Legal landscape
Until recently, a carrier could place heavy reliance on the “on deck cargo” exclusion clauses contained in the contracts of carriage. Quite justifiably, so one might say, bearing in mind that there has been a long chain of case law (The Danah, The Imvros, The Darya Tara) upholding the position that a carrier would be adequately sheltered in case of deck cargo lost overboard, as long as an exemption clause was in place in the bill of lading.
The wind started to change after The Imvros which was a case heavily criticised in an article by Simon Baughen, Scholar, Reader at the University of Bristol, in 2000. This was a case of cargo loaded, stowed and lashed by the crew acting as servants of the charterers, who were responsible for loading, stowage and lashing under an un-amended NYPE clause 8. The Panel of Arbitrators found that the effective cause of the loss was the insufficiency of lashings which rendered the vessel unseaworthy. It weighted heavily on the mind of the Tribunal that it was charterers who were the ones contractually responsible for lashing, and hence owners won the argument. Charterers appealed on the basis that there was an overriding obligation on owners to intervene and not allow the vessel to sail in an unseaworthy condition and that they were therefore in breach of charter. The Queen’s Bench (QB) held that there was no reason to deviate from the ordinary construction of the FIOST clause and that the liability borne under this clause should be distinguished from the one arising out of the owners’ obligation to provide a seaworthy vessel. Hence, it was held that the owners were right.
The main point of criticism to the above case was that there was not sufficient attention given to the owners’ implied duty under common law to provide a seaworthy vessel at the commencement of the voyage. Therefore, it came as little surprise to scholars when the Singapore Court of Appeal declined to follow The Imvros doctrine in Sunlight Mercantile Pte Ltd. v. Ever Lucky Shipping Ltd.
The path was open for even more radical changes on the subject; and one came with the QB division in April 2010 in The Socol 3. In short, this case concerned a dispute with regard to loss of deck cargo under a charterparty - and not under a bill of lading. (For those who are interested, there is a noteworthy analysis in the ratio concerning whether a charterparty or a bill of lading is “the contract of carriage”.) The factual background was quite straightforward. The vessel (chartered under a NYPE) loaded packs of timber on deck for carriage from Scandinavia to the Middle East. Shortly after departure, part of the cargo was shifted in high seas and fell overboard. The exclusion clause read as follows:
“In the event of deck cargo being carried, the owners are to be and are hereby indemnified by the charterers for any loss and/or damage and/or liability of whatsoever nature caused to the Vessel as a result of the carriage of deck cargo and which would not have arisen had deck cargo not been loaded.”
The Tribunal found that there were three effective causes of the damages: (a) inadequate stowage of the deck cargo, (b) unsatisfactory lashing equipment and inadequate care of the lashing during the voyage and (c) the instability of the vessel, which was only known to owners. Regardless the above, the Tribunal found that the owners were protected by the exclusion clause. The charterers appealed.
QB Division focused deeper on the causes of the damage, as these had been identified by the Tribunal and at a later stage considered whether the exclusion clause was wide enough so as to protect the owners, in view of the identified causes of damage. Their verdict was negative for the owners. It was held that the loss was effectively caused by the owners’ negligence and by the vessel’s unseaworthiness. The exclusion clause was not wide enough to protect owners against claims arising out of the said causes.
We came across a similar case
A general cargo purpose vessel, entered with us for P&I risks, loaded cable reels on deck in Northeast Asia bound for discharge in the Middle East under a Liner Booking Note. The deck clause of the latter stipulated:
“Cargo….carried on deck….shall be shipped on deck at Merchant’s (charterer’s) risk, expense and responsibility, without liability on the part of the Vessel or her owners for any loss, damage, expense or delay howsoever caused”.
Moreover, the carrier kept liability for loading and discharge of cargo:
“Loading and Discharging of the cargo shall be arranged by the carrier or his Agent”
On the bill of lading the exclusion clause went as follows:
“…PACKAGES OF CABLE REELS SHIPPED ON DECK AT SHIPPERS / RECEIVERS/ CHARTERERS’ RISK AND RESPONSIBILITY WITHOUT LIABILITY ON THE PART OF THE VESSEL / OWNERS FOR ANY EXPENSES, DELAYS, LOSS OR DAMAGE HOWSOEVER CAUSED.”
