Law Of The Carriage Of Goods By Sea (PART 4)
Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series, the basis and elements of the Law Of The Carriage Of Goods By Sea will be explored.
Voyage charter parties
Shipowner’s Obligations As To The Ship To Be Provided Under The Charter Party
A voyage charterparty will contain a number of statements about the characteristics of the ship. In most cases, these statements are considered to be terms of the charter party, not mere representations.
When such a term is breached, the question will arise whether the term breached is a condition, warranty or an innominate term. Many of these terms are considered to be innominate terms. However, a term in relation to a particular feature of the ship to be provided can be categorised as a condition as a result of a previous judicial decision or by the construction of the contract (The Seaflower).
Where the name of the ship is expressly provided in the charter party, the owner will be required to provide the charterer with the specific ship named in the charter party, unless the charter party gives the owner a right of substitution. Naming the vessel is generally considered to be a condition (The Cenk Kaptanoglu).However, the House of Lords’ decision in The Diana Prosperity clearly shows that different considerations arise where the name provided in the charter party is not part of the description of the vessel and where it is only used for identification purposes. In such circumstances, the name of the vessel will not be a condition if the vessel actually provided can be clearly identified as the particular vessel referred to in the charter party.
For obvious commercial reasons, the charterer has a particular interest in knowing as precisely as possible how much of the intended cargo the ship can safely carry. Typically, the charter party will state the ship’s approximate dead weight (DWT) capacity. The charterers must then calculate whether the capacity matches the cargo, bearing in mind that (unless otherwise agreed) they have an obligation to use the ship’s entire capacity.
A mere statement of deadweight capacity does not import a guarantee that the ship will carry that amount of the charterers’ particular cargo – a more precise formulation would be required for that (Millar v Freden).
Consequently, the charterers will have no remedy if the ship’s capacity is insufficient, as long as the deadweight capacity has been accurately stated within normal margins. It will be a matter of construction of the words used to see whether a specific guarantee has been given.
Readiness To Load
Charterers need to know as early and as precisely as possible when the ship will be at the loading port and ready to load the charterers’ cargo. If they have the cargo ready before the ship arrives, they will incur additional storage costs. However, if the cargo is not there when the ship is ready to load, laytime will be wasted and the charterers may become liable to pay demurrage. Shipowners have an equally strong commercial interest in keeping the date as flexible as possible for as long as possible in order to allow for unforeseen delays in starting or completing the loading voyage.
At one time the difficulty was resolved by stating the ship’s ‘present’ position (i.e. position at the time when the charter party was entered into). In Behn v Burness, where such statements were held to be contractual conditions, so that any inaccuracy entitled the charterer to refuse to perform. If the statement of position was correct, the shipowner was merely obliged to proceed with reasonable despatch from there to the loading port.
Although standard forms still contain space for such statements (Gencon, Box 8), the information provided may be no more than ‘now trading’ and in itself of no help to the charterer. The modern practice is to state an approximate date when the ship is expected to be ready to load (ERL or ETA): Gencon, Box 9. Many standard form voyage charter parties also contain provisions giving the charterer the right to cancel the charter party where the ship is not ready pursuant to the requirements in the charter party by a particular date.The Mihalis Angelos settled that the shipowner’s obligation under an ETA clause is to make the estimate honestly and on reasonable grounds. The shipowner does not guarantee that the ship will arrive by the stated date and is not in breach by the mere fact that the ship arrives late. However, if the estimate is not made honestly and on reasonable grounds, the shipowner is in reach of condition and the charterer may cancel the charter party.
There is usually a gap in time between the making of the charter party and the expected date of readiness to load. The ship may be engaged in performing a voyage under an earlier charter party, or may enter into a new engagement if the time gap is thought to be large enough. The shipowner is under an absolute obligation to embark on the loading voyage at a time when, by proceeding with reasonable despatch, the ship will arrive at the loading port by the expected date (Monroe v Ryan).
