railway case itself, where the assignee of an underlying claim which was susceptible to set-off, had to take the claim subject to that equity.
It may be noted, however, that Lord Brandon said nothing about the other element of Mr Eder’s submission, which was that “the suggestion of manifest injustice being the relevant test was wrong”. Lord Brandon said nothing about the concept of fairness, and that has led in the current case to submissions that the Newfoundland Railway test is a single exclusive test for equitable set-off and has either supplanted or must be regarded as somehow incorporating the fairness aspect of Morris LJ’s test in Hanak v. Green and of Lord Denning’s test in The Nanfri. I will have to revert to that question, but I would in the meantime observe that Lord Brandon’s main concern in the passage cited above was to replace the impeachment test by something which was easier to understand and apply in the modern world. He did not address the concept of fairness, and perhaps did not need to do so in a situation where the underlying rule of no set-off against freight was so well ensconced. As Lord Wilberforce and Lord Simon had said in The Aries, the parties had contracted against the background of it, and could not be heard to say that they had an equity which ran directly contrary to the rule.
I think this view of the matter is confirmed by going back to the Newfoundland Railway case itself. The suit there was brought by the railway company and its assignees (trustees for bondholders) against the Government of Newfoundland. The underlying contract was one whereby the company was to build a railway and the government was to pay a subsidy. The railway was not completed. There was an issue as to whether the contract was an “entire” contract whereby no part of the subsidy was payable unless the railway as a whole was completed, but that issue was decided in favour of the company: the subsidy was payable, in part, as each section of the line was completed. There was also a counterclaim by the government for non-completion of the line. Could that be set off against the company’s entitlement to subsidy? There was no issue between the parties that it could, at any rate as between company and government (at 209). It might have been argued that the severance of the payment of the subsidy to relate to each completed section of the line presented difficulties for a set-off premised on the uncompleted sections of the line, but it was not. In any event the Privy Council emphasised the intertwined nature of the obligations under the railway contract and said that it “had no hesitation in saying that in this contract the claims for subsidy and for non-construction ought to be set against one another” (at 212/213). What was said was that the set-off could not be made as against the assignees: that once notice of the assignment of the debt had been given, “the debt or claim is so severed from the rest of the contract that the assignee may hold it free from any counter-claim in respect of other terms of the same contract” (at 210). However, the Privy Council distinguished between a set-off properly allowable under the contract itself, which bound an assignee of a debt due under that contract, and a cross-claim which might “arise from any fresh transaction freely entered into by [the government] after notice of assignment by the company” (at 212). In the former case, “It would be a lamentable thing if it were found to be the law that a party to a contract may assign a portion of it, perhaps a beneficial portion, so that the assignee shall take the benefit, wholly discharged of any counter-claim by the other party in respect of the rest of the contract, which may be burdensome” (at 212). That was the context in which the Privy Council said (at 213):
“Unliquidated damages may now be set off as between the original parties, and also against an assignee if flowing out of and inseparably connected with the dealings and transactions which also give rise to the subject of the assignment.”
It may be observed that in the circumstances of the structure of the argument in the Newfoundland Railway case there was no particular need to emphasise the requirements of justice and fairness. The set-off between the original parties was not controversial. And the disputed set-off as against the assignees was argued on a more technical level depending on the assignment. Even so, the ultimate answer given by the Privy Council was, in effect, that the assignees took subject to equities: and this was explained in terms of it being “a lamentable thing” if it were otherwise, and that the claims and cross-claims “ought” to be set against one another.
At any rate, it was not long before Lord Brandon’s exegesis in The Dominique was considered, albeit in the context of a two contract case. In Dole Dried Fruit and Nut Co v. Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309 the plaintiff had made the defendant its exclusive distributor in England. Pursuant to that distributorship agreement, the plaintiff repeatedly sold its products to the defendant under separate contracts of sale. The plaintiff was now claiming the price of goods sold under the latest of such sale contracts, and the defendant was seeking to set off its counterclaim for repudiation by the plaintiff of the distributorship agreement. This court held that the counterclaim could be set off and that there was thus an arguable defence to the claim for the price of goods sold.
In the court below Webster J had applied the Newfoundland Railway test, as approved by Lord Brandon, which he regarded as being narrower and more specific than the test to be found in The Nanfri. Even so, he had found in favour of the defendant’s set-off. On appeal, the plaintiff argued that the impeachment test from Rawson v. Samuel still survived and was narrower still. This court, however, disagreed. Lloyd LJ regarded the impeachment test and the Newfoundland Railway test as merely “the same test in different language”. He referred to the exceptional rule about no set-off against freight, and continued (at 310/311):
“But for all ordinary purposes, the modern law of equitable set-off is to be taken as accurately stated by the Court of Appeal in Hanak v. Green…It is not enough that the counterclaim is “in some way related to the transaction which gives rise to the claim”. It must be “so closely connected with the plaintiff’s demand that it would be manifestly unjust to allow him to enforce payment without taking into account the crossclaim”: see The Nanfri per Lord Denning at p. 140…
The authority of these cases has not been diminished by The Dominique. They establish that the mere existence of a crossclaim is insufficient. The claim and crossclaim must arise out of the same contract or transaction, and must also be so inseparably connected that the one ought not to be enforced without taking into account the other.”
I observe that it is possible to see there Lloyd LJ moulding (at least part of) the Newfoundland Railway test (“inseparably connected”) into and within the previous jurisprudence, which he states continues to hold authority. I would also respectfully observe that something appears to have gone wrong with the text to the effect that “claim and crossclaim must arise out of the same contract or transaction”. That, I believe, has never been the position, unless the connection “arise out of” is given an unhelpfully broad scope. It is better to be transparent about the matter. As Lord Denning stated in The Nanfri: “It is only cross-claims that arise out of the same transaction or are closely connected with it” (at 974/5, emphasis added) that fall within equitable set-off.
Thus, in upholding the set-off Lloyd LJ’s critical reasoning (at 311) acknowledged that that was a two contract case. He accepted, at any rate as probably correct for the purposes of the summary judgment application, that the individual sale contracts were separate transactions not governed by the terms of the distributorship agreement. However –
“The whole purpose and intent of the agency agreement was that the parties should enter into contracts for the purchase and sale of the plaintiffs’ goods. In those circumstances the claim and counterclaim are sufficiently closely connected to make it unjust to allow the plaintiffs to claim the price of goods sold and delivered without taking account of the defendants’ counterclaim for damages for breach of the agency agreement.”
So Lloyd LJ did not require claim and cross-claim to arise out of the same transaction.
Esso Petroleum Co Ltd v. Milton [1997] 1 WLR 938 concerned a licence agreement between an oil company plaintiff and a garage licensee defendant. The plaintiff sued for the price of petrol deliveries and the defendant counterclaimed for damages for repudiation of the licence agreement, which he sought to set off against the otherwise admitted claim. The plaintiff sought summary judgment. It appears that this was treated as a single contract case, that is to say that the petrol deliveries did not amount to separate contracts of sale (as in Dole Dried Fruit). The plaintiff raised three arguments as to why the alleged set-off should fail: (i) because under the contract the petrol had to be paid under direct debit arrangements, which it was submitted was like payment by cheque and thus amounted to an exclusion of a right of set-off; (ii) because of an express provision, clause 34, by which the defendant agreed not “for any reasons to withhold payment of any amount due to the plaintiffs”; and (iii) because there was insufficient connection between the claim in respect of past deliveries of fuel and the counterclaim for damages for loss of future profits. As to these three arguments, this court held as follows: (i) the direct debit argument succeeded (in the opinion of Thorpe LJ and Sir John Balcombe, albeit Simon Brown LJ dissented); (ii) clause 34 was unreasonably wide and thus unenforceable (per Simon Brown LJ and Sir John Balcombe, with Thorpe LJ not dealing with this point); and (iii) the counterclaim was insufficiently connected with the claim (per Simon Brown LJ and Sir John Balcombe, with Thorpe LJ also considering that the counterclaim was unarguable in itself).
We are interested in point (iii), but as will appear this point was not entirely separate from the other two. Simon Brown LJ considered that the modern law of equitable set-off was to be found in Hanak v. Green and The Nanfri. Thus he restated the position as follows:
“For equitable set-off to apply it must therefore be established, first that the counterclaim is at least closely connected with the same transaction as that giving rise to the claim, and second that the relationship between the respective claims is such that it would be manifestly unjust to allow one to be enforced without regard to the other.”
That is very close to Lord Denning’s statement of the test.
Simon Brown LJ went on to say that no case had been cited in which payment of a debt presently due had been required to await the resolution of a cross-claim for future losses: but it appears that Dole Dried Fruit, which would have supplied such a case, had not been cited. What, however, seems to me to be striking about Esso v. Milton are the following factors: first, the existence of the direct debit and clause 34 provisions, which even Simon Brown LJ (dissenting on point (i)) held to be relevant to his decision on point (iii) (see at 951H, “all of these provisions and considerations seem to me properly in play when deciding the overall justice of the case”); secondly, the deliveries of fuel were converted by the defendant almost immediately into cash; thirdly claim for future losses was merely speculative. These factors were of such a nature that Thorpe LJ, having decided that the counterclaim was in any event so speculatively unrealistic as to be unarguable (at 952E/F), went on to comment in strong terms (at 953B/H) about the inequity of the defendant’s case, starting from the proposition that “As Simon Brown LJ has demonstrated, claims to equitable set-off ultimately depend upon the judge’s assessment of the result that justice requires.”
Finally, I refer to Bim Kemi v. Blackburn Chemicals Limited [2001] 2 Lloyd’s Rep 93. It concerned a claim by the claimant for damages for repudiation of a 1994 distribution agreement for the supply of a product called Dispelair. The defendant denied the existence of the 1994 agreement, but in the alternative counterclaimed for damages for its repudiation by the claimant. The defendant also sought to set off a counterclaim for breach of the parties’ 1984 licensing agreement relating to other products. The claimant sought to strike out that set off, but failed both at first instance and again in this court. Under the heading of “Close Connection” Potter LJ reviewed the authorities discussed above and commented as follows:
“29. The Dole Fruit case illustrates the wise refusal of this Court to become bogged down in the nuances of different [sc differences?] between the formulation of the test propounded in The Nanfri, both in relation to the earlier criterion of “impeachment of title” disapproved by Lord Brandon in the Bank of Boston case, and in relation to the need for a “close connection” between claim and cross-claim…It seems that, insofar as there may be a difference, the Court has been content for the outcome to be governed by the notion of fairness involved in the proposition that it must be “manifestly unjust” to allow one to be enforced without regard to the other. For myself, I consider that Lord Brandon’s formulation is to be preferred because on the one hand it emphasizes that the degree of closeness required is that of an “inseparable connection”, while on the other it makes clear that it is not necessary that the cross-claim should arise out of the same contract; all that is required is that it should flow from the dealings and transactions which gave rise to the subject of the claim…
30. That said, however, it is clear that the principle stated by Lord Brandon and applied in the Dole Fruit case is apt to cover a situation where there are claims and cross-claims for damages in respect of different but closely connected contracts arising out of a long-standing trading relationship which is terminated. That fact will not per se establish the requisite “inseparable connection” but, in an appropriate case, it may well be manifestly unjust to allow one claim to be enforced without taking account of the other…
36…I regard it as appropriate to apply the test propounded by Lord Brandon in the Bank of Boston case unconstrained by the former concept, difficult to define and apply, of “impeachment of title”, which has since been replaced, or at least redefined, in terms of a cross-claim which “flows out of and is inseparably connected with the dealings and transactions giving rise to the subject of the claim”…”
Then, under the heading of “Manifest injustice”, Potter LJ went on to say this:
“38. As treated in The Nanfri, the question of whether or not it would be manifestly unjust to allow a claimant to enforce payment of his claim is the criterion by which to judge the closeness of the connection between the claim and the cross-claim…Once Lord Brandon made clear in the Bank of Boston case that the question of closeness required inseparable connection with the dealings and transactions giving rise to a claim, without reference to the issue of “manifest injustice”, it is difficult to envisage in what circumstances, assuming his test to be satisfied, it would be other than just to allow an equitable set-off, save in certain established categories of cases where the Court has traditionally taken a strict view of the right of a claimant to be paid the liquidated sum which he claims free of any set-off. Examples are to be found in claims for rent, freight, and sums due under bills of exchange. Nonetheless, as it seems to me, it is appropriate in every case to give separate consideration to the question of manifest injustice; cf the approach of Lord Justice Brown in Esso Petroleum v. Milton at 950D.”
In my judgment, this jurisprudence allows the following conclusions:
(i) The impeachment of title test, although derived from the leading case of Rawson v. Samuel and still stated by Lord Denning in his formulation in The Nanfri, even if it is there immediately glossed by his “so closely connected…that it would be manifestly unjust” test, should no longer be used: The Dominique and Bim Kemi. It is an unhelpful metaphor in the modern world. In the light of the emphasis put on it by Hobhouse J in The Leon and the reliance sought to be placed on it by the charterers in The Dominique, it made sense for the House of Lords to go out of its way to downplay its significance.
(ii) There is clearly a formal requirement of close connection. All the modern cases state that, whether Hanak v. Green, The Nanfri, The Dominique (by reference to the Newfoundland Railway case), Dole Dried Fruit or Bim Kemi. The requirement is put in various ways in various cases. Morris LJ in Hanak v. Green spoke of a “close relationship between the dealings and transactions which gave rise to the respective claims”. Lord Denning in The Nanfri spoke of claims and cross-claims which are “closely connected”. How closely? “[S]o closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim”. The Dominique adapted the Newfoundland Railway test and spoke of a cross-claim “flowing out of and inseparably connected with the dealings and transactions which also give rise to the claim”. Dole Dried Fruit returned to Lord Denning’s test in The Nanfri but also spoke of a claim and cross-claim which was so “inseparably connected that the one ought not to be enforced without taking into account the other”. Bim Kemi expressed a preference for the test in The Dominique, while warning against being caught up in the nuances of different formulations.
(iii) Thus the Newfoundland Railway test of “inseparable connection” is one formulation of the close connection test, but it is not the only one. Potter LJ wisely referred to the wise refusal of the courts to become bogged down in the nuances of formulation. Oddly enough, both the Newfoundland Railway case and The Dominique were single contract cases, and therefore probably rather unhelpful contexts in which to judge what is meant by “inseparable connection”. In truth, where separate contracts (or dealings or transactions) are concerned, the metaphor of inseparability is not all that helpful. Ex hypothesi, the contracts are separate (as in Bankes v. Jarvis, the case about the veterinary surgeon’s practice discussed by Morris LJ in Hanak v. Green). I am not aware of the “inseparable connection” test being used to exclude a set-off, where some other formulation of the close connection requirement would have allowed it. It was not used to exclude a set-off in either the Newfoundland Railway case, nor in The Dominique nor in Bim Kemi. Nor is the test all that helpful in single contract cases: as Potter LJ remarked in Bim Kemi, where a case concerns a claim and cross-claim arising out of the same contract, although that fact is not in itself enough to ensure an equitable set-off, it is on the whole likely to take a special rule excluding set-off, such as the rules about freight, rent and cheques (and now direct debits, see Esso v. Milton), to prevent a set-off. In this connection, Modern Engineering (Bristol) Ltd v. Gilbert-Ash (Northern) Ltd [1974] AC 689 emphasises that an equitable set-off for defective work is not easily excluded even in building contracts where sums are payable under an architect’s certificate. On the other hand, The Nanfri itself shows that in the context of maritime adventures and time charter hire, and against the background of the rule as to freight, a special regime of limited but not general set-off has been fashioned for cross-claims under the charterparty.
(iv) There is also clearly a functional requirement whereby it needs to be unjust to enforce the claim without taking into account the cross-claim. This functional requirement is emphasised in all the modern cases, viz Hanak v. Green, The Aries, The Nanfri, Dole Dried Fruit, Esso v. Milton, and Bim Kemi. The only modern authority cited above which does not in terms refer to the functional requirement of injustice is Lord Brandon’s discussion in The Dominique. This has led Potter LJ in Bim Kemi (at para 38) to remark on the absence of reference to “manifest injustice” by Lord Brandon: but nevertheless it did not lead him to dispense with that requirement (ibid). It seems to me impossible to do so: it is not coherent to have a doctrine of equitable set-off which ignores the need for consideration of aspects of justice and fairness. Mr David Friedman QC, on behalf of SCL, has submitted that the test of “inseparable” connection contains inherently within it the need for a requirement of manifest injustice. That is what, he submits, “inseparable” means. In my judgment, such lack of transparency in a test would be undesirable, and I do not believe that it is as Mr Friedman submits. But I do not in any event think that Lord Brandon was intending to use the Newfoundland Railway formulation as an exclusive test for equitable set-off. Rather, he was using it to dethrone the concept of impeachment.
(v) Although the test for equitable set-off plainly therefore involves considerations of both the closeness of the connection between claim and cross-claim, and of the justice of the case, I do not think that one should speak in terms of a two-stage test. I would prefer to say that there is both a formal element in the test and a functional element. The importance of the formal element is to ensure that the doctrine of equitable set-off is based on principle and not discretion. The importance of the functional element is to remind litigants and courts that the ultimate rationality of the regime is equity. The two elements cannot ultimately be divorced from each other. It may be that at times some judges have emphasised the test of equity at the expense of the requirement of close connection, while other judges have put the emphasis the other way round.
