Mount Isa Mines Ltd v The Ship “Thor Commander”
[2018] FCA 1326
•29 August 2018
FEDERAL COURT OF AUSTRALIA
Mount Isa Mines Ltd v The Ship “Thor Commander”
[2018] FCA 1326
File number: NSD 104 of 2015 Judge: RARES J Date of judgment: 29 August 2018 Date of order: 31 August 2018 Catchwords: SHIPPING AND NAVIGATION – where main engine breaks down during voyage – whether owners exercised due diligence between and at commencement of voyage under Art 3(1) of amended Hague Rules
ADMIRALTY – carriage of goods by sea – whether charterparty or bill of lading is contract of carriageADMIRALTY – charterparty – provision for substitution of vessel – whether substitution clause effects novation of charterparty with owners of substitute vessel
EVIDENCE – where party destroys or fails to preserve real evidence consisting of damaged machinery – where court orders retention – whether all possible adverse inferences should be drawn against party
EVIDENCE – proof of reasonableness of settlement – where cargo owner settles claim by salvor in respect of cargo owner’s liability for salvage – factors to be considered – where shipowner does not explain to cargo owner how event giving rise to salvage occurred
SHIPPING AND NAVIGATION – salvage – 1989 Convention on Salvage – whether vessel was in danger – factors relevant to quantification of salvage award
EVIDENCE – where witness disbelieved – whether positive inference can be drawn to opposite of false story
SHIPPING AND NAVIGATION – transhipment – whether cargo owner entitled to claim transhipment costs of part of cargo while vessel repaired at a port not being the port of discharge – where transhipment costs incurred due to ship owner’s breach of obligation in contract of carriage to exercise due diligence before and at commencement of voyage to make ship seaworthy under Art 3(1) of amended Hague Rules – where cargo owner had signed letter of indemnity – construction of letter of indemnity
ADMIRALTY – general average – York-Antwerp Rules, rule D – whether shipowner at fault can claim contribution to general average expenses where ship unseaworthy
Legislation: Carriage of Goods by Sea Act 1991 (Cth) Sch 1A, ss 3, 7, 10
Evidence Act 1995 (Cth) s 136
Federal Court of Australia Act 1976 (Cth) s 22
Navigation Act 2012 (Cth) ss 14, 241
Protection of the Sea (Powers of Intervention) Act 1981 (Cth) ss 10, 11, 16, 17B, 19
Admiralty Rules 1988 (Cth) rr 19, 22, 23, 36, 80
Federal Court Rules 2011 rr 8.03, 16.02
Navigation Regulation 2013 (Cth) reg 17
Sea-Carriage Documents Act 1996 (Qld) ss 3, 6, 8
Carriage of Goods by Sea Act 1971 (UK)
Cases cited: ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue of the State of New South Wales (2012) 245 CLR 338
Allen v Tobias (1958) 98 CLR 367
Australian Iron & Steel Ltd v Greenwood (1962) 107 CLR 308
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345
Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279
Beluga Shipping GmbH & Co v Headway Shipping Ltd [2008] FCA 1791
Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314
BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472
CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Commonwealth Bank of Australia v Barker (2014) 253 CLR 169
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466
Compagine Générale Transatlantique v Owners of TF Barry and Auburn (The Amerique) (1874) LR 6 PC 468 at 465
Corry v Coulthard (1876) 3 Asp MLC 546
Dimech v Corlett (1858) 12 Moo PC 199
E.G. Cornelius & Co v Christos Maritime Co Ltd (The “Christos”) [1995] 1 Lloyd’s Rep 106
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Fisher v The Oceanic Grandeur (1972) 127 CLR 312
Fratelli Sorrentino v Buerger [1915] 3 KB 367
Goulandris Brothers Ltd v B. Goldman & Sons Ltd [1958] 1 QB 74
Hadley v Baxendale (1854) 9 Exch 341
Hamilton v Whitehead (1988) 166 CLR 121
Hansen v Harrold Brothers [1894] 1 QB 612
Henderson v Public Transport Commission of New South Wales (1981) 56 ALJR 1
Hi-Fert Pty Limited v Kuikiang Maritime Carriers Inc (The Kuikiang Career) (2000) 173 ALR 263
Hilditch Pty Ltd v Dorval Kaiun KK (No 2) (2007) 245 ALR 125
James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd [1978] AC 141
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Joseph Watson & Son Ltd v Fireman’s Fund Insurance Company of San Francisco [1922] 2 KB 355
Leveraged Equities Ltd v Goodridge (2011) 191 FCR 71
Louis Dreyfus & Co v Tempus Shipping Co [1931] AC 726
Love and Stewart Ltd v Rowtor Steamship Co Ltd [1916] 2 AC 527
Mitsui & Co Ltd v Beteiligungsgesellschaft LPG Tankerflotte MSBH & Co KG (The “Longchamp”) [2018] 1 Lloyd’s Rep 1
Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad (1989) 167 CLR 219
Plaintiff M61/2010E v Commonwealth (2010) 243 CLR 319
President of India v Metcalfe Shipping Co Ltd (The “Dunelmia”) [1970] 1 QB 289
Robinson v Harman (1848) 1 Exch 850
Rodocanachi v Milburn (1886) 18 QB 67
Schloss v Heriot (1863) 14 CBNS 59
Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640
Strang, Steel & Co v A Scott & Co (1889) 14 App Cas 601
The Batavier (1853) 1 Spinks (E&A) 169
TheBeaverford (Owners) v The Kafiristan (Owners) [1938] AC 136
The Charlotte (1848) 3 W Rob 68
The City of Chester (1884) 9 PD 182
The Henry Ewbank 11 F Cas 1166 (1833)
The M. Vatan [1990] 1 Lloyd’s Rep 336
The “National Defender” [1970] Lloyd’s Rep 40
The Ship “Socofl Stream” v CMC (Australia) Pty Ltd [2001] FCA 961
The Strathnaver (1875) 1 App Cas 58
The Roanoke 214 F. 63 at 65 (1941: CA 9)
The Sarpen [1916] P 306
The Tramp [2007] 2 Lloyd’s Rep 363
The Velox [1906] P 263
Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Turner v Haji Goolam Mahomed Azam [1904] AC 826
United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC (2006) 163 FCR 151
United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC (2007) 163 FCR 183
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603
Vale v Sutherland (2009) 237 CLR 638
Vickery v Woods (1952) 85 CLR 336
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530
Bennett H (ed), Carver on Charterparties (Sweet & Maxwell, 2017)
Cooke J, Lowndes & Rudolf: General Average and the York-Antwerp Rules (14th ed, Sweet & Maxwell, 2013)
Cooke J, Young T, Ashcroft M, Taylor A, Kimball J, Martowski D, Lambert L, Sturley M, Voyage Charters (4th ed, Informa, 2014)
Davies M, Dickey A, Shipping Law (4th ed, Lawbook Co, 2016)
Eder B, Bennett H, Berry S, Foxton D, Smith C, Scrutton on Charterparties and Bills of Lading (22nd ed, Sweet & Maxwell, Thomson Reuters, 2011)
Girvin S, Carriage of Goods by Sea (2nd ed, Oxford University Press, 2011)
Reeder J (ed), Brice on Maritime Law of Salvage (5th ed, Sweet & Maxwell, 2011)
Rose F (ed), Kennedy & Rose: Law of Salvage (8th ed, Sweet & Maxwell, 2013)
Date of hearing: 19-23, 26-29 and 30 June 2017, 10-11 August 2017 Registry: New South Wales Division: General Division National Practice Area: Admiralty and Maritime Category: Catchwords Number of paragraphs: 506 Counsel for the Plaintiff: Mr GJ Nell SC Solicitor for the Plaintiff: HWL Ebsworth Counsel for the Defendant: Mr AM Stewart SC with Mr D Habashy Solicitor for the Defendant: Norton Rose Fulbright ORDERS
NSD 104 of 2015 BETWEEN: MOUNT ISA MINES LTD
Plaintiff
AND: THE SHIP "THOR COMMANDER"
Defendant
JUDGE:
RARES J
DATE OF ORDER:
29 AUGUST 2018
THE COURT ORDERS THAT:
1.The parties agree on orders to give effect to the reasons for judgment published today, on or before 31 August 2018.
2.The proceeding be stood over to 4.15pm on 31 August 2018 for the making of final orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
NSD 104 of 2015 BETWEEN: MOUNT ISA MINES LTD
Plaintiff
AND: THE SHIP "THOR COMMANDER"
Defendant
JUDGE:
JUSTICE RARES
DATE OF ORDER:
31 AUGUST 2018
THE COURT DECLARES THAT:
1.The Plaintiff is not liable to make any contribution in the General Average declared on 13 January 2015 in respect of the main engine breakdown of the ship “Thor Commander” on her voyage from Puerto Angamos, Chile to Townsville Australia.
THE COURT ORDERS THAT:
2.There be judgment for the Plaintiff against the Defendant and MarShip GmbH & Co. KG MS “Sinus Aestuum” in the sums of:
(a)USD1,010,262.60 (being damages of USD909,000 together with interest thereon of USD101,262.60 pursuant to section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth)).
(b)£47,492.46 (being damages of £42,660.47 plus £431.99 together with interest thereon of £4,400 pursuant to section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth)).
(c)AUD175,956.27 (being damages of AUD147,956.27 together with interest thereon of AUD28,000 pursuant to section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth)).
3.The Cross Claim be dismissed.
4.The Defendant and MarShip GmbH & Co. KG MS “Sinus Aestuum” pay the Plaintiff’s costs of the proceedings (including its costs of and occasioned by the Cross Claim).
5.The Plaintiff’s application for an order for costs on an indemnity basis from 18 June 2017 be stood over for hearing to 26 October 2018 at 2.15pm.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
RARES J:
1 The Thorco Denmark group structures
[13]
2 MarShip’s group structure
[23]
3 The legislative context
[39]
4 The contract issue
[46]
4.1 The contract issue – background
[47]
4.2 How Thor Commander came to perform the voyage
[52]
4.3 The documentation relevant to the voyage
[57]
4.4 The contract – the parties’ submissions
[68]
4.5 The contract issue – consideration
[72]
4.6 Can Mount Isa sue on the bill of lading?
[104]
5 The causation issue
[118]
5.1 The causation issue – background
[118]
5.2 Thor Commander’s main engine and its relevant history
[132]
5.3 The maintenance history of the main engine
[140]
5.4 Rolls-Royce reduces the running hours before fuel injection nozzle should be replaced
[185]
5.5 The voyage from Angamos to Townsville
[193]
5.6 The main engine breaks down
[198]
5.7 MarShip breaches the Court order to retain parts of cylinder 5
[205]
5.8 The causation issue – the expert evidence
[217]
5.9 The causation issue – conclusion
[266]
6 The salvage issue
[268]
6.1 The salvage issue – the legislative scheme
[268]
6.2 The salvage issue – background
[278]
6.3 ASMA issues a direction under the Intervention Act
[309]
6.4 What was the risk to Thor Commander?
[321]
6.5 The salvage issue – was Thor Commander in danger?
[330]
7 The salvage quantum issue
[339]
7.1 The salvage quantum issue – the legal principles as to a reward
[339]
7.2 The relevant criteria in Art 13(1) of the 1989 Convention
[355]
7.3 The salvage quantum issue – the negotiations and settlement of Xinfa Hai’s claim against Mount Isa
[364]
7.4 The salvage quantum issue – Mount Isa’s submissions
[403]
7.5 The salvage quantum issue - MarShip’s submissions
[407]
7.6 The salvage quantum issue – consideration
[411]
7.7 What was a reasonable salvage reward?
[431]
8 The transhipment issue
[457]
8.1 The transhipment issue – background
[457]
8.2 The transhipment issue - consideration
[470]
9 The general average issue
[485]
9.1 The general average issue - background
[485]
9.2 The general average issue – consideration
[488]
10 Conclusion
[505]
The mythological Norse god, Thor, wielded a hammer and (like his Greek and Roman counterparts, Zeus and Jupiter) was associated with, among other phenomena, thunder, lightning and storms. Fortunately, it is not necessary to decide whether Thor was at work at about 15:20 local time (LT) on 11 January 2015 when the main engine of Thor Commander suffered a major breakdown in close proximity to the Great Barrier Reef. There were other causes operating that resulted in the main engine’s No 5 cylinder (cylinder 5) seizing, that have a more prosaic explanation.
