The Sanko Steamship Co. Ltd v Sumitomo Australia Ltd
[1995] FCA 962
•29 NOVEMBER 1995
CATCHWORDS
SHIPPING AND NAVIGATION - cargo of phosphate consigned from Tampa, Florida to Esperance WA lost when ship carrying it sank before completion of voyage - cargo shipped pursuant to voyage charterparty entered into by first plaintiff, Sanko, and defendant - vessel provided by second plaintiff, Grandslam, pursuant to time charter entered into between plaintiffs - Grandslam bareboat charterer of vessel - construction of charterparty - whether United States Carriage of Goods by Sea Act incorporated in charterparty - whether Grandslam entitled to immunities provided for in charterparty between Sanko and defendant - whether vessel seaworthy - whether plaintiffs had exercised due diligence to make ship seaworthy - whether plaintiffs entitled to limit their liability under the 1957 Limitation Convention - whether Sanko entitled to recover balance of freight provided for in voyage charterparty.
United States Carriage of Goods by Sea Act 1936, ss.3, 4, 5.
Navigation Act 1912 (as in force prior to coming into force of Limitation of Liability for Maritime Claims Act 1989), ss.330, 333 and Schedule 6.
THE SANKO STEAMSHIP CO. LIMITED AND GRANDSLAM ENTERPRISE CORPORATION v SUMITOMO AUSTRALIA LIMITED & Ors
No. G082 of 1991
CORAM: SHEPPARD J
PLACE: SYDNEY
DATE: 29 NOVEMBER 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. G082 of 1991
)
GENERAL DIVISION )
BETWEEN:
THE SANKO STEAMSHIP CO. LIMITED
AND GRANDSLAM ENTERPRISE CORPORATION
Plaintiffs
AND:
SUMITOMO AUSTRALIA LIMITED
Defendant
AND:
SUMITOMO AUSTRALIA LIMITED
Cross-claimant
AND:
THE SANKO STEAMSHIP CO. LIMITED
First cross-defendant
AND:
GRANDSLAM ENTERPRISE CORPORATION
Second cross-defendant
AND:
KIM IN HYEON
Third cross-defendant
CORAM: SHEPPARD J.
DATE: 29 NOVEMBER 1995
PLACE: SYDNEY
REASONS FOR JUDGMENT
HIS HONOUR: Shortly after 3.00 o'clock on the morning of 14 February 1991 the vessel "Sanko Harvest" grounded on a reef in the Recherche Archipelago not far from the Western Australian port of Esperance. The vessel was carrying a cargo of phosphate and was bound for Esperance. On the night of 17/18 February the vessel sank. Both the vessel and the cargo were a total loss. It is agreed by the parties that the value of the cargo of phosphate which the vessel was carrying was $8,900,000. The defendant sues the plaintiffs for this sum together with interest.
The loss of the vessel was due to grossly negligent conduct on the part of its crew, particularly its master and second officer. There is no real dispute between the parties that that is the case.
The cargo had been consigned by the defendant (its United States parent acted for it in this respect) from Tampa in Florida. Although the plaintiffs, the Sanko Steamship Co. Limited ("Sanko") and Grandslam Enterprise Corporation ("Grandslam") are the plaintiffs, the principal proceeding is the cross-claim brought against those companies by the defendant, Sumitomo Australia Limited ("Sumitomo"), as voyage charterer of the vessel and consignor of the cargo. The cross-claim was not maintained against the third cross-defendant who was the master of the vessel.
The plaintiffs' action is an action to limit their liability pursuant to the provisions of the International Convention relating to the liability of owners of sea-going ships signed at Brussels on 10 October 1957 ("the 1957 Convention") which, until the coming into force of the Limitation of Liability for Maritime Claims Act 1989 on 31 May 1991 (i.e. after the grounding occurred), had effect by force of the Navigation Act 1912; see ss.330 and 333 and Schedule 6 thereof. It is the contention of Sumitomo that the plaintiffs are not entitled to limit their liability because the loss of the cargo resulted from the actual fault or privity of the plaintiffs; Article 1 of the 1957 Convention. Originally, one of the defences raised in response to the cross-claim was that the plaintiffs were entitled, in the alternative, to limit their liability pursuant to the provisions of the Convention on Limitation of Liability for Maritime Claims 1976 ("the 1976 Convention") which has effect in Australia by reason of the provisions of the Limitation of Liability for Maritime Claims Act; see s.6 and Schedule 1 thereof.
Until recently there was a question whether the appropriate limitation regime was that provided for in the 1957 Convention or the 1976 Convention. This was not the only matter in the Court's list concerning the question whether the 1976 Convention might be applicable in the case of casualties occurring before the Limitation of Liability for Maritime Claims Act came into force. A similar question had arisen in Victrawl Pty Limited v AOTC Limited (No. NG 73 of 1991). In
1993 I stated a case to enable a Full Court of this Court to determine which was the applicable limitation regime. I was asked by counsel in the present case, which was then reserved for judgment, to take a similar course in it. The stated cases were determined by a Full Court on 29 September 1993. The principal judgments were delivered in Victrawl; see (1993) 45 FCR 302.
The Court decided that the 1976 Convention had no application to casualties occurring before the commencement of the Limitation of Liability for Maritime Claims Act. On 11 February 1994, the High Court granted special leave to appeal against the judgment. On 3 October 1995, the High Court delivered judgment in both matters. See Victrawl Pty Limited v Telstra Corporation Limited (1995) 131 ALR 465 and Sanko Steamship Co Limited v Sumitomo Australia Limited (1995) 131 ALR 490. By majority, the High Court dismissed the appeals from the judgments of the Full Court in both Victrawl and this matter. It follows that the limitation regime which is applicable here is that provided for in the 1957 Convention. The plaintiffs will only be entitled to limit any liability they are found to have if they establish that the loss of the cargo was not due to their actual fault or privity.
As will already have been perceived, the limitation issues are not the only issues with which the Court is concerned. There are substantial questions whether the plaintiffs are under any liability to Sumitomo whatever. The issues which arise for determination arise by reason of the terms of the voyage charterparty, two bills of lading, and, depending on the view that is taken of their applicability, the provisions of the United States Carriage of Goods by Sea Act 1936.
The Vessel and its Owners and Charterers
The Sanko Harvest was a vessel of 32,502 tons deadweight. It had been built in 1985 and was a bulk carrier for dry cargo. It was available for charter throughout the world and was thus a vessel known in the trade as a tramp. It should be understood that that is not a derogatory term. The vessel was registered in Panama.
The vessel was owned by a company, Seawall Shipping Corporation. By a bare boat charter dated 31 March 1987, the vessel was chartered to Tonegawa Marine Corporation for a period commencing on 31 March 1987 and ending on 31 May 2000. By a novation agreement dated 23 December 1987 made between Tonegawa Marine Corporation, Seawall Shipping Corporation, Sanko and Grandslam, it was agreed that Grandslam should be substituted in place of Tonegawa Marine Corporation as from 10.00 a.m. Japanese time on 31 December 1987. The obligations of Grandslam arising as a consequence of the novation agreement were guaranteed by Sanko.
On 31 December 1987, the day of the novation agreement, Grandslam chartered the vessel to Sanko. The charter was a time charter for the period from the date of delivery of the vessel until 31 May 2000.
Grandslam is a company incorporated in Liberia. Sanko is incorporated in Japan. It is the owner of all the shares in Grandslam. It also owns all the shares in another company incorporated in Japan, Eastern Shipping Co. Limited ("Eastern Shipping"). Sanko is a very large shipping company. In 1990 it operated 84 bulk carriers one of which was over 230,000 deadweight tons. Two others were over 160,000 deadweight tons. Additionally it had 41 tankers and liquid petroleum gas carriers. Two of its tankers exceeded 230,000 deadweight tons. Some of these vessels were engaged on regular routes; others, like the Sanko Harvest, were tramps. According to Mr Katsuyuki Totoki, who is a director of both Sanko and Grandslam, Sanko is, together with two other companies, the equal fourth largest shipowner in Japan.