(vi) For all these reasons, I would underline Lord Denning’s test, freed of any reference to the concept of impeachment, as the best restatement of the test, and the one most frequently referred to and applied, namely: “cross-claims…so closely connected with [the plaintiff’s] demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim”. That emphasises the importance of the two elements identified in Hanak v. Green; it defines the necessity of a close connection by reference to the rationality of justice and the avoidance of injustice; and its general formulation, “without taking into account”, avoids any traps of quasi-statutory language which otherwise might seem to require that the cross-claim must arise out of the same dealings as the claim, as distinct from vice versa. Thus, if the Newfoundland Railway test were applied as if it were a statute, very few of the examples of two-contract equitable set-off discussed above could be fitted within its language. I note that in Chitty on Contracts, 30th ed, 2008, Vol II, at 37-152, the test for equitable set-off is formulated in terms of Lord Denning’s test.
Transfield Shipping Inc v Mercator Shipping Inc
[2008] UKHL 48, [2009] 1 AC 61, [2008] 2 Lloyd’s Rep 275, [2008] 4 All ER 159, [2008] Bus LR 1395, [2008] 2 All ER (Comm) 753, [2009] AC 61, [2008] 2 CLC 1, [2008] 3 WLR 345
Lord Rodgers
Today, as for more than 150 years, the starting-point for determining the measure of damages for breach of contract is the judgment of Alderson B in Hadley v Baxendale (1854) 9 Exch 341. The story is well known. The plaintiff owners of a flour mill in Gloucester arranged for the defendant common carriers (the firm of Pickfords) to take their broken mill shaft to a firm in Greenwich which was to use it as a pattern to produce a new shaft. Unknown to the defendants – as the court held – the plaintiffs had no other shaft and so could not operate their mill until they got the new one. In breach of contract, the defendants delayed in transporting the broken shaft. The plaintiffs sued the defendants for the profits which they lost from being unable to operate their mill during the period of delay. The Court of Exchequer held that they could not recover the loss of profits.
Frequently only one sentence from the judgment of Alderson B is quoted as enshrining the principle with which the case is synonymous. But it is preferable to have regard to slightly more of what Alderson B said, at pp 354-355:
“Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i e, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case, and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract.”
It was by referring back to the language of the third sentence in this passage that Alderson B went on to hold, at p 356, that, in the circumstances, the defendants were not liable for the loss of profits:
“But it is obvious that, in the great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred, and these special circumstances were here never communicated by the plaintiffs to the defendants. It follows, therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract.”
The entire passage containing the applicable principles was quoted with approval by Viscount Sankey LC in Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452, 474-475. In Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196, 221, Lord Wright identified the distinction drawn by Alderson B as being “between damages arising naturally (which means in the normal course of things), and cases where there were special and extraordinary circumstances beyond the reasonable prevision of the parties…” Like Lord Hodson in C Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350, 411A-C, I find guidance in Alderson B’s use of the expression “in the great multitude of cases”. In the words of Lord Hodson, it indicates
“that the damages recoverable for breach of contract are such as flow naturally in most cases from the breach, whether under ordinary circumstances or from special circumstances due to the knowledge either in the possession of or communicated to the defendants. This expression throws light on the whole field of damages for breach of contract and points to a different approach from that taken in tort cases.”
The same idea is, of course, to be found, more compactly, in other well-known statements by celebrated commercial judges. For example, in Horne v Midland Railway Co (1872) LR 7 CP 583, 590, Willes J said that, in contract, “damages are to be limited to those that are the natural and ordinary consequences” of the breach, while in Cory v Thames Ironworks Co (1868) LR 3 QB 181, 190, Blackburn J said that the measure of damages is “what might be reasonably expected in the ordinary course of things to flow from the non-fulfilment of the contract, not more than that …”
In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, 539-540, Asquith LJ explained that “Everyone, as a reasonable person, is taken to know the ‘ordinary course of things’ and consequently what loss is liable to result from a breach of contract in that ordinary course.” He went on to say that, for loss to be recoverable, the defendant did not need to foresee that a breach must necessarily result in that loss: “It is in enough if he could foresee it was likely so to result. It is indeed enough, to borrow from the language of Lord du Parcq in the [Monarch Steamship] case, at p 158, if the loss (or some factor without which it would not have occurred) is a ‘serious possibility’ or a ‘real danger.’ For short, we have used the word ‘liable’ to result.”
As Lord Reid pointed out in The Heron II [1969] 1 AC 350, 389E-G, by referring to foreseeability, Asquith LJ cannot have been intending to assimilate the measure of damages in contract and tort. Moreover, there might appear to be a certain tension between the idea that, to be recoverable, a loss must be something which would result from the breach in the ordinary course and the idea that it is enough that the loss is just something which is liable to result. Lord Reid therefore surmised that Asquith LJ might have meant that the loss was foreseeable as a likely result. That appears to be an appropriate way of reconciling the two aspects of Asquith LJ’s opinion. In any event, amidst a cascade of different expressions, it is important not to lose sight of the basic point that, in the absence of special knowledge, a party entering into a contract can only be supposed to contemplate the losses which are likely to result from the breach in question – in other words, those losses which will generally happen in the ordinary course of things if the breach occurs. Those are the losses for which the party in breach is held responsible – the stated rationale being that, other losses not having been in contemplation, the parties had no opportunity to provide for them.
In the present case, the arbitrators found that – as conceded by counsel then acting for the charterers – missing a date for a subsequent fixture was a “not unlikely” result of the late redelivery of a vessel. That concession has been criticised elsewhere, but the House must proceed on the basis that, when they entered into the addendum, the parties could reasonably have contemplated that it was not unlikely that the owners would miss a date for a subsequent fixture if the Achilleas were redelivered late. The majority of the arbitrators also found that, at the time of contracting, the parties, who were both engaged in the business of shipping, would have known that market rates for tonnage go up and down, sometimes quite rapidly. Nevertheless, as Rix LJ himself pointed out [2007] 2 Lloyd’s Rep 555, 577, para 120 – when seeking to combat any criticism that the Court of Appeal’s decision would throw the situation in general into confusion because late redelivery and changing market conditions are common occurrences – “It requires extremely volatile market conditions to create the situation which occurred here.” In other words, the extent of the relevant rise and fall in the market within a short time was actually unusual. The owners’ loss stemmed from that unusual occurrence.
The obligation of the charterers was to redeliver the vessel to the owners by midnight on 2 May. Therefore, the charterers are taken to have had in contemplation, at the time when they entered into the addendum, the loss which would generally happen in the ordinary course of things if the vessel were delivered some nine days late so that the owners missed the cancelling date for a follow-on fixture. Obviously, that would include loss suffered as a result of the owners not having been paid under the contract for the charterers’ use of the vessel for the period after midnight on 2 May. So, as both sides agree, the owners had to be compensated for that loss by the payment of damages. But the parties would also have contemplated that, if the owners lost a fixture, they would then be in a position to enter the market for a substitute fixture. Of course, in some cases, the available market rate would be lower and, in some cases, higher, than the rate under the lost fixture. But the parties would reasonably contemplate that, for the most part, the availability of the market would protect the owners if they lost a fixture. That I understand to be the thinking which lies behind the dicta to the effect that the appropriate measure of damages for late redelivery of a vessel is the difference between the charter rate and the market rate if the market rate is higher than the charter rate for the period between the final terminal date and redelivery: Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia) [1991] 1 Lloyd’s Rep 100, 108. In that passage Bingham LJ was adopting the approach which had been indicated in earlier authorities: Alma Shipping Corpn of Monrovia v Mantovani (The Dione) [1975] 1 Lloyd’s Rep 115, 117-118, per Lord Denning MR, and Arta Shipping Co Ltd v Thai Europe Tapioca Service Ltd (The Johnny) [1977] 2 Lloyd’s Rep 1, 2, per Lord Denning MR.
More particularly, this understanding of the general position lies behind the observations of Lord Mustill in Torvald Klaveness A/S v Arni Maritime Corpn (The Gregos) [1995] 1 Lloyd’s Rep 1. In that case, when the charterers insisted on proceeding with a voyage which had become illegitimate by the time it was due to commence, the owners refused. The owners began to negotiate a replacement fixture with a concern named Navios, involving a higher rate of freight plus a bonus. In the event, the parties to the original charter-party reached a without prejudice agreement under which the owners would perform the voyage and, if in subsequent proceedings it were held that they had been justified in refusing to perform it, they would be entitled to a sum reflecting the difference between the chartered rate of hire and the more advantageous terms of the proposed substitute fixture with Navios. The sum in question was roughly US$300,000.
In these circumstances the House did not need to deal with the measure of damages in a case of late redelivery. Nevertheless, Lord Mustill said that the obligation of the charterers was to redeliver the vessel on or before the final date or to pay damages for breach of contract. He added [1995] 1 Lloyd’s Rep 1, 5, “On damages, see … The Peonia….” – so endorsing, en passant, what Bingham LJ had said in that case.
In the Court of Appeal in The Gregos Hirst LJ had drawn attention to what he described as “the charterers’ windfall damages” under the without prejudice agreement by comparison with the damages which would have been awarded simply in respect of a few days’ late redelivery: [1993] 2 Lloyd’s Rep 335, 348. Lord Mustill said this [1995] 1 Lloyd’s Rep 1, 10:
“At first sight, this apparently anomalous result is a good reason for questioning whether the claim for repudiation was soundly based. On closer examination, however, the anomaly consists, not so much in the size of the damages, but in the fact that damages were awarded at all. Imagine that the without prejudice agreement had not been made, and that the owners, having treated the charter as wrongfully repudiated, had accepted a substitute fixture with Navios. If one then asked what loss had the repudiation caused the owners to suffer, the answer would be – None. On the contrary, the charterers’ wrongful act would have enabled the owners to make a profit. Even if they had not accepted the substitute employment they might very well have suffered no loss, since they would have been in the favourable position of having their ship free in the right place at the right time to take a spot fixture on a rising market. In neither event would the owners ordinarily recover any damages for the wrongful repudiation.”
The implication from this passage is that, ordinarily, the appropriate measure of damages will be that set out by Bingham LJ in The Peonia, since owners will be able to obtain substitute employment for their vessel.
I would enter two caveats. First, it may be that, at least in some cases, when concluding a charter-party, a charterer could reasonably contemplate that late delivery of a vessel of that particular type, in a certain area of the world, at a certain season of the year would mean that the market for its services would be poor. In these circumstances, the owners might have a claim for some general sum for loss of business, somewhat along the line of the damages for the loss of business envisaged by the Court of Appeal in Victoria Laundry (Windsor)Ltd v Newman Industries Ltd [1949] 2 KB 528, 542-543. Because of the agreement on figures, the matter was not explored in this case and I express no view on it. But, even if some such loss of business could have been reasonably contemplated, as Victoria Laundry shows, this would not mean that the owners’ particular loss of profit as a result of the re-negotiation of the Cargill fixture should be recoverable. To hold otherwise would risk undermining the first limb of Hadley v Baxendale, which limits the charterers’ liability to “the amount of injury” that would arise “ordinarily” or “generally”.
Secondly, the position on damages might also be different, if, for example – when a charter-party was entered into – the owners drew the charterers’ attention to the existence of a forward charter of many months’ duration for which the vessel had to be delivered on a particular date. The charterers would know that a failure to redeliver the vessel in time to allow the owners to deliver it under that charter would be liable to result in the loss of that fixture. Then the second rule or limb in Hadley v Baxendale might well come into play. But the point does not arise in this case.
Returning to the present case, I am satisfied that, when they entered into the addendum in September 2003, neither party would reasonably have contemplated that an overrun of nine days would “in the ordinary course of things” cause the owners the kind of loss for which they claim damages. That loss was not the “ordinary consequence” of a breach of that kind. It occurred in this case only because of the extremely volatile market conditions which produced both the owners’ initial (particularly lucrative) transaction, with a third party, and the subsequent pressure on the owners to accept a lower rate for that fixture. Back in September 2003, this loss could not have been reasonably foreseen as being likely to arise out of the delay in question. It was, accordingly, too remote to give rise to a claim for damages for breach of contract.
Rix LJ objects, [2007] 2 Lloyd’s Rep 555, 577, para 119, that such an approach is uncommercial because to demand that, before the charterers are held liable, they would need to know more than they already do in the ordinary course of events, is to demand something that cannot be provided. But that is simply to criticise the long-standing rule of the English law of contract under which a party is not liable for this kind of loss, precisely because it arises out of unusual circumstances which are not – indeed, cannot be – within the contemplation of the parties when they enter into the contract. In any event, it would not, in my view, make good commercial sense to hold a charterer liable for such a potentially extensive loss which neither party could quantify at the time of contracting.
Rix LJ also describes the charterers as “happily [draining] the last drop and more of profit at a time of raised market rates”: [2007] 2 Lloyd’s Rep 555, 577, para 119. But, in reality, at the outset the sub-contract and the final voyage amounted to nothing more than a legitimate use of the vessel which the charterers had hired until 2 May and for which they were paying the owners the agreed daily rate. The delay which led to the breach of contract was caused by supervening circumstances over which the charterers had no control. The charterers’ legitimate actions under their contract provide no commercial or legal justification for fixing them with liability for the owners’ loss of profit, due to the effects of an “extremely volatile market” in relation to an arrangement with a third party about which the charterers knew nothing.
I have not found it necessary to explore the issues concerning South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 and assumption of responsibility, which my noble and learned friend, Lord Hoffmann, has raised. Nevertheless, I am otherwise in substantial agreement with his reasons as well as with those to be given by Lord Walker of Gestingthorpe. I would allow the appeal.
ERG Raffinerie Mediterranee Spa v Chevron USA Inc (t/a Chevron Texaco Global Trading)
[2006] EWHC 1322 (Comm)
Langley LJ
Mr Bright submitted that if I reached the conclusion I have reached on clause 7 there remained two bases on which, nonetheless, Chevron could justify the termination of the contract. The first was that a failure to complete delivery within the laytime provisions was itself a breach of condition entitling Chevron to terminate. The second was that ERG was in breach of an obligation to deliver within a reasonable time which also entitled Chevron to terminate.
Obligation to load within Laytime
There is no dispute that ERG was obliged to load the Vessel within the stipulated laytime, nor that it failed in fact to do so. Mr Males submits, relying on Inverkip, Citati, and The Al Hofuf [1981] Lloyd’s Rep 81, that a right to terminate would only arise upon the expiry of “a frustrating time” and until then Chevron’s remedy is limited to the demurrage provided for in clause 10. Mr Males is right.
In Inverkip, Owners claimed damages against Charterers for the detention of their Vessel for what was found to be beyond a reasonable time after expiry of the lay days. The Owners failed. The Court of Appeal held the claim was limited to the demurrage provided for. At pages 200-201, Scrutton LJ said:
“The sum agreed for freight in a charter covers the use of the ship for an agreed time for loading or discharging, known as the lay days, and for the voyage. But there is almost invariably a term in the agreement providing for an additional payment, known as demurrage, for detention beyond the agreed lay days. This is sometimes treated as agreed damages for detaining the ship, sometimes as an agreed payment for extra lay days. In my view the mere fact that the charterer has not loaded the ship in the lay days does not entitle the shipowner to withdraw the ship from the service; and whether the payment for these days after the lay days on which the ship is detained is treated as agreed liquidated damages or as an agreed payment for time which the charterer has a right to use at his option, the amount to be paid for these days is fixed by the charter. On the other hand it is obvious that the charterer is not entitled to keep the ship on demurrage for ever. What is the time when he may treat his obligation to stay as removed and sail away?
Counsel for the shipowners said that this time came when a reasonable time had elapsed. Asked a reasonable time for what? they had some difficulty in answering…. The reasonable time for loading is exhausted by the lay days. What is the second reasonable time at the end of which the ship may leave? Her days on demurrage are part of an unreasonable time for loading. Is the Court to determine what is a reasonable degree of unreasonableness? In my view the test of reasonable time is not one that is applicable. To enable the ship to abandon the charter without the consent of the charterer I think the shipowner must show either such a failure to load as amounts to a repudiation of or final refusal to perform the charter, which the shipowner may accept as a final breach and depart claiming damages… or such a commercial frustration of the adventure by delay…”
The decision in Citati is to the same effect. Mr Bright submitted that both authorities were charterparty cases not cases concerned with FOB contracts. That is true. But I see no reason at all why the principle should be different. More importantly, the decision of Mocatta J in The “Al Hofuf”, applied the same principle to an FOB contract.
Obligation to deliver within a reasonable time
These decisions also dispose of the final submission by Mr Bright. There is no obligation to deliver in a reasonable time breach of which could justify the termination of the contract. Indeed, I think Mr Males is also right in his submission that no such term is to be implied at all.
Section 29(3) of the Sale of Goods Act, 1979 provides that:
“Where under a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.”
The wording is apt if it means within a reasonable time of making the contract. But that has no relevance in this case. The wording can only apply if “sending” the goods to Chevron includes putting them on board a vessel provided by Chevron, which I doubt. But, conclusively in my judgment, this contract did provide a time for “sending” the cargo even if it has such a meaning, namely the laytime provisions. A term requiring loading within a reasonable time would also be inconsistent with the requirement for expiry of a “frustrating period”.
