England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/03/2006

The Hon. Mr Justice Morison :

Background

1. By a time charter on the New York Produce Exchange Form, with amendments and additional clauses, the Owners, chartered the MV KAMILLA to the Charterers for an initial period of 12 months.   There was a dispute between the parties arising from a contaminated consignment of lentils; each party nominated an arbitrator and they appointed a third arbitrator, with the consent of both parties.
2. The disputes between the parties centred on the application of the Inter-Club Agreement which was incorporated into the charterparty.  
3. Pursuant to the Charterers' orders, the vessel loaded a cargo of 2,834.56 Metric Tonnes of lentils in bulk at Thunder Bay, Canada, into hold No. 2 and carried them Bejaia, Algeria.   The vessel was unseaworthy in that the No. 2 hatch covers were not completely watertight so that a small (or, perhaps 'very') small amount of seawater entered the hold and wetted the cargo.   The amount of the cargo wetted was between 30 and 75 Metric Tonnes, although the exact amount is in dispute.   For the purpose of the preliminary issue to which the Award relates, the amount of damaged cargo was assumed to be 30 metric tonnes; that is, slightly over 1% of the total cargo carried.
4. On arrival at the disport, the cargo receivers complained to the Algerian Authorities (the DCP) who rejected the entire cargo.   The vessel was arrested and the Owners suffered financial loss in the region of US$379,356.53.   Whilst Owners accepted that it must bear a tiny proportion of the loss caused by the minimal amount of damage it accepts was done through sea water ingress [some US$9,368.25] they disputed the balance of some US$369,988.28
5. It was the Owners' case that the Charterers and the receivers, whom they alleged were the Charterers' agents, did not take any or any adequate steps to reverse or set aside the decision of the DCP not to permit the cargo to be discharged.   If that proposition was correct then they argued that the third party cargo claims which the Owners had to settle had to be regarded as a claim for a shortage due to the act neglect or default of the Charterers' agents, the receivers.   Thus, they argued, the Charterers must bear 100% of the liability arising from the settlement with the cargo interests. Alternatively, if the claim was properly to be categorised as a short delivery claim, then the Charterers' liability under the Inter-Club agreement was no more than 50%.
6. As the Arbitrators noted, with some ingenuity the parties came up with a proposal "that we should consider a schedule of possible relevant facts and determine, in principle, which were relevant to the substantive issues".   Eventually the parties, with the co-operation of the Arbitrators fixed upon a preliminary issue which they were to decide upon certain assumed facts.
7. The issue was defined as follows:

"In respect of the cargo on board the KAMILLA which was in sound condition on the Vessel's arrival at Bejaia on 4 January 2003, and for the purposes of the Inter-Club Agreement incorporated into the time charterparty dated 26 January 2001:

Are the facts set out in the schedule hereto relevant to the categorisation of the cargo claim in respect of which the Owners seek an indemnity?"

8. The schedule of assumed facts, as finally agreed, was in these terms:

           "1.       The cargo

1.1 Of the total cargo of about 2,834.56 mt of lentils all of which was in hold No. 2 none of that cargo was lost in a physical sense (due to unseaworthiness or otherwise);

1.2 Of the total cargo of about 2,834.56 mt of lentils all of which was in hold No. 2 only about 30 mt was damaged ( due to wetting);

1.3 The crew successfully removed the wetted cargo plus some sound cargo totalling all together about 35 mt from the balance of the cargo in hold No.2;

1.4 Following the said separation about 2,765 mt of cargo was sound;

1.5 About 2,765 mt of sound cargo was not discharged and Owners were not permitted to discharge it.

2. The inspection

2.1 The inspection of the cargo by the DCP that led to the DCP decision prohibiting import of the cargo was made by reason of a request for an inspection by the receivers;

2.2 Given the very small (and, in relative terms, insignificant) amount of cargo wetted (see para 1 above) such a request for an inspection by an Algerian receiver was unusual and one which, in such circumstances, would not normally have been made by an Algerian receiver wishing to take delivery of the cargo (see 4.5 below);

2.3 Given the very small (and, in relative terms, insignificant) amount of cargo wetted (see para 1 above) it was not within the reasonable contemplation of the parties that such a request would be made.

