Issues surrounding which party to a contract of carriage should bear responsibility for cargo damage related to loading, stowage and discharge have provided a consistent source of work for Admiralty and Commercial Court judges in years past and continue to do so. The factual issues are often complex enough but, as we shall see, there remains considerable scope for argument in relation to the applicable legal principles, especially where parties have sought to transfer the standard common law/Hague /Hague-Visby allocation of responsibility for one or all of loading, stowage and discharge by means of provisions in the contract of carriage.
In this chapter, I shall try to consider two relatively recent decisions where such issues have arisen and which amply illustrate the areas of difficulty that remain to be grappled with by practitioners. In both the Yuzhny Zavod Metall Profil LLC v EEMS Beheerder BV (The EEMS Solar)1 and Societé de Distribution de Toutes Marchandises en Cote d’Ivoire (trading as SDTM-CI) and others v Continental Lines NV and another (the Sea Miror)2 the carrier sought to exclude liability to the Charterers and bill of lading holders for damage caused to cargo during loading and discharge.
I will first briefly consider the underlying English common law principles applicable to such disputes before going on to review the cases themselves and to consider their implications.
The starting point is that at common law the shipowner is obliged to load, stow and discharge the cargo and is liable for any failure to perform those obligations with reasonable skill and care. However, it is open to the parties to agree that responsibility for cargo operations is transferred to cargo interests. This was confirmed by the House of Lords in Jindal Iron & Steel Co Ltd v Islamic Solidarity Shipping Co Jordan Inc (The Jordan II),3 a decision that I will return to later on.
It is also open to the parties to agree that responsibility for cargo operations is transferred to cargo interests even where the Hague Rules are incorporated into the contract of carriage: this principle was applied in Pyrene Co Ltd v Scindia Steam Navigation Co Ltd 4 and subsequently approved and applied by the majority of the House of Lords in G H Renton & Co Ltd v Palmyra Trading Corporation (The Caspina).5
An attempt was made to challenge the line of cases beginning with Pyrene Co Ltd v Scindia Steam Navigation Co Ltd in The Jordan II, but this attempt was unsuccessful: the House of Lords confirmed that an agreement to transfer responsibility for cargo operations to the cargo interests is not contrary to the provision in Article III Rule 2 of the Hague Rules that the carrier is to ‘load, handle, stow, carry, keep, care for, and discharge the goods carried’. As Lord Steyn explained in The Jordan II:6
The extent to which loading and discharging are brought within the carrier’s obligations is left to the parties themselves to decide. Thus, if the carrier has agreed to load, stow or discharge the cargo, he must do so properly and carefully, subject to any protection which he may enjoy under Article IV. But the Rules do not invalidate an agreement transferring the responsibility for these operations to the shipper, Charterer or consignee.
Even in a case where the cargo recovery claim is brought under a bill of lading that is compulsorily subject to the Hague-Visby Rules, it is still possible in theory, as a matter of English law, for the parties to transfer responsibility for loading and/or discharging operations to cargo interests provided that the wording (usually in a charterparty clause) is clear.
However, it is important to note that for an agreement to have the effect of shifting responsibility away from Owners the clause must be in clear terms, although this does not mean that the cargo interests can refute any transfer of responsibility simply by putting forward an alternative arguable construction of the clause.
In considering whether a clause is effective to transfer responsibility for cargo operations to cargo interests, Tuckey LJ in the Court of Appeal in The Jordan II confirmed that it is necessary to bear in mind that there are three ‘facets’ to cargo operations: ‘Who is to pay for it; who is to carry it out; and who is liable for it not being done properly and carefully?’7
This three-way division is important because there is no assumption that a clause which transfers only one of these facets to the cargo interests will also transfer the other facets. As Sir John Donaldson MR stated in Filikos Shipping Corp of Monrovia v Shipmair BV (The Filikos):8
At common law the task of loading from ship’s rail, stowing and discharging overside is the sole responsibility of the shipowner. However either or both of the duties of (a) arranging for these processes to be carried out and (b) paying for them to be carried out may be transferred by contract to the Charterers. So too can liability for breach of the duty of care in carrying out these processes, whether or not either or both the duties of arranging and paying for their performance have been so transferred.
