When does the common law obligation apply?
The implied undertaking is operative only from the start of loading, but it is not a continuing obligation. Thus once the ship sails there is no guarantee by the carrier that the vessel will continue to be fit to hold the cargo. If, however, there are defects in the vessel that render it unseaworthy whilst it is on the commencing journey to the loading port, this will not be of any consequence provided that they can be rectified by the time of sailing. This also applies to defects arising during the loading too.
In the case of McFadden v. Blue Star Line [1905], it was held that the warranty given by the carrier that the vessel was a seaworthy one was a warranty only as to the condition of the vessel at the particular time of sailing. It was not a “continuing” warranty whereby the vessel had to continue to be seaworthy throughout the duration of the voyage.
Excluding the obligation at common law
It is possible to limit the application of the implied common law obligation by inserting a worded clause in the contract of carriage. Any clause is intended to relieve the carrier from liability for unseaworthiness must be carefully drafted as the courts tend to apply a restrictive interpretation to such clauses. In Nelson Line v. Nelson [1908] a clause purporting to exempt the ship owner from liability for any damage or detriment was held by the court not to be effective in excluding liability for damage to cargo resulting from unseaworthiness.
The burden of proof when alleging unseaworthiness
When a dispute arises, a party to a contract who argues that the vessel was not seaworthy must bear the burden of proof to give the evidence that the vessel was unfit in this manner. This may not be as difficult as it sounds, because the court will draw inferences in certain instances such as there is the presence of seawater in the hold. But, however, this alone will not be enough, he must further prove that there is a causal link between the alleged breach and the damage suffered. It was decided in the case of International Packers v. Ocean Steamship Co (1955) where the cargo was found damaged by seawater and the inference was drawn on the fact that the crew having had to remove the tarpaulins from the hatch covers of the vessel during a storm. But the vessel was equipped with locking bars to secure the hatches, and when this information revealed to the court, it was found that it was not the unseaworthiness of the vessel but rather the negligence of the crew in failing to properly to secure the locking bars.
The effect of a breach of the obligation of seaworthiness
The obligation of the carrier to provide a seaworthy vessel was neither a condition nor a warranty but instead an innominate term as in Hong Kong Fir Shipping v. Kawasaki (1962). Under a contract the breach of a condition entitles the claimant not only to seek damage but to continue to perform the underlying contract, the innominate term is more enigmatic in its effect. But if the breach is seen as to deprive the claimant’s benefit which he should receive, the claimant is allowed to terminate the contract.
On the other hand, where the breach has been less severe, the claimant would have been limited to damages. Where the defects are discovered after a vessel has sailed, the claimant will not be allowed to waive his right to damages by accepting the vessel, and repudiation will still be possible provided the breach is serious enough [The Democritos (1975)].
The seaworthiness obligation under the Hague rules, Hague-Visby rules
Under the Hague-Visby rules, at Article III rule 1, the liability of the carrier to provide a seaworthy ship is warranted to being an obligation on the carrier that he uses due diligence, before and at the start of the voyage, and to make the ship seaworthy:
“The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to –
- make the ship seaworthy
- properly man, equip and supply the ship; and
- make the holds, refrigerating and cool chambers and all other parts of the vessel in which goods are carried, fit and safe for their reception, carriage and preservation”
The period “before and at the beginning of the voyage” has been construed by the court as to cover the period from “at least the beginning of the loading until the vessel begins on her journey”. It was illustrated in the case of Maxine Footwear Co Ltd v. Canadian Government Merchant Marine (1959). Before the vessel began its journey, some members of the crew made an attempt to thaw out some frozen pipes using a blowtorch type lamp. The pipes were coated in cork cladding which ignited. The fire spread so quickly that the vessel had to be scuttled in order to extinguish it. It was decided that, under the Rules, the carrier had the responsibility to exercise with due diligence ensuring that the vessel was seaworthy throughout the entire journey. The crew’s negligent happened during the time frame, hence the obligation of seaworthiness imposed by the rules had been breached.