Some voyage charter parties may not contain an ETA date. Where this is the case what will be the owner’s obligation? In The Pacific Voyager, the voyage charter party contained a cancelling date but there was no ETA clause. The main issue was whether the owner had an absolute obligation to start the approach voyage by a date that could reasonably be expected to enable the vessel to arrive at the loading port by the cancelling date. The court took the view that the owner had such an obligation particularly since the charterparty also contained a provision imposing a duty to proceed to the loading port with utmost despatch.
In some circumstances, the charterers can lose their right to cancel the charter party. See the recent decision in ST Shipping & Transport Inc v Kriti Filoxenia Shipping Co SA. There, the charterers’ right to cancel the charter party under the laycan clause did not survive their re- nomination of the first port pursuant to the charter party.
Charter parties usually contain a clause giving the charterer an option to cancel if the ship is not ready to load by a stated date (see Gencon, Box 21 and clause 9). The exercise of the option is not dependent on the shipowner being in breach or in any way at fault (Smith v Dart).However, there is no ‘anticipatory’ right to cancel if it becomes clear, before the cancelling date, that the ship will not be in a position to load until after the cancelling date (The Madeleine).The interval between the ERL (or ETA) date and the cancelling date is known as the ‘laycan’ or ‘laycan spread’ and charter parties may provide for notice to be given narrowing the laycan as the dates approach.Whether this requirement is a strict contractual condition or not will depend on the construction of the clause in the context of the particular charter party (The Niizuru and Universal Bulk v Andre).
Charterer’s Duty To Nominate Safe Ports
The charterer’s duty is to nominate only safe (or ‘good and safe’) ports. This warranty ‘may’ be implied, if not expressly provided, in the charter party. The courts are generally more inclined to imply a safe port warranty in time charter parties, although the courts may also imply such a warranty in a voyage charter party (The Evaggelos TH and The Reborn). The more extensive the liberty that the charterer has in choosing ports, the greater the necessity to imply a warranty (The Reborn). Hence, disputes in relation to the safe port warranty can arise in the context of both time charter parties and voyage charter parties.
Where owners expressly acknowledge the safety of a port (or ports) provided in the charter party, the charterers are not liable for nomination of such a port even if the port becomes unsafe.
In The Archimidis, the vessel was chartered to load cargo from ‘one safe port Ventspils’. The court held that the quoted words constituted a warranty by the charterer that the port was in fact safe and that the identification of the loading port was not inconsistent with the charterer’s warranty. Hence, the court held the charterer liable for damages arising from the breach of the safe port warranty (The Livanita).The classic definition of a safe port is that of Sellers LJ in The Eastern City: the particular ship must be able, at the relevant time, to : reach the port, use the port and return from the port without, ‘in the absence of some abnormal occurrence’, being exposed to danger which cannot be avoided by good navigation and seamanship.
The Court of Appeal in The Ocean Victory considered the question of what was meant by abnormal occurrence. The vessel, Ocean Victory, was ordered to Kashima, Japan. As a result of the combination of long waves and high winds, she foundered and broke up. The combination of these two events had never happened before. At first instance, Teare J held that the charterers were in breach on the grounds that neither the high winds nor the long waves in themselves were unusual events at that port. The Court of Appeal overturned the judgment of Teare J, relying on the fact that ‘the combination of these two events’ could not be regarded as normal characteristics of the port. In particular, Longmore LJ took the view that the theoretical foreseeability of an event is not sufficient to qualify that event as characteristics of the port. Recently, the Supreme Court has dismissed the appeal on the safe port issue.
In The Evia (No 2), the House of Lords, overruling earlier authority, laid down that the charterer is obliged to nominate a port that is prospectively safe – in other words a port that is reasonably expected to be safe when the time comes for the ship to use it – but does not warrant that it will be safe. If the port nominated is prospectively unsafe, the master may decline the nomination.
