Case Summary: The “Ocean Victory” 25 February 2014 (Commercial Court)

Breach of a safe port warranty, causation of loss of vessel, examination of the master’s navigation and whether causative, appropriate test of good navigation and seamanship, abnormal occurrence

GARD MARINE & ENERGY LTD V CHINA NATIONAL CHARTERING CO LTD & (1) DAIICHI CHUO KISEN KAISHA (2) OCEAN LINE HOLDINGS (INTERESTED PARTIES) (THE OCEAN VICTORY) [2013] EWHC 2199 (COMM)

On 25 February 2014 the Court of Appeal gave permission to Daiichi Chuo Kisen Kaisha to appeal the decision of Teare J. The permission has been granted solely in respect of the issues of ‘abnormal occurrence’ and ‘whether any unsafety of the port did not cause the loss’.

 

Background

Contractual

This case involved the alleged breach of a safe port warranty brought by subrogated underwriter Gard Marine & Energy Ltd as assignee to the rights of co-assureds Ocean Victory Maritime Inc (OVM) (registered owners) and Ocean Line HoldingsLimited (OLH) (bareboat charterers), against China National Chartering Co Ltd (CNC) (formally known as Sinochart).

The vessel had been bareboat chartered by OVM to OLH on an amended Barecon 89 Standard Bareboat Charter which provided that the vessel would be employed “only between good and safe ports”. The Bareboat charter also provided, via clause 12, that OLH were to supply and pay for the vessel’s Marine, War and P & I insurance, with OVM as co-assureds.

OLH thereafter time chartered the vessel on an amended NYPE form to CNC. CNC then sub-chartered the vessel to Daiichi Chuo on largely back to back terms.

Factual

Kashima is a large modern port with over 9 miles of wharfs serving an industrial zone. The port caters for a variety of vessels, from small coastal vessels to larger vessels such as VLCCS (up to 280,000 DWT) and Capesize bulk carriers (up to 230,000 DWT).

The port of Kashima is prone to strong northerly winds and long waves generated at a great distance. However these conditions rarely coincided and there had been no incidents similar to that which befell the ‘Ocean Victory’, prior to October 2006, since the port’s construction in the 1960’s.

It is protected by a ‘Southern breakwater’ running for about 1.75 miles along its exposed north- eastern side, and the waterway inside the breakwater is known as the ‘Kashima Fairway’ which is the main access to the individual berths within the port area.

On 23rd October 2006 the vessel encountered heavy weather while discharging her cargo of iron ore at Raw Materials Quay berth B, Kashima, which resulted in the suspension of cargo operations.

The following morning, conditions deteriorated and there were discussions between the Master and the Charterers’ representative which resulted in a decision to leave the berth. The evidence before the court was conflicting. The Master stated that he felt he had been ordered off the berth, while the Charterers’ representative’s evidence (and indeed earlier witness statements from the Master) was that the Master had advised he would follow the decision of the Master of another vessel berthed at a neighbouringberth, the “Ellida Ace”.

A pilot was ordered and the vessel was due to depart at 1300 hours on the 24th October 2006, but due to the weather worsening the pilot was postponed. (The pilots were reluctant to take vessels out when the conditions made it dangerous for them to disembark). At the request of the master, two tugs were ordered to help stabilize the vessel after two of her mooring lines had parted.

At 1400 hours on 24th October 2006 the pilot boarded the vessel, in line with the earlier decision (seemingly by the Master after consultation with the Master of the neighbouring vessel) to leave the berth. After the pilot customarily disembarked at the end of the breakwater the master found it increasingly difficult to maintain the vessel’s speed/course due to strong winds, swell and the sea conditions, all coming from a northerly direction, increasingly so, as she left the protection of the Southern breakwater. The master’s difficulty was further exacerbated by the fact that no passage plan had been prepared prior to departure and that no parallel indexing was being used by him while navigating through the Fairway.

While attempting to control the vessel the master applied a series of hard port & starboard rudder settings resulting in severe loss of speed, steerage and ultimately control of the vessel, which eventually resulted in putting the northerly gale force wind and sea on to the port beam.

The vessel subsequently allided with the end of the breakwater, was pushed down the outside length of the breakwater, and grounded. Some two months later, whilst attempts at salvage were underway, and during a further storm, it broke up and became a total loss.

 

The Claim

Gard claimed a total of USD 137.70 million consisting of, USD 88.50 million, being the value of the vessel as a total loss, USD 2.70 million for loss of hire, USD 12.00 million SCOPIC costs pursuant to an LOF 2000 and wreck removal costs in the sum of USD 34.50 million.