If it had been necessary to address the question whether a reasonable time had expired by the afternoon of 3 June, I would have held that it had not. I think, as is agreed, that the question has to be viewed on the basis of the situation as it was at that time. ERG had by then, to Chevron’s knowledge, two tanks ready to load and the probability was that the vessel would berth the next day.
THE DAMAGES ISSUE
In the context of my decisions on the terms of the contract, there is no basis on which Chevron can claim general damages for delay. The counterclaim must be limited to demurrage (which is conceded). In The Bonde [1991] 1 Lloyd’s Rep 136, at page 143, Potter J, held that, in order to advance such a claim for general damages for delay in an FOB contract, there had to be a breach additional to or separate from that of failing to load within the lay days and/or at an agreed rate of loading, so as to establish a separate right not circumscribed by the right to demurrage. Mr Bright submitted that the demurrage clause in this agreement was unusual or to be construed as addressing only the case where Owners did claim demurrage from Chevron and nothing more. I do not agree. The clause is, as it says it is, a “demurrage” clause, and uses the word in its ordinary sense. Chevron, no doubt, regrets its limitations but that is no reason to give it a meaning it does not have.
CONCLUSION
Chevron is liable to ERG for wrongfully terminating the contract. The amount of that liability is for another day, if it cannot be agreed. Chevron is entitled to demurrage as provided for in clause 10 but not to general damages for delay.
Far East Chartering Ltd & Anor v Great Eastern Shipping Company Ltd
[2012] EWCA Civ 180 (09 March 2012)
[2012] EWCA Civ 180 Tomlinson LJ
Did the owners deliver the cargo to Binani?
Mr Gee submits that there was no delivery of the cargo by the owners to Binani and hence no fulfilment by the charterers of the request made to them in the letter of indemnity. Mr Gee made the point, rightly, that delivery is in this context a legal concept and that it should not be confused with discharge. He reminded us that in Barclays Bank Limited v Customs and Excise [1963] 1 Ll Rep 81 at 88-89, Diplock LJ held that a contract contained in or evidenced by a bill of lading for the carriage of goods by sea is a combined contract of transportation and bailment which is not discharged by performance until the shipowner has actually surrendered possession, that is, has divested himself of all power to compel any physical dealing in the goods, to the person entitled under the contract to obtain possession of them. Delivery to GMB as the shipowners’ bailee was plainly not delivery to Binani. The Delivery Order was no more than an authority in the form of a request to transfer physical possession to Binani. Mr Gee did however accept that the effect of the Delivery Order was that delivery by GMB to Binani pursuant to this authority would have been a good discharge of the GMB’s obligations as the shipowners’ bailee. However, he submitted, unless and until the GMB acted on the authority, it continued to hold the cargo as a bailee for the shipowners. The mere giving by a bailor to a bailee of authority to deliver goods to a third party is not the same as physical delivery of possession by the bailor to the third party.
Mr Gee recognised that 7,400 tonnes of the cargo had indeed been made available to and taken by Binani before Binani stopped taking delivery on 23 October 2008. That however did not avail the shipowners, he submitted, because the letter of indemnity requested that “the said cargo” be delivered and that meant the entire cargo, not part thereof. Insofar as Binani had obtained possession of the balance of the cargo between January and May 2009 that had been achieved without any co-operation at all from the owners and in fact in spite of their best efforts to prevent GMB from permitting Binani to take possession. The shipowners had cancelled their authority to GMB to deliver to Binani or at the very least had attempted to do so. Furthermore, submitted Mr Gee, the GMB had itself done the precise opposite of what it had been asked by shipowners to do in that it had itself demanded a letter of indemnity from Binani. All this was the very antithesis of what was asked for and contemplated under the letter of indemnity, which was that Binani would obtain a prompt transfer of possession from the shipowners, or from the shipowners’ agents with their consent, in return for, and only for, the indemnity promised in the letter.
Attractively and persuasively though these arguments were presented by Mr Gee, I cannot accept that they lead to the conclusion that the shipowners here failed to comply with the request to deliver the cargo. Delivery does not necessarily involve that the shipowners must themselves physically hand over the cargo to the receivers in the sense of physically shovelling the coal onto the consignees’ lorries. As the citation from Diplock LJ makes clear, what is involved in this context is the divesting or relinquishing of the power to compel any dealing in or with the cargo which can prevent the consignee from obtaining possession. Such divesting must of course be effective. The judge held that as a matter of construction of the letter of indemnity the issue of the Delivery Order and the discharge of the cargo were sufficient to amount to delivery. I do not agree that that alone was sufficient, for as the facts here show a shipowner may attempt to revoke the authority given by a Delivery Order and may succeed in doing so. Whether in any given case a shipowner will in fact succeed in revoking an authority given in that way will no doubt depend upon the law governing the relationship between the shipowners and the person to whom the Delivery Order is addressed, and may be affected by the question whether the addressee of the Delivery Order has subsequently attorned to the consignees named in the bill of lading. Evidently the GMB considered that the instruction given to it was irrevocable, albeit it later imposed a condition upon its own compliance. The fact remains however that as a result of the shipowners discharging the cargo into the custody of the GMB and instructing it to deliver the same to Binani without production of the bills of lading, Binani was enabled to obtain possession. The shipowners surrendered possession. As demonstrated by events, the shipowners divested themselves of all power to compel any physical dealing with the cargo. Their attempts to regain control of the cargo and/or to prevent Binani from obtaining possession failed. In these circumstances, in my judgment, the shipowners, as agents for the charterers, have complied with the request to deliver the cargo to Binani at Navlakhi without production of the original bills of lading.
I accept that Binani did not expect to have to appear in proceedings in the Gujurat High Court in order to set aside the shipowners’ interim injunction. But that interlude does not detract from the fact that as a result of the shipowners surrendering possession of the cargo and divesting themselves of the right to compel dealings in it, Binani was enabled to obtain possession thereof without production of the original bills of lading. If anything, the ineffective nature of the shipowners’ intervention goes to show that their measures had indeed been effective to enable Binani to obtain possession in this way.
At a late stage in the process of effecting delivery the GMB placed an impediment on further delivery in the shape of its demand for a letter of indemnity. Mr David Goldstone QC for the shipowners submitted that the GMB was not entitled to ask for an indemnity and in so doing it acted outside the authority given to it by the shipowners. That analysis may be correct as a matter of the law governing the relationship between the shipowners and the GMB. Mr Goldstone also submitted that in any event faced with that demand Binani could have declined to take possession of any further cargo. It could have said that it would wait until such time as it was in possession of the original bills of lading. However Binani chose to comply with the request and continued to take possession of the cargo on the terms proposed by the GMB. In so doing Binani continued to take the benefit of the shipowners’ compliance with the request made by the LOI of 6 October 2008. Binani continued to take possession of the cargo pursuant to the arrangements put in hand by the shipowners to that end, their discharge of the cargo into the hands of the GMB and their instruction to the GMB to deliver it to Binani without production of the bills of lading. I agree with Mr Goldstone that in such circumstances Binani cannot continue to take the benefit of shipowners’ compliance, as charterers’ agents, with the request made in the LOI without also accepting the burden imposed thereby, the indemnity promised in consideration of compliance with the request.
In the event Binani obtained possession of the entire cargo, subject only to some small and inconsequential losses which are said to have been due to “spontaneous combustion”. It is not suggested that these losses detract from the conclusion that Binani received the full cargo. The question whether the indemnity offered in the LOI is available only against delivery of the entire cargo does not therefore arise. However, for the avoidance of doubt, I should indicate my view that on its true construction the LOI offers an indemnity in respect of such delivery as has been effected. If it were to be construed as requiring delivery of the entire cargo before any entitlement to an indemnity arises it would be productive of disputes as to shortages, unpumpable residues and the like. I can see no reason why the indemnity offered should not be regarded as co-extensive with the delivery effected without production of the bills of lading. That is, as it seems to me, the natural and most workable reading.
I have recorded above Mr Gee’s submission that what was asked for under the LOI was a “prompt” transfer of possession. It may be that there is to be implied some such requirement as to timely compliance consistent with the commercial object of the underlying request to deliver cargo without production of original bills of lading. What is a reasonable time might therefore vary with the nature of the cargo, whether it is perishable and so forth. However I do not consider that any such argument can possibly avail Binani here. Binani ceased taking delivery of the cargo on 23 October 2008 having rejected it as off-specification. It did not agree to resume taking delivery until two and a half months later, and then on the basis of a reduced price. It was the existence of the contractual dispute between seller, buyer and sub-buyer which caused the delivery to be other than prompt. Other than the delay caused by the interim injunction, which was minimal, and the delay caused by the GMB’s request for a letter of indemnity, which was beyond charterers’ or shipowners’ control and was again in context insignificant, there is no suggestion that the process of Binani taking delivery was delayed by anything other than the existence of the underlying contractual dispute, or limitations as to the speed at which Binani could itself remove the cargo by road and rail.
Public Policy
I turn finally to public policy. In his oral address Mr Gee developed an argument further to that summarised at paragraph 4(iii) above, which was adumbrated in his skeleton argument. Founding himself upon Dugdale v Lovering (1875) LR 10 CP 196 for the proposition that a carrier may not seek or enforce an indemnity in respect of the consequences of an act which is manifestly illegal or tortious to his knowledge, Mr Gee suggested that that is precisely what the shipowners are here seeking to do. The shipowners have known, he submitted, since receipt of the letter from Messrs Haridass Ho of 12 November 2008 that the original bills of lading were being retained by the shippers as security for payment of the price which was being withheld.
As Mr Gee rightly observed, the practice of taking an express indemnity in exchange for delivery of the cargo without presentation of the original bills of lading developed in response to the problem in modern short-voyage trades of the vessel arriving while the original bills are still in the banking chain. See the discussion in Carver on Bills of Lading, 2nd Ed., 2005 at paragraph 6-009; The ‘Delfini’ [1990] 1 Ll Rep 252 at page 257; The ‘Sormovskiy’ [1994] 2 Ll Rep 266 at 274; and The ‘Berge Sisar’ [2011] 1 Ll Rep 663 at paragraph 35. In such a case, there is an apparently innocent explanation for the absence of the original bills. An implied right of indemnity would apply in such circumstances and it appears to be generally accepted that an innocent carrier is also entitled to enforce an express indemnity. However, submitted Mr Gee, no implied indemnity lies where the carrier knows that delivery is wrongful: Dugdale v Lovering; The ‘Nogar Marin’ [1988] 1 Ll Rep 412. And, while case law is admittedly slight, it follows as a matter of principle that an express indemnity is equally unenforceable in such circumstances. In support of the latter proposition he cited Brown Jenkinson v Percy Dalton [1957] 2 QB 621, which is concerned with an express indemnity in respect of the consequences of issuing a bill of lading known to contain misrepresentations as to the condition of the cargo on shipment, and Aikens et al, Bills of Lading, 2006 paragraph 3.135.
There is some irony in seeking to suggest that the shipowners should be disentitled from claiming an indemnity where at all times after they became aware of the shippers’ claims they attempted to prevent Binani from obtaining possession of the cargo, as indeed Mr Gee complains in a different context. However, like the judge, I do not consider that public policy is here engaged. As Mr Goldstone was able to demonstrate, largely by reference to evidence supplied by Binani itself for use in the proceedings in Singapore, the evidence shows that from the first there was a dispute between PTH and VICAG as to the amount payable for the cargo, having regard to the fact that it did not comply with the contractual specification. This manifested itself at an early stage since clauses 8.2 and 8.3 of the sale contract between PTH and VICAG called for the second and third instalments of the price, payable three days after completion of loading of barges and within fourteen days after the date of the bills of lading respectively, to be calculated, in the first instance, by reference to the estimated fob value of the shipment and, in the second case, by reference to the quality of the coal actually loaded, particularly its gross calorific value. Evidently the cargo was not homogeneous, coming from multiple sources. The variance in reported gross calorific value for each barge was large. There was difficulty and dispute over the sampling and analysis arrangements at the load port. It will be recalled that by clause 5.1 of the PTH-VICAG contract the results of load port sampling and analysis were final and binding. Sampling and analysis on arrival in India did not correspond with load port results, no doubt as a result of the lack of homogeneity of the cargo. The original bills of lading were of course to be released against payment for the cargo and it is clear that there was at all material times a bona fide dispute as to the amount payable. That dispute was the subject of an ICC arbitration between VICAG and PTH begun by VICAG. It is unclear on the evidence deployed in this action precisely when the dispute crystallised, although it can have been no later than when the payment instalment fell due after loading of barges, which was before the end of September 2008. There is no basis whatever for the assertion that Visa, through its sister company VICAG, was on 6 October, when it asked for the LOI from Binani, acting in anything other than complete good faith. There was a bona fide dispute as to the amount payable for the cargo, in the light whereof the original bills of lading might well be unavailable at the discharge port on arrival of the vessel. In those circumstances the LOI was not in my judgment obtained for a purpose which renders it unenforceable. It was obtained in a perfectly normal and lawful manner in circumstances where VICAG believed in good faith that it had made full payment for the cargo and was therefore entitled to release of the original bills of lading. At the very least it is not shown that VICAG did not have that belief. When the shipowners surrendered possession of the cargo and issued their Delivery Order they knew nothing of any dispute between the sellers and the intermediate buyers as to the entitlement to receive original bills of lading. Thereafter when they did learn of the dispute they learned simply that there was a contractual dispute. They were in no position to assess whether delivery or further delivery of the cargo without production of the bills of lading would be manifestly unlawful or tortious, but in any event they proved powerless to intervene in order to prevent Binani taking delivery of the cargo. Accordingly, public policy would not prevent enforcement of the LOI by Visa against Binani and nor does it prevent enforcement by the shipowners against Binani.
For all these reasons I would dismiss this appeal.
Lord Justice Davis :
I agree that this appeal should be dismissed for the reasons given by Tomlinson LJ.
In so far as Mr Gee placed reliance, under his third ground, on the doctrine (still conventionally framed in Latin) of ex turpi causa, the basis for such a plea was most hesitantly and equivocally advanced in Binani’s pleaded defence and further information thereafter provided. Mr Gee accepted in argument that he was not in a position to assert that there was dishonesty or bad faith on the part of VICAG or Visa, let alone the owners. In truth there was no evidence sufficient to show that VICAG or Visa knew (or even believed) that the bills of lading would never be forthcoming. It is a point of comment, moreover, that it seems to have been Binani which was pressing for delivery against production of a LOI.
Lord Justice Longmore :
I agree with both judgments.
David Agmashenebeli”, Owners of the Cargo v Owners of the Ship
[2002] EWHC 104 (Admlty), [2003] 1 Lloyd’s Rep 92, [2002] 2 All ER (Comm) 806, [2003] 1 CLC 714
Colman J
The Clausing Issue: the Duty of the Shipowners
The claimants’ submissions may be summarised as follows:
(i) Article III rule 3 of the Hague-Visby Rules, which both sides accept were incorporated into the bill of lading contract, provides as follows:
“After receiving the goods into his charge, the carrier, or the master or agent of the carrier shall, on demand of the shipper, issue to the shipper a bill of lading showing, among other things –
(c) The apparent order and condition of the goods…”
The effect of that provision is to impose a duty on the carrier that the bill of lading issued to the shipper shall accurately show the apparent order and condition of the goods.
In particular, it is not sufficient for the bills of lading to show the apparent order and condition which the master or other agent of the carrier honestly believed them to be in if the description does not accurately describe the actual apparent order and condition.
(ii) The claimants argue that, as a matter of principle, the commercial function of a bill of lading demands that it should objectively accurately describe the apparent order and condition of the goods. To limit the duty to one of honesty would greatly decrease the utility of a bill of lading as a key document in particular as a negotiable instrument under the sale contract and as evidence of the condition.
(iii) The claimants rely in particular on the judgment of the Court of Appeal in The Arctic Trader [1996] 2 Lloyd’s Report 449 at pages 456 to 459 and in particular the passage at page 458R in which Evans LJ. described as an “unqualified” or ‘absolute’ contractual undertaking” (emphasis added) the duty of the owners to the shipper under Article III rule 3(3) to issue on demand a bill of lading which stated the apparent order and condition of the goods.
(iv) The claimants further rely on a passage from the judgment of Channell J. in Compania Naviera Vasconzada v. Churchill & Sim [1906] 1 KB 237 at page 245 which refers to the “duty” imposed on the master under the Harter Act, section 4, to insert in the bill of lading a “true statement” as to the condition of the goods.
(v) Alternatively, apart from the Hague Visby Rules, there was an implied term of the contract of carriage under which the owners were under a duty to the shippers that the master would only sign bills of lading which accurately stated the apparent order and condition of the goods, the specific duty of the master being to exercise the judgment of a responsible and reasonable ship’s officer when assessing the apparent order and condition of the goods and when deciding whether or not to clause the bills of lading. In this connection the claimants rely on The Arctic Trader, supra, at p 456L, The Hawk, [1999] 1 Lloyd’s Rep 176 at page 185R and the earlier decision of the Court of Appeal in The Nogar Marin [1988] 1 Lloyd’s Rep 412 at page 422.