In 1985 Sanko and its Japanese subsidiaries encountered financial difficulty. Sanko was the subject of an order made by a court in Japan which provided for its administration in bankruptcy. The significance of this was explained by Mr Masaharu Ohashi. He is an attorney practising law in Tokyo. In evidence is a copy of the Japanese Corporate Reorganisation Law pursuant to which plans have been approved by the Tokyo District Court for Sanko and its associated companies, Eastern Shipping, Sanko Marine Co. Limited ("Sanko Marine") and Zuito Shipping Co. Limited. The law specifies a procedure as a result of which a reorganisation proceeding will be ordered to commence and a reorganisation plan will, in due course, be confirmed and executed under Court supervision. Mr Ohashi explained that in Japan a corporation limited by shares has four "organs", the shareholders' meeting, the board of directors, the representative directors and the auditors. The respective rights and obligations of these organs are specified in the Commercial Code of Japan. The shareholders' meeting appoints directors and auditors and has other functions to which it is unnecessary to refer. The board of directors has power to appoint representative directors and supervise these and the other directors' operation of the corporation's business. The representative directors have power to implement the decisions of the shareholders' meeting and of the board of directors. A representative director has power to represent the corporation externally and to administer its affairs internally, subject to the powers of the shareholders' meeting and the board.
Mr Ohashi said that a merger of Sanko Marine and Eastern Shipping was provided for in the reorganisation plans of each of those companies. The Court confirmed the plans in 1989. The effect of its order was to bring about the merger of the two companies which, from 1986, were both administered by the same trustee.
Mr Ohashi also said that the reorganisation law envisages the possibility of directors being given certain powers in relation to the reorganisation, but in the absence of such a provision, the general administration of a company being reorganised is conferred upon the trustee. No particular powers have been conferred on the directors of Sanko or any of its subsidiaries and accordingly the only power of the board of directors of each of those companies has been to appoint or remove representative directors, to decide to convene shareholders' meetings and to approve the transfer of shares. Representative directors lose most of their powers as a result of the appointment of a trustee. Similarly, shareholders lose their powers relating to the management of the affairs of the company. Their only powers consist of the appointment or removal of directors and auditors and of making some amendments to the articles of association.
There are three trustees of Sanko and one trustee in respect of each of the other companies. Trustees are subject to the supervision of the Tokyo District Court which must give prior approval to certain acts of the trustees.
Trustees are given the executive power to operate the corporation's business and to administer its assets. The trustee has the duty of the management of the affairs and assets of the corporation and in practice exercises those powers through the corporation's employees whose continued employment will be a matter for the trustee or his delegates. Each of the heads of the departments in Sanko are given the title "General Manager". They are all directors but have the limited powers referred to above.
As I understand Mr Ohashi's evidence, the administration of the affairs of each of the companies is conducted separately. Although Sanko controls the other companies, there is not a joint administration. Nevertheless, there is close consultation amongst the respective trustees.
On 31 January 1987, i.e. before the merger of Sanko Marine and Eastern Shipping, Grandslam entered into an agency agreement with Eastern Shipping whereby it appointed Eastern Shipping to act as its agent for the vessels designated in the agreement. These included the Sanko Harvest. Other vessels operated by Sanko were managed by Sanko Marine. The evidence is not clear on the point, but since the merger of Eastern Shipping and Sanko Marine, these two companies have presumably become one entity.
The management agreement provided that Eastern Shipping should have power to appoint and employ sub-agents to perform on behalf of Grandslam a number of specified services. These included the recruitment of masters, officers and crew of vessels, the conduct of interviews of applicants in order to examine their competence to fulfil the duties of the posts for which they applied, and to conclude employment contracts on behalf of Grandslam with applicants who were proved to be competent and satisfactory to Grandslam in every respect. The agency agreement came into force on 31 January 1987. It was to continue in force for a period of 12 months and thereafter was automatically renewed for subsequent periods of 12 months unless notice was given by either party that it would not renew the agreement. Such notice had to be given at least one month before the expiration of the relevant 12 month period of the agreement.
On 1 May 1986 Eastern Shipping had entered into an agreement, described as an agency agreement, with Chun Kyung Shipping Co. Limited ("Chun Kyung"), a company incorporated in Korea. Chun Kyung agreed to undertake to employ and recruit crew competent and physically and mentally fit to navigate and maintain vessels and to act as agent in the best interests of Eastern Shipping according to its instructions in regard to manning and personnel management of crews for vessels. The agreement was a continuing one which could be terminated on two months' prior notice in writing. On 1 April 1988 an agreement was entered into between Eastern Shipping and Hanjoo Maritime Co. Limited ("Hanjoo"), another Korean company. The agreement provided that the agreement of 1 May 1986 was to be terminated on 30 April 1988 and that that agreement would be assigned and transferred to Hanjoo which was described as the "newly appointed Manning Agent".
Hanjoo was not a company in any way related to Sanko. Both the Eastern Shipping and Hanjoo agreements were in force at all times relevant to the events in issue in this case.
The Voyage Charterparty
On 3 December 1991 the Sanko Harvest became the subject of a voyage charter pursuant to the terms of a voyage charter -party entered into between Sanko of Tokyo, "as Disponent Owners" and Sumitomo of Sydney as charterer. It may be noted that that expression was also used in relation to Grandslam in the time charter of the vessel to Sanko.
According to The Marine Encyclopaedic Dictionary, Eric Sullivan, 3rd ed. (1992), a disponent owner is a person or company who controls the commercial operation of a ship, responsible for deciding the ports of call and the cargoes to be carried. The expression was referred to by Morris J. in O/Y Wasa Steamship Company Ltd., and N.V. Stoomschip 'Hannah' v. Newspaper Pulp & Wood Export Ltd. (1949) 82 Ll.L.Rep. 936. His Lordship described the phrase (at 954) as a "somewhat vague one". He thought that it would cover a time charterer and added that it covered someone who can dispose of a ship without being the owner of the ship, "for the 'disponent owner' must be different from the owner."
The charterparty provided that the vessel should carry a cargo of 28,000 metric tonnes of bulk fertilisers made up of
8,000 and 20,000 metric tonnes respectively of different grades of phosphate from Tampa to Esperance, Kwinana and Geraldton in Western Australia. The charterparty was in the usual "Gencon form". "Gencon" is a reference to a general purpose voyage charterparty published by the Baltic and International Marine Council (BIMCO); see The Marine Encyclopaedia (supra). Item 21 of the schedule, which forms the first page of the charterparty, provides for additional clauses. There are there referred to clauses 17-49, "plus USA Clause Paramount" and certain other clauses to which it is unnecessary to refer. All these were deemed to be incorporated in the charterparty.
The primary obligation of Sanko was provided for in Clause 1 which obliged Sanko to load the cargo, proceed to the discharging port, and to deliver the cargo. It is for breach of that obligation that Sanko has been sued. But, for the purposes of the case, a more critical clause in the charterparty was clause 2 which was as follows:-
"2. Owners' Responsibility Clause
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 the improper or negligent stowage of the goods or 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."
It should be noted at this point that clauses 1 and 2 are printed clauses. Parts of them were struck out. Clause 2, as originally printed, was much longer. There are questions to be determined concerning the meaning and effect of clause 2. One of the submissions made by counsel for Sumitomo was based on the language used in that part of the clause which was omitted. Counsel claimed that the omitted words threw light on the meaning that the remaining words were intended by the parties to have.
