IMSML Website Article 13/2024: Astimewa Sdn Bhd v Budget Marine Limited & Ors [2023] MLJU 2010 - Part 2 (of 2), Liability, Exclusions, Limitations and Determining the Carrier
This is a continuation of last week’s IMSML Website Article 12/2024.
Attempts by the Carrier (ie the Defendants) to Exclude Liability under the Hague Rules
These exclusions exist because ‘the law does not compel the impossible’ and that liability will only be imposed for loss only if it was possible to avoid it, see Para [64]. First, the Defendants argued that the carrier does not have any control over the navigation of management of the ship, which falls under the Master. Therefore, losses occurring in this context should rightly fall on the cargo owners and their Insurers rather than the carrier. Second, the Defendants contend that perils of the seas cannot be foreseen and guarded against by the carrier. Based on these principles, the Defendants invoked the a few exclusions under The Hague Rules which were applicable to the Bills of Lading. I shall deal with the exclusions in what is arguably a more logical sequence. I shall start with the consequences of Mother Nature.
Article IV, Rule 2(c) - Perils, dangers and accidents of the sea or other navigable waters
Evidence for this exclusion can be found in Tropical Storm Kai-Tak that brought on severe weather conditions, which started on 18 December 2017. By 20 December 2017, the Master reported that ‘then condition was very bad’. The Master said that Bet 21 was ‘rolling, swinging and pitching’. He concluded that ‘the weather is even worse, we can’t escape anymore’, see Para [66]. These words were prophetic as the sidewall support at the port side of Budget 21 were stressed by progressive slamming of the waves and shifting Cargo until it ultimately failed, see Para [66].
Note that there was evidence that the rolling of the barge was up to 80 degrees. Abrasion marks on the tank top also corroborated cargo sliding, see Para [66].
Article IV, Rule 2(a) - Act, neglect , or default of the master, mariner, pilot, or servants of the carrier in the navigation or in the management of the ship
The Master’s departure from the passage plan was the root cause of the Incident, ie loss and/or non-delivery of Cargo. The Master departed from the Passage Plan on 13 December 2017, at 1800. This took the Vessels on a shorter more direct route to the Singapore Straits but was much further away from the coast / shore, see Para [68]. Therefore, the Vessels were exposed to much more severe weather than they should have been exposed to. On this departure, the only area of shelter was the leeward side of Pulau Serasan, see Para [68]. There was also further evidence that the Master was also negligent in allowing the Vessels to take shelter at Pulau Serasan, see Para [70].
Tropical Storm Kai-Tak generate a wind strength of Force 6 on the Beaufort Scale, and a Sea State of 6, as of 17 December 2017, at 0400. But when the Vessels were in the leeward side of Pulau Serasan on 18 December 2017, they received the benefit of shelter as winds were as low as Force 3 on the Beaufort Scale. Upon leaving that place, winds escalated up to Force 5. The Master should have order the Vessels to stay on the leeward side of the island, see Para [70].
Note, at this point in time, it is important to remember that the master is advised ‘to seek shelter in the event of adverse sea and weather conditions’, see Towage Recommendation No 10.
Based on the facts and evidence above, the Defendants were arguably able exclude liability on the basis that the Master was negligent in navigating the Vessel.
Article IV, Rule 2(q) - Any other cause arising without the actual fault or privity of the carrier
The Defendants also contended that they were not at fault for the bad weather, which was beyond their control. Taking reasonable steps would not have avoided the loss and/or non-delivery of the cargo. Further, the Defendants contended that they were not privy to the negligence of the Master which was the root cause of the loss and/or non-delivery, see Para [73].
It is submitted that this is a very novel way or using the omnibus exclusion in Article 4(2)(q) of The Hague Rules. This was probably never intended by the drafters of these provisions. A carrier should only resort to this exclusion when none of the exclusions in Article 4(2)(a)-(p) are applicable. Article 4(2)(q) is for ‘any other cause’ which is not found in Article 4(2)(a) to (p).
Have the Defendants Exercised ‘Due Diligence’ in Ensuring that the Vessels were Properly Equipped, Seaworthy and Cargo-worthy at the Commencement of the Voyage?
Finally, we reach the point the judgment of Leonard Shim J where the issue of seaworthiness of the Vessels are raised. From a logical perspective, this issue should have been raised earlier, well before even considering the issue of exclusions under Article 4(2)(a)-(q).
It has been trite law since the Privy Council’s decision in Maxine Footwear Co Ltd and Morin v Canadian Government Merchant Marine Ltd [1959] 2 Lloyd’s Rep.105 that the carrier has to show that it had exercised due diligence to provide a seaworthy vessel before that carrier could take advantage of any of the exclusions in Article 4(2)(a)-(q). Hence, the issue of whether the ship was seaworthy had to be decided first.