But, however, as long as the carrier has taken care with due diligence to make sure that his vessel is seaworthy before she sails, then he will not be liable for defects arising during the voyage to the discharge port or for defects arising at intermediate ports.
Furthermore, the carrier will not also responsible for defects in a newly constructed vessel or one which delivered to him recently, till that vessel comes under his control, unless the defects were reasonably discovered by exercising due diligence at the time he took over the new vessel. But what is due diligence? In The Amstelslot (1963) defined it as equal to the common law duty of care. But there is one important difference in that the obligation is a personal one and cannot be delegated. A delegate may be employed to exercise due diligence but if that delegate is not diligent, the carrier remains liable. In any case, the carrier is entitled to claim an indemnity from the independent contractor to whom the wok was delegated. It is no defence to say that delegates were engaged and that the carrier had no means to ensure that the work was carried correctly by the delegates.
The burden of proving the exercise of due diligence to make the vessel seaworthy will rest, provided by the Rules, on the carrier, or on any “other person claiming exemption” under the Rules. In order to do so, the claimant must first establish that the vessel was not seaworthy and prove causation and them the onus shifts to the carrier to prove due diligence (The Hellenic Dolphin). Under this Rules as in the common law Rules, the claimant will be assisted by the inferences drawn by the court.
The Marine Insurance Act 1906
The definition of seaworthiness under English Law is the section 39 of the Marine Insurance Act 1906, which states:
“Warranty of seaworthiness of a ship:
- In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured......
- A ship is deemed to be seaworthy when she is reasonably fit in all respects to
encounter the ordinary perils of the seas of the adventure insured.
- In a time policy there is no implied warranty that the ship shall be seaworthy
at any stage of the adventure, but where, with the privity of the assured, the ship is ent to sea in an unseaworthy state, the insurer is not liable for any loss attributeable to unseaworthiness.”
Section 39(5) makes it clear that if the vessel is sent to sea when “the assured” knows that she is unseaworthy, insurers will not be liable for any loss attributable to the unseaworthiness.
Who is “the assured”
What does an unseaworthy state mean? And who is “the assured” ? Both questions were argued in the case of The Star Sea. The case had been the subject of a constructive total loss as a result of fire. The House of Lords determined a group of individuals fell within the definition and concluded that none of them had no knowledge of the vessel’s fire fighting which had been alleged to render the vessel unseaworthy. The assured may have been negligent, but it was not enough to defeat the claim.
However, if one attempts to define who the assured is, it could include several people who should have the full knowledge of the condition of the vessel. If the vessel declared to be unseaworthy when she was sent to sea, that could make “the assured” “privy” to the unseaworthiness, and could potentially prevent the owners from claiming any insurance in the event of a casualty caused by the unseaworthiness.
Section 39(4) of the Marine Insurance Act explains that a vessel is seaworthy “when she is fit in all respects to encounter the ordinary perils of the sea”. Whether or not a vessel is fit for the sea voyage will be a question of fact. Lord Cairns defined in the Steel v. State Lines “The ship should be in a condition to encounter whatever perils of the sea a ship of that kind, and laden in that way, may be fairly expected to encounter.”
The approach was considered in a recent case of The Pride of Donegal, which arose out of the breakdown of a vessel’s engine in the North Atlantic, as a result of cracking to the turbocharger casing and the poor condition of the generators. It was decided that the vessel had been unseaworthy at the start of the voyage. The case concerned the voyage policies and was more likely to stem from warranties contained in the insurance policy itself, rather than implied by the Marine Insurance Act.
In another case, Frangos v. Sun Insurance Office Ltd [2], the fact of the unseaworthiness of the vessel was held to be inconsequential because perils of the sea was held to have proximately caused the loss. This decision is contrary to the later case reached upon by the House of Lords in Monarch Steamship v. Karlshams Oljefabriker [3] where a vessel, which was delayed by reason of her unseaworthy condition was subsequently caught by a British Government restraint, was a loss caused by unseaworthiness [4].