The engine failure occurred while Thor Commander was en route from Puerto Angamos, in Chile, to Townsville on the north eastern coast of Australia. She was a general cargo vessel of 6,351 gross registered tonnes, with a value for limitation and general average purposes of USD7,344,289.83. The ship was carrying a cargo of 3,044 bundles of altonorte copper anodes, weighing 8,508.768 metric tonnes, worth USD63,178,742.45, owned by the plaintiff, Mount Isa Mines Ltd.
Mount Isa was a member of the Glencore International AG group, as was Copper Refineries Pty Ltd, that operated the Townsville Copper Refinery.
On 27 November 2014, Mount Isa and a company in the Danish fleet operator group controlled by Thorco Shipping A/S (Thorco Denmark) agreed the terms of the recap for a voyage charter of Thorco Challenger to carry the cargo from Angamos to Townsville. The recap did not name the disponent or actual owner of Thorco Challenger, but, in the past, Mount Isa had regularly chartered vessels in Thorco Denmark’s fleet.
The recap allowed “owners” to substitute another vessel seven days before the laycan commenced, subject to charterer’s approval. The recap provided that any bill of lading be claused “freight payable as per CP”. Thor Commander came to be substituted as the carrying vessel. There is a dispute as to whether her German owner, MarShip GmbH & Co KG MS “Sinus Aestuum”, carried the cargo on terms governed by a bill of lading or the charterparty reflected in the recap. If the bill of lading was the contract of carriage, then it was governed by the amended Hague Rules in Sch 1A to the Carriage of Goods by Sea Act 1991 (Cth) (COGSA) as provided in cl 2(b) of the bill.
The copper anodes had a purity of 99.7% of copper that would be ameliorated at the refinery to 99.995% purity to enable the copper to be sold into the world market for copper cathode production. The refinery comprised 37 sections each of which required a constant supply of anodes for refining. An electrolytic process operated in a cycle of 18 days. If a section of the refinery could not be reloaded, it had to be shut down until the next 18 day production cycle began. And, because of the constancy of the worldwide demand for purified copper cathode anodes, any loss from a section of the refinery being withdrawn from a production cycle could not be made up by later cycles, as the refinery ran continuously at full capacity.
After the main engine breakdown, Thor Commander drifted in the Coral Sea, off Mackay towards the Reef. As I will explain in more detail below, her owners organised for a tug, Smit Leopard, to leave Townsville to tow the vessel to Gladstone. However, the Australian Maritime Safety Authority (AMSA) and the Ukrainian master of Thor Commander, Captain Glib Chaplin, were uncertain whether Smit Leopard would arrive in time before the prevailing weather conditions might cause the ship to ground on the Reef.
At about 07:45 LT on 12 January 2015, AMSA issued a pan-pan signal (that is an international alert of an urgent situation) seeking assistance to provide a tow for the distressed ship. Later that morning, Captain Li Fazhong, the master of Xinfa Hai, a 289 metre l.o.a. capesize of 174,766 metric tonnes, made contact with both AMSA and Capt Chaplin to offer assistance. Xinfa Hai was in ballast heading south to Newcastle to load a cargo. As events unfolded, Xinfa Hai came to tow Thor Commander away from the Reef to where she was met, on 13 January 2015, by Smit Leopard which then towed her to Gladstone.
On 13 January 2015, Thor Commander declared general average. Those events resulted in three issues in this proceeding, first, whether Xinfa Hai was entitled to a salvage reward, secondly, whether the USD1 million that Mount Isa, through its marine cargo insurers, paid for salvage was a reasonable sum, and if not, what was, and thirdly, whether Mount Isa acted reasonably in incurring about AUD147,956.27 in costs to tranship some of the cargo from Gladstone to the refinery to maintain it in full production while Thor Commander underwent repairs at Gladstone.
MarShip argued that it is not liable for the transhipment costs because of, for among other reasons, the terms of a letter of indemnity dated 19 January 2015 between it and Mount Isa pursuant to which the ship partially discharged about 1,030 metric tonnes of the cargo at Gladstone.
On 31 October 2016, Groninger, Welke, Janssen reported their preliminary adjustment of general average. That ascertained that the cargo interest (Mount Isa) was liable to pay the owners of Thor Commander (i.e. MarShip) was USD1,163,681.77. Mount Isa denies that it is liable to contribute to general average because of MarShip’s actionable fault within the meaning of rule D of the York-Antwerp Rules 1994 (as amended) at London in respect of the maintenance of the ship’s main engine.
In substance, there are six major issues to resolve, namely:
(1)What was the contract of carriage (the contract issue)?
(2)What was the cause of the breakdown of the main engine on 11 January 2015 and was MarShip at fault or negligent in the circumstances in which the breakdown occurred (the causation issue)?
(3)Was Thor Commander in need of salvage by Xinfa Hai (the salvage issue)?
(4)Was the USD1 million settlement of the cargo owner’s liability for salvage reasonable and, if not, what sum was reasonable (the salvage quantum issue)?
(5)Is Mount Isa able to recover its transhipment costs (the transhipment issue)?
(6)Is Mount Isa entitled to a declaration that it is not liable to contribute to general average and is entitled to reimbursement of its costs in providing its general average bond (the general average issue)?
1. The Thorco Denmark group structures
Before I deal with each of the above issues, it is necessary to explain the structures of the Thorco Denmark and MarShip groups. That will assist in ascertaining the identity of the parties to the contract of carriage and the charterparty.
Thomas Mikkelsen was the chief executive officer of Thorco Denmark. He said that Thorco Denmark was “a controlling shareholder” of each of the Brazilian company, Thorco Shipping Brazil-Empress de Navagacao Ltda (Thorco Brazil), the Chilean company, Thorco Shipping SpA (Thorco Chile) and the German company, Thorco Shipping Germany GmbH (Thorco Germany), in which it held 60%, or 150, of the 250 issued shares.
On 17 February 2014, MarShip entered into a pool agreement together with other ship owners and disponent owners (including Thorco Denmark, as disponent owners) as pool partners on the one part and, on the other part, with Thorco Germany as pool manager. The pool partners agreed to form “an undisclosed civil law partnership” for the purposes of creating a revenue pool to evenly distribute the risks of fluctuating returns in the chartering trade. The revenue earned by each pool partner’s ship or ships (including, as cl 6(6) provided, charter hire and freight) would be pooled together in a bank account conducted in Thorco Germany’s name.
Thorco Germany would manage each pool vessel (cl 1(3)). Although the pool agreement was executed on 17 February 2014, cl 2(1) provided that it had commenced on 31 May 2013. Importantly, cl 5 provided that the pool manager conducted the commercial employment of the pool vessels and it could enter into all contracts of affreightment, charterparties “and all other services in connection with the commercial management as agent for and on behalf of the owners”, subject to obtaining a respective owner’s written consent for contracts with a term greater than three months. In addition, cl 6(6) provided that, as Mr Mikkelsen explained:
It is understood that the Pool Manager [Thorco Germany] is entitled to subcontract administration tasks to the mother company in Copenhagen [Thorco Denmark] at their own cost and risk.
In June 2013, MarShip entered into a BIMCO SHIPMAN 2009 form standard ship management agreement (the Shipman agreement) with Thorco Germany in relation to the commercial management of Thor Commander. The Shipman agreement excluded technical and crew management from its scope of management services (boxes 6 and 7 and cl 1.5) but included chartering services (box 8).
Thorco Germany would carry out the management services in respect of the vessel as agents for and on behalf of her owners, MarShip (cl 3), including seeking and negotiating her employment, and the conclusion and execution of charterparties (subject to first seeking MarShip’s written consent if the term exceeded six months (cl 6(a) box 9)). Because Thorco Germany was not providing technical services under the Shipman agreement, cl 9(c) required MarShip to procure satisfaction of the requirements of Thor Commander’s flag State and to notify the name and contact details of the organisation that MarShip had engaged for that purpose. And, cl 11 provided that all moneys would be collected and dealt with under the pool agreement that (or an earlier version) was an annexure.
On 1 November 2013, each of Thorco Brazil, Thorco Chile and Thorco Germany entered into a separate, but relevantly identical, commercial agreement with Thorco Denmark that recited that Thorco Denmark “partly owned and controlled” the other respective party. Each commercial agreement was in materially identical terms. Each recited that the respective partly owned company provided vessel chartering and management services to Thorco Denmark acting on its behalf in commercial matters.
Thorco Germany’s version of the commercial agreement provided it would act as agents on behalf of Thorco Denmark and be responsible for the commercial chartering, booking and fixing of vessels defined as Thorco Vessels, in an annexed list of vessels that Thorco Denmark owned, chartered or commercially managed (cll 1.1, 1.3). Thorco Germany had to cooperate with Thorco Denmark “and other Thorco offices in fixing Thorco Vessels” (cl 1.2). Importantly, cl 1.4 provided:
All fixtures relating to Thorco Vessels concluded by Thorco Germany are to be made on behalf of, in the name of, and at the risk of Thorco Denmark.
Moreover, in providing the services, Thorco Germany “acts under the instructions of Thorco Denmark” (cl 1.5). Thorco Germany was responsible for providing the services under cl 1.1 in the area of Germany and elsewhere as agreed (cl 2). Thorco Germany received stipulated rates of commission for fixtures depending on whether Thorco Denmark owned, time chartered or commercially managed the vessel and whether the fixture was within or outside the agreed area under cl 2 (cl 3). The Thorco Vessels in Thorco Denmark’s commercial management, relevantly, included Thor Glory, Thorco Challenger and Thor Commander (albeit that she was named in the list of Thorco Vessels as “Thorco Commander”).
