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Federal Court of Australia - Full Court Decisions |
Last Updated: 4 June 2007
FEDERAL COURT OF AUSTRALIA
C V Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Limited [2007] FCAFC 77
SHIPPING AND NAVIGATION – carriage of goods by sea –
liability for damage to steel coils by corrosion before or during voyage –
effect of amended
Hague Rules as defined in s 7 of Carriage of Goods by
Sea Act 1991 (Cth) – whether vessel unseaworthy for voyage from
northern winter to southern hemisphere summer because not fitted with
dehumidifiers
– seaworthiness – cargoworthiness – whether
carriers established exercise of due diligence – whether carrier
failed to
carry, keep and care for coils properly and carefully – effect of
ventilation of non-hygroscopic cargoes during voyage
– application of dew
point rule – whether packaging of steel coils sufficient – effect of
evidence of standard
industry practice of wrapping steel coils – whether
carriers established inherent defect, quality or
vice.
Carriage
of Goods by Sea Act 1991 (Cth) ss 7,
17
AE Reed & Co Ltd v Page Son &
East Limited [1927] 1 KB 743 cited
Albacora S.R.L. v Westcott
and Laurance Line Ltd [1966] 2 Lloyd’s Rep 53 considered
BHP
Trading Asia Ltd v Oceaname Shipping Ltd (1996) 67 FCR 211
cited
Burges v Wickham (1863) 3 B & S 669 cited
El Greco
(Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] FCAFC 202
cited
Eridania S.p.A. v Rudolf A Oetkeer (The ‘Fjord Wind’)
[2000] 2 Lloyd’s Rep 191 cited
F C Bradley & Sons Ltd
v Federal Steam Navigation Co Ltd (1926) 24 Ll. L. Rep 446
cited
FC Bradley & Sons Ltd v Federal Steam Navigation Co Ltd
(1927) 27 Ll. L. Rep 395 discussed
Gamlen Chemical Co (A’Asia)
Pty Ltd v Shipping Corporation of India Ltd [1978] 2 NSWLR 12
referred to
GH Renton & Co v Palmyra Trading Corporation of Panama
[1957] AC 149 cited
Grand Champion Tankers Ltd v Norpipe A/S
(The Marion) [1984] 1 AC 563 cited
Great China Metal Industries
Co Ltd v Malaysian International Shipping Corporation Berhad [1998] HCA 65; (1998) 196 CLR
161 applied
Huddart Parker Ltd v Cotter [1942] HCA 34; (1942) 66 CLR 624
cited
Maxine Footwear Co Ltd v Canadian Government Merchant Marine Ltd
[1959] AC 589 cited
McFadden v Blue Star Lines Ltd [1905] 1 KB
697 referred to
Mitsui & Co Ltd v Novorossiysk Shipping Co
(‘The Gudermes’) [1991] 1 Lloyds Rep 456
cited
Northern Shipping Co v Deutsche Seereederei G.m.b.H. (The
‘Kapitan Sakharov’) [2000] 2 Lloyd’s Rep 255
cited
Owners of Cargo on Ship ‘Maori King’ v Hughes [1895]
2 QB 550 cited
Papera Traders Co Ltd v Hyundai Merchant Marine Co
Ltd (The ‘Eurasian Dream’) [2002] 1 Lloyd’s Rep 692
cited
Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd
[1961] AC 807 cited
Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479
cited
Sanko Steamship Co Ltd v Sumitomo Australia Ltd (No 2) (1995)
63 FCR 227 cited
Shipping Corporation of India Ltd v Gamlen Chemical Co
(A’Asia) Pty Ltd [1980] HCA 51; (1980) 147 CLR 142 questioned
Silver
v Ocean Steam Ship Co [1930] 1 KB 416 considered
Steel v State Line
Steamship Co (1877) 3 App Cas 72 cited
Tattersall v National
Steamship Company Limited (1884) 12 QBD 297 cited
The Benlawers
[1989] 2 Lloyd’s Rep 51 cited
The Good Friend [1984]
2 Lloyd’s Rep 586 cited
The TJ Hooper v Northern Barge
Corporation 60 F2d 737 (CA2: 1932) cited
Wabash Railway Co v
McDaniels 107 US 454 (1882) cited
Waterwell Shipping Inc v HIH
Casualty & General Insurance Ltd (1997) Aust Torts Reports SS81-444
cited
Boyd SC and Burrows AS, Scrutton on Charterparties and Bills of
Lading (20th ed, Sweet & Maxwell, 1996)
Sparks A, Steel
Carriage by Sea (4th ed, MPG Books Ltd,
2003)
Tenterden’s Law of Merchant Ships (11th ed,
Shaw & Sons, 1867, edited by Shee J)
Treitel G and Reynolds FMB,
Carver on Bills of Lading (Sweet & Maxwell,
2001)
C
V SHEEPVAARTONDERNEMING ANKERGRACHT v STEMCOR (A/SIA) PTY LIMITED AND TSUDA
CORPORATION
NSD 23 OF 2006 and
C V
SHEEPVAARTONDERNEMING ARCHANGELGRACHT v STEMCOR (A/SIA) PTY LIMITED AND TSUDA
CORPORATION
NSD 24 OF 2006
RYAN, DOWSETT AND RARES
JJ
31 MAY 2007
SYDNEY
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IN THE FEDERAL COURT OF AUSTRALIA
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IN ADMIRALTY
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AND:
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DATE OF ORDER:
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WHERE MADE:
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THE COURT ORDERS THAT:
1. Subject to any further or other order as to the costs of the proceedings at first instance, the appeal be dismissed.
2. The appellant file and serve within seven days of this day its submissions in writing in respect of the orders which it contends, in light of the reasons published today, should be made as to the costs of the proceedings at first instance and of the appeal.
3. The respondents file and serve, within three days after receipt by it of the submissions referred to in paragraph 2 of this Order, any written submissions upon which it relies in response to those submissions.
4. The appellant file and serve, within one day of the receipt by it of the submissions referred to in paragraph 3 of this Order, any submissions in reply.
5. The appeal stand over to a date to be fixed for the making of orders as to the costs of the proceedings at first instance and of the appeal.
Note: Settlement and entry of orders is
dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA
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NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
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NSD 24 OF 2006
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT
Appellant |
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AND:
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STEMCOR (A/SIA) PTY LIMITED
First Respondent TSUDA CORPORATION Second Respondent |
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JUDGES:
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RYAN, DOWSETT AND RARES JJ
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DATE OF ORDER:
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31 MAY 2007
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WHERE MADE:
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SYDNEY
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THE COURT ORDERS THAT:
1. Subject to any further or other order as to the costs of the proceedings at first instance, the appeal be dismissed.
2. The appellant file and serve within seven days of this day its submissions in writing in respect of the orders which it contends, in light of the reasons published today, should be made as to the costs of the proceedings at first instance and of the appeal.
3. The respondents file and serve, within three days after receipt by it of the submissions referred to in paragraph 2 of this Order, any written submissions upon which it relies in response to those submissions.
4. The appellant file and serve, within one day of the receipt by it of the submissions referred to in paragraph 3 of this Order, any submissions in reply.
5. The appeal stand over to a date to be fixed for the making of orders as to the costs of the proceedings at first instance and of the appeal.
Note: Settlement and entry of orders is
dealt with in Order 36 of the Federal Court Rules.
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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C V SHEEPVAARTONDERNEMNING ANKERGRACHT
Appellant |
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AND:
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STEMCOR (A/SIA) PTY LIMITED
First Respondent TSUDA CORPORATION Second Respondent |
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IN THE FEDERAL COURT OF AUSTRALIA
|
|
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NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
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NSD 24 OF 2006
|
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT
Appellant |
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AND:
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STEMCOR (A/SIA) PTY LIMITED
First Respondent TSUDA CORPORATION Second Respondent |
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JUDGES:
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RYAN, DOWSETT AND RARES JJ
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DATE:
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31 MAY 2007
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
1 This is an appeal from orders made by Emmett J on 16 December 2005. The two proceedings before the learned primary Judge turned on liability for corrosion damage to coils of sheet steel in the course of their carriage by sea on two voyages from Japan to Australia. In both proceedings, the second plaintiff was Tsuda Corporation ("Tsuda"), the shipper of the coils which had been consigned to the first plaintiff ("Stemcor"). Save where the context otherwise indicates, we will refer collectively to those parties (now the respondents) as "Stemcor". The first voyage was undertaken by the M.V. Ankergracht 91262 and the second by the M.V. Archangelgracht 91273. The defendants in the proceeding (now the appellants) were the respective owners of those vessels, C.V. Sheepvaartonderneming Ankergracht ("Ankergracht") and CV Sheepvaartonderneming Archangelgracht ("Archangelgracht"). We will refer to those parties collectively as "the Carriers". Each had issued a bill of lading in respect of the coils carried on its vessel.
2 It was common ground that the steel coils were damaged as the result of corrosion caused by contact with water before or during the relevant voyage and that the carriage of the steel coils was governed by the provisions of the amended Hague Rules as defined in s 7 of the Carriage of Goods by Sea Act 1991 (Cth) ("the amended Hague Rules"). Stemcor relied on a breach by the Carriers of those Rules. The Carriers, for their part, relied on exempting provisions of the same Rules.
THE GOVERNING RULES AND LEGISLATION
3 The relevant provisions of the amended Hague Rules are in these terms;
‘ARTICLE 1
1. In these Rules, the following words are employed, with the meanings set out below:-
(a) "Carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper.
...
ARTICLE 2
1. Subject to the provisions of this Article and Articles 6 and 6A, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities, set out in these Rules.
2. For paragraph 1 of this Article, "goods" includes goods (except live animals) carried on or above deck.
3. However, if the shipper has specific stowage requirements for goods carried on or above deck, then, for paragraph 1 of this Article to apply, the shipper must tell the carrier in writing of those requirements at or before the time of booking the cargo.
4. Despite Article 4bis, if a carrier carries goods on or above deck contrary to an express agreement with the shipper of the goods made at or before the time of booking the cargo, then, for any loss or damage to the goods that results solely from the goods being carried on or above deck, the carrier is not entitled:
(a) to any exception or exemption under these Rules; or
(b) to any limit provided by these Rules to its liability for the loss or damage.
[NOTE: Article 6A allows a shipper and a carrier to agree that these Rules do not apply to certain kinds of cargo that must be carried on deck--see that Article.]
ARTICLE 3
1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to--
(a) Make the ship seaworthy.
(b) Properly man, equip and supply the ship.
(c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.
2. Subject to the provisions of Article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
...
ARTICLE 4
1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, and to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation in accordance with the provisions of paragraph 1 of Article 3. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this article.
2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from--
...
(m) Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods.
(n) Insufficiency of packing.
...
(q) Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.
5.
...
(b) The total amount recoverable shall be calculated by reference to the value of such goods at the place and time at which the goods are discharged from the ship in accordance with the contract or should have been so discharged.
The value of the goods shall be fixed according to the commodity exchange price, or, if there be no such price, according to the current market price, or, if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality.’
4 Section 17 of the Carriage of Goods by Sea Act 1991 ("COGSA") provides:
‘There is not to be implied in any contract for the carriage of goods by sea to which Part 2 or 3 of this Act applies any absolute undertaking by the carrier of the goods to provide a seaworthy ship.’
THE CONCLUSIONS AT FIRST INSTANCE
5 In each proceeding the learned primary Judge held the relevant carrier to be liable for the corrosion damage occasioned to the coils in the course of the voyage from Japan to Australia. His Honour’s findings were expressed at [156] to [161] as follows:
‘156 It is true that the packaging of the coils was not such as would prevent the ingress of water in the form of vapour. However, the coils were packaged in a way that is regarded as adequate in the industry, and in a manner consistent with the general practice in the industry. There was no evidence of any industry practice of wrapping coils in a way that ensures there is no possible ingress of water in the form of vapour or otherwise. The evidence does not support a finding that the internal wrapping was defective or inadequate in any way.
157 The coils were being transported from a cold northern hemisphere climate to a hot southern hemisphere climate, through the tropics. While the coils were particularly susceptible to damage from corrosion consequent upon contact with water and the Carriers were not specifically informed of any particular sensitivity of the coils, the sensitivity of steel to corrosion generally was well known in the industry.
158 I consider that it is more likely than not that the holds were closed in Yokohama with water trapped inside in the form of wet dunnage and liquid water on some cargoes that were wet with rain. Further, ventilation occurred during the course of the voyages, at times when the vessels were likely to have been in the tropics. Ventilation probably resulted in the ingress of air containing water vapour rather than the removal of water vapour from the holds.
159 I consider that, on the balance of probabilities, condensation occurred after the loading of the coils on each vessel and during the course of the respective voyages of the vessels. That condensation resulted in corrosion. The corrosion could not have occurred if moisture had not been admitted into the holds or if moisture, once admitted, had been removed by the operation of a dehumidification system installed in the vessels. Alternatively, condensation could have been prevented by the operation of a heating system installed on the vessels to ensure that the surface temperature of the coils did not fall below the dew point temperature of the air in the holds.
160 In the circumstances, I consider that the corrosion was caused by the failure on the part of the Carriers to carry, keep and care for the coils properly and carefully during the voyages in circumstances where the vessels had neither dehumidification systems nor heating systems installed. In the circumstances, having regard to the apparent difficulty in preventing the ingress of water into the holds in the ways that I have described, the vessels were not seaworthy for the carriage of the coils in question from Yokohama to Sydney on voyages commencing in December and February respectively. Since it was practicable to install dehumidifiers in the vessels, the Carriers failed to exercise due diligence to make the ships seaworthy and to make the holds fit and safe for the carriage and preservation of the coils.
161 It follows that the Carriers are responsible for the corrosion damage that was occasioned to the coils and Stemcor is entitled to be compensated for that damage.’
6 These shipments were amongst the first shipments to Australia from Japan during the Northern Hemisphere winter. The particular problem experienced in such voyages is that as ships approach the equator, increases in heat and humidity are likely to facilitate condensation.
7 A critical issue was in what circumstances the coils came into contact with water, either as liquid or vapour. The coils were manufactured at Tsuda’s Taijo mill for Stemcor. Stemcor sold them to Australian Colour Coaters Operations Pty Ltd ("ACC"). The coils were lightly oiled and wrapped on the day of manufacture. The method of wrapping was quite complex and is described in detail in his Honour’s reasons. For present purposes it is sufficient to say that each coil was wrapped in kraft paper and then enclosed in an individual steel casing. His Honour found that the coils had not become wet whilst at the mill. From the mill they were taken by barge to Yokohama for loading onto the relevant vessels.
8 The Ankergracht consignment was manufactured on 19, 21, 23 and 28 October and 6 and 7 November 2001 and loaded onto that vessel on 9, 10, 12 and 13 November 2001. On 9, 10 and 12 November 2001 loading was stopped because of rain. The practice was to close the hatches when it began to rain, that process taking between fifteen and twenty minutes. In addition to the coils, other steel cargo was loaded at Yokohama. Emmett J concluded that some of the coils and other cargo had been loaded when wet. The Ankergracht also used timber as dunnage, that is to separate items in the hold. It is possible that such timber was also wet when taken on board. The Ankergracht sailed from Yokohama on 13 November 2001, arriving in Brisbane on 26 November and in Sydney on 29 November 2001. The coils were then transported to ACC’s premises where some were found to have suffered corrosion damage.
9 The coils shipped on the Archangelgracht were produced at the Taiyo mill on 28 December 2001 and 9, 10 and 11 January 2002. They were despatched from the Taiyo mill on 15 January 2002. The Archangelgracht arrived at Yokohama on 16 January 2002 and was loaded between 16 and 18 January 2002. The cargo included other steel items in addition to the steel coils. The coils were loaded onto the Archangelgracht on 17 and 18 January 2002. Some cargo was loaded wet, but there was no evidence that the coils were wet when loaded. There was evidence of sweating inside pipes which formed part of the cargo. The Archangelgracht then sailed to Kobe where it loaded further cargo, some of which was wet. Dunnage was also used. It may also have been wet. The Archangelgracht arrived in Brisbane on 9 February 2002 and in Sydney on 13 February 2002. The coils were transported to ACC where some were found to be damaged by corrosion.