As a result, a clause which confers upon the Charterer the right to appoint stevedores does not, without more, transfer to the Charterer responsibility for the acts or omissions of the stevedores. However, in the common situation where the charterparty provides that it is the Charterers who are to perform one or more cargo operations (e.g. ‘Charterers are to load, stow and discharge the cargo’), the effect of such a clause is usually to transfer responsibility for ensuring that the operation is carried out properly and carefully. In agreeing to undertake loading, stowage and trimming of the cargo, the Charterer gives an implied undertaking to ensure that those operations are carried out properly and carefully.
So the position may be summarised as follows:
- There are certain forms of loading and stowage clause which transfer to the Charterer and/or cargo interests the right to nominate, and the duty to pay, stevedores to load, stow and discharge the cargo, but which do not transfer to the Charterer and/or cargo interests the responsibility for the proper performance of those operations.
- On the other hand, there are forms of clause which impose upon the Charterers and/or cargo interests (and thus remove from the owner) the obligation to perform as well as to pay for specific cargo operations. Such forms will usually transfer responsibility for proper performance to the cargo interests.
Having considered underlying principles, I will now turn to see how these have been applied and developed in the EEMS Solar and the Sea Miror decisions to conclude where the line is drawn.
In the EEMS SOLAR, the Admiralty Court was asked to examine whether the shipowner was liable to the lawful holder of the bill of lading for damage caused to the cargo, and found that it was not. However, in order to reach this conclusion the Admiralty Registrar, Jervis Kay QC, had to consider the effect of clauses said to be incorporated into the bill of lading from a charterparty relating to liability for loss caused by poor stowage.
A Russian metal trading company, Yuzhny Zavod Metall Profil (YZMP), the holder of a CONGEN 1994 bill of lading, took delivery of 411 coils of steel sheets (which had been shipped in China) at Novorossiysk, Russia, all with varying degrees of damage. The cargo had been shipped under a CONGEN 1994 bill of lading which contractually incorporated both the Hague Rules 1924, and the provisions of a Gencon 1994 charterparty that the defendant Owners had entered into with a third party Charterer.
YZMP claimed under the bill of lading against the registered owner of the vessel, Eems Beheerder B.V., as carrier under the bill of lading and maintained that the owner was in breach of Article III Rule 2 of the Hague Rules 1924, which states:
Subject to the provisions of Article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
They also relied on Article III Rule 8 of the Hague Rules 1924:
any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to … goods … or lessening liability otherwise than as provided in this convention shall be null and void and of no effect.
It was the Owner’s case that the Gencon 1994 charterparty was incorporated into the bill of lading. Crucially, the charterparty contained an ‘Owners’ Responsibility’ clause and a ‘Loading and Discharging’ clause (clause 5) which stated:
The cargo shall be brought into the holds, loaded, stowed and/or trimmed, tallied, lashed and/or secured by the Charterers, free of any risk, liability and expense whatsoever to the Owners,9
The key point to note from clause 5 above is that it is the Charterers who were to perform the loading, stowing etc. and not the shipowners. Under English law, it is acknowledged that the Hague Rules set minimum standards upon the carrier for a package of obligations to be performed by the carrier. However, it is possible for the carrier to avoid coming under the rigour of the Hague Rules standards by expressly providing that for the obligation in question, some other party (and not the carrier) is responsible to perform it.10
The Charterers had appointed the stevedores at load port to load the cargo. It was established that the Master had prepared the stowage plan, but that as a matter of fact, the stevedores (nominated by the Charterers) had taken no notice of it. It appears that beyond preparing the stowage plan, neither the Master nor the crew took any further part nor intervened in the stowage operations at all. During the voyage, the vessel experienced heavy weather which led to a strap breaking and a shift in the cargo; the crew were unable to secure the shifted cargo for lack of additional lashing straps, resulting in damage to a number of coils.