Note that the Privy Council’s bench consisted of Viscount Kilmuir (Lord High Chancellor), Lord Reid, Lord Tucker, Lord Somervell of Harrow and Lord Denning.
The Privy Council’s decision in Maxine Footwear is only mentioned at Para [86] where the Malaysian High Court case of Owners of Cargo Carried in the Ship ‘Gang Cheng’ v Owners and/or Persons Interested in the Ship ‘Gang Cheng’ [1998] 6 MLJ 468 is cited. In the very last paragraph of Leonard Shim J’s judgment under a heading dealing with seaworthiness at Para [86], the Maxine Footwear case is mentioned in a quote from the Gang Cheng case.
Although Leonard Shim J took sometime to get here, it is submitted that his Lordship’s conclusions on the state of seaworthiness of the Vessels were indeed spot on. There are many aspects to seaworthiness of a Vessel. This depends on the surrounding circumstances at the relevant time, the available knowledge, technology and marine industry practices at the time of the act or omission, see The Lendoudis Evangelos II; Demand Shipping Co Ltd v Ministry of Food, Government of the People’s Republic of Bangladesh and Another [2001] 2 Lloyd’s Rep.304.
Seaworthiness also includes cargoworthiness of the Vessel, see E. Reed and Co Ltd v Page Son and East, Limited and Another [1927] 1 KB 743. Based on this principle, the P submitted that the Budget 21 was uncargoworthy. Budget 21’s steel sidewalls and supporting structures were riddled with heavy corrosion, and there was no maintenance record proving that she was cargoworthy prior to her departure, see Para [81]. The difficulty faced by the P for this submission is that the Vessels were classed by Bureau Veritas (BV) (ie a respectable organisation that carried out survey of vessels) as fit for the voyage to Butterworth, Penang. However, Leonard Shim J held that ‘the fact that the Vessels are certified by BV to be in class and fit to go to sea does not mean that the Vessels are fit and safe to navigate through the eye of a storm or turbulent sera and weather conditions’, citing The CMA CGM Libra; Alice 1954 and Another v Allianz Elementary Versicherungs AG and Others [2021] UKSC 51.
The facet of seaworthiness which is arguably relevant to the facts in dispute in the Astimewa case is technically the competency of the Master, or more accurately, that person’s ‘incompetency’. Following the approach of the Supreme Court in The CMA CGM Libra, ‘the crew’s failure to navigate the ship safely was capable of constituting a lack of due diligence by the carrier’. In the light of this, Leonard Shim J held that ‘the Master and crew’s failure to navigate the vessel safely by complying with the original Passage Plan and the Towage Recommendations and with no proper system to monitor or ensure compliance was capable of constituting a lack of due diligence by the carrier’, see Para [84].
If the Defendants wanted to show that they did indeed exercise due diligence in navigation of the Vessels, they should have called those who served on board (eg Master, Chief Officer or Crew) to testify as to what actually transpired during the voyage, see Para [85]. The Defendants failed to do this and therefore could not explain why they deviated from the Original Passage Plan and Towage Recommendations in breach of the Fixture Note, Clause 10, see Para [86].
The Limitation of Liability Issue
Even where the Defendants are found liable for a breach of the contract of carriage as evidenced in the two bills of lading issued for the cargo of scrap metal carried on board the Vessels, the P is not able to claim for the full value of the cargo that was lost or not delivered. The carrier is legally entitled to limit its liability for the financial loss that it has caused to the P. There are two limitation of liability options for the carrier. The carrier can choose whichever formula it feels is more advantageous to its case.
First, as the Vessels loaded cargo at ports in Sabah, Merchant Shipping (Applied Subsidiary Legislation) Regulations 1961 applies The Hague Rules to the two bills of lading issued. In the original version of The Hague Rules, the limit of liability was £100 ‘Gold Value’, as defined in The Rosa S [1988] 2 Lloyd's Rep 574. However, under the 1961 Regulations, Sabah does not apply this £100 ‘Gold Value’. Instead, under Regulation 3, Sabah applies mutatis mutandis, the definition of 'RM850' as per Regulation 7 of the Merchant Shipping (Implementation of Conventions Relating to Carriage of Goods by Sea and Liability of Shipowners and Others) Regulations 1960 (hereafter referred to the Sarawak Regulations 1960).