 

The Parties’ Arguments

Counsel for the Claimants argued that the port was unsafe at the time of Charterers’ nomination, as there was a risk that long waves and strong winds from the North East would combine to create a situation where the vessel could not safely remain alongside the berth, and that the port system in place at the time was inadequate to warn vessels of the risk and to take shelter at sea before it became too dangerous to remain alongside. Thus, he argued, there was a risk the vessel would be trapped alongside and there damaged.

Counsel for the Charterers argued that the port was in fact safe as the vessel could have remained safely alongside the berth at the material time. Furthermore, the port was safe by the application of the dicta of Lord Denning in the Evia (No. 2). The proper test is one of ‘reasonable safety’. The enquiry should be whether the port had taken ‘reasonable precautions’ to overcome hazards associated with it. The port did not have to guard against every conceivable hazard. The port had only to be reasonably safe:

“if the set-up of the port is good but nevertheless the vessel suffers damage owing to some isolated, abnormal or extraneous occurrence – unconnected with the set-up – then the charterer is not in breach of his warranty”

The conditions on the day of the OV casualty were not abnormal, but they were rare. The port was not unsafe merely because its systems failed to guard against such a rare occurrence. The combination of long waves and gale force northerly winds was extreme and remote.

Counsel for the Charterers further argued that, on the facts, the master was negligent in leaving the berth and/or whilst navigating through the Kashima Fairway, and that was the real and effective cause of the casualty. Specifically, the excessive use of hard rudder angles while trying to exit the Kashima Fairway was the immediate cause, such as to interrupt the chain of causation. In the alternative, he further argued that the conditions encountered by the vessel were so rare as to amount to an ‘abnormal occurrence’.

 

Judgment (Mr Justice Teare):

Teare J found for the Claimants:

(i) Port Safety

Teare J disagreed with Charterers, and asserted that the classic and operative test was that provided by Sellers LJ in the Eastern City, which did not include a qualification of reasonableness, that test being:

“a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship”

Despite the Court of Appeal judgment of Lord Denning in the Evia (No. 2)(subsequently approved by the House of Lords), Teare J felt that to introduce an aspect of reasonableness to a safe port warranty would create uncertainty, and that any assessment of the safety of a port/it’s facilities should only be measured by whether the dangers encountered by the vessel “can be avoided by good navigation and seamanship”.

(ii) The decision to leave the berth

Teare J found that the master was not negligent in deciding to leave the port as he was following advice given by the Charterers’ representative, which Charterers ‘expected to be followed’. The court found that the master was entitled to rely on the advice of the Charterers’ local representative when assessing whether he should vacate the berth, even though he had serious reservations about the advice given and mistakenly believed that there had been an order by the port authorities to leave. Teare J felt that the decision to leave the port, although navigational in nature, arose naturally out of the advice given by Charterers’ local agent which ultimately was the real and effective cause of the casualty. He added that Charterers’ advice to leave at a time when it was unsafe to leave evidenced the unsafety of the port, though he had observed during the trial that the advice, when given, was ‘good’ advice.

(iii) Master’s navigation through the Fairway

After reviewing the testimony of the master and the expert evidence presented before him, Teare J accepted that the Master:

  1. failed to prepare a proper and adequate passage plan prior to departing the berth (and it was common ground that one ought to have been prepared); and 
  2. failed to use parallel indexing, stating that this was “a failure to exercise the skill and care to be expected of the prudent mariner… the risk in failing to use parallel indexing [being] that the mariner may not realise that his vessel is off the intended track until it is too late”.

Teare J considered that the difficulties which the master encountered in navigating along the Fairway were foreseeable consequences of the characteristics of the port and would have been faced by other masters of Capesize vessels. Referring to the decision in the Polyglory, he concluded that navigating the Fairway in these conditions would require a particularly bold mariner and a very high degree of skill.

Teare J concluded that the master:

“knew where the vessel was in relation to the leading lights marked on the chart, and although he may have thought the vessel was more to the north than in fact she was (…) it is unlikely this error caused him not to ease the starboard helm”

Teare J. further held that had he found the master’s navigation negligent he would have concluded that the unsafety of the port remained the real and effective cause of the casualty.  In coming to this conclusion Teare J considered that the master’s conduct should not be assessed in isolation and was therefore prepared to forgive certain lapses in good navigational practices; specifically, the alleged overuse of specific hard rudder angles because he felt that they arose out of events caused by the dangers associated with the port and could not be separated from them. As a result the court held that the real and effective cause of the casualty remained the un-safety of the port.