The vessel came across severely bad weather, which put her integrity to the test. She was pitching and rolling almost all the way in the Indian Ocean (it was the cyclone season) with her bow constantly diving into the sea. At some point, the lashings of a number of the drums broke and they were lost overboard. The vessel called the discharge port, where the receivers arrested the vessel until she was released against a USD 2.5 mill LOU.
An interesting twist in the story is that all that happened right before The Socol 3 decision was issued. In other words, at the time of the incident and for a while after, The Imvros was still good law.
According to the surveyor at discharge port, there were two effective causes of the loss: (a) the severe weather and (b) insufficient lashing at the loading port. Shortly after, The Socol 3 was released and we got into the race of evidence collection from the load port. Things became even more challenging when the surveyor who had attended at loading port released his report, according to which he had reportedly pointed out the insufficiency of lashings (before the vessel’s departure). In addition, he had also recommended that the vessel avoid going through areas with bad weather. Things were getting ugly.
It became priority number one for us to manage to distinguish our case from The Socol 3 factual matrix. Hence, our course of action was as follows:
a) We tried to gather as much information as we could about the ways of lashing. It turned out that neither the crew nor the master got involved at all.
b) The company which executed the lashing was in fact appointed by the Port Authorities (in essence they came with the berth – each berth having its own lashing company). We gathered as many details as we could about this company and about the exact process of how the cargo was brought on board and how it was lashed. It would not be an exaggeration to say that we had a full and complete log of everything that happened during loading and securing the cargo. (Of course, points (a) and (b) was meant to help us indicate that there was no negligence on the part of the master / crew / owners, for any alleged insufficiency of lashing, which would consequently raise seaworthiness issues.)
c) We gathered as much info as possible about prevailing weather conditions in the Indian Ocean at the time. Our goal was to prove that the bad weather was the effective (and only) cause of the damage. Moreover, we aimed to prove that it would be impossible for the master to avoid the bad weather by taking an alternative route.
d) The wording of the exclusion clause was different in the two cases: In Socol 3, the clause read “any loss and / or damage and / or liability of whatsoever nature caused to …” In our case: “loss or damage howsoever caused”. Socol 3 did not deal with the question of whether this particular wording excludes liability for loss and / or damage caused by the owners’ negligence or the vessel’s unseaworthiness. Therefore, our contention was that The Dannah and The Imvros were still good law in this specific circumstance.
Lessons to be learned (and not forgotten)
Eventually the claim was settled. However, it did teach us many lessons. Some of them are:
a) When deck cargo is intended to be loaded, always have a surveyor checking that the lashings are sufficient, the propriety of stowage and the background of stevedoring / lashing companies attending. It is useful to obtain licensing and lashing material certificates.
b) In order to be on the safe side, insert a clause in the bill of lading which is as wide as possible. A recommended clause could be the following:
“shipped on deck at shippers/charterers’ risk and responsibility without liability on the part of the vessel/owners for any expenses, delays, loss or damage however caused and even if caused by owners’ negligence or unseaworthiness of the vessel”
If such clause is not accepted, the next best thing would be something like the following:
“shipped on deck at shippers/charterers’ risk and responsibility (to include vessel’s stability & seaworthiness) without liability on the part of the vessel/owners for any expenses, delays, loss or damage however caused.”
c) If cargo is loaded on deck, try to avoid heavy weather (if at all feasible), while of course maintaining charterers and cargo interests in the loop. In other words, try to avoid sea perils that “can be foreseen and guarded against as one of the probable incidents of the voyage” (Charles Goodfellow Lumber Sales v. Verreault, Hovington and Verrault Navigation Inc.)
Conclusion
What in the past was a concern, a ‘voice of doubt’, regarding 'on deck cargo' exclusion clauses, has now become part of the law. This recent change needs to make the actual carrier extra cautious, since traditional exclusion clauses are no longer a safe haven on their own.