C v Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Limited
[2007] FCAFC 77
•31 May 2007
FEDERAL COURT OF AUSTRALIA
C V Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Limited [2007] FCAFC 77
SHIPPING AND NAVIGATION – carriage of goods by sea – liability for damage to steel coils by corrosion before or during voyage – effect of amended Hague Rules as defined in s 7 of Carriage of Goods by Sea Act1991 (Cth) – whether vessel unseaworthy for voyage from northern winter to southern hemisphere summer because not fitted with dehumidifiers – seaworthiness – cargoworthiness – whether carriers established exercise of due diligence – whether carrier failed to carry, keep and care for coils properly and carefully – effect of ventilation of non-hygroscopic cargoes during voyage – application of dew point rule – whether packaging of steel coils sufficient – effect of evidence of standard industry practice of wrapping steel coils – whether carriers established inherent defect, quality or vice.
Carriage of Goods by Sea Act 1991 (Cth) ss 7, 17
AE Reed & Co Ltd v Page Son & East Limited [1927] 1 KB 743 cited
Albacora S.R.L. v Westcott and Laurance Line Ltd [1966] 2 Lloyd’s Rep 53 considered
BHP Trading Asia Ltd v Oceaname Shipping Ltd (1996) 67 FCR 211 cited
Burges v Wickham (1863) 3 B & S 669 cited
El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] FCAFC 202 cited
Eridania S.p.A. v Rudolf A Oetkeer (The ‘Fjord Wind’) [2000] 2 Lloyd’s Rep 191 cited
F C Bradley & Sons Ltd v Federal Steam Navigation Co Ltd (1926) 24 Ll. L. Rep 446 cited
FC Bradley & Sons Ltd v Federal Steam Navigation Co Ltd (1927) 27 Ll. L. Rep 395 discussed
Gamlen Chemical Co (A’Asia) Pty Ltd v Shipping Corporation of India Ltd [1978] 2 NSWLR 12 referred to
GH Renton & Co v Palmyra Trading Corporation of Panama [1957] AC 149 cited
Grand Champion Tankers Ltd v Norpipe A/S (The Marion) [1984] 1 AC 563 cited
Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad (1998) 196 CLR 161 applied
Huddart Parker Ltd v Cotter (1942) 66 CLR 624 cited
Maxine Footwear Co Ltd v Canadian Government Merchant Marine Ltd [1959] AC 589 cited
McFadden v Blue Star Lines Ltd [1905] 1 KB 697 referred to
Mitsui & Co Ltd v Novorossiysk Shipping Co (‘The Gudermes’) [1991] 1 Lloyds Rep 456 cited
Northern Shipping Co v Deutsche Seereederei G.m.b.H. (The ‘Kapitan Sakharov’) [2000] 2 Lloyd’s Rep 255 cited
Owners of Cargo on Ship ‘Maori King’ v Hughes [1895] 2 QB 550 cited
Papera Traders Co Ltd v Hyundai Merchant Marine Co Ltd (The ‘Eurasian Dream’) [2002] 1 Lloyd’s Rep 692 cited
Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807 cited
Rogers v Whitaker (1992) 175 CLR 479 cited
Sanko Steamship Co Ltd v Sumitomo Australia Ltd (No 2) (1995) 63 FCR 227 cited
Shipping Corporation of India Ltd v Gamlen Chemical Co (A’Asia) Pty Ltd (1980) 147 CLR 142 questioned
Silver v Ocean Steam Ship Co [1930] 1 KB 416 considered
Steel v State Line Steamship Co (1877) 3 App Cas 72 cited
Tattersall v National Steamship Company Limited (1884) 12 QBD 297 cited
The Benlawers [1989] 2 Lloyd’s Rep 51 cited
The Good Friend [1984] 2 Lloyd’s Rep 586 cited
The TJ Hooper v Northern Barge Corporation 60 F2d 737 (CA2: 1932) cited
Wabash Railway Co v McDaniels 107 US 454 (1882) cited
Waterwell Shipping Inc v HIH Casualty & General Insurance Ltd (1997) Aust Torts Reports §81-444 citedBoyd SC and Burrows AS, Scrutton on Charterparties and Bills of Lading (20th ed, Sweet & Maxwell, 1996)
Sparks A, Steel Carriage by Sea (4th ed, MPG Books Ltd, 2003)
Tenterden’s Law of Merchant Ships (11th ed, Shaw & Sons, 1867, edited by Shee J)
Treitel G and Reynolds FMB, Carver on Bills of Lading (Sweet & Maxwell, 2001)C V SHEEPVAARTONDERNEMING ANKERGRACHT v STEMCOR (A/SIA) PTY LIMITED AND TSUDA CORPORATION
NSD 23 OF 2006 andC V SHEEPVAARTONDERNEMING ARCHANGELGRACHT v STEMCOR (A/SIA) PTY LIMITED AND TSUDA CORPORATION
NSD 24 OF 2006RYAN, DOWSETT AND RARES JJ
31 MAY 2007
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
NSD 23 OF 2006
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
C V SHEEPVAARTONDERNEMNING ANKERGRACHT
AppellantAND:
STEMCOR (A/SIA) PTY LIMITED
First RespondentTSUDA CORPORATION
Second RespondentJUDGES:
RYAN, DOWSETT AND RARES JJ
DATE OF ORDER:
31 MAY 2007
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Subject to any further or other order as to the costs of the proceedings at first instance, the appeal be dismissed.
2.The appellant file and serve within seven days of this day its submissions in writing in respect of the orders which it contends, in light of the reasons published today, should be made as to the costs of the proceedings at first instance and of the appeal.
3.The respondents file and serve, within three days after receipt by it of the submissions referred to in paragraph 2 of this Order, any written submissions upon which it relies in response to those submissions.
4.The appellant file and serve, within one day of the receipt by it of the submissions referred to in paragraph 3 of this Order, any submissions in reply.
5.The appeal stand over to a date to be fixed for the making of orders as to the costs of the proceedings at first instance and of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
NSD 24 OF 2006
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT
AppellantAND:
STEMCOR (A/SIA) PTY LIMITED
First RespondentTSUDA CORPORATION
Second RespondentJUDGES:
RYAN, DOWSETT AND RARES JJ
DATE OF ORDER:
31 MAY 2007
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Subject to any further or other order as to the costs of the proceedings at first instance, the appeal be dismissed.
2.The appellant file and serve within seven days of this day its submissions in writing in respect of the orders which it contends, in light of the reasons published today, should be made as to the costs of the proceedings at first instance and of the appeal.
3.The respondents file and serve, within three days after receipt by it of the submissions referred to in paragraph 2 of this Order, any written submissions upon which it relies in response to those submissions.
4.The appellant file and serve, within one day of the receipt by it of the submissions referred to in paragraph 3 of this Order, any submissions in reply.
5.The appeal stand over to a date to be fixed for the making of orders as to the costs of the proceedings at first instance and of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
NSD 23 OF 2006
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
C V SHEEPVAARTONDERNEMNING ANKERGRACHT
AppellantAND:
STEMCOR (A/SIA) PTY LIMITED
First RespondentTSUDA CORPORATION
Second RespondentIN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
NSD 24 OF 2006
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT
AppellantAND: STEMCOR (A/SIA) PTY LIMITED
First RespondentTSUDA CORPORATION
Second RespondentJUDGES:
RYAN, DOWSETT AND RARES JJ
DATE:
31 MAY 2007
PLACE:
SYDNEY
REASONS FOR JUDGMENT
RYAN AND DOWSETT JJ:
This is an appeal from orders made by Emmett J on 16 December 2005. The two proceedings before the learned primary Judge turned on liability for corrosion damage to coils of sheet steel in the course of their carriage by sea on two voyages from Japan to Australia. In both proceedings, the second plaintiff was Tsuda Corporation (“Tsuda”), the shipper of the coils which had been consigned to the first plaintiff (“Stemcor”). Save where the context otherwise indicates, we will refer collectively to those parties (now the respondents) as “Stemcor”. The first voyage was undertaken by the M.V. Ankergracht 91262 and the second by the M.V. Archangelgracht 91273. The defendants in the proceeding (now the appellants) were the respective owners of those vessels, C.V. Sheepvaartonderneming Ankergracht (“Ankergracht”) and CV Sheepvaartonderneming Archangelgracht (“Archangelgracht”). We will refer to those parties collectively as “the Carriers”. Each had issued a bill of lading in respect of the coils carried on its vessel.
It was common ground that the steel coils were damaged as the result of corrosion caused by contact with water before or during the relevant voyage and that the carriage of the steel coils was governed by the provisions of the amended Hague Rules as defined in s 7 of the Carriage of Goods by Sea Act 1991 (Cth) (“the amended Hague Rules”). Stemcor relied on a breach by the Carriers of those Rules. The Carriers, for their part, relied on exempting provisions of the same Rules.
THE GOVERNING RULES AND LEGISLATION
The relevant provisions of the amended Hague Rules are in these terms;
‘ARTICLE 1
1. In these Rules, the following words are employed, with the meanings set out below:-
(a) “Carrier” includes the owner or the charterer who enters into a contract of carriage with a shipper.
…
ARTICLE 2
1. Subject to the provisions of this Article and Articles 6 and 6A, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities, set out in these Rules.
2. For paragraph 1 of this Article, “goods” includes goods (except live animals) carried on or above deck.
3. However, if the shipper has specific stowage requirements for goods carried on or above deck, then, for paragraph 1 of this Article to apply, the shipper must tell the carrier in writing of those requirements at or before the time of booking the cargo.
4. Despite Article 4bis, if a carrier carries goods on or above deck contrary to an express agreement with the shipper of the goods made at or before the time of booking the cargo, then, for any loss or damage to the goods that results solely from the goods being carried on or above deck, the carrier is not entitled:
(a) to any exception or exemption under these Rules; or
(b)to any limit provided by these Rules to its liability for the loss or damage.
[NOTE: Article 6A allows a shipper and a carrier to agree that these Rules do not apply to certain kinds of cargo that must be carried on deck—see that Article.]
ARTICLE 3
1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to—
(a) Make the ship seaworthy.
(b) Properly man, equip and supply the ship.
(c)Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.
2. Subject to the provisions of Article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
…
ARTICLE 4
1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, and to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation in accordance with the provisions of paragraph 1 of Article 3. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this article.
2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from—
…
(m)Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods.
(n) Insufficiency of packing.
…
(q)Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.
5.
…
(b)The total amount recoverable shall be calculated by reference to the value of such goods at the place and time at which the goods are discharged from the ship in accordance with the contract or should have been so discharged.
The value of the goods shall be fixed according to the commodity exchange price, or, if there be no such price, according to the current market price, or, if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality.’
Section 17 of the Carriage of Goods by Sea Act 1991 (“COGSA”) provides:
‘There is not to be implied in any contract for the carriage of goods by sea to which Part 2 or 3 of this Act applies any absolute undertaking by the carrier of the goods to provide a seaworthy ship.’