Second, tonnage limitation under the Merchant Shipping (Implementing of Conventions Relating to Carriage of Goods by Sea and to Liability of Shipowners and Others) Regulations 1960. This incorporates the International Convention relating to the Limitation of Liability of Sea Going Ships 1957 (hereinafter referred to as the 1957 Convention). It is this second option which were chosen by the Defendants to limit their liability in the Astimewa case. The applicable tonnage limitation is 1,000 gold francs per ton, see the Sarawak Regulations 1960, Regulation 11(1)(b)(ii).
The first issue raised by the Defendants was how the tonnage was to be calculated for the purpose for limitation of liability. Was limitation to be measured by the tonnage of the tug, barge or an aggregate sum of both tug and barge? The Defendants submitted that as the alleged damaged was caused by improper navigation of the tug, the applicable limit of liability will be that of the tonnage of the tug (ie the Budget 11), see Para [89]. The Defendants continued that even where the damage is caused wholly or partly by the tow (ie the barge Budget 21 in this case), the causative negligence is treated as negligent navigation of the tug alone (ie because the tug is in navigational control), see Para [89]. This submission of the Defendants was not challenged by the P because, as the Defendants rightfully point out, these principles of tonnage limitation is ‘well established’, see Para [89].
Note, The tonnage of the Budget 11 which was put before Leonard Shim J for consideration was 66.51 tons. This is the aggregate sum of two figures: Net tonnage of the tug (29.56 tons) and its engine room space (36.95 tons), see Para [90].
The P did however challenge was whether the limit of liability could be broken as there was alleged ‘actual fault or privity’ of the Defendants. Hence the blameworthy conduct must be that which is personal to the owners of the ship, conduct which the owners had consented to, or conduct which they had knowledge of. In other words, someone who is the directing mind and will of the shipowner, see Para [94].
So who is the directing mind and will of the shipowning company? Directors of the Board and high ranking officers holding a managerial position are obviously the directing mind and will of the shipowner. However, the Defendants submitted that 'a mere employee or servant of the shipowner would not be regarded as its directing mind and will. A Master who is appointed to command a vessel is an example of an employee whose act or omission is not attributable to the shipowner. Accordingly, the Defendants contend that if the cargo was damaged or lost as a consequence of a negligent act or omission of an employee (such as a Master without any actual fault or privity of a person who is the directing mind and will of the shipowner, the shipowner will be entitled to limit liability', see Para [94].
Leonard Shim J examined the judgment of Nallini Pathmanathan J (as her Ladyship then was) in Newfield Peninsula Malaysia Inc v The Owners of the Ship or Vessel ‘Tanjung Pinang I’ [2013] 10 MLJ 650 for answers. Her Ladyship held that 'if it is clear that the error is entirely attributable to the act or omission of an employee or agent who is not the directing mind and will of the Defendant, then the shipowner is entitled to the benefit of tonnage limitation', see Para [95]. Prima facie, the ‘Tanjung Pinang I’ case appears to line up with the position adopted by the Defendants in that they have acted reasonably in the implementation of safe operating procedures and the loss occurred without their actual fault or privity, see Para [96].
However, this submission was effectively rebutted by the P who argued that there was indeed actual fault and privity on the part of the Defendants because there was a lack of supervision on the compliance by the said Vessels with the Original Passage Plan (ie there was a deviation from the agreed passage plan to a longer and unsafe route in stormy weather and sea conditions, see Para [100]. Leonard Shim J agreed with the P's submission because in the interest of the lives of the crew and safety of the cargo, the Defendants could have advised or directed the Master to take shelter or remain in shelter during the severe tropical storm, citing the Court of Appeal's decision in The Owners or Other Persons Interested in the Ship or Vessel The 'Red Gold' v Sarawak Shell Bhd and Another Appeal [2012] 8 CLJ 164, see Para [100].
His Lordship continued by saying that the Defendants did not give evidence of the practices of other shipowners in how there would be compliance with the agreed passage plan or how to deal with a deviation from the passage plan, see Para [100]. There was also no evidence that it was unnecessary for a shipowner to supervise and advise the Master to comply with the agreed plan even when the shipowner has undertaken full responsibility under the terms of the contract of carriage to comply with the Passage Plan and Towage Recommendations, see Para [100]. Leonard Shim J agreed with the P that the Defendants could advise or direct the Master to take shelter or remain in shelter during the severe tropical storm. His Lordship concluded that if the Master refused to take or remain in shelter without valid reason, the Defendants could take appropriate steps to relieve the Master from duty during the voyage, see Para [100] and [101]. There was admission by the Defendants that during the voyage, they received weather reports via WhatsApp messages from the Master. The Defendants, therefore, ought to have been aware that the Vessels did not comply with the agreed Passage Plan, see Para [102].
Who was the Carrier under the Under the Bills of Lading?