10 Clearly, there was water in the hold of each vessel on sailing from Yokohama. Additional water probably entered the hold of Archangelgracht in Kobe. His Honour found that additional water also probably entered the hold of each vessel as a result of ventilation during its voyage to Australia.
11 At the trial a further issue was whether, particularly in the case of the Ankergracht, the corrosion had been caused by water in liquid form penetrating the wrapping and coming into contact with the coils, as opposed to penetrating the wrapping in the form of water vapour. Emmett J concluded that the corrosion had occurred as the result of water vapour penetrating the wrapping. In so finding his Honour acted upon the evidence of Professor Jones, a person of substantial relevant experience. He was not cross-examined. We do not understand the Carriers to challenge that finding. As appears from para 10 of their outline, their case on appeal depended upon the damage being attributable to condensation. We proceed upon the basis that the cause of the corrosion was water condensation on the coils.
12 Article 3 r 1 focuses on the condition of the relevant vessel before, and at the beginning of, the voyage, whilst Art 3 r 2 focuses on the carrier’s conduct before, during and after the voyage. It follows that, in assessing seaworthiness and the conduct of the Carriers, it may be necessary to determine, if possible, the stage or stages at which water entered the hold of each vessel. His Honour accepted the evidence of Dr Bellstedt that condensation probably did not occur before, or immediately after, loading and before sailing, and that it therefore occurred during each voyage. We do not understand this finding to be challenged.
13 Emmett J identified the mechanism by which water vapour might enter the hold during ventilation. Each vessel had ventilation fans mounted forward and aft. There was evidence that, if there were water in the hold, the ventilators might be operated so as to remove moisture. However Emmett J found that such operation might actually introduce additional moisture. At [117] his Honour said:
‘It is common practice to ventilate the holds of vessels. That ventilation involves the opening of vents to allow the ingress of air from the atmosphere. That air will have the characteristics of the ambient temperature and humidity of the atmosphere at the time and place of ventilation. Thus, where the air outside the holds is more humid than the air in the hold, the humidity in the hold could be increased. Conversely, if the air outside the hold is drier than that inside the hold, the level of humidity may be reduced. Further, where the
air outside the hold is warmer than that (inside) the hold, the temperature of the air in the hold may be increased by ventilation and, conversely where the temperature of the air outside the hold is colder than that inside, the temperature of the air in the hold may be reduced by ventilation. Having regard to the relationship between air temperature and humidity, ventilation is capable of causing condensation on colder items within the hold.’
14 At [124] his Honour said:
‘Ventilation occurs only where the dew point of the air outside the hold is lower than the dew point of the air inside. The corollary is that there is no ventilation where the dew point of the air outside the hold is higher than the dew point of the air inside the hold. That principle is referred to as "the dew point rule".’
15 Emmett J accepted that there was a practice of ventilating cargo holds during voyages, applying the dew point rule. However, his Honour also found that, because of the difficulty in measuring the temperature of all cargo, that rule offered only an approximate estimate of the suitability of prevailing conditions for ventilation. For this reason, as Emmett J observed, ‘It is standard practice in the shipment of steel from cold to warmer climates not to ventilate the hold.’
Article 3 Rule 1
16 Emmett J concluded that given the susceptibility of steel coils to corrosion if exposed to water, each vessel was unseaworthy because it had no dehumidifiers to remove water which might enter the hold on cargo or dunnage or in the form of rain, which entry ought to have been foreseen. His Honour also found that, in failing to fit dehumidifiers, the Carriers had failed to exercise due diligence to make their respective vessels seaworthy.
Article 3 Rule 2
17 Emmett J held that, given the known sensitivity of the coils to moisture and the absence of a dehumidification system, the admission of water into the hold in the course of ventilation was a failure to carry, keep and care for the coils properly and carefully.
Article 4 Rule 2
18 In their defences, the Carriers sought to rely on a number of the exclusions contained in Art 4 r 2, particularly that the loss or damage arose or resulted from the following incidents identified in that rule:
Act or omission of the shipper or owner of the goods, his agent or representative;
Insufficiency of packing;
Inherent defect, quality or vice of the goods; and
Any other cause arising without the actual fault or privity of the carrier, or fault or neglect of the agents or servants of the carrier.
19 The Carriers provided particulars of these defences. In effect they alleged deficiencies in wrapping permitting the entry of moisture and that the coils were wet when delivered for loading. In the so-called particulars it was also alleged that ventilation had only occurred when and where it was appropriate.
GROUNDS OF APPEAL
20 Each of the Carriers appeals. The grounds of appeal in proceedings numbered NSD 24 of 2006 are set out in a notice of appeal dated 5 January 2006 and are repeated in identical terms in the notice of appeal in proceedings NSD 25 of 2006. They are:
‘1. His Honour erred by failing to hold that the damage to the coils carried on the ship was caused by cargo sweat.
2. His Honour erred by failing to hold that the packaging of the steel coils was insufficient to prevent cargo sweat.
3. His Honour erred by failing to hold that there was no breach of Article 3 Rule 1 of the Hague Visby Rules.
4. His Honour erred by failing to hold that there was no breach of Article 3 Rule 2 of the Hague Visby Rules.
5. His Honour should have held that there was no industry practice proved for shipment of the cargo as packaged being adequate.
6. His Honour erred by holding that the want of a dehumidification system established a breach of the said Rules.
7. His Honour erred in holding that the carrier was required to prevent cargo sweat.
8. His Honour erred by taking into account both vessels in determining whether the carrier was in breach of the said Rules.
9. His Honour erred by taking into account the contract between Spliethoff and Stemcor in determining whether the carrier was in breach of the said Rules.
10. His Honour erred by taking into account the want of description as to the unchromated and un-passivated state of the coils in determining whether the carrier was in breach of the said Rules.
11. His Honour erred by taking into account a posed erroneous essential question as to the competing assumptions in determining whether the carrier was in breach of the said Rules.
12. His Honour erred by taking into account an irrelevant consideration as to operation of PAS vessels since 2003 in determining whether the carrier was in breach of the said Rules.
13. His Honour erred by taking into account the wet dunnage and liquid water on some cargoes in determining whether the carrier was in breach of the said Rules.
14. His Honour erred by taking into account that condensation may have been prevented by the installation of a heating system in determining whether the carrier was in breach of the said Rules.
15. His Honour erred in holding that ventilation resulted in the ingress of water vapour rather than the removal of water vapour.
16. His Honour erred in holding that it is standard practice not to ventilate the hold from cold to warmer climates.
17. His Honour erred by failing to take into account that the ventilation by the carrier was in accordance with usual practice and good practice in determining whether the carrier was in breach of the said Rules.
18. His Honour erred in holding that because the criteria for determining when to ventilate is not precise that [sic] the question of installation of a dehumidification system is critical.
19. His Honour erred in law by imposing a standard of precision and perfection in determining whether in breach of the said Rules [sic].
20. His Honour erred by taking into account the wrong test of whether installation of a dehumidification system was reasonably practicable in determining whether the carrier was in breach of the said Rules.
21. His Honour should have held that balancing of competing interests was reflected in the provisions of the Hague Visby Rules and that installation of airconditioning in the form of dehumidification by the carrier was not a want of due diligence within Article 3 Rule 1, was not reasonably practicable and did not render the vessel unseaworthy within the said Rule.
22. His Honour erred by taking into account an erroneous test that the Court must strive to pursue a middle ground between requiring ideal protection of stowage on the one hand, and tolerating a flagrant disregard for the safety of the cargo on the other.
23. His Honour erred in failing to hold that packaging that did not protect the coils against exposure to water vapour in the air was insufficient.
24 His Honour erred in holding that damage resulted from unseaworthiness.
25. His Honour erred in taking into account the moisture pervious packaging of the coils in question in determining whether the vessel was unseaworthy within Article 3 Rule 1.
26. His Honour erred in taking into account that the vessel did not have a dehumidification system in determining whether the vessel was unseaworthy within Article 3 Rule 1.
27. His Honour erred by failing to take into account that the vessel was fit to carry the coils that arrived undamaged in determining whether the vessel was unseaworthy within Article 3 Rule 1.
28. His Honour erred by failing to hold that the vessel was fit for the nature of the intended voyage and accordingly seaworthy within Article 3 Rule 1.
29. His Honour erred by taking into account prevention of cargo sweat damage in determining whether the vessel was seaworthy within Article 3 Rule 1.
30. His Honour erred by taking into account fitness to carry the particular cargo in determining whether the vessel was seaworthy within Article 3 Rule 1.
31. His Honour erred in holding that the carrier had not exercised due diligence before and at the beginning of the voyage to make the holds fit and safe for the reception, carriage and preservation of the cargo within Article 3 Rule 1 for want of a dehumidification system.
32. His Honour erred in holding that the carrier had not exercised due diligence before and at the beginning of the voyage to properly equip and supply the ship within Article 3 Rule 1 for want of installation of a dehumidification system.
33. His Honour should have held that in the light of the date of arrival for loading, date of issue of mates receipt and bills of lading and need for re-class surveying the vessel to install in the holds a dehumidification system together with the consequential modifications to structure and equipment as well as space, acquisition, running, maintenance costs and downtime, such installation steps were not required in the exercise of due diligence before and at the beginning of the voyage and were not steps required by industry standards, were not steps that were necessary, were not steps that were practicable and were not reasonable steps in respect of the obligations imposed by Article 3 Rule 1.
34. His Honour should have held that the carrier exercised due diligence before and at the beginning of the voyage to make the vessel seaworthy.
35. His Honour erred by taking into account knowledge that the coils are sensitive to moisture and the absence of a dehumidification system in determining whether the carrier was in breach of Article 3 Rule 2.
36. His Honour erred in holding that the admission of water vapour into the holds during the course of the voyage was a breach of Article 3 Rule 2.
37. His Honour erred by failing to take into account the packaging of the kind used subsequent to the consignments in question by Stemcor, as adopted by Tsuda and the additional plastic wrapper practice deposed to by Captain Pyett.
38. His Honour erred in rejecting the evidence of Captain Pyett as to the inadequacy of the packaging.
39. His Honour erred by failing to give reasons identifying the evidence preferred and for rejecting the evidence of Captain Pyett as to the inadequacy of the packaging.
40. His Honour should have held that the carrier was not responsible for the damage because it arose or resulted from insufficiency of packaging under Article 4 Rule 2(n).
41. His Honour should have held that the carrier was not responsible for the damage because it arose or resulted from inherent sweating vice of the cargo as packaged and loaded in Winter in Japan under Article 4 Rule (2)(m).
42. His Honour erred in holding that reliance upon Article 4 Rule 2 (m) does not go beyond Rule 2(n).
43. His Honour should have held that the carrier was not responsible for the damage because it arose or resulted without any actual fault or privity of the carrier within Article 4 Rule 2(q).
44. His Honour erred in holding that the carriers were responsible for the corrosion damage and consequentially in awarding damages and costs to the plaintiffs.’
21 In each appeal the relevant carrier contends that the appeal should be allowed, the orders made below be set aside and in lieu thereof there be judgment for that carrier. Consequential orders are also sought as to the costs of the appeal and the proceedings at first instance.
CARRIERS’ SUBMISSIONS
22 The Carriers submitted that, in finding them liable for the damage to Stemcor’s coils, his Honour, although correctly acknowledging that Art 3 r 1 of the amended Hague Rules does not impose an absolute obligation on a carrier, applied that rule as absolutely obliging the Carriers to prevent the introduction of water vapour or moisture to the holds during ventilation. It was further submitted that the learned primary Judge had construed Art 3 r 2 without regard to the balance found in Art 4 r 2 and, in assuming that the Carriers should have installed systems of dehumidification, had applied the relevant amended Hague Rules as imposing such an absolute duty on them.
23 In the Carriers’ submission, the imposition of an absolute standard was also reflected in the question posed by the learned primary Judge at the outset of his reasons where his Honour observed, at [8]:
‘It is common ground that the steel coils were damaged as a result of corrosion resulting from contact with water before or during the course of the voyages. The steel coils in question were particularly prone to corrosion from contact with water. There is a dispute as to the mechanism whereby water entered the packaging around the coils. The essential question, however, is whether the Carriers were entitled to assume that the packaging of the steel coils was such that water in any form could not penetrate the packaging, or whether Tsuda and Stemcor were entitled to assume that there would not be sufficient water in any form, either as liquid or vapour, in the holds of the vessels for condensation to occur on the coils. That, in turn, raises questions as to whether Tsuda adopted a method of packaging the steel coils that was usual in the industry and as to the usual practice of carriers of steel coils of the nature of the coils in question.’
24 That identification of ‘two competing and contradictory assumptions’ was said to be consistent with the application of an absolute standard as was his Honour’s reasoning that the absence of a dehumidification system constituted a breach of both Art 3 r 1 and Art 3 r 2. According to Counsel for the Carriers, his Honour effectively held them liable for not converting their single hold general cargo ships to air conditioned cargo carriers on the assumption that a part of the general cargo shipped on board (Stemcor’s coils) would not have sufficient packing to withstand ordinary "cargo sweat" on the intended voyage from the cold northern hemisphere across the equator to Australia.
25 The Carriers next submitted that the decision in Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad [1998] HCA 65; (1998) 196 CLR 161 at [27] and s 17 of the Carriage of Goods by Sea Act 1991 (Cth) demonstrate that the obligation to ensure due diligence is not absolute. Those authorities preclude the conflation of seaworthiness with cargoworthiness; see also The Good Friend [1984] 2 Lloyd’s Rep 586 at 591-2 and The Benlawers [1989] 2 Lloyd’s Rep 51 at 59-60. In a related way the Carriers contended that the absence of evidence that dehumidifiers were installed in conformity with an industry practice or standard, combined with the findings at first instance of proper practice in the ventilation of the holds, and proper maintenance and correct operation of the hatches, meant that there had been no breach of Art 3 r 1 or r 2. The Carriers submitted that in the absence of a proven breach of Art 3 no issue arose under Art 4 (see Great China Metal at [52]).
26 The Carriers submitted that the concept of ‘... before and at the beginning of the voyage ...’ in Art 3 r 1 covers the whole of the period from at least the beginning of loading until the beginning of the voyage: Maxine Footwear Co Ltd v Canadian Government Merchant Marine Ltd [1959] AC 589 at 603. It was contended that ‘this concept implies a practical stage and practical content in discharging the obligation imposed by Art 3 r 1’. In the Carriers’ submission, the suggestion that each ship’s ventilation system should be re-designed, delaying loading, so as to have an air conditioned vessel does not sit comfortably with the concept of a practical "stage" or "content" and assumed a duty well beyond due diligence approximating the common law duty of care: GH Renton & Co v Palmyra Trading Corp of Panama [1957] AC 149 at 166. In the Carriers’ submissions, the concept of due diligence merely imposed on the Carriers a non-delegable duty of care: Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807 at 845, 862, 869, 878-9.
27 The Carriers submitted that, in conformity with generally accepted principles of construction of the amended Hague Rules, they should be applied by national courts in a way which achieves an allocation of risks between cargo and carrier interests which is, as far as possible, uniform: Great China Metal at [38]; El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] FCAFC 202, at [142]-[144]. In the Carriers’ further submission, the learned primary Judge imposed on them liability for permitting the entry of water vapour during the voyage by applying a standard which, if correct, would render superfluous Art 4 r 2(n). The liability imposed by his Honour in this case is said to be destructive of the accepted allocation of the risk by recognising, in effect, an absolute duty on the Carriers which does the opposite of advancing uniformity.