Michael Dragsbæk was the managing director of Thorco Chile in 2014 and responsible within the Thorco group for fixing the charter of Thor Commander with Mount Isa. Prior to holding that position, he had been chartering manager for Thorco Brazil. He was aware of the terms of the commercial agreements that each of his employers had with Thorco Denmark that provided that each acted as agent of Thorco Denmark in fixing of ships that it owned, chartered or commercially managed. He had acted for Thorco Brazil in fixing shipbrokers for charters with Mount Isa in respect of an unnamed vessel on 11 June 2013, and Thor Glory on 17 July 2013, similarly for Thorco Chile, in fixing Thor Asia on 8 July 2014, Thorco Clairvaux on 27 August 2014, Thorco Atlantic on 29 October 2014 (that was subsequently cancelled), Thor Asia on 30 October 2014 and, importantly, Thorco Challenger on 27 November 2014.
2. MarShip’s group structure
Thor Commander was a single screw, general cargo ship, with a Rolls-Royce main engine. She displaced 9,739 deadweight tonnes and was 132.2 metres l.o.a. She was launched in November 2010. Jan Held was the managing director of MarShip GmbH and the fleet manager of the MarShip group. MarShip GmbH was the sole partner authorised under German law to act on behalf of MarShip. Another company in the MarShip group was MarShip Bereederungs GmbH & Co KG (MarShip Management).
On 3 January 2011, MarShip entered into a ship management agreement in respect of Thor Commander with MarShip Management, as ship operator. MarShip Management agreed to carry out all measures necessary to operate, use, maintain and charter the ship exercising due care, including conducting technical inspections and taking all measures necessary to maintain her class and certificates necessary for her to operate (cl 2(1)). Its primary tasks included adequately maintaining the ship, including providing services such as qualified masters, officers, engineers and crews required for that purpose and maintaining her and all her machinery and equipment in operational condition (cl 2(3)(b), (e), (f)). MarShip Management also had to provide MarShip with a report on Thor Commander’s technical condition after each docking, quarterly operating reports on her ongoing operations and immediate reports about any unusual events. It also had to allow MarShip to inspect business documents relating to the ship’s operation (cl 6). MarShip Management had authority under cl 7(2) “to create seamen’s work contracts in its own name on behalf of” MarShip.
Mr Held graduated in 1998 as a master mariner and was at sea in that role from then until 2001. After holding two positions in shipping companies he became managing director of Held Bereederung from 2003 to 2013 when, as he said in his affidavit, “after a change in corporate structure” he became managing director of MarShip GmbH and was fleet manager responsible for overseeing the management of about 40 ships, including Thor Commander. He described MarShip Management as the technical manager of Thor Commander.
Mr Held said that he assigned a technical superintendent to each vessel, and that in about June 2012, he assigned Vladimir Smirnov to that role in respect of Thor Commander and seven other vessels. Mr Held said that he employed Mr Smirnov after receiving details of his qualifications and experience, and interviewing him. Mr Held routinely met weekly with Mr Smirnov and the group’s other technical superintendents to discuss issues or concerns in relation to any vessel in the fleet. Mr Held had begun this practice in 2003. He said that as at 2014, he did not have a practice of minuting these weekly meetings. He said that Mr Smirnov also routinely provided him with quarterly reports relating to Thor Commander that he read.
Mr Held said that his practice was he would “take any appropriate action required”. He said that, “I delegate to Mr Smirnov the day to day technical management of” Thor Commander. Mr Smirnov had authority to purchase, in any one order, technical supplies up to a value of €10,000, while Mr Held had full authority, on behalf of MarShip GmbH and MarShip, to approve operating and capital expenditure for any amount in excess of that sum.
Mr Held said that he was also available to Mr Smirnov as and when required, in addition to their weekly meetings, in respect of any matter relating to the technical management of Thor Commander. Mr Held had conducted a spot inspection of the ship, her records and her equipment in Emden in October 2013. He said that MarShip Management was the ISM Code Document of Compliance holder for Thor Commander and that it had to conduct regular internal audits to keep her in class.
Mr Held said that MarShip had appointed Thorco Germany as commercial manager of Thor Commander. He said that Thorco Germany was responsible for negotiating the ship’s employment “as agent for” MarShip. He said that MarShip had never made any agreement or charterparty with any Thorco company to allow the latter to charter out the ship as owner or disponent owner.
Mr Smirnov gave oral evidence as a result of which I formed the view that what he said and did could not be taken at face value. As I will explain, I am satisfied that he was party to the fabrication of maintenance records for Thor Commander’s oil filters. Although English was not his first language, Mr Smirnov willingly and fluently gave most of his evidence in English (by video link to Germany) without using or requiring assistance, except on a few occasions, from the Russian interpreter who was present in court throughout Mr Smirnov’s evidence.
Mr Smirnov graduated as a mechanical engineer in 1981 and was at sea from then until 2006. He served as an engineer rising to the rank of chief engineer in 1992. In April 2006, he began employment as a technical superintendent. His role as technical superintendent of Thor Commander included:
·involvement with the crew manager in selecting and evaluating the performance of masters and chief engineers of the ship and oversighting their choice of lower ranks as crew members;
·routinely, usually twice a year, attending on board the ship to meet the master and chief engineer in order to discuss any issues in reports that the vessel had sent that he had identified in advance and others that they might raise. He also said that he examined the deck log, engine log and the oil record book for the period since his preceding visit. He conducted spot checks and other activities that he thought necessary. After the attendance, he prepared an inspection report for MarShip, as owners;
·routinely reporting to Mr Held, at least quarterly, on budgets for any identified maintenance needs. In addition, Mr Smirnov had weekly meetings with Mr Held to discuss any issues with the eight vessels in his section of the fleet; and
·reviewing all monthly technical reports from the ship that he received by email, such as monthly measurement reports and engine run[ning] time reports, as well as other reports or emails that the vessel might send to him.
Mr Smirnov said that when he attended on board the ship, he examined the deck log, the engine log, the oil record book and the air pollution prevention file for the period since his previous examination. He would discuss any reports that the vessel had sent him if necessary. He would also perform spot checks and other tasks that he considered necessary. Following these attendances, Mr Smirnov prepared a report for the owners.
Mr Smirnov also said in his affidavit that the run[ning] time reports and measurement reports would provide information from which it can be seen that one or other component of the ship’s machinery requires servicing, renewal or replacement. He said that he was responsible for, took control of, and organised, “the big items (e.g. cylinder heads, turbochargers)” and that he relied on the chief engineer who had responsibility for, and would organise, work in respect of lesser items, such as fuel injector valves and fuel injector nozzles (and somewhat inconsistently, replacing turbochargers). And, Mr Smirnov said that he would raise any queries that he had about matters in the reports that he received with the appropriate person on board, such as the chief engineer. He said that he used his qualifications, training and experience as a former chief engineer, together with relevant manuals, to oversee the maintenance and service requirements for Thor Commander generally, including her main engine. He also received requests for, reviewed, approved (as he thought appropriate) and then arranged for delivery of, spare and replacement parts for the ship.
He said that he routinely took control of any substantial maintenance or replacement matters (such as replacing cylinder heads) and relied on the chief engineer to manage smaller,
day-to-day matters such as replacing fuel injector nozzles (which, as will appear below, were key items associated with the failure of Thor Commander’s main engine on her voyage in January 2015).
Mr Smirnov said that he had attended on board and inspected Thor Commander twice in 2012, once in November 2013, again in May and July 2014 and that, when he was on vacation, another colleague had done so in January 2014. He said that he followed the practice described above on each inspection. He said that in his July 2014 inspection, in Burgas, Bulgaria, he had not identified any issue that he found of concern in relation to cylinder 5 of the main engine.
Thus, Mr Smirnov exercised considerable control over the performance of the maintenance of Thor Commander. In particular, he controlled what spare and replacement parts could be obtained for the ship and the port at which those parts would be delivered.
He had arranged for an inspection of the ship by another colleague to occur when she was scheduled to dock in Townsville in January 2015. Mr Smirnov said that the ship had received “technical supply” on 5 November 2014 and 1 December 2014 in Port Calliao, Peru, and a further such supply was scheduled for Townsville in January 2015.
I will describe what the crew and Mr Smirnov did in relation to the circumstances in which the main engine failed in discussing the causation issue below.
3. The legislative context
The Sea-Carriage Documents Act 1996 (Qld) contained the following relevant definitions in s 3:
bill of lading means a bill of lading (including a received for shipment bill of lading) capable of transfer—
(a) by endorsement; or
(b) as a bearer bill, by delivery without endorsement.
contract of carriage, in relation to a sea-carriage document, means—
(a)for a bill of lading or a sea waybill—the contract of carriage contained in, or evidenced by, the document; or
(b)for a ship’s delivery order—the contract of carriage in association with which the order is given.
…
goods, in relation to a sea-carriage document, means the goods to which the document relates.
…
sea-carriage document means a bill of lading, a sea waybill or a ship’s delivery order.
sea waybill means a document, other than a bill of lading, that—
(a) is issued by the carrier of the goods; and
(b) is a receipt for the goods; and
(c) contains or evidences a contract for the carriage of the goods by sea; and
(d)identifies the person to whom delivery of the goods is to be made by the carrier in accordance with the contract.
ship’s delivery order means a document, other than a bill of lading or a sea waybill, that—
(a)is given in association with a contract for the carriage of goods by sea, including goods to which the document relates; and
(b)contains an undertaking by the carrier to deliver the goods to which the document relates to a person identified in the document. (bold, non-italic emphasis added)
Section 6 provided:
6Transfer of rights
(1)All rights under the contract of carriage in relation to which a sea-carriage document is given are transferred to—
(a) for a bill of lading—each successive lawful holder of the bill; or
(b)for a sea waybill—the person (other than an original party to the contract) to whom delivery of the goods is to be made by the carrier in accordance with the contract; or
(c)for a ship’s delivery order—the person to whom delivery of the goods is to be made in accordance with the order.
(2)Rights in a contract of carriage transferred to a person under subsection (1) vest in that person as if the person had been an original party to the contract.
(3)Rights in a contract of carriage in relation to which a ship’s delivery order is given are transferred under subsection (1)—
(a) subject to the terms of the order; and
(b) only in relation to the goods to which the order relates.
The amended Hague Rules in Sch 1A of COGSA relevantly provided definitions in Art 1, including that “carrier” included the owner or charterer who entered into a contract of carriage with the shipper (Art 1(1)(a)) and:
(b)“Contract of carriage” means a contract of carriage covered by a sea carriage document (to the extent that the document relates to the carriage of goods by sea), and includes a negotiable sea carriage document issued under a charterparty from the moment at which that document regulates the relations between its holder and the carrier concerned.
…
(g) “Sea carriage document” means:
(i) a bill of lading; or
(ii)a negotiable document of title that is similar to a bill of lading and that contains or evidences a contract of carriage of goods by sea; or
(iii) a bill of lading that, by law, is not negotiable; or
(iv)a non negotiable document (including a consignment note and a document of the kind known as a sea waybill or the kind known as a ship’s delivery order) that either contains or evidences a contract of carriage of goods by sea.