THE CONCLUSIONS AT FIRST INSTANCE
In each proceeding the learned primary Judge held the relevant carrier to be liable for the corrosion damage occasioned to the coils in the course of the voyage from Japan to Australia. His Honour’s findings were expressed at [156] to [161] as follows:
‘156It is true that the packaging of the coils was not such as would prevent the ingress of water in the form of vapour. However, the coils were packaged in a way that is regarded as adequate in the industry, and in a manner consistent with the general practice in the industry. There was no evidence of any industry practice of wrapping coils in a way that ensures there is no possible ingress of water in the form of vapour or otherwise. The evidence does not support a finding that the internal wrapping was defective or inadequate in any way.
157The coils were being transported from a cold northern hemisphere climate to a hot southern hemisphere climate, through the tropics. While the coils were particularly susceptible to damage from corrosion consequent upon contact with water and the Carriers were not specifically informed of any particular sensitivity of the coils, the sensitivity of steel to corrosion generally was well known in the industry.
158I consider that it is more likely than not that the holds were closed in Yokohama with water trapped inside in the form of wet dunnage and liquid water on some cargoes that were wet with rain. Further, ventilation occurred during the course of the voyages, at times when the vessels were likely to have been in the tropics. Ventilation probably resulted in the ingress of air containing water vapour rather than the removal of water vapour from the holds.
159I consider that, on the balance of probabilities, condensation occurred after the loading of the coils on each vessel and during the course of the respective voyages of the vessels. That condensation resulted in corrosion. The corrosion could not have occurred if moisture had not been admitted into the holds or if moisture, once admitted, had been removed by the operation of a dehumidification system installed in the vessels. Alternatively, condensation could have been prevented by the operation of a heating system installed on the vessels to ensure that the surface temperature of the coils did not fall below the dew point temperature of the air in the holds.
160In the circumstances, I consider that the corrosion was caused by the failure on the part of the Carriers to carry, keep and care for the coils properly and carefully during the voyages in circumstances where the vessels had neither dehumidification systems nor heating systems installed. In the circumstances, having regard to the apparent difficulty in preventing the ingress of water into the holds in the ways that I have described, the vessels were not seaworthy for the carriage of the coils in question from Yokohama to Sydney on voyages commencing in December and February respectively. Since it was practicable to install dehumidifiers in the vessels, the Carriers failed to exercise due diligence to make the ships seaworthy and to make the holds fit and safe for the carriage and preservation of the coils.
161It follows that the Carriers are responsible for the corrosion damage that was occasioned to the coils and Stemcor is entitled to be compensated for that damage.’
These shipments were amongst the first shipments to Australia from Japan during the Northern Hemisphere winter. The particular problem experienced in such voyages is that as ships approach the equator, increases in heat and humidity are likely to facilitate condensation.
A critical issue was in what circumstances the coils came into contact with water, either as liquid or vapour. The coils were manufactured at Tsuda’s Taijo mill for Stemcor. Stemcor sold them to Australian Colour Coaters Operations Pty Ltd (“ACC”). The coils were lightly oiled and wrapped on the day of manufacture. The method of wrapping was quite complex and is described in detail in his Honour’s reasons. For present purposes it is sufficient to say that each coil was wrapped in kraft paper and then enclosed in an individual steel casing. His Honour found that the coils had not become wet whilst at the mill. From the mill they were taken by barge to Yokohama for loading onto the relevant vessels.
The Ankergracht consignment was manufactured on 19, 21, 23 and 28 October and 6 and 7 November 2001 and loaded onto that vessel on 9, 10, 12 and 13 November 2001. On 9, 10 and 12 November 2001 loading was stopped because of rain. The practice was to close the hatches when it began to rain, that process taking between fifteen and twenty minutes. In addition to the coils, other steel cargo was loaded at Yokohama. Emmett J concluded that some of the coils and other cargo had been loaded when wet. The Ankergracht also used timber as dunnage, that is to separate items in the hold. It is possible that such timber was also wet when taken on board. The Ankergracht sailed from Yokohama on 13 November 2001, arriving in Brisbane on 26 November and in Sydney on 29 November 2001. The coils were then transported to ACC’s premises where some were found to have suffered corrosion damage.
The coils shipped on the Archangelgracht were produced at the Taiyo mill on 28 December 2001 and 9, 10 and 11 January 2002. They were despatched from the Taiyo mill on 15 January 2002. The Archangelgracht arrived at Yokohama on 16 January 2002 and was loaded between 16 and 18 January 2002. The cargo included other steel items in addition to the steel coils. The coils were loaded onto the Archangelgracht on 17 and 18 January 2002. Some cargo was loaded wet, but there was no evidence that the coils were wet when loaded. There was evidence of sweating inside pipes which formed part of the cargo. The Archangelgracht then sailed to Kobe where it loaded further cargo, some of which was wet. Dunnage was also used. It may also have been wet. The Archangelgracht arrived in Brisbane on 9 February 2002 and in Sydney on 13 February 2002. The coils were transported to ACC where some were found to be damaged by corrosion.
Clearly, there was water in the hold of each vessel on sailing from Yokohama. Additional water probably entered the hold of Archangelgracht in Kobe. His Honour found that additional water also probably entered the hold of each vessel as a result of ventilation during its voyage to Australia.
At the trial a further issue was whether, particularly in the case of the Ankergracht, the corrosion had been caused by water in liquid form penetrating the wrapping and coming into contact with the coils, as opposed to penetrating the wrapping in the form of water vapour. Emmett J concluded that the corrosion had occurred as the result of water vapour penetrating the wrapping. In so finding his Honour acted upon the evidence of Professor Jones, a person of substantial relevant experience. He was not cross-examined. We do not understand the Carriers to challenge that finding. As appears from para 10 of their outline, their case on appeal depended upon the damage being attributable to condensation. We proceed upon the basis that the cause of the corrosion was water condensation on the coils.
Article 3 r 1 focuses on the condition of the relevant vessel before, and at the beginning of, the voyage, whilst Art 3 r 2 focuses on the carrier’s conduct before, during and after the voyage. It follows that, in assessing seaworthiness and the conduct of the Carriers, it may be necessary to determine, if possible, the stage or stages at which water entered the hold of each vessel. His Honour accepted the evidence of Dr Bellstedt that condensation probably did not occur before, or immediately after, loading and before sailing, and that it therefore occurred during each voyage. We do not understand this finding to be challenged.
Emmett J identified the mechanism by which water vapour might enter the hold during ventilation. Each vessel had ventilation fans mounted forward and aft. There was evidence that, if there were water in the hold, the ventilators might be operated so as to remove moisture. However Emmett J found that such operation might actually introduce additional moisture. At [117] his Honour said:
‘It is common practice to ventilate the holds of vessels. That ventilation involves the opening of vents to allow the ingress of air from the atmosphere. That air will have the characteristics of the ambient temperature and humidity of the atmosphere at the time and place of ventilation. Thus, where the air outside the holds is more humid than the air in the hold, the humidity in the hold could be increased. Conversely, if the air outside the hold is drier than that inside the hold, the level of humidity may be reduced. Further, where the
air outside the hold is warmer than that (inside) the hold, the temperature of the air in the hold may be increased by ventilation and, conversely where the temperature of the air outside the hold is colder than that inside, the temperature of the air in the hold may be reduced by ventilation. Having regard to the relationship between air temperature and humidity, ventilation is capable of causing condensation on colder items within the hold.’At [124] his Honour said:
‘Ventilation occurs only where the dew point of the air outside the hold is lower than the dew point of the air inside. The corollary is that there is no ventilation where the dew point of the air outside the hold is higher than the dew point of the air inside the hold. That principle is referred to as “the dew point rule”.’
Emmett J accepted that there was a practice of ventilating cargo holds during voyages, applying the dew point rule. However, his Honour also found that, because of the difficulty in measuring the temperature of all cargo, that rule offered only an approximate estimate of the suitability of prevailing conditions for ventilation. For this reason, as Emmett J observed, ‘It is standard practice in the shipment of steel from cold to warmer climates not to ventilate the hold.’
Article 3 Rule 1
Emmett J concluded that given the susceptibility of steel coils to corrosion if exposed to water, each vessel was unseaworthy because it had no dehumidifiers to remove water which might enter the hold on cargo or dunnage or in the form of rain, which entry ought to have been foreseen. His Honour also found that, in failing to fit dehumidifiers, the Carriers had failed to exercise due diligence to make their respective vessels seaworthy.
Article 3 Rule 2
Emmett J held that, given the known sensitivity of the coils to moisture and the absence of a dehumidification system, the admission of water into the hold in the course of ventilation was a failure to carry, keep and care for the coils properly and carefully.
Article 4 Rule 2
In their defences, the Carriers sought to rely on a number of the exclusions contained in Art 4 r 2, particularly that the loss or damage arose or resulted from the following incidents identified in that rule:
Act or omission of the shipper or owner of the goods, his agent or representative;
Insufficiency of packing;
Inherent defect, quality or vice of the goods; and
Any other cause arising without the actual fault or privity of the carrier, or fault or neglect of the agents or servants of the carrier.
The Carriers provided particulars of these defences. In effect they alleged deficiencies in wrapping permitting the entry of moisture and that the coils were wet when delivered for loading. In the so-called particulars it was also alleged that ventilation had only occurred when and where it was appropriate.
GROUNDS OF APPEAL
Each of the Carriers appeals. The grounds of appeal in proceedings numbered NSD 24 of 2006 are set out in a notice of appeal dated 5 January 2006 and are repeated in identical terms in the notice of appeal in proceedings NSD 25 of 2006. They are:
‘1.His Honour erred by failing to hold that the damage to the coils carried on the ship was caused by cargo sweat.
2.His Honour erred by failing to hold that the packaging of the steel coils was insufficient to prevent cargo sweat.
3.His Honour erred by failing to hold that there was no breach of Article 3 Rule 1 of the Hague Visby Rules.
4.His Honour erred by failing to hold that there was no breach of Article 3 Rule 2 of the Hague Visby Rules.
5.His Honour should have held that there was no industry practice proved for shipment of the cargo as packaged being adequate.
6.His Honour erred by holding that the want of a dehumidification system established a breach of the said Rules.
7.His Honour erred in holding that the carrier was required to prevent cargo sweat.
8.His Honour erred by taking into account both vessels in determining whether the carrier was in breach of the said Rules.
9.His Honour erred by taking into account the contract between Spliethoff and Stemcor in determining whether the carrier was in breach of the said Rules.
10.His Honour erred by taking into account the want of description as to the unchromated and un-passivated state of the coils in determining whether the carrier was in breach of the said Rules.
11.His Honour erred by taking into account a posed erroneous essential question as to the competing assumptions in determining whether the carrier was in breach of the said Rules.
12.His Honour erred by taking into account an irrelevant consideration as to operation of PAS vessels since 2003 in determining whether the carrier was in breach of the said Rules.