Clause 41 of the charterparty provided, inter alia, that the Clause Paramount, amongst other clauses, was to be deemed to be incorporated "in this Charter Party and to apply to all bills of lading issued under this Charter Party." The Clause Paramount provided:-
"If the vessel loads in the U.S.A., the U.S.A. Clause Paramount shall be incorporated in all Bills of Lading and shall read as follows:-
This Bill of Lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States, approval April 16, 1936, which shall be deemed to be incorporated herein, and nothing herein contained shall be deemed a surrender by the carrier of any of its rights or immunities or an increase of any of its responsibilities or liabilities under said Act. If any terms of this Bill of Lading be repugnant to said Act to any extent, such terms shall be valid (sic) to that extent, but no further."
It would appear that the word "valid" should be read as "invalid".
There are issues between the parties concerning the relationship between clause 2 and the Clause Paramount and questions concerning whether the contract of carriage was affected by the United States Carriage of Goods by Sea Act 1936 ("the United States Act") or whether the "owners' responsibility" was governed entirely by clause 2 of the charterparty.
The United States Act
The United States Act provides that every bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea to or from ports of the United States in foreign trade shall have effect subject to the provisions of the Act. There follow the Hague Rules, i.e. those rules as enacted in the United States. Section 1(a) provides that the term "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper. There is then a heading which says "Contract of Carriage Under B/L - When B/L Issued Under Charter Party". There follows s.1(b) which provides:-
"The term 'contract of carriage' applies only to contracts of carriage covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same."
Section 2 provides for the carrier's duties and rights. It says:-
"Subject to the provisions of section 6, under every contract of carriage of goods by sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities hereinafter set forth."
Section 3(2) provides that the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods consigned. The section, like clause 1 of the charterparty, provides for the primary obligation of the carrier.
Rights and immunities are provided for in s.4. Section 4(2)(a) provides that neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship. It is upon that provision which the plaintiffs rely to escape liability if, contrary to their primary submission, the Hague Rules are applicable.
It is next appropriate to refer to s.3(1) which is headed, "Due Diligence to Make Seaworthy Before Sailing". Section 3(1) is as follows:-
"The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to-
(a)Make the ship seaworthy;
(b)Properly man, equip, and supply the ship;
(c)Make the holds, refrigerating and cooling chambers, and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation."
Section 3(1) needs to be read in conjunction with s.4(1). It is headed, "Immunities - Unseaworthiness Without Want of Due Diligence - Burden of Proof". Section 4(1) is as follows:-
"Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped, and supplied, and to make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried fit and safe for their reception, carriage, and preservation in accordance with the provisions of paragraph (1) of section 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 persons claiming exemption under this section."
In summary, assuming that these provisions are applicable, the effect of them is that the carrier may escape the liability it would have under s.3(2) if the loss was caused by the act, neglect or default of the master or the servants of the carrier in the navigation or in the management of the ship (s.4(2)(a)). There is no issue between the parties that the loss did result as a consequence of negligent navigation and management of the ship by the master and the second officer. That immunity may, however, be lost if the claimant establishes that the ship was unseaworthy. It is for the claimant to establish unseaworthiness (s.3(1)). However, even if unseaworthiness be established, the immunity will not be lost if the carrier establishes that it exercised due diligence to make the ship seaworthy and to secure that the ship was properly manned, equipped and supplied. The onus of establishing the exercise of due diligence, assuming unseaworthiness to have been found, is upon the carrier (s.4(1)).
In the present case the plaintiffs say:
(a)The casualty was caused entirely by the act, neglect or default of the master or other servants of the plaintiffs with the consequence that they are immune from suit.
(b)The vessel was not unseaworthy, or, at the least, Sumitomo has not established that it was.
(c)If it be found that the vessel was unseaworthy, the plaintiffs have established that Sumitomo's loss was not caused by want of due diligence on their part to make the vessel seaworthy.
These paragraphs indicate three of the principal issues in the case. It will emerge, in due course, that, whether the liability of the plaintiffs is governed by the charterparty only or by the charterparty and the bills of lading, the considerations to which these questions give rise are central to the outcome of the case. It is to be observed that the way in which Sumitomo seeks to overcome the immunity provided for in s.4(2) of the Act is to rely on unseaworthiness and the claimed failure of the plaintiffs to exercise due diligence to make the ship seaworthy. If Sumitomo is successful in this respect, s.4(2) will not apply because the real cause of the loss will be found to have been the plaintiffs' failure to exercise due diligence to make the vessel seaworthy.
The Bills of Lading
The shipment was the subject of two bills of lading. They were in similar terms. The first designated the shipper as Sumitomo Corporation of America of New York and the consignee as Sumitomo of Sydney. The vessel was the Sanko Harvest, the port of loading Tampa, Florida and the port of discharge "Australian port(s)". The bill was signed on 8 January 1991 by a person acting on behalf of Strachan Shipping Company "as agents for the master". In evidence is an authority signed by the master and addressed to the Strachan Shipping Company. It says that the master of the Sanko Harvest authorises the Strachan Shipping Company "to sign on my behalf the 'Bill of Laden' (sic), covering only cargo loaded onboard my vessel on her present voyage at this Port [Tampa], provided Bill of Lading will be issued with strict conformity with Mate's receipt and without prejudice to the Charter Party, subject all terms, provisions and conditions and exceptions contained in the relevant Charter Party." A clean receipt was given for the cargo which consisted of 21,993.165 metric tonnes of di-ammonium phosphate in bulk.
On the face of the bill appeared the words, "THIS BILL OF LADING SUBJECT TO ALL TERMS, CONDITIONS AND EXCEPTIONS OF THE GOVERNING CHARTER PARTY AND ANY ADDENDA THERETO." Clause (1) of the conditions of carriage endorsed on the bill of lading provided that all terms and conditions, liberties and exceptions of the charterparty were incorporated. The carrier was in no case to be responsible for loss of or damage to cargo arising prior to loading "and" after discharging. Clause (2) of the conditions was headed "General Paramount Clause". It was as follows:-
"(2).General Paramount Clause.
The Hague Rules contained in the international Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 26th August 1924 as enacted in the country of shipment shall apply to this contract. 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."
The second bill of lading was in similar terms but provided for the shipment of a cargo of 8,798.385 metric tonnes of granular triple superphosphate.
It should be observed at this point that the more usual course of there being a consignor and a consignee of the cargo was not followed. Effectively Sumitomo was both the consignor and the consignee. There is not in this case, therefore, any assignment or transfer of the bills of lading to a consignee. I shall deal with the significance of this later on.
The Crew of the Vessel - Their Qualifications and Appointments
The log of the vessel shows that it commenced loading at Tampa on 8 January 1991. It sailed later that day. The log shows that the voyage upon which it then embarked was voyage No. 39 from Tampa, USA, to Esperance, Australia. The crew of the vessel was entirely Korean. Importantly for the purposes of this case, its master and other deck officers were Koreans who had been trained in Korean maritime training institutions. There are three such institutions, namely, the Korea Maritime University (KMU), the National Mopko Maritime Junior University (MOPKO) and the Korea Marine Training and Research Institute (KMTRI). There are also three maritime high schools. KMU is situated in Pusan. MOPKO is in south-west Korea. It is a marine academy which provides a three year course for all shipboard departments. Both KMU and MOPKO have training ships. KMTRI is also situated in Pusan. It provides instruction in all International Maritime Organisation (IMO) and International Convention on Standards of Training, Certificate and Watchkeeping for Seafarers, 1978 (STCW) courses.