3. The decision of the DCP

3.1 The decision of the DCP to prohibit the import of the total cargo (comprised of about 30 mt of damaged cargo and about 2,765 mt of sound cargo) was irrational and/or unjustified and/or unreasonable;

3.2 It was not within the reasonable contemplation of the parties that the presence of such a small amount of wetted cargo would lead to a prohibition in respect of the total/sound cargo.

4. Charterers/receivers

4.1 Neither Charterers nor receivers instituted, supported or intervened adequately, effectively or at all in any legal proceedings the purpose of which was to obtain resumption of discharge operations and/or discharge of the total/sound cargo;

4.2 Neither Charterers nor receivers attempted in any significant, reasonable or effective way (or at all) to have the decision of the DCP changed or overturned;

4.3 The basis of and/or a significant factor in the decision of the Administrative Court in refusing Owners' application for permission to discharge the cargo was that neither the Charterers nor the receivers had not made any objection or challenge to the decision of the DCP;

4.4 The receivers insisted (even before the decision of the Administrative Court) that Owners provide security for the receivers' claim in the amount of the full value of the cargo;

4.5 The receivers did not wish to take delivery of the cargo."

The Arbitrators' Findings

9. The charterparty was on an amended New York Produce Exchange 1946 form.  The only provisions of relevance in determining this preliminary issue were the following:-

Lines 78-79

"…and Charterers are to load, tally, discharge, stow, and trim and discharge the cargo at their expense under the supervision of the Captain…"

Clause 50

"All claims in respect of the cargo to be settled in accordance with the NYPE – InterClub Agreement as amended 1984 ['the ICA']."

10. The relevant sections of the ICA are:

            "(2)      Apportionment of cargo claims

In all cases where the agreement applies cargo claim shall be apportioned as hereunder:

            Claims for loss of or damage to cargo due to unseaworthiness

                                                                                    100% Owners

Claims for damage (including slackage/ullage) due to bad stowage or handling                                                      100% Charterers

Except as provided in the succeeding paragraphs of this clause, short delivery claims (including pilferage), and claims for over-carriage, and claims for condensation damage

                                                                                    50% Owners

                                                                                    50% Charterers

As regards short delivery and over-carriage claims, where there is clear and irrefutable evidence that the shortage or over-carriage, as the case may be, was to due to act, neglect or default on the part of Owners' or Charterers' servants or agents, then the party whose servants or agents were at fault shall bear the claim in full.  Thus, if there is corroborated eye witness evidence that the shortage was due to pilferage by a stevedore, the claim will fall 100% to the account of Charterers, but if by a crew members, then 100% to Owners, subject in the latter case to Charterers' contribution under the Berth Standard of Average Clause/Charterers' Contribution Clause (1971).

Claims for condensation damage shall be apportioned as provided in the first paragraph of this clause, except where there is clear evidence that the damage was due solely to bad stowage in which event such claims shall 100% to Charterers' account but where there is clear evidence that the damage is resulted solely from improper ventilation, such claims shall be borne 100% by Owners."

11. In the event, as a result of various concessions and reservations, there were two issues of principle which fell for determination: what is the meaning of the words "due to unseaworthiness" and secondly whether the receivers' alleged failure to take sufficient action to contest the decision of the DCP was a failure committed as a servant or agent of the Charterers.
12. Having rehearsed the parties' arguments the Tribunal stated their conclusions:

31.       "Though the situation in which the Owners found themselves as a result of the decision of the DCP to reject the cargo was by no means unprecedented in our collective experience, we were bound to have some sympathy for the Owners.  Having said that, it was impossible to deny that the cargo would not have been rejected (and the claim under the ICA would not therefore have arisen) but for the unseaworthiness of the vessel.  Since seaworthiness is the sole responsibility of the Master, it was difficult to take issue with the Charterers in their argument that there was no compelling commercial objection to concluding that as between the parties to the charterparty, it was the Owners who should bear the loss.

32.       In attempting to make the Owners' case that they should not be saddled with losses which were out of all proportion to the direct effect of the unseaworthiness, Counsel for the Owners was bound to invoke the legal principles which are used to limit the losses recoverable for a breach of contract.  Nevertheless, she was unsuccessful in persuading us that we were mistaken in the immediate reaction which all three of us had to her clients' case based on our own experience of the way in which the ICA has worked over many years. In this context we do not believe that the express incorporation of the ICA into a charterparty (as distinct from its application as a matter of administrative practicalities by the shipowner's and charterer's Clubs) made any difference to the correct approach to a particular claim: we agreed with the Charterers that any issues arising in the context of a particular claim (such as the meaning of the phrase "due to unseaworthiness" had to be determined purely as a matter of construction of the ICA itself.  The agreement  prevails over the provisions of the charterparty, since it represents an agreed interpretation of the provisions of the charterparty dealing with liability for loss of or damage to cargo.  Any questions as to the interpretation of the ICA must therefore depend on the construction of the ICA itself and not on the construction of the charterparty.