(vi) If the master is unsure whether to clause the bills of lading, the claimants submit that he should take advice, if necessary, from a source independent of the shippers.
(vii) Apart from the terms of the contract of carriage, the owners, through their master were under a duty of care in tort owed to the shipper to exercise reasonable care not to misrepresent in the bills of lading the apparent order and condition of the goods. The claimants rely on the developing law with regard to liability for negligent misstatements following Hedley Byrne v. Heller & Partners [1964] AC 465 and Caparo v. Dickman [1990] 2 AC 605, culminating in Spring v. Guardian Assurance [1995] 2 AC 296. It is submitted that the three tests in Caparo are satisfied. In particular (a) loss to the shipper/holder caused by inaccurate clausing is reasonably foreseeable; (b) a relationship of proximity exists between the shipper/holder and the carrier arising out of their direct relationship as parties to the bill of lading contract and (c) it is fair, just and reasonable to impose a duty of care for otherwise the shipper/holder cannot use the bill of lading for one of its most important purposes, namely as a negotiable instrument and cannot recover damages from the shipowner whose negligence has caused the loss.
(viii) The claimants further support their submission on duty of care by reference to the considerations identified by Neill LJ. in James McNaughton Paper Group v. Hicks Anderson [1991] 2 QB 113 at page 125. In particular they submit that:
(a) the master’s statement as to the apparent order and condition of the goods is made for the purpose of the indorsement of the bill as a key document in the transfer of title to the goods conformably with a sale contract;
(b) that statement is communicated for the purpose of sending it to the shipper who is an immediate party to the bill of lading contract and not a remote party;
(c) the relationship between the shipowner, shipper and any subsequent holder is a direct contractual relationship and the imposition of a duty of care would not conflict with any pre-existing or relevant contractual matrix, there being hypothetically, no alternative remedy for the shipper.
(d) the fact that the Hague-Visby Rules do not, on the relevant hypothesis, provide a remedy for the failure of a master to exercise reasonable care in respect of the issue of clean or claused bills of lading does not lead to the conclusion that there is no room for the co-existence of a duty in tort, for the function of the Rules is to identify an irreducible minimum obligation regime which cannot be diminished by contract. For example, there is the parallel duty of the carrier as bailee at Common Law;
(e) the class of those to whom any such duty of care would be owed is very small, namely the shipper and holders of the bill;
(f) the master as representor must know that the shipper and holders will rely on the accuracy of his statement for the purposes of transference of the bill as evidence of the apparent condition of the goods and as a document of title;
(g) it was reasonable for the shipper, as representee, to rely on the exercise of reasonable skill and care by the master in describing the apparent order and condition of the goods because the shipper is entirely in the masters’ hands in relation to clausing.
(ix) Finally, the claimants submit that there was a duty of care arising from the relationship of bailment between the shipper as bailor and the master as bailee.
The defendants’ submissions are as follows:
(i) For the purposes of the representation as to the apparent order and condition of the goods to be stated in the bill of lading by reason of Article III rule 3 what matters is not the actual apparent order and condition but what the representor as an ordinary and reasonably skilled master reasonably and honestly believes to be the apparent order and condition. For this purpose the master is not required to be a cargo surveyor or expert or to conduct tests or even a detailed examination or to engage cargo experts to advise him.
(ii) In any event, the representation in a bill of lading as to the apparent order and condition of the cargo does not give rise to a contractual undertaking either as to its accuracy or as to the skill and care employed by the master in reaching the conclusion expressed in the representation.
(iii) In support of proposition (i) the defendants rely on C. N. Vasconzada v. Churchill & Sim, supra, at page 245, and the observation of Channell J. in relation to the Harter Act, section 4, as an unskilled person the master is expected “to notice the apparent condition of the goods but not their quality” and to qualify the standard words of the bill, “shipped in good order and condition” … “according to the truth”, which, the defendants say, means conforming with the sincere and honest belief of the master. They also rely on the judgment of Scrutton LJ. in Silver v. Ocean Steamship Co Ltd [1930] 1 KB 416 at pages 425 – 426 approving the judgment of Sir Robert Phillimore in The Peter de Grosse (1875) 1 PD 414 at page 420 that “shipped in apparent good order and condition” means that “apparently and so far as met the eye, and externally they were placed in good order on board, and further on the observations of Greer LJ. at p434 – “such reasonable examination as can be expected when goods of this kind are delivered for shipment under the conditions necessarily prevailing, that is to say, delivery by night” and of Slesser LJ. at p 439 – “what was apparent to anyone”. They also rely on the judgment of Branson J. in National Petroleum Co v. Athelviscount (1934) 48 Ll L Rep 164 at page 170.
(iv) In support of proposition (i) the defendants also relied on a number of Continental and American authorities. The decision of the High Court at Brussels in The SS Rosario (3 Nov 1967) is summarised as concluding:
“In order to satisfy his legal obligation to describe the apparent order and condition of the goods in the bill of lading, the Master is not held to be a surveyor or to proceed to research and exhaustive examination.
When there is nothing to stop the conclusion that a superficial thawing of frozen meat would not but escape a normal examination by a competent and conscientious Master, the latter cannot be held liable for having omitted to insert exceptions in the bill of lading.”
In The Korle Lagoon (24 June 1971) the same court held that in relation to statements in the bill of lading in respect of a timber cargo:
“The captain is not held to be a timber expert but a minimum experience is expected from him so that he will not be confused between 150 tons of fine quality timber and 68 tons of mediocre quality timber.”
(v) Mr Hofmeyr QC on behalf of the defendants also unearthed the decision of the US District Court for the Southern District of New York in Sidney J. Groban and Union Tractor Ltd v. SS Pegu and Elder Dempster Lines Ltd (1971) 331 F Supp 883 in which the issue was whether the master had claused the bills so as to indicate adequately the apparent order and condition of a cargo of tractor parts by the words “cargo loaded in secondhand condition”. I shall have to return to this decision in this judgment. However, it was observed that the carrier was under no obligation to detail the specific reasons for that description. The ship’s officers “could scarcely be expected to be expert in describing the condition of a shipment of tractor parts such as this. The bill ….. was claused to indicate the condition of the goods as it reasonably appeared to them”.
(vi) It is submitted these cases support the proposition that all that a master is required to do is honestly to state the external condition of the cargo as it meets the eye of a master who is not an expert in the cargo in question.
(vii) As to proposition (ii) that the statement as to the apparent order and condition of the goods are not words of contract, the Defendants rely on the judgment of Channell J in C.N. Vasconzada v. Churchill and Sim, supra, in relation to section 4 of the Harter Act and in particular the following passage at pages 246 – 247:
” It seems to me that the contract is to deliver the goods in the same condition as that in which they are shipped, coupled with an acknowledgment that the condition at the time of shipment, was good. The words “shipped in good order and condition” are not words of contract in the sense of a promise or undertaking. The words are an affirmation of fact, or perhaps rather in the nature of an assent by the captain to an affirmation of fact which the shipper may be supposed to make as to his own goods. So far, therefore, as the words of the bill of lading, apart from the incorporation of the Harter Act, are concerned, I see no contract that the condition of the goods is correctly described. The 4th section of the Harter Act makes it the duty of the captain to insert in the bill of lading a statement as to the condition of the goods, and I agree that this means that he is to make a true statement; but I have difficulty in seeing that the clause that the bill of lading is to be “subject to all the terms and provisions and to the exemptions from liability contained in” the Harter Act imports a contract that the statement as to the condition of the goods is true. I think, therefore, though not without some doubt so far as the effect of the incorporation of the Harter Act is concerned, that the cause of action must be based on estoppel, and not on breach of contract”.
(viii) The Defendants also rely on observations of Devlin J. in Heskel v. Continental Express [1950] 83 Ll L . Rep. 438 at page 455 and of Mocatta J. in V/O Rasnoimport v. Guthrie & Co. Ltd. [1966] 1 Lloyd’s Rep 1 at page 7R to the effect that “words in a bill of lading as to the quantity of goods shipped, like those as to their apparent order and condition are not…….words of contract in the sense of a promise or undertaking. They are at most an affirmation of fact or a representation.”
(ix) In The River Gurara [1998] QB 610 at 625 Phillips L.J. held that as a matter of construction of Article III of the Hague Rules “an unqualified description of the goods in the bill of lading does not constitute a binding agreement between the shipper and the carrier that the goods have been shipped as stated, but merely prima facie evidence of that fact.” The Defendants rely strongly on Article III rule 3 which they submit contains no requirement of accuracy in such statements and rule 4 which explicitly defines the function of the statement in the bill of lading as “prima facie evidence of the receipt by the carrier of the goods as therein described…..”
(x) The Defendants criticise the judgment of Evans L.J. in the Court of Appeal in The Arctic Trader [1996] 2 Lloyd’s Rep. 449 at page 458 in as much as it referred to an absolute contractual duty under Article III rule 3 (3) to issue a bill of lading which stated the apparent order and condition of the goods. Such a duty was inconsistent with the wording of Rule 3(3) and (4). The latter expressly confined the consequences of the bill of lading stating the order and condition to be prima facie evidence of the facts stated and did not extend to any promissory effect. Further Rule 3(5) made it clear that, at least as regards marks, number, quantity and weight, the shipper having been deemed to guarantee the accuracy of what he informed the carrier, there could be no countervailing obligation of accuracy on the part of the carrier.
(xi) In The Boukadoura [1989] 1 Lloyd’s Rep. 393 at page 399L Evans L.J. had held that there was an implied term of a charterparty that the bills presented by the charterer for signature should not contain a description of the goods which was known to be incorrect. By parity of reasoning the shipper must be under a similar duty to the owner in respect of the apparent order and condition of the goods as described in the bill.
The Clausing Issue: Discussion.
It is necessary to keep in mind two areas of distinction which underlie the analysis of this issue.
Firstly, a bill of lading has two distinct functions: (i) as evidence of the contract of carriage and (ii) as a receipt and document of title to the goods laden on board.
Secondly, whether the carrier’s duty in respect of the statement in the bill of lading as to the apparent order and condition is of a contractual nature is a distinct issue from the question what scope that duty has and in particular whether it is duty of care or analogous to a duty of care or whether it is merely a duty honestly to state the apparent order and condition of the goods.
The starting point in this analysis is to identify the function of the statement of the order and condition of the goods in a bill of lading. For this purpose it is necessary to go back to the issue of the bill. It is the shipper or the shipper’s agent who in the ordinary way tenders the bill to the carrier or the carrier’s agent, usually the master, for signature. In so doing, the shipper invites the carrier to acknowledge the truth of the statement in the tendered bill as to the order and condition of the goods which the shipper has delivered into the possession of the carrier pursuant to the contract of affreightment. In determining whether the carrier by the master’s or other agent’s signature accepts contractual responsibility for the accuracy of the statement as to the condition of the goods it is relevant to take account of the fact that it is the shipper or his agent who is delivering the goods and that accordingly any such statement would be as to facts of which he must already have actual or imputed knowledge. Further, because the shipper already has that knowledge he cannot be said to rely on the accuracy of the statement. His requirement goes no further than the need to obtain from the carrier a receipt for the goods in appropriate form. The tender for signature of a bill which states the order and condition of the goods is thus an invitation to the carrier to express his acknowledgment of the truth of the statements in the bill. As such it is an invitation to make a representation of fact as distinct from a binding promise as to the accuracy of the represented facts. The purpose of making that representation is to record the carrier’s evidence as to his receipt of the goods and as to their apparent condition when he did receive them for carriage. Given that bills of lading are negotiable instruments, the specific function of recording that evidence is to inform subsequent holders of the facts represented, for those facts are likely to be relevant to their exercise of contractual rights against sellers of the goods or, indeed, the carriers themselves.
Against this background, it is not difficult to see why it has been said in many of the authorities on the Harter Act, the Hague Rules and the Hague-Visby Rules that those codes stop short of imposing on the carrier any contractual obligation as to the accuracy of that which is stated in the bill as to the order and condition of the goods.
Moreover, the wording of Article 3 Rules 3,4 and 5 of the Hague Rulges and their successor, the Hague-Visby Rules, is clearly consistent with this analysis. It imposes a contractual duty to issue a bill of lading containing the information specified but by Rule 4 provides only that such statements are to be prima facie evidence of the facts stated. That is to say, it is always open to the carrier to adduce evidence displacing what would otherwise be concluded from the statements in the bill of lading. Where, however, the bill has been transferred to a third party acting in good faith there is an estoppel as to the accuracy of the statements: the carrier is precluded from proving the contrary. Whereas at Common Law the rules of estoppel may in certain circumstances preclude the carrier as against the lawful holder of the bill from the opportunity to displace such conclusion: cf CN Vasconzada v. Churchill [1906] 1 K.B. 237, and see generally Scrutton on Charterparties, 20th Edition, pages 111-112, there is no decision in any authority before The Arctic Trader which suggests that the carrier contractually warrants either the accuracy or the exercise of reasonable care in relation to the accuracy of such statements in the bill of lading.
The Arctic Trader, supra, raised the question whether there was to be implied into a time charter a term which imposed on the shipowners through their master a duty of care to clause mate’s receipts if the cargo was not in apparent good order and condition. The arbitrator concluded that there was such a term and that the shipowners through their master were in breach of it. The Court of Appeal dismissed an appeal from Tuckey J. who allowed an appeal against the arbitrator’s conclusion. He did so on the ground that there was no such contractual duty owed to the charterer or person who presented the bill of lading. The Court of Appeal concluded that the existence of such a duty was not relevant on the facts because the shipowners could not have been in breach of it. The shippers and charterers’ agent had persuaded the master to issue mate’s receipts which inaccurately stated that the goods were in apparent good order and condition. In any event, since the charterers knew that the condition of the goods was such that bills of lading ought to have been claused, they could not have suffered any loss by reason of the issue of clean mate’s receipts. At pages 458 –459 Evans L.J. referred to the objections to implying such a term into a time charter in respect of statements in a bill of lading by reference to the observations of Mustill L.J. in The Nogar Marin [1998] 1 Lloyd’s Rep 412 at page 421 in respect of what was described as the “unanswerable argument on causation”. Against this background Evans L.J. left open the question whether there was any such implied term in the time charter (page 459L).
The claimants rely heavily on a passage in the Court of Appeal judgment at page 458L.
“The duty owed to shippers under art.III, r. 3(3) of the Hague Rules is to issue, on demand, a bill of lading which states “(c) the apparent order and conditon of the goods”. This requires an accurate statement of fact. (We would reject Mr. Hamblen’s somewhat extreme submission that the duty can be discharged by making any such statements, whether accurate or not.) It is moreover, in our judgment, an unqualified or “absolute” contractual undertaking, not merely one which the shipowner, or the master, must take reasonable care to perform. However, since making an accurate statement as to the apparent order and condition of goods may involve some degree of skill and expertise, though it does not necessarily do so, then in such cases the distinction between a duty to exercise reasonable skills and care in making an accurate statement, on the one hand, and a contractual duty to base the statement on the exercise of reasonable skill and care, is of no practical relevance. But one should not, in our judgment, lose sight of the fact that the duty is to make an accurate statement in the circumstances of the case.”
It is common ground that this observation was obiter. That the effect of Article III Rule 3 is to impose some contractual duty on the carrier is beyond argument. The master or carrier’s agent must at least issue to the shipper on demand a bill of lading showing the specified information. Refusal to issue any bill of lading accurate or not in respect of the goods received on board would thus be a breach of the contract of carriage in respect of which the shipowner would be liable to the shipper. But that duty is more specifically defined in as much as Rule 3 (a), (b) and (c) specify those matters which the bill of lading is required to show, including “the apparent order and condition of the goods”.
A refusal to issue a bill which made any statement as to the apparent order and condition of the goods would thus be a failure to comply with the contractual obligation imposed by the rule.
If there is a contractual obligation to the shipper that the bill of lading should state the apparent order and condition of the goods, how is that duty to be performed? In my judgment, the general effect of the authorities is that the duty requires that the master should make up his mind whether in all the circumstances the cargo, in so far as he can see it in the course and circumstances of loading, appears to satisfy the description of its apparent order and condition in the bills of lading tendered for signature. If in doubt, a master may well consider it appropriate to ask his owners to provide him with expert advice, but that is a matter for his judgment. In the normal case, however, he will be entitled to form his own opinion from his own observations and the failure to ask for expert advice is unlikely to be a matter of criticism. For this purpose the law does not cast upon the master the role of an expert surveyor. He need not possess any greater knowledge or experience of the cargo in question than any other reasonably careful master. What he is required to do is to exercise his own judgment on the appearance of the cargo being loaded. If he honestly takes the view that it is not or not all in apparent good order and condition and that is a view that could properly be held by a reasonably observant master, then, even if not all or even most such masters would necessarily agree with him, he is entitled to qualify to that effect the statement in the bill of lading. This imposes on the master a duty of a relatively low order but capable of objective evaluation. However, the Defendant’s submission that he need do no more than honestly state his view is, in my judgment, to put it too low, although no doubt in most cases the result will be the same. Nevertheless, the master who honestly takes an eccentric view of the apparent condition of the cargo which would not be shared by any other reasonably observant master would not be justified in issuing bills of lading which were qualified to reflect his view. In so far as the observations of the Court of Appeal in The Arctic Trader, supra, which were strictly obiter, suggest any higher duty on the master, I am not persuaded that they accurately express the effect of Article III rule 3.
