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Peter Gulvanessian

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UNSEAWORTHINESS AS A CAUSE OF LOSS

OUTLINE

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• General principles of causation in contract law.

• Concurrent / co-operative causes.

• Unseaworthiness as a cause of loss.

• Intervening acts.

• A case study.

GENERAL PRINCIPLES FOR CAUSATION IN CONTRACT LAW

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“There is no doubt that this is one of the most difficult areas of the law”

Galoo v Bright Grahame Murray [1994] 1 W.L.R. 1360 per Glidwell L.J.

GENERAL PRINCIPLES OF CAUSATION IN CONTRACT LAW

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a. Chitty on Contract § 26-032: there must be a causal connection between the defendant’s breach of contract and the claimant’s loss.

b. “…the “but for” test of causation which, at least in contract, is not the proper test in English law.” Galoo v Bright Grahame Murray

c. The test for causation:

i. The Defendant’s breach of contract must be held to have been the “effective” or “dominant” cause of the Claimant’s loss (Galoo v Bright Grahame Murray );

ii. It is necessary to distinguish between a breach of contract which (i) causes a loss to a Claimant and (ii) one which merely gives the opportunity for him to sustain a loss (Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370); and

iii. The answer to whether a breach of contract was the cause of the loss or merely the occasion for the loss is determined “by the application of the Court’s commonsense” (Galoo v Bright Grahame Murray ).

Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370

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In Quinn: • The Defendant building contractor was in breach of contract for failing to supply a step-ladder to the Claimant, to whom it had sub-contracted plastering / building work. •In its absence, the Claimant used an unsuitable trestle to carry out his work. •The Claimant slipped from the trestle and suffered personal injury and sued the Defendant for its breach of contract that he alleged had caused his injury.

Held: The Defendant was not liable. The Defendant’s breach of contract merely gave the Claimant the opportunity to injure himself by the use of unsuitable equipment.

Galoo v Bright Grahame Murray [1994] 1 W.L.R.

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In Galoo: • The Claimant companies sued Defendant auditors for negligently failing to discover inaccuracies in their audited accounts. •If discovered, the Claimants argued that it would have revealed their insolvency and they would have ceased trading thereby avoiding subsequent losses.

Held: The Defendant was not liable. The Defendant’s breach of contract was not the dominant or effective cause of the Claimant’s loss; it had merely given the opportunity for the loss to be sustained, it did not cause the trading losses themselves.

CONCURRENT / CO-OPERATIVE CAUSES

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• Where a breach of contract by the Defendant is one of two concurrent causes of loss both co-operating and both of equal efficacy, the breach is sufficient to carry a judgment for damages – Heskell v Continental Express Ltd [1950] 1 All ER 1033 at 1048 per Devlin J.

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UNSEAWORTHINESS AS A CAUSE OF LOSS

1. There have been a number of cases over the years dealing with situations in which unseaworthiness was one of two concurrent / co-operative causes of loss.

2. Lord Wright gave what are now regarded as very important speeches on this issue in two leading House of Lords cases.

3. The principles contained in these speeches have been applied consistently by the courts ever since.

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UNSEAWORTHINESS AS A CAUSE OF LOSS Smith, Hogg & Co Ltd v Black Sea &

General Insurance Co. Ltd [1940] AC 1997 In Smith, Hogg: • A vessel was carelessly loaded with timber at St. Petersburg to the extent that she developed a list. •The list had gone to starboard when she arrived in Stornoway to take on bunkers. •Owing to careless management of the bunkers being taken on by the Master, she listed heavily to port and sank. •Owners denied liability to cargo interests for the loss and damage to cargo caused by poor loading on the basis that they alleged that the cause of the loss was the act, neglect or default of the master in the management of the vessel when taking on bunkers (this default would have been a specific exception to Owners’ liability under the charter).

Held: There was unseaworthiness due to loading excessive deck cargo, and this unseaworthiness caused the loss of the vessel and her cargo.

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UNSEAWORTHINESS AS A CAUSE OF LOSS Monarch Steamship Co Ltd v Karlshamns

Oljefabriker (A/B) [1949] AC 196 In Monarch Steamship: • Due to unseaworthiness (defective boilers), a vessel (under the British flag) was delayed, and as a result, prior to her reaching her designated port of discharge (in Sweden), war broke out between the UK and Germany. •Due to the outbreak of the war, the British admiralty forbade the vessel from proceeding to Sweden, instead ordering her to Glasgow. •Cargo interests (indorsees of bills of lading) claimed against owners for their transhipment costs, by way of a vessel under a neutral flag, from Glasgow to Sweden. •Owners argued that the cause of the loss was in fact the orders of the British Admiralty (for which the owners’ liability was excluded under a war risks clause in the charterparty).