[NOTE: These Rules do not apply to all sea carriage documents—see Article 10.] (emphasis added)
Article 3(1)(a) and (b) provided the carrier was bound before and at the beginning of the voyage to exercise due diligence to, first, make the ship seaworthy and, secondly, properly man, equip and supply her. Article 3(3) required the carrier or its agent or the master, on demand of the shipper, to issue a sea carriage document showing identifying details of the goods, their quantity and weight as furnished by the shipper and their apparent order and condition.
Importantly, Art 3(8) provided:
8.Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connexion with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability.
Next, Art 4(1) provided:
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, … 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. (emphasis added)
By force of Art 10(2), the amended Hague Rules applied to the carriage of goods by sea from ports outside Australia to ports in Australia, whereas it is common ground in this proceeding, no international convention for carriage of goods by sea applied to the carriage. And, Art 10(6) and (7) provided:
6.These Rules do not apply to the carriage of goods by sea under a charterparty unless a sea carriage document is issued for the carriage.
7.These Rules apply to a sea carriage document issued under a charterparty only if the sea carriage document is a negotiable sea carriage document, and only while the document regulates the relationship between the holder of it and the carrier of the relevant goods. (emphasis added)
4. The contract issue
The fixture of Thorco Challenger in the recap of 27 November 2014 did not proceed and Thor Commander carried the cargo instead. How this occurred, who were the parties to the charterparty, what were its terms and whether Mount Isa can sue MarShip only as the charterer under the recap or as holder of the bill of lading are the questions that arise on the contract issue.
4.1 The contract issue – background
On 20 March 2008, Mount Isa as buyer entered into a copper anodes/blister purchase and sale agreement with Xstrata Commodities Middle East DMCC (another Glencore subsidiary) as sellers for a term that, originally, was to end on 31 December 2010, but would continue thereafter on a year to year basis until one party gave six months’ notice (cl 2). The agreement was for Mount Isa to purchase between 20,000 to 70,000 MT of copper anodes per annum for delivery to the Townsville refinery. Payment of the provisional invoice value was due no later than 30 days after the bill of lading date (cl 9). Risk passed to the buyer upon delivery of the material over the ship’s rail at the load port (cl 12), and under an amendment agreed on 9 April 2013, delivery would be FOB ST (free on board stowed and trimmed) Antofagasta, Chile.
Mount Isa’s shipbroker was OCT Ocean Chartering + Transport Mühle + Sachs (GmbH & Co) in Hamburg. OCT, usually through Jan Uleman, had negotiated several earlier charterparties on behalf of Mount Isa Mines and its parent, Glencore, for the ships to which Mr Dragsbæk referred.
The charterparty for the fixture of Thor Glory on 17 July 2013 that I describe below is relevant because it formed the basis of the terms of the recap under which Thor Commander came to be fixed as a substitute vessel to carry the cargo from Angamos to Townsville.
On 17 July 2013, OCT, on behalf of Mount Isa, agreed the terms of a recap with Thorco Brazil for Thor Glory to carry a cargo of 9,000 MT of copper anodes from Antofagasta to Townsville. The recap email provided that Mount Isa had the right to assign the charterparty to Glencore “at any moment”. The recap required the owners to perform several specific obligations. The ship was due at Antofagasta on 18 July 2013 and this recap made no reference to any right to substitute another vessel. The recap stated that the owners had to clause bills of lading, in case of any cargo damage, but otherwise would issue clean bills if the charterer provided a letter of indemnity. The recap concluded “[o]therwise as per attached Gencon 94 incl. rider terms”. It attached copies of Thor Glory’s classification certificate, which identified her owners as Eastern Comet Maritime S.A., and the classification society’s register of her lifting appliances. It also attached a copy of the ship’s technical specifications that named Thorco Denmark as her commercial managers.
The version of the GENCON 1994 form attached to the 17 July 2013 recap related to a 2011 charter by Glencore. Relevantly, it included cll 2 and 10 in Pt II of the GENCON 1994 form which, it is common ground, were also terms of the charterparty for Thor Commander. Clauses 2 and 10 provided (as amended in the GENCON 1994 form attached to the 17 July 2013 recap):
2. Owners’ Responsibility Clause
The Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by personal want of due diligence on the part of the Owners or their Manager to make the Vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied, or by the personal act or default of the Owners or their Manager.
And the Owners are not responsible for loss, damage or delay arising from any other cause whatsoever, even from the neglect or default of the Master or crew or some other person employed by the Owners on board or ashore for whose acts they would, but for this Clause, be responsible,
or from unseaworthiness of the Vessel on loading or commencement of the voyage or at any time whatsoever.…
10. Bills of Lading
Bills of Lading shall be presented and signed by the Master as per the “Congenbill” Bill of Lading form, Edition 1994, without prejudice to this Charter Party, or by the Owners’ agents provided written authority has been given by Owners to the agents, a copy of which is to be furnished to the Charterers. The Charterers shall indemnify the owners against all consequences or liabilities that may arise from the signing of bills of lading as presented to the extent that the terms or contents of such bills of lading impose or result in the imposition of more onerous liabilities upon the Owners than those assumed by the Owners under this Charter Party. (emphasis added)
4.2 How Thor Commander came to perform the voyage
On 29 October 2014, Mr Uleman of OCT agreed the terms of a recap with Mr Dragsbæk on behalf of Thorco Chile for the fixture of Thorco Atlantic to carry a cargo of 7,500 MT of copper anodes from Antofagasta to Townsville with a laycan between 13 to 17 December 2014. Although this fixture was later cancelled, it again provided, after setting out the specific terms relevant to the intended voyage, that the terms were “otherwise as Thor Glory/Glencore 17 July 2013”. Relevantly, this recap nominated Thorco Atlantic and attached a copy of her technical specifications stating:
MV THORCO ATLANTIC – DESCR ATTACHED
OR OWS SUITABLE SUB (emphasis added)I infer the last wording meant “or otherwise suitable substitute”. The recap went on to state “OWNERS TO PROVIDE UPON NOMINATION”, followed by a list of certificates. The recap then set out, the following clause:
In case owners nominate a substitute performing vessel then same to be nominated 7 working days prior laycan commencement – and to comply with vessel specification as set out at condition four (4) above. Substitute nomination to be subject to charters approval. (emphasis added)
There was no condition numbered 4 in this recap.
On 27 November 2014, Mr Uleman of OCT, on behalf of Glencore, agreed with Mr Dragsbæk of Thorco Chile, first, the cancellation of the fixture of Thorco Atlantic and, secondly, the terms of a new recap. The new recap was for a voyage (which ultimately became the subject of this proceeding) from Angamos to Townsville. It commenced:
MV THORCO CHALLENGER – DESCR ATTACHED
OR OWS SUITABLE SUB
– Owners/ Disponent Owner/ commercial manager Thorco confirm vessel is fully suitable for Australia trading.The recap then set out four more matters that “Owners/ Disponent Owner/ commercial manager Thorco” had to confirm or do relating to the vessel’s compliance with local and flag State legal requirements and past cargoes she had carried. The recap set out verbatim the same substitution clause as in the 29 October 2014 recap for Thorco Atlantic (although, again there was no condition numbered 4). It provided that the charter was for Mount Isa’s account. The cargo was to be 8,500 MT of copper anodes with a laycan between 5 and 8 December 2014. The recap provided that bills of lading be claused “Freight payable as per CP”. It provided that 95% of the freight had to be paid “within 3 banking days from signing releasing OBL’s [on board bills of lading]”. It concluded, again “– otherwise as Thor Glory / Glencore 17 July 2013”. The recap provided that the freight was “LUMPSUM 618,750 - USD”.
There was no direct evidence of how Thor Commander came to be the ship that loaded the cargo at Angamos instead of the ship nominated in the 27 November 2014 email, namely, Thorco Challenger. Neither of the parties had been able to locate the emails or other documents by which that change of vessel occurred.
4.3 The documentation relevant to the voyage
On 8 December 2014, Capt Chaplin, in a letter written in Angamos, authorised Ultramar Agencia Maritima of Antofagasta to sign on board bills of lading for cargo loaded on Thor Commander on three conditions, one of which was that they be claused:
All terms, conditions, liberties, exceptions and arbitration clause of relevant Charter Party/Booking Note, and any addenda thereto, are herewith incorporated.
The master began the letter by noting that the bills would not be presented to him for his signature before the vessel’s departure. He instructed Ultramar to contact “my ship’s despondent [sic] managers via Thorco Shipping, Denmark” if it encountered any difficulty.
On 10 December 2014, Bianca, an employee of OCT, emailed Mr Dragsbæk a PDF of a filled in working copy of the GENCON 1994 form under the heading “M/V Thorco Commander or sub”. That named Thorco Brazil as owners and the vessel, in box 5, as “M/V Thorco Commander or sub. see Clause 21”. Clause 21 dealt with the vessel’s description, again naming her as “MV Thorco Commander or Owners’ suitable sub”.
Mr Dragsbæk replied to that email on 11 December 2014, “Thanks below, well received”. He said in his affidavit that he had no specific recollection “but I probably did not read the document closely or perhaps at all before I responded back to Bianca”.
On 13 December 2014, Ultramar signed and issued a set of three original clean on board bills of lading “as agents only for and on behalf of the carrier” in respect of the cargo of 8,508,768 kgs of copper anodes that had been loaded on board Thor Commander at Angamos on 13 December 2014 for carriage to Townsville. The shipper was Compelejo Metalurgico Altonorte Panam Norte KM of Antofagasta (CMA) and Mount Isa was named as both consignee and notify party. The bills stated that freight was “payable as per CHARTER-PARTY dated 27-11-2014”. The bills of lading were in the CONGENBILL Edition 1994 form. The reverse side of the bills of lading contained five conditions of carriage, including, relevantly, conditions that:
(1)All terms and conditions, liberties and exceptions of the Charter Party dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.
(2) General Paramount Clause
(a)The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment, shall apply to this Bill of Lading. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.
(b)Trades where Hague-Visby Rules apply
In trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on February 23rd 1968 – the Hague-Visby Rules – apply compulsorily, the provisions of the respective legislation shall apply to this Bill of Lading.
(c)The Carrier shall in no case be responsible for loss of or damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel or while the cargo is in the charge of another Carrier, nor in respect of deck cargo or live animals.
(3) General Average
General Average shall be adjusted, stated and settled according to York‑Antwerp Rules 1994, or any subsequent modification thereof, in London unless another place is agreed in the Charter Party.
Cargo’s contribution to General Average shall be paid to the Carrier even when such average is the result of a fault, neglect or error of the Master, Pilot or Crew. The Charterers, Shippers and Consignees expressly renounce the Belgian Commercial Code, Part II, Art. 148. (emphasis added)
It is common ground that if the bill of lading evidences the contract of carriage between Mount Isa and MarShip, then the amended Hague Rules apply as part of that contract pursuant to COGSA. MarShip, however, contends that the charterparty was the contract of carriage.
