Guidance for owners on issue of due diligence (case comment)

The Fjord Wind case

The approach of the Court of Appeal differed in some respects to that taken by Mr Justice Moore-Bick at first instance [1999] 1 Lloyd's Rep.307.

Three issues of significance are covered in the judgment.

The first is how to reconcile the apparent conflict between an absolute obligation of seaworthiness and an obligation to exercise due diligence to ensure seaworthiness.

The second is what is meant by seaworthiness.

The third is what an owner or disponent owner needs to show to prove that they have exercised due diligence, particularly where certain tasks have been delegated.

The vessel was owned by the second defendants, time chartered by them to the first defendants on the NYPE Form and voyage chartered to the first plaintiffs on the Norgrain Form for the carriage for cargo of soya beans from the River Plate to Europe.

The voyage charter provided at clause 1 that "the said vessel, being tight, staunch and strong and in every way fit for the voyage, shall...proceed to [the River Plate]...and there load...". Clause 35 provided: "Owners shall be bound before and at the beginning of the voyage to exercise due diligence to make the ship seaworthy...". The bill of lading stated that it incorporated all the terms, conditions and exceptions of the voyage charter.

Shortly after loading the vessel suffered an engine failure due to a crank pin failing. Lengthy repairs were required and the cargo had to be transhipped. Cargo owners made a claim for delay and expense against owners and disponent owners on the basis that the vessel was unseaworthy.

Previously the vessel had suffered a number of crank pin problems. The owners had investigated these with the assistance of MAN, the engine manufacturers. They had been unable to discover the cause of the problem and were unable to discover it in an investigation following this incident.

The Court of Appeal addressed the apparent conflict between clause 1 of the voyage charterparty which suggests an absolute obligation of seaworthiness, and clause 35 which suggests an obligation of due diligence only.

Reference was made to The Adamastos [1957] 2 QB 233, [1959] AC 133, which involved a consecutive voyage charter, which contained a very similar clause to clause 1 in this case, but which also contained a clause paramount which provided that "this bill of lading" shall have effect subject to the Hague Rules.

Mr Justice Devlin held that the Hague Rules did not apply to ballast voyages, whereas the House of Lords held by a majority that it did.

At first instance in The Fjord Wind, Mr Justice Moore-Bick commented that in the Adamastos, as a result of construing the opening words of the paramount clause as if they read "this charterparty shall have an effect subject to..." (rather than the actual "this bill of lading...") their Lordships were dealing with a clause which by its terms was expressed to apply to the charterparty as a whole, and which was clearly intended to take precedence over any other terms in the event of any irreconcilable conflict.

Mr Justice Moore-Bick commented that in the present case clause 35 does not provide the same degree of assistance. He said that there is no express indication whether it is intended to apply to the charter as a whole, including the approach voyage, and that one simply has to address a question of how the clause was intended to operate in conjunction with clause 1.

Mr Justice Moore-Bick resolved that conflict by finding that clause 1 imposed an absolute obligation of seaworthiness in respect of the ballast voyage, and that clause 35 governs owners' obligations from the commencement of loading onwards. The Court of Appeal took a different view.

It referred to the defining decision on contract interpretation of ICS v. West Bromwich Building Society [1998] 1 WLR 896, in which Lord Hoffmann said: "Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in a situation in which they were at at the time of the contract."

Lord Justice Clarke (who gave the leading judgment) commented that it is now well settled that the particular terms of a contract must be construed in the context of the contract as a whole and that all contracts must be construed in their factual matrix or against their surrounding circumstances.

The argument was raised both in the Adamastos and in The Fjord Wind that it is unlikely that the parties would have agreed a different regime for cargo damage under the bill of lading and under the charterparty and a different regime for ballast and laden voyages. Mr Justice Devlin and Mr Justice Moore-Bick both noted this argument, but found that the words of the contract were more consistent with such differing regimes.