13.His Honour erred by taking into account the wet dunnage and liquid water on some cargoes in determining whether the carrier was in breach of the said Rules.
14.His Honour erred by taking into account that condensation may have been prevented by the installation of a heating system in determining whether the carrier was in breach of the said Rules.
15.His Honour erred in holding that ventilation resulted in the ingress of water vapour rather than the removal of water vapour.
16.His Honour erred in holding that it is standard practice not to ventilate the hold from cold to warmer climates.
17.His Honour erred by failing to take into account that the ventilation by the carrier was in accordance with usual practice and good practice in determining whether the carrier was in breach of the said Rules.
18.His Honour erred in holding that because the criteria for determining when to ventilate is not precise that [sic] the question of installation of a dehumidification system is critical.
19.His Honour erred in law by imposing a standard of precision and perfection in determining whether in breach of the said Rules [sic].
20.His Honour erred by taking into account the wrong test of whether installation of a dehumidification system was reasonably practicable in determining whether the carrier was in breach of the said Rules.
21.His Honour should have held that balancing of competing interests was reflected in the provisions of the Hague Visby Rules and that installation of airconditioning in the form of dehumidification by the carrier was not a want of due diligence within Article 3 Rule 1, was not reasonably practicable and did not render the vessel unseaworthy within the said Rule.
22.His Honour erred by taking into account an erroneous test that the Court must strive to pursue a middle ground between requiring ideal protection of stowage on the one hand, and tolerating a flagrant disregard for the safety of the cargo on the other.
23.His Honour erred in failing to hold that packaging that did not protect the coils against exposure to water vapour in the air was insufficient.
24 His Honour erred in holding that damage resulted from unseaworthiness.
25.His Honour erred in taking into account the moisture pervious packaging of the coils in question in determining whether the vessel was unseaworthy within Article 3 Rule 1.
26.His Honour erred in taking into account that the vessel did not have a dehumidification system in determining whether the vessel was unseaworthy within Article 3 Rule 1.
27.His Honour erred by failing to take into account that the vessel was fit to carry the coils that arrived undamaged in determining whether the vessel was unseaworthy within Article 3 Rule 1.
28.His Honour erred by failing to hold that the vessel was fit for the nature of the intended voyage and accordingly seaworthy within Article 3 Rule 1.
29.His Honour erred by taking into account prevention of cargo sweat damage in determining whether the vessel was seaworthy within Article 3 Rule 1.
30.His Honour erred by taking into account fitness to carry the particular cargo in determining whether the vessel was seaworthy within Article 3 Rule 1.
31.His Honour erred in holding that the carrier had not exercised due diligence before and at the beginning of the voyage to make the holds fit and safe for the reception, carriage and preservation of the cargo within Article 3 Rule 1 for want of a dehumidification system.
32.His Honour erred in holding that the carrier had not exercised due diligence before and at the beginning of the voyage to properly equip and supply the ship within Article 3 Rule 1 for want of installation of a dehumidification system.
33.His Honour should have held that in the light of the date of arrival for loading, date of issue of mates receipt and bills of lading and need for re-class surveying the vessel to install in the holds a dehumidification system together with the consequential modifications to structure and equipment as well as space, acquisition, running, maintenance costs and downtime, such installation steps were not required in the exercise of due diligence before and at the beginning of the voyage and were not steps required by industry standards, were not steps that were necessary, were not steps that were practicable and were not reasonable steps in respect of the obligations imposed by Article 3 Rule 1.
34.His Honour should have held that the carrier exercised due diligence before and at the beginning of the voyage to make the vessel seaworthy.
35.His Honour erred by taking into account knowledge that the coils are sensitive to moisture and the absence of a dehumidification system in determining whether the carrier was in breach of Article 3 Rule 2.
36.His Honour erred in holding that the admission of water vapour into the holds during the course of the voyage was a breach of Article 3 Rule 2.
37.His Honour erred by failing to take into account the packaging of the kind used subsequent to the consignments in question by Stemcor, as adopted by Tsuda and the additional plastic wrapper practice deposed to by Captain Pyett.
38.His Honour erred in rejecting the evidence of Captain Pyett as to the inadequacy of the packaging.
39.His Honour erred by failing to give reasons identifying the evidence preferred and for rejecting the evidence of Captain Pyett as to the inadequacy of the packaging.
40.His Honour should have held that the carrier was not responsible for the damage because it arose or resulted from insufficiency of packaging under Article 4 Rule 2(n).
41.His Honour should have held that the carrier was not responsible for the damage because it arose or resulted from inherent sweating vice of the cargo as packaged and loaded in Winter in Japan under Article 4 Rule (2)(m).
42.His Honour erred in holding that reliance upon Article 4 Rule 2 (m) does not go beyond Rule 2(n).
43.His Honour should have held that the carrier was not responsible for the damage because it arose or resulted without any actual fault or privity of the carrier within Article 4 Rule 2(q).
44.His Honour erred in holding that the carriers were responsible for the corrosion damage and consequentially in awarding damages and costs to the plaintiffs.’
In each appeal the relevant carrier contends that the appeal should be allowed, the orders made below be set aside and in lieu thereof there be judgment for that carrier. Consequential orders are also sought as to the costs of the appeal and the proceedings at first instance.
CARRIERS’ SUBMISSIONS
The Carriers submitted that, in finding them liable for the damage to Stemcor’s coils, his Honour, although correctly acknowledging that Art 3 r 1 of the amended Hague Rules does not impose an absolute obligation on a carrier, applied that rule as absolutely obliging the Carriers to prevent the introduction of water vapour or moisture to the holds during ventilation. It was further submitted that the learned primary Judge had construed Art 3 r 2 without regard to the balance found in Art 4 r 2 and, in assuming that the Carriers should have installed systems of dehumidification, had applied the relevant amended Hague Rules as imposing such an absolute duty on them.
In the Carriers’ submission, the imposition of an absolute standard was also reflected in the question posed by the learned primary Judge at the outset of his reasons where his Honour observed, at [8]:
‘It is common ground that the steel coils were damaged as a result of corrosion resulting from contact with water before or during the course of the voyages. The steel coils in question were particularly prone to corrosion from contact with water. There is a dispute as to the mechanism whereby water entered the packaging around the coils. The essential question, however, is whether the Carriers were entitled to assume that the packaging of the steel coils was such that water in any form could not penetrate the packaging, or whether Tsuda and Stemcor were entitled to assume that there would not be sufficient water in any form, either as liquid or vapour, in the holds of the vessels for condensation to occur on the coils. That, in turn, raises questions as to whether Tsuda adopted a method of packaging the steel coils that was usual in the industry and as to the usual practice of carriers of steel coils of the nature of the coils in question.’
That identification of ‘two competing and contradictory assumptions’ was said to be consistent with the application of an absolute standard as was his Honour’s reasoning that the absence of a dehumidification system constituted a breach of both Art 3 r 1 and Art 3 r 2. According to Counsel for the Carriers, his Honour effectively held them liable for not converting their single hold general cargo ships to air conditioned cargo carriers on the assumption that a part of the general cargo shipped on board (Stemcor’s coils) would not have sufficient packing to withstand ordinary “cargo sweat” on the intended voyage from the cold northern hemisphere across the equator to Australia.
The Carriers next submitted that the decision in Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad (1998) 196 CLR 161 at [27] and s 17 of the Carriage of Goods by Sea Act 1991 (Cth) demonstrate that the obligation to ensure due diligence is not absolute. Those authorities preclude the conflation of seaworthiness with cargoworthiness; see also The Good Friend [1984] 2 Lloyd’s Rep 586 at 591-2 and The Benlawers [1989] 2 Lloyd’s Rep 51 at 59-60. In a related way the Carriers contended that the absence of evidence that dehumidifiers were installed in conformity with an industry practice or standard, combined with the findings at first instance of proper practice in the ventilation of the holds, and proper maintenance and correct operation of the hatches, meant that there had been no breach of Art 3 r 1 or r 2. The Carriers submitted that in the absence of a proven breach of Art 3 no issue arose under Art 4 (see Great China Metal at [52]).
The Carriers submitted that the concept of ‘… before and at the beginning of the voyage …’ in Art 3 r 1 covers the whole of the period from at least the beginning of loading until the beginning of the voyage: Maxine Footwear Co Ltd v Canadian Government Merchant Marine Ltd [1959] AC 589 at 603. It was contended that ‘this concept implies a practical stage and practical content in discharging the obligation imposed by Art 3 r 1’. In the Carriers’ submission, the suggestion that each ship’s ventilation system should be re-designed, delaying loading, so as to have an air conditioned vessel does not sit comfortably with the concept of a practical “stage” or “content” and assumed a duty well beyond due diligence approximating the common law duty of care: GH Renton & Co v Palmyra Trading Corp of Panama [1957] AC 149 at 166. In the Carriers’ submissions, the concept of due diligence merely imposed on the Carriers a non-delegable duty of care: Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807 at 845, 862, 869, 878-9.
The Carriers submitted that, in conformity with generally accepted principles of construction of the amended Hague Rules, they should be applied by national courts in a way which achieves an allocation of risks between cargo and carrier interests which is, as far as possible, uniform: Great China Metal at [38]; El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] FCAFC 202, at [142]-[144]. In the Carriers’ further submission, the learned primary Judge imposed on them liability for permitting the entry of water vapour during the voyage by applying a standard which, if correct, would render superfluous Art 4 r 2(n). The liability imposed by his Honour in this case is said to be destructive of the accepted allocation of the risk by recognising, in effect, an absolute duty on the Carriers which does the opposite of advancing uniformity.
Counsel for the Carriers also asserted that the interpretation of the amended Hague Rules favoured by his Honour ignores the absence of the definite article preceding “goods” in Art 3 r 1(c) and is destructive of the balance between shipowners’ and cargo interests sought to be struck by the exceptions in Art 4 r 2. If a shipowner is to be absolutely liable for permitting water vapour to penetrate cargo during a voyage, so the argument went, there would be no need for Art 4 r 2. In other words, the primary Judge’s approval would allow adherence to industry practice governing packaging to shift the loss from cargo interests, but would not allow adherence to proper practice as to hatch covers and ventilation similarly to exculpate a shipowner.
The effective cause of the corrosion of the coils, according to the Carriers, was “cargo sweat” which was said to be an inevitable consequence of voyages such as those in question. There was no evidence, and no finding that there was water in liquid form in the hold of either vessel prior to loading. Accordingly, if water penetrated the cargo as a result of its being loaded when wet, or as a result of water vapour entering the hold in the ambient atmosphere, neither event was attributable to unreasonable conduct on the part of the Carriers.
Emmett J was said to have erred in posing the alternative questions whether Stemcor was entitled to assume that there would be insufficient water present in each hold to permit condensation to occur, or whether the Carriers were entitled to assume that the wrapping was sufficient to prevent penetration by water in any form. This was said to illustrate an error of construction in that the amended Hague Rules required a shipowner only to exercise due diligence which approximates to the common law duty of care and is a concept imported into the Rules to make it clear that a carrier’s duty is non-delegable. The duty was discharged in the present case by ventilating by reference to a calculated dew point in the hold of each vessel.