Likewise, the extent to which and the terms in which the master considers it appropriate to qualify the bills of lading statement as to the order and condition of the cargo is again a matter for his judgment. Reasonably careful masters might use different words to describe the reason why and the extent to which the cargo was not in their view in apparent good order and condition. In many cases they may only have a limited command of English and little knowledge of the nature of the cargo. The approach which, in my judgment, properly reflects the master’s duty is that the words used should have a range of meaning which reflects reasonably closely the actual apparent order and condition of the cargo and the extent of any defective condition which he, as a reasonable observant master, considers it to have.
Against this background, the shipowners’ duty is to issue a bill of lading which records the apparent order and condition of the goods according to the reasonable assessment of the master. That is not, as I have indicated, any contractual guarantee of absolute accuracy as to the order and condition of the cargo or its apparent order and condition. There is no basis, in my judgment, for the implication of any such term either on the proper construction of Article III rule 3 or at Common Law. The shipper is taken to know the actual apparent order and condition of his own cargo. What the Hague-Visby Rules require is no more that that the bill of lading in its capacity of a receipt expresses that which is apparent to the master or other agent of the carrier, according to his own reasonable assessment.
In the present case the mate’s receipt was necessarily the basis of the statement as to the order and condition of the goods in the bill of lading and there is therefore no practical reason to distinguish between the duty owed by the shipowners in respect of what the master wrote on the mate’s receipt and that which in consequence was stated in the bills of lading.
No doubt where a master proposes to qualify the statement as to the good order and condition of the cargo in a mate’s receipt or bill of lading it would be sensible for him to warn the shipper’s representative that he proposes to do so. That is a matter of common sense so as to give the opportunity to avoid disputes which may involve delays to the vessel, but in the last resort it is the master’s own judgment which is to be recorded and it is open to him to record it by words which reasonably reflect that judgment.
As to the Claimant’s submission that there is a duty of care upon the carrier through the master or other agent accurately to state the apparent order and condition of the cargo, I am not persuaded that the application of now well-established considerations relevant to the existence of such a duty lead to that conclusion. The starting point is that the relationship between the shipper and the carrier is such that the knowledge of the actual apparent condition of the cargo is possessed by both parties. The purpose of the requirement that the carrier should record in the bill of lading the order and condition as it appears to the master is to enable the shipper to transmit that information by means of the bill to subsequent holders of the bill to enable them to facilitate its functions as a document of title to the goods and as a mode
of assignment of the contract of affreightment. That function is reflected in the requirements of the Code set out in Article III Rule 3. That is an international code which has created an internationally known duty regime to the effect that all holders of bills of lading subject to the Hage Rules or Hague-Visby Rules can be expected to know that, when bills of lading are presented to them, the statements as to the apparent order and condition of the cargo can be relied upon to reflect the reasonable judgment of a reasonably competent and observant master in all the circumstances. There is no reason why, if the master consciously exercises his judgment in the manner which I have desribed, there should be superadded to that obligation a duty of care which would impose upon him any stricter obligation that that. If the master fails to comply with the contractual duty of properly exercising his judgment, the shipper will have his remedy against the carrier for breach of contract. If a stricter duty were to be imposed, there would be a real danger that the master would inevitably be driven to conduct detailed investigations of the cargo as it was loaded and to consult expert advice as to whether and how he should clause the bills of lading and that carriers would often be subjected to a time-consuming exercise which would in any case add little or nothing to what could be expected from the master using his own judgment. This prospect would involve objectionable interference with the speedy movement of cargo and vessels and would at best be likely to offer only marginal advantages in the accurate observation and recording of the order and condition of the cargo.
For these reasons, I consider that, at least where the Hague Rules or Hague Visby Rules govern the bills of lading, the third “test” in Caparo v. Dickman, supra, – that it is fair, just and reasonable to impose a duty of care in all the circumstances is not satisfied.
Nor do I consider that where the Hague Rules or Hague-Visby Rules apply there is any room for a term to be implied in the contract of carriage imposing on the carrier any higher duty than that required under Article III Rule 3. The implication is not necessary for the proper working of the contract of carriage or for the use of the bill of lading as a document of title or as a means of assigning the contract. Similarly, the relationship of bailment being on the terms contained in Article 3, there is no conceptual justification for introducing any higher duty. The issue of a bill of lading recording the apparent order and condition of the goods is purely ancillary to the bailment: it has no bearing on the care of the goods and I see no reason why it should attract the duty of care which rests upon a bailee in consequence of the bailment relationship.
The Actual Apparent Order and Condition of the Cargo
The Master had died before the trial and the Defendants relied on a statement which he signed on 30th January 1998, over two and a half years after the relevant events. He stated that he had obtained a Russian master’s licence in 1968. He had been First Captain of the vessel since 1989 and had previously carried urea cargoes on about three occasions. He described how during the approach voyage from Antwerp to Kotka the crew had spent one day sweeping the holds to clean up after the previous cargo load. They then spent three days pressure hosing followed by washing to remove residues. He described how the SGS surveyor (Mr. Karlsson) on behalf of Meezan and the Euroservice surveyor (Mr. Kamper) on behalf of Agrosin rejected the holds on account of “a very small quantity of coal dust” which they said could be easily removed. He stated that they both told him that the urea to be loaded should be “snow white” in colour. After two days of further washing SGS passed the holds as fit for loading, although both the SGS surveyor and Mr Kamper told him that they were not yet fully clean. He said that he considered that to all intents and purposes the holds were clean and fit to receive the cargo. Any heavy coal residues would be likely to be insignificant.
The master stated that, on 27th April 1995, before loading commenced, he went ashore with the Chief Officer and Captain Hussain of Meezan to inspect the intended cargo in the two warehouses in which it was stored. He said that they could see that it was partially discoloured and contaminated with foreign bodies. He stated that he so informed FIMAG (Agrosin’s agents). All the cargo had been brought from Russia by rail. He inspected about 25 rail wagons which were in the sidings. He could see “various foreign objects” present in the urea in those wagons. He claimed that Captain Hussain and Mr. Kamper agreed that the bills of lading would have to be claused with his assessment of the condition of the cargo.
When it rained at Kotka, as sometimes it did, according to the Master the hatches were immediately closed but sometimes the cargo in the skips alongside was left uncovered as was that on the conveyor used for loading into hold No.6.
On 27th April 1995, at the commencement of loading, the Master said that the Chief Officer informed him that the cargo loaded was “very dirty”. The Master ordered loading to cease, whereupon there were discussions with Captain Hussain, Mr. Smirnov and Mr. Kamper. The loading restarted after two or three hours. The master stated that the cargo was discoloured sporadically by a variety of colours, partly grey, which appeared to be due to dirt, and partly a yellowish colour which the master assumed was due to an impurity in the course of manufacturing. About 30 per cent of the cargo was discoloured to varying degrees.
The Master further stated that he observed various contaminants in the cargo in the warehouses and in the holds, including plastic sheeting, rust from the loading skips or the bulldozer, pieces of rubber hose, small stones which he thought had been scooped up from the warehouse floor by the bulldozers and small black particles which they were unable to identify. The total contaminants were about 0.2 per cent.
The Master stated that although Captain Hussain, Mr. Smirnov and Mr. Kamper knew that he intended to clause the mate’s receipt nobody tried to dissuade him from doing so. However, about three hours before completion of loading Mr. Lugovsky of Acron telephoned him from Novgorod and asked him not to make “a mistake about the cargo condition” and offered to come to Kotka the next day with a “present” for the master if he authorised the issue of clean bills of lading. The master refused this offer.
As to various allegations advanced by Agrosin, the master denied that dry rust scale from the holds contaminated the cargo for prior to loading no loose rust was present. There was only minimal fine coal dust adhering to the side shell and bulkheads which could not have materially affected the cargo. The only residues from previous cargoes which he observed were in No.3 hold and amounted to no more than about 2 kilos. If any pieces of ramneck sealing tape fell into the cargo, there could only have been very small quantities. The contaminants in the cargo originated before loading. They also found a Russian rubber boot and lengths of steel pipe. The discolouration became visible in strata as the cargo was discharged in Beihai.
The Shipowners’ P&I Club instructed Captain Wood, a surveyor, to board the vessel while it was anchored for bunkering off Singapore to inspect the cargo and further to inspect the cargo on the vessel’s arrival and during discharge at Beihai. He gave evidence before me. His investigations off Singapore were necessarily brief and superficial. He was only on board for two to three hours. He looked down into the holds and observed that the surface of the urea appeared to be white. He could see no foreign materials apart from in No.5 hold where he saw the odd black speck due to coal dust and the odd stone. He took composite samples from each hold. He also took some photographs.
At Beihai Captain Wood was present from the day before the commencement of discharge.
In the early stages of discharge he observed, according to his statement, that in the Nos 2, 4 and 5 holds there were small quantities of extraneous materials, such as two portions of damaged polythene bags and a short length of cord. However, the top stow cargo appeared “mainly sound” with “some isolated areas of slightly discoloured urea”. As discharge reached deeper levels of cargo he observed more discolouration. That varied “from tinges of pink, yellow, brown, grey and off-white” and was frequently found in strata in the lower parts of the stow. Variations in the intensity of light led to apparent variations in colour between white and off-white. Layers of apparently sound cargo close to the tank tops became subject to contamination from cargo already contaminated and rainwater which had gathered on the tank tops. There was also contamination in No.6 hold from oil which leaked out of a payloader.
Captain Wood ended his first visit to the vessel on 15th July 1995. He returned during the evening of 24th July. The vessel’s discharge had been interrupted while she was off the berth from 8th to 13th July. When he returned he was shown photographs taken during discharge of No.2, 3, 4 and 6 holds during his absence. They showed discolouration, particularly No.4, of a “yellowish” colour, but not, as the master claimed, dark yellow. There were also shown a small number of “foreign particles”, also visible in samples that had been taken.
Captain Wood found a certain quantity of off-white cargo and in No.5 hold he noted “greyish” cargo intermixed with apparently sound cargo at or near the tank top. There were also isolated areas of brown stained cargo in No.3 and No.4 holds which he considered to be due to remnants of a previous cargo of oats that had dropped from the upper structure of the holds. Although the master suspended discharge of No.2 hold on 25th July alleging that the cargo was “dark yellow, Captain Wood, who arrived on board later that day, saw nothing answering that description. What he saw was off-white.
His view of the extent of the contamination and extraneous materials was considerably less than the estimate of “not more than 5%” put forward by the Master and Chief Officer. He considered that they probably originated from sweeping remainings in the Russian railway wagons. In cross-examination he said that the foreign matter amounted to “a few kilos”. He accepted that there had been cross-contamination of sound cargo by coal or rain-contaminated cargo. In his statement he expressed the view that the majority of the cargo was white in colour and that no more than 40% could be described as “discoloured”, of which the vast majority was “off-white” and the greyish or yellowish discolouration affected less than 7% of the total cargo. In cross-examination he accepted that this was a broad estimate which was difficult to quantify. It was difficult to say how much was yellowish and how much greyish. He thought the overall discolouration might be as low as 5% or about 6%. Most of the discoloured cargo was in the lower part of the stow where most of the rain and coal dust would be found.
I interpose that I am not able to put great weight on Captain Wood’s overall estimate of the extent of discolouration. He was not present throughout discharge. He had to rely on the master’s photographs for the days when he was not present. He made no attempt to do a daily estimate of the discoloured proportion of the cargo discharged that day. Indeed, discolouration could only be observed by viewing the stow as it was progressively exposed by excavation in the course of discharge. There must be great doubt as to any overall percentage estimate. Nevertheless, although Captain Wood had experience of only one previous urea cargo, his experience as a surveyor of bulk cargoes would give him some basis, if only somewhat tenuous, for getting via the stowage factor from his visual observation to a broad brush quantitive assessment. Further, Captain Wood first saw the cargo off Singapore. His observations were therefore not of the appearance of the cargo as it was loaded, but as it appeared after it had been on board for over 4 weeks and eventually as it appeared when the stow was excavated at Beihai.
The Chief Officer gave evidence. His evidence was remarkable, to say the least. He gave two statements: one to the defendant’s solicitors based on an interview conducted on board the vessel at Le Havre by Mr. Jonathan Green, a solicitor in Richards Butler, on 30th January 1998, over two and a half years after the loading of the vessel at Kotka, but not signed until 30th August 2000, and a second statement given to Mr. Shepherd of Ince & Co, the claimant’s solicitors, on 3rd and 4th May 2001 in Istanbul and signed on 16th May 2001. In the second statement the Chief Officer repudiated much of his first statement, particularly those parts relevant to the appearance of the cargo at the time of loading.
In his first statement the Chief Officer stated inter alia as follows:
(i) The holds were thoroughly cleaned before loading, removing all the rust scale that they found.
(ii) Mr. Smirnov told him before loading commenced that the cargo should be “as white as Arctic snow”. The books they had on board containing information as to the carriage of urea contained no information as to the pre-shipment condition of the cargo. Mr. Smirnov also told him that the urea had been at Kotka for over a year.
(iii) The Russian railway wagons in which the urea had been carried to Finland were very dirty. There were lots of foreign bodies in the cargo, such as glass, wood, overalls, rubber winter shoes and plastic bottles. He and other members of the crew helped the harbour master pick out some of this material. In the warehouse where cargo was stored the light was not good but it could be seen that the cargo was not white.
(iv) When it rained the currently loading hatch covers were closed but the cargo alongside the vessel was left uncovered. The skips were very dirty.
(v) It was difficult to say how much of the cargo was contaminated. However, he estimated that between 20% and 40% was discoloured, either yellow or red, some of the urea having black particles which he believed came from the skips. All the holds contained discoloured cargo which was found in layers of, for example, one metre of sound cargo then 20 centimetric tons of cargo discoloured yellow, red or brown.
(vi) After the vessel had arrived at Beihai someone whom he had never seen before approached him while he was ashore and offered him money in return for making a statement that the cargo had been damaged during the voyage.
In his second statement the Chief Officer said as follows
(i) It was impossible to clean the holds sufficiently to deal with oily coal residues using just seawater. They needed detergent and they had none on board. The master rejected his suggestion that they hire shore labour at Kotka to wash the holds with detergent, saying that this would cost money and anger the owners.
(ii) Between the time when Mr. Karlsson of SGS first inspected the holds at 14.30 on 25th April, reporting that No.s 1,2,3,5 and 6 holds had a small amount of dust and some rust, “minor defects easily mended” and the time when, later that day at 18.00 when he accepted the holds as fit for loading no further cleaning was carried out and he did not believe that Mr. Karlsson had carried out any further inspection.
(iii) During the evening of 26th April he was instructed by the Master that loading was to commence at 0600 the next day and that he, the Chief Officer, was “to find some reason (he didn’t say what reason) to stop the loading as soon as it had started”. Therefore, soon after loading commenced, when nobody was looking, the Chief Officer threw various items of ship’s garbage into the holds, such as plastic bottles and pieces of rubber, and then ordered the loading to stop. The Master then looked at the cargo and said it was discoloured. This was untrue. The Master was clearly angry that the holds had been rejected by the other surveyor. He instructed the Chief Officer to ask Mr. Kamper, who was staying on board, to look at the cargo. He was then shown the rubbish on the surface of the stow.
(iv) Later that day the Chief Officer helped to remove the rubbish, but a few hours later he put more garbage into the cargo. Later that night, after loading had ceased for the day, he put yet more rubbish into the holds, including some oily overalls.
(v) After loading had commenced he visited one of the warehouses in which the urea to be loaded was stored. He found the urea without contamination of the kind described in his first statement. He saw no discolouration apart from a few black spots on top of the stow due to small pieces of rust and some coal dust which had fallen from the underside of the hatch covers.
(vi) The skips were perfectly clean. If there was urea in a skip alongside when it started to rain and the urea got wet, which happened on about two occasions, it was taken away to a different area and not loaded on board.
(vii) Mr. Smirnov had never said to him that the urea had been at Kotka for over a year.
(viii) In the course of the voyage, rainwater, but not seawater, got into all the holds because the tape with which they had sealed the hatch covers had worked loose. The rain water caused “vertical channels” in the stow. The master ordered him to instruct the crew to spread urea so as to cover up the channels so as to hide the fact that the hatches had been leaking.
The Chief Officer’s second statement contains a detailed account of how he came to sign his first statement. He confirmed that account before me. In outline, he was persuaded by the master to be interviewed at Le Havre in 1998 and coached as to what he should tell Mr. Green. He was told that both he and the Master would lose their jobs if he did not tell the solicitor what the Master required him to. He reluctantly agreed to obey the Master and, as far as possible, gave Green yes or no answers. He said in cross-examination that because of his limited understanding of English, he had only been able to understand 15% – 20% of what Mr. Green had asked him. No interpreter was present.