The master was Captain Kim In Hyeon ("Captain Kim") who is not to be confused with Mr Kim Hyeon Seon ("Mr Kim") who was a former second officer on board the vessel. He left it for another vessel before voyage No. 39. Both the Messrs. Kim gave evidence. The second officer for the voyage was Mr Gim Dong Uk ("Mr Gim") and the third officer Mr Han Song Kuk ("Mr Han"). The master and the second and third officers were called as witnesses. There was a chief officer on board, Mr Gim Min Jong, but he was not called. So far as I can tell from the evidence, all these officers were employees of Eastern Shipping. They were not employees of Grandslam, which apparently had no employees. I say this, notwithstanding that there appears in some places in the evidence a suggestion that the officers were in fact employees of Grandslam. I do not think it material to make a finding about the matter. All I will say is that I think the preponderance of evidence establishes that the officers were employees of Eastern Shipping. If that be wrong, they must have been employees of Grandslam. It may be noted that Captain Kim said that he was employed by Eastern Shipping.
The appointments of the master and the second and third officers were recommended to Eastern Shipping by Hanjoo. Employees of both Eastern Shipping and Hanjoo gave evidence of how the appointments came to be made. The Eastern Shipping witnesses were Mr Hiromi Kobayashi, at the relevant time a director of Eastern Shipping and general manager of its ship management department, Mr Yasuhira Sensui, the manager of Eastern Shipping's marine section which is within the ship management department, Mr Kenko Ohtsuka, at the relevant time a superintendent in the marine section, and Mr Masao Yamamoto, at the relevant time assistant manager of Eastern Shipping's marine personnel section.
The employees of Hanjoo who gave evidence were Captain Yeong Seob Yun ("Captain Yun"), Hanjoo's marine director, and Mr Sung Gan Lee. As marine director, Captain Yun had responsibility for recommending the appointment of officers and crew for many of the ships in the Eastern Shipping fleet. Mr Lee was his assistant manager. Hanjoo was not the only manning agency used by Eastern Shipping. Another agency was used as well.
Evidence was given about the working relationship between Sanko and Grandslam. The witnesses who gave this evidence were Mr Totoki, who, as mentioned, is a director of both Sanko and Grandslam and the general manager of Sanko's co-ordination department, and Mr Takeo Takada, who is the deputy general manager of the dry cargo operation department of Sanko.
The Witnesses - a General Comment
It is appropriate at this point to make a general comment about these various witnesses. They comprise four deck officers (three on board at the time of the grounding), two Hanjoo executives who were Korean, and six Eastern Shipping or Sanko executives who were Japanese. These 12 witnesses all gave evidence through interpreters. Despite this it was clear from the outset that some of the witnesses, although by no means all, were able to speak English, and understand spoken and written English. On one or two occasions - Captain Kim is an example - the witness was tried in English, but it became clear that this was not a practical course. The witness box is a difficult place and it seemed to me that a number of questions were being misunderstood. In the interests of accuracy and in fairness to the witness, the attempt to take evidence in English was given up and interpreters were used.
The credit, in some cases only in the sense of reliability, of all these witnesses is in question to a greater or lesser extent. There are serious questions about the honesty of a number of them, particularly the deck officers on board the vessel at the time of the grounding. Except in relation to one witness, Mr Gim, the second officer, whose evidence I would not accept unless it were supported by evidence from other witnesses whose evidence was acceptable, or by contemporary documents or the surrounding circumstances, I have not found it an easy task to make up my mind about the credibility and reliability of the various witnesses. The fact that evidence was given through interpreters made the task of assessment more difficult than it might have been had the evidence been given in English. Furthermore, it emerged, as indeed one would expect that it would, that there were considerations to be weighed in the balance arising because of cultural (using that word very broadly) differences which there obviously are between Japan and Australia, Korea and Australia and indeed, Japan and Korea.
In passing it may be mentioned that Japanese do not understand Korean either spoken or written and Koreans do not understand Japanese either spoken or written, that is, unless the other language had been learnt. That is subject to some instances where Chinese characters, which are used in both languages, have a common meaning in both countries. It is apparent that the Japanese executives of Eastern Shipping communicate with Korean executives of Hanjoo and Korean crew in English.
In reaching my conclusions about the credibility of witnesses, I have endeavoured to make due allowance for all these matters, but I do not pretend that the exercise has been a simple one.
The Duties of the Navigation Officer
Conventionally the second officer of a vessel is its navigation officer. Mr Gim undertook the duties of navigation officer on the vessel on the voyage in question. As navigation officer he had a number of important tasks each of which is relevant to the circumstances of this case. It was his responsibility to select the course which the vessel would take from Tampa to Esperance. The responsibility was not his alone. The ultimate responsibility was that of the master but it was for Mr Gim initially to plot the suggested course the vessel would take and seek the master's approval of it. He chose a course which took the vessel through the Panama Canal and, by what is described as a great circle route, through Cook Strait which separates the North and South Islands of New Zealand. From there the vessel went to Banks Strait between Clarke Island (which is south of Flinders and Cape Barren Islands) and Tasmania, through Bass Strait, and across the Great Australian Bight until it reached the proximity of Esperance. The course which Mr Gim recommended the vessel should take was adopted by the master.
Another duty which Mr Gim had was to lay off on the applicable charts the detailed course which the vessel would follow throughout its voyage. There is a question whether he did this for the whole of the voyage before the vessel left Tampa. If he did not, there is a question whether proper practice required Mr Gim to lay off in detail the course for the entirety of the voyage before the vessel departed Tampa. Such an exercise would have involved him in selecting from one or more chart catalogues each of the applicable charts, getting out those charts and plotting on them the course which the vessel would follow. The exercise, if it is done properly, would involve the use of charts for areas not necessarily covered by the course selected. Proper practice requires that charts be available for adjacent coasts whether of islands or mainland. The reason for this is that, for a variety of reasons, vessels may be required to divert, for instance, to take injured or sick crewmen closer to assistance, to assist other vessels which may need help or to avoid adverse weather. Courses are laid off in pencil so that old courses may be removed and the charts reused.
An important duty which the second officer had was to make small corrections to charts pursuant to notices to mariners issued from time to time. Chart corrections, or rather, the lack of them, constitute one of the major areas of contention in this case. I shall say more about chart corrections a little later.
A fourth duty which the second officer had was to take his turn as a watchkeeping officer. In accordance with convention he had the two watches from midnight to 4.00 a.m. and noon to 4.00 p.m. each day. Watchkeeping officers were not usually assisted by the presence of a lookout. It appears that the practice of there being on the bridge, especially at night, both an officer of the watch and a lookout no longer exists. If a second officer is behind with record keeping, such as the making of chart corrections, he may be assisted by a lookout during his watch in order to free him to do this work. No lookout was on duty on the night of the grounding.
The Voyage and the Applicable Charts
The log shows that the vessel travelled from Tampa through the Gulf of Mexico and arrived at Cristobal, Panama, on the northern (Caribbean Sea) side of the Panama Canal. On 12 January 1991 the vessel took on bunkers. The vessel travelled through the Panama Canal during the late afternoon and night of 13 January and cleared the Canal shortly before midnight. The vessel began its long voyage across the Pacific on 14 January 1991. So far as one can tell from the evidence and the log, the voyage proceeded uneventfully until the vessel approached Esperance.
The port of Esperance is on the south coast of Western Australia. It has substantial port facilities for medium size bulk carriers and tankers. According to the Harbour Master, Captain Harrod, about 25 such vessels come to the port each year. To the south of Esperance lies the Recherche Archipelago which is a chain of islands and reefs. To the south-west of Esperance is a channel whereby the port can be approached from the west. The channel is known as the Causeway Channel. To the north of the Causeway Channel is another channel, the West Channel, which I understand is not used by large vessels.
Neither Captain Kim nor any of his officers had been to Esperance before. But Sanko vessels had visited the port on earlier occasions.
In the course of the crossing of the Great Australian Bight and on the approaches to Esperance, the ship used three charts. These were British Admiralty Charts, BA4709 and BA3189, and Australian Chart AUS119. There is a question whether it used, or should have used, Chart BA1059. On board was the Australian Pilot published by the British Admiralty. The Pilot and the charts are, of course, all in the English language. The log and other records on board the vessel were written up in English. English is the international language of the sea. There is a question to be considered concerning the competency of each of the deck officers in English.