The key question was who was responsible for the poor stowage that resulted in the shifting. Was it:
- (a) Stevedores in failing to load and stow the cargo safely and correctly (and if so, were Owners under the bill of lading responsible for the stevedores’ failures); or
- (b) Owners in failing to provide the necessary lashings, equipment and/or crew.
Claims were advanced by the Cargo Receivers (‘Receivers’) under the bills of lading. The Receivers argued that the Owners were responsible for the poor stowage on the basis that clause 5 of the charterparty was not incorporated into the bill of lading because;
- the clause did not make commercial sense in the context of a bill of lading which regulated the rights of the parties to that contract of carriage;
- there was no reason why a receiver should take on responsibility for a loading operation over which it had no control. This, they said, would result in commercial absurdity.
Alternatively, the Receivers argued that the carrier remained responsible to a receiver/ bill of lading holder for damage arising from inadequacy of the stow, even if responsibility for undertaking that stowage has passed to the Charterers or, in the further alternative, that the damage was caused by unseaworthiness given the lack of additional lashing materials on board and/or the crew’s failure to tend and care for the cargo during the voyage (i.e. a breach of Article III Rule 2 of the Hague Rules).
The claimants also argued that even if clause 5 was incorporated into the bill of lading, this was a provision attempting to relieve the owner of responsibility for carrying the cargo (under Article 3 Rule 2 of the Hague Rules) and therefore, should be rendered null and void by Article 3 Rule 8 of the Hague Rules).
In response, the Owners argued that:
- clause 5 was validly incorporated into the contract of carriage and that its effect was to transfer responsibility for loading and stowing the cargo to the Charterers
- there was no need to manipulate the language so as to read the word ‘Charterers’ in clause 5 as ‘shippers’ and/or ‘receivers’.
- the cargo had been carefully monitored by the crew during the voyage and that that there were practical limitations on any actions that could have been taken to correct the stowage problems during the voyage.
The key factual findings in the judgment were as follows:
- The coils had been stowed in the hold from fore to aft in rows. Three of the rows had only a single tier, the rest were in two tiers with between one and seven coils in each of the topmost of the two tiers.
- Some of the coils arrived damaged after the vessel encountered heavy weather on route in the Indian Ocean and the Arabian Sea. It was held that the cargo was damaged because of its movement during the voyage.
- There was a transverse movement in two of the three single tiers which had caused the strapping to break. There had also been a failure in the upper tier so that at least one coil had fallen aft on to a single tier row.
- The movement in the area of the single tiers occurred because it was not prevented by the use of ‘locking coils’, in other words a coil or coils placed on top of the first tier to prevent movement of the underlying coils.
- The movement in the single tiers caused wear to other securings through chafing, which in turn failed thereby allowing the upper coil to fall aft. In reaching this conclusion, the Registrar rejected the case put forward by the Receivers that the stowage was adequate and that the ship Owners and crew were at fault because the ship did not carry extra lashings.
- The Registrar also rejected the suggestion that inadequate cargo inspections had been carried out or that the crew should have done something mid voyage to re-secure or lash the cargo so as to prevent cargo movement before it occurred, or afterwards, when it would in any event have been foolhardy to do so.
So, as I have said, the crucial question to be determined was, on the construction of the contract of carriage, which party was responsible for the inadequate stowage?
The Registrar held that, on a true construction of the bill of lading, Owners were not responsible for stowage because the charterparty was incorporated into the bill of lading and the terms of the charterparty made it clear that Owners were not responsible for improper stowage. As he put it:11
[T]he language of clause 1 of the bill of lading is wide enough to incorporate clause 5 of the charterparty into the bill of lading. The wording of clause 5 not only makes it clear that the Charterers will be responsible for securing the cargo but also that the shipowners will not. Further I can see no sensible reason why the parties should not decide to apportion the responsibilities for the cargo stowage in the way that they have. There is no suggestion that the stevedores were employed by the shipowners and it is understandable that they should seek to avoid responsibility for cargo damage arising from poor stowage.