28 Counsel for the Carriers also asserted that the interpretation of the amended Hague Rules favoured by his Honour ignores the absence of the definite article preceding "goods" in Art 3 r 1(c) and is destructive of the balance between shipowners’ and cargo interests sought to be struck by the exceptions in Art 4 r 2. If a shipowner is to be absolutely liable for permitting water vapour to penetrate cargo during a voyage, so the argument went, there would be no need for Art 4 r 2. In other words, the primary Judge’s approval would allow adherence to industry practice governing packaging to shift the loss from cargo interests, but would not allow adherence to proper practice as to hatch covers and ventilation similarly to exculpate a shipowner.
29 The effective cause of the corrosion of the coils, according to the Carriers, was "cargo sweat" which was said to be an inevitable consequence of voyages such as those in question. There was no evidence, and no finding that there was water in liquid form in the hold of either vessel prior to loading. Accordingly, if water penetrated the cargo as a result of its being loaded when wet, or as a result of water vapour entering the hold in the ambient atmosphere, neither event was attributable to unreasonable conduct on the part of the Carriers.
30 Emmett J was said to have erred in posing the alternative questions whether Stemcor was entitled to assume that there would be insufficient water present in each hold to permit condensation to occur, or whether the Carriers were entitled to assume that the wrapping was sufficient to prevent penetration by water in any form. This was said to illustrate an error of construction in that the amended Hague Rules required a shipowner only to exercise due diligence which approximates to the common law duty of care and is a concept imported into the Rules to make it clear that a carrier’s duty is non-delegable. The duty was discharged in the present case by ventilating by reference to a calculated dew point in the hold of each vessel.
31 Another illustration of the same error was said to be his Honour’s characterisation of each vessel as unseaworthy because of the absence of dehumidifiers. That evinced a "cargo specific" approach which substituted a notion of "cargo-worthiness" for "seaworthiness". The correct test, according to the Carriers, is whether a reasonably diligent shipowner would have installed a dehumidifier. A similar error was imputed to his Honour’s treatment of the operation of the ventilation system on the vessels. That was found to be consistent with ‘both usual practice and good practice.’. Nevertheless, the learned primary Judge went on to hold, at [116] that:
‘If the ventilators were operated in a fashion that permitted the ingress of further moisture, there was a failure to carry, keep and care for the coils properly and carefully.’
32 A cognate criticism was made of his Honour’s conclusion, at [128] of his reasons that:
‘Because of the imprecision of the criteria for determining when to ventilate and when not to ventilate, the question of installation of a system of dehumidification is critical.’
33 The existence of such imprecision was said not, of itself, to justify imposition of a standard of reasonableness upon a shipowner. Likewise, it is said to be a misapplication of Art 3 r 1 and r 2 to suggest that, when the coils were known to be sensitive to moisture, an obligation was necessarily cast on the Carriers to install a dehumidifier. Conversely, the learned primary Judge should have held that the penetration of moisture through the packaging of the coils afforded the Carriers, in the absence of negligence, a defence under Art 4 r 2(n).
34 Counsel for the Carriers suggested that his Honour had restated the same erroneous formulation of "the real issue" referred to at [30] above when he said, later in the reasons, at [146]:
‘It is apparent that the method of packaging employed by Tsuda, while in accordance with usual practice, was not such as would prevent the entry of water vapour in the air. The real issue in relation to the question of adequacy of packaging is whether, having regard to the nature of the steel, the packaging was required to be such that water vapour could not enter through it, or whether the packaging was sufficient if it was adequate to prevent the entry of loose water from external wetting, the burden being imposed upon the carrier to ensure that the conditions of carriage were such that water vapour in the air, which might infiltrate the outer and inner packaging, would not condense on the steel coils. Putting it another way, the question is whether the shipper was entitled to rely on the carrier to ensure that the conditions under which carriage was to occur would preclude condensation of water vapour in the air, or whether the carrier was entitled to assume that the packaging was such as to preclude the ingress of water vapour through the packaging.’
35 The Carriers claimed that there was a clear finding that the ingress of moisture to the coils had been permitted. That was said to entail a finding that the packaging was insufficient, and that his Honour was therefore in error in holding that the evidence did not support that conclusion. Reference was made in this context to the evidence of Captain Pyett which, it was said, should not have been regarded as inconsistent with that of Professor Jones, which evidence his Honour preferred. That preference, Counsel for the Carriers asserted, was inconsistent with the finding that the ingress of water to the coils had been permitted. Moreover, it was based on the imposition of an unspecified standard. The conclusion which his Honour should have reached was that, ‘(Stemcor) knew that their cargo was highly susceptible to corrosion being un-passivated and unchromated whereby packaging for the intended cargo should have prevented the known and foreseeable entry of moisture through inevitable cargo sweat.’ In essence, the Carriers contended that, in the absence of affirmative evidence that the packaging actually used conformed with general practice or accepted standards in the industry, the fact that water vapour permeated the packaging which had been used proved that the packaging was insufficient for the intended voyage within the meaning of Art 4 r 2(n). The capacity to travel safely is part of the order and condition of the goods and was lacking because of the insufficiency of the packaging which was not apparent to the Carriers on the face of the goods: see Silver v Ocean SS Co [1930] 1 KB 416 at 441.
36 The Carriers asserted that the findings at [158] of the reasons below did not support a conclusion that there had been a breach of Art 3 of the amended Hague Rules. His Honour there said;
‘I consider that it is more likely than not that the holds were closed in Yokohama with water trapped inside in the form of wet dunnage and liquid water on some cargoes that were wet with rain. Further, ventilation occurred during the course of the voyages, at times when the vessels were likely to have been in the tropics. Ventilation probably resulted in the ingress of air containing water vapour rather than the removal of water vapour from the holds.’
37 Similarly, the finding on the balance of probabilities at [159] was said to be consistent only with "cargo sweat." That paragraph recites:
‘I consider that, on the balance of probabilities, condensation occurred after the loading of the coils on each vessel and during the course of the respective voyages of the vessels. That condensation resulted in corrosion. The corrosion could not have occurred if moisture had not been admitted into the holds or if moisture, once admitted, had been removed by the operation of a dehumidification system installed in the vessels. Alternatively, condensation could have been prevented by the operation of a heating system installed on the vessels to ensure that the surface temperature of the coils did not fall below the dew point temperature of the air in the holds.’
The references there to dehumidification and a heating system were criticised as reflecting the adoption of an absolute standard not imposed by the amended Hague Rules. Moreover, the speculation about heating was not supported by evidence and took no account of the variable effects which heating would have on the carriage, discharge or other handling of different categories of cargo in the hold of each vessel.
38 Finally, it was contended on behalf of the Carriers that the learned primary Judge should have found that any negligence which might have been attributed to either Carrier within Art 4 r 2(q) of the amended Hague Rules had not caused the damage suffered by Stemcor. His Honour had not addressed this matter which was pleaded in the defence of each Carrier. The cause of damage identified in the passage quoted above was not due to any want of reasonable care on the part of the Carriers.
STEMCOR’S SUBMISSIONS
39 Counsel for Stemcor focused on the primary Judge’s findings that water had entered the holds of the vessels during cargo loading and was present on loaded cargo, timber packaging and dunnage. That was said to make it "virtually inevitable" that condensation would occur during each voyage from Japan to Sydney. This meant that, in contravention of Art 3 r 1, neither vessel was seaworthy before the voyage. Since the damage to the goods had been caused by condensation during the voyage, the Carriers had failed to show due diligence as required by Art 4 r 1 because they had failed to take reasonably practicable steps to make the holds fit and safe for the carriage of the goods. That made it unnecessary for the primary Judge to consider sufficiency of packaging or any other issue relevant to the exceptions or immunities stipulated in Art 4 r 2.
40 Stemcor also submitted that his Honour held that the steel coils had been packed in a manner consistent with standard industry practice. Accordingly, the Carriers had not discharged the onus of proving that the cause of the damage was within the immunity conferred by Art 4 r 2(n). The learned primary Judge’s approach conformed with that taken by the High Court in Great China (supra).
41 Counsel for Stemcor contended that the Carriers’ submissions were based on a series of false premises. In the first place, it was erroneous to suggest that his Honour had imposed an "absolute standard" on the Carriers. That the standard was not absolute was expressly recognised at [88] of the reasons where his Honour observed:
‘Article 3 rule 1 imposes an obligation on a carrier to provide a ship fit to carry the particular cargo on the particular voyage to the particular destination (Mitsui & Co Ltd v Novorossiysk Shipping Co [1991] 1 Lloyd’s Rep 456 at 472). However, the obligation imposed by Article 3 rule 1 is not an absolute one. The absolute duty at common law to provide a seaworthy ship is displaced by Article 3 rule 1, which requires the carrier to exercise due diligence to provide a seaworthy ship (Papera Traders Co. Ltd. and Others v. Hyundai Merchant Marine Co. Ltd. and Another [2002] 1 Lloyd’s Rep 719 at 124 (The Eurasian Dream)). In cases where damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence is on the carrier.’
42 It was submitted that his Honour’s entire discussion of the possible installation of dehumidifiers reflected a weighing of considerations going to the reasonable practicability of installing them. Those considerations included the extent to which dehumidifiers had been used in other vessels engaged in similar trades, their availability in Yokohama when the voyages in question commenced and the cost of their purchase or hire relative to the freight charges and the value of the shippers’ goods. His Honour also noted operational consequences of installing dehumidifiers including the space, weight, power and air supply requirements, additional fuel needed and the necessity for re-classification survey.
43 The question for the Carriers which, according to Stemcor, the learned primary Judge had correctly addressed, was whether to offer the vessels to carry the coils. That was not a question to be answered on the wharf on the day on which the coils were to be loaded. Rather, due diligence required an assessment of what could be done to prevent the entry of water to the holds or, if that were not practicable, whether dehumidifiers could reasonably be installed to make the holds safe for carrying and preserving the coils which were known to be sensitive to moisture.
44 It was next claimed that the Carriers’ strictures on the primary Judge’s reasoning ignored the "critical and unchallenged findings" that water had been permitted to enter the holds, that reasonably available steps to remove the water had not been taken and that, as a result, the goods had sustained damage.
45 Stemcor disputed the Carrier’s assertion that the reasoning at first instance entailed the conclusion that a sea carrier will be liable for damage by "ordinary" cargo sweat occurring in a voyage which crosses the equator. That was said to ignore the critical premise that water had been introduced into the holds before they were sealed. It was also said that the expert witnesses on each side (Captain Frost for Stemcor and Captain Pyett for the Carriers) agreed that such introduction of water created a problem for a master which had to be rectified by use of dehumidifiers.
46 The Carriers’ reliance on "ordinary cargo sweat" was also criticised as invoking an inherently ambiguous concept. His Honour had referred only to "condensation" whereas the Carriers seemed to use "ordinary cargo sweat" as confined to condensation forming inside the packaging of goods. Moreover, there was said to be no basis in the evidence for regarding cargo sweat as an ordinary incident of carriage. The evidence about ventilation and other means of managing cargo suggested the contrary. A related non sequitur imputed to the Carriers was their denial that free water in the holds was causative of the damage to the coils. That denial was said to reflect the Carriers’ characterisation of the judgment below as based on ventilation of the holds during the voyages. In this context, Counsel for Stemcor said that Counsel for the Carriers had wrongly interpreted his Honour’s comments about ventilation being a common practice as a finding that the ventilation of the holds during the voyages in question had accorded with usual and good practice.
47 In a related way, Counsel for the Carriers characterised what had been found by the primary Judge to have accorded with usual and good practice as the system of taking and recording temperatures and calculating the relative humidity and the dew point. According to Stemcor, ‘the ventilation of this cargo on this trip was in breach of standard practice and the Carrier’s duty.’
48 Counsel for Stemcor also denied that his Honour had impermissibly conflated seaworthiness with "cargo-worthiness". The two concepts are said to be intertwined because the obligation imposed on a shipowner by Art 3 r 1 arises in respect of the particular vessel carrying the particular cargo on the particular voyage. To be seaworthy the vessel must be fit in all aspects to carry the particular cargo on the particular voyage to the particular destination: Mitsui & Co Ltd v Novorossiysk Shipping Co ("The Gudermes") [1991] 1 Lloyds Rep 456 and Great China at [27]-[33]. Support was also derived from the endorsement by Scrutton LJ in F C Bradley & Sons Ltd v Federal Steam Navigation Co [1926] Lloyds Rep 446 at 454 of a passage from Carver on Carriage by Sea to the effect that ‘the vessel must be cargoworthy in the sense that it is in a fit state to receive the specified cargo.’
49 Seaworthiness was said to be capable of objective assessment and to be distinct from whether the owners have exercised due diligence to make a vessel seaworthy. It is concerned essentially with the state of the vessel and is unrelated to the carrier’s knowledge, at the time of loading and stowing, of the nature of the cargo. That actual or constructive knowledge is relevant to whether the want of due diligence on the part of the carrier has brought about the unseaworthiness of the vessel.
50 The amended Hague Rules, so Stemcor’s argument went, impose no obligation on the shipper to investigate the suitability of the vessel to carry the shipper’s cargo, or what other cargoes she is to carry. They are matters peculiarly within the knowledge of the Carrier. The respective descriptions of the goods in question as "prime galvanized steel sheet in coil" and "prime zinc alloy coated steel sheet in coil" should have alerted the Carriers to their particular sensitivity to corrosion from moisture. As well, the risk of condensation from weather conditions at that time of year, allied with the presence of free water in the holds, should have put the Carriers on notice that condensation on the cargo was inevitable if the moisture was not removed.
51 Counsel for Stemcor next contended that the absence of the definite article qualifying "goods" in Art 3 r 1(c) did not signify a reference to anything other than the goods being carried. That contention was said to be reinforced by the phrase "their reception" in the same sentence.
52 On Stemcor’s analysis of the relevant amended Hague Rules, a finding that, in breach of Art 3 r 1, the vessel was unseaworthy before the voyage precludes recourse to the immunities in Art 4 r 2. Only Art 3 r 2 is expressed to be subject to Article 4. In the present case there was an express finding that the condensation which had caused the damage to the coils had resulted from both the presence of free water in the holds and the entry of moist air during ventilation. The first identified cause flowed from a contravention of Art 3 r 1 and the second from a contravention of Art 3 r 2, consisting of the decision to ventilate without regard to the imprecision inherent in the application of the dew point rule. That decision, his Honour recognised, was a departure from the standard practice, in carrying non-hygroscopic cargoes from cold to warmer climates, not to ventilate the hold during the voyage.
53 Despite the fact that a finding of a breach of Art 3 r 1 made it unnecessary to consider the defences afforded by Art 4 r 2, his Honour made express findings as to whether the damage had been caused by insufficiency of packing or the Carriers’ failure to exercise due diligence. The finding that the coils had been packed in a manner consistent with the standard practice in the industry was open on the evidence. In particular, it was open to his Honour to prefer the evidence of Professor Jones to that of Captain Pyett.
54 Finally, Counsel for Stemcor acknowledged that the primary Judge had not dealt expressly with the pleaded defence invoking Art 4 r 2(q) (no fault of the carrier). However that was said to be immaterial because that defence could not avail a carrier who was in breach of Art 3 r 1 or r 2.
PRACTICAL APPLICATION OF ARTICLES 3 AND 4
55 In Gamlen Chemical Co (A’Asia) Pty Ltd v Shipping Corporation of India Ltd [1978] 2 NSWLR 12 at 24, Samuels JA said, concerning the Hague Rules:
‘In my opinion, accepting as I do that the principles of common law have not, in any relevant respect, been excluded or varied by the Hague Rules, a plea of an exception under Article IV is liable to be defeated by a reply of negligence made by the cargo owner. The sequence of pleading explained in the passages to which I have referred ... is, if I may respectfully say so, undoubtedly correct. The cargo owner makes out a prima facie case (as it was always open to him to do at common law) by proving the contract of carriage and the non-delivery of the goods, or their delivery in a damaged condition. It may be a nice question whether this amounts to a prima facie case or, ... to "an inference of a breach of the obligation". In either event, proof of the kind I have mentioned is sufficient to call upon the carrier for an answer. This he may make by denying the facts upon which the cargo owner relies and, in addition, by raising and proving an exception within Art. IV of the Hague Rules. If, however, he takes the latter course, it is then open to the cargo owner to meet the exception by proving negligence on the part of the carrier, or of those for whose fault he is responsible.’