Also on 13 December, Glencore issued a provisional invoice to Mount Isa for the cargo under which USD62,559,992.45 was payable on 12 January 2015.
On about 29 December 2014, Glencore emailed Mount Isa attaching a copy of the set of bills of lading and the originals arrived at the refinery on 2 January 2015. Keryn Thomson, an employee of Mount Isa, had responsibility for administration of, among others, metal sales and purchases. She arranged to send the original bills of lading to Townsville Shipping Agencies in order that it could present them and take delivery of the cargo when Thor Commander arrived, as was then expected, in Townsville.
After the failure of Thor Commander’s main engine, she was towed to Gladstone. Ms Thomson retrieved one of the original bills of lading in the set of three from Townsville Shipping Agencies and provided it to John Cordingley, Mount Isa Mines’ Townsville superintendent of port operations.
I will describe the circumstances more fully in discussing the transhipment issue below, but for present purposes, it suffices to say that, in order to obtain partial delivery of about 1,030 MT of the cargo at Gladstone while Thor Commander was being repaired, Mount Isa had to agree to provide her master with the letter of indemnity. On 19 January 2015, Richard Harvey, Mount Isa’s chief operating officer (and chief processing officer of the refinery), signed the letter of indemnity. It was addressed to Thorco Denmark as agents of the owners of Thor Commander (i.e. MarShip). The letter asked MarShip to deliver 1,030 MT of the cargo to Mount Isa at Gladstone in consideration of which it agreed:
1.To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of the ship proceeding and giving delivery of the cargo against production of at least one original bill of lading in accordance with our request.
…
3.If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship’s registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified. (emphasis added)
On about 22 January 2015, after the master received the letter of indemnity, Thor Commander discharged over several days a total of 1,033.6 MT of the cargo that Mount Isa then transhipped to Townsville.
4.4 The contract – the parties’ submissions
MarShip argued that the contract of carriage was the charterparty, not the bill of lading. It contended that when Thor Commander was substituted as the chartered vessel under the 27 November 2014 recap, MarShip was also substituted as, or became, the disponent owner with which Mount Isa contracted for the charter of that ship. It submitted that because the recap permitted the substitution of a vessel for Thorco Challenger, when that substitution occurred the recap contemplated, and operated to effect, its contemporaneous assignment to, or novation with, the owner (or disponent owner) of Thorco Challenger. It relied on authorities including Leveraged Equities Ltd v Goodridge (2011) 191 FCR 71 to advance its contention that the parties to the recap could (and did) consent in advance to its novation with the owner (or disponent owner) of any substituted ship, if and when any substitution occurred.
MarShip also contended that it and Mount Isa subsequently had entered into a further contract in terms of the letter of undertaking. MarShip claimed, in its amended cross-claim, that Mount Isa had agreed, by the letter of indemnity, to indemnify it for any claim arising in respect of the transhipment costs. (I will deal with this claim when I consider the transhipment issue.)
Finally, MarShip argued that Mount Isa could not sue on the bills of lading because they were straight bills and the named shipper, CMA, had not transferred its rights to the consignee, Mount Isa, pursuant to s 6 of the Sea-Carriage Documents Act or its analogues.
For its part, Mount Isa relevantly contended that the use of the expression “Owners/ Disponent Owner/ commercial manager Thorco” in the recap dated 27 November 2014 and the version of the charterparty that OCT sent to Mr Dragsbæk on 10 December 2014 naming Thorco Brazil as owners of the chartered ship, indicated that Thorco Denmark was intended to be a party to the recap, and hence, the charterparty, and that Thorco Denmark continued as a contractual party whatever the outcome of MarShip’s novation argument.
4.5 The contract issue – consideration
I reject MarShip’s argument that it became the owner or other party to the recap dated 27 November 2014 or charterparty it evidenced. The substitution clause permitted the owners of the chartered vessel, namely Thorco Challenger, to substitute another vessel that was suitable to perform the voyage. How those owners arranged for the substitute to perform the voyage was a matter for them. They might source her within their own fleet, as an owned or chartered vessel, or enter a subcharter to ensure that they complied with their obligation under the recap to have Thorco Challenger or a suitable substitute ready at Angamos and there in time to perform the voyage.
In ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue of the State of New South Wales (2012) 245 CLR 338 at 346 [12], French CJ, Crennan, Kiefel and Bell JJ said:
A novation, in its simplest sense, refers to a circumstance where a new contract takes the place of the old [Olsson v Dyson (1969) 120 CLR 365 at 389]. It is not correct to describe novation as involving the succession of a third party to the rights of the purchaser under the original contract. Under the common law such a description comes closer to the effect of a transfer of rights by way of assignment. Nor is it correct to describe a third party undertaking the obligations of the purchaser under the original contract as a novation. The effect of a novation is upon the obligations of both parties to the original, executory, contract. The inquiry in determining whether there has been a novation is whether it has been agreed that a new contract is to be substituted for the old and the obligations of the parties under the old agreement are to be discharged. (emphasis added)
Their Honours held that a novation of a contract necessarily involves the rescission of the existing contract (for which the new one is a novation) and a release of any person to the existing one who is not a party to the new one (245 CLR at 349-350 [26]-[28]). They explained that, as Dixon J had held in Vickery v Woods (1952) 85 CLR 336 at 345, rescission and novation ultimately depend on intention, and that such an intention can be express or inferred, including from conduct (245 CLR at 350-351 [31]-[32]).
MarShip’s argument, if accepted, did not answer why the original owner under the recap would escape all liability if the vessel that the owners sought to substitute turned out not to be suitable, in accordance with the requirements of the recap (e.g. because it was not fully suitable for Australian trading). MarShip did not offer a reason why the substitution clause in the recap would operate to excuse the original owners from their obligations in that respect when they had chosen to substitute a different vessel from that initially agreed, or how any novation of the contract in the recap came into being between Mount Isa and the owners of the substituted vessel.
The purpose of the substitution clause was to enable the owners who were the original party to the recap to discharge their obligation to provide Thorco Challenger by substituting another vessel that they had arranged to perform the voyage. I agree with what Mance J held in E.G. Cornelius & Co v Christos Maritime Co Ltd (The “Christos”) [1995] 1 Lloyd’s Rep 106 at 110, namely:
Any contract by which a substitute vessel or a transhipment vessel is chartered in is a matter between owners and the owner of that other vessel.
Of course, for the purpose of the further performance of the charterparty (as evidenced in the recap) by the owners of Thorco Challenger, many references to that or any performing vessel will be read as referring to the substitute: Bennett H (ed), Carver on Charterparties (Sweet & Maxwell, 2017) at [3-047]-[33-050]; Cooke J, Young T, Ashcroft M, Taylor A, Kimball J, Martowski D, Lambert L, Sturley M, Voyage Charters (4th ed, Informa, 2014) at [3.7], [3.12].
Because Thorco Denmark was the commercial manager of a pool of vessels in different ownership, it could arrange the substitution of Thor Commander without needing to subcharter another vessel. However, that happenstance cannot determine the construction of the terms of the substitution clause. The construction of a written contract depends on how a reasonable person in the position of the parties would have understood the clause, read in the context of the contract as a whole and having regard to the surrounding circumstances known to the parties and the purpose and object of the transaction: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. French CJ, Hayne, Crennan and Kiefel JJ further explained the principles of construction of such a contract in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35] as follows:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean [McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22] per Gleeson CJ; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11] per Gleeson CJ, Gummow and Hayne JJ, citing Investors Compensation Scheme Ltd v West Bromwich Building Society [No 1] [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114. See also Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at 737 [10] per Lord Bingham of Cornhill]. That approach is not unfamiliar [See, eg, Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504 per Lord Esher MR; Bergl (Australia) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199 per Knox CJ, Isaacs and Gavan Duffy JJ; see generally Lord Bingham of Cornhill, “A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision”, Edinburgh Law Review, vol 12 (2008) 374]. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract [Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ; at 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Byrnes v Kendle (2011) 243 CLR 253 at 284 [98] per Heydon and Crennan JJ. See also Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326, 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2906-2907 [14]; [2012] 1 All ER 1137 at 1144]. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating” [Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 per Mason J, citing Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574. See also Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ]. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience” [Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464]. (emphasis added)
If MarShip’s argument (namely, that the owners of Thorco Challenger ceased to be a party to the charterparty, by novation), were correct, once Mount Isa agreed to its substitution, then the charterer would have no contractual recourse against those owners if, for example, the substituted vessel turned out not to be suitable or never arrived at the load port. The charterparty evidenced in the recap works well enough by treating the substituted vessel as that of, or under the contractual control of, the owners of Thorco Challenger (whether she is in their ownership or they subchartered her or made other arrangements, such as those Thorco Denmark could make on their behalf by resort to the pool of vessels it managed).
The next question that arises is if the substitute vessel is not owned by the original owners under the voyage charterparty, does a bill of lading, that her master signs, become or evidence the contract of carriage for the cargo rather than the charterparty itself?
In the ordinary course, a charterparty between owners (or a disponent owner) and a charterer under which the charterer loads goods to be carried on the chartered ship to a destination, will provide the terms of the contract of carriage of those goods and any bill of lading issued by her master will operate as a mere receipt in the hands of the charterer. That is because such a charterparty is treated as containing the terms on which the charterer, as shipper, and the owners, as carrier, have agreed are to govern their relationship both for the voyage itself and the carriage of the shipper’s goods: Rodocanachi v Milburn (1886) 18 QB 67. There, Lord Esher MR (at 75), Lindley LJ (at 78) and Lopes LJ (at 79) held that a bill of lading issued to the shipper did not alter the pre-existing contract in the charterparty between him and the owners. Rather, in such a case, the bill of lading served only as an acknowledgment of receipt of the goods, as between the charterer or shipper and owners although, if the bill were later endorsed to a third party, it would then contain the terms of the contract of carriage between the third party and owners; see too: Turner v Haji Goolam Mahomed Azam [1904] AC 826 at 836 per Lord Lindley, giving the advice of himself, Lord Macnaghten and Sir Arthur Wilson.
Ordinarily, a charterparty will operate as the only contract of carriage where the charterer has contracted to buy goods from a vendor who, under the contract for sale, will be the shipper of the goods on the chartered ship. This principle was first explained by Lord Sumner, with whom Lords Parker of Waddington and Wrenbury agreed in Love and Stewart Ltd v Rowtor Steamship Co Ltd [1916] 2 AC 527 at 540. There, the vendor sold goods f.o.b. and obtained a bill of lading from the master of the ship that the purchaser had chartered for the voyage. Lord Sumner said:
… in presenting the hill [sic] of lading the [purchaser] merely did what they must needs do in order to get delivery of their cargo. They received it from [the vendor] under the contract of sale as the symbol of the delivery of goods while afloat. Nothing had occurred by which any contract for the carriage of the goods arose between them and the shipowners other than the charter itself. No new bargain had been made, under which the [shipowners] carried for the [purchaser] under a bill of lading instead of a charter. The freight earned was chartered freight and the bill of lading in the [purchaser’s] hands was only the ship’s receipt for the goods. This is the ordinary effect of documents such as these under such circumstances, and the cases cited do not bear upon them. (emphasis added)
As Lord Denning MR explained in President of India v Metcalfe Shipping Co Ltd (The “Dunelmia”) [1970] 1 QB 289 at 305B-C, before applying what Lord Sumner had said, as a matter of principle:
whenever an issue arises between the charterer and the shipowner, prima facie their relations are governed by the charterparty. The charterparty is not merely a contract for the hire of the use of a ship. It is a contract by which the shipowners agree to carry the goods and to deliver them.