Held: The effective cause that brought the Admiralty orders into operation was the delay caused by the vessel’s unseaworthiness

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UNSEAWORTHINESS AS A CAUSE OF LOSS EXCERPTS FROM LORD WRIGHT’S SPEECHES

In Smith, Hogg: • “To consider these rules in relation to the unseaworthiness, I think the contract may be expressed to be that a shipowner will be liable for any loss in which those other causes covered by exceptions co-operate, if unseaworthiness is a cause, or if it is preferred, a real, or effective, or actual cause”. •“In truth, unseaworthiness....must, I think, always be only one of several co-operating causes. The importance to my mind of Carver's statement is that it uses the indefinite article, "'a' cause," not the definite article, "'the' cause." In this connection I can draw no distinction between cases where the negligent conduct of the master is a cause and cases in which any other cause, such as perils of the seas, or fire, is a co-operating cause”. • “I doubt whether there could be any event which could supersede or override the effectiveness of the unseaworthiness if it was "a" cause”.

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UNSEAWORTHINESS AS A CAUSE OF LOSS EXCERPTS FROM LORD WRIGHT’S SPEECHES

In Monarch Steamship: • “From one point of view unseaworthiness must generally, perhaps always in a sense, be a "remote" cause. To satisfy the definition of unseaworthiness it must exist at the commencement of the voyage. It must, however, still be in effective operation at the time of the casualty if it is to be a cause of the casualty, and from its very nature it must always or almost always operate by means of and along with the specific and immediate peril. That is because the essence of unseaworthiness as a cause of loss or damage is that the unseaworthy ship is unfit to meet the peril. In other words, the vessel would not have suffered the loss or injury if she had been seaworthy. A ship may be lost not simply by a peril of the sea but also by and because of the failure to fulfil the warranty.” •“Thus, unseaworthiness as a cause cannot from its very nature operate by itself; it needs the "peril" in order to evince that the vessel, or some part or quality of it, is less fit than it should have been and would have been if it had been seaworthy, and hence the casualty ensues. A fitter ship would have passed through the peril unscathed. In this way unseaworthiness is a decisive cause, or, as it is called, a dominant cause. If it is not expressly excepted, the shipowner cannot excuse himself by any specific exception for a loss for which he is himself responsible, because he is responsible for unseaworthiness”.

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UNSEAWORTHINESS AS A CAUSE OF LOSS OTHER CASES

The Kapitan Sakharov [2000] 2 Lloyd’s Rep. 255

• The vessel sank due to two concurrent causes: (i) the explosion of the undeclared dangerous cargo of the First Defendant and (ii) the unseaworthiness of the vessel due to poor stowage of dangerous cargo below deck.

• Could owners rely on the shipper’s breach of duty not to load dangerous cargo under Art. IV, r.6 of the Hague-Visby Rules to claim for damages occasioned by the loss of their vessel?

Held: unseaworthiness was an effective cause of the loss of the ship. Auld L.J. said: “The unseaworthiness, where it is a co-operating cause of loss, will in all or

most cases precede other co-operating causes, since it must exist at the commencement of the voyage.”

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UNSEAWORTHINESS AS A CAUSE OF LOSS OTHER CASES

Vinmar Internationallv Theresa Navigation SA [2001] 2 Lloyd’s Rep. 1

•A vessel loaded a cargo of ethylene whilst in an unseaworthy state, thereby contaminating the cargo with butadiene. •The owners admitted unseaworthiness, but argued that cargo interests’ loss was not caused by the unseaworthiness but by cargo interests’ decision to continue loading when they should have known that the vessel would contaminate the cargo (due to the nature of its unseaworthiness). Held: Tomlinson J. applied the rule set out in Heskell v Continental Express Ltd, in respect of co-current causes, and found that the Master’s negligence in loading the cargo without first making the vessel fit to receive was an effective cause of the contamination.

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UNSEAWORTHINESS AS A CAUSE OF LOSS OTHER CASES

The Kamsar Voyager [2002] Lloyd’s Rep. 57 • Concerned a GA claim by owners against cargo insurers for a contribution. • The vessel suffered from engine problems during her voyage, caused by a cracked piston. • The piston was replaced by a spare on board. However, this spare was faulty and caused

major engine failure, which resulted in the vessel needing to be towed for repairs. • The owners declared GA; however, GA contributions would be payable by cargo interests

only where the owner had exercised due diligence to make the vessel seaworthy. • Cargo interests argued that no GA contribution was due because the GA expenditure was

caused by the owners’ actionable fault in failing to exercise due diligence to ensure that the vessel was seaworthy

• Owners argued that the faulty spare was the real cause, and that the original piston was merely the occasion which provided the opportunity for the real cause to operate.