Chart Corrections
It is necessary to refer in some detail to what is shown on the charts and what is said in the Pilot. But before that is done, reference needs to be made in more detail to Mr Gim's important duty of making small corrections to charts. Because the vessel was a tramp, it had a large library of charts. The reason for this was that its crew could never be sure to what part of the world the vessel would be required to go on its voyages. Small corrections are necessary because of changes, some minor and some more significant, which are constantly being made to charts around the world. These small corrections are notified in weekly Notices to Mariners (written in the English language) which are published by the Hydrographer of the Royal Navy. They are received by vessels all over the world on a regular basis and require second officers constantly to make amendments to charts which are carried by their ships.
British Admiralty and Australian charts were not the only charts the vessel carried. It had some Japanese and United States charts. The latter were prepared by the Defence Mapping Authority - in the evidence referred to as DMA. The United States charts were principally for United States ports and adjacent coastal waters.
There is a difference of opinion amongst the expert witnesses called in the case concerning the question whether proper practice requires all charts on a tramp vessel such as the Sanko Harvest to be kept up to date or whether it is sufficient if the charts needed for the next voyage are corrected. Plainly it is desirable that all charts be kept corrected up to date, but the extent of that task on a vessel which carries a library of over 2,000 charts is substantial bearing in mind that it is apparently the practice for the second officer to do all or most of the corrections and also be available for his other duties. The task is a tedious one and, although some officers - Captain Beetham, who gave evidence for Sumitomo, is an example - seemed to think the task an enjoyable one, there is other evidence which described the task as not only tedious but "a drudge". The task is in a sense a repetitive one. It requires a high degree of concentration. Accuracy and neatness are essential. The proper discharge of this duty by a second officer may be critical for the safety of his ship and its crew. Because the task is done by a man and not a machine it cannot be done safely for a period of much more than two hours at a time. In those circumstances it would not be surprising if, the human mind being what it is, mistakes were made from time to time.
Yet there appears to be very little checking of the second officer's work by other officers.
The Australian Pilot
On board the vessel was volume 1 of the sixth edition of the Australian Pilot, i.e. sailing directions for the relevant part of the Australian coast. It covered the south coast of Australia from Cape Leeuwin to Green Point. The sixth edition was first published in 1962. Later "editions" of the sixth edition were published in 1966, 1971, 1973, 1979 and 1989. The edition which the ship had was that published in 1973 but it had been corrected in accordance with supplements which had been issued from time to time. Each new supplement is cumulative; it replaces all earlier supplements because it contains the information published in these as well as new material. The latest supplement which was available prior to the grounding was the tenth. It was published in 1988. There is a question whether the tenth supplement was on board. One of the records held by Sanko, it having been sent to it from the ship before the grounding occurred, was an inventory of charts and other publications, the "Chart Pub. Inventry [sic]" as it was called. Although neither the Pilot nor any supplement thereto was saved from the vessel, it appears from the inventory that the 1973 edition of the Pilot and the eighth supplement thereto were on board. There is oral evidence that the tenth supplement was also on board. That evidence is challenged by counsel for Sumitomo. I do not accept the oral evidence to the effect that the tenth supplement was on the vessel. Accordingly, I should approach the matter on the basis that the ship was equipped with the eighth, but no later, supplement.
A copy of the Pilot is in evidence. It is not that which was on board. It has been corrected in red ink and contains corrections and additions to be found in the tenth supplement.
Chapter 3 of the Pilot, i.e. the copy in evidence, is entitled "Archipelago of the Recherche". It refers (p.40) to Chart BA1059 and says that the Archipelago of the Recherche consists of a vast number of islands and reefs. Its extent is indicated including the fact that in places it extends to a distance of 30 to 40 miles offshore. The Pilot says that, unless a vessel were proceeding to Esperance Bay, as the Sanko Harvest was, the Archipelago should be avoided at all times on account of the haze frequently found amongst the islands. Reference is then made to Chart AUS119 and to a number of features including the Causeway and the Causeway Channel. The Causeway is said to consist of rocks and submerged reefs and to extend north-easterly from a feature known as Giant Rocks which are two rocks 13 metres and 9 metres high respectively lying 8½ miles south-south-east of Figure of Eight Island which is also described. The Pilot says that Giant Rocks should be given a wide berth by vessels approaching from the south.
The Causeway Channel is said to be deep and free from danger. Its position is indicated. One of its boundaries, as one would expect from its name, is the Causeway. In a further reference to Chart BA1059 and also to Chart AUS119 the Pilot gives directions for the navigation of the Causeway Channel.
The Pilot then proceeds to give detailed information about Esperance Bay and about anchorages.
One of the notations added to the Pilot is as follows:
"AREA DANGEROUS TO NAVIGATION
The area of the Recherche Archipelago is inadequately surveyed. Vessels without local knowledge should not traverse the area and passage should not be attempted at night."
This notation was added as a consequence of a notification which appeared for the first time in the ninth supplement. The notation did not appear in the eighth or any earlier supplement.
Chapter 3 of the Pilot refers (p.47 et seq) to Chart BA3189. Under a heading "Directions from East through Archipelago of the Recherche to Esperance" (p.48), it says that passage through the Archipelago should not be attempted late in the afternoon or at night and that if a vessel is unable to reach Esperance in daylight, it should anchor in one of two places specified. Detail is then given of the easterly approach. It was not the approach adopted by the Sanko Harvest on the night in question. The material about the easterly approach in the Pilot was in the 1973 edition and not the subject of addition by any of the supplements to which I have referred.
The Charts
Chart BA4709 is a general chart showing the southern coast of the mainland of Australia from King Island in Bass Strait in the east to Cape Leeuwin in the west. Charts BA3189 and AUS119 would normally have been used by a vessel approaching Esperance from the direction in which the Sanko Harvest travelled. As mentioned, there is a question whether Chart BA1059 should also have been used. AUS119 is a large scale chart for the port of Esperance and its approaches. It is referred to on pp.41-42 of the Pilot.
On 21 May 1988 weekly edition number 20 of the British Admiralty Notices to Mariners issued. It was on board the vessel as were, of course, the four charts to which I have referred. The charts and that edition of the Admiralty Notices to Mariners were saved from the vessel before it sank. Amongst the notices included in the relevant edition of the Notices to Mariners was Notice No. AUS219 (not to be confused with chart AUS119). It required the making of small corrections to charts BA1059, BA3189 and AUS119. It is common ground that none of the corrections was made to BA3189 or BA1059. Four of the corrections were made to AUS119 but the fifth was not. There is a question about when the corrections made to AUS119 were noted on it. I am asked to infer that they were not made before the grounding but were made after it took place. The fifth correction was of vital importance. It instructed those making corrections to insert in two places on the charts in question underwater rocks with the legend "Breaks" in positions which were specified.
It was on one of these groups of underwater rocks that the Sanko Harvest grounded. If they had been marked on the chart as they should have been, it is probable that the vessel would not have grounded at least in that place. I shall come to the submissions made by counsel for Sumitomo in support of the proposition that, prior to the grounding, no corrections had been made to AUS119 any more than they had to BA1059 or BA3189. As mentioned, these charts had not been corrected at all. It is Sumitomo's case that the reason that the underwater rocks upon which the vessel grounded were not marked on the chart was that the second officer, Mr Gim, when making the corrections to the chart after the grounding, which he should have made beforehand, could not bring himself to plot the rocks underneath the ship, the position of the grounding being marked on it. If he had done so, the chart would have revealed that he had laid off a course directly to the rocks which the correction notice AUS219 required to be noted on the chart.
