The Facts
A grain cargo sustained wet damage as a result of sea water ingress via defective hatch covers during heavy weather.
Shortly after arrival at the discharge port, officials boarded the vessel, inspected the holds and took samples of the cargo from each hatch, which were sent for analysis. The port health organisation advised local customs authorities that “the composite representative random sample…of the 2 (No. 2&3) hatches…had been analysed and did not conform to regulatory standards” and they wrote another letter in the same terms regarding the cargo in holds 1, 4, 5, 6 and 7. Customs authorities did not permit any of the cargo to be landed.
Various surveyors representing the interested parties attended the vessel to inspect the cargo and verify its condition. It was considered that the cargo in holds 1, 4, 5, 6, and 7 was entirely sound and had not been affected by sea water ingress. The buyer acknowledged that the cargo in those holds met all quality parameters specified in the sale contract. Further, in relation to the cargo in holds 2 and 3, it was considered that only minor damage had occurred to surface cargo and that this relatively small quantity of wet and/or lumpy cargo was capable of being segregated from the sound cargo beneath it.
Attempts were made by the shipper to persuade customs authorities to allow discharging to commence for that part of the cargo which was considered to be sound. However, customs refused to alter their position on the discharging and also declined requests for a re-sampling of the cargo. The shipper therefore sought and successfully obtained a court order for the re-sampling and re-analysis of the cargo from each hatch individually.
Based on the results of the re-sampling and analysis by the port health organisation, which showed that the cargo was predominantly sound, permission to land the cargo was granted. However, as the vessel having missed a number of opportunities to berth before clearance to discharge the cargo was obtained, 23.708 days were lost. On completion of discharge only 72mt out of 66,129mt of cargo discharged was found to be damaged.
Charterers claimed US$ 443,932.31 in respect of hire paid and bunkers consumed during the period of delay or alternatively that the vessel was off-hire. Owners’ defence was that the delay was not caused by their breach since the unreasonable actions of the authorities had broken the chain of causation. Owners counter-claimed for the balance of hire up to the end of the charter, amounting to US$ 41,801.53.
Causation
Charterers argued that the seawater ingress and the actions of the port authorities were two cooperating causes; because both had been equally effective in causing the losses claimed and owners were responsible for one of those causes – sea water ingress - owners were liable for the entire loss claimed owners. Relying on a statement of the law in Chitty on Contracts, 30th edition, Vol 1, para 26-041, charterers submitted that they were entitled to succeed in the arbitration and it did not matter that there was another effective cause of the loss claimed.
Charterers also relied on Heskell v Continental Express Ltd [1950] 1 All ER 1033, County Ltd v Girozentrale Securities [1996] 3 All ER 834 and The “Kamilla” [2006] 2 Lloyd's Rep 238 to support this view and that the loss claimed was recoverable, even if the extent of the loss flowing from owners’ breach was unforeseeable.
Owners accepted the vessel had been unseaworthy in breach of the charter but denied that their breach had caused the delay. They argued there had been an intervening event - the decision of the customs authority not to allow discharge of the cargo.
The tribunal referred to Chitty para 26-032 as a starting point for considering the issue of causation. To summarise that paragraph: remoteness of damage is important in the law of contract, although a causal connection must first be proved between the defendant's breach and the claimant's loss. The breach must have been the “effective” or “dominant” cause of the loss and whether or not a particular breach was sufficiently serious to have been the cause of los was dependent on the facts and a common sense approach.
On that basis the Tribunal did not consider that the unseaworthiness and the acts of the port authorities were of equal causative power. The port authorities had made an unjustified leap of logic, had not properly considered whether the samples taken were representative of the cargo as a whole and had overlooked the usual practice of segregating damaged cargo during discharging.
Adopting a common sense approach the Tribunal concluded that owners' breach was not the cause of the delay and their claim for damages therefore had to fail.
Remoteness
While strictly unnecessary to consider when owners’ breach had not caused the loss, the Tribunal also concluded that no reasonable businessman could have contemplated that there was a serious possibility that an ingress of water resulting in damage to 0.1% of the cargo would lead to the extreme reaction of the authorities prohibiting discharge of the entire cargo, and therefore the loss claimed was to remote to be recoverable. The normal reaction would have been to segregate the damaged cargo, delay flowing from the decision to prevent discharge of the entire cargo was not something that would have been in the contemplation of the parties at the time of contracting – the second limb of the test set out in Hadley v Baxendale.
Off-Hire
Charterers had also claimed the vessel was off hire as an alternative to their claim for damages. However, because the actions of the port authorities was the effective cause of the lost time and clause 15 of the NYPE charter did not include the word “whatsoever”, the vessel remained on hire. The cause of the delay, the interference of the authorities, was an extraneous event that did not fall within “any other cause” – The “Laconian Confidence” [1997] 1 Lloyd's Rep 139.
London Arbitration 22/10
Article by Andrew Hawkins