Three or four months later the Master asked him to attend another meeting with Mr Green in Istanbul, but he refused to. By that time he did not yet have a Georgian passport. In 1999 he lost his job with the defendants and by March 2000 was working for Acromarit as Chief Officer of one of their vessels. In August 2000 he was asked by a Mr. Zalenski, manager of Acromarit’s Tibelisi office to call in to collect a message. When he arrived he was asked by Mr. Zalenski to sign a statement. It was in English. He had never previously been shown it. He only had a limited knowledge of written English and when he looked through it he could not fully understand it. Mr. Zalenski told him that, if he did not sign it, it might cause him problems with others in the shipping industry and he might be black-listed. He also told the Chief Officer that the matter involving the vessel was “all over” and that he would be signing the statement just for the record. He then signed the statement. He was given a copy. He took it home and showed it to his mother who was a teacher of English Literature and who translated it for him. He stated that the translation made him very angry but, although he knew it was untrue, he took no action because he thought it was just for the record or, as he said in evidence, for “the protocol”. He had not been told that there was an on-going claim in London. When in February 2001 he received another call from Mr. Zalenski saying that there were some further papers for him to sign in Tibilisi, he refused to do so and when the papers were received, he ignored them.
In March 2001 there was a telephone call to his home from Mr. Green. The Chief Officer told his mother to say he was out.
He then decided he wanted to “put right the untruths” in his first statement and he then telephoned the Moscow office of Agrosin and offered to provide a statement to their lawyers. He explained in cross-examination that he wanted the truth to come out. He was very upset that he had been deceived into signing the first statement. It was “the first sin (he) had committed”. In the event, he explained his position to a Mr. Yamachenka of Agrosin. In all he telephoned Agrosin three times and insisted that he should speak to someone about his statement. Eventually a meeting was arranged in Istanbul with Mr. Shepherd of Ince & Co. It lasted a whole day. He travelled to Istanbul from Georgia by bus. He made his own travel arrangements and paid the fare and the cost of food in Istanbul out of his own pocket. He did not stay in a hotel, but with a woman friend. His second statement was translated into Russian the following day and he read and signed it. The whole exercise was his own idea and until after he had signed the second statement nobody had suggested that he would receive any payment for his statement or for the journey. Some time afterwards he was informed by Mr. Yamachenka by telephone that US$3000 had been transferred to a credit in his name at Western Union, where he did not have an account, but where he could withdraw the money.
In the course of his cross-examination it became clear that what had caused him to go to such exceptional lengths to give a second statement was that paragraph 25 of his first statement which gave an account of his having been accosted in Beihai and offered a bribe was totally untrue and had particularly angered him because he felt he had been deceived into signing the statement containing that passage.
A witness statement from Mr. Green, the solicitor who took the first statement was put in evidence. He produced an interview note which includes in its body the words : “In town someone wanted him to say that cargo had been damaged during voyage. Said he would offer money. Refused. Invited man on board: didn’t come on board. Never seen him before. Was not on board at all. Spoke English well. May be from Singapore.”
Having heard and seen the Chief Officer subjected to a very searching cross-examination by Mr. Hofmeyr for over a day, I have reached the following conclusions about his evidence
(i) His account of the circumstances in which he gave his first statement is substantially true. The master did indeed coach him.
(ii) His account of the circumstances in which he gave the second statement is also substantially true. I find that it was his own idea to contact Agrosin and that he did not receive any inducement to make that statement. However, I am left in some doubt as to his real motive, particularly having regard to the fact that he need never have given oral evidence at the trial had he refused to do so. Indeed, I do not accept that he did not tell Mr. Green that he had been offered money by someone in Beihai. However, I do not believe that such an event ever occurred. It is likely to have been a further invention, perhaps of the Master.
(iii) I accept his evidence of how he threw rubbish into the cargo.
(iv) I accept his evidence that at the master’s request he exaggerated the extent of discolouration of the cargo.
(v) Given the unsatisfactory nature of his evidence about what he told Mr Green about being offered money in Beihai and the considerable amount of time which had passed between the time of the voyage and the time of his second statement, only a limited amount of weight should be given to his recollection of the precise appearance of the cargo on board and in the warehouse at Kotka.
Apart from the Chief Officer, the only witness to give evidence before me who inspected the cargo at Kotka was Mr. Kamper of Euroservice on behalf of Agrosin. He was on board the vessel throughout the loading operation. His evidence may be summarised as follows
(i) He was a very experienced surveyor of urea cargoes, having previously inspected about 20 such cargoes.
(ii) At no time prior to commencement of loading were the holds in a fit state to receive the cargo. Even after repeated washing there were still oily residues from the previous coal cargo which could not be entirely removed without detergent and which would be likely to stain the urea.
(iii) The cargo was slightly agglomerated – to the extent of 0.5% to 1% but very little of the cargo was permanently caked.
(iv) He visited the warehouse prior to loading. The cargo looked to be in proper condition. About 0.1% appeared to be discoloured, being slightly yellowish or beige in appearance. However, the surface of the urea stored in the warehouse was very heavily contaminated with various fragments and dirty water which was condensing on the scaffolding above the cargo.
(v) As the cargo was loaded, the visible extent of discolouring varied up to 0.2%.
(vi) There was some visible contamination of the cargo as loaded. There were black fragments, from the trucks, rust, oily lumps caused by motor vehicles, small stones or lumps of earth, pieces of paper, foil and rubber, but these were “of a very minor nature” amounting to just a few pieces in the whole cargo, probably originating in the warehouses.
(vii) In holds 1, 3 and 4 the surface of the cargo was somewhat dirty due to the use of trimming vehicles in the holds, but this was “of no practical significance.”
(viii) During the opening and closing of hatches in the course of loading small quantities of coal dust fell on to the surface of the stow.
(ix) He did consider that the observed discolouration affected the quality of the cargo. The cargo was in good condition overall. He did not get involved in the dispute between the Master and Acron as to what should be written on the mate’s receipt. He was not made aware of the final form of the documents. He denied the statement in the report of Captain Hussain that on 3rd May 1995, at a meeting attended by Mr. Karlsson of SGS on behalf of the ship, the Master and Captain Hussain, that he agreed to the description of the cargo which was inserted in the mate’s receipt. He explained that these words gave the misleading impression that the whole cargo was discoloured. He considered that the cargo did not deserve any such remarks as it was in good condition overall.
(x) He considered that the small amount of discoloration that he observed was quite normal for urea cargoes.
(xi) He expressed the view based on his daily conversations with the Master that
“he was always going to issue some form of protest as soon as loading commenced because of the difficulties he had experienced in persuading Mr Smirnov and I that the holds were fit for the commencement of loading.”
Having observed Mr. Kamper under cross-examination for several hours, I am satisfied that he was a witness of truth, doing his best to help the court. Indeed, I am confident that his recollection of the appearance of the cargo, as he perceived it, was reasonably accurate.
Mr. Smirnov, the surveyor from Oy Finmorservices appointed on behalf of Acron, signed a brief witness statement on 4th July 2000. He was present during the loading operation until 30th April. He was then replaced by Mr. Bogaevskiy who signed a short statement on the same date.
Mr. Smirnov had attended five shipments of urea prior to that on this vessel and by the time he gave his statement he had attended the loading of about 30 such cargoes. He stated that the cargo was in no different condition from any other urea cargo he had seen. He saw no plastic, rubber or stones. There was some loose rust and remnants of the previous coal cargo. A very small proportion (about 0.1%) of the cargo had at slight shading. Such shading was quite normal. Although urea could pick up discoloration by contact with dirty surfaces, for example railway wagons, small quantities of urea could be coloured yellow, beige, grey or rose due to the different density of application of anti-caking compound applied during the production process.
Mr. Bogaevskiy also stated that the cargo was in apparent good order and condition and in his experience completely normal.
Both Mr. Smirnov and Mr. Bogaevskiy expressly denied that either of them had received complaints from the master during loading that the cargo was discoloured. They particularly challenged log book entries for 1200 on 27th April, 1200 on 28th and 29th April and 2000 on 29th April: at no time did the master present a letter of protest. This reflects the contents of a letter of protest which Smirnov and Bogaevskiy signed on 4th July 1995 in which they described as “fantasy” the Master’s declaration that he requested them to provide him with a certificate of quality of the cargo. This letter of protest also states:
“During the time of inspection neither the master nor the ship’s agent claimed on bad quality of the cargo. Such behaviour of the master can be considered as insincere and shows his desire to distort the facts and to turn this situation to his benefit.
We certify the cargo was good quality. And we dare to think that this fact made the master keep silence during loading and mention about it only on completion of loading.”
Mr. Heikki Jaaskelainen was General Manager of Steveco Oy at Kotka. They were port loading agents for Acron who in the course of 1994 had shipped 69, 579.80 metric tons of urea through Kotka and who in 1995 shipped 312, 419.91 metric tons. From April 1994 to March 1995 there had been 8 shipments totalling about 167,000 metric tons. There were 6 further shipments of urea from Acron in 1995, totalling about 180,000 metric tons. He stated that, although he did not inspect the cargo in this vessel, it was not unusual for a very small proportion of a urea cargo to be discoloured. Bulk urea could be discoloured by contact with other substances or by the production process. He had explained to the master that it was not unusual for 0.1% to 0.2% to be discoloured but this had no impact on its quality. He stated:
“However, the Master was clearly in no mood to listen to what I had to say and was obviously determined that he was not going to sign the clean mate’s receipt or authorise the issuing of clean bills of lading.”
Significantly he also stated that no other master or owners had refused to issue clean bills of lading for Acron urea cargoes shipped at Kotka. However his evidence does not indicate whether such bills of lading also described the urea as coloured white.
In the light of Mr. Kamper’s evidence I reject Captain Hussain’s report to the extent that it suggests that Mr. Kamper agreed that the Master’s proposed clausing of the mate’s receipt was appropriate.
Both parties also relied on expert evidence.
The claimants relied on the evidence of Mr. Peeters. Unfortunately, after having prepared his report and a supplementary expert’s report in response to the report of the defendant’s expert, Mr. Thompson, a severe post-operative medical condition prevented him from giving oral evidence. It has therefore not been possible to test his evidence in cross-examination.
He had extensive experience of conducting surveys of bulk cargoes, including urea. In his experience it was not unusual for small proportions of the cargo to become discoloured or to have small amounts of foreign material mixed with them. Except in cases where the urea is loaded direct from the producing plant, such discoloration is “almost inevitable” if there is any amount of transportation/handling involved prior to loading. In order to avoid solid contaminants getting into the cargo it was usual to discharge through a screen. Having investigated photographs of the cargo, his view was that its condition did not correspond with the log book entries which suggested that nearly all the cargo was discoloured: no extreme discolouration was shown. He was inclined to the view that the minor discolouration shown in the photographs was likely to have been caused by contact with the warehouse floor or with one or two railway wagons.
He considered that the photographs showed a cargo in good order and condition. It showed a typical but insignificant degree of contamination. In his experience of urea cargoes where there were similar small levels of discolouration no master had ever sought to clause the bill of lading. He observed that, if all masters took the same view as the master in this case, virtually all bills of lading in respect of urea not loaded direct from the producing factory would have to be claused.
Having had a meeting with the defendant’s expert, Mr. Thompson, he made the following observations.
He did not agree that contamination by foreign materials was in the order of 0.04% or that discolouration was in the order of 3% – 5%.
He criticised Mr. Thompson’s methodology for calculating the percentage of foreign matter by using photographs taken at random over 6 holds with about 35,000 tons of cargo. These photographs could not be representative of the whole. The source of the black spots could be coal dust. Although photographs of the cargo after loading and certainly at the time of discharge were not a reliable indicator of the condition before loading, what the photographs showed was a normal picture of contamination by reason of unclean holds. Remnants of the previous coal cargo were shown by the video made at discharge to have intermingled with the urea. It was clearly unreliable to ascertain the percentages of the cargo consisting of dark objects.
He did not agree with Mr. Thompson’s view that the relatively high proportion of dark objects found during discharge to be concentrated towards the walls of the hold could result from segregation. He considered that they were more likely due to previous coal cargo residues. Whereas Mr. Thompson calculated from what could be inferred from the contemporary letters of protest that there might realistically be a 0.1mm layer of coal dust throughout the holds which would be equivalent to 1 metric ton of coal, Mr. Peeters considered that 12 m.t. throughout the holds might well be a possibility, that is 2 mt per hold. Nor did he agree with Mr. Thompson’s estimate of 0.04% as the percentage of black spots in the cargo. He said that only a surveyor on the spot could usefully estimate this. The photographs suggested the proportion of such foreign objects was negligible and not a reason for clausing the mate’s receipt. In any event the unclean condition of the holds contributed substantially to the presence of foreign objects photographed in the course of discharge.
The colour of urea normally varied through various shades of white due to the position and intensity of the light.
Grey coloured bands in the stow were always seen at discharge of urea cargoes. Further discolouration could be caused by dirty rainwater falling from hatch covers during opening and closing.
Mr. Peeters criticised Mr. Thompson’s attempt to calculate the proportion of discoloured cargo prior to loading from the photographs taken at discharge. It was unclear whether grey bands were due to intrinsic discolouration or differences in the light. Further he challenged Mr. Thompson’s attempt to derive from the video made at the discharge port an assessment of discolouration prior to loading when the video taken at Kotka showed none. The discolouration illustrated by the photographs taken at Beihai was in his opinion mainly caused by the unclean condition of the holds.
He drew a distinction between the appearance of product which Mr. Thompson, as a producer, would regard as an unacceptable output from his plant and the typical appearance of a cargo transported to the loading port by trucks or railway wagons and not such as to justify clausing the mate’s receipt or bills of lading. He considered that in clausing the mate’s receipt the master did not act reasonably. If he were in doubt, he should have taken advice from the Owners’ P & I Club.
Mr. D. C. Thompson was called as an expert by the defendants. He had spent the whole of his career with ICI, concerned with the manufacture of fertilizers, including prilled urea. For 12 years he had been responsible for the inspection of vessels for cleanliness prior to loading and was authorized to pass vessels as suitable for loading. ICI’s exports were mainly of industrial grade urea but included some of fertilizer grade. Industrial grade required a specification for cleanliness and product quality, which was higher than that of fertilizer grade. The major use of urea was as a fertilizer. For that purpose the typical specification would in his experience not include any reference to colour, whereas, when required for industrial use, colour would be specified. There were features of the specification as expressed in the bills of lading which, in spite of the reference to “colour white” suggested that the urea in this case was nevertheless purchased for use as a fertilizer. There was no standard method of testing for compliance with the colour white requirement.
By examination of numerous photographs taken at Kotka and Beihai Mr. Thompson formed the view expressed in his report that the quantity of foreign materials in the cargo at the loading port after loading to have been of the order of magnitude of 0.04% and of coal dust to have been of a similar order of magnitude. Coal at any level of inclusion would not be harmful for fertilizer use. Larger foreign objects could, however, block irrigation system piping or spreaders.
As to discolouration, the urea could not be stained dark yellow from the production process unless an excessive amount of very dark yellow anti-caking additive had been introduced. However, he was unaware of any very dark yellow anti-caking additives in commercial use. On the basis of loading port and discharging port photographs and videos, as well as samples, 3% to 5% of the whole cargo was discoloured prior to discharge. The stratification of discoloured material in the holds suggested that discolouration originated from staining by contact with, most probably, railway wagons, or possibly trucks or ships and not from the manufacturing process. Provided that the discolourant itself was harmless, there would be no serious consequences if the urea were to be used as a fertilizer. The cargo was, however, not in apparent good order and condition when it was loaded on board.
In the course of cross-examination Mr. Thompson considered that the grey coloured strata found at Kotka would not have been due to rainwater mixed with coal dust from the vessel, particularly having regard to the uniform appearance of the stripes and further the coal dust remaining on the walls of the holds would not have caused these strata.
I am bound to say that from this very substantial body of factual and expert evidence it is not altogether easy to conclude with precision the exact appearance of the order and condition of the cargo as it was being loaded at Kotka or the extent to which it might have appeared not to be in good order and condition. However, doing the best one can with the whole of the evidence, including the videos and photographs taken both at Kotka and Beihai, and also Captain Wood’s evidence of what he saw off Singapore and Mr. Low’s evidence of what he observed at Beihai (which I have not set out) I have reached the following conclusions.
(i) The urea included, prior to loading, foreign matter, consisting amongst other things of soil, dirt, broken glass, rust, oil and rubbish. It also included some dark particles which had dropped in to it from the warehouse structures. The overall amount of these contaminants did not exceed “a few kilos” (Captain Wood) and was, to use Mr. Kamper’s words, “of a very minor nature”, but it is very difficult to quantify as a proportion of the whole cargo, even for an experienced surveyor, particularly having regard to the very small proportion involved. In this connection I attach somewhat greater weight to the evidence of Mr. Kamper and Captain Wood, both of whom actually observed the cargo (Capt Wood off Cape Town and at Beihai), than that of the experts working from photographs and video stills. At a meeting held on 27th June 1995 the master appears to have pointed out that the cargo did not contain more than 0.2% impurities. However, about 20 mt would seem to be significantly higher than that observed by Mr. Kamper and Captain Wood. It is also substantially higher than the estimate of 0.04% (about 12 mt) put forward by Mr. Thompson. On this evidence I find that pre-shipment contaminants amounted to 0.01% (about 3 metric tons) of the cargo overall.