The Court of the Appeal in the Fjord Wind, applying Lord Hoffman's approach, accepted the submission that it was extremely unlikely that the parties would have agreed for different regimes and that they would be expected to apply a Hague or Hague-Visby Rules regime and not to have agreed an absolute warranty of seaworthiness.

Lord Justice Clarke accepted that if clause 1 stood alone it would be likely to be held to impose an absolute obligation of seaworthiness, but commented that the general approach in the Adamastos would be included in the background knowledge which the parties would have had in their mind if they had thought about it.

In conclusion they found that the disponent owners' obligation as to seaworthiness at each stage was the same, namely to exercise due diligence to make the vessel seaworthy.

In considering whether the vessel was unseaworthy on leaving the load port the Court of Appeal did not really advance established case law in any way but merely applied it.

The classic test is that the ship must have that degree of fitness which an ordinary careful owner would require his vessel to have at the commencement of her voyage, having regard to the probable circumstances of it.

Would a prudent owner require that the defect be made good before sending his ship to sea, had he known of it?

Seaworthiness is not an absolute concept but is relative to the nature of the ship, to the particular voyage and even to the particular stage of the voyage.

The Court of Appeal considered the catastrophic consequences which can follow the failure of a crank pin bearing and concluded that the vessel was unseaworthy when she left the load port.

It is established case law that once a claimant has proved unseaworthiness, the burden of establishing due diligence is on the owners and that they must establish that due diligence to make the vessel seaworthy was exercised, not only by themselves, their servants and agents but also by their independent contractors.

The issues of interest in the Fjord Wind were what the owners have to do to show that their independent contractors exercised due diligence and in what circumstances it is possible to show that due diligence has been exercised if the cause of the problem is not discovered.

The owners consulted the engine builders, MAN, for advice and assistance as the problems arose.

However both the judge and the Court of Appeal were troubled by the owner's failure to adduce evidence from MAN as to what they did at crucial stages.

The owners put forward evidence that there had been an overhaul of the engine under the supervision of MAN designed to eliminate any possible causes of future bearing failure.

Lord Justice Clarke said: "The question is whether the owners have proved that MAN conducted as thorough an investigation as they could reasonably have been expected to conduct in the circumstances".

He commented that their failure to adduce any evidence from MAN made it more difficult for them to discharge the burden of proof. Mr Justice Moore-Bick found that in the light of the previous bearing failures, detailed investigations were called for.

Lord Justice Clarke commented that given that the owners did not purport to have carried out such investigations themselves, it followed that the only way which they could discharge the burden would be if they could show both that they delegated to MAN the responsibility of carrying out a thorough investigation into the true position, and that MAN themselves exercised all proper care and skill in doing so.

Mr Justice Moore-Bick said that since the cause of the casualty remains unknown, the owners could only discharge the burden by showing that they and MAN between them did not overlook any lines of enquiry which competent experts could reasonably be expected to have pursued.

He found that in the absence of evidence as to what investigations were in fact carried out and why, he could not be satisfied that this was so.

The Court of Appeal agreed with those conclusions.

Lord Justice Clarke said: "A very thorough investigation was required in order to identify the cause of the problems which had occurred on a number of occasions, bearing in mind the very serious consequences bearing failure may have.

"The more serious the possible consequences, the greater the effort must be made to identify the cause of the problem and if possible to eradicate it".

Although owners may take comfort from the approach to a construction of their obligations taken by the Court of Appeal that the obligation on the ballast voyage in circumstances such as these is of due diligence rather than absolute, the non-delegatable nature of that obligation makes it a particularly onerous one.

It is clearly not enough for owners simply to rely upon the services of contractors, however high the reputation of the contractors in question. Owners will have to satisfy themselves that they will be able to establish that no line of enquiry which competent experts could reasonably have expected to have been pursued has been overlooked.

James Hooper is a solicitor in Sinclair Roche & Temperley's litigation department.

©LLP Limited 2000

Staff Author