It is next necessary to refer in some detail to what is shown on charts BA1059, BA3189 and AUS119. BA1059 is a chart for the south coast of Australia from Doubtful Island Bay to the head of the Great Australian Bight. It is in two sections. The first of these sections is from Doubtful Island Bay to Point Dover and includes both the Archipelago of the Recherche and Esperance Bay. The chart is said to be prepared from surveys made by two officers of the Royal Navy and Colonial Government officers in the years 1879 and 1880. The adjacent islands and soundings are said to be "chiefly on the authority of Matthew Flinders, Commander of HMS 'Investigator' 1802". Further surveys of part of the area between Esperance Bay and a reef known as Pollock Reef were from surveys by a Royal Naval survey ship, the "Penguin", between 1897 and 1901.
Immediately south of Esperance Bay and below the Causeway is an area marked "Foul Ground". Below that is the legend, "Dangerous to Navigation". Further to the west of those words the chart contains the added legend "Dangerous to Navigation (See Caution)". That was placed correctly pursuant to an earlier Notice to mariners issued in 1986 but that notice was corrected by a later one still which required the removal of the words "Dangerous to Navigation" from that position and the original legend "Dangerous to Navigation" to be highlighted in magenta. That correction was not made to the chart. Much further to the east on the other side of the Archipelago were also written the words "Dangerous to Navigation (See Caution)". These are correctly placed and are written in red. Relevant to these two cautions is a printed sticker that has been placed on the chart. It is in the following terms:
"DANGEROUS TO NAVIGATION
The area of the Recherche Archipelago is inadequately surveyed. Vessels without local knowledge should not traverse the area and passage should not be attempted at night."
It will be observed that that warning is in the same terms as that which appears in the Pilot as a consequence of the addition made to it by the ninth supplement which issued in 1986.
The two markings on the chart which refer to the area being dangerous to navigation refer back to this sticker which, placed as it is on the extreme left hand side of the chart, is in the wrong place. It should have been in the area of the title of the chart.
Chart BA1059 was not used for the purpose of laying off the course of the vessel going into Esperance. It was used for the purpose of laying off the course out of Esperance the vessel was intended to take when it left for Kwinana. This must have been done prior to the vessel grounding. It seems unlikely that it would have been done afterwards. This means that Mr Gim had had BA1059 about the time he laid off the course to go into Esperance. It seems difficult to think that the warnings on it were not noticed by him at or about the time he laid off the course of the vessel on the other charts.
The charts used for the entry to Esperance were BA3189 and AUS119. Mr Gim's courses for the voyage into Esperance are shown on them.
Chart BA3189 is a chart larger in scale than BA1059 and shows the south coast of Australia from Cape Le Grand, to the south of which is Hastings Island, to Cape Pasley. BA3189 shows that the vessel intended to (and probably did) approach Esperance first of all on a course of 289 degrees true. It made landfall whilst on that course at 2330 hours on 13 February 1991. Its then position was plotted on chart BA3189 by the third officer, Mr Han, with the aid of radar. Subsequently it altered course for a short distance to 328 degrees and then travelled due north until it reached a point south-south-east of Mondrain Island. It then changed course to 281 degrees, a course upon which it was when it became possible to use the much larger scale chart AUS119 for the final approach into Esperance. AUS119 extends from Butty Head and Figure of Eight Island in the west to Cape Le Grand and Hastings Island in the east. The course laid off and actually taken by the vessel involved a change of course from 281 degrees to 329 degrees. The change of course occurred south of Hastings Island. It took the vessel to a point almost equidistant between Hastings Island and Hood Island to the south-west. That is where it grounded. If it had not done so, its intended courses from about that point were 286 degrees, 297 degrees and 358 degrees respectively to the proximity of the port.
Chart BA3189 shows few soundings south of 34 degrees 10 minutes. Across the whole of the bottom quarter of the chart are written the words, "Portions not sounded should not be traversed". The words are printed in black type that is not particularly large. Nevertheless, they would be apparent to a reasonably competent navigator. The course of the vessel from the time it came on to BA3189 at longitude 123 degrees east, latitude 34 degrees 34 minutes south was substantially through unsounded waters. Mr Gim said that he thought he could safely traverse the area because there were no obstructions. He took the fact that there were no soundings as an indication that his course would take him over deep water. The fact, however, is that the course he laid off took the vessel through the "o" of the second "not" in the instruction, "Portions not sounded should not be traversed".
The heading to the chart is, "Cape Le Grand to Cape Pasley with Part of the Archipelago of the Recherche". It says that the area was surveyed by Royal Naval officers on the Penguin in 1900 to 1901. Affixed to the chart near its heading is a red sticker in similar terms to that on chart 1059 and the note which first appeared in the ninth edition of the supplement to the Pilot. Correctly in place marked in red are the words "Dangerous to Navigation (See Caution)". The reference to the caution is a reference to the red sticker. The words are placed close to Hastings Island.
Although chart BA1059 is on a somewhat smaller scale than chart BA3189, chart BA1059 is useful because it gives an overall view of the approach to Esperance. Chart BA3189 does not. The two markings "Dangerous to Navigation" on BA1059 are placed on either side of the Archipelago. Neither is proximate to Hastings Island and the printed words (part of the original chart), "Portions not sounded should not be traversed", earlier referred to together with the clear marking of the Causeway Channel referred to in the Pilot, point the way which should be followed. As it was, the course selected by Mr Gim and approved by Captain Kim took the vessel into the area of the Archipelago close to both Mondrain Island and Hastings Island which are marked on BA3189 and Hood Island. All three islands appear on BA1059.
Although it may be correct to conclude that the only charts used were BA3189 and AUS119 to which I have yet to come, it is clear, as earlier mentioned, that chart BA1059 was used at the relevant time because marked on it is the course which had been laid off for the vessel's departure from Esperance. The course selected was 250 degrees and would have taken the vessel along the southerly edge of the Causeway Channel. Why the course is so close to the edge of the Channel and not through the middle of it is something about which one can only speculate. There is a suggestion that the reason was that such a course would keep the vessel 20 miles offshore. But that hardly seems a sufficient reason if the selected course took the vessel to the vicinity of the Causeway rather than kept it well within the Channel. Furthermore, there is a marking on chart BA1059 of the ship's position when it was south-east of Mondrain Island before it began its northerly track towards that Island. It must follow that both Mr Gim and Captain Kim had made some use of chart BA1059 and must have been aware of its warnings and cautions.
Chart AUS119 is entitled "Approaches to Esperance". It is said to be on the authority of Admiralty, i.e. British Admiralty, surveys of 1897 and 1900. The chart is comparatively large in scale and has three insets which are on larger scales still. One of these shows the actual port of Esperance. It is not relevant for present purposes. The main part of the chart extends from Butty Head in the west to Cape Le Grand in the east. At the top of the chart is Esperance Bay and Esperance itself. Towards the bottom of the chart appear the words "Archipelago of the Recherche" and under these the words "Dangerous to Navigation" written in black print which is comparatively small. The Causeway Channel and the Causeway are both shown. There is a similar red sticker to that which appears on the other charts. It is headed, "Dangerous to Navigation" and is placed near the heading of the chart. Written in red just south of Ram Island and to the north-east of Hastings Island are the words "Dangerous to Navigation (See Caution)". As in the other cases, the reference to the Caution is a reference to the red sticker.
The course of the vessel has been laid off on the chart. It commences by picking up the course laid off on BA3189 of 281 degrees. There is a change of course south of Hastings Island to 329 degrees which led the vessel to the reef on which it grounded. As mentioned, the point of grounding was equidistant from Hastings Island and Hood Island.
There is no contest between the parties that the vessel took the course which I have described nor is there any contest that the course was plotted on charts BA3189 and AUS119 both of which were on board. It is also common ground that on board was the Australian Pilot and at least the eighth supplement to the 1973 edition of the sixth edition of it.