(iv) Abnormal occurrence

Teare J rejected Charterers’ assertion that the conditions encountered by the vessel were an abnormal occurrence. At paragraph 126 of the judgment Teare J quoted Wilford on Time Charterers, saying that an abnormal occurrence is:

“one ‘which is unrelated to the prevailing characteristics of the port’ or to put the matter another way ‘a port will be unsafe only if the danger flows from its own qualities or attributes’”

As Kashima Fairway and the Raw Materials Quay were acknowledged to have been prone to northerly gale force winds and subject to long waves, (although these rarely occurred simultaneously), Teare J held that, individually, these attributes could not be considered unforeseeable, and thus their simultaneous occurrence, even though rare (there had been no record of their simultaneous occurrence in the previous 60 years), was insufficient to create an abnormal event and could be considered to flow from the natural characteristics of the port.

 

Japanese proceedings

After the judgment had been written, but before it was handed down the Tokyo District Court (in the claim by the Japanese Government against the Owners of the Ocean Victory for damages to the breakwater) found against Owners in that the master of the ‘Ocean Victory’ was negligent in navigating the vessel’s exit through the Kashima Fairway and that this was the effective cause of the casualty. When asked to consider the decision of the Japanese court when passing judgment Teare J stated that he was:

“not persuaded that the differences of detail or emphasis are such that [he] should revise the views [he] reached as to the navigation of the vessel based as they are on the extensive factual and expert evidence adduced by the parties and investigated at considerable length with [the experts] none of whom gave evidence in Japan”

 

Comments

While Teare J accepted the argument that a port is not necessarily unsafe because its systems fail to guard against every conceivable hazard, and he accepted that the simultaneous occurrence of northerly gale force winds and long waves was indeed rare, he held that the port should have had systems in place to deal with this rare occurrence. In failing to have such systems in place the port was unsafe.

This takes the reader back to the dicta of Lord Denning in the Evia (No. 2). When deciding whether the port should have had adequate systems in place to deal with such rare occurrences does the question of reasonableness come into play? Is the judgment of Lord Denning in the Evia (No. 2) antithetical to that of Sellers LJ in the Eastern City or is it merely an elaboration of Sellers LJ’s test? If Teare J had applied the concept of reasonableness to his decision would he have come to the same conclusion?

Charterers have now obtained permission to appeal Teare J.’s decision on the issues of abnormal occurrence and causation, but not the issue of the master’s navigation out of the fairway.

It is understood the ruling on the Master’s use of hard rudder angles will not be revisited, but the underlying decision to leave the berth at a time when the Master’s evidence was that he would have ‘surely stayed’ will be.

Was Lord Denning’s attempt to formulate a positive elaboration on Sellers’ LJ’s original test unhelpful? Are they rival formulations, inconsistent with each other?

 

Importance of this Judgment

The Judgment is important in several respects, not just because of the large sums involved.

First, it has far-reaching implications for vessels trading to major Japanese ports on the Japan Pacific seaboard, many of which are prone to long swell and Northerly gales. Indeed, one could go further and say that most ports on the Pacific Rim are susceptible at least to long wave swell.

Secondly, it has far-reaching implications for the relationship between Ports (and those administering them) and the vessels using them. Would the Charterers have been better off not having a representative in place at the port (whose role was to assist the visiting Masters using the berths), and saying nothing to the master and let him make his own decision whether to leave or not? That way, the effect of that decision could not have been visited on the Charterers. The process of assisting vessels has exposed Charterers to precisely the liability they were intending to avoid. It is true that much of the evidence was fact-specific to this case, and the Court clearly felt sympathy for the Master and laid the blame for the decision to depart at the door of the charterers, whilst acknowledging that the decision was nevertheless a ‘navigational’ one, which, under normal and accepted rules, falls solely within the remit of the Master. Is this likely to lead to a potentially confusing inconsistency in this area?

An alternative consequence of the decision is that, instead of doing less in terms of assistance, Ports may decide they will do more, and instead of issuing ‘recommendations’ to depart or stay, they may feel obliged to issue ‘orders’, or even appoint on-board Pilots to supervise loading or discharge operations.

The confusion in this case arose because the Master, for whatever reason said he thought he had been ‘ordered’ to leave even though his evidence wasthat he would have ‘surely stayed’ had the decision been his alone, and felt comfortable being held at the berth by two tugs.

 

Summary

Overall, the decision has created confusion in the mind of those who routinely trade with Japan (and indeed other ports worldwide) and those who assess the risks associated with this trade.

It leaves the allocation of responsibility relating to decisions previously described as navigational in nature (thus the responsibility of the Master) and Port orders/recommendations (which the Master can obey or follow in the context of his navigational responsibilities) blurred and unclear.

It is also unhelpful for the development of the law concerning the material safety of modern ports for the court to have been so dismissive of a separate House of Lords decision at odds with its own findings. The Evia (No. 2) (even the Court of Appeal decision which was approved by the House of Lords) remains good law. Was the learned judge right in reading it as being at odds with, and detracting from the clarity of the test formulated in the Eastern City?  It is suggested that further clarification is needed sooner rather than later on the above issues.

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