The test to determine to see whether a particular loss was caused by perils of the sea or the unfit and unseaworthy condition of the vessel was introduced in the case of Merchants’ Trading Co. v. The Universal Marine Insurance Co. [5]. This case was tried on the fact “whether the leak was attributable to injury and violence from without or to weakness from within?”. The case was decided in favour of the insurer as the vessel was lying quietly at anchor and was unable to keep herself afloat in still water. The court was left with no alternative but to hold that the unfit condition of the ship was the cause of the loss.
It has been said that the claim of perils of the sea would be difficult to be upheld if the vessel is unable to withstand the "ordinary" and "foreseeable" sea casualty [6]. In this instance, the court will be more inclined to hold that the physical condition of the vessel, be it the latent defect, wear and tear and unseaworthiness, is the proximate cause of the loss [[7].
Although the question of a vessel's seaworthiness is not in dispute in voyage policies, the situation would be different when some fortuitous happenings take place within the vessel during the journey. These fortuitous happenings, if consequently renders her unseaworthy thus allowing seawater to enter resulting in a loss, such a loss is undoubtedly a peril of the sea. Even though the action of the water is inevitable by that occurrence and the weather remains calm [8].
The effect of a warranty in the policy is important because, breach of it under the English Law can have certain consequences. The Marine Insurance Act Section 33(1) provides the statutory definition of a warranty:
“A warranty…..means a promissory warranty, that is….a warranty by which the assured undertakes that some particular thing shall or shall not be done or whereby he affirms or negatives the existence of a particular state of facts.”
Section 33(3) also adds to this, providing that a warranty is:
“a condition which must be exactly complied with….whether it be material to the risk or not.”
If the vessel is not maintained in a seaworthy condition, even if the assured made all reasonable efforts to maintain it, then insurers would be able to reject any claim made by the assured under the policy, as the assured would be in breach of warranty and insurers would have been off risk since the date of breach. In any event under this policy any claim that was caused by the unseaworthy condition of the vessel would be excluded.
It is worth noting that English law is quite unusual in its approach to warranties and the effect of breach. It is believed that some warranties may be unenforceable under English law in the situation where the assured could be proved to be a consumer by reason of the EU Directive 1993/13, which was incorporated into the English law by reason of statutory instrument 1999 No. 2083 – the Unfair Terms in Consumer Contracts Regulations. Thus a company which owns a privately owned vessel could be a consumer within the meaning of the regulations and such a warranty as to seaworthiness is unfair and therefore unenforceable.
Material non-disclosure and seaworthiness
There is a possibility that a particular policy may contain express warranties that the vessel is seaworthy. If it does not then when the vessel is insured and she was in a unseaworthy condition, insurers may argue that some material were non-disclosed which would allow them to avoid the policy.
Section 17 of the Marine Insurance Act provides that a contract “is based upon the utmost good faith” and section 18 explains the assured’s duties:
“….the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured…
Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium, or determining whether he will take the risk.”
The underwriters have the right to refuse a claim if any issues regarding the vessel’s seaworthiness are failed to disclose at the time the assured takes out an insurance.
Who decide if a vessel is unseaworthy?
Basically, it is a question of fact for the Court to decide for each individual cases. From both owners’ and insurers’ point of view it is preferable that problems are avoided rather than developing and ending up in litigation. The owners need to ensure that their vessel is seaworthy by employing competent master and crew for the voyage.
The Institute Marine Cargo Clauses
The institute provides a number of clauses covering the risks of loss and damage to the subject matter. It covers from the time the goods leave the place where they are stored, continues during the voyage journey and to the place they are being unloaded. If after the goods being discharged, but before the insurance cover comes to an end, the goods is forwarded to a place other than the one for which they are insured, the cover will not be extended to such a place.