Objectively speaking therefore, those on the vessel had clear warning from the Pilot and the charts they were using that the area was dangerous and one which the ship should not traverse. Much was made by counsel for the plaintiffs of the fact that the Causeway and the Causeway Channel are themselves part of the Archipelago and thus literally within the warnings referred to. But the Pilot makes it clear that the Causeway Channel is the way a vessel is to come in and a fair reading of all that is in the Pilot and on the charts would not suggest to a reasonable reader that the Causeway Channel was not to be used; otherwise Esperance could not be entered from any direction.
The Circumstances of the Grounding
In the second paragraph of these reasons I said that the loss of the vessel was caused by grossly negligent conduct on the part of its crew, especially the master and second officer. What I have said about the way the grounding occurred demonstrates the truth of this statement.
For the purpose of dealing with at least one of the submissions made on behalf of the defendant, it is necessary to emphasise the heinousness of the shocking piece of navigation which led the vessel to the rock upon which it eventually foundered. It is no exaggeration to say that the master and second officer of the vessel made a conscious decision to make a frontal assault on the Archipelago of the Recherche. This they did contrary to clear and explicit warnings about the dangers of such a course for any vessel let alone a vessel of moderately deep draft of the size of the Sanko Harvest especially when fully loaded.
Limitation of Liability
Two matters remain to be dealt with. The first of these is limitation of liability and the second a claim for freight made by Sanko against Sumitomo. I deal with the question of limitation of liability first of all. It is now settled law in Australia that the 1957 Convention applies in relation to occurrences which occurred before the coming into force of the Limitation of Liability for Maritime Claims Act 1989. It came into force on 31 May 1991 after the grounding occurred. Accordingly, it is the 1957 Convention, in force by operation of ss.330 and 333 of the Navigation Act 1912 and Schedule 6 thereof, which applies. Both plaintiffs seek to limit their liability. In order to do so they must establish that Sumitomo's loss occurred without the actual fault or privity of either plaintiff.
I first refer to some authorities. In James Patrick & Company Limited v The Union Steamship Company of New Zealand Limited (1938) 60 CLR 650, Dixon J (as he then was), who tried the case at first instance, said (at 670):
"The question is whether, in adopting this attitude. Captain Patrick fell short of the standard of care which the business of shipowning demands. Actual fault or privity implies some culpability on the part of the owner. It may consist in being privy to the neglect, unskilfulness or improper act or omission of a servant or agent. It may be the neglect or the imprudent or wrongful act of the shipowner himself. But the shipowner must in some way be to blame in respect of an act or omission on his own part or of his privity to the act or omission of someone else. A failure to make himself aware of what he ought to know is or may be an actual fault. To limit his liability, he must show that he himself has not in any such manner been blameworthy in respect of a cause of the loss or damage (See Asiatic Petroleum Co. Ltd. v Lennard's Carrying Co. Ltd. [1914] 1 K.B. 419 at p. 432; Paterson Steamships Ltd v Robin Hood Mills Ltd (1937) 58 Ll.L. Rep. 33, at p. 39.
The primary responsibility of a shipowner is for the seaworthiness of his ship, the sufficiency of her manning, the selection of her master and officers and the supply of all proper furnishings, equipment and provisions. All these duties were fulfilled. The fault alleged is in not exercising a systematic supervision over the actual performance of one o the elementary duties of seamanship by the masters of the four ships, or at any rate by the master of the Caradale, and in not defining for them the mode of its performance. The case is not one of a large organization controlling many ships and employing a great number of officers. The ships are few and relatively small. The voyages are short."
The case was a very different type of case from the present and concerned the question whether the defendant could limit its liability because it acquiesced in a practice by a master of a ship which involved the navigation of the vessel by night without a special look-out.
Reference may also be made generally to the decision of the House of Lords in Lennard's Carrying Company Limited v Asiatic Petroleum Company Limited [1915] AC 705 to which Dixon J in James Patrick also referred (at 667). I do not find it necessary to refer to the detail of this decision.
Then, of course, there is The Marion which I have earlier discussed at some length. But I did not discuss then a second criticism of Mr Downard who is referred to in the passages earlier cited from the judgment of Lord Brandon. His Lordship said (at 577):
"Having dealt with the first criticism of Mr. Downard, that he had no proper system for ensuring that the charts and other nautical publications on board the Marion (a) were not obsolete or superseded, or (b), if still current, were kept corrected up-to-date, and having held that that criticism was justified, I turn now to the second criticism made against him. That was that he failed to ensure that there was brought to his notice a document received by FMSL from the Liberian Marine Inspectorate on 26 April 1976, and in consequence failed to take proper steps to remedy the deplorable state of affairs with regard to navigational charts revealed by that report. In order to examine this second criticism properly, it is necessary to record some further facts as found by the trial judge."
His Lordship then referred to some of the evidence. This included the fact that early in 1976 the Marion went to the Genoa dockyard for repairs and maintenance. An inspection of her was carried out by or on behalf of the marine inspection division of the Liberian Bureau of Maritime Affairs. Part C of the report was entitled "Navigational Charts, Publications and Records". Opposite the heading, "Navigational Charts", was the "devastating comment", to use Lord Brandon's language, "Navigational charts for trader vessel corrections omitted for several years."
It was argued that the only fault in relation to Mr Downard not having the Liberian report brought to his notice was that of Mr Lowry and Mr Graham whose faults were not, as a matter of law, the actual fault of the appellants. Lord Brandon said (at 579):
"My Lords, I am not prepared to accept this contention. Mr. Downard, during the prolonged periods when he was absent in Greece, was in frequent contact with FMSL, presumably by telex or telephone, and there would have been no practical difficulty about his being informed of the Liberian report and its contents. It is, in my view, an inescapable inference from the fact that neither Mr. Lowry nor Mr. Graham told him of the report and its contents, that the instructions which he left behind him when he went to Greece, with regard to the matters about which he required that he should be kept informed, were insufficiently clear, or insufficiently precise, or insufficiently comprehensive. If that inference is drawn, as drawn I think it must be, it follows that it was at least in part Mr. Downard's own fault that he was not told about the report. In so far as it was his own fault, it constituted, as a matter of law, actual fault of the appellants."
The three cases to which I have referred involved comparatively small shipping companies. The present case involves a very large shipping company, Sanko, and the group of companies which it controls. At all relevant times Sanko itself and each of its subsidiaries was the subject of control by a trustee or trustees appointed pursuant to the insolvency legislation referred to in Mr Ohashi's evidence earlier referred to. Subject to that control, there were the directors to which Mr Ohashi also refers and the various managers and departments which have been mentioned in the evidence. It would appear to me that the systems, if that is the right word for what passed for systems after 1985, came into being after the companies came under the control of the Court and that steps must have been taken to cut down expenditure in order to return the group to more profitable trading. This is probably the root cause of the problems which existed both in relation to chart correction and the appointment of officers, particularly masters.
The findings I have made demonstrate that shoddiness and slackness pervaded the whole organisation particularly in relation to these two matters. This was apparent in the office of Eastern Shipping. The evidence establishes that there was a close knowledge in Sanko itself of the way in which Grandslam ships were operated and of the operations of Eastern Shipping. The onus is upon Sanko and Grandslam to negative actual fault. It is possible to envisage a case
involving a large shipping company or group of companies such as Sanko in which those responsible for the management of the company at the highest level were able to give evidence in which they deposed to the fact that they did not know, and could not reasonably have been aware, of circumstances existing in the organisation which led to problems such as have been encountered in this case. But none of the trustees has given evidence. So far as I can judge, the most senior person to give evidence was Mr Totoki, who is a director of both Sanko and Grandslam. After him, I would think there is Mr Kobayashi who holds a senior management position in Eastern Shipping. But there was no attempt on the part of the plaintiffs to put together a cohesive body of evidence from which it might have been inferred that neither the trustees nor very senior management could reasonably have been expected to know what was occurring.