He held that the master could not vary the contract, being the charterparty, by signing and issuing bills of lading, where the charterparty provided that in doing so he would act “without prejudice to the terms of the charterparty”, as Lord Esher MR earlier had explained in Hansen v Harrold Brothers [1894] 1 QB 612 at 619 (see too per Edmund Davies LJ [1970] 1 QB at 309, and Fenton Atkinson LJ at 310).
Here, cl 10 of the GENCON 1994 form, that was a term of the charterparty created by the recap dated 27 November 2014, reflected this position. But that raises the question here as to whether the bill of lading, that the master authorised to be issued, was given by him as agent of the owners of Thorco Challenger under the charterparty in the recap, or as agent of MarShip, as owners of Thor Commander. The answer to that question depends on whether there is privity of contract between Mount Isa and MarShip in the charterparty; in other words, whether the effect of the substitution of Thor Commander for Thorco Challenger was to assign or novate the charterparty to MarShip so that it can be said to have agreed with Mount Isa, as opposed to the owners of Thorco Challenger, to perform the voyage and carry the cargo under that contract.
As Ryan, Tamberlin and Conti JJ held in The Ship “Socofl Stream” v CMC (Australia) Pty Ltd [2001] FCA 961 at [60], The Dunelmia [1970] 1 QB 289 does not cover the circumstances where there is no privity of contract. They referred to Hi-Fert Pty Limited v Kuikiang Maritime Carriers Inc (The Kuikiang Career) (2000) 173 ALR 263 at 268 [26]-[28] with apparent approval. There Tamberlin J had held that the bill of lading was the contract of carriage between the owners of Kuikiang Career and the voyage charterer. That was because the vessel’s owners had time chartered her to the disponent owner which, in turn, had entered into both a voyage charter to, and a contract of affreightment with, the owner of the cargo shipped on board under a bill of lading. The voyage charter and bill of lading, as here, were both on GENCON forms.
Tamberlin J held that, in The Dunelmia [1970] 1 QB 289, “the parties to the charterparty and the bills were effectively identical”, whereas in the case before him there were two contracts, the charterparty was between the owners and charterer/disponent owner, while the bill of lading was between the owner and cargo owner, so that the latter document was the contract of carriage. That was because the parties to the bill were not the same as to the charterparty (Kuikiang Career 173 ALR at 268 [26]). Ryan, Tamberlin and Conti JJ said (Socofl Stream [2001] FCA 961 at [63]):
The Court, of course, will not find, wherever there are different parties to a bill of lading and a charterparty, that the bill of lading must be considered as a contract of carriage. Much will depend on the surrounding circumstances. Nevertheless, the distinction between the two sets of parties is an important consideration.
Here, the bill of lading issued for the copper anodes will only be capable of operating as a mere receipt for the cargo if MarShip was already in a contractual relationship with Mount Isa under which Thor Commander would carry the cargo.
In my opinion, MarShip was not in such a contractual relationship. The substitution clause in the recap operated to authorise the owners of Thorco Challenger to substitute, with Mount Isa’s approval, another vessel to perform the voyage. If that vessel were also owned by Thorco Challenger’s owners, then her master would be acting as their agent in signing (or authorising the signing) of any bill of lading for the cargo. In consequence, the bill of lading would be only a mere receipt and the recap charterparty would continue to operate as the contract of carriage. However, if a vessel not owned by Thorco Challenger’s owners were substituted for her, then the master of the substituted ship would take the cargo into his possession as agent of his owners (here MarShip) and when he signed (or authorised the signing of) the bill of lading, it would be the contract of carriage; see too: Girvin S, Carriage of Goods by Sea (2nd ed, Oxford University Press, 2011) at [12.06]; Eder B, Bennett H, Berry S, Foxton D, Smith C, Scrutton on Charterparties and Bills of Lading (22nd ed, Sweet & Maxwell, Thomson Reuters, 2011) at [4-019]; Davies M, Dickey A, Shipping Law (4th ed, Lawbook Co, 2016) at [12.10], [12.69]-[12.70].
I reject MarShip’s argument that the substitution clause operated as an actual or prospective authority to the owners (or disponent owner) of Thorco Challenger, as a party to the recap, to novate the recap so as to create a new voyage charter between Mount Isa and MarShip. The substitution clause is a permission to the owners, as a party to the charter, to perform the voyage using a different ship, subject to the charterer’s approval. The clause expressly dealt with the identity of any vessel that is to perform the voyage, as opposed to a clause dealing with assigning or novating the recap itself. In Leveraged Equities 191 FCR at 85 [74], the assignment and novation clause expressly provided that the bank there could both assign or novate the benefit of the contract with its borrower.
The essence of the substitution clause is that it permits the contracting owner (or disponent owner with the charterer’s consent) to substitute a vessel in lieu of the original ship as that owner’s performance of his contractual duty to provide a ship to undertake the voyage. The clause supplies an agreed method by which the contracting owner can perform the charterparty. There is no commercial necessity to add unexpressed contractual terms or concepts, such as assignment, or to interpolate both a rescission of the original contract in the recap and to infer a novation, to make the charterparty work according to its terms: ALH Group 245 CLR at 346 [12], 349-351 [26]-[28], [31]-[32]. And, because it must have been in the reasonable contemplation of the parties when they entered into the recap on 27 November 2014, that if a substitution occurred, the owners of the substituted vessel would be bound by any bill of lading issued by her master, they could have made, but did not, provision for the contract of carriage to be under an assigned or novated recap. Indeed, the express terms of the recap permitted the substitution of a vessel, not the discharge of the existing contract and a novation of its terms with different parties.
Ordinarily, a shipowner’s obligations under a charterparty are of a personal nature that cannot be performed vicariously. In Fratelli Sorrentino v Buerger [1915] 3 KB 367 at 371-372, Bankes LJ said of a situation in which the owner sold the ship while she was under charter (see too Scrutton at [4-019]; Dimech v Corlett (1858) 12 Moo PC 199 at 223; 14 ER 887 at 896 per Coleridge J for Dr Lushington, the Right Hon Pemberton Leigh and Cresswell J):
Each case must depend upon the language of the charterparty and its own particular circumstances. It can, however, I think, be stated as a general rule that where a charterparty contains obligations which can from their nature only be performed by the party himself who entered into the contract, that party cannot, by parting with the ship or otherwise, do anything which puts it out of his power to fulfil the obligations personally. He has no right to substitute any other person to perform those obligations in his place. It is not, however, every parting with a ship, whether by sale or otherwise, while she is under charter which puts it out of the power of the vendor to perform the obligations (if any) which he has undertaken to perform personally. (emphasis added)
Here, the owners of Thorco Challenger agreed with Mount Isa that they could perform the charterparty by substituting a vessel, with Mount Isa’s approval. They did not agree that a new party could be substituted into the charterparty itself. There is a distinction between a substitution of a vessel that the parties to the recap contemplated in their contract were the originally nominated vessel not to undertake the voyage, and a substitution of one of the parties to the recap, for which it made no express provision.
Although Anglo-Australian principles of maritime law proceed on the personification theory that attributes a legal personality to a ship in a proceeding in rem, that theory does not make the ship a party to a contract of carriage on it or to a charterparty of it or to a contract for the sale of the vessel itself. MarShip cited no authority involving a clause permitting owners (or a disponent owner) in a charterparty to substitute not only a different vessel but her different owners as parties to that contract as well. As I have noted, the only Admiralty authorities on this point that counsel or my researches have found rejected the proposition that the original owners whose ship was contracted to perform a voyage under a charterparty can novate that contract to other owners (and so remove themselves as contracting parties) when exercising a right to substitute a vessel.
A charterer (here Mount Isa) may have a contracted right to approve the substitution of the ship to perform the charter. This can be a ship in the same ownership as, or chartered by, the owners of the originally proposed ship who, after all, need to make the substitution in order to perform their contractual obligations under the charterparty. The right to substitute affords the owners (or disponent owner) of the vessel originally agreed on to undertake the voyage the ability to perform their obligations by a different mode of performance, namely by the substituted vessel.
Here, there was no express term in the voyage charter that provided for a novation or assignment of the owner’s rights and liabilities to the owners (or disponent owners) of the substituted vessel. Nor was there any evidence that such a novation or assignment was an ordinary incident of commercial dealings in ship chartering contracts. In essence, MarShip’s argument has a silent premise that the substitution clause included an implied term that, if a vessel were substituted then, her owners (or disponent owner) too would become parties in substitution for the contracting party whose ship was no longer going to perform the charter.
For a court to imply a term in a contract, based on the factual circumstances of the parties, Lord Simon of Glaisdale (for himself, Viscount Dilhorne and Lord Keith of Kinkel) in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 (as applied by French CJ, Bell and Keane JJ in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 185-186 [21] and see too per Kiefel J at 201 [62], 209 [90]) held that:
the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
Mr Taylor soon became concerned that, by the time that Thor Commander could be repaired and ready to sail (which at 16 January 2015, he understood would be around 1 February 2015) there would not be a sufficient supply of copper anodes available to load for the next production cycle. After assessing the matter with his staff, he concluded that any delay beyond 24 January 2015 in delivery to the refinery of at least 1,030 additional tonnes of copper anodes would be likely to result in a loss of some production. Other than what was in the cargo on Thor Commander, there was then no available source of supply to make up that shortfall. He said that Mount Isa’s principal source of supply for the refinery was from copper that it mined and smelted at Mount Isa. However, having considered the then anticipated smelter production figures, he concluded that without the additional 1,030 tonnes on Thor Commander, two sections of the refinery would have to be shut down for a cycle.
In order to shut down a section of the refinery, all anode and cathode copper in it must be removed, followed by all its permanent stainless steel mother plates that are then stacked on one side of the section. The electrolyte solution in the section must be drained from it and stored. The section then is not available for use until the beginning of the next production cycle 18 days later. At that stage, the mother plates must be replaced, the copper anodes loaded, the electrolyte solution returned into the section and its power at 26,500 amps must be restored to begin the refining process.
Between 16 and 18 January 2015, Mr Taylor had discussions with Mr Harvey and Mount Isa’s superintendent port and logistics, David Zammitt, about how to deal with the situation. Mr Taylor ascertained that any additional transhipment costs of moving part of the cargo from Gladstone to the refinery, over the cost of discharging the whole cargo later when the ship docked in Townsville, would be covered by Mount Isa’s insurances on the cargo. He had learnt by 17 January 2015 that the next shipment of 11,200 tonnes of copper anodes was being carried on Louisiana, which was not due in Townsville until the third week of February 2015.