If the contract of carriage is delivered to a place other than the agreed destination when the assured took out an insurance, then the insurance cover will terminate there unless a notice is given to the insurers with regard to the continuing journey to a different place of delivery.
Claims
In order to make any claim, the assured must have an insurable interest in the subject matter insured at the time of the loss. The assured is entitled to claim any loss occurring during the period covered by the insurance, notwithstanding that the loss occurred before the contract of insurance was concluded, unless the assured were aware of the loss and the insurers were not.
If for any reason the vessel is stopped at a place other than the one is covered by the insurance because of a risk, the insurers will reimburse the assured any extra charges properly and reasonably incurred in unloading storing and the subject matter to the place to which it is insured.
No claim for constructive total loss could be recovered unless the subject matter insured is abandoned its actual total loss appearing to be unavoidable or because the cost of recovering and forwarding the transit to the place to which it is insured would exceed its value on arrival.
Duty of assured clause
It is the duty of the assured and their servants to take reasonable precaution in minimising such loss and to ensure that all the rights was properly observed and exercised. The insurers will reimburse any loss to the assured for any charges which incurred while they engaged in their duties.
Exclusions
No loss could be claimed if the assured contributed to the ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject matter insured. Furthermore, the assured could not claim for any loss damage by insufficiency or unsuitability of packing, loss damage or expense caused by the nature of the subject matter insured, loss damage due to the delay in arriving to the delivery place, loss damage concerning financial default of the owners vessel or operators of the vessel and loss damage regarding the use of any weapon.
Unseaworthiness and unfitness exclusion clause
No damage of loss could be considered arising from unseaworthiness of vessel where the assured are privy to such unseaworthiness at the time the subject matter insured is loaded.
The insurers waive any breach of the implied warranties of seaworthiness of the vessel to carry the insured to destination, unless the assured are privy to the unseaworthiness.
War exclusion clause
The insurance cover will not apply to cases caused by war or any hostile act, capture seizure arrest restraint or detainment and the consequences thereof or any attempt thereat.
Strike exclusion clause
It will also not cover cases where the loss damage caused by strikes, locked-out workmen, or persons taking part in labour disturbances, by terrorists or any person acting from a political motive.
Conclusion
The test of determining whether a loss is by peril of the sea or by the unfit condition of a vessel is one of the fact. The court will consider the fact underlying each case in order for it to arrive at its judgment and the judges determines the proximate cause of the loss. It has been decided that passive unseaworthiness of the vessel is inconsequential to the finding of the court [9]. Furthermore, in deciding whether the condition of the sea or whether the ship is in a good and sound condition, the court will look to see if the bad weather encountered by the ship in question is not bearable by even a sound ship, then her unseaworthiness may no longer be relevant.
References
[1] See also the discussion by Jeremy Joseph in “The Implied Warranty of Seaworthiness in Marine Insurance” (2002) MLJ xlix, at p. lvi, in which he argues that a vessel can now be unseaworthy because of a potential breach of the ISM Code, which became mandatory for implementation in trading countries in the world on 1 July, 1998 for passenger ships, oil tankers, chemical carriers, bulk carriers and high speed cargo craft over 500 gross tons.
[2] (1934) 49 LiL. Rep. 354
[3] (1949) A.C. 196
[4] Howard Bennett, Causation in the Law of Marine Insurance, 1996, p. 193
[5] (1870) 2 Asp. MLC 431
[6] Susan Hodges, the Law of Marine Insurance, 1996, p. 189
[7] Ibid
[8] Arnould’s Law of Marine Insurance and Average, eds. Mustill and Gilman, 16th Edition, 1981, para. 793, p.655
[9] Susan Hodges, The Law of Marine Insurance, 1996, at p. 191
SSA 3rd Maritime Law
The Institute Marine Cargo Clauses – See