33.       As the Courts seem repeatedly to have acknowledged in the various cases in which they have considered the working of the ICA, it is an attempt to cut through the legal and factual problem which arose when interpreting the provisions of the New York Produce Exchange form in the context of liabilities for loss of or damage to cargo and to provide what was described by Counsel for the Charterers as "a form of rough and ready justice".  We agreed entirely with the Charterers that it would be contrary to the underlying objective of the ICA to read into it a legal requirement such as foreseeability and remoteness which did not expressly appear in the ICA itself and which were likely to give rise to complex factual and legal disputes.  We have never previously encountered the argument that because of the consequences of a situation involving damage to cargo as a result of the undeniable unseaworthiness of the vessel were far greater than any reasonable person could have anticipated, the basic responsibility of the shipowner for damage due to unseaworthiness should somehow be qualified. 

34.      As the Charterers in the present case pointed out, the approach urged upon us by the Owners could lead to strained and uncommercial results in a particular case.  They postulated a situation in which the DCP had allowed the cargo to be discharged but had required it to be destroyed upon arrival at the receivers' warehouse – unlikely but by no means unimaginable.  On any view they maintained that the claim would not in these circumstances qualify as a short delivery claim but they asked rhetorically whether it could seriously be argued that the claim would fall outside the ICA despite the fact that the DCP's decision was triggered by the unseaworthiness and Clause 52 of the charterparty stated that "all" claims in respect of cargo are to be settled in accordance with the ICA.  If it was (as they suggested) obvious that such a claim fell within the unseaworthiness provisions of the ICA, they asked the further rhetorical question, why is the present claim different?  It certainly seemed to us that there was no obvious distinction between the two different types of claim.

35.       Adopting the common-sense commercial approach which we believe from our own experience of the operation of the ICA is required, we were bound to agree with the Charterers that provided the unseaworthiness of the vessel could be said in a practical sense to be a cause of the loss, it was not appropriate to embark upon a further enquiry as to whether it was the effective cause of the loss or whether the connection between the unseaworthiness and the loss was so tenuous that the loss itself could be said to be too remote.

36.       We therefore agreed with the Charterers that the real question which arose in relation to the Owners' claim under the ICA was not 'what caused the loss?', but 'did unseaworthiness cause the loss?' If we were correct in our conclusion that all that was required in order to apportion ultimate liability for this claim under the ICA was to establish whether unseaworthiness was a cause of the loss and that the admitted unseaworthiness in this case and the decision of the DCP to prohibit the import of the cargo were not mere coincidences, we felt bound to agree with the Charterers that the only fact which needed to be proved or assumed for these purposes was that stated at para 1.1 of the schedule of "Relevant Alleged Facts".

37.       We were requested to reserve all issues as to costs and have accordingly done so."                          

The arguments on this appeal

13. Mr Berry QC for the Owners, who was not instructed to appear before the Arbitrators, submitted that the assumed facts, in paragraphs 1 – 3 of the agreed document, gave the Owners a strong case for saying that unseaworthiness was not a proximate cause of the claim.   He drew attention especially to the assumed facts that only about 1% of the cargo was wetted; that the damaged cargo was separated out by the crew; that the receiver's request for inspection by the DCP was unusual and was not within the reasonable contemplation of the parties; and that the decision of the DCP was irrational, unjustified and unreasonable and not within the reasonable contemplation of the parties. The arbitrators decided that the only fact that needed to be proved or assumed was that stated in paragraph 1.1.   In other words, they ignored the other facts.   They did so because they were misled by the Charterers' arguments into thinking that they had to apply what for shorthand could be called the 'but for' test of causation.   This is reflected in paragraph 31 of the decision where they say that the cargo would not have been rejected "but for the unseaworthiness of the vessel."   He argued that when the arbitrators used the word "triggered" in paragraph 34 that was, again, a sign that they had applied a 'but for' test.   He made the same point in relation to the words "not mere coincidence" in paragraph 36.   Thus in excluding the alleged facts and by rejecting a proximate cause test and by applying the simple "but for" causation test, and in excluding remoteness, the arbitrators erred in law. As a matter of law, the courts look to proximate cause and not to the infinity of causes and their impulsion on one another. "Due to" means "proximate cause": Eurus [1998] 1 Lloyd's Law Reports 351 at 361-362.   As to the test of causation, it is one of common sense: Galoo v Bright Grahame Murray [1994] 1 WLR 1360.   It must be erroneous to exclude evidence of all the facts which would enable common sense to be exercised.
14. For the Charterers, Mr Brenton QC submitted that in order to understand the Award it was important that regard be had to the way the case was being argued. The Owners were arguing that a claim was not "due to" unseaworthiness unless unseaworthiness were "the dominant or effective cause" of the claim.  The Owners stressed the definite article and did not argue or refer to 'proximate cause'.   By contrast, although the Charterers had started with a 'but for' test, by the end of the argument their case was that "provided that unseaworthiness of the vessel was, in a practical sense, a cause of the loss, the test is satisfied".   The Tribunal accepted that argument, as is apparent from paragraph 35 of the Award.

