often only recover where loss results from liquefaction by putting undue pressure on carriers to pay an unmeritorious claim.
In the first instance P&I insurers may have to meet certified liabilities in respect of wreck removal operations or pollution costs up to the applicable limits of liability set out in the various international conventions. They will also look to support the dependants of those lost in maritime incidents even in the absence of a direct liability. Clubs will in principle be able to recover such exposures from Members if cover has been compromised.
Owners and their insurers will look to pursue recourse claims against charterers and cargo interests. Typically those claims arise on the basis of the common law obligation not to ship dangerous cargo, under specific charterparty clauses [4] or other express terms in the bill of lading or charterparty. Charterers and cargo interests will often seek to defend such claims either by relying on the burden of proof, by invoking technical construction arguments or by seeking to break the chain of causation.
To discharge its burden of proof, the owner will need to collect evidence showing the cargo liquefied on the voyage. Whilst this can appear daunting at first, it is rarely an insurmountable challenge. Evidence about the true nature of the cargo can usually be obtained following robust investigations. The requirement to show that the preponderance of evidence points towards liquefaction is not onerous. It will be a brave defendant who relies solely on the burden of proof to resist a claim and who therefore declines to put forward any plausible alternative theories to explain the loss of the vessel. Any competing theories can be tested by the judge or by arbitrators according to the evidence; non-liquefaction theories are frequently implausible.
Shipper and cargo interests may raise technical defences to the effect that there was no breach of the Code or of an express warranty, but these arguments usually fail to overcome the well-established common law obligation not to ship dangerous cargo without the informed consent of the carrier or the shipper’s explicit responsibility under the Hague-Visby
Rules for all damages and expenses resulting from the shipment of dangerous goods which the carrier has not consented to carry with knowledge of their true nature [5].
Shippers and cargo interests may seek to allege that the ship was unseaworthy, breaking the chain of causation between the charterer/ shipper’s breach in shipping dangerous cargo and the loss. The unseaworthiness complained of often involving an alleged failure of those onboard to detect the liquefaction risk and to prevent carriage. This is presentationally a challenging argument to run. Whilst is it permissible to run alternative legal arguments in English arbitration or court proceedings, a party who produces extensive expert evidence to the effect that the cargo was safe for shipment will then struggle to turn around and argue the reverse that, if that cargo was in fact dangerous, then this should have been obvious to the crew at the time of shipment. It is also a distasteful argument if the crew were killed and are not able to defend their actions. It is legally a difficult argument: whilst the English courts have decided previously [6] that the chain of causation between a claim under Article IV, rule 6 of the Hague- Visby Rules [7] or for breach of the common law obligation not to ship dangerous cargo will be broken by a concurrent breach of Article III, rule 1 [8], this argument is more likely to succeed where the owners’ breach was a direct cause of the loss of the ship, rather than being a failure to sound the alarm bell that cargo may have been mis-declared, and the defence might not apply to a breach of an express term of the bill of lading or charter in any event. It is unlikely that faults on the part of the vessel falling short of actionable unseaworthiness could ever amount to a defence to a claim [9].
Certain liabilities falling to a charterer as a result of a total loss caused by liquefaction may in principle be covered by charterers P&I cover or by Damage to Hull insurance. There may be gaps in these covers however, such as for charterer’s own loss of earnings, which will be for the charterer’s account unless specialist insurance has been obtained. Cargo interests may have insurance for the same liabilities under a ‘cargo owners legal liability insurance’ policy or similar.
The future
Whilst the Code benefits from continual evolution so it can meet new issues, properly followed it sets out a workable regime for ensuring the safe ocean transport of solid bulk cargoes in the majority of cases. The real challenges in the carriage of cargoes prone to liquefaction are practical, including lack of testing facilities; stockpile access; cargo surveyor availability; intimidation of seafarers and surveyors; fraud; and, a lack of understanding of the dangers inherent in carriage of solid bulk cargo by stakeholders. Charterers and cargo interests ought to appreciate that the costs arising from a serious incident involving liquefaction are likely to fall on them with only a modest discount to reflect the litigation risk in pursuing a recourse action.
[1] The Agios Nicolas [1968] 2 Lloyd’s Rep. 57
[2] It is debateable whether dynamic separation and liquefaction are distinct but this article will treat dynamic separation as a type of liquefaction.
[3] The claim failing due to a lack of breach of duty by the carrier. Alternatively, to avoid circuity of action where the cargo claimant owned the cargo which liquefied or on the basis that one cannot take advantage of one’s own wrongful conduct. Article IV, rule 2(m) of the Hague-Visby Rules provides a defence to claims arising from inherent vice of cargo, Article IV, rule 2(q) states a carrier is not liable in the absence of fault or neglect on the part of its agents and Article IV, rule 5(h) provides the carrier is not responsible for loss or damage where goods have been knowingly mis-stated by the shipper in the bill of lading.
[4] BIMCO’s “Solid Bulk Cargoes that Can Liquefy Clause for Charter Parties” as set out in North’s Recommended Clauses (2021-2022)
[5] Article IV, rule 6
[6] The Fiona, The Kapitan Sakharov, The Aconcagua
[7] The obligation on a shipper not to load dangerous cargo without the carrier’s informed consent
[8] The obligation on a carrier and its delegates to exercise due diligence ensure a vessel is seaworthy prior to the commencement of a voyage
[9] Borealis v. Geogas which determined that the not actionable conduct of a claimant’s agents only breaks the chain of causation where that conduct obliterates the wrongdoing of the defendant
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