No such evidence has been offered. I think the inference that should be drawn is that, if such evidence had been called, it would have been of no assistance to the plaintiffs. In any event, the plaintiffs bearing the onus of negativing actual fault, it is sufficient for me to say that that onus has not been discharged. The plaintiffs' case based on a claim to be entitled to limit their liability under the 1957 Convention is therefore not made out and should be dismissed.
Freight
That leaves the question of freight to which I now come. Sanko claims a proportion of the freight provided for in the charterparty, notwithstanding that the ship and the cargo were lost before the cargo could be delivered. The claim is made under clause 34 of the charterparty. That clause is headed "FREIGHT PAYMENT". And, so far as material, is as follows:
"Freight to be 90 percent paid within 5 banking days to Owners' bank (less only commissions on full freight) of signing and releasing Bills of Lading, which to be claused "Freight Payable As Per Charter Party". Freight to be deemed earned on cargo loaded discountless and non-returnable ship and/or cargo lost or not lost. Balance of freight payable on settlement of agreed demurrage/despatch."
Reliance is placed by counsel for Sanko on the words, "freight to be deemed earned on cargo loaded discountless and non-returnable ship and/or cargo lost or not lost."
Clause 34 is divided into three parts. The first provides that 90 per cent of the freight is to be paid within five banking days of the signing and releasing of the bills of lading. The second provides that freight is to be deemed earned on cargo loaded, discountless and non-returnable, ship and/or cargo lost or not lost. This provision must be read in conjunction with the statement on the first page of the charterparty to the effect that the freight rate is $US34.50 per metric tonne "payable as per Clause 34 of Bill of Lading weight". The third part of clause 34 deals with the time for payment of the amount in dispute, the final 10 per cent, namely "on settlement of agreed demurrage/despatch".
Counsel for Sumitomo submit that the words "ship and/or cargo lost or not lost" refer only to the words "freight to be deemed earned on cargo loaded, discountless and non-returnable..." In support of their submissions they relied upon the decision of the Court of Appeal in England in Compania Navirea General SA v Kerametal Limited (The "Lorna I") [1983] 1 Lloyd's Rep. 373. There the clause (clause 16) provided that freight was not returnable "cargo and/or vessel lost or not lost" and was to be paid to the owners as to 75 per cent within five days after the master signed bills of lading and as to the balance after delivery of the cargo and receipt of documents from discharging ports. Lord Donaldson MR said (at 374) that freight was the consideration payable for the carriage of the goods to and their delivery at the destination. In the absence of special contractual provisions, it was earned only upon the delivery of the goods at their destination. Forms of words appropriate to alter this position, his Lordship said, were well known, for example, "Freight to be considered earned on shipment".
The bills of lading in question were signed by the master on 6 December 1977 and the vessel and her cargo were lost shortly before midnight on 11 December 1977 i.e. within the period of five days from the signing of the bills of lading. The cause of the loss was severe gale force winds. The advance freight had not been paid and the charterers had refused to pay it.
Lord Donaldson accepted (at 374) a submission by counsel for the charterers that liability to pay advance freight does not per se affect the time when freight is earned. It is simply an obligation to make a payment on account of freight at a time when it has not yet been earned. However, that obligation is subject to a customary incident, capable of being varied or confirmed by express stipulation, that advance freight paid pursuant to the contract is not returnable or recoverable should the contract be frustrated before the freight could be earned. If, in breach of contract, there is a failure to pay the advance freight before the occurrence of the frustrating event, the accrued liability to pay it continues. This, so Lord Donaldson said (at 375), was because frustration excuses further performance of the contract, not prior non-performance. He added that clause 16 contained no words appropriate to produce the result that any part of the freight was earned, or deemed to be earned, upon shipment or on the signing of bills of lading.
Counsel for the shipowner submitted that clause 16 should be construed in such a way as to make the liability to pay advance freight survive the sinking. He sought to do this in two ways. Firstly, he submitted that there was an obligation to pay advance freight which arose as soon as the bills of lading were signed, this obligation being coupled with an option to postpone payment for up to five days, but no longer. Secondly, he submitted that, even if there were no obligation to pay the advance freight arising before the expiration of the five day period, the words "Freight non-returnable cargo and/or vessel lost or not lost to be paid", were to be construed as importing an obligation to pay the 75 per cent advance freight even if the vessel were lost. Lord Donaldson said that the argument did not apply to the balance of the freight which was only payable after delivery.
Lord Donaldson said (at 375):
"For my part I am unable to accept either submission. In my judgment, on the true construction of cl. 16, there was no obligation to make any payment of or on account of freight until the expiration of the five-day period and before that occurred the contractual basis of the obligation had been undermined by the loss of the cargo and of the vessel and the frustration of the contract. As to the other approach, this involves a separation of the words 'non-returnable' from 'cargo and/or vessel lost or not lost' which does not grammatically exist. The ordinary meaning of the words is that advance freight, if paid, is non-returnable whether or not the cargo and/or vessel is subsequently lost, thereby confirming the customary incident of a contract for the payment of advance freight. To achieve any other construction would require much clearer words."
O'Connor LJ said (at 376) that the concept of money being "non-returnable" of necessity required that it had, or at least ought to have been, paid over. In the present case the money had not been paid over, nor ought it to have been before the contract was frustrated by the loss of the ship and cargo. Dillon LJ (at 376-7) expressed a similar view.
The clause in the present case is not the same as clause 16. Furthermore, the Lorna I was a case where the contract was frustrated. This is not such a case; the cargo here was lost as a consequence of the breaches of obligation of the plaintiffs which I have found were committed. Nevertheless, I regard the case as of assistance in determining this matter. The clause here provides that the balance of the freight is payable on the settlement of "agreed demurrage/despatch". That is not something which has occurred and cannot now occur due to the loss of the vessel by reason the fault of the plaintiffs, particularly the fault of Sanko. In those circumstances, I think that the correct conclusion is that Sanko's claim for the balance of the freight provided for in the charterparty must fail.
Conclusion
In the result there will be judgment for Sumitomo on the plaintiffs' claim. There will be judgment for Sumitomo on its cross-claim in the sum of $8,900,000 together with interest. Interest is to run from 14 February 1991 to the date of judgment and to be calculated at the conventionally applicable rates. The claim made by Sanko for freight is dismissed.
I do not propose now to direct the entry of judgment. I propose to give the parties and their legal representatives an opportunity of reading what I have said. When the matter is next in the list, counsel for Sumitomo are to bring in short minutes of order to give effect to my decision. I shall then hear counsel, as necessary, on the question of the amount of interest to which Sumitomo is entitled. I shall also hear argument on any question connected with whether or not interest should be compounded at annual or other rests. My provisional view is that the plaintiffs should pay the costs of their claim and the cross-claim but, as necessary, I shall also hear counsel on the question of costs.
I certify that this and the two hundred and twenty-three (223) preceding pages are a true copy of the reasons for judgment herein of the Honourable Justice Sheppard.
Associate
Dated
APPEARANCES
Counsel for the Plaintiff: B.W. Rayment QC
A.J. Meagher
Solicitors for the Plaintiff: Ebsworth & Ebsworth
Counsel for the Defendant: W.W. Caldwell QC (deceased)
P.E. King
Solicitors for the Defendant: Dunhill Madden Butler
Dates of Hearing: 31 August, 1, 2, 3, 4, 7, 8, 9, 10, 11, 21, 22, 23, 24, 28, 29, 30 September, 6, 7, 8, 9, 14, 15, 16, 21, 22, 23, 27, 28, 29, 30 October, 2, 3, 4, 5, 10, 11, 12, 13, 17, 19, 20, 24, 25, 26 November 1992
8, 9, 10, 11, 12 February 1993
Place of Hearing: Sydney
Date of Judgment: 29 November 1995
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