56 On appeal to the High Court this approach was approved by Mason and Wilson JJ, Gibbs and Aickin JJ concurring: see Shipping Corporation of India Ltd v Gamlen Chemical Co (A’Asia) Pty Ltd [1980] HCA 51; (1980) 147 CLR 142 at 168. However the decision of the High Court in Great China casts doubt upon the continuing authority of Gamlen in so far as it concerns the burden of proof. Although forming no part of the ratio of the case, observations made in the joint judgment of Gaudron, Gummow and Hayne JJ and in the judgment of McHugh J suggest that the proper course is to identify negligence (usually a breach of Art 3 r 2) before considering the availability of exceptions pursuant to Art 4 r 2, and that the mere occurrence of loss or damage may not be sufficient to prove a breach of the former rule. In the present case Emmett J adopted that approach. It has not been suggested that we should do otherwise.
CAUSATION OF DAMAGE
57 Emmett J found that corrosion on the surface of the coils was caused by condensation of water, which condensation occurred during the voyages in question. His Honour also found that the corrosion was caused by the penetration of water vapour, not liquid water, through the wrapping. These findings have not been disputed on appeal. The next step was to determine the cause of the condensation. Emmett J discussed the evidence in detail at [46] to [53]. We will summarize it briefly.
58 The atmosphere contains varying amounts of water vapour. The maximum mass of water vapour which a fixed volume of air is able to accommodate increases with temperature. When that maximum mass of water is actually present in a volume of air, the air is said to be saturated. The mass of water vapour present in a particular volume of air, expressed as a percentage of the maximum mass capable of being present at the relevant temperature, is described as the "relative humidity". Relative humidity increases with cooling and decreases with heating. The temperature at which a particular volume of air reaches saturation point is the air dew point temperature. If a volume of air cools to a point below its air dew point temperature, condensation will occur on the surface which is cooling the air.
59 The proposition underlying the present judgment is that the hold of each ship contained air which included water vapour. If the surface temperature of the coils had been below the air dew point temperature of the air in the hold, the air in contact with the surface would have cooled, assuming that the air was relatively still. If the temperature of the air in contact with the coils had fallen below the air dew point temperature, condensation would have formed on the coils. As the coils were damaged by condensation which occurred during the voyage, it follows that the above-described phenomenon occurred. Consideration of legal responsibility for having caused the condensation depends upon an examination of factors affecting:
the temperature of the coils;
the temperature of the air; and
the mass of water,
in the hold of each vessel.
Temperature of the coils
60 The evidence indicated that, immediately after manufacture, the temperature of the coils was ‘well above the ambient air temperature’. They were stored in ambient air until loaded on to barges for transport to the wharf at Yokohama. They steadily cooled to a temperature close to ambient temperature, this process taking some days. In the conditions then prevailing at Yokohama the ambient temperature was probably well above the air dew point temperature. In those circumstances condensation would only have occurred if there had been significant increases in the ambient temperature and water content of the air so that the surface temperature of the coils was below the changed air dew point temperature. Although we were not referred to any evidence concerning the matter, we infer that it was accepted at the trial that the surface temperature of the coils might, in some circumstances, rise more slowly than that of the air in the hold. His Honour’s reasons at [57] and [129] assert as much. In those circumstances, condensation would occur. During the trip from Japan to Australia, in the absence of any source of heating in the hold, the temperature of the coils might rise if warmer air entered the hold, raising the air temperature and, more slowly, the temperature of the coils. Increases in temperature might also occur as the result of the transmission of heat into the hold through the structure of the ship. Dr Bellstedt suggested that in such a case, the likelihood of condensation occurring would be decreased: see his report dated 24 June 2005 at p 16 (exhibit 7.1P).
Air temperature in the hold
61 His Honour found that during the loading process conditions in the hold would have become essentially equivalent to ambient conditions outside the hold. Those conditions were generally known. They indicated that condensation during loading was not likely. After sealing of the hold, if there had been a source of heat within it, the air temperature would have risen. However, if there had been no liquid water in the hold, there would have been no change to the moisture level or, therefore, to the air dew point temperature. Condensation would have been unlikely. As previously observed, the admission into the hold of warm air would have raised the temperature of air in the hold and the surface temperature of the coils, the latter possibly more slowly than the former.
Water in the hold
62 If, when the hold was sealed, it contained liquid water, the air would have absorbed such moisture as water vapour, and the air dew point temperature would have risen steadily. If the surface temperature of the coils had not risen at the same rate, they would have tended to cool the air in contact with them. If that air had reached the air dew point temperature, and such temperature had been higher than that of the coil surfaces, the cooling process would have caused condensation. If, during the voyage, external air had been admitted into the hold, and such air had a higher moisture content than that already in the hold, the mass of water vapour in the air in the hold would have been increased, bringing it closer to saturation and so raising the air dew point temperature.
Summary
63 On the basis of these considerations Dr Bellstedt concluded that it would have been possible for condensation to have occurred during the voyage if moister, warmer air had entered the hold, and if there had been insufficient heat to increase the surface temperature of the coils to the same extent as the air dew point temperature had increased. His Honour appears to have accepted this view. Dr Bellstedt also said that, at the ambient temperature in Yokohama at the time of loading, it would have been necessary for there to have been 68 litres of water in the hold of the Archangelgracht to achieve saturation. We infer that this figure included all water and water vapour. His Honour appears to have proceeded upon the basis that a similar figure applied to the Ankergracht. The vessels were of similar size and design. However the figure for the Ankergracht may have varied from that for the Archangelgracht, depending upon the respective ambient temperatures at the times of loading. In these reasons we have previously, in discussing the evidence, referred to the mass of water in a given volume of air. Dr Bellstedt’s reference to a volume of water (68 litres) has caused us to depart from that practice. However, we infer that it is possible to calculate the mass of a particular volume of water at a given temperature.
64 There is no evidence as to the actual amount of water in either hold at any relevant time. Counsel for Stemcor submitted that one of the Carriers’ witnesses, Dr Sharp, had given evidence that the corrosion was probably attributable to moisture present as part of the cargo, rather than to conditions which occurred during the voyage. That opinion would suggest that there must have been sufficient water in each hold at the commencement of each voyage for condensation to have occurred at some temperature experienced thereafter. This aspect of Dr Sharp’s evidence appears at p 15 of his report dated 1 April 2005 (exhibit 22.1G), especially at paras 2, 6 and 7. However, that opinion appears to have been based upon the witness’s exclusion of the possibility that the entry of warmer, moister air had caused the relevant condensation. At [130] Emmett J rejected that view of the case. That finding was challenged by the Carriers in their notices of appeal but was not challenged in either side’s submissions.
65 In summary, Stemcor’s case was that there had been water in each hold when it was sealed, and that warm, moist air had entered each hold during the relevant voyage, the cumulative effect of which was to create the conditions in which condensation occurred, causing the corrosion. Emmett J accepted this explanation of the way in which such corrosion probably occurred. On appeal the Carriers appeared to accept his Honour’s finding that the corrosion was caused by condensation but disputed the finding that they were legally liable for the consequences thereof.
SEAWORTHINESS AND DUE DILIGENCE
66 Article 3 r 1 required that each Carrier exercise due diligence to:
Make its vessel seaworthy;
Properly man, equip and supply the vessel; and
Make the "cargo spaces" fit and safe for the reception, carriage and preservation of "goods".
67 Article 4 imposed liability upon a carrier for loss or damage arising from unseaworthiness, save where it proved that it had exercised due diligence.
68 As to whether a vessel is seaworthy, Gaudron, Gummow and Hayne JJ said in Great China at [27] to [31]:
‘27. Several things may be noted about the obligation imposed upon the carrier by Art III r 1 to make the ship seaworthy. First, it fixes the time at which the obligation operates as "before and at the beginning of the voyage". It therefore resolves the dispute that had been litigated in relation to time policies and voyage policies of marine insurance about whether a warranty of seaworthiness implied in such a policy was a warranty about the condition of the vessel at the time of sailing, or at the commencement of each of several distinct and different parts of a voyage, or was a warranty extending to the whole of the period of the policy ... . Secondly, it is not an absolute warranty; the obligation is to exercise due diligence ... . In cases where loss or damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence is on the carrier (Art IV r 1). Thirdly, however, seaworthiness is to be assessed according to the voyage under consideration; there is no single standard of fitness which a vessel must meet ... . Thus, seaworthiness is judged having regard to the conditions the vessel will encounter ... . The vessel may be seaworthy for a coastal voyage in a season of light weather but not for a voyage in the North Atlantic in mid winter.
28. Thus, definitions of seaworthiness found in the cases (albeit cases arising in different contexts) all emphasise that the state of fitness required "must depend on the whole nature of the adventure" ... . The vessel must be "fit to encounter the ordinary perils of the voyage" ...; it must be "in a fit state as to repairs, equipment, and crew, and in all other respects, to encounter the ordinary perils of the voyage insured" ... .
29. Further, if the question of seaworthiness is to be judged at the time that the vessel sails, it will be important to consider how it is loaded and stowed ... . If the vessel is overladen it may be unseaworthy. If it is loaded or stowed badly so, for example, as to make it unduly stiff or tender ... it may be unseaworthy ... .
30. Nor is the standard of fitness unchanging. The standard can and does rise with improved knowledge of shipbuilding and navigation ... .
31. Fitness for the voyage may also encompass other considerations as, for example, the fitness of the vessel to carry the particular kind of goods or the fitness of crew, equipment and the like. The question of seaworthiness, then, may require consideration of many and varied matters.’
69 Although it might be thought that only subpara (c) of Art 3 r 1 relates to fitness to carry cargo, the above extract demonstrates that subpara (a) also invites consideration of that question. Subparagraph (b) may, in some circumstances, also involve such a consideration. The Carriers asserted that the absence of the definite article before the word "goods" in Art 3 and Art 4 indicated that the requirement was not that such spaces be fit for the carriage of specific goods. We reject that submission. The more likely meaning is that the spaces were to be fit for such goods as were to be carried. Given the wide variety of goods which are carried by sea, the Carriers’ construction is unlikely to be correct. More importantly, the Carriers’ approach is inconsistent with the general approach adopted in Great China.
70 The parties appear not to have identified any particular subparagraph of Art 3 r 1 as being presently relevant. Article 3 must be read with Art 4. In the latter article, the word ‘unseaworthiness’ is used to describe collectively the conditions arising from breaches of any of the three subparagraphs of Art 3 r 1. Article 4 imposed upon the carrier an onus to prove due diligence, but that onus only arose if there had been a breach of one or more of those subparagraphs, which breach caused the relevant loss. In other words, Stemcor was obliged to prove operative unseaworthiness in the broader sense in which that word is used in Art 4 before the Carriers were called upon to prove due diligence.
71 Curiously, Stemcor seems not to have alleged unseaworthiness in their statements of claim. They rather alleged that the Carriers had failed to exercise due diligence in satisfaction of the duty imposed by Art 3 r 1. The difficulties caused by this approach were magnified by the way in which the claims were particularized. In the case of the Ankergracht, particulars of lack of due diligence were said to be those identified in para 8 of the relevant statement of claim and, in the case of Archangelgracht, in para 9. However, para 9 did not give particulars but rather recited the content of Art 3 r 1. The reference should probably have been to para 8. Paragraph 8 in each statement of claim was apparently drafted to provide particulars of alternative claims for breach of contract, breach of duty as a bailee and breach of a general duty of care, as well as breaches of Art 3 r 1 and r 2. Many of the particulars appear to have no arguable relevance to an alleged breach of Art 3 r 1. Perhaps the particulars relevant to each cause of action were identified in some way at the trial. We can do little more than adopt the primary Judge’s identification of Stemcor’s case.
72 We do not understand the Carriers to have admitted unseaworthiness causing loss. Although they seem to have accepted Stemcor’s conflation of that issue with that of due diligence, it was nonetheless necessary to consider whether either vessel was unseaworthy before, and at the beginning of, the relevant voyage. The question of due diligence would only have arisen if it had been proved that unseaworthiness caused the corrosion.
73 Emmett J found that each vessel was unseaworthy, and that the Carriers had relevantly failed to exercise due diligence. The critical reasoning appears in [96], [97], [110] and [111] of his Honour’s reasons as follows:
‘96. A carrier must demonstrate that it has exercised all reasonable skill and care to ensure that the vessel is seaworthy at the commencement of the voyage. The test to be applied is an objective one. The carrier must act in accordance with international standards and the standards of a reasonable carrier in the particular circumstances of the problem at hand. The more serious the consequences of unseaworthiness, the greater the effort that should be made to make the vessel seaworthy.
97. Dehumidification systems had been used on vessels carrying moisture sensitive cargoes for many years prior to the voyages in question. Since 2003, vessels operated by PAS have been carrying similar coils with no incidence of corrosion. As I have indicated, the Cape Darby had dehumidifiers installed. Dehumidification units are commonly installed on ships and such units were available for installation on the vessels at Yokohama at the time of the voyages in question. Neither the Ankergracht not the Archangelgracht had any dehumidification system installed. However, the installation of dehumidification systems on either a temporary basis or a permanent basis was reasonably practicable in the circumstances of each of the Ankergracht and the Archangelgracht.’
74 Emmett J at [110] and [111] then discussed the difficulties and cost involved in installing dehumidifiers:
‘110. There was no evidence that general cargo carrying vessels, such as the Ankergracht and the Archangelgracht, are regarded as unseaworthy merely because they did not have dehumidifiers fitted. Nor was there any evidence that the absence of a dehumidifier on a general cargo carrying vessel means that the hold is not regarded as fit and safe for the carriage and preservation of steel coils of the nature in question. There was no evidence of any industry practice, standard or custom for coils of the nature in question to be carried only on vessels with dehumidifiers. More specifically, there was no evidence of any industry practice or custom as to the temporary installation and use of dehumidifiers. There was no evidence of any example of the use of temporary dehumidifiers, either generally or for the carriage of coils of the kind in question. While there was some evidence that vessels have had temporary dehumidifiers installed, the extent of such a practice was not explored.
111. However, in circumstances where the coils in question were known to be sensitive to moisture and it was known or ought to have been foreseen by the Carriers that water would be admitted into the holds on other cargo and on dunnage and possibly because of rain, the vessels were not seaworthy for the purpose of carrying the coils in question on the voyages in question at the relevant time of year. In the light of those circumstances, it was reasonable for the Carriers to take steps to ensure that water could not be admitted into the holds or, if that was not practicable, to install a dehumidification system to remove excess water from the holds and ensure that the dew point temperature of air in the holds would not fall below the surface temperature of the coils. The failure to do so was a failure to use due diligence to make the vessels seaworthy or, putting it another way, to make the holds fit and safe for the carriage and preservation of the coils.’
75 The factual basis of his Honour’s conclusion that the vessels were unseaworthy appears at [111]. It is quite narrow, focussing on the amount of water entering, or likely to enter, the holds during loading and available methods for removing it. In considering this aspect of the case Emmett J did not take into account the possibility that additional water might enter the holds during the voyages. This approach probably reflected his Honour’s conclusion that ventilation should not occur where steel cargoes are being shipped from cold to warmer climates. In this regard we note that in its written submissions on appeal Stemcor asserted, at subpara 3(e), that Emmett J found that the amount of water in the holds ‘meant that condensation during the voyages ... was unavoidable.’ This was a reference to the judgment at [87]. However we do not understand that paragraph to contain a finding of fact. In our view his Honour was, at [82] to [87], merely setting out Stemcor’s case.