Held: HHJ Dean QC found the vessel to be unseaworthy due to the cracked piston. This

unseaworthiness was the effective cause of the further breakdown of the engine after the incorporation and failure of the faulty spare. HHJ Dean QC said:

“Although Lord Wright did say in [Smith, Hogg] “I doubt whether there could be any event which could supersede or override the effectiveness of the unseaworthiness if it was ‘a’ cause,” in my judgment he was merely making a practical observation on the likely application of the overriding common sense approach rather than laying down a special rule of causation in the context of unseaworthiness”.

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UNSEAWORTHINESS AS A CAUSE OF LOSS OTHER CASES

The Kamilla [2006] 2 Lloyd’s Rep. 238

• A dispute under the Inter-Club Agreement (which apportions damage to cargo due to unseaworthiness: 100% owners).

• The vessel was unseaworthy due to her no. 2 hold hatch cover not being watertight, which allowed water ingress to wet 1% of her laden cargo.

• On arrival at the port of discharge the local authorities rejected her entire cargo. • Owners argued that the cause of the loss was not the ingress but the irrational

decision of the local authorities (apparently not discouraged by the receivers). Held: Unseaworthiness was an effective cause of the entire loss. In the context of

(and probably limited to) the terms of the ICA, Morrison J. said: “..provided the unseaworthiness of the vessel could be said in a practical

sense to be a cause of the loss, it was not appropriate to embark upon a further inquiry as to whether it was the effective cause of the loss…”

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INTERVENING ACTS

In Borealis AB v Geogas Trading SA [2010] EWHC 2789, Gross L.J indentified 5 elements required to determine whether a particular act by the other party to a contract was a novus actus which broke the chain of causation: 1.The evidential burden rests on the Defendant to show that there was a break in the chain; the legal burden rests on the Claimant to prove that the Defendant’s breach caused its loss. 2.The conduct of the Claimant “must constitute an event of such impact that it ‘obliterates’ the wrongdoing ...of the defendant”. 3.Unreasonable conduct on behalf of the Claimant is necessary but not sufficient. 4.The state of the Claimant’s knowledge of the Defendant’s breach will be significant. The less knowledge a Claimant has the more reckless their conduct will need to be to break the chain. 5.The question of whether a break in the chain has occurred is a fact sensitive, practical enquiry.

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SUMMARY

1. Can unseaworthiness ever be displaced as an effective cause?

2. The decisions of Lord Wright and of HHJ Dean QC, taking two approaches at different ends of the spectrum, indicate that it would be very difficult, either as a matter of principle or as a matter of fact to displace unseaworthiness as an effective cause.

3. The steps set out in Borealis would further complicate an owners’ task in breaking a chain of causation started by their breach of the warranty of seaworthiness, if this was an effective cause of the loss. These tests are very onerous.

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CASE STUDY •Owners chartered a ro-ro vessel under an amended Baltime 1939 form. •The vessel received various trailers on board at Hull, and in view of the adverse weather conditions forecast for her crossing of the North Sea to Zeebrugge, the crew secured the trailers on the deck with 8 external lashings (in accordance with best practice). •During the crossing, the Chief Engineer informed the Master that a leak was coming from the portside engine’s compensator unit, which would necessitate shutting the engine down in order to replace it. •The Master agreed to this request and the vessel’s port-side engine was shut down for 40 mins. •During this time, the vessel suffered under particularly inclement conditions (Force 11, with waves 9m high), and the starboard engine was increased to 90% pitch in order to compensate for the absence of the portside engine. •However, despite this the Master was unable to maintain the vessel’s course and she rolled heavily, between 20° - 25° for around 12 seconds.

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CASE STUDY

As soon as the vessel came abeam of the wind, the crew noticed that 6 units of cargo had shifted (during the period in which the vessel was operating under one engine) causing a great deal of damage.

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COMPETING CAUSES

Subsequently, it was established by expert evidence that the compensator was not (i) adequately maintained (it should have been replaced after 5 years, but this one was in its 7th year of service), and (ii) it was the wrong type of compensator for the engine (Type A, rather than Type AS ).

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COMPETING CAUSES

However, it was also established through expert evidence, from pre-loading photographs, that one of the trailers that boarded the vessel did not possess internal lashings to secure the cargo contained therein.

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COMPETING CAUSES

Through expert evidence we established that: 1.If the compensator had been functioning the cargo shift would not have occurred; 2.BUT at the same time, it was also established that if the compensator had failed, but the goods in the previously mentioned trailer had been secured adequately, then the cargo shift would not have occurred;

WHAT WAS THE EFFECTIVE CAUSE OF THE CARGO SHIFT?

Questions?

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CAUSATION