Decision

15. I can deal with this appeal shortly because the issues are, I think, clear cut and the answers to them are equally clear.   The test for causation is whether the act or default complained of is a 'proximate cause' of the alleged damage.   The 'but for' test is appropriate to establish whether there is a causal link between the act or default and the alleged damage.   It is a necessary but not sufficient test.   But for the choice of this vessel the incident would not have occurred but no-one could suggest that the choice of vessel was a proximate cause of the damage. It was unfortunate that the Charterers appeared to espouse a 'but for' test.   I suspect that they were provoked into doing so by the equally erroneous approach of the Owners in argument before the Arbitrators that the damage which was not reasonably foreseeable could not have been caused by the wetting that occurred due to unseaworthiness.   Yet foreseeability "is not the criterion for deciding whether a person caused something or not.   People often cause things which they could not have foreseen": per Lord Hoffmann in Environmental Agency (Formerly National Rivers Authority) v Empress Cars Co (Abertillery) Ltd  [1999] 2 AC page 22 at page 34.   However the arguments arose and were initially presented, I agree with the Charterers that the correct test of causation was applied by the Arbitrators when they found that "provided the unseaworthiness of the vessel could be said in a practical sense to be a [and I stress the use of the indefinite article] cause of the loss, it was not appropriate to embark upon a further inquiry as to whether it was the [and I stress the definite article] effective cause of the loss…"   In my judgment the arbitrators dealt with causation in precisely the way required in law and they were not distracted from their task by some of the submissions which counsel made to them.
16. Applying common sense to questions of causation, as Lord Hoffmann said, a distinction can be drawn between acts and events that are normal and abnormal, usual or unusual. Leaking pipes were not to be regarded as other than normal so that when the sewage flowed into rivers "one does not say: that was an extraordinary coincidence which negatived the causal connection between the original act of accumulating the polluting substance and its escape." Here, the argument about remoteness or novus actus interveniens, which was, essentially, the point being made under the foreseeability umbrella was answered by the Arbitrators who considered that what happened at the disport was "by no means unprecedented in our experience" [paragraph 31]. And, applying the words of Lord Hoffmann, "the admitted unseaworthiness in this case and the decision of the DCP to prohibit the import of the cargo were not mere coincidences". They were also surprised by the argument that "because of the consequences of a situation involving damage to cargo as a result of the undeniable unseaworthiness of the vessel were far greater than any reasonable person could have anticipated, the basic responsibility of the shipowner for damage due to unseaworthiness should somehow be qualified." In other words the arbitrators were saying that seaworthiness was an effective cause of the whole loss, even if some of the loss came as a surprise to the Owners.
17. In the light of their findings, I consider that they were right in the way they approached the question as to the impact of those findings on the ICA. Was the alleged damage comprised in the claim due to unseaworthiness? The answer is yes.   Their approach to the ICA as set out in paragraph 32 cannot, I think, be faulted. Whether the words "due to unseaworthiness" would include damage which was too remote to be recoverable as a head of damage does not need to be determined by me because the Arbitrators have, in my view, rejected the Owners' arguments on remoteness as presented to them.    They have held that the damages claimed were "due to unseaworthiness" within the meaning of the ICA.   I agree with them.
18. It follows that this appeal must be dismissed.