76 The primary argument advanced by the Carriers was that Emmett J imposed upon them an absolute duty to prevent corrosion. It is difficult to accept that proposition, given his Honour’s consideration of the likelihood of rain in Yokohama at the relevant times and the cost and other difficulties involved in installing dehumidifiers. Emmett J apparently considered the risk, having regard to the nature of the cargo and foreseeable conditions, and the cost of the proposed method of avoiding such risk. That approach does not suggest the imposition of an absolute duty. We suspect that the Carriers’ real concern is with the way in which his Honour balanced the matters dealt with at [110] of his reasons with those dealt with at [111], that is, on the one hand, the absence of evidence of any practice of using dehumidifiers in carrying steel and, on the other, Stemcor’s submission that, in the relevant conditions, a ship which lacked them was unseaworthy.
77 Stemcor’s case concerning unseaworthiness focussed on foreseeable conditions incidental to a voyage from Yokohama to Australia during the northern hemisphere winter. At [111] Emmett J found that ‘... it was known or ought to have been foreseen that water would be admitted into the holds on other cargo and on dunnage and, possibly, because of rain...’. In the following sentences his Honour dealt with mechanisms for removing water. These matters were touched on in the evidence of the master and chief officer of each vessel, upon which evidence they were apparently not cross-examined. The master of the Ankergracht at the time of the relevant voyage (Captain Koenen) said at para 22 of his original statement:
‘During the course of the voyage, it was the normal practice of the Chief Officer to instruct the vessels’ able seaman to wipe condensation, if any, from the cargo, in particular the coils and steel plate, where access to the cargo is possible and the sea conditions permit doing so with safety. The seaman simply used rags to wipe off the condensation from the cargo.’
78 Wiping condensation from the outer wrapping of the steel coils would not have removed condensation which had formed inside the wrapping. It may, however, have reduced the likelihood of further condensation (by removing water from the hold).
79 In a supplementary statement Captain Koenen said at paras 10 and 11:
‘10. If such cargo is loaded wet, then it was my usual practice at the time of voyage 91262 to instruct the crew to try to dry that cargo as best they can before the vessel sails. They would try to do so by using clean dry rags. However, such drying can only be done when and where it is safe to do so. If cargo operations are continuing in the area near the cargo which has been loaded wet, then I would not allow the crew to go into that area to try to dry the wet cargo whilst cargo operations are continuing, as it would be unsafe for them to do so. Also, wet cargo can be very slippery and this is another reason why I instruct the crew to try and dry it. Once the cargo operations had ceased completely, if some of the cargo was still wet, I would usually ventilate to try and remove the remaining moisture if the conditions are appropriate.
11. If there is any obvious water on the vessel’s tank tops or tween decks, and it is safe for the crew to enter into that space, it was my usual practice at the time of voyage 91262 to instruct the crew to mop up that water with squeeze mops.’
80 Concerning ventilation, Captain Koenen said at paras 20 and 21 of his original statement:
‘20. It was one of the duties of the Third Mate of the vessel to take temperature recordings of the dry and wet bulb temperatures, two times a day where possible, firstly around 08:30 hours in the morning and 16:30 hours in the afternoon. Such measurements were to be taken on deck, and in both the lower hold and tween deck. From those temperature recordings, the Third Mate would calculate the dew point and relative humidity on deck, in the lower hold and in the tween deck. The Third Officer would report the results of his temperature measurements to both myself and the Chief Officer of the vessel, shortly after having taken the measurements and made his calculations.
...
21. Upon the Third Mate reporting to me and the chief Officer the result of his temperature measurements and calculations, we (the Chief Officer and myself) would discuss whether or not to ventilate the cargo or if ventilation was in process, to cease ventilation. The ultimate decision was for me to make although there was rarely ever any debate on the question. Because if the dew point of the air outside the vessel’s hold was lower than the air inside both the lower hold and tween deck, then the decision would be to ventilate. If the dew point of the air outside the hold was higher than the dew point of the air either in the lower hold or in the tween deck, then the decision would be not to ventilate (or to cease ventilation if ventilation was in progress). In essence, I would ventilate the cargo when the air outside the hold in terms of its dew point was better (lower) than the air inside the hold.’
81 The chief officer (Mr Remminga) gave broadly similar evidence. The master of the Archangelgracht (Captain Woolthius) and the chief officer (Mr van Wijk) gave similar evidence concerning ventilation practice and the wiping of condensation from cargo but gave no evidence concerning procedures adopted when cargo was loaded wet. Mr van Wijk recalled that, during the voyage in question, there was sweating on coils and steel plate. He particularly recalled asking an able seaman to wipe down cargo. The seaman injured his foot whilst so doing, which incident was noted in the log.
82 Captain Koenen and other witnesses identified mopping, wiping and ventilation as methods of removing moisture from the holds. The evidence suggested that, in some circumstances, mopping and wiping might not be possible. It might not be safe for crew members to enter the hold, or liquid water might accumulate in inaccessible places. Nonetheless, if those methods were adequate to remove such water as might be expected to enter the holds, then the vessels would be seaworthy. Stemcor’s case was that ventilation should not have occurred with steel cargo, leaving only mopping and wiping. It submitted that those methods were not adequate. However, little attention was given to that question. This is somewhat odd, given that such methods are time-honoured ways of removing water. One might have thought that their efficacy in a particular case would depend upon the amount of water to be removed and the difficulties of access to which we have referred.
83 A vessel will be seaworthy if it is fit to meet the conditions which it may encounter ‘...both in the sense that it will arrive safely at its destination and in the sense that it will carry its cargo safely to that destination...’. See Great China, per Gaudron, Gummow and Hayne JJ at [33]. There was no suggestion that either vessel was unfit to arrive safely at its destination. The question was whether each vessel was fit to carry its cargo to its destination. The alleged unfitness was the absence of dehumidifiers, leading to an inability to avoid condensation and, therefore, corrosion on the coils. The alleged failure to provide equipment other than dehumidifiers, such as heaters, was not pursued on appeal.
84 The chances of corrosion occurring depended upon the amount of water in the hold at the commencement of the voyage, the likelihood of additional water entering during the voyage, likely fluctuations in temperature and available methods and equipment for removing moisture. There was evidence that rain was likely at Yokohama at the time of year in question, but there seems to have been no evidence as to the expected level of rainfall, the amount of rain which might have entered a hold or the amount of liquid water which might have entered on cargo or dunnage. We do not mean to imply that it would be easy to quantify these things. However, the evidence indicated that a quantifiable amount of water must be present for condensation to occur at a particular temperature. We do not understand Stemcor to have asserted that it was possible or necessary that all water, including water vapour, be excluded from the hold of a vessel in order to avoid condensation. Such avoidance involves regulation, or at least monitoring, of the temperature and water content of the air in the hold and the temperature of the cargo. If conditions ‘that the vessel may encounter’ would have been likely to have led to condensation then, given the susceptibility of the cargo, the Carriers were obliged to supply a ship, crew and equipment capable of dealing with that risk. The first question, then, was whether such conditions might have arisen. The second question was whether each vessel and its crew were capable of dealing with the problem. Both questions were likely to involve a consideration of past experience in the industry as well as circumstances peculiar to the vessel, cargo and voyage in question. Article 3 r 1 and r 2 distinguish between the duty of a carrier to provide a seaworthy vessel and the duty carefully and properly to handle the cargo. Significant consequences depend upon that distinction. It is therefore important that it not be blurred.
85 Returning to his Honour’s reasons at [111], we doubt the correctness of the first sentence. The chance that moisture might enter the hold during loading could hardly, by itself, make the vessel unseaworthy. It would be necessary also to consider the likely amount of water and available means for dealing with the problem. It may also be relevant to consider whether further moisture might have entered the hold during the voyage and likely climatic conditions. In our view, given the absence of evidence of any practice of installing and using dehumidifiers, the duty to exercise due diligence could only have required such a step if the vessel and its crew might not otherwise have been able to deal with the problem.
86 No real attempt was made to demonstrate that the amount of water likely to have been in either hold at the beginning of the relevant voyage was such as to permit condensation to occur at any time during the voyage. Condensation must have occurred at some time during each voyage, but it may have been caused by additional water entering the holds as the result of ventilation. It was possible and, as his Honour found, probable that this occurred. Further, there was a mechanism for removing water from the holds, namely by wiping and mopping. That mechanism may not have been effective to remove all water, but it may have reduced the amount of water to a level which was below the critical level necessary for condensation to occur. Although Dr Bellstedt suggested that mopping and ventilating might not have been sufficient to prevent condensation, the validity of that opinion depended upon the amount of water present in each hold. Again, these matters had to be considered in light of the absence of evidence as to any practice concerning the use of dehumidifiers on such voyages.
87 It was for Stemcor to prove that, at the commencement of the relevant voyage, each vessel was not equipped to deal with a peril which might be encountered during the voyage. We consider that there was insufficient evidence to justify a finding of unseaworthiness, and so the question of due diligence did not arise. The claims pursuant to Art 3 r 1 were not established.
PROPER AND CAREFUL HANDLING
88 Article 3 r 2 required that, subject to the provisions of Art 4, the Carriers properly and carefully load, handle, stow, carry, keep, care for and discharge their respective cargoes. The meaning of the word "properly" was considered by the House of Lords in Albacora S.R.L. v Westcott and Laurance Lyon Ltd [1966] 2 Lloyd’s Rep 53. In that case, Lord Reid (at 58), and Lord Pearce (at 62), held that the word "properly" adds to the requirement of care a requirement that the carrier’s function be performed in accordance with a sound system. Lord Guest and Lord Upjohn concurred. Lord Pearson said at 64:
‘The word "properly" adds something to "carefully", if "carefully" has a narrow meaning of merely taking care. The element of skill or sound system is required in addition to taking care.’
89 Emmett J identified Stemcor’s case as alleging that, in breach of Art 3 r 2, the Carriers had not properly and carefully loaded, handled, stowed, carried, kept, cared for and discharged the steel coils in that each of them:
‘ loaded the vessels in circumstances where free water was able to enter the holds either on wetted cargo or as rain; and
failed to manage the cargo by ventilating only in accordance with accepted proper practice.
Alternatively, if no water was introduced during loading, water must have entered the hold in some other manner during the course of the voyage to enable the air dew point to rise. Either it was introduced by ventilating, or by failing to seal the hatches properly.’
90 At [93] to [94] his Honour found that water had not entered the holds as the result of any failure to seal the hatches. As to the admission of water into the holds during loading, his Honour found at [115] to [116] that:
‘115. A carrier would not normally be in breach of Article 3 Rule 2 merely by reason of having loaded damp or moist cargo or dunnage, so long as the carrier exercises due diligence, with a proper system, to remove the moisture admitted into the holds. It is not possible for the carrier to dry cargo before it is loaded. That is especially so of cargo still on barges, such as the coils in question, or cargo on the wharf. Such cargo is not at that time in the possession of the carrier.
116. Thus, the real question is whether the carriers properly and carefully carried, kept and cared for the coils. If there was water in the holds, ventilators would need to be operated in a way that would remove that moisture. If the ventilators were operated in a fashion that permitted the ingress of further moisture, there was a failure to carry, keep and care for the coils properly and carefully’.
91 Given his Honour’s findings, the issue is now narrower than that identified in the above paragraphs. The relevant causal event is condensation, not the mere presence of water in the holds. Article 3 r 2 required that the Carriers act carefully and in accordance with a sound system to prevent condensation, given that it was well-known that steel cargoes were susceptible to damage as a result of contact with condensation. The key to his Honour’s resolution of the claim of alleged breach of Art 3 r 2 was his finding that during the carriage of steel cargoes from cool to warmer climates such cargoes should not be ventilated. The Carriers’ primary criticism of his Honour’s finding that they breached Art 3 r 2 is, again, that it imposed an absolute duty upon them. Again, we cannot see any basis for that criticism. Emmett J accepted (at [115]) that a carrier would not normally be in breach of that rule by reason of having loaded wet cargo or dunnage, provided that it exercised "due diligence with a proper system" to remove such moisture. However, it followed from his Honour’s finding that steel cargoes should not be ventilated during carriage from cold to warmer climates that, at least in the absence of dehumidifiers, the Carriers’ system (which included ventilation) was not "proper". The question is whether that finding was correct.
92 The finding appears to have been based primarily upon the evidence of Captain Frost. His Honour did not claim to have derived particular benefit from his observation of the witnesses. He said, with respect to at least some of them, that his preference for one witness over another was based upon his understanding of the logic of their evidence. In those circumstances it may be appropriate for us to consider for ourselves the persuasive value of such evidence. In so doing we give appropriate weight to the advantage which Emmett J enjoyed in seeing the case develop.
93 Ventilation is a normal incident of the carriage of general cargo. One method of ventilating is by permitting the entry and extraction of air from the hold using vents, with or without mechanical assistance. However, the air outside of the hold and that within the hold may have different moisture levels and be at different temperatures. The admission of moist and/or warm air may tend to cause condensation. For that reason, as Emmett J concluded, ventilation should normally occur only when the air dew point temperature outside the hold is lower than that inside the hold.
94 During both voyages ventilation occurred on numerous occasions. On all occasions but one, the ventilation occurred only when the air dew point temperature outside the hold was lower than that inside the hold. This might suggest that, with the one exception, the Carriers adopted a proper ventilation system and so were not in breach of the duty imposed by Art 3 r 2. However, Emmett J concluded that the air dew point rule was only an approximation, particularly because the temperature of the cargo in the hold could not be reliably measured. Such temperature might also vary from place to place in the hold. Further, air in the hold might be at a different temperature from that of the cargo. His Honour concluded at [129]:
‘... Accordingly, non-hygroscopic cargoes passing from cold to warm climates should not be ventilated. A hygroscopic cargo is one that absorbs or attracts moisture. It is standard practice in the shipment of steel from cold to warmer climates not to ventilate the holds’.
95 Obviously, this practice differed from that identified by the masters and chief officers of the two vessels. Captain Frost, who was called on behalf of Stemcor, did not exclude entirely the ventilation of steel cargoes. In his first statement at para 18.4 he said:
‘18.4 I have formed the opinion that the sea carrier should, and could have, in accordance with common practice, acted as follows:
18.4.1 As far as I can determine, from the stowage plans made available to me for each of the three vessels all of the cargoes loaded were inert. That is to say that none of the cargo loaded had a propensity to develop or propagate moisture. I would expect that timber dunnaging would have been employed but it is the practice of the trade that any dunnaging should not have a moisture content in excess of 15%. In these conditions the hold spaces should be closed and atmospheric stabilisation of the hold spaces monitored and proven.
18.4.2 Hold ventilation therefore should not have been employed. Conversely hold temperature readings should have been closely observed and compared with external variations to verify whether hold atmosphere stabilisation was being achieved.’
96 In a document entitled "Holds, Ventilation Systems & the Application Aboard Ocean-Going Vessels in the Management of Cargo", apparently prepared by Captain Frost, at para 8, it is said that:
‘It is the standard practice in the trade for the carriage of steel cargoes that ventilation would only be activated when the dew point of the outside atmosphere is lower than the temperature of the cargo within the hold. It becomes a logistical problem for the vessel in determining the temperature of each part of the cargo within the hold. It is therefore common practice that the relative humidity and the dew point of the cargo hold spaces will be measured and if that is above the external dew point then ventilation may be activated. This, however, is a generalisation for various reasons.
Ventilation is desirable in various circumstances i.e. when hygroscopic cargoes are present or to introduce an air circulation within the hold to prevent static air. However it is generally unnecessary where all the cargo within the hold is inert as with steel cargo. (Inert cargoes are those which have no properties which either develop or absorb moisture. They can, however, as in the case of steel, be directly affected by the development of condensation.)’
97 In a subsequent report dated 5 April 2005 Captain Frost said at pp 2-3:
‘I have been asked to assume that the cargo carried on ... the Ankergracht was known to be partly wet with rain before loading. I have been asked for my opinion on what, at the times of the subject voyages, a reasonably competent Master ought to do in those circumstances having regard to the particular type of cargo that was carried.