Just to recap. D1 (BML) was the shipowner. D2 (BSMB) was the previous owner. D3 (NCT) was the bareboat charterer that was the operator of the Vessels.
These are some of the facts that could be summarised from the facts surrounding the Bills of Lading:
[1] The Bills of Lading are in D2's standard form;
[2] D3 is named as the 'Forwarding Agent';
[3] D3 signed the Bills of Lading, 'As Agent for the Owner, BMSB (ie D1)';
[4] D2 was the documented contractual carrier;
[5] The Fixture Note was signed by D3 as agents for BSMB (D2).
[6] The Bills of Lading stipulated that those documents were 'issued on behalf of BSMB (D2)' as carrier for goods carried by the Vessels.
Based on the undisputed facts above, Leonard Shim J made the following findings at Para [109]:
[1] D2 was the contractual carrier under the Bills of Lading, although it no longer had ownership, possession, management or control over the Vessels, the Master, or the Crew;
[2] D3 was not merely a freight forwarder despite being named as such in the Bills of Lading. Evidence points to the D3 being the 'Actual Carrier'.
[3] D2 and D3 are jointly and severally liable to the P for the loss and/or non -delivery of the cargo of scrap metal.
The contractual liability of D2 for a breach of the contract of carriage evidenced by the Bills of Lading forms much of the discussion which has gone on above in this article. This contract incorporates much of the terms of the Hague Rules as applicable for goods shipped from Sabah. However, the liability
Valuation of the P's Cargo Claim
Leonard Shim J held that the value of the Cargo indicated in the invoice issue by Southern Steel for the Cargo, ie RM5,631,962.88. The sum was computed on the basis of 4,399.971 metric tons at the price agreed between the P and Southern Steel at RM1,280 per metric tons. The sum was also subject to deductions for dirt, dust and mud from the weight of the actual cargo at the port of delivery. Allegations by the Defendants that the invoice did not reflect market value were rejected by his Lordship as the Defendants did not adduce any evidence to that effect, see Para [110] to [114].
The P's Cargo Claim is also subjected to freight owed to D2 (BSMB, the contractual carrier) and D3 (NCT, the actual carrier). The P alleged that this freight is only payable after delivery of the cargo. Apparently, there was a practice between the P and both D2 and D3 (on at least 2 previous occasions), that invoices were only issued after the Cargo had been delivered. As the P had not furnished any evidence of this previous arrangement with the Defendants regarding payment freight, Leonard Shim J followed the express agreement found in the Fixture Note, Paragraph 8. According to this arrangement, 50 percent freight is payable upon completion of lading of the cargo, and the remaining 50 percent to be paid upon completion of discharging of the cargo, see Paragraph [116] to [118]. As the cargo was lost and not delivered, Leonard Shim J held that the sum of RM171,598.87, amounting to 50 percent of the freight was payable by the P. His Lordship agreed with the Defendants that arrangement implied by previous conduct between the P and D2 as well as D3 was not enforceable. It is a cardinal rule that no term can be implied into a contract if it contradicts an express term of the contract. This is based on the Evidence Act 1950, Section 91 which stipulates that ‘where the terms of the contract … have been reduced by or by consent of the parties to the form of a document … no evidence shall be given in proof of the terms of the contract … except the document itself’, see Para [118] to [119].
In addition to payment of freight to the Defendants, the P also had to pay for the following, see Para [120]:
[1] Buoys and Light Dues (RM98.35);
[2] Port Dues (RM222.80);
[3] General Port Charges (RM1,739.50);
[4] Agency fees (RM848.00);
Note, items [1]-[4] were incurred in Sandakan.
[5] Custom Attendance in Kota Kinabalu (RM400);
[6] Port dues and charges, cargo handling fees and mooring fees at Kota Kinabalu (RM6,422.80);
[7] Additional general port charges (RM1,200.00);
Note, items [5]-[7] were incurred in Kota Kinabalu.
[8] Laying and hoisting ramp door for loading (RM424.00).
Thank you for reading IMSML Website Article 13/2024
Stay tuned for the next IMSML Website Article 14/2024: United Overseas Bank Ltd v The Owners and/or Demise Charterers of and/or Other Persons Interested In The Ship or Vessel ‘Limin Rosmina’ (Petronas Carigali Sdn Bhd, Intervener) [2023] MLJU 1322
Signing-off for today,
Dr Irwin Ooi Ui Joo, LL.B(Hons.)(Glamorgan); LL.M (Cardiff); Ph.D (Cardiff); CMILT
Professor of Maritime and Transport Law
Head of the Centre for Advocacy and Dispute Resolution
Faculty of Law
Universiti Teknologi MARA Shah Alam
Selangor, Malaysia
Tuesday, 13 February 2024
Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my