Another illustration of the same error was said to be his Honour’s characterisation of each vessel as unseaworthy because of the absence of dehumidifiers. That evinced a “cargo specific” approach which substituted a notion of “cargo-worthiness” for “seaworthiness”. The correct test, according to the Carriers, is whether a reasonably diligent shipowner would have installed a dehumidifier. A similar error was imputed to his Honour’s treatment of the operation of the ventilation system on the vessels. That was found to be consistent with ‘both usual practice and good practice.’. Nevertheless, the learned primary Judge went on to hold, at [116] that:
‘If the ventilators were operated in a fashion that permitted the ingress of further moisture, there was a failure to carry, keep and care for the coils properly and carefully.’
A cognate criticism was made of his Honour’s conclusion, at [128] of his reasons that:
‘Because of the imprecision of the criteria for determining when to ventilate and when not to ventilate, the question of installation of a system of dehumidification is critical.’
The existence of such imprecision was said not, of itself, to justify imposition of a standard of reasonableness upon a shipowner. Likewise, it is said to be a misapplication of Art 3 r 1 and r 2 to suggest that, when the coils were known to be sensitive to moisture, an obligation was necessarily cast on the Carriers to install a dehumidifier. Conversely, the learned primary Judge should have held that the penetration of moisture through the packaging of the coils afforded the Carriers, in the absence of negligence, a defence under Art 4 r 2(n).
Counsel for the Carriers suggested that his Honour had restated the same erroneous formulation of “the real issue” referred to at [30] above when he said, later in the reasons, at [146]:
‘It is apparent that the method of packaging employed by Tsuda, while in accordance with usual practice, was not such as would prevent the entry of water vapour in the air. The real issue in relation to the question of adequacy of packaging is whether, having regard to the nature of the steel, the packaging was required to be such that water vapour could not enter through it, or whether the packaging was sufficient if it was adequate to prevent the entry of loose water from external wetting, the burden being imposed upon the carrier to ensure that the conditions of carriage were such that water vapour in the air, which might infiltrate the outer and inner packaging, would not condense on the steel coils. Putting it another way, the question is whether the shipper was entitled to rely on the carrier to ensure that the conditions under which carriage was to occur would preclude condensation of water vapour in the air, or whether the carrier was entitled to assume that the packaging was such as to preclude the ingress of water vapour through the packaging.’
The Carriers claimed that there was a clear finding that the ingress of moisture to the coils had been permitted. That was said to entail a finding that the packaging was insufficient, and that his Honour was therefore in error in holding that the evidence did not support that conclusion. Reference was made in this context to the evidence of Captain Pyett which, it was said, should not have been regarded as inconsistent with that of Professor Jones, which evidence his Honour preferred. That preference, Counsel for the Carriers asserted, was inconsistent with the finding that the ingress of water to the coils had been permitted. Moreover, it was based on the imposition of an unspecified standard. The conclusion which his Honour should have reached was that, ‘(Stemcor) knew that their cargo was highly susceptible to corrosion being un-passivated and unchromated whereby packaging for the intended cargo should have prevented the known and foreseeable entry of moisture through inevitable cargo sweat.’ In essence, the Carriers contended that, in the absence of affirmative evidence that the packaging actually used conformed with general practice or accepted standards in the industry, the fact that water vapour permeated the packaging which had been used proved that the packaging was insufficient for the intended voyage within the meaning of Art 4 r 2(n). The capacity to travel safely is part of the order and condition of the goods and was lacking because of the insufficiency of the packaging which was not apparent to the Carriers on the face of the goods: see Silver v Ocean SS Co [1930] 1 KB 416 at 441.
The Carriers asserted that the findings at [158] of the reasons below did not support a conclusion that there had been a breach of Art 3 of the amended Hague Rules. His Honour there said;
‘I consider that it is more likely than not that the holds were closed in Yokohama with water trapped inside in the form of wet dunnage and liquid water on some cargoes that were wet with rain. Further, ventilation occurred during the course of the voyages, at times when the vessels were likely to have been in the tropics. Ventilation probably resulted in the ingress of air containing water vapour rather than the removal of water vapour from the holds.’
Similarly, the finding on the balance of probabilities at [159] was said to be consistent only with “cargo sweat.” That paragraph recites:
‘I consider that, on the balance of probabilities, condensation occurred after the loading of the coils on each vessel and during the course of the respective voyages of the vessels. That condensation resulted in corrosion. The corrosion could not have occurred if moisture had not been admitted into the holds or if moisture, once admitted, had been removed by the operation of a dehumidification system installed in the vessels. Alternatively, condensation could have been prevented by the operation of a heating system installed on the vessels to ensure that the surface temperature of the coils did not fall below the dew point temperature of the air in the holds.’
The references there to dehumidification and a heating system were criticised as reflecting the adoption of an absolute standard not imposed by the amended Hague Rules. Moreover, the speculation about heating was not supported by evidence and took no account of the variable effects which heating would have on the carriage, discharge or other handling of different categories of cargo in the hold of each vessel.
Finally, it was contended on behalf of the Carriers that the learned primary Judge should have found that any negligence which might have been attributed to either Carrier within Art 4 r 2(q) of the amended Hague Rules had not caused the damage suffered by Stemcor. His Honour had not addressed this matter which was pleaded in the defence of each Carrier. The cause of damage identified in the passage quoted above was not due to any want of reasonable care on the part of the Carriers.
STEMCOR’S SUBMISSIONS
Counsel for Stemcor focused on the primary Judge’s findings that water had entered the holds of the vessels during cargo loading and was present on loaded cargo, timber packaging and dunnage. That was said to make it “virtually inevitable” that condensation would occur during each voyage from Japan to Sydney. This meant that, in contravention of Art 3 r 1, neither vessel was seaworthy before the voyage. Since the damage to the goods had been caused by condensation during the voyage, the Carriers had failed to show due diligence as required by Art 4 r 1 because they had failed to take reasonably practicable steps to make the holds fit and safe for the carriage of the goods. That made it unnecessary for the primary Judge to consider sufficiency of packaging or any other issue relevant to the exceptions or immunities stipulated in Art 4 r 2.
Stemcor also submitted that his Honour held that the steel coils had been packed in a manner consistent with standard industry practice. Accordingly, the Carriers had not discharged the onus of proving that the cause of the damage was within the immunity conferred by Art 4 r 2(n). The learned primary Judge’s approach conformed with that taken by the High Court in Great China (supra).
Counsel for Stemcor contended that the Carriers’ submissions were based on a series of false premises. In the first place, it was erroneous to suggest that his Honour had imposed an “absolute standard” on the Carriers. That the standard was not absolute was expressly recognised at [88] of the reasons where his Honour observed:
‘Article 3 rule 1 imposes an obligation on a carrier to provide a ship fit to carry the particular cargo on the particular voyage to the particular destination (Mitsui & Co Ltd v Novorossiysk Shipping Co [1991] 1 Lloyd’s Rep 456 at 472). However, the obligation imposed by Article 3 rule 1 is not an absolute one. The absolute duty at common law to provide a seaworthy ship is displaced by Article 3 rule 1, which requires the carrier to exercise due diligence to provide a seaworthy ship (Papera Traders Co. Ltd. and Others v. Hyundai Merchant Marine Co. Ltd. and Another [2002] 1 Lloyd’s Rep 719 at 124 (The Eurasian Dream)). In cases where damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence is on the carrier.’
It was submitted that his Honour’s entire discussion of the possible installation of dehumidifiers reflected a weighing of considerations going to the reasonable practicability of installing them. Those considerations included the extent to which dehumidifiers had been used in other vessels engaged in similar trades, their availability in Yokohama when the voyages in question commenced and the cost of their purchase or hire relative to the freight charges and the value of the shippers’ goods. His Honour also noted operational consequences of installing dehumidifiers including the space, weight, power and air supply requirements, additional fuel needed and the necessity for re-classification survey.
The question for the Carriers which, according to Stemcor, the learned primary Judge had correctly addressed, was whether to offer the vessels to carry the coils. That was not a question to be answered on the wharf on the day on which the coils were to be loaded. Rather, due diligence required an assessment of what could be done to prevent the entry of water to the holds or, if that were not practicable, whether dehumidifiers could reasonably be installed to make the holds safe for carrying and preserving the coils which were known to be sensitive to moisture.
It was next claimed that the Carriers’ strictures on the primary Judge’s reasoning ignored the “critical and unchallenged findings” that water had been permitted to enter the holds, that reasonably available steps to remove the water had not been taken and that, as a result, the goods had sustained damage.
Stemcor disputed the Carrier’s assertion that the reasoning at first instance entailed the conclusion that a sea carrier will be liable for damage by “ordinary” cargo sweat occurring in a voyage which crosses the equator. That was said to ignore the critical premise that water had been introduced into the holds before they were sealed. It was also said that the expert witnesses on each side (Captain Frost for Stemcor and Captain Pyett for the Carriers) agreed that such introduction of water created a problem for a master which had to be rectified by use of dehumidifiers.
The Carriers’ reliance on “ordinary cargo sweat” was also criticised as invoking an inherently ambiguous concept. His Honour had referred only to “condensation” whereas the Carriers seemed to use “ordinary cargo sweat” as confined to condensation forming inside the packaging of goods. Moreover, there was said to be no basis in the evidence for regarding cargo sweat as an ordinary incident of carriage. The evidence about ventilation and other means of managing cargo suggested the contrary. A related non sequitur imputed to the Carriers was their denial that free water in the holds was causative of the damage to the coils. That denial was said to reflect the Carriers’ characterisation of the judgment below as based on ventilation of the holds during the voyages. In this context, Counsel for Stemcor said that Counsel for the Carriers had wrongly interpreted his Honour’s comments about ventilation being a common practice as a finding that the ventilation of the holds during the voyages in question had accorded with usual and good practice.
In a related way, Counsel for the Carriers characterised what had been found by the primary Judge to have accorded with usual and good practice as the system of taking and recording temperatures and calculating the relative humidity and the dew point. According to Stemcor, ‘the ventilation of this cargo on this trip was in breach of standard practice and the Carrier’s duty.’
Counsel for Stemcor also denied that his Honour had impermissibly conflated seaworthiness with “cargo-worthiness”. The two concepts are said to be intertwined because the obligation imposed on a shipowner by Art 3 r 1 arises in respect of the particular vessel carrying the particular cargo on the particular voyage. To be seaworthy the vessel must be fit in all aspects to carry the particular cargo on the particular voyage to the particular destination: Mitsui & Co Ltd v Novorossiysk Shipping Co (“The Gudermes”) [1991] 1 Lloyds Rep 456 and Great China at [27]-[33]. Support was also derived from the endorsement by Scrutton LJ in F C Bradley & Sons Ltd v Federal Steam Navigation Co [1926] Lloyds Rep 446 at 454 of a passage from Carver on Carriage by Sea to the effect that ‘the vessel must be cargoworthy in the sense that it is in a fit state to receive the specified cargo.’
