ER Hamburg – NYPE C/P clauses 8 and 24


Published: 9 June 2006

In this High Court judgment, Mr Justice Morison considers several earlier judgments concerning the interrelationship between NYPE C/P clauses 8 and 24, including especially the Canadian Transport Ltd v. Court Line Ltd (1940) 67 LL.L. Rep. 161.

In the ER HAMBURG [2006] EWHC 483 (Comm) (reported so far in (2006) 689 LMLN 1 of 12 April 2006) the dispute arose out of an explosion on board the ER HAMBURG which was time chartered pursuant to an amended NYPE C/P stipulating inter alia:

Clause 8: “Charterers are to load, stow … the cargo … under the supervision of the Captain”,

and clause 24 stipulating inter alia that the C/P was subject to inter alia the Hague/Visby Rules.

The owners brought a claim against the charterers for loss of hire and loss and damage which they contended had been caused by the loading of a container of calcium hypochlorite. The amount of the claim was some USD 63 million. A counterclaim was brought by the charterers for some USD 12 million.

The dispute was referred to arbitration where two rival contentions were advanced as to why the container exploded, namely:

(i) That the cargo was inherently unstable and volatile and
(ii) It had been stowed adjacent to a bunker tank which was heated during the voyage causing the cargo to become unstable and explode.

This judgment solely concerned item (ii).

The issues included the proper interpretation of clause 8, which placed the responsibility for stowage on the charterers, in the light of clause 24 which expressly incorporated as a clause paramount the Hague/Visby Rules. In other words, if the stowage was done in such a way as to render the vessel unseaworthy, whether the owners or charterers were responsible under the contract for the losses.

The arbitrators concluded that the container should not have been stowed next to a bunker tank and that had the chief officer understood the computer programme he was using he would have realised that the location of the container was close to a source of heat. He was accordingly negligent. The arbitrators held however that that did not constitute a breach of a duty owed to the charterers under clause 8, and therefore ruled in favour of the owners. This award was appealed by the charterers.

Mr Justice Morison did emphasise that the question to be answered was what did the parties intend by clause 8 and the paramount clause introducing the provisions of the Hague/Visby Rules into the contract. The question was not whether the shipowners were under a duty to intervene in the loading process, but whether they owed that duty to the charterers. It was held that there was no authority to assist the charterers to prove the existence of such a duty and that the charterers’ reliance on certain passages from Canadian Transport Ltd v. Court Line Ltd was misfounded. In Canadian Transport Ltd v. Court Line Ltd it was simply highlighted that the master was entitled to seek to protect his vessel from stowage which rendered the vessel unsafe. A clear distinction was drawn between an entitlement to supervise and the duty to do so owed to the charterers.

The other reason for rejecting the charterers’ argument was that it was contrary to authority and it was held that the IMVROS [1999] 1 Lloyd’s Rep 848 should be followed in which judgment it was inter alia stated ”A right to intervene did not normally carry with it a liability for failure to do so, let alone relieve the actor from his liability”, and further ”it would be a remarkable construction which produced the result that so long as the loading was carried out by the charterers badly enough to put the, or the other, cargo but not the vessel at risk, the charterers would be liable but the moment the loading was so badly carried out that it made the vessel unseaworthy the entire responsibility fell upon the owners and the charterers were relieved of it”.

In the ER HAMBURG it was stated that any construction which had that effect should be resisted because then in reality no shipowner could safely and properly leave the stowage to the charterers. It was also stated that it was appropriate for the English courts to construe the same contract in the same way as the US courts, cf especially the FARLAND 462 F 2d 319 [1972] 2nd Circuit Court of Appeals.

The judge considered the charterers unseaworthiness argument (by reference to the Hague/Visby Rules, article III, 1 (and article III, 8)) would be “something of a red herring” because it was entirely the fault of the charterers if their improper stowage caused the vessel to become unseaworthy. ”Making the vessel unseaworthy through improper stowage does not, contractually, make the shipowners liable; on the contrary, all damage caused directly by improper stowage will be for the charterers’ account.”

Thus the charterers’ appeal was dismissed and in the ER HAMBURG it was established that when the NYPE C/P clause 8 was unamended, the liability for proper stowage as between the shipowners and the charterers rested with the charterers also as far as unseaworthiness caused by bad stowage was concerned.

In the judgment, Mr Justice Morison did also emphasise that if it had been the parties’ (and especially the charterers’) intention that the owners should be liable for the stowage, then that could easily have been agreed by including two words in the C/P clause 8 (line 78), i.e. “and responsibility” after “under the supervision”.

PS: This judgment is final and will not be appealed as the final paragraph of the judgment stipulates as follows: “Since the judgment was drafted and circulated, in draft, to counsel the Court has been informed that the parties have reached a settlement of the claim and counterclaim. Despite this, I have decided that this judgment should, nonetheless, be handed down”.