(ii) The cargo was discoloured yellowish, beige and pink, (as distinct from grey or off-white) prior to loading. There was also a lesser amount stained grey.
(iii) The rest of the cargo was for the most part bright white, but part of it also appeared to be shady or off-white.
(iv) It would be very difficult for Mr. Kamper to estimate the overall proportion of discoloured cargo during the course of loading. He would have to relate continuously to the stowage factor a fluctuating proportion in volumes of cargo increasing as loading progressed. It would also be difficult for those, such as Captain Wood, who observed the discoloured state as the stow was progressively excavated in the course of discharge to calculate the overall proportion of discoloured cargo attributable to pre-loading discolouration.
(v) Identification of pre-shipment discolouration or its quantification from the appearance of the cargo at the discharging port presents considerable problems due to the fact that there is a real likelihood that additional discolouration took place after the cargo had been placed on board. This further discolouration is likely to have been caused by (a) rain water finding its way into the holds because the hatch covers were not closed immediately when rain began in the course of loading and because, during the voyage and at Kotka and Beihai, when the hatch covers were closed, rain or seawater could find its way past the hatch cover seals and the rainwater so admitted would then mix with coal residues and run on to and stain the cargo grey; (b) some discolouration could have been caused by morning dew forming on the skips and then making rust or dirt stains on the stow (c) discharging operations at Beihai which involved bulldozers being driven over the stow and staining the urea with oil and dirt and (d) staining by contact with residues from a previous grain cargo. That these subsequent causes contributed to a significant extent to the appearance of the stow at Beihai is further supported by the fact that much of the discolouration was found to be located low down in the stow, close to the tank top.
(vi) Although Captain Wood estimated that 5% to 7% of the cargo overall was discoloured yellowish or grey, his basis of quantification was shown in the course of cross-examination to be extremely inexact and not to have distinguished yellowish from grey discolouration or to have distinguished grey contamination which occurred after loading from that which might already have occurred.
(vii) In as much as the expert evidence on discolouration necessarily relied exclusively on what was shown by the many photographs, there were difficult problems of interpretation which involved particularly distinguishing between parts of the cargo which were discoloured greyish and parts that were in shadows or at least in less strong light. Similar problems of identifying cargo as positively discoloured grey or merely in shadow or off white would on the evidence also arise when the cargo was observed during the course of loading or, indeed, at the port of discharge.
(viii) Given these evidential problems I conclude that Mr. Kamper’s evidence presents a somewhat more reliable assessment of the nature and content of pre-loading discolouration than does that of Captain Wood. The opportunities, which probably occurred, for further discolouration on board the vessel, particularly in the course of discharge, in my judgment render excessive Captain Wood’s estimate of 5% to 7% of greyish or yellowish contamination. Mr. Kamper’s estimate of 0.1% to 0.2% yellow/beige discolouration did not include grey, as distinct from off-white, discolouration. There is, in my judgment no reliable evidence of the extent of greyish (as distinct from off-white) discolouration at loading. Certainly the photographs and video show little or none. I have also taken into account the difficulties of quantification which would have confronted Mr. Kamper in the course of loading. In my judgment, on the whole of the evidence, including what was observed at Beihai, to the extent to which weight can be attached to it as an indicator of the pre-loading condition of the cargo, the total overall yellow, beige, pink and grey discolouration at loading would be about 1%. In arriving at that figure I have not included cargo that was off-white as distinct from grey. I shall explain the exclusion of this part of the cargo in what follows. I have concluded that Mr. Kamper’s figure is somewhat low by reason of the difficulties of assessment of quantification which he would have had and having regard to the general extent of yellow cargo shown in the photographs as interpreted by Mr. Thompson.
Did the Actual pre-loading Condition of the Cargo justify clausing the Mate’s Receipt and Bills of Lading?
As to contaminants I have no hesitation in concluding that the level of contamination was so slight that no reasonably observant master would have seen fit to refer to it in the mate’s receipts. In reaching this conclusion I have had regard to the evidence of all those witnesses including the Chief Officer to whom I have referred, and in particular to the evidence of Mr. Kamper, Mr. Smirnov and Mr. Bogaevskiy as to their experience with other shipments of urea to which I have already referred.
As to discolouration, the wording inserted in the mate’s receipt and subsequently the bill of lading is quite unqualified as to the extent of discolouration. There is, however, on any view, no doubt that given the extent to which the cargo was discoloured yellow, beige, pink and grey, a reasonable master might well have thought it appropriate to state such discolouration in the mate’s receipt. He would have been entitled to conclude that the cargo was not, or might well not be, in good order and condition. In reaching this conclusion he would also be entitled to take account of the fact that, with a bulk cargo which the shippers described as “white”, if 1% of the cargo out-turned discoloured, the shipowners would be likely to be confronted by a claim by receivers under the contract of carriage for permitting the cargo to be damaged in the course of the voyage. However, I do not consider that, given that the mate’s receipt description of the cargo was “white”, any reasonable master would consider it appropriate to clause the mate’s receipts or bills of lading merely because the cargo was not all bright white. To conclude that a cargo was not in good order and condition merely because it was partially off-white would, in my judgment, not be open to any reasonable master. With the exception of Mr Thompson whose experience of urea was confined to the output of a manufacturing plant no evidence in this trial has supported such an extreme proposition. Such a conclusion would be unreasonable. There would on the evidence simply be no reasonable basis for treating cargo that was off-white as otherwise than in apparent good order and condition whatever its ultimate use. However, it is to be observed that, although the notation on the mate’s receipt refers to the cargo simply as “discoloured”, there is no indication that this description relates to only about 1% of the whole. I am bound to say that the description is therefore wholly misleading and does not properly state on the basis of what observation it is said that the cargo was not in good order and condition. Where such a minute percentage of discoloured cargo was involved, any reasonable observant master would, in my judgment, have been bound to add some qualification to the description so as to avoid creating the obviously false impression that at least a substantial part of the cargo was discoloured. Words which indicated that only a small proportion of the cargo was likely to be affected would be essential. Indeed, even putting it on the basis of the defendants’ analysis of the master’s duty, I do not consider that any master acting in the ordinary course could honestly have believed this to be an accurate description of those characteristics of the cargo which suggested that it was or might not be in apparent good order and condition.
I therefore conclude that, although the Master was entitled to clause the mate’s receipt to refer to the fact that a small proportion of the cargo was discoloured, he was not entitled to use words which conveyed the meaning that the whole or a substantial part of the cargo was thus affected. Nor was he entitled to clause the mate’s receipt or bills of lading to suggest that the presence of a miniscule quantity of contaminants rendered the cargo otherwise than in good order and condition. The defendants therefore failed to issue to the shippers a bill of lading which contained a statement as to the apparent order and condition of the urea which a reasonably observant master could properly have made. The defendants were thereby in breach of their contractual duty arising under Article III rule 3 of the Hague Visby Rules.
Even if the extent of the discolouration fell within the range suggested by Captain Wood’s evidence, namely 5% to 7% with the highest level of confidence around 6% which included greyish as well as yellowish and beige discolouration, I should have reached the same conclusion, namely that to qualify the description of apparent good order and condition simply by describing the urea as discoloured without qualification as to the extremely small extent of apparent discolouration was to insert an untrue statement as to the apparent order and condition which no reasonably observant master would have inserted.
Title to Sue
Section 2 of the Carriage of Goods by Sea Act 1992 provides as follows:
“Rights under shipping documents
2(1) Subject to the following provisions of this section, a person who becomes –
(a) the lawful holder of a bill of lading;
(b) the person who (without being an original party to the contract of carrige) is the person to whom delivery of the goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or
(c) the person to whom delivery of the goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order;
shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.
(2) Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill –
(a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right of possession ceased to attach to possession of the bill; or
(b) as a result of the rejection to that person by another person of goods or documents delivered to the other person in pursuance of any such arrangements.”
It is submitted on behalf of the claimants inter alia as follows.
(i) Agrosin were described as shippers in the bills of lading whereby the shipowners acknowledged that they were the shippers.
(ii) The purchase contract under which Agrosin acquired the urea specified payment against a bill of lading or mate’s receipt issued to the order of Agrosin.
(iii) The rights to sue under the bills of lading were not transferred from Agrosin to Guangxi Publications at any time, section 2(2) of the Carriage of Goods by sea Act 1992, notwithstanding, because:
(a) if Guangxi ever became lawful holders of the bills of lading, they did so at a time when possession of the bills no longer gave rise to any right of possession of the cargo as against the shipowners; and
(b) the proviso in section 2(2)(a) did not apply because Guangxi had not become the holder of the bill by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when the right of possession of the cargo ceased to attach to the possession of the bills of lading.
(iv) As to (iii), the contractual or other arrangements pursuant to which Guangxi obtained the bills (the agreement of 8 July 1995) was made at a time when the right to possession of the cargo had already ceased to attach to the bills.
(v) It was not open to the Defendants to argue that Agrosin had transferred its right of suit to Guangxi. The point was not relied upon until the trial itself and was not pleaded until service of the Re-Amended Points of Defence on 3 August 2001. Until then the only case advanced on title to sue was that Acron and not Agrosin were the only shippers. Accordingly, the Defendants had waived their right to rely on this submission.
(vi) Alternatively, if Agrosin had been divested of its rights of suit under the bills of lading due to having transferred the bills of lading to Guangxi in the course of negotiation of the Bank of China letter of credit, Guangxi was entitled to recover damages in respect of the breach of the bill of lading contract as trustee for Agrosin.
It is submitted on behalf of the defendant shipowners as follows:
(i) When the bills of lading were sent to Guangxi Publications on 21 June or (when the Bank of China received them) on 26 June or on 21 July (when they were accepted by the Bank of China pursuant to the agreement made on about 8 July for payment of a reduced price against claused bills) they were still documents of title as against the defendants and did not cease to be such until there had been complete delivery of possession of the cargo to the person entitled to receive it.
(ii) Completion of delivery was not effected until 23 August 1995 which was long after the date on which Guangxi became holders of the bills of lading.
(iii) By reason of the operation of section 2(2) of the 1992 Carriage of Goods by Sea Act, all rights of suit under the contract of carriage passed to Guangxi Publications.
(iv) Even if the bills of lading did not carry with them the right to possession when they were transferred to Guangxi Publications, rights of suit were still transferred to Guangxi under proviso (a) to section 2(2) of the 1992 Act.
(v) The contract for the sale by Agrosin and the purchase of the cargo by Guangxi was made in April 1995. In reality those were the two parties to the sale contract and Grand Prestige was simply an intermediary, as evidenced by Agrosin having named Guangxi as buyer in its invoices and Guangxi having opened the letter of credit for Agrosin as beneficiary. The 8 July 1995 agreement between those three parties did no more than vary the contract price: it did not create a new contract, rather a variation of the pre-existing contract. The Bank of China held the bills of lading throughout the period from about 26 June to 21 July when it confirmed acceptance of them. Therefore the bills were transferred to the Bank by a “transaction” which took place in June/July 1995 and the “contractual or other arrangements” which gave rise to that transaction were those agreed in April 1995.
(vi) Guangxi Publications cannot claim under section 2(4) of the 1992 because they have abandoned their claim in the action. They had put forward no basis of claim in the pleadings until the service of a Reply on 3 August 2001 in the course of the trial. In particular until then they advanced no positive case in response to the Points of Defence served on 8 March 1996 which expressly pleaded that Guangxi had abandoned its claim. In fact the entitlement of Guangxi to sue was first raised in the Claimants’ Supplementary Skeleton on Title to Sue dated 4 June 2001.
(vii) Alternatively Guangxi’s claim was now time-barred under Act III rule 6 of the Hague-Visby Rules.
(viii) Alternatively Guangxi had adduced no evidence to prove that they had retained the bills of lading and not transferred them to another holder, thereby divesting themselves of title to sue.
Analysis
There is, in my judgment, no doubt at all that, in spite of the numerous references in the contemporary documents, including the mate’s receipt, to Acron as the shippers and to Agrosin as consignees, the effect of the agreement entered into by Agrosin, Baff, Meezan and the shipowners on about 14 June 1995 was that the contract of affreightment evidenced by the bills of lading was to be deemed to be one made between Agrosin as shipper and the shipowners as carrier. To this conclusion the terms of the sale and purchase contracts binding on Agrosin (FOB and C and F) and the extremely erudite exposition of authority as to the identity as shipper of a party to such contracts which both parties embarked upon proved to be irrelevant. I find that there was an agreement between Agrosin as shipper and the defendants as shipowners for the carriage of the cargo from Kotka to Beihai. The express terms of the bills of lading, in particular the words “Place and date of issue: London UK, as at Kotka Finland Port 4/5/95”, are clear evidence that the contract was intended to have effect as from the commencement of loading at Kotka just as if the bills had been issued at completion of loading showing Agrosin as shippers. Further, although the bills were to be claused conformably with the mate’s receipt, the parties to that contract were to be the Shipowners and Agrosin and not Acron, as stated in the mate’s receipt.
Secondly, there was at no time before June 1995 an agreement between Agrosin, Grand Prestige and Guangxi Publications to discharge the two contracts of sale and purchase to which Grand Prestige was a party and to replace them with a single sale and purchase contract between Agrosin and Guangxi. None of the communications between the parties support that proposition. Mr Loukianov’s statement states:
“In order to simplify matters, we agreed with Grand Prestige that they would arrange for Guangxi Publications to issue a letter of credit directly to us naming Agrosin as beneficiary, and that we would account to Grand Prestige for the price difference between our respective sale contracts. Accordingly, on 24 May 1995, Bank of China, Singapore branch advised to us of two letters of credit issued in our favour; one covering 15.319.98 metric tons and the other 18,000 metric tons.”
This type of documentary credit cut-through arrangement is in my experience quite commonplace in cases where there is a contractual chain in respect of the same parcel of goods. It does not normally involve discharge of the intervening contracts or of the intermediate party. It is merely an arrangement to save duplication of the presentation of documents under documentary credits. Interestingly Agrosin, Transmarine and Acron had already effected a similar arrangement on 10 April 1995 under which Agrosin was to make prepayment direct to Acron, Transmarine remaining the contracting party.
The agreement entered into on about 14 June 1995 which provided for the shipowners to issue to Agrosin the claused bills of lading and for Agrosin then to present them back to the shipowners’ representative was, when properly understood, a device to bring about both the issue of the bills to Agrosin and their subsequent presentation to the ship in order to obtain delivery of the cargo to Agrosin, as distinct from delivery to Guangxi, thereby avoiding the need for negotiation of the bills under the Bank of China’s letter of credit before delivery could start, that being thought to be futile unless and until Guangzi could be persuaded to accept the goods and so instruct the Bank to release payment to Agrosin. There can be no serious doubt but that the writing of “Accomplished” on the bills reflected an agreement that it would not be open to Agrosin to transfer them as negotiable documents of title as against the ship to any third party. Their function in that respect was agreed to have been exhausted by Agrosin presenting them to the shipowners and taking delivery under them. Their sole function thereafter was to enable Agrosin to attempt to operate the letter of credit. If that attempt were successful, the bills of lading could not be re-presented to the ship which would at all times thereafter be entitled to refuse to deliver to any party other than Agrosin or on Agrosin’s direct instructions. In other words, the bills of lading were not capable of triggering any delivery obligation on the part of the ship to any party other than Agrosin. If, after the Bank had received the bills on 21 June 1995, it had presented them to the vessel, the shipowners would have been entitled to ignore them.
It follows that, by the time the bills of lading were passed by HSBC to the Bank of China on 21 June 1995 or later in June/July, possession of those particular bills no longer gave to a transferee any right as against the carrier to possession of the goods to which those bills related. Therefore no right of suit under the contract of carriage passed to the Bank unless the proviso to section 2(2) applied.
Mr Hofmeyr QC cited Meyerstein v. Barber (1866) 2 CP 38 and (1870) LR 4 HL 317 as authority for the proposition that, in spite of the word “Accomplished”, given that discharge of the cargo was not completed at the time when the Bank of China received the bills of lading or effected payment to HSBC under the letter of credit, the bills of lading were “live” when they were delivered to the Bank, therefore giving the Bank and, by transfer, Guangxi a right of suit against the ship in place of Agrosin’s right of suit. However, in Meyerstein v. Barber the facts were quite different from those in the present case. The indorsee of the bills used two of the three bills to effect a pledge of the cargo to the plaintiff. At a later date the indorsee used the third bill to effect a pledge of the same cargo to the defendant. At the time of both pledges the cargo had already been discharged and was held by a wharfinger to the order of the shipowners who were exercising their lien for freight. The lien having been lifted the defendant used his bill of lading to take delivery. The essential issue was whether at the time when the indorsee attempted to create the pledges by delivery of the bills of lading, they were already spent and were no longer capable of being utilised as documents of title. It was held that they were documents of title at the relevant time because, although the cargo had been discharged, the wharfingers held it to the order of the ship which therefore had the immediate right to possession. In that sense delivery to the indorsee was “not complete”.