In the event that the port becomes unsafe before, or even after, arrival, the time charterer comes under a secondary obligation to make a further nomination, but the House of Lords pointedly refused in The Evia to state what the voyage charterer’s position would be. At the very least, the master can and should refuse to enter an obviously unsafe port (The Stork). If the shipowner waives the right to refuse and complies with the charterer’s order to proceed to an unsafe port, the charterer will be liable for loss suffered by the shipowner as a result, unless the decision to enter the unsafe port was so unreasonable as to break the chain of causation. In cases where the owner’s compliance with the charterer’s order is not so unreasonable as to break the chain of causation, the owner will be entitled to recover damages from the
charterer’s breach of the safe port warranty (The Kanchenjunga).
The shipowner has a reasonable time to decide whether to accept the charterer’s nomination (Midwest Shipping v Jute).
Charterer’s Duty To Load A Full And Complete Cargo
The charterer has an ‘absolute and non-delegable duty’ to provide a cargo for loading (The Nikmary) and it is no excuse that events beyond the charterer’s control made it impossible to have the cargo ready. Exemption clauses in the charter party will not be construed as extending to the provision of cargo for loading unless very clearly expressed to do so, since the shipowner cannot be expected to take the risk of interruptions in the charterer’s supply chain (Grant v Coverdale).Unless otherwise agreed, the charterer must load the ship to its full capacity (Hunter v Fry). The de minimis maxim will be applied very sparingly (Margaronis v Peabody). An express obligation on the shipowner ‘to load’ is dependent on the charterers fulfilling their obligation to provide a cargo (The Posidon).Where the cargo is expressed in the alternative (e.g. ‘wheat and/or barley’) and the charterer is unable to load a complete cargo of the intended cargo for a reason (such as a strike), which is covered by an exemption clause in the charter party, it is a question of construction whether the charterer is now obliged to load the alternative cargo (Brightman v Bunge y Born and Reardon Smith v Ministry of Agriculture).
Charterer’s Duty To Notify The Owner As To The Dangerous Nature Of The Cargo Loaded
Goods are dangerous if they are liable to cause damage or loss, directly or indirectly, to the ship or other cargo. The damage may be direct (e.g. by outbreak of fire due to overheating) or indirect, as where the presence of an infected cargo leads to the dumping at sea of other (uninfected) cargo (The Giannis NK). At common law, dangerousness is not confined to cases where the goods cause direct or indirect physical damage. Dangerousness extends to situations where cargoes cause delay or cost at the discharge port due to a local legal obstacle (Mitchell Cotts & Co v Steel Bros).
The concept of dangerous cargo has a narrower meaning under the Hague-Visby Rules. Under Art. IV, r.6, goods that only cause delay to the carrier are not treated as dangerous. However, where the carriage or discharge of a specific cargo constitutes ‘violation of or non-compliance with some municipal law’ that specific cargo may be considered as dangerous (The Darha Radhe).
At common law, there is an implied duty on the part of the charterer not to ship goods that are of such a dangerous character that the shipowner could not reasonably be aware of their dangerous character.
Unless the charterers give notice to the shipowners (or their agent) as to the dangerous nature of the goods, they will be liable for damage arising from the shipment of such goods. If the shipowner accepts a cargo that has dangerous characteristics, the shipowner is taken to have agreed to bear the risks inherent in the normal carriage of cargo of that description (see The Aconcagua and The Athanasia Comninos).
The charterer will only be liable for loss beyond the inherent risks, or if the goods shipped do not correspond to the contractual description (The Amphion).
If the cargo is not inherently dangerous but proves to be dangerous in the particular case, it was long controversial whether the charterer (or other shipper) was liable absolutely or had to be shown to be negligent. At common law, the duty of the charterer (or other shipper) as to dangerous cargo is absolute (Brass v Maitland).
This duty is also stipulated under the Hague-Visby Rules. This raises the question of whether the duty is also absolute under the Hague-Visby Rules, irrespective of Article IV, rule 3, which provides that:
The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, fault or neglect of the shipper, his agents or his servants.
In The Giannis NK, the House of Lords held that the shipper’s obligation as to dangerous cargo (Article IV, rule 6) is not qualified by the provision in Article IV, rule 3. Consequently, this duty was held to be absolute also in the context of the Hague-Visby Rules.
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This article is written by our Principal Associate, Chakaravarthi
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