Seaworthiness was said to be capable of objective assessment and to be distinct from whether the owners have exercised due diligence to make a vessel seaworthy. It is concerned essentially with the state of the vessel and is unrelated to the carrier’s knowledge, at the time of loading and stowing, of the nature of the cargo. That actual or constructive knowledge is relevant to whether the want of due diligence on the part of the carrier has brought about the unseaworthiness of the vessel.
The amended Hague Rules, so Stemcor’s argument went, impose no obligation on the shipper to investigate the suitability of the vessel to carry the shipper’s cargo, or what other cargoes she is to carry. They are matters peculiarly within the knowledge of the Carrier. The respective descriptions of the goods in question as “prime galvanized steel sheet in coil” and “prime zinc alloy coated steel sheet in coil” should have alerted the Carriers to their particular sensitivity to corrosion from moisture. As well, the risk of condensation from weather conditions at that time of year, allied with the presence of free water in the holds, should have put the Carriers on notice that condensation on the cargo was inevitable if the moisture was not removed.
Counsel for Stemcor next contended that the absence of the definite article qualifying “goods” in Art 3 r 1(c) did not signify a reference to anything other than the goods being carried. That contention was said to be reinforced by the phrase “their reception” in the same sentence.
On Stemcor’s analysis of the relevant amended Hague Rules, a finding that, in breach of Art 3 r 1, the vessel was unseaworthy before the voyage precludes recourse to the immunities in Art 4 r 2. Only Art 3 r 2 is expressed to be subject to Article 4. In the present case there was an express finding that the condensation which had caused the damage to the coils had resulted from both the presence of free water in the holds and the entry of moist air during ventilation. The first identified cause flowed from a contravention of Art 3 r 1 and the second from a contravention of Art 3 r 2, consisting of the decision to ventilate without regard to the imprecision inherent in the application of the dew point rule. That decision, his Honour recognised, was a departure from the standard practice, in carrying non-hygroscopic cargoes from cold to warmer climates, not to ventilate the hold during the voyage.
Despite the fact that a finding of a breach of Art 3 r 1 made it unnecessary to consider the defences afforded by Art 4 r 2, his Honour made express findings as to whether the damage had been caused by insufficiency of packing or the Carriers’ failure to exercise due diligence. The finding that the coils had been packed in a manner consistent with the standard practice in the industry was open on the evidence. In particular, it was open to his Honour to prefer the evidence of Professor Jones to that of Captain Pyett.
Finally, Counsel for Stemcor acknowledged that the primary Judge had not dealt expressly with the pleaded defence invoking Art 4 r 2(q) (no fault of the carrier). However that was said to be immaterial because that defence could not avail a carrier who was in breach of Art 3 r 1 or r 2.
PRACTICAL APPLICATION OF ARTICLES 3 AND 4
In Gamlen Chemical Co (A’Asia) Pty Ltd v Shipping Corporation of India Ltd [1978] 2 NSWLR 12 at 24, Samuels JA said, concerning the Hague Rules:
‘In my opinion, accepting as I do that the principles of common law have not, in any relevant respect, been excluded or varied by the Hague Rules, a plea of an exception under Article IV is liable to be defeated by a reply of negligence made by the cargo owner. The sequence of pleading explained in the passages to which I have referred … is, if I may respectfully say so, undoubtedly correct. The cargo owner makes out a prima facie case (as it was always open to him to do at common law) by proving the contract of carriage and the non-delivery of the goods, or their delivery in a damaged condition. It may be a nice question whether this amounts to a prima facie case or, … to “an inference of a breach of the obligation”. In either event, proof of the kind I have mentioned is sufficient to call upon the carrier for an answer. This he may make by denying the facts upon which the cargo owner relies and, in addition, by raising and proving an exception within Art. IV of the Hague Rules. If, however, he takes the latter course, it is then open to the cargo owner to meet the exception by proving negligence on the part of the carrier, or of those for whose fault he is responsible.’
On appeal to the High Court this approach was approved by Mason and Wilson JJ, Gibbs and Aickin JJ concurring: see Shipping Corporation of India Ltd v Gamlen Chemical Co (A’Asia) Pty Ltd (1980) 147 CLR 142 at 168. However the decision of the High Court in Great China casts doubt upon the continuing authority of Gamlen in so far as it concerns the burden of proof. Although forming no part of the ratio of the case, observations made in the joint judgment of Gaudron, Gummow and Hayne JJ and in the judgment of McHugh J suggest that the proper course is to identify negligence (usually a breach of Art 3 r 2) before considering the availability of exceptions pursuant to Art 4 r 2, and that the mere occurrence of loss or damage may not be sufficient to prove a breach of the former rule. In the present case Emmett J adopted that approach. It has not been suggested that we should do otherwise.
CAUSATION OF DAMAGE
Emmett J found that corrosion on the surface of the coils was caused by condensation of water, which condensation occurred during the voyages in question. His Honour also found that the corrosion was caused by the penetration of water vapour, not liquid water, through the wrapping. These findings have not been disputed on appeal. The next step was to determine the cause of the condensation. Emmett J discussed the evidence in detail at [46] to [53]. We will summarize it briefly.
The atmosphere contains varying amounts of water vapour. The maximum mass of water vapour which a fixed volume of air is able to accommodate increases with temperature. When that maximum mass of water is actually present in a volume of air, the air is said to be saturated. The mass of water vapour present in a particular volume of air, expressed as a percentage of the maximum mass capable of being present at the relevant temperature, is described as the “relative humidity”. Relative humidity increases with cooling and decreases with heating. The temperature at which a particular volume of air reaches saturation point is the air dew point temperature. If a volume of air cools to a point below its air dew point temperature, condensation will occur on the surface which is cooling the air.
The proposition underlying the present judgment is that the hold of each ship contained air which included water vapour. If the surface temperature of the coils had been below the air dew point temperature of the air in the hold, the air in contact with the surface would have cooled, assuming that the air was relatively still. If the temperature of the air in contact with the coils had fallen below the air dew point temperature, condensation would have formed on the coils. As the coils were damaged by condensation which occurred during the voyage, it follows that the above-described phenomenon occurred. Consideration of legal responsibility for having caused the condensation depends upon an examination of factors affecting:
the temperature of the coils;
the temperature of the air; and
the mass of water,
in the hold of each vessel.
Temperature of the coils
The evidence indicated that, immediately after manufacture, the temperature of the coils was ‘well above the ambient air temperature’. They were stored in ambient air until loaded on to barges for transport to the wharf at Yokohama. They steadily cooled to a temperature close to ambient temperature, this process taking some days. In the conditions then prevailing at Yokohama the ambient temperature was probably well above the air dew point temperature. In those circumstances condensation would only have occurred if there had been significant increases in the ambient temperature and water content of the air so that the surface temperature of the coils was below the changed air dew point temperature. Although we were not referred to any evidence concerning the matter, we infer that it was accepted at the trial that the surface temperature of the coils might, in some circumstances, rise more slowly than that of the air in the hold. His Honour’s reasons at [57] and [129] assert as much. In those circumstances, condensation would occur. During the trip from Japan to Australia, in the absence of any source of heating in the hold, the temperature of the coils might rise if warmer air entered the hold, raising the air temperature and, more slowly, the temperature of the coils. Increases in temperature might also occur as the result of the transmission of heat into the hold through the structure of the ship. Dr Bellstedt suggested that in such a case, the likelihood of condensation occurring would be decreased: see his report dated 24 June 2005 at p 16 (exhibit 7.1P).
Air temperature in the hold
His Honour found that during the loading process conditions in the hold would have become essentially equivalent to ambient conditions outside the hold. Those conditions were generally known. They indicated that condensation during loading was not likely. After sealing of the hold, if there had been a source of heat within it, the air temperature would have risen. However, if there had been no liquid water in the hold, there would have been no change to the moisture level or, therefore, to the air dew point temperature. Condensation would have been unlikely. As previously observed, the admission into the hold of warm air would have raised the temperature of air in the hold and the surface temperature of the coils, the latter possibly more slowly than the former.
Water in the hold
If, when the hold was sealed, it contained liquid water, the air would have absorbed such moisture as water vapour, and the air dew point temperature would have risen steadily. If the surface temperature of the coils had not risen at the same rate, they would have tended to cool the air in contact with them. If that air had reached the air dew point temperature, and such temperature had been higher than that of the coil surfaces, the cooling process would have caused condensation. If, during the voyage, external air had been admitted into the hold, and such air had a higher moisture content than that already in the hold, the mass of water vapour in the air in the hold would have been increased, bringing it closer to saturation and so raising the air dew point temperature.
Summary
On the basis of these considerations Dr Bellstedt concluded that it would have been possible for condensation to have occurred during the voyage if moister, warmer air had entered the hold, and if there had been insufficient heat to increase the surface temperature of the coils to the same extent as the air dew point temperature had increased. His Honour appears to have accepted this view. Dr Bellstedt also said that, at the ambient temperature in Yokohama at the time of loading, it would have been necessary for there to have been 68 litres of water in the hold of the Archangelgracht to achieve saturation. We infer that this figure included all water and water vapour. His Honour appears to have proceeded upon the basis that a similar figure applied to the Ankergracht. The vessels were of similar size and design. However the figure for the Ankergracht may have varied from that for the Archangelgracht, depending upon the respective ambient temperatures at the times of loading. In these reasons we have previously, in discussing the evidence, referred to the mass of water in a given volume of air. Dr Bellstedt’s reference to a volume of water (68 litres) has caused us to depart from that practice. However, we infer that it is possible to calculate the mass of a particular volume of water at a given temperature.
There is no evidence as to the actual amount of water in either hold at any relevant time. Counsel for Stemcor submitted that one of the Carriers’ witnesses, Dr Sharp, had given evidence that the corrosion was probably attributable to moisture present as part of the cargo, rather than to conditions which occurred during the voyage. That opinion would suggest that there must have been sufficient water in each hold at the commencement of each voyage for condensation to have occurred at some temperature experienced thereafter. This aspect of Dr Sharp’s evidence appears at p 15 of his report dated 1 April 2005 (exhibit 22.1G), especially at paras 2, 6 and 7. However, that opinion appears to have been based upon the witness’s exclusion of the possibility that the entry of warmer, moister air had caused the relevant condensation. At [130] Emmett J rejected that view of the case. That finding was challenged by the Carriers in their notices of appeal but was not challenged in either side’s submissions.
In summary, Stemcor’s case was that there had been water in each hold when it was sealed, and that warm, moist air had entered each hold during the relevant voyage, the cumulative effect of which was to create the conditions in which condensation occurred, causing the corrosion. Emmett J accepted this explanation of the way in which such corrosion probably occurred. On appeal the Carriers appeared to accept his Honour’s finding that the corrosion was caused by condensation but disputed the finding that they were legally liable for the consequences thereof.