Willes J. in the Court of Common Pleas, whose analysis was expressly adopted by Keating J. stated the position as follows:
“Goods which had been shipped at Madras under a bill of lading making them deliverable in London on payment of freight, arrived at the port of destination, and were landed and deposited at a sufferance-wharf with stop thereon for the bill of lading freight; so that in fact though delivered under such circumstances and to such extent that the shipowner would not have been answerable for an accident happening to them, they were not capable of being received and taken possession of by the consignee or holder of the bill of lading without producing it and discharging the shipowner’s lien for freight. The wharfinger under these circumstnces was at the lowest the common agent for the shipowner and for the consignee or holder of the bill of lading – agent for the consignee or holder, upon his producing the bill of lading showing that he was entitled to the goods, and upon his paying the freight, to transfer the goods into his name, and to deliver them to him or give him a warrant for them, and agent for the shipowner, to retain possession of the goods, and to permit no one to exercise any control over them until the claim for freight had been satisfied. During this period, therefore, the bill of lading would not only, according to the usage, and for the satisfaction of the wharfinger that he was delivering to the right person, be a symbol of possession, and practically the key of the warehouse; but it would, so far at least as the shipowner was concerned, retain its full and complete operation as a bill of lading, there having been no complete delivery of possession of the goods. There can be no complete delivery of goods until they are placed under the dominion and control of the person who is to receive them. Here, Abraham could not have the complete dominion and control of the cotton until he had discharged the liability incurred by the shippers for the freight stipulated for in the bill of lading.”
Keating J. observed:
“There can be no complete delivery of goods under a bill of lading until they have come to the hands of some person who has a right to the possession under it. Now, here, it is clear, that, on the 4th of March, the cotton in question was held by the wharfinger subject to the stop for freight. It never had been delivered to any person whatever having a right to receive it under the bill of lading.”
That decision was upheld on appeal first by a very strong Court of Exchequer Chamber and then by the House of Lords at (1870) LR 4 HL 317, all the members agreeing with Lord Hatherley LC who agreed with Willes J.
There is therefore, in my judgment, nothing in that authority which suggests that where bills of lading have been presented to the ship and, as here, have been indorsed “Accomplished” by agreement between the ship and the holder and where the cargo to which the bills relate has been partly discharged into the possession of the party presenting the bills, there remains in those bills any residual attribute of negotiability as document of title as against the ship.
The question therefore arises whether, notwithstanding that, at the time when the bills came into the hands of the Bank, they were incapable of conferring a right of possession of the goods vis-a-vis the ship, rights of action under the contract of carriage passed to Guangxi by reason of the proviso to section 2(2) of the 1992 Act.
The right to possession of the cargo as against the ship ceased to attach to the bills on about 16 June when the bills were presented to the shipowners’ representatives, were indorsed “Accomplished” and the shipowners had agreed to instruct the master to deliver in accordance with the instructions of Agrosin’s representative. Alternatively, the bills became spent when discharge commenced on 26 June.
It therefore has to be determined whether the negotiation of the letter of credit under which the Bank of China received the bills and paid under the letter of credit on about 26 July 1995 was a transaction effected in pursuance of any contractual or other arrangement made by Guangxi Publications before 14 or 26 June 1995, in particular under the cut-through payment arrangements made in April/May 1995.
The provision in section 2(2)(a) was inserted for the purpose of permitting the transference of rights under the contract of carriage in those cases where, although the sale contract was made before the ship had made delivery, the bills of lading were not transferred to the ultimate buyer until after delivery by the ship, at which point the bills would cease to be documents of title as against the ship. The background to this provision is explained in the Law Commission Report No. 196 on Rights of Suit in respect of Carriage of Goods by Sea, 1991, paras 2.42 to 2.44. In essence, the transference of the bill of lading after it has ceased to be a document of title has to be a transference provided for by the antecedent contractual or other arrangements. If it is a transference called for by contractual or other arrangements made after the bills of lading ceased to be documents of title vis-a-vis the ship, proviso (a) has no application. The key question is therefore whether the transference of the bills of lading to Guangxi via the bank for triggering the letter of credit which occurred on about 26 July 1995 was called for by the agreement made in about April 1995 for payment under the sale contracts between Agrosin, Grand Prestige and Guangxi. In my judgment, the agreement made on about 8 July 1995 was an agreement by Agrosin to sell to Guangxi the cargo in respect of which the documents had already been properly rejected by the buyer’s bank and by Guangxi and therefore by Grand Prestige. The July agreement thus replaced the earlier agreement and its terms were different in important respects from the terms originally agreed. It appears that Agrosin was now selling direct to Guangxi. The price was different and the documents were different. The underlying price had been reduced from US$250.80 to US$230.00 per metric ton. Agrosin’s obligation as seller was to be satisfied by presenting to the Bank claused bills of lading and the port of discharge was no longer left to be nominated by the buyer: it was fixed at Beihai. Delivery was to be taken from Agrosin and not from the vessel. What had therefore happened was that the three parties had agreed to a new contract under which the buyers, Guangxi, acquired bills of lading which had a different effect from those which they had originally been entitled to receive and at a lower price. Even if the July agreement did not create a direct sale by Agrosin to Guangxi, but left in place the sale to Grand Prestige and sub-sale to Guangxi, it was a new contract on different terms.
I therefore conclude that proviso (a) to section 2(2) does not apply and that Guangxi acquired no rights of suit against the shipowners. That being so, Agrosin was the only party entitled to sue.
In view of this conclusion on title to sue it is unnecessary to decide whether, if title to sue had passed to Guangxi, its claim is, as the Defendants assert, now time-barred or whether its claim has been abandoned. Had those two issues needed to be resolved. I should have decided that Guangxi’s claim was not time-barred under Article III rule 6 of the Hague-Visby Rules. The cause of action in respect of which Guangxi seeks to recover damages, namely breach of Article III rule 3, is essentially that relied upon from the outset by Agrosin. The fact that there had been a statutory transference of the right to sue to Guangxi which had not been pleaded at the outset would not lead to the conclusion that suit had not been brought by Guangxi within the Article III rule 6 period. I should further have decided that Guangxi had not abandoned its claim. The omission to plead or otherwise express precisely what Guangxi’s case was as to title to sue did not unequivocally represent that Guangxi was not still pursuing its claim.
Causation, Loss and Damage
I have already concluded that the master was acting otherwise than in accordance with the shipowners’ duty under Article III rule 3 in issuing bills of lading which misrepresented the apparent order and condition of the urea. I have also stated that it was not open to the master to conclude that the whole of the cargo was not in apparent good order and condition because a small proportion of it was discoloured or because a great proportion was off white and it was expressly stated in the mate’s receipt to be “white”. Since any reasonably observant master would have been bound to record that the urea was not entirely white in colour or, putting it at its lowest, would have been more likely than not to record such discolouration by clausing the bills, it is more probable than not that, even if the master had acted in accordance with his duties under Article III rule 3, he would not have issued clean bills of lading. Although, as I have already observed, evidence from Mr Smirnov, Mr Kamper and Mr Jaaskelainen was to the effect that there had been no clausing of urea cargo bills of lading shipped through Kotka, there is no evidence, and I am not able to infer, that any of these other cargoes were described as “white” in the mate’s receipts. Where such a description has been formally stated in the mate’s receipt a master who was reasonably observant would be more likely than not to clause the bills.
It follows that if one compares what the master actually did with what he probably would have done had he been acting consistently with Article III rule 3, the result is a claused bill of lading in both cases. Whereas it is true that the hypothetical clausing would not have referred to contaminants, it would have referred to partial discolouration. Consequently, Agrosin would not have obtained a clean bill of lading and would therefore have been unable to present all the necessary documents for the purpose of negotiating the letter of credit. Since the market price of urea had fallen by the time the vessel arrived at Beihai, it is more probable than not that Agrosin would have been just as unable to persuade Guangxi to waive the requirement for clean bills of lading except by reaching a similar agreement for the reduction of the price. Accordingly, the claimants have not, in my judgment, established that the master’s failure to comply with Article III rule 3 in this case has caused them any loss.
Had I concluded that the master’s failure to comply with Article III rule 3 had caused any loss to the claimants, I should have quantified that loss by reference to the amount by which Agrosin’s revenue actually derived from the sale of the urea was reduced by comparison with the revenue which it would have derived from that sale if clean bills of lading had been issued by the vessel upon completion of loading. As regards interest, the position is somewhat obscure. The reduced price of US$230.00 per metric ton is said to include 90 days interest: see the letter dated 8 July 1995 from Grand Prestige to Agrosin. However, according to the statement of Mr Loukianov, paras 10-11 an additional amount of interest in the sum of US$67,973.44 is claimed. I have not been able to ascertain the relationship between these two figures nor to reach any conclusion as to whether this claim involves an element of double recovery. If the parties are unable to agree on quantum should it ever become necessary to do so, further submissions can be made.
The Claim for Shifting Expenses
This claim arises out of the master’s failure on 19 June 1995 to proceed from the anchorage to the berth designated by the harbour authority at Beihai.
Clause 1 of the 19 April 1995 sub-charter between Agrosin and Baff provided that the vessel being loaded should proceed to the discharge port indicated and there deliver the cargo on being paid freight. Clause 18 provided:
“(a) Vessel shall to go the … discharging berth(s) as ordered by charterers/shippers/receivers or so near thereunto as she may safely get and lie always afloat, unless one or more specifically named berths have been mutually agreed.”
The claimants submit that the terms was incorporated into the bill of lading contract.
In summary, the claimant’s case is as follows. It is based upon the evidence of Mr Low Kay Hock, an employee of Agrosin who was representing it at Beihai. At about 12.30 on 19 June 1995 while the vessel was at the anchorage, the master was advised by Penavico, on behalf of China Ocean Shipping Agency, that the vessel was to berth at No. 3 berth during that night’s tide. The master expressed concern as to the sufficiency of water in the channel and at No. 3 berth. There was a discussion on board between representatives of Meezan, Barwil, the vessel’s Beihai agency, Mr Low and the master. In the result the master agreed to berth the vessel on that night’s high tide. Later that day (about 1600) the Harbour Master contacted the master by VHF to confirm berthing arrangements. The master enquired how many pilots and tugs would be provided and was told by the Harbour Master that there would be three pilots and two tugs. The master said that he could proceed slowly into berth. At about 1700 the Harbour Master again called the Master and informed him that the pilots would go aboard at 2100.
At about 2100 the pilots duly boarded the vessel, but the master told them that it was unsafe to berth the vessel. The master spoke to Mr Low on the VHF and told him that it was not safe to berth. He stated that the pilot had refused to give him a letter of guarantee and expressed the view that the pilots were inexperienced and the tugs too old. The Director of the Port Authority, Mr Li, spoke to the Master and told him that it was safe to berth. However, he still refused to take the vessel in. According to the Harbour Authority’s letter of 21 June 1995, the master had been informed that the draft in the fairway to the berth was 7.8 metres tons plus the tide and in berth No. 3 was 10.6 metres plus the tide. The highest tide on 19 June was 3.95 metres at 23.17 and from 2110 to 2230 the tide was 3.55 metres to 3.89 metres. The vessel’s draft was 11.1 metres. A southerly wind could be expected to add a further 0.2 to 0.25 metres to the draft. In refusing to follow the instructions of the Harbour Authority the master was in breach of the Chinese port regulations which require vessels to comply with the instructions of a port authority.
The Harbour Authority (Mr Li) discussed the situation with Mr Low. It was made clear to him that the vessel would have to wait its turn to berth which might involve a 20 days’ delay unless Agrosin paid compensation for the wasted operation on 19/20 June 1995 in the sum of US$12,000 – US$13,000 together with “something extra” for the Harbour Authority team and pilots to ensure future co-operation. It was agreed that Mr Low should pay a total of US$20,000 to the Harbour Authority to reinstate the quick berthing priority exercise for the vessel as originally arranged, but now on 25 June.
The claimants submit that the master was in breach of his duty under the contract in failing to obey the Harbour Authority and that they are therefore entitled to recover as damages the cost of procuring a substitute quick berthing arrangement, namely the additional payment of US$20,000.
The claimants further rely on observations made in the House of Lords in James Reney v. Kirkudbright Magistrates [1892] AC 264, in particular the passage in the speech of Lord Herschell at page 275:
“….when a vessel is within the jurisdiction of the harbour master, and he is giving his orders as to the place of anchorage, it is only in the last resort and when the danger is fully obvious that any rational man would think that the harbour master’s orders should not be strictly attended to.”
The Earl of Halsbury LC expanded on these observations six years later in Taylor v. Burger (1898) 8 Asp MLC 364 at page 365R:
“I regard it and I think the master of the Tyne regarded it, as an order to come on, and a remonstrance for having stopped at all. Assuming it to be an order, you must also remember this, that a man is not blindly to run into danger or encounter wilfully what would result in a collision if he could see that it must take place. I suppose that no one would contend that obedience to an order should be carried to the extent of leading to an inevitable disaster. The broad proposition must be admitted that you must not knowingly run into danger by the order of a harbour master or anyone else. That assumes the fact that it was absolutely certain a disaster would happen. I adhere to what I said in the case of Reney v. Magistrates of Kirkudbright (7 Asp Mar Law Cas 221: 67 LT Rep 474; (1892) AC 264), that if it were once supposed that a person acting under the orders of a harbour master is to exercise his own judgment whether or not the harbour master’s orders are most consistent with prudence and then refuse to obey the order given, that would lead to very serious consequences indeed. It would be a grevous burden thrown upon the person obeying the order if it was supposed that he was to sit in judgment and consider whether a thing ought to be done. The primary duty is obedience to an order. It would be fatal to a harbour-master and his usefulness, if latitude was to be given and every one allowed to sit in judgment upon his directions. If an order was given, and the circumstances were such as to render it doubtful whether or not the order ought to be obeyed, it was obviously the duty of the master of the Tyne to obey the order as he did.”
The Defendants submit that clause 18 of the charterparty was not incorporated into the contract of carriage because it is not germane to the obligations under that contract – namely the shipment, carriage and delivery of the cargo, because incorporation requires unacceptable verbal manipulation and because the express terms of the bill of lading requires the shipowners only to carry the cargo to the port of discharge “or so near thereto as she may safely get the goods specified …..”
Whether or not one treats the contract of carriage as having incorporated clause 18 of the charter, there can be no doubt that the shipowners were under a duty not merely to carry the cargo to and discharge it at the port of discharge, but effect discharge at the safe berth or other safe place required by the receivers or their agents for that purpose. In many cases the Harbour Authority will designate the berth and the receivers and the shipowners will be bound to effect discharge there. The shipowner cannot choose his own discharging berth: he is necessarily in the hands of the receivers who in turn are obliged to follow the directions of the Harbour Authority.
As to the facts, the Defendants submit that on the evidence the information available to the Master was contradictory. They rely on the following. On 6 June 1995 Barwil, the Beihai agents appointed by Agrosin to oversee discharge, reported to Meezan and Agrosin that the draft restriction was 10.5 metric tons but indicated that it was informed that 11.1 metres arrival draft would be acceptable to the harbour authority. The master having asked whether Beihai was a safe port for a 11.1 metres draft, on 7 June Agrosin told the master that in view of Beihai’s official maximum draft being only 10.5 metres, he should make sure that he did not have to lighten. On the previous day, in response to the shipowners’ question, Van Ommeren, the owners’ chartering agents, reported that the local port authority at Beihai allowed a maximum saltwater draft of 11 metres. However, by its 7 June 1995 fax Grand Prestige reported to Agrosin that Beihai Port Authority had confirmed that “no lightening is required as the high tide of the day starting June 10 will be +4 metres over the formal draft of 8 metres”. On 8 June the local agents, Penavico informed the master that the fairway depth was 7.8 metres + tide and that there were four deep water berths with depths ranging from 9.5 metres + tide to 11 metres + tide.
The master had on board the vessel up-to-date navigation literature, including a British Admiralty Chart correct to 1993 which showed the minimum depth of the approach channel as 5.9 metres, net of the tide and the China Sea Pilot with the 1995-6 Guide to Port Entry which gave the maximum permitted draft as 10.5 metres. In his witness statement the master said that on 19 June, according to the information available to him, the tide was 2.9 metres which gave insufficient depth (9.4 metres). He does not identify his source. He also stated that the Chinese Pilot who boarded the vessel on 19 June at 21.00 agreed that it was unsafe to berth. The master also stated that he regarded the two tugs provided as “very elderly” and too weak. Only two pilots were sent on board. The master told the shipowners that the depth was only 9.4 metres at high water.
I reject the master’s assertion that the available depth on the evening of 19 June was only 9.4 metres and I accept as intrinsically more reliable the evidence of the Port Authority that the available draft between 2110 and 23.17 on 19 June varied between 11.55 metres and 11.95 metres, taking into account the tide and the southerly wind. That compared with the vessel’s draft of 11.12 metres. The Harbour Authority was therefore correct in proposing to berth the vessel. I find that it could have been safely berthed.
Making appropriate allowance for the master’s fears that the available draft was insufficient for his vessel, I am not able to conclude that the Harbour Authority’s request to berth was so obviously wrong that it was virtually certain to the master that the vessel would ground. In these circumstances, his duty under the contract of carriage was to proceed in accordance with the Harbour Master’s orders to the designated berth. He could not have concluded on the materials available to him that the instructions he received would inevitably lead to the vessel grounding. Although he might justifiably have entertained real doubts his failure so to proceed was therefore a breach of that duty for which the shipowners are liable. The damages are proved to be US$20,000.