(a) In the event that cargo was known to be partly wet with rain before loading then that cargo should have been dried off or the water allowed to evaporate before being introduced to the hold. This would be particularly important on a vessel loading moisture sensitive cargoes in circumstances when the vessel has no means of physically segregating the cargo. That is especially so if the vessel was without an installed or portable system to control hold atmosphere.
(b) It is accepted in the shipping industry and has been since well before the subject voyages that some steel cargoes are particularly susceptible to corrosion damage. It is in my opinion normal practice amongst ships’ Masters that the greatest care is taken to ensure that water, whether on cargo or by precipitation, is not allowed to enter the cargo spaces. That is based on my experience as a seagoing officer and surveyor gained over a period of 39 years.
...
(e) In the event that water or high moisture does enter the ship’s cargo space then in my opinion it is necessary to remove that moisture or face the consequence of damage to steel cargos. This might best be achieved by ventilating the hold space. However, unless the vessel is fitted with some form of air drying equipment this could only be carried out when the ambient dewpoint is low. Since otherwise the hold atmosphere would be worsened by the introduction of moist air’.
98 Although the last paragraph suggests that steel cargoes may be ventilated in some circumstances, Captain Frost asserted at para 27 (p 6):
‘However, given that the cargo aboard these vessels was non-hygroscopic, the standard practice is not to ventilate. More so, the generally accepted practice is that the cargo hold spaces should be reduced to a minimum of air flow. However, this should not impact on the oxygen levels within the cargo space in the circumstances of these voyages’.
99 Any apparent inconsistency in this evidence was explained in cross-examination at TS 445 where the following questions and answers appear:
‘And in circumstances where water or high moisture goes into the ships [sic] cargo space then I think you would agree with me that it is necessary to remove that moisture from the hold, correct?---.Correct.
One way in which you posit that could be done would be by way of a dehumidifier, correct?---Correct.
But if you don’t have a dehumidifier on-board your vessel, that obviously can’t be employed?---It’s presents you a problem, yes? [sic]
Another way in which it can be done is [by] way [of] ventilating the whole space, correct? ... If - it can be done if the conditions for ventilation are available to you. They may not.
And what I want to suggest to you, captain, is that in circumstances where the outside air is warmer [?] and has a lower dew point than the air inside the hold, then that would be an appropriate circumstance to ventilate using that air in order to reduce the effect of any moisture that may be inside the hold?---If – if the dew point of the outside air was sufficiently low that your cargo within your hold is warmer, then you would – it would be appropriate. The trouble is that you don’t know – as was said earlier, you can’t know the surface temperatures of all your cargo.
(The word "warmer" in the question should presumably be "cooler".)
And in those circumstances, when you don’t know the surface temperatures of your cargo, you would make that decision by reference to the comparison of the dew point of the air outside the vessel and the dew point of the air inside the hold?---. Taking into account the possibility that you’ve got cold cargo, there is a variation on the general rule, sometimes referred to as the three degree rule and sometimes the five degree rule, which basically says that you would only ventilate if the dew point, the external dew point, is three or five degrees lower than the input. That makes an allowance for cargoes which might be cold, or colder than the lower – than the hold measurement’.
(We understand the reference to "input" to be to the air dew point temperature in the hold.)
‘What you refer to as the three degree rule is what is picked up in paragraph 23 of your statement, exhibit 6.4P, is that correct?---Correct.’
100 Paragraph 23 of exhibit 6.4P had apparently been initially excluded from evidence. It reads as follows:
‘Some references refer to a "3 degree rule". That is to say that unless the dry bulb temperature of the outside air is less than 3 deg C cooler than the average "cargo" temperature DO NOT VENTILATE.’
101 Presumably, the reference to the passage in cross-examination, without objection, led to its receipt into evidence. The form of the rule in that paragraph differed from that disclosed by Captain Frost in his other evidence. It compared air temperature and average cargo temperature rather than air dew point temperatures.
102 In summary Captain Frost’s evidence was that:
Non-hygroscopic cargoes including steel cargoes should not be ventilated.
If it is necessary to ventilate because of the presence of water in the hold, then it should only be done if ‘the dew point of the outside air (is) sufficiently low that your cargo within your hold is warmer’.
There is difficulty in applying this exception in practice because it is difficult to know the temperature of all of the cargo.
There is a rule of thumb called the "three degree rule" or the "five degree rule" which permits ventilation only if the external air dew point temperature is three or five degrees lower than that in the hold.
The rule is also stated in an alternative form which compares the temperature of the outside air with the average temperature of the cargo.
103 Examination of the graphs in Dr Bellstedt’s report dated 24 June 2005 reveals that ventilation occurred on both vessels when the ambient air dew point temperature was less than three degrees below that of the air in the hold. In any event, the Carriers did not claim to have acted in accordance with the three or five degree rule. The officers of both vessels asserted that their practice was to ventilate when the air dew point temperature outside the hold was lower than that inside the hold. We should say that some evidence indicated that there were benefits in ventilating steel cargo notwithstanding its non-hygroscopic nature. Those benefits included warming the cargo, removing odours, maintaining oxygen levels in the hold and removing moisture. Given that the officers of the two vessels did not claim to have applied the three or five degree rule, it was not necessary that Emmett J distinguish between the rule formulated by Captain Frost and those variations of it.
104 Captain Pyett, who was called by the Carriers, seems broadly to have agreed with Captain Frost’s evidence as to ventilation of non-hygroscopic cargoes, particularly at TS 653-654 where this evidence appears:
‘During the course of a voyage from a cold climate to a warmer climate such as the subject voyages, the practice of ventilating the cargo hold is only undertaken when there is a need for that ventilation to occur; correct? --- Yes.
And you’ve given some examples in one of your reports, to remove odours in the event that the cargo was the type of cargo that might give off an odour? --- Mm.
The cargo in question in this voyage was all non-hygroscopic cargo; correct? --- Possibly not.
What cargo was hygroscopic? --- As I understand it, we may have had cargoes with timber cases, things like that. It’s ---
So there could have been some packaging? --- It’s a question of whether that’s cargo – is that cargo or is that packaging. So, you know, it’s not a purely non-hygroscopic example.
It’s predominantly a steel cargo with some machinery shipped with the steel? --- Predominantly, yes.
And there’s very little hygroscopic elements to the cargo? --- Without recourse to the cargo plan I wouldn’t like to say, but there would be an amount of hygroscopic material in there.
You’d agree though, that when the cargo is non-hygroscopic there is ordinarily no need to ventilate when moving from cold to warm climate? --- In most situations. Other, other reasons could require it.
What reasons? --- The need to ---
Like the odour that you described? --- Yes, you need to give the hold air clean, you need to, if you’ve got dunnage or wet things, you need to ventilate. But if you’ve got just a pure, dry non-hygroscopic cargo, perhaps not.’
105 The transcript records that the word "hydroscopic" was used throughout that passage but we have corrected it to read "hygroscopic" conformably with the earlier evidence in which the latter word was used consistently.
106 Emmett J generally accepted Captain Frost’s evidence concerning ventilation of steel cargoes on voyages from cold to warmer climates. The Carriers have demonstrated no good basis for disturbing his Honour’s acceptance of that evidence. We also accept it.
107 It follows that ventilation should not have occurred on either vessel, and that such ventilation as occurred was capable of causing condensation. However, the question is whether it did so and whether condensation caused the corrosion. At [158] Emmett J concluded that ventilation probably resulted in the ingress of air containing water vapour rather than the extraction of water vapour. In the notices of appeal, the Carriers challenged that finding. However, the matter was not addressed in submissions. We see no reason to doubt the availability or correctness of the finding. Whether such ventilation caused the corrosion was, potentially, a difficult matter. The alternative possibilities were that it was caused solely by the water present in the hold at the beginning of each voyage and by the Carriers’ failure to remove that moisture, or to reduce the amount to an amount less than the critical amount necessary for condensation to occur or, alternatively, by a combination of water in the hold and the entry of water vapour during ventilation.
108 It seems that this difficult issue was not raised at the trial. There was a dispute as to whether the corrosion was caused by condensation or water in liquid form penetrating the wrapping of the coils, but not as to whether any condensation was caused by water in the holds before sailing rather than by water having entered during the voyage. Emmett J did not differentiate between those causes in his reasons, and no such point was raised in the notices of appeal. It may be that ground 15 (‘His Honour erred in holding that ventilation resulted in the ingress of water vapour rather than the removal of water vapour’) would, if upheld, be a basis for asserting that the corrosion was caused by the presence of water in the holds before commencement of the voyages, and not as the result of ventilation. However the Carriers did not, in the course of the appeal, pursue any challenge to that finding or assert that the corrosion was attributable to any cause other than condensation occurring in the manner identified by Emmett J. It follows that his Honour’s finding that the corrosion was caused by the Carriers’ breaches of Art 3 r 2 should stand, subject only to the possible operation of Art 4 r 2.
ARTICLE 4 RULE 2
109 Paragraphs 12 and 13 of the defence in the case of the Ankergracht are as follows:
‘12. In further answer to the whole of the Amended Statement of Claim the Defendant says that the Rules provide that neither the Defendant nor the ship shall be responsible for loss or damage arising or resulting from, inter alia:
Act or omission of the shipper or owner of the Goods, his agent or representative;
Insufficiency of packing;or
Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier-; or
(d) Inherent defect, quality or vice of the Goods.
13. The loss or damage alleged arose or resulted from:
(a) Act or omission of the shipper or owner of the Goods, his agent or representative;
(b) Insufficiency of packing;or
(c) Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier; or
(d) Inherent defect, quality or vice of the Goods.
and in the premises the Defendant is not liable for any loss or damage.
Particulars
In respect of sub-paragraphs (a), (b)and(c), and (d):
i. The design of the coil wrapping system was such that moisture (sweat, condensation or wetting) could enter beneath the coil core and outer edge protectors. The coils were found to be wrapped with mesh reinforced, plastic clad paper sheeting. The way this had been applied involved the external wrap overlapping the coil wrap. This arrangement permitted moisture penetration beneath the core edge protectors to pass beneath the outer wrap and enter the coil itself. The coil wrapping system was inadequate in that it failed to keep the said moisture out of the coil interior.
ii. The metal end caps of the coils were not large enough in diameter to ensure that moisture on the outside of the metal cap did not get onto the inner wrapper underneath the outer whirl. The design of the bore wrapper and bore collar were such as to permit any moisture in the bore to get underneath the metal bore wrapper and collar and run down inside the end cap.
iii. The bore paper wrapper and the wrapper folded over the end faces of the coils was not joined properly allowing moisture accumulating in the bore to get under the metal wrappers and then through the inner paper wrapper at the bore to end face joins.
iv. The inner wrapper was unable to withstand moisture if it was folded or worked in any way in that the plastic membrane of the inner wrapper would separate from its brown backing paper allowing moisture to penetrate.
v. The coils should have been wrapped so as to provide a water proof vapour barrier. The inner wrapping of the coils failed in its function of excluding moisture.
vi. The coils were partly wet by rain in the barge upon delivery to the vessel for loading.
vii. During the course of the voyage the vessel’s hold was ventilated where and when appropriate to do so.’
110 In the case of the Archangelgracht, particular (d) is not included, presumably because the relevant cargo was not loaded wet. In these paragraphs the Carriers seek to engage subrr 2 (i), (m) and (q) of Art 4 and, in the case of the Ankergracht, also subr 2(m). However, most of the facts relied upon concern the packing of the coils.
Insufficiency of packing – Article 4 subrule 2(n)
111 At [146] Emmett J said, concerning packing:
‘It is apparent that the method of packaging employed by Tsuda, while in accordance with usual practice, was not such as would prevent the entry of water vapour in the air. The real issue in relation to the question of adequacy of packaging is whether, having regard to the nature of the steel, the packaging was required to be such that water vapour could not enter through it, or whether the packaging was sufficient if it was adequate to prevent the entry of loose water from external wetting, the burden being imposed upon the carrier to ensure that the conditions of carriage were such that water vapour in the air, which might infiltrate the outer and inner packaging, would not condense on the steel coils. Putting it another way, the question is whether the shipper was entitled to rely on the carrier to ensure that the conditions under which carriage was to occur would preclude condensation of water vapour in the air, or whether the carrier was entitled to assume that the packaging was such as to preclude the ingress of water vapour through the packaging.’
112 On appeal, the Carriers submitted that his Honour had not identified the correct test in that he had:
‘... assumed a burden imposed upon the carrier to ensure that the conditions of carriage were such that "water vapour in the air which might infiltrate the outer and inner packages would not condense on the steel coils".’
113 We do not infer from [146] that his Honour made any such assumption. He was simply trying to describe the practical effect of the duty imposed upon the Carriers by Art 3 r 2 in light of the exemption in Art 4 subr 2(n). The Carriers’ submissions concerning this aspect of the case seem to be largely irrelevant given their apparent acceptance of the finding that the corrosion had been caused by condensation and not by liquid water. Insufficient packing could only have been relevant if sufficient packing would have prevented condensation on the coils by preventing penetration by water vapour. The evidence did not establish that any available packing had that capacity. We will return to that matter at a later stage.
114 At first instance, reference was made to a text book "Steel Carriage by Sea", LLP Professional Publishing (Fourth Edition) London 2003, by A Sparks. The precise relevance of Sparks’ work is not entirely clear. At [31] his Honour described it as demonstrating ‘the standard method of wrapping steel coils’. His Honour also described the actual method of wrapping of coils at the mill which he considered to have been consistent with that described by Sparks. The Carriers submitted on appeal that the method of packing so used could not have been in accordance with usual practice because, as his Honour observed at [150], there was no evidence of previous successful shipment of such coils using the same method of packing. However, our understanding of his Honour’s remarks is that he inferred that Sparks described a standard practice for packing steel coils and concluded that this practice had been, at least substantially, followed at the mill.
115 The Carriers submitted that Emmett J had found that there was no evidence that the kraft paper actually used in wrapping the coils was typical of kraft paper ordinarily used for the shipment of such coils. The source of the references to kraft paper and its significance in this case are difficult to identify. His Honour certainly found, at [29], that the practice at the mill was to use kraft paper. In the course of argument before us, Counsel for the Carriers suggested that kraft paper was a particular brand of paper (TS 7l4). However, this is incorrect. The Shorter Oxford Dictionary defines the expression "kraft paper" to mean ‘a strong smooth-brown paper made from unbleached soda pulp’. The word "kraft" apparently is derived from the Swedish word for strength. In those circumstances it is a little difficult to understand the point of the dispute as to the precise quality of the kraft paper which was used. His Honour attached to his reasons the relevant pages from Sparks. There seems to be no mention in those pages of kraft paper.
116 The Carriers sought to place upon Stemcor the onus of establishing that the paper used was kraft paper. However, the Carriers bore the onus of establishing that they were entitled to the benefit of the exemption contained in Art 4 subr 2(n). They sought to do so by asserting that the fact of penetration by water vapour was evidence of the insufficiency of the packing. In oral submissions, although not in the written submissions, Counsel went so far as to suggest that sufficiency for the purposes of Art 4 subr 2(n) was to be assessed in that way and without reference to established practice or the general state of knowledge in the industry. We find that submission impossible to accept. It cannot have been the intention of the framers of Art 4 that packing should only be sufficient if it were capable of protecting the relevant goods from all conceivable damage.
117 Although there appears to be little direct authority on the point, such authority as there is suggests to the contrary. For example, in Silver v Ocean Steam Ship Co Ltd [1930] 1 KB 416, a case to which the Carriers referred, it appears clearly from the judgment of Scrutton LJ at 421 that the carrier sought to demonstrate insufficiency of packing by reference to the ‘usual method of conveyance’. Similarly, in Great China at first instance, reported at [1994] 1 Lloyd’s Rep 456, Carruthers J observed that ‘packing was consistent with normal, well established practice for world wide voyages’. We do not accept that the mere fact that damage had been caused by the penetration of water vapour justified a finding of insufficient packing. If the Carriers wished to rely upon a failure to comply with usual practice then it was for them to establish such failure. If Stemcor wished to rely upon compliance with usual practice, it was for it to establish that it had followed such practice. If neither side established the relevant matters in order to enable reliance upon a particular practice, then the practice was irrelevant to the resolution of the matter. However, the Carriers bore the ultimate onus of proof on the issue. In any event, as we have previously observed, there was no evidence suggesting that any form of kraft paper would have prevented the penetration of water vapour. Indeed, as we understand Professor Jones’ evidence, it is to the contrary effect.