SEAWORTHINESS AND DUE DILIGENCE
Article 3 r 1 required that each Carrier exercise due diligence to:
Make its vessel seaworthy;
Properly man, equip and supply the vessel; and
Make the “cargo spaces” fit and safe for the reception, carriage and preservation of “goods”.
Article 4 imposed liability upon a carrier for loss or damage arising from unseaworthiness, save where it proved that it had exercised due diligence.
As to whether a vessel is seaworthy, Gaudron, Gummow and Hayne JJ said in Great China at [27] to [31]:
‘27.Several things may be noted about the obligation imposed upon the carrier by Art III r 1 to make the ship seaworthy. First, it fixes the time at which the obligation operates as “before and at the beginning of the voyage”. It therefore resolves the dispute that had been litigated in relation to time policies and voyage policies of marine insurance about whether a warranty of seaworthiness implied in such a policy was a warranty about the condition of the vessel at the time of sailing, or at the commencement of each of several distinct and different parts of a voyage, or was a warranty extending to the whole of the period of the policy … . Secondly, it is not an absolute warranty; the obligation is to exercise due diligence … . In cases where loss or damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence is on the carrier (Art IV r 1). Thirdly, however, seaworthiness is to be assessed according to the voyage under consideration; there is no single standard of fitness which a vessel must meet … . Thus, seaworthiness is judged having regard to the conditions the vessel will encounter … . The vessel may be seaworthy for a coastal voyage in a season of light weather but not for a voyage in the North Atlantic in mid winter.
28.Thus, definitions of seaworthiness found in the cases (albeit cases arising in different contexts) all emphasise that the state of fitness required “must depend on the whole nature of the adventure” … . The vessel must be “fit to encounter the ordinary perils of the voyage” …; it must be “in a fit state as to repairs, equipment, and crew, and in all other respects, to encounter the ordinary perils of the voyage insured” … .
29.Further, if the question of seaworthiness is to be judged at the time that the vessel sails, it will be important to consider how it is loaded and stowed … . If the vessel is overladen it may be unseaworthy. If it is loaded or stowed badly so, for example, as to make it unduly stiff or tender … it may be unseaworthy … .
30.Nor is the standard of fitness unchanging. The standard can and does rise with improved knowledge of shipbuilding and navigation … .
31.Fitness for the voyage may also encompass other considerations as, for example, the fitness of the vessel to carry the particular kind of goods or the fitness of crew, equipment and the like. The question of seaworthiness, then, may require consideration of many and varied matters.’
Although it might be thought that only subpara (c) of Art 3 r 1 relates to fitness to carry cargo, the above extract demonstrates that subpara (a) also invites consideration of that question. Subparagraph (b) may, in some circumstances, also involve such a consideration. The Carriers asserted that the absence of the definite article before the word “goods” in Art 3 and Art 4 indicated that the requirement was not that such spaces be fit for the carriage of specific goods. We reject that submission. The more likely meaning is that the spaces were to be fit for such goods as were to be carried. Given the wide variety of goods which are carried by sea, the Carriers’ construction is unlikely to be correct. More importantly, the Carriers’ approach is inconsistent with the general approach adopted in Great China.
The parties appear not to have identified any particular subparagraph of Art 3 r 1 as being presently relevant. Article 3 must be read with Art 4. In the latter article, the word ‘unseaworthiness’ is used to describe collectively the conditions arising from breaches of any of the three subparagraphs of Art 3 r 1. Article 4 imposed upon the carrier an onus to prove due diligence, but that onus only arose if there had been a breach of one or more of those subparagraphs, which breach caused the relevant loss. In other words, Stemcor was obliged to prove operative unseaworthiness in the broader sense in which that word is used in Art 4 before the Carriers were called upon to prove due diligence.
Curiously, Stemcor seems not to have alleged unseaworthiness in their statements of claim. They rather alleged that the Carriers had failed to exercise due diligence in satisfaction of the duty imposed by Art 3 r 1. The difficulties caused by this approach were magnified by the way in which the claims were particularized. In the case of the Ankergracht, particulars of lack of due diligence were said to be those identified in para 8 of the relevant statement of claim and, in the case of Archangelgracht, in para 9. However, para 9 did not give particulars but rather recited the content of Art 3 r 1. The reference should probably have been to para 8. Paragraph 8 in each statement of claim was apparently drafted to provide particulars of alternative claims for breach of contract, breach of duty as a bailee and breach of a general duty of care, as well as breaches of Art 3 r 1 and r 2. Many of the particulars appear to have no arguable relevance to an alleged breach of Art 3 r 1. Perhaps the particulars relevant to each cause of action were identified in some way at the trial. We can do little more than adopt the primary Judge’s identification of Stemcor’s case.
We do not understand the Carriers to have admitted unseaworthiness causing loss. Although they seem to have accepted Stemcor’s conflation of that issue with that of due diligence, it was nonetheless necessary to consider whether either vessel was unseaworthy before, and at the beginning of, the relevant voyage. The question of due diligence would only have arisen if it had been proved that unseaworthiness caused the corrosion.
Emmett J found that each vessel was unseaworthy, and that the Carriers had relevantly failed to exercise due diligence. The critical reasoning appears in [96], [97], [110] and [111] of his Honour’s reasons as follows:
‘96.A carrier must demonstrate that it has exercised all reasonable skill and care to ensure that the vessel is seaworthy at the commencement of the voyage. The test to be applied is an objective one. The carrier must act in accordance with international standards and the standards of a reasonable carrier in the particular circumstances of the problem at hand. The more serious the consequences of unseaworthiness, the greater the effort that should be made to make the vessel seaworthy.
97.Dehumidification systems had been used on vessels carrying moisture sensitive cargoes for many years prior to the voyages in question. Since 2003, vessels operated by PAS have been carrying similar coils with no incidence of corrosion. As I have indicated, the Cape Darby had dehumidifiers installed. Dehumidification units are commonly installed on ships and such units were available for installation on the vessels at Yokohama at the time of the voyages in question. Neither the Ankergracht not the Archangelgracht had any dehumidification system installed. However, the installation of dehumidification systems on either a temporary basis or a permanent basis was reasonably practicable in the circumstances of each of the Ankergracht and the Archangelgracht.’
Emmett J at [110] and [111] then discussed the difficulties and cost involved in installing dehumidifiers:
‘110.There was no evidence that general cargo carrying vessels, such as the Ankergracht and the Archangelgracht, are regarded as unseaworthy merely because they did not have dehumidifiers fitted. Nor was there any evidence that the absence of a dehumidifier on a general cargo carrying vessel means that the hold is not regarded as fit and safe for the carriage and preservation of steel coils of the nature in question. There was no evidence of any industry practice, standard or custom for coils of the nature in question to be carried only on vessels with dehumidifiers. More specifically, there was no evidence of any industry practice or custom as to the temporary installation and use of dehumidifiers. There was no evidence of any example of the use of temporary dehumidifiers, either generally or for the carriage of coils of the kind in question. While there was some evidence that vessels have had temporary dehumidifiers installed, the extent of such a practice was not explored.
111.However, in circumstances where the coils in question were known to be sensitive to moisture and it was known or ought to have been foreseen by the Carriers that water would be admitted into the holds on other cargo and on dunnage and possibly because of rain, the vessels were not seaworthy for the purpose of carrying the coils in question on the voyages in question at the relevant time of year. In the light of those circumstances, it was reasonable for the Carriers to take steps to ensure that water could not be admitted into the holds or, if that was not practicable, to install a dehumidification system to remove excess water from the holds and ensure that the dew point temperature of air in the holds would not fall below the surface temperature of the coils. The failure to do so was a failure to use due diligence to make the vessels seaworthy or, putting it another way, to make the holds fit and safe for the carriage and preservation of the coils.’
The factual basis of his Honour’s conclusion that the vessels were unseaworthy appears at [111]. It is quite narrow, focussing on the amount of water entering, or likely to enter, the holds during loading and available methods for removing it. In considering this aspect of the case Emmett J did not take into account the possibility that additional water might enter the holds during the voyages. This approach probably reflected his Honour’s conclusion that ventilation should not occur where steel cargoes are being shipped from cold to warmer climates. In this regard we note that in its written submissions on appeal Stemcor asserted, at subpara 3(e), that Emmett J found that the amount of water in the holds ‘meant that condensation during the voyages … was unavoidable.’ This was a reference to the judgment at [87]. However we do not understand that paragraph to contain a finding of fact. In our view his Honour was, at [82] to [87], merely setting out Stemcor’s case.
The primary argument advanced by the Carriers was that Emmett J imposed upon them an absolute duty to prevent corrosion. It is difficult to accept that proposition, given his Honour’s consideration of the likelihood of rain in Yokohama at the relevant times and the cost and other difficulties involved in installing dehumidifiers. Emmett J apparently considered the risk, having regard to the nature of the cargo and foreseeable conditions, and the cost of the proposed method of avoiding such risk. That approach does not suggest the imposition of an absolute duty. We suspect that the Carriers’ real concern is with the way in which his Honour balanced the matters dealt with at [110] of his reasons with those dealt with at [111], that is, on the one hand, the absence of evidence of any practice of using dehumidifiers in carrying steel and, on the other, Stemcor’s submission that, in the relevant conditions, a ship which lacked them was unseaworthy.
Stemcor’s case concerning unseaworthiness focussed on foreseeable conditions incidental to a voyage from Yokohama to Australia during the northern hemisphere winter. At [111] Emmett J found that ‘… it was known or ought to have been foreseen that water would be admitted into the holds on other cargo and on dunnage and, possibly, because of rain…’. In the following sentences his Honour dealt with mechanisms for removing water. These matters were touched on in the evidence of the master and chief officer of each vessel, upon which evidence they were apparently not cross-examined. The master of the Ankergracht at the time of the relevant voyage (Captain Koenen) said at para 22 of his original statement:
‘During the course of the voyage, it was the normal practice of the Chief Officer to instruct the vessels’ able seaman to wipe condensation, if any, from the cargo, in particular the coils and steel plate, where access to the cargo is possible and the sea conditions permit doing so with safety. The seaman simply used rags to wipe off the condensation from the cargo.’
The judge analysed the packaging question by identifying the real issue as being the question of whether, having regard to the nature of the steel, the packaging had to be able to prevent water vapour entering into the interior of the packaging, or whether the packaging was sufficient if it was adequate to prevent the entry of loose water from external wetting. He said that the burden was imposed on the carrier to ensure in the latter case that the condition in which the goods were carried was such that water vapour in the air which might infiltrate the outer and inner packaging would not condense on the steel coils. In other words, his Honour said, the question was whether the shipper was entitled to rely on the carrier to ensure that the conditions in which the goods were carried would preclude condensation of water vapour in the air, or whether the carrier was entitled to assume that the packaging would be such as would preclude the entry of water vapour through the packaging.
