Clearlake Shipping – Negligence and the Management of the Ship

In the case CLEARLAKE SHIPPING PTE LTD v PRIVOCEAN SHIPPING LTD (2018), the English High Court was asked to consider whether a Master’s negligent decision to demand additional strapping in one of the cargo holds, on the grounds of safety, fell within the exception at section 4(2) of US COGSA, namely “Act, neglect or default of the master… in management of the ship.”

The facts

Pursuant to an amended NYPE 1946 charterparty form, Charterers fixed the vessel to carry a consignment of soya beans from New Orleans to China. A dispute ensued concerning safe cargo stowage. The Master had rejected a stowage plan which left one cargo hold empty and two partly loaded unless the cargo in one of those two holds was strapped. He also rejected a different solution involving ballasting insisting on the strapping in order to ensure the stability of the vessel. Significant costs were incurred in strapping cargo holds. Charterers produced expert evidence to assert that these costs were incurred solely as a result of the Master’s “fault” and should be entirely for Owners’ account.

The Charterparty

Amongst other clauses the NYPE 1946 relevant to the voyage contained the following provisions:

  1. Clause 2 of the NYPE 1946 wording stipulated that “Charterers are to provide necessary dunnage and shifting boards, also any extra fittings requisite for a special trade or unusual cargo…”.
  2. The charterparty expressly incorporated the United States Carriage of Goods by Sea Act (US COGSA).
  3. Clause 8 was unamended and thus placed on Charterers the obligation to load and discharge the cargo under the supervision of the Master.

The Arbitration

Owners commenced London arbitration proceedings for recovery of approximately US$400,000 in unpaid hire; Charterers counterclaimed for US$410,000 of costs, which they said were unnecessarily incurred, in strapping the cargo.

The arbitrators found that adequate stability could have been achieved without strapping and that the Master was negligent and in breach of Clause 8, in that his refusal to load with two slack holds without strapping was unfounded, based on incorrect information and did not have due regard to the vessel’s stability.

However, finding in favour of the Owners, the arbitrators held that the Owners’ liability was excluded by section 4(2) of US COGSA as the neglect or default of the master was “in the management of the ship”.

The High Court decision

Charterers appealed the arbitrators’ award arguing that (i) Clause 2 of the NYPE 1946 infers that Owners should be liable for the cost of the strapping employed because this was not necessary or required and (ii) the Master had negligently insisted on the use of strapping before sailing in circumstances where stability could have been ensured by distributing the cargo differently and/or ballasting, giving rise to unnecessary costs for which Owners should be liable.

Upholding the arbitrators’ award, the judge held that:

  • Clause 8 imposed the responsibility for loading and stowage on the Charterers. Clause 2 was concerned with what the Charterers had to provide in circumstances contemplating unusual cargoes or trades. Clause 2 said nothing about the position where the Charterer had paid for fittings that turned out to have been unnecessary. The Judge held that it was not possible in reverse to extrapolate from Clause 2 an obligation that Owners were to pay for unnecessary fittings.
  • Section 4(2) of US COGSA excluded a carrier’s liability for “Act, neglect or default of the master… in “the management of the ship””. Although the default of the Master in this case related to stowage/securing of cargo, his negligent actions were taken in line with his duty to ensure the ship’s safety and stability and as such was concerned with “the management of the shipand therefore fell within the Section 4(2) US COGSA exception. It was clear that safe stowage without strapping could have been achieved by ballasting, and the same result would be reached whether the issue was one of different distribution of the cargo or of ballasting. Ballasting would be a matter in the management of the vessel and it followed that for that reason also the exception applied.

Conclusion

This will have been a costly exercise for the Charterers. The legal cost of the arbitration and the appeal (including Owners’ costs) will sit with them as will the principal amount that formed the basis of the claim plus interest. The Charterers will quite rightly be upset with the outcome, in a situation where they were forced to incur significant expenditure because of the negligence of the Master.

Safety of a vessel is important to all of us within the industry and the management of the vessel should rightly sit with the Master. The Court’s decision will be welcomed by Owners, whose servants’ negligent actions might be exonerated through an exception, even when they are in breach of charter or in circumstances where it is not clear whether such actions relate to the management (safety) of the vessel or the management of the cargo.

This case suggests that some actions taken by a Master to manage the cargo may indirectly be treated as management of his ship so that any wrongful act on his part will fall within Section 4 (2) of US COGSA;

Readers should be aware that this is not a uniquely US issue because of the incorporation of US COGSA Section 4(2), as there is an equivalent term in Article IV Rule 2(a) of The Hague Visby Rules, which likewise, excludes Owners’ liability for the Master’s negligence or default in management of the ship.

Assureds facing a similar situation should vigorously protest a Master’s actions and gather contemporaneous expert evidence in an attempt to demonstrate that the Master’s behaviour goes well beyond negligence and falls within the realms of incompetence. Doing so may give Charterers an argument to challenge the US COGSA/Hague-Visby Rules exceptions on grounds the vessel is unseaworthy.

 

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