118 Notwithstanding their pleadings and much of what appears in their written submissions, Counsel for the Carriers sought to retreat from the assertion that, in order to be "sufficient", the packing should necessarily have been impervious to water vapour. The assertion in each defence that the coils ‘should have been wrapped so as to provide a waterproof vapour barrier’, suggested, on its face, that the wrapping should have prevented all such penetration. However, in the course of oral argument, Counsel for the Carriers eschewed that position. No clear alternative meaning was identified. The Carriers’ change of position was probably motivated by the evidence given by Captain Pyett in cross-examination. He seems to have been the primary witness called by the Carriers in connection with packing. At para 23 and para 24 of his statement dated 7 April 2005 (exhibit 14.20W) he said:
‘23. To prevent the entry of any water or water vapour which may be present within the cargo spaces into the steel coil, the entire steel coil, including the bore, should be covered and or wrapped. The wrapping material used should also be properly sealed by either the use of sealing tape applied to all joins or an additional sealed plastic wrapper. This would prevent any moisture which may pool in the bore from leaking and coming into contact with the steel coil on the inside of the bore or running down the inside of the end caps. If such packaging methods were applied any moisture pooling would remain on the outside surface of the inner wrapping and not come into contact with the surface of the steel.
24. I am aware that other shippers of steel coils, such as BHP Steel and Nippon Steel employed a better method of wrapping moisture sensitive steel coils as outlined in paragraph 23. I have observed this better form of packaging on other steel coils from Korea and Taiwan. This method employs an additional sealed plastic wrapper over the top of the inner plastic coated paper wrapper, or an additional plastic film to the paper wrapper, which then results in both sides of the paper being covered with plastic. This completely seals the contents against any moisture ingress. These methods are cheap and cost-effective and easily applied before the final steel outer wrappers are fitted. The outer steel wrappers may also be applied in a different manner, so as to prevent any moisture from running down inside the end caps. This is simply done by fitting the outer circumference wrappers first, followed by the inner bore and outer edge protectors and lastly the end caps, securing the whole steel coil by radial and circumference straps.’
119 In Captain Pyett’s cross-examination at TS 646-648 the following passage appears:
‘So you say that the atmosphere within the hold and its relative humidity and other such measurements are irrelevant on the assumption that the cargo is homogenous, cold rolled steel, such as the cargo in these proceedings? --- If the packaging is perfect.
But you assume, do you not, the packaging is always or must be perfect in order to be, what you describe, as adequate? --- No, I wouldn’t say that.
Well, packaging – didn’t you agree with me earlier, that a summary of your opinion, as I understood it, is that the packaging in this particular instance, is inadequate in your view because it allowed water to penetrate into the steel coil? --- Yes.
Your view is that packaging must, in order to be adequate, be watertight? --- And vapour tight.
And vapour tight? --- Yes, no moisture should get through the packaging.
And in those circumstances it wouldn’t matter what happened in the hold in terms of humidity because you would assume that the packaging would be airtight and vapour tight? --- Only if that assumption was correct.
No, no, you are misunderstanding my question, I think, Captain Pyett, I will put it another way. You proceed on the basis that in order for packaging of steel coils, such as the present coils to be adequate, you require the packaging to be watertight and vapour tight, is that right? --- Well, I don’t require anything, it would be good practice if that was the case.
Well, let me ask you this: would you regard – I am sorry, I withdraw that. Isn’t it your opinion that you would only regard packaging as adequate if it was watertight and vapour tight? --- Yes, that would be excellent.
In those circumstances the conditions within the hold and the atmosphere and in particular, the relative humidity, would be entirely irrelevant for the care of that cargo? --- If that is the only cargo you have in the vessel ... .
What is the purpose of ventilating in the circumstances where the cargo is packaged entirely watertight and vapour tight? --- It ventilates your cargo space, keeps clean fresh air in there, looks after your ship condition in the hold, makes everything just right.
But the only thing you have got in there is the well packaged, as you understand it, coils and in those circumstances there is no need to ventilate at all, is there? --- Well, yes, there is.
But you are assuming, are you not, that the coils cannot be affected by any atmosphere or any environment within the hold because of the packaging? --- Yes, that’s your assumption.
Well, that is what you say is required in order for packaging to be adequate? --- Well, fair enough, I would like to see that, that would be a perfect packaging.
Putting aside what you would like to see, Captain Pyett, you’ve expressed opinions in your reports that packaging that you have seen is inadequate in these proceedings – the packaging that you’ve seen is inadequate, correct? --- Yes.
The basis of your opinion is, as I understand your evidence, that because the packaging allowed water to penetrate into the coil it must therefore be inadequate; is that your opinion? --- Basically.
It follows then that you would not consider packaging adequate unless it was entirely waterproof and vapour-proof; correct? --- If it was waterproof and vapour-proof I would be considering that to be perfect packaging.
Well, that’s what you consider to be adequate on the basis of your evidence so far? --- All right, then adequate, yes, good.
In those circumstances the atmosphere within the hold becomes entirely irrelevant; correct? --- No.
For the purposes of the cargo, sorry? --- For the purpose of the cargo it might, if it’s homogeneous cargo of those coils only.
And your opinion that packaging is inadequate unless it’s watertight or vapour-tight does not have any regard for what is industry practice but is simply based on what you understand to be the ability of the particular packaging in that case to keep water and vapour out? --- I’m not sure that I agree with that.
What material are you able to identify that is 100 per cent vapour-proof and waterproof? --- I have no idea.
So it has to be waterproof and vapour-proof in order to be adequate in our view; correct? --- Mm.
You aren’t able to assist us in identifying what material that might be; correct? --- That’s correct.’
120 Captain Pyett could not identify any form of wrapping which would prevent water vapour penetrating to the surface of the coils. Counsel for the Carriers submitted that his Honour placed too much reliance upon the answers given by Captain Pyett in cross-examination, but we are unable to see any merit in that argument. In our view, to the extent that the Carriers asserted that the wrapping of the coils had been insufficient because it was not impervious to water vapour, the assertion failed because they did not show that there was any such wrapping. We do not understand there to be any alternative basis for the Carriers’ purported reliance on Art 4 subr 2(n).
121 We should mention one other criticism of his Honour’s findings concerning packing. It arose out of a report by a Mr Paul Whitehead, dated 30 May 2003 and entitled "Coil Corrosion Problem". In it Mr Whitehead reported upon the problem with corrosion on coils shipped from Japan during winter months. We were told that he was the managing director of Stemcor. The Carriers asserted that the report was an admission relevant to the packing issue. The report focused upon the packing used on the voyages in question (described as "NISSC packing") and an alternative form of packing described as "NSC packing". Mr Whitehead summarised his understanding of the position on the final page of the report as follows:
‘Originally it was considered by the shipping company that the NISSC packing was not adequate because the side panel does not extend to the full diameter of the coil and the outer edge protection was too loose. However as indicated by the NSC packing which does extend to the full diameter and is tightly crimped water can and will get through the outer metal layer.
It would therefore seem that the problem with NISSC coil does not relate to the outer metal wrapping. From the above photos, it does seem that the inner paper wrapping used by NISSC is not effective. The inner paper wrapping used by NSC does appear to be effective and can stop water, or possibly water vapour from transmitting through to the other side.
However we have also shipped a lot of NISSC coils with chromate protection on board the same vessels with the same inner paper coating without any rust claims. On these occasions the paper does an effective job it would seem.
In conclusion there are a number of issues we would need to address in order to try to stop this continuing problem.
1) The coils are getting wet through condensation of moisture during the voyage. This is worse during the Japanese winter season as the vessel sails into the warm tropical region. We are intending to trial another shipping line who we believe will be able to provide greater ventilation of the hold and reduce the amount of condensation.
2) The paper being used as the inner wrapper is not effective at protecting the oiled coils in this environment when some moisture can be expected to ingress through the outer metal wrapping. Initial (sic) we request that NISSC investigate the NSC paper and urgently make a change to that paper.
Although we cannot be certain that these changes will resolve our problems we are hopeful that in combination they will almost eliminate rusting on NISSC coils. Samples of NSC and NISSC inner paper have been sent to you with this report including NSC paper with rusting on one side and NISSC paper that has partially stuck to the coils.
We look forward to your urgent comments on this issue.’
122 Although we were told that Mr Whitehead had professional qualifications, it is not at all clear that his opinion was that of an appropriate expert. Rather than being an admission of previous deficiencies the report identified an approach worth trying in order to avoid the corrosion problem. The primary step suggested for dealing with water vapour was better ventilation. The proposed change of paper related to improved water resistance and only "possibly" to penetration by water vapour. By 11 June 2003 Mr Whitehead was ‘not clear whether NISSC paper is any worse than NSC paper’. See his email to Jose Valdez, Fumia Sacki.
123 We consider that Mr Whitehead’s views cannot be construed as "admissions" in any relevant sense. In any event, there is no firm indication that NSC paper would prevent penetration by water vapour. Even assuming that the NSC wrapping would have been effective in that way, there is no evidence that this was known, or would have been discoverable, by Stemcor in late 2001 and early 2002. Finally, even if there had been an admission on behalf of Stemcor, it could hardly bind Tsuda.
124 Stemcor also challenged his Honour’s reliance on the evidence of Professor Jones. We see no reason for intervening in that respect. Much of the evidence of that witness concerned protection from exposure to liquid water rather than to water vapour. Professor Jones was not cross-examined, and so it was not suggested to him that it was possible to wrap the steel coils so as to protect them from the penetration of water vapour.
125 It follows that we see no basis for attributing the corrosion to insufficient packing.
Act or omission of the shipper or owner
126 The only particulars of the Carriers’ reliance on Art 4 subr 2(i) are allegedly insufficient packing and the fact that the coils were loaded wet. (The "particular" contained in para 13(vi) of each defence (that the holds were properly ventilated) can hardly be a particular of default by Stemcor.) Emmett J found that no coils were loaded wet on to the Archangelgracht. As to the Ankergracht, his Honour found that the corrosion was not attributable to coils being loaded wet, save perhaps to the extent that this resulted in an amount of water entering the hold. As we have said, whatever may have been the position adopted by the Carriers at first instance, no attempt was made on appeal to apportion responsibility for such condensation as between warm, moist air entering the hold during the voyage and the presence of water in the hold before the voyage commenced. In those circumstances the exemption is not established.
No fault of the carrier
127 Given the finding of breach of Art 3 r 2, the Carriers cannot sensibly rely on Art 4 subr 2(q). It may be argued that such an approach leaves few, if any, circumstances in which the subrule can operate. That may be a consequence of the approach to Art 3 and Art 4 which was identified in Great China.
Inherent defect, quality or vice
128 In the case of the Ankergracht, the relevant Carrier also sought to rely on Art 4 subr 2(m), by asserting that some coils had been loaded whilst wet. Emmett J found that the coils had not been damaged by water (as opposed to water vapour having penetrated the wrapping). As we have said, in those circumstances, any water on the outside of the coils could only have contributed to the corrosion in the sense that it had been part of the water present in the hold before the voyage commenced, and may therefore have been partly responsible for subsequent condensation. However, the case has not been conducted on the basis that such an apportionment of causation should be made. This ground of exemption has not been established.
OTHER MATTERS
129 We should also mention two other matters. The Carriers submitted that the coils were ‘highly susceptible’ to corrosion, rather than merely ‘susceptible’ to such damage. They claimed that they were aware of "susceptibility" but not of "high susceptibility". That may or may not have been so. However, we see no sensible distinction for present purposes between the two descriptions. All parties knew that the coils were susceptible of damage when in contact with water, including condensation. That is sufficient for present purposes.
130 The second matter concerns the Carriers’ characterisation of the condensation problem as ‘cargo sweat’. On appeal, they submitted that cargo sweat was an inevitable incident of shipping cargo from cooler to warmer climates, and that the Carriers were therefore not liable for it. No attempt was made to demonstrate such inevitability by reference to the evidence; nor was it explained how the assertion fitted into the structure created by Art 3 and Art 4. To describe condensation as ‘cargo sweat’ says nothing about its causes in a particular case. Here, Stemcor undertook the task of proving how it had occurred and was successful in so doing. Responsibility for its consequences is to be determined by a principled consideration of the facts and not by the use of labels. We see no substance in this aspect of the Carriers’ case.
ORDERS
131 Although we differ from the view taken by the primary judge as to seaworthiness, we agree that Stemcor established a cause of action against each of the Carriers pursuant to Art 3 r 2. The appeals should be dismissed in so far as they concern liability for the relevant damage. However, as we understand it, a substantial amount of time at the trial was spent on the issue of seaworthiness upon which, in our view, Stemcor ought to have failed. It may be that this will lead to a submission as to the appropriateness of the order for costs made at first instance. It may also affect disposition of the costs of the appeal. We shall order that the Carriers provide submissions in writing as to those matters within seven days of the publication of these reasons. Stemcor should file and serve its submissions not later than three days after receipt of the Carriers’ submissions. Any submissions in reply should be filed and served by the Carriers within one day of receipt of Stemcor’s submissions. Alternatively, it may be possible for the parties to agree upon appropriate orders as to the final disposition of all issues between them. If so, they may file draft consent orders for the consideration of the Court.
132 Lest there should be a need for a further hearing, the appeal will be adjourned to a date to be fixed with liberty to apply.
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I certify that the preceding one-hundred and thirty-two (132) numbered
paragraphs are a true copy of the Reasons for Judgment herein
of the Honourable
Justices Ryan and Dowsett.
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Associate:
Dated: 31 May 2007
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IN THE FEDERAL COURT OF AUSTRALIA
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NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
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NSD 23 OF 2006
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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C V SHEEPVAARTONDERNEMING ANKERGRACHT
Appellant |
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AND:
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STEMCOR (A/SIA) PTY LIMITED
First Respondent TSUDA CORPORATION Second Respondent |
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IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
IN ADMIRALTY
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NSD 24 OF 2006 |
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT
Appellant |
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AND:
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STEMCOR (A/SIA) PTY LIMITED
First Respondent TSUDA CORPORATION Second Respondent |
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JUDGES:
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RYAN, DOWSETT AND RARES JJ
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DATE:
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31 MAY 2007
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
RARES J
133 Stemcor (A/sia) Pty Limited is in the business of importing steel products into Australia for on-sale to various end-users and stockists here. Stemcor arranged to purchase a number of steel coils from Tsuda Corporation, a Japanese steel mill, in late 2001.
134 On 13 November 2001 the master of the MV Ankergracht issued three bills of lading at Yokohama, Japan, in which Tsuda was the shipper and Stemcor, the consignee at Sydney, for the carriage of the following cargo, described as:
• 36 prime galvanised steel sheet coils;
• 63 prime zinc alloy coated steel sheet coils;
• 54 prime zinc alloy coated steel sheet coils.
135 On 18 January 2002 Tsuda shipped a second cargo from Yokohama to Sydney on the MV Archangelgracht. Stemcor was again the consignee. Two bills of lading were issued for the carriage on the Archangelgracht of cargo described as:
• 14 prime zinc alloy coated steel sheet coils;
• 110 prime zinc alloy coated steel sheet coils.
136 All of the coils were of cold rolled steel. However, the particular coils were lightly oiled and had no chromate coating. They were un-passivated. Apart from the descriptions of the coils, neither the master nor those connected with each ship were informed expressly of the fact that the coils were unchromated and un-passivated. This condition made the coils highly sensitive to corrosion. These types of coils were not unusual cargoes and the sensitivity to corrosion of such oiled, unchromated cold rolled steel was well known to carriers. Each coil had clearly marked on its side a symbol consisting of an open umbrella with the words ‘keep dry’ underneath it.