I accept Mr Taylor’s evidence that, first, if the transhipment costs were not covered by insurance they would reduce the gross profit margin and that this would accordingly be less than what Mount Isa would normally make and, secondly, he was concerned that if, having incurred that expense, sufficient of the transhipped copper anodes did not arrive in time before the forthcoming new cycle began, “it could be a costly exercise for little benefit,” as he wrote in an email dated 17 January 2015 to several persons at Glencore’s head office in Baar, Switzerland.
MarShip sought to characterise the words I have just quoted as Mr Taylor’s contemporaneous view of the value of undertaking the transhipment, if Mount Isa’s insurance did not cover them. I reject that characterisation. Because the refinery normally ran at full production, any loss of production meant a reduction in Mount Isa’s overall ordinary cash flows and sales. If the two sections did not produce refined copper cathode on one cycle, that loss of production could not be made up in the ordinary course of events.
On the evidence, Mount Isa’s decision to undertake the transhipment did not involve it incurring a loss, as opposed to a reduced margin. I am of opinion that that decision was a reasonable commercial choice in a situation of difficulty for Mount Isa that MarShip’s breach of the contract of carriage caused. Accordingly, unless precluded by the terms of the letter of indemnity, Mount Isa is entitled to recover the transhipment costs: Banco de Portugal [1932] AC at 506.
Mr Taylor asked Mr Harvey to arrange for part of the cargo (about 1,030 tonnes) to arrive at the refinery before 24 January 2015. As a result, after discussions between representatives acting for Mount Isa and after members of the Glencore group, with those acting for MarShip, on 19 January 2015, Mr Harvey signed the letter of indemnity on behalf of Mount Isa.
Subsequently, Mount Isa’s superintendent of port operations, John Cordingley, caused one original of the set of three of the bills of lading for the cargo to be presented to the master of Thor Commander to obtain delivery of the 1,030 tonnes of copper anodes at Gladstone. That part of the cargo arrived progressively at the refinery in time to ensure that all 37 sections could run for the cycle then due.
8.2 The transhipment issue - consideration
I reject MarShip’s argument that the letter of indemnity precluded Mount Isa from claiming the transhipment costs. It contended that Mount Isa’s claim in the writ under which Thor Commander was arrested for those, among others costs, was in respect of a “liability in connection with delivery of the cargo” within the meaning of cll 1 and 3 of the letter of indemnity. MarShip argued that cl 3 required Mount Isa to indemnify it for that claim.
In my opinion, the partial delivery of the cargo at Gladstone did not occur “as aforesaid” (i.e. under cl 1 or the letter of indemnity) “in connection with” the arrest of the ship within the meaning of cl 3. Mount Isa’s claim in respect of the ship’s and MarShip’s liability, loss, damage or expense for transhipment costs was not sustained “by reason of the ship proceeding and giving delivery of the cargo”. That liability was sustained because of the anterior breach of MarShip’s obligation in Art 3(1)(a) of the amended Hague Rules in the contract of carriage to exercise due diligence before and at the commencement of the voyage to make Thor Commander seaworthy.
The partial delivery of the cargo at Gladstone was not the source of, or a circumstance that fell within the meaning of, the wording in the letter of indemnity, namely:
liability, loss, damage of the expense of whatsoever nature which [the ship or MarShip] … sustain[ed] by reason of the ship … giving delivery of the cargo against production of at least one original bill of lading.
Mount Isa did not incur the transhipment costs, and the ship as well as MarShip did not sustain a loss, by reason of the ship discharging some of the cargo against production of an original bill of lading. The loss did not occur by reason of the delivery of some cargo to its owner which produced an original bill of lading to obtain them. The delivery occurred because Thor Commander was in Gladstone and not in Townsville.
The protection that cl 1 expressly gave was against any liability, loss, damage or expense sustained because the ship acted on the faith of the production of the bill of lading in discharging the cargo. The lawful owner, Mount Isa, had no complaint that the cargo was delivered against the production of the bill of lading, because that delivery was lawful and what Mount Isa had requested.
The commercial object of the standard form of a letter of indemnity, that the 19 January 2015 letter of indemnity reflects, is to protect a carrier from the consequence of wrongful delivery of goods to a person in circumstances that do not comply with the terms of the contract of carriage. If a third party had obtained one of the original bills and, having presented it, obtained delivery of all or some of the cargo, the letter of indemnity would have protected the ship and MarShip from a claim by Mount Isa based on that situation.
The letter of indemnity was, or was in the nature of, a commercial contract: see Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35] (see [78] above).
And, in Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad (1989) 167 CLR 219 at 227, Mason CJ, Brennan, Deane, Gaudron and McHugh JJ said:
In Darlington Futures Ltd. v Delco Australia Pty. Ltd. [(1986) 161 CLR 500, at 510] this Court said that:
“… the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.”
The context in which cl. 8(2) has to be construed includes…the carrier’s agreement to deliver the goods to the owner at Sydney. But, relevant as that object is in the construction of cl. 8(2), the meaning of that provision ultimately depends on its language, read in context, and not on any a priori notion that the non-delivery of goods was not intended to be protected. In determining whether an exemption clause should be construed so as to apply to an event which has defeated the main object of the contract, much must depend upon the nature of the events which the clause identifies as giving rise to the exemption from liability. If the happening of a stipulated event will always result in the defeat of the main object of the contract, there will be no scope for holding that that object requires the conclusion that the exempting clause is not applicable to that event. But even in cases where the occurrence of the events stipulated in the exemption clause will not always defeat the main object of the contract, the nature of those events may nevertheless give rise to the inference that the clause was intended to apply to those events even when they occur in circumstances which defeat the main object of the contract. (emphasis added)
The main object of the letter of indemnity was to enable Mount Isa to obtain delivery of some of the cargo at Gladstone because Thor Commander had failed to arrive, and would not arrive for some then indefinite time, in Townsville. The commercial context in which the parties entered into (or Mount Isa had been required to give) the letter of indemnity was that Mount Isa needed delivery of some of the cargo and a carrier of goods by sea, such as Thor Commander, her master and owners (MarShip), cannot deliver cargo except in accordance with, and upon production of, an original bill of lading: see Hilditch Pty Ltd v Dorval Kaiun KK (No 2) (2007) 245 ALR 125.
Thus, the commercial purpose of the letter of indemnity was to protect MarShip and Thor Commander, including her master, against the consequence of delivering at Gladstone some or all of the cargo to a person who presented an original bill of lading there, because the ship had not discharged the cargo at Townsville when it should have, some days earlier. That is, the commercial purpose and object of the letter of indemnity was to provide protection against a claim by Mount Isa for conversion of its property, represented by the bill of lading, were partial delivery given at Gladstone on presentation of an original bill, in circumstances where the parties understood that when the ship ultimately discharged the balance of the cargo at Townsville, there would be a shortfall of copper anodes; namely, those that the ship delivered at Townsville. Hence, the letter of indemnity had the purpose or object of giving the ship, master and crew, protection against a claim of short delivery at Townsville and enabled delivery of some cargo at Gladstone, against production of one original bill of lading.
In the contractual, commercial and factual context in which the terms of the letter of indemnity came to be negotiated, neither MarShip nor Mount Isa then knew what legal consequences would flow from the breakdown of Thor Commander en route to Townsville, including whether one or other of them would be liable to the other or would have to bear any loss that occurred from late delivery. It would be improbable that the parties intended the letter of indemnity, prospectively, to exonerate MarShip and Thor Commander from any pre-existing liability, that either or both had to Mount Isa, if there were a partial delivery under it at Gladstone, when no-one then knew all the facts. The letter of indemnity should be construed so as to avoid it making commercial nonsense or working commercial inconvenience: Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ.
In particular, in the context and market in which the parties were operating, Art 4A of the amended Hague Rules was, by force of Art 2, part of the contract of carriage. A carrier is liable under Art 4A to a shipper for loss, including pure economic loss and loss of markets, caused to the shipper because the shipper’s goods have been delayed if the carrier cannot establish that the delay was excusable and it took all measures reasonably required to avoid the delay in delivering them at their port of discharge as specified in the contract of carriage.
Mount Isa was entitled to the shipper’s rights by force of s 6(1) of the Sea-Carriage Documents Act 1996 (Qld) (see [40] above). Thus, it had a right to enforce Art 4A against the ship and MarShip if the contract of carriage were (as I have found) the bill of lading. Delivery of some of the cargo at Gladstone as contemplated by the letter of indemnity could mitigate both Mount Isa’s potential for loss from what would otherwise be late delivery of its cargo at Townsville and the potential damages that MarShip (and the ship) might have to pay for that delay.
In this commercial, legal and factual context, I am of opinion that the purpose and object of cl 1 of the letter of indemnity was to protect the ship and her owners when Thor Commander ultimately discharged the remaining cargo against a claim for conversion of any shortfall in the cargo delivered that a person could make who presented an original bill of lading in Townsville. A businesslike interpretation of the letter of indemnity in the circumstances requires cl 1 (and the indemnity that cl 3 provides in respect of the ship or MarShip acting under cl 1) to be read so that it protected against “any liability, loss, damage or expense of whatsoever nature” a carrier by sea would sustain if the ship delivered cargo otherwise than at the port of discharge nominated in the bill of lading and in accordance with the letter of indemnity. That is, the indemnity was to do with the delivery of the cargo to someone in accordance with its terms and to protect the ship and MarShip from any subsequent claim for short delivery of the cargo at Townsville. It was not, and in the context in which Mount Isa gave it, and the market in which the parties were operating, would not have been, understood as being an indemnity that operated to negate or defeat pre-existing rights, if any, of either party based on an earlier breach of contract by such a party.
For these reasons, Mount Isa is entitled to recover the transhipment costs as part of its damages.
9. The general average issue
9.1 The general average issue - background
On 13 January 2015, MarShip declared general average in respect of the breakdown of the main engine. In consequence, Mount Isa, as owner of the cargo on board, became potentially liable to contribute and on 20 January 2015 it entered into an average bond at a cost of £431.99 in order to obtain discharge of its cargo. The bill of lading provided in cl 3 that general average would be adjusted and settled in accordance with the York-Antwerp Rules 1994 in London (see [61] above).
Mount Isa claimed in its writ that it was likely to suffer loss and damage as a result of the general average claim in circumstances where MarShip, as owners, had failed to provide a seaworthy ship. Mount Isa also claimed a declaration in its statement of claim that it was not liable so to contribute by reason of the vessel’s relevant unseaworthiness.
MarShip opposed me making a declaration in the event that I found that the contract of carriage was the bill of lading on the bases that, first, Mount Isa had not sought that relief in the writ and thus, the prayer in the statement of claim went outside the terms of the originating process (relying on the dissenting reasons of Barwick CJ and McTiernan J in Renowden v McMullin (1970) 123 CLR 584 at 595-597), secondly, were there to be a finding of unseaworthiness (as there now is) that would give rise to an issue estoppel binding the parties in the final adjustment of general average, thirdly, MarShip’s hull and machinery insurers were interested in the general average, having paid, so MarShip asserted, the greatest share of the sums in issue in the adjustment and, fourthly, a declaration would cut across the orderly resolution of the arbitration for the adjustment process to which all interested persons are parties. MarShip argued that those factors justified the exercise of the discretion not to make a declaration.