The judge found that it was apparent that the method of packaging employed by Tsuda, while in accordance with usual practice, was not such as would prevent the entry of water vapour in the air. He also found that there was no evidence that the kraft paper of the quality actually used by Tsuda was typical of that form of paper ordinarily used for the shipment of unchromated galvanised or aluzinc coated coils. And, there was also no evidence as to whether such coils had been shipped with this particular inner wrapping paper without damage.
The carriers accepted at the trial that the method of packing employed was typical for the shipment of coils of steel generally and had been described in a text book, Sparks A, Steel Carriage by Sea (LLP Professional Publishing, 2003). His Honour annexed to his reasons an illustration from that book that had been tendered in evidence before him. As he pointed out, the mere fact that the method of packaging was typical did not in itself mean that the actual packaging employed was sufficient.
The carriers criticised this reasoning, asserting that it was inconsistent for the judge to find that the packaging used was typical but that there was no evidence about the actual characteristics and quality of the paper Tsuda used on these coils or of Tsuda having made earlier successful shipments using this paper or packaging. I am unable to see any flaw in his Honour’s analysis or reasoning. The packaging appeared to be typical but there was no evidence that the paper Tsuda used, or that its actual, rather than apparent, packaging worked as typical packaging should work.
The carriers pointed to his Honour’s finding that they had ‘… not established any insufficiency of the packaging other than the fact that the ingress of moisture was permitted’. They argued that this establishes proof of the exception under Art 4 r 2(n). The carriers said the primary judge was wrong to identify the issue in different terms. He said the question was ‘whether packaging which permitted the ingress of moisture was insufficient’ and concluded that it was not. In doing so the primary judge preferred Prof Jones’ evidence to Capt Pyett’s.
The carriers argued, before the primary judge, that packaging that did not protect the coils against exposure to water vapour in the air was insufficient for the purposes of Art 4 r 2(n). Before his Honour and before us, the carriers argued that sufficient packaging required the adoption of a method that would not trap resulting moisture against the surface of the coils but would allow condensation to evaporate or otherwise run off the coils. As his Honour correctly pointed out, there was no method identified by the carriers that would achieve that end. It is difficult to conceive a method of packaging that would result in it. The judge said that the suggestion accepted that it would not be possible to devise a method of packaging that prevented all ingress of moisture. In essence, the carriers’ argument amounted to an assertion that water should not be permitted to enter the coils, but, if it did, that the packaging should permit its evaporation or evacuation from them, presumably before any corrosion could occur. The absence of any evidence to support the carriers’ case, the onus being on them under Art 4 r 2(n), is fatal to the contention. His Honour was correct to dismiss it.
Prof Jones said that the packaging would provide no protection should condensation occur within the coils, rather it was designed to prevent external wetting of the coils. The risk which the carriers knew had to be guarded against on the voyage was cargo sweat from moisture within the air contained in the hold. The packaging provided for the coils appeared to be typical. The purpose of the packaging was to prevent external wetting of the coils. No expert evidence was called to show that there was packaging available which would prevent internal wetting of the coils as a result of cargo sweat. His Honour was correct to conclude that the carriers had not established that the packaging was insufficient so as to cause the damage to arise or result from that insufficiency within the meaning of Art 4 r 2(n).
Rather, the carriers did not comply with their obligation under Art 3 r 2 properly and carefully to carry, keep and care for the cargo so that cargo sweat did not occur on these coils known to have a sensitivity to corrosion. This occurred in circumstances where if there were no dehumidifiers, cargo sweat was a known incidence of the voyage.
In Silver v Ocean Steamship Co Ltd [1930] 1 KB 416 the English Court of Appeal held that a ship owner, by issuing clean bills of lading stating that the goods had been shipped on board ‘in apparent good order and condition’, was precluded from asserting that they were insufficiently packed. If the insufficiency of the packing is obvious, the cargo cannot be described as being received ‘in apparent good order and condition’. But, if a ship owner issues a bill of lading so describing the condition of the goods on receipt by it, it is estopped from contending that the packaging is insufficient: Silver [1930] 1 KB at 426-427 per Scrutton LJ; at 434 per Greer LJ and at 441 per Slesser LJ.
As Greer LJ pointed out (Silver [1930] 1 KB at 434), the apparent order and condition of the goods is what could have been ascertained by a reasonable examination when they were delivered for shipment. Slesser LJ said that the capacity of the goods safely to travel was part of their order and condition (Silver [1930] 1 KB at 441). Here that order and condition included the placement of the symbol of the umbrella together with the words ‘keep dry’ on the exterior of each coil. The presence of the symbol and the words ‘keep dry’ on the exterior of the packaging suggests to an ordinary reasonable person looking at it that the condition of the goods when received by the carrier was not such that they could be kept in circumstances where water could enter the packaging. The symbol and the words ‘keep dry’ suggested that the packaging may have afforded some protection against water, but that, whatever the degree of protection it afforded, was not absolute so as to make the contents encased in the outer wrapping of the coil proof against moisture penetration. And, if the packaging was not enough to prevent it being apparently susceptible to damage from water, its condition and the symbol and words were suggestive to an ordinary reasonable person that the goods were at least just as susceptible to damage from water vapour condensing on them.
In Silver [1930] 1 KB 416, the peculiar features of the packaging were obvious to the shipowner when issuing the clean bills of lading claused with an acknowledgement of receipt of the goods in apparent good order and condition. I am of opinion that the judge correctly identified what the real issue was having regard to the well established principles upon which adequacy of packaging and the issue of a clean bill of lading recording receipt of goods in good order and condition are based. Moreover, the presence of the symbol and words ‘keep dry’ were hardly calculated to induce the carriers to believe that the cargo could withstand exposure to water vapour. As his Honour had found, and as the facts referred to above justify, the carriers knew, or ought to have been aware, of the particular sensitivity of these coils to moisture. By accepting the goods packed in what was apparently the usual way, the carriers cannot now complain, having said they were in apparent good order and condition for carriage by sea (by issuing clean bills of lading), that the packaging was insufficient to ensure that they arrived at their destination undamaged from the corrosion which they in fact suffered.
The carriers also rely on the fact that water had been shown to have penetrated the packaging. They say that, when his Honour found that the packaging of the coils was not capable of preventing the ingress of water in the form of vapour, he should have found it was defective or inadequate. They argued that it was self-evident that the packaging was insufficient because, in effect, it did permit entry of water vapour.
There was no representation on the packaging itself that it was proof against any form of water penetration. To the contrary, the packaging on its face conveyed the express warning that the goods had to be kept dry. And, the carriers then issued clean bills of lading recording that the goods had been received in apparent good order and condition. That being so, for the reasons given in Silver [1930] 1 KB 416, the carriers’ position cannot be accepted. As Scrutton LJ said, a shipowner is not allowed to reduce his liability by proving or suggesting, contrary to his statement in the bill of lading, that the goods in respect of matters externally reasonably visible were not in good condition when shipped ([1930] 1 KB at 427).
Moreover, what was being described by the carriers in the bills of lading was the order and condition of goods known in the shipping industry to be sensitive to corrosion. As his Honour said, there was no evidence of an industry practice of wrapping these coils in a way that ensured that there was no possible ingress of water in the form of vapour or otherwise. Coupled with the symbol of the open umbrella and the words ‘keep dry’, that fact suggests that a shipowner would not assume that the packaging was proof against any form of water in liquid or vapour form entering into the internal part of the package.
SUBSEQUENT CHANGE OF PAPER WRAPPER USED BY TSUDA IN SHIPMENTS
In mid 2003, Stemcor’s managing director, Mr Whitehead, caused Tsuda to change from kraft paper for the internal wrapping of the coils to different paper another steel manufacturer, Nippon Steel, used. Earlier, in about September 2002, vessels operated by Project Asia Service began carrying some of Stemcor’s imports of steel for on sale to ACC and by mid 2003 only PAS vessels were used. No incidence of corrosion involving PAS vessels was reported. The PAS vessels were fitted with humidifiers, although, as his Honour found, there was no evidence one way or the other as to whether the humidifiers operated during any relevant voyage. Mr Whitehead gave evidence concerning the circumstances of the change in wrapping paper. In late May 2003 he prepared a report dealing with the ‘coil corrosion problem’. Relevantly the report said:
‘We have been experiencing an ongoing problem with corrosion damage to [Tsuda] galvanised and aluzinc coils supplied to ACC Australia. The problem is most common during the peak Japanese winter months, which correspond with the peak Australian summer months. However we also see some corrosion damage to coils during the course of the year.
The extent of damage on some shipments exceeds 30% of the cargo and at time [sic] up to 50% of the coils have had to be rejected as unusable by ACC. This is causing significant problems for our marine insurers who have come to believe that in some way the [Tsuda] packing is inadequate …
The rusting damage caused to [Tsuda] supplied coils is a significant issue which must be addressed and resolved promptly in order for the business to be able to continue. It is also causing significant damage to [Tsuda’s] reputation as quality supplier.
In order to report specifically and in detail on this problem we inspected two coils one [Nippon], one [Tsuda] from a recently arrived shipment, MV Parkgracht, which loaded in Japan on 29/3/2003 and arrived in Sydney on 16/4/2003. The results of this inspection are typical of the problems seen with [Tsuda] coils which are not evident on the [Nippon] coils…’
The report then set out photographs of coils from both source and continued:
‘It would therefore seem that the problem with [Tsuda] coil does not relate to the outer metal wrapping. From the above photos, it does seem that the inner paper wrapping by [Tsuda] is not effective. The inner paper wrapping used by [Nippon] does appear to be effective and can stop water, or possibly water vapour, from transmitting through to the other side.
However we have also shipped a lot of [Tsuda] coils with chromte [sic] protection on board the same vessels with the same inner paper coating without any rust claims. On these occasions the paper does an effective job it would seem.
In conclusion there are a number of issues we would need to address in order to try to stop this continuing problem.
1.The coils are getting wet through condensation of moisture during the voyage. This is worse during the Japanese winter season as the vessel sails into the warm tropical region. We are intending to trial another shipping line who we believe will be able to provide greater ventilation of the hold and reduce the amount of condensation.
2.The paper being used as the inner wrapper is not effective at protecting oiled coils in this environment when some moisture can be expected to ingress through the outer metal wrapping. Initial [sic] we request that [Tsuda] investigate the [Nippon] paper and urgently make a change to that paper.
Although we cannot be certain that these changes will resolve our problems we are hopeful that in combination they will almost eliminate rusting on [Tsuda] coils. Samples of [Nippon] and [Tsuda] inner paper have been sent to you with this report including [sic] [Nippon] paper with rusting on one side and [Tsuda] paper that has partially stuck to the coil.
We look forward to your urgent comments on this issue.’