137 Ultimately, when the vessels were unloaded, 52 of the coils on the Ankergracht were corroded to such an extent that they were a total loss, and 49 were corroded to a lesser degree. Thus, only about a third of that part of the Ankergracht’s cargo arrived in sound condition. When the Archangelgracht discharged its second cargo of coils, 23 were damaged, although only 4 of them were a total loss. Thus, about 80% of the Archangelgracht’s cargo of coils arrived in a sound condition.
138 The coils which were damaged had been affected by ‘cargo sweat’. That occurs when moisture in the hold, either in the form of water or humidity in the air, condenses on cargo which is cooler than the surrounding air in the hold, much like the condensation which occurs on the outside of a container of liquid when it is taken out of a refrigerator and placed at room temperature.
139 The three critical issues in the appeal are as follows:
1. Had each carrier exercised due diligence to make its ship seaworthy and to make the holds in which goods were carried fit and safe for their reception, carriage and preservation within the meaning of Art 3 r 1(a) and (c) of the amended Hague Rules (as set out in schedule 1 of the Carriage of Goods by Sea Act 1991 (Cth))?
2. Did each carrier comply with its obligation under Art 3 r 2 of the amended Hague Rules to properly and carefully load, handle, stow, carry, keep, care for, and discharge the coils carried?
3. Can the carriers rely on an exemption under Art 4 r 2 based on the packaging of the coils being:
• an act or omission of Tsuda or Stemcor (Art 4 r 2(i)); or
• insufficient (Art 4 r 2(n)); or
• some other cause which arose without the actual fault or privity of the carriers (see Art 4 r 2(q)); or
• in the case of the Ankergracht cargo only, some inherent defect, quality or vice of the goods from which the loss or damage arose (Art 4 r 2(m))?
140 Neither vessel was fitted with a dehumidifier. The primary judge considered that this resulted in each vessel being unseaworthy at the commencement of its voyage. He held the coils were known to be sensitive to moisture and the carriers either knew or ought to have foreseen that water in some form would be admitted into the holds during loading at that time of year. The judge found the carriers failed to exercise due diligence before the commencement of the voyage to take the reasonable steps of installing dehumidifiers to remove all excess moisture in the holds and ensuring that the dew point temperature of the air in the holds would not fall below the surface temperature of the coils, so that the coils would not be affected by corrosion due to their particular susceptibility to that kind of damage.
141 His Honour also held that the carriers were in breach of Art 3 r 2, because during the voyage water vapour was admitted into the holds when they were ventilated. The judge rejected the contention that, in effect, the shipper, Tsuda, or Stemcor was at fault for failing to package the coils in a way, which was alleged to have been done later, to avoid the damage from corrosion due to cargo sweat. He found the owner of the Ankergracht liable and entered judgment for $513,947.91 with costs. He also found the owner of the Archangelgracht liable and entered judgment for $74,984.71 with costs. His Honour made orders that the greater part of the costs be paid on an indemnity basis.
THE AMENDED HAGUE RULES
142 It was common ground that the relationship between the parties was governed by the provisions of the amended Hague Rules. Article 1 of the amended Hague Rules defines ‘carrier’ as including the owner who enters into a contract of carriage with a shipper. Article 3 relevantly provides that:
‘1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to-
(a) Make the ship seaworthy.
(b) Properly man, equip and supply the ship.
(c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.
2. Subject to the provisions of Article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried. ...’
143 Article 4 rule 2 of the amended Hague Rules relevantly provides that:
‘2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from –
...
(i) act or omission of the shipper or owner of the goods, his agent or representative.
...
(m) ... loss or damage arising from inherent defect, quality or vice of the goods.
(n) insufficiency of packing.
...
(q) Any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.
...’
BASIS OF THE APPEALS
144 The trial judge’s reasons distilled the complex factual and expert evidence with great lucidity. In substance, despite the prolix notices of appeal raising 44 grounds in each matter, there are three real issues. As his Honour noted, there was no dispute as to the primary facts relevant for the resolution of the proceedings, but rather the issues were as to the inferences to be drawn from those primary facts.
145 The carriers complain that his Honour should not have found that the vessels required dehumidifiers to have been fitted for them to have been seaworthy or cargoworthy within Art 3 r 1. They point to the fact that on each voyage a substantial number of the coils was carried without any damage from corrosion. The carriers argue that this, either by itself or in combination with the fact that there was no information given to the vessels about the particular sensitivity to corrosion damage of these coils, as opposed to other cold rolled steel coils, showed that the vessels were fit to receive and carry coils of cold rolled steel safely to their destination so that they might be discharged undamaged.
146 The judge said that the essential question was whether the carriers were entitled to assume that the packaging of the steel coils was sufficient to prevent water in any form penetrating the packaging, or whether Stemcor or Tsuda were entitled to assume that in the holds of the vessels there would not be sufficient water in any form, either as liquid or vapour, for condensation to occur on the coils.
147 The carriers say that the real cause of the damage arose because the coils were not properly packaged to withstand the ordinary rigours of a north-south voyage from the northern winter.
BACKGROUND FACTS
148 The Ankergracht and the Archangelgracht are sister ships. Each is an ‘A’ type vessel of 7,949 gross registered tonnes and 129.6 metres LOA. Each vessel has a single hold with a tween deck. There are three hatches with end folding (McGregor) type hatch covers. The vessels are part of a fleet operated by BV Spliethoff’s Bevrachtingskantoor. Stemcor had begun to use Spliethoff vessels in 2001 and had entered into an affreightment contract for a year which required it to use those vessels to ship steel unless Spliethoff had no vessel available at the time. Stemcor’s shipping manager, Mr Mahoney, knew that Spliethoff operated general cargo ships which carried a wide variety of steel cargo from other shippers for other consignees including plate, hot rolled and cold rolled steels, machinery and motor vehicles. Mr Mahoney was also aware of the nature of the vessels’ holds. The two shipments were among Stemcor’s first to Australia of coils of the type in question during the northern hemisphere winter. The two types of coils claused on the bills of lading were zinc coated coils (referred to as ‘galvanised’) and coils coated with zinc and aluminium, or zinc alloy coated coils (referred to as ‘aluzinc coated’).
149 Stemcor had purchased the coils for the purpose of resale to Australian Colour Coaters Operations Pty Limited. ACC’s business required coils which were either galvanised or aluzinc coated. It specified to Stemcor that the coils also had to be unchromated but oiled. Some chromate coatings can be detrimental to paint adhesion, hence ACC’s specification.
150 This specification has the important consequence that, if the surface of freshly galvanised or aluzinc coated steel is allowed to come into contact with water, either as a result of direct wetting or by the condensation of vapour, corrosion in the form of white rust occurs. If the water evaporates quickly, the corrosion will generally not be severe. But if water remains in contact with the surface at high humidity and under poorly ventilated conditions, severe corrosion may occur. And this form of corrosion can occur very rapidly. It can be observed within a few hours of wetting taking place.
151 However, if this kind of steel is left for long enough in dry air, a protective layer of basic zinc carbonate will form on its surfaces. The zinc coating reacts with the oxygen in the dry air to form zinc oxide. The oxide is porous and is formed away from the surface of the steel. His Honour explained that this oxide then reacts with moisture and carbon dioxide in the air to form a layer of basic zinc carbonate. That layer, once formed, acts as a sacrificial coating and the underlying steel becomes resistant to corrosion. Before that sacrificial coating forms on new coils, protection from corrosion can be obtained in two ways. One is to apply a light oil coating, as ACC required. The other way is to apply a chromate coating to the steel. That process, known as ‘passivation’, involves immersing the steel in a suitable chemical, such as chromate. Passivators inhibit corrosion. Natural passivation occurs when the oxide film becomes sufficiently developed to stifle further activity of the corrosion process.
152 As his Honour found, the descriptions of the coils in the bills of lading, mate’s receipts and shipping orders did not indicate that they were being shipped unchromated and unpassivated. Lightly oiled and unchromated coils are highly susceptible to corrosion if they come into contact with moisture.
153 Each of the coils in question was wrapped at the mill on the same day it was produced and then kept under cover while stored there. They were likely to have been kept dry while stored there. The mill’s practice was to then transport the coils by barge to the loading wharf at Yokohama. After the coils were loaded onto a barge they were covered during their transfer to the wharf, protecting them from rain during that stage.
154 The primary judge found that the coils were packaged in a manner consistent with standard practice for the packaging of cold rolled steel of the nature of the coils in question. This involved the steel being coiled around a hollow core with, as a general rule, an inner soft wrapping, usually paper, and an outer metal wrapping, including end caps and corner protectors before the coil is steel strapped. The coil is first wrapped in a single sheet of kraft paper, lined with an adhering film of plastic, the overlaps of which are not usually sealed. Kraft paper is strong, smooth brown paper made from unbleached soda pulp or wood pulp. After the coil is wrapped in the kraft paper, it is then fitted with an outer metal wrapper composed of waste steel sheets. Next, flat metal strapping bands are applied around the circumference of the coil and transversely through the centre core. Sometimes a metal disc is fitted on each end with protected rings in the form of angle irons surrounding the inner and outer circumference edges. That has a twofold purpose, as his Honour found, first to offer protection to the edges of the coil and, secondly, to fit a plain disc on the end, although the disc may not have been manufactured specifically to fit one size of coil. As noted above, the packaging of the coils included a standard symbol and note requiring that they be kept dry and handled with care.
THE ANKERGRACHT CARGO
155 Officers on the Ankergracht had a practice, during discharge and loading, of shutting the hatches if it began to rain, but that process took between 15-20 minutes to complete. Over the five days of loading at Yokohama in November 2001 there were periods of rain, as was common there in the winter months. A number of items of cargo was loaded wet. Some of the items had become wet on the wharf, others in the barges from which they were taken. Some of the cargo included covered steel, the covers of which were capable of collecting water in their folds if they were exposed to rain. Other cargo included steel plate in timber crates resting on the ground which was wet with pools of water or had wet covers. Some covers appeared to be capable of absorbing water. And, as is usual practice, the crew of the Ankergracht used dunnage during the loading. Dunnage consists of timber which is used to separate items of cargo in the hold of a vessel. The timber could have absorbed water when it rained before being placed in the hold.
156 The Ankergracht sailed from Yokohama on 13 November and arrived in Brisbane on 26 November and in Sydney on 29 November 2001. In Sydney the coils for ACC were transferred to that company’s premises and shortly after, when unpacked, they were seen to have suffered the corrosion damage described above.
THE ARCHANGELGRACHT CARGO
157 The Archangelgracht loaded at Yokohama between 16 and 18 January 2002. Its cargo consisted of a variety of steel, including steel pipe, plate, angle, bar, wire and sheet in addition to the coils in question here. Some cargo loaded on the Archangelgracht in Yokohama was recorded as being wet but there was no evidence that the ACC coils were wet when loaded. There were periods of rain on 16 and 17 January 2002 and loading stopped at that time. His Honour found that other cargo loaded at Yokohama was wet with rain and that there was some sweat inside pipes forming part of the cargo. Cargo loaded subsequently at Kobe also had partly wet covers consisting of loose wrapped fabric similar to plastic coated tarpaulin material. The judge found that that cargo was wire rod and the manner of wrapping it made it likely to be capable of retaining a significant amount of free water in the folds of the wrapping. Dunnage was also used on the Archangelgracht.
158 The Archangelgracht sailed from Yokohama on 18 January and arrived at Kobe on 20 January. She left Kobe on 22 January and arrived in Brisbane on 9 February and in Sydney on 13 February 2002. Again, when the second cargo of coils was transferred to ACC’s Sydney premises, a number was found to be damaged by corrosion.
CARGO SWEAT
159 Condensation from moist air can form on steel coils in the hold of a ship if the surface temperature of the coils is below the dew point of the temperature of the air surrounding the coils or the velocity of the air moving in the hold across the coils is low enough to permit the air to cool. The dew point temperature is the temperature at which air becomes saturated or has 100% relative humidity. As his Honour explained, based on the expert evidence of Dr Bellstedt, the exact chemical composition of air can vary significantly at different temperatures. One gas that can be found in air is water vapour. Normally, ambient air is not at the upper limit of water vapour which it can hold at the relevant temperature. The degree of saturation of ambient air is expressed in practical terms as relative humidity. Air at 50% relative humidity contains 50% of the moisture that would be contained in saturated air at the same temperature. The saturation limit of air is related directly to the air temperature and so cooling or heating air will change the relative humidity of the air, heating decreasing the relative humidity (that is increasing the amount of water that the same volume of air can hold before becoming saturated) whilst cooling increases the relative humidity.
160 If the air containing moisture is cooled until the relative humidity of that air is 100%, it becomes saturated. This is the air’s dew point temperature. Any further cooling below that temperature results in moisture being deposited, in the form of condensation, on the surface that is cooling the air. The dew point temperature of air depends on its moisture content. The higher the temperature, the more water vapour the same amount of dry air is able to hold.
161 Direct measurement of dew point temperature is difficult and generally not practicable, particularly in the hold of a ship at sea. One practical way, used by each ship’s crew while the Ankergracht and the Archangelgracht were at sea, is to use a wet bulb thermometer to measure what is known as wet bulb temperature. It is not necessary to go into the mechanics of that process. When air containing moisture comes into contact with a cold surface, the cold surface will cool it. Moisture will condense on the surface unless the velocity of the air is sufficiently high that there is not enough time for the air in contact with the cold surface to be cooled by it. If it does cool, the relative humidity of the air near the cold surface increases. And, if the temperature of the surface is lower than the dew point of that air, then the air in immediate contact with the cold surface will release moisture to the cold surface causing condensation to form on the surface. As his Honour explained, on a clear, still night, dew forms, but not so on a windy night.
162 The primary judge found that the corrosion damage to the coils was caused only by condensation which occurred after each sea voyage had commenced. This finding was not challenged in argument on the appeal.
DURING THE VOYAGES
163 During a voyage from Japan in the winter conditions of the northern hemisphere, to the Australian summer, the condition of the air within the hold and the temperature of the steel coils is likely to change. Even though each hold is sealed, air can leak into it from the outside or the crew can intentionally ventilate it. The outside air would be at different temperatures and contain different levels of moisture compared to the air in the hold. There would also be a change of the temperatures of the air and the coils within the hold caused by heat transmission through the ship’s structure. Heat would enter the hold from the warmer, ambient air or sea outside, through the hull and hold layers. The amount of heat flow depends on the characteristics of the ship’s design as well as the outside temperatures compared to the temperature inside the hold. If air with a higher moisture content enters the hold from outside, the likelihood of subsequent condensation in the hold will increase.
164 His Honour found that it was possible for condensation to have occurred during the voyage if moist air had entered into the hold but at the time insufficient heat had entered the hold to increase the steel temperature to match the then higher dew point temperature of the air within the hold. The data of ambient dry bulb and sea water temperatures and barometric pressures within the lower deck and tween deck areas recorded on the Ankergracht and Archangelgracht were examined by Dr Bellstedt. His Honour, accepting this evidence, concluded that the dew point levels in the holds exceeded the coil temperatures for most of each voyage so that condensation on the coils would almost certainly have then occurred. Thus, his Honour found that it was more likely than not that condensation did occur during the course of each voyage and led to corrosion on at least some of the damaged coils on the Ankergracht and all of the damaged coils on the Archangelgracht.
165 A number of the coils on the Ankergracht had mate’s receipts claused ‘partly wet by rain in barge’. His Honour found that a barge laden with some of Stemcor’s coils for loading on the Ankergracht had been exposed and the coils were wet in the barge. He found that on the balance of probabilities it was more likely than not that they were not wetted subsequently in the course of loading onto the vessel, because the crew had given evidence that the hatches were closed and there was no loading during the period in which