9.2 The general average issue – consideration
I reject MarShip’s argument.
Rule 19 of the Admiralty Rules 1988 (Cth) provides that a proceeding, such as this, commenced as an action in rem, must be commenced by writ in accordance with Form 6. Form 6 required that the plaintiff specify the amount claimed or other relief sought and give enough short particulars of the claim to identify the cause of action. Rule 22(1) and (2) required a plaintiff, unless the Court otherwise ordered, to file and serve a statement of claim on each party who has entered an appearance and that statement of claim be in accordance with the rules of the court concerned. Thus, here, the Federal Court Rules 2011 applied. Rule 36 permitted a writ in rem to be amended and required, unless the Court otherwise ordered, the amended writ to be served on each person and on each ship on which the original writ was served. Rule 80 enabled the Court on application, or on its own initiative, to give any direction with respect to a proceeding and the Court, on such terms as are just, may dispense with compliance with the Admiralty Rules before or after the time for compliance.
Under r 16.02(1)(f) of the Federal Court Rules 2011, a pleading must state the specific relief sought or claimed. In addition, an originating application must also state, by force of r 8.03(1)(a), the relief claimed, and r 8.05(1)(a) relevantly, (unlike the Admiralty Rules) required the originating application to be accompanied by a statement of claim.
In my opinion, a statement of claim that pleads in accordance with the requirements of r 16.02 of the Federal Court Rules will identify the case that the defendant or respondent is called upon to answer as Owen J (with whom Kitto J and Menzies J agreed (at 606)) said in Renowden 123 CLR at 613. To the extent that it were necessary here, I would have granted Mount Isa leave to amend its writ and dispensed with service of the amendment on the ship, since service on the solicitors who have appeared under r 23 of the Admiralty Rules on behalf of the ship and MarShip, would be all that is necessary to ensure that justice is done.
However, that is not necessary here. Modern pleadings do not operate so rigidly in a case where the real controversy between the parties, as raised on the evidence, raises a fresh issue: Vale v Sutherland (2009) 237 CLR 638 at 651 [41] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ applying what Dawson J said in Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 296-297. Ever since the filing of the statement of claim in December 2015, the issues on which the parties have been in dispute included Mount Isa’s claim for the declaration. Moreover, s 22 of the Federal Court of Australia Act 1976 (Cth) is designed to ensure that the Court can grant relief which is appropriate to both legal and equitable claims and to avoid multiplicity of actions: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 161 per Gibbs CJ, Stephen, Mason and Wilson JJ.
MarShip did not contend that the second paragraph in cl 3 in the bill of lading applied to subject Mount Isa to liability to contribute. That no doubt was for two reasons. First, the general principle is that where the cause of the peril that enlivened the claim for general average is the unseaworthiness of the vessel due to the carrier’s fault, the carrier (or, here, MarShip as owner) cannot recover a contribution from the cargo owners. That is because the carrier’s fault necessitated the average expenditure: Louis Dreyfus & Co v Tempus Shipping Co [1931] AC 726 at 734 per Viscount Dunedin (with whom Lord Thankerton agreed at 752), 745-747 per Lord Atkin and per Lord Macmillan agreeing at 752. Their Lordships approved the decision of Erle CJ, with whom Willes and Keating JJ argeed, in Schloss v Heriot (1863) 14 CBNS 59 at 64. Erle CJ held that, at common law, the carrier or shipowner cannot claim general average contributions from cargo-owners where “his actionable negligence and misconduct produced the very damage for which he seeks to recover contribution”, and that the cargo-owners could bring their own claim to recover back the whole sum claimed as their contribution; see too: Goulandris Brothers Ltd v B. Goldman & Sons Ltd [1958] 1 QB 74 at 92-95, 104 per Pearson J.
Moreover, the second paragraph of cl 3 only applies to a cause that is the fault, neglect or error of, relevantly, the master or crew. First, on my findings, the operative cause was also the fault, neglect or error of MarShip in its failure properly to ensure that the vessel’s scheduled maintenance occurred, as Mr Smirnov’s participation in the fabrication of the fuel injector running hours reports evidenced. Secondly, and decisively in this case, because the amended Hague Rules applied, Art 3(8) rendered the second paragraph of cl 3 “null and void and of no effect” because it purported to relieve the carrier or the ship from liability for loss or damage in connection with goods arising from negligence, fault or failure in their duties and obligations under Art 3(1) to exercise due diligence before and at the beginning of the voyage to make Thor Commander seaworthy.
Relevantly, rule D of the York-Antwerp Rules 1994 provided:
Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure; but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault. (emphasis added)
The effect of the final part of rule D is to preserve the right of a person called on to contribute to general average to sue to recover the amount payable from the carrier or shipowner for loss or damage because the latter has caused the need for the extraordinary sacrifice or expenditure for which the contribution is claimed. That exception from the general provisions of rule D reflects the common law position.
In Lowndes & Rudolf: General Average and the York-Antwerp Rules (14th ed, Sweet & Maxwell, 2013) at 158 [D.03], the authors described the exception in rule D as “actionable fault” and cite Schloss 14 CB(NS) 59 and Louis Dreyfus [1931] AC at 738, 747. And, the authors gave an example that exactly matches the facts I have found where, in their view, the shipowners would have been liable for substantial damages: namely the ship was unseaworthy at the commencement of the voyage as a result of the want of due diligence on the part of the owner, she is salved by a tow to save her and her cargo from danger, and the cargo interests incurred liability to the salvors.
Of course, as Lord Neuberger PSC (with whom Lords Clarke, Sumption and Hodge JJSC agreed), said in construing rule F in Mitsui & Co Ltd v Beteiligungsgesellschaft LPG Tankerflotte MSBH & Co KG (The “Longchamp”) [2018] 1 Lloyd’s Rep 1 at 7 [25], the law cannot be decided by what is understood among writers and practitioners in the relevant field. Lord Neuberger PSC went on to hold that because the York-Antwerp Rules represented an international instrument, it is particularly inappropriate to adopt an approach to their interpretation that involves, first, reading in any words or qualifications, and, secondly, use of the law of the forum’s technical rules or judicial precedents. Rather, he held, applying what Lord Wilberforce had said in James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd [1978] AC 141 at 152 that those Rules should be interpreted “on broad principles of general acceptation”: The “Longchamp” [2018] 1 Lloyd’s Rep at 8 [29]. I agree.
The evident purpose of the exception in rule D is to separate from the process of adjusting general average, the question as to what, if any, fault of a person bound to contribute caused (or gave rise to) the sacrifice or expenditure. The Rules leave such a question to a court, arbitrator or other dispute resolution process. Thus, rule D contemplates that, initially, any fault of a party to the adventure must be ignored in arriving at the amount of a contribution assessed in accordance with the Rules themselves. However, the exception in rule D, expressly preserves remedies and defences created in the proper or governing law of the legal relationship between the parties that applies in the circumstances to attach or deny an enforceable remedy to a party in respect of the other’s fault.
However, the York-Antwerp Rules were written in the context of the ancient and well-known rights of (and liability to make) contribution if a general average act occurs. In Strang, Steel & Co v A Scott & Co (1889) 14 App Cas 601 at 606, 607 and 609, Lord Watson, giving the advice of the Privy Council (comprising him, Lords Fitzgerald, Hobhouse and Macnaghten), traced the principles of general average to Rhodian law. He cited a dictum of Brett MR in Burton v English (1883) 12 QBD 218 at 220-221 who had said there that the source of contribution to general average arose not from an implied contract “but from the old Rhodian laws, and has become incorporated into the law of England as the law of the ocean”. Lord Watson held (14 App Cas at 609-610):
The Rhodian law, which in that respect is the law of England, bases the right of contribution not upon the causes of the danger to the ship and cargo, but upon its actual presence; and such exceptions as that recognised in Schloss v. Heriot [14 CB(NS) 59] are in truth limitations on the rule, which have been introduced, from equitable considerations, in the case of actual wrongdoers, or of those who are legally responsible for them. (emphasis added)
For these reasons, I am of opinion that because of my findings holding Thor Commander and MarShip liable for breach of Art 3(1)(a) and (b) of the amended Hague Rules, and thus at fault for the event that gave rise to the expenditure, namely the breakdown of the main engine, Mount Isa has a remedy against them, within the meaning of the exception to rule D, to recover substantial damages equal to the amount of any liability that Mount Isa may have to contribute to general average.
The hull and machinery insurers’ rights and interests as against Mount Isa in the general average adjustment arise by subrogation and derive solely from the rights of its insured, MarShip. There is no evidence, or other identified legal basis, to find that those insurers could assert any right against Mount Isa other than in MarShip’s or Thor Commander’s name or names pursuant to the insurers’ right of subrogation. Thus, the findings against MarShip and its vessel that I have made bind the insurers, who cannot assert different rights or obligations to those of their insured as against a third party, such as Mount Isa.
The issue of whether Mount Isa is liable to contribute to the general average is an integral part of the real controversy in this proceeding. Indeed, that controversy was squarely raised in the pleading in the writ that Mount Isa was likely to suffer damage by reason of the general average claim. The declaration that Mount Isa later sought in the statement of claim reflected that apprehension and sought relief in respect of it. A declaration that Mount Isa is not liable to contribute to general average in respect of the breakdown of Thor Commander’s main engine is but a direct reflection of my findings on the cause and responsibility for that breakdown and MarShip’s and the vessel’s liability for it owed to Mount Isa.
Such a declaration is directed to determining the legal controversy as to whether, and what, liability Mount Isa has to contribute to general average and, if made, will have the effect of quelling it. Mount Isa is entitled to that remedy in the interests of justice: Plaintiff M61/2010E v Commonwealth (2010) 243 CLR 319 at 359 [101]-[103] per French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ, and to prevent multiplicity of proceedings: Thomson Australian 148 CLR at 161. That remedy is preferable to ordering MarShip itself to pay instead, and to indemnify Mount Isa, in respect of any liability that Mount Isa might be found to have in the adjustment of general average. MarShip must also pay damages in the sum of £431.99 in respect of Mount Isa’s having to arrange the general average bond.
10. Conclusion
I will make orders that MarShip pay Mount Isa the amounts of USD909,000 as its share of the salvage reward I have fixed, together with the sums of £42,660.47 for its costs on that issue, £431.99 as the costs of the bond and AUD147,956.27 for the transhipment costs, together with interest. The parties should seek to agree interest calculations for the foreign currency sums and use the Court rates for the transhipment costs.
MarShip’s cross-claim seeking relief in respect of the letter of indemnity must be dismissed. MarShip must pay the costs of the proceeding. I will give the parties the opportunity to prepare draft orders to give effect to these reasons.
I certify that the preceding five hundred and six (506) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate:
Dated: 29 August 2018
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