Court clarifies owner route and ventilation obligations

Standard Club has reported on the English Commercial Court providing a ruling in Alianca Navegacao e Logistica Ltda v Ameropa SA (The Santa Isabella)* which it said provided useful guidance on:

  • the legal test for a usual and customary route; and
  • owners’ obligation to ventilate and care for cargo.

The Club said that the case might be relevant to members involved in the bulk cargo trade.

Alianca, the disponent owner of bulk carrier Santa Isabella, chartered the ship in 2016 to Ameropa to carry a cargo of corn and maize in bulk from Topolobampo, Mexico to Durban and Richard’s Bay, South Africa. Upon arrival at Durban, significant condensation was found to have damaged the cargo such that a ‘light crust’ had formed on the surface of the cargo. This had to be removed.

The authorities refused to allow the cargo to be discharged due to its apparent condition; this included a suggestion that it included toxins.

Considerable delays were incurred both at Durban and Richards Bay as a result of the condensation damage to the cargo.

The disponent owners brought a claim for demurrage and associated expenses (liquidated damages for delay) for the time the ship was delayed in South Africa.

The charterers sought to defend the claim, relying upon the rule in the 19th century case Budgett v Binnington [1891] that charterers are not responsible for laytime or time on demurrage when such time has resulted from the fault of owners.

Charterers alleged that owners were at fault for the delays and damage and in breach of their charter party obligations to care for the cargo.

Their arguments included:

  1. The route taken by owners via Cape Horn was not the usual and customary route when the Panama Canal route was shorter and less risky to the cargo. The choice of route had resulted in damage to the cargo;
  2. Owners had failed to properly ventilate the cargo in accordance with a sound system, resulting in damage and delay;
  3. Owners had failed to properly disinfect the topsides outside the cargo holds following loading, resulting in insect infestations causing damage and delay.

The owners countered that:

  1. The Cape Horn route was the usual and customary route and was permitted by the charter party;
  2. Ventilation was properly carried out when it was safe to do so and when fumigation restrictions allowed. The weather and sea conditions prevented ventilation for the majority of the journey and that was not the fault of owners;
  3. The loadport fumigation operations used three times the recommended dose and owners had complied with their disinfection obligations.

Mr Justice Henshaw, sitting in the English High Court, found that the cargo had suffered extensive damage on arrival at Durban. He ruled that:

          1. Owners were entitled to take the route around Cape Horn.

The judge ruled that the route was a usual and reasonable route for the purpose of identifying the contractual route and did not amount to a deviation. He added that owners may choose to take a longer route than the most direct route, but in order to comply with contractual obligations, it must be both usual and reasonable bearing in mind the interests of all involved. Both commercial considerations and care of the cargo may be relevant. However, owners are not required to undertake a refined analysis of the climactic conditions likely to be experienced on route.

          2. Owners had failed to properly and carefully ventilate the cargo in accordance with a sound system The judge found that this failure was a breach of owners’ duty to care for the cargo and the breach resulted in cargo damage and delays at the discharge port. However, he ruled that there would have inevitably been a crust of damaged cargo and awarded nominal damages to owners for the demurrage attributable to removing this surface crust.

          3. Owners had failed to properly disinfect the topsides of the cargo holds which was the likely cause of the insect infestations discovered at Durban.

It was found that owners were in breach of Article III Rule 2 of the Hague Visby Rules, which were incorporated in the Charterparty.

Standard Club observed that the case illustrated that a longer voyage route might still be contractual if it was usual and reasonable. When deciding whether a route taken by owners was usual and reasonable, the court would consider if it was reasonable in the interests of all concerned. This might include charterers and shippers and “cargo considerations may be relevant”. “Owners must therefore demonstrate they have considered these interests but are not required to conduct a detailed analysis of the climactic conditions of the route and how these will affect the need to ventilate the cargo.”

Standard Club said that the case also confirmed that if cargo was found damaged on discharge, owners had to be able to show that they had a sound system for cargo care in place, including ventilation and disinfection where necessary, and the system had been duly followed.

Mr Justice Henshaw stated that “as a matter of common sense, the arrival in a seriously damaged condition of a cargo loaded in apparent good order and condition calls for an explanation”. If owners cannot do this, then delays and costs incurred as a result of such damage are not recoverable by owners from charterers.

Finally, the judgment affirmed the approach taken by courts in deciding quantum. “The court will look at the losses suffered as a result of the breach when deciding on damages, and if it is not possible to attribute any particular degree of loss to the breach, then damages will not be awarded”, the Club said.

*[2019] EWHC 3152 (Comm)

https://www.standard-club.com/risk-management/knowledge-centre/news-and-commentary/2020/01/article-english-court-clarifies-owner-route-and-ventilation-obligations.aspx