His Honour said that there was no evidence as to the addressee of the report. However, this was an error. The report was sent to Stemcor’s Japanese representatives. In turn, they passed it to Tsuda’s engineers who were to study it and prepare a report in response. While there was no evidence of such a report in response, in late July 2003 Tsuda applied the polyethelene crossed paper used by Nippon as wrapping paper for the coils it sent on the PAS vessel, Cape Darby. From then on, Tsuda’s steel was wrapped in the Nippon papers. Thus, by July 2003 both the type of vessel and the type of paper used for the Tsuda steel importations had changed. The galvanised and aluzinc coils were now wrapped in the same paper as Nippon had used and were shipped in vessels fitted with dehumidifiers.
The primary judge held that Mr Whitehead’s report was equivocal in that it simply drew attention to his belief that the problem of corrosion was the result of condensation and that the kraft paper may or may not have been effective to protect the coils against ingress of water vapour. The judge noted that there was no evidence of any testing of either of the types of papers to demonstrate differences in specification or characteristics attaching to them or to determine their capacity to prevent the ingress of water. And he said that the fact that no corrosion occurred on coils carried by the Cape Darby was equally explicable as resulting from the use of the dehumidifiers. He was not persuaded that the evidence about the Cape Darby shipment or the change of paper assisted in the resolution of the issues raised in the proceedings.
Before us there was a debate as to whether the carriers were entitled to rely upon the change of paper as demonstrating their defences under Art 4 r 2 of act or omission of the shipper, insufficiency of packaging, inherent vice or other fault not attributable to the carrier. The carriers’ particulars of their defences did not assert that the paper used by Nippon to wrap equivalent products should have been used and was effective to prevent corrosion. Nor did they assert in their pleaded defences that Tsuda or Stemcor had failed to inform the carriers of the special susceptibility of the unchromated and unpassivated coils to corrosion. Instead, the defences pleaded, in substance, that the design of the coil wrapping was deficient and that there were tears in the kraft paper on damaged coils which allowed entry of moisture.
Lastly, the particulars asserted that the coils should have been wrapped so as to provide a waterproof barrier and that the inner wrapping failed in its function of excluding moisture. Tsuda and Stemcor argued before us that the carriers could not rely upon the failure to wrap in the Nippon paper because it was outside the particulars in the defences. But the carriers raised this argument in their final written submissions to the primary judge and Tsuda’s and Stemcor’s written submissions to him in reply, to which we were referred, did not raise such an objection.
Tsuda and Stemcor said that the carriers had conducted the case below on the basis that the paper used for wrapping should have been both watertight and vapour tight so as to prevent entirely the possibility of moisture entering below the wrapping. They argued that there was no evidence before his Honour that the Nippon paper was available in 2001 or that it would have solved the problem. They said that at the trial Capt Pyett, an expert called by the carriers, accepted that the method of packaging used in 2001 by Tsuda was typical for the cold rolled steel coils. However, Mr Whitehead’s report said that chromated coils shipped on the same vessels in the past and wrapped in kraft paper arrived ‘… without any rust claims. On these occasions the paper does an effective job it would seem’.
His Honour found Mr Whitehead’s report to be inconclusive. He did not have any technical qualifications for arriving at his conclusions, although he had obviously had considerable experience in the importation of steel cargoes of varying kinds. Mr Whitehead said it was quite fortuitous that two unchromated coils, one from Tsuda, the other from Nippon, had been discharged from the MV Parkgracht on the occasion on which he inspected them. He had no idea whether they had been carried in the same hold.
Because the out turns from the Ankergracht and the Archangelgracht showed that some coils were affected while others were not, the precise location in the hold is likely to have been a critical factor in whether condensation formed on any particular coil. There was no material in evidence which indicated whether it was the paper or the location in the hold, or a combination of those two factors, which made a difference to the incidence of corrosion on unchromated coils.
Mr Whitehead’s report also stated:
‘The above photos demonstrate the typical rust problem we have incurred with [Tsuda] material. Similarly all [Nippon] material arrives looking very bad due to the outer cold rolled coil wrapping however we have never had any problem with rusting of [Nippon] oiled coil.’ (emphasis added)
Mr Whitehead’s report suggested that the wrapping used by Tsuda was ineffective to exclude moisture since, at the time of the earlier shipments, both Tsuda and Nippon unchromated, unpassivated (ie oiled as opposed to chromated) coils were being carried on Spliethoff vessels, which did not have humidifiers, but only Tsuda’s unchromated coils arrived with corrosion damage. However, Mr Whitehead said that the Nippon material had a very restricted specification range and Stemcor had imported only very little of this product from when it first started to do so in 2001 or 2002.
The carriers called no expert evidence to show that any difference in the characteristics of the paper used by Nippon, compared to that previously used by Tsuda, would have solved the problem of corrosion suffered on the voyages of the Ankergracht and the Archangelgracht. Mr Whitehead’s evidence of the small quantities of Nippon imports in the period between 2001 and 2003, before the Tsuda paper changed, also weakens the drawing of an inference that the paper made a difference. The carriers had the onus of proving that the packaging brought them within one of the exceptions in Art 4 r 2 on which they relied. It would not have been difficult for the carriers to have led scientific evidence as to the respective qualities of the two papers or to call other, clearer, evidence as to the qualities or quantities of the Nippon product which was shipped so as to enable the drawing of more precise inferences. Mr Whitehead’s report raised real questions about the adequacy of the wrapping. His Honour held that the carriers did not discharge their onus of proving that the change in paper made a difference to the likelihood of corrosion. Rather the carriers left this matter, which was fundamental to their defences under Art 4 r 2, to inference based on imprecise evidence.
One other cause of condensation was the presence in the coils of air within the wrapper (whatever paper it consisted of), when it reached its dew point. That was a source of water vapour which could cause condensation resulting from changes in temperature and a coil’s position in the hold when the vessel travelled.
For these reasons, his Honour made no error in concluding that the evidence as to the Cape Darby or the change of paper did not assist in the resolution of the issues.
RESPONSIBILITY FOR THE DAMAGE TO THE COILS
The trial judge said that packing capable of preventing even the most minor damage was not practicable and could not be expected for most commodities. He also noted that the degree of care that would have to be exercised by a carrier in order to avoid all minor damage is also not always practical or expected. Thus he said, correctly, that the Court had to undertake a balancing exercise in dealing with the question of sufficiency of packaging which would involve a common-sense compromise between the interests of the shipper and the carrier.
It is common ground that his Honour failed to consider in express terms Art 4 r 2(q), namely that the damage was due to another cause arising without the actual fault or privity of the carrier or its servants and agents. However, the only suggested basis upon which this exception could arise was already the subject of the defences under Art 4 r 2(i), (m) and (n). It is difficult to see what his Honour needed to have done, apart from expressly mentioning Art 4 r 2(q) and dismissing the defence as unarguable in light of his previous findings. There was no need for his Honour to consider Art 4 r 2(q) because he had found that the carrier was in breach of its obligations under Art 3 rr 1 and 2 and, thus, at fault and a cause of the damage.
For these reasons, the carriers cannot succeed on the insufficiency of packing exception. Likewise, the exception of act or omission of the shipper or owner of the goods or his agent or representative under Art 4 r 2(i) must fail. The shipper put a clear warning on the external packaging that the goods had to be kept dry.
INHERENT VICE
The Ankergracht argued that the existence of water within the inner wrapping of the coils was sourced from the exposure of those coils to external wetting from rain while they were on the barge awaiting loading at Yokohama. It argued that this fact brought it within the exception of inherent vice of the goods. The Ankergracht said that the water from this external wetting was able to infiltrate the external and inner wrappers of the coils. When, on this theory, the water came to be inside the wrapping, it constituted inherent vice since corrosion would occur very rapidly, within hours of the coils’ surfaces being in contact with the moisture or condensation, based on the unchallenged expert evidence as to the sensitivity of the cargo.
His Honour found that there had been no internal wetting of the coils, as noted above. He accepted Prof Jones’ evidence that it was highly unlikely that external wetting would have led to internal wetting. This was because every exposed surface of the coils, including the inside of the core, had been wrapped in paper and the inside of the coils was also protected by another sheet of galvanised steel. In addition the coils were laid in a horizontal orientation so that their axis was parallel to the deck. Prof Jones considered that if external wetting of a coil occurred, the water would not be taken into the wrapped product unless the unsealed longitudinal edge of the paper were lying directly along the deck. He thought that the chances of that occurring in about 57% of the Ankergracht coils were remote.
As His Honour noted, again on the basis of Prof Jones’ unchallenged evidence, if the horizontally carried coils were exposed to extensive external wetting, the water would run down the end caps, pass beneath the core edge protectors, then pass beneath the outer paper wrap and enter the coil itself. But that was unlikely, since the core of the coil was also wrapped with waterproof paper and the core edge protectors had a firm fit on the end of the coil. He found, accepting Prof Jones, that, if water had entered in that fashion, one would expect to see a circumferential band of white rust around the inner edge of the end caps. Only on one coil was such a band present. He found that, because the core of the coil was wrapped and taped, even if a small amount of water managed to percolate behind the core edge protector, the water would not enter the coil itself.
In coming to this conclusion his Honour rejected the evidence of Capt Pyett concerning corrosion and adequacy of packaging and preferred the evidence of Prof Jones. He found that it was more likely than not that even if the coils had been wetted before loading on the Ankergracht, no water infiltrated the external and internal wrappers prior to the loading of the coils on that vessel. He recognised that it was a possibility that that had happened but rejected it as the likely explanation. He said that the nature and distribution of the corrosion observed on the steel coils was consistent with condensation and that there were also other explanations of the differences in the extent of damage of the cargo carried on the two vessels, including differences in the timing and periods of ventilation during the respective voyages.
There does not appear to be any serious challenge to his Honour’s finding on the failure of the inherent vice defence in the appeal. In any event, having considered the evidence before his Honour independently, I have come to the same conclusion as the primary judge. His Honour correctly rejected the inherent vice defence.
CAUSE OF THE LOSS
In light of the above findings, his Honour was correct to have concluded that Tsuda and Stemcor proved that the unseaworthy condition of each vessel was the cause or an effective cause of the damage to the coils. And the carriers failed to establish that they had exercised due diligence to make the vessels seaworthy at or before the beginning of the voyages. The inability to remove water and vapour from the air so as to ensure that no condensation would occur internally within the coils was the effective reason why, when the vessels were ventilated during the voyage, water was present and vapour entered the holds so that ultimately the coils were damaged by the effect of corrosion from cargo sweat. Each of the failures to remove the moisture present when the voyage began, and to prevent moisture entering the holds when ventilation did occur, was a failure to care for the coils contrary to the carriers’ obligations under Art 3 r 2.
For these reasons the appeals must be dismissed with costs.
I certify that the preceding one hundred and seventy-six (176) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares J. Associate:
Dated: 31 May 2007
Counsel for the Appellant: AW Street SC and JA Watson Solicitor for the Appellant: Ebsworth & Ebsworth Counsel for the Respondents: PH Greenwood SC and IG Roberts Solicitor for the Respondents: O’Reilly Sever & Co Date of Hearing: 1, 2 August 2006 Date of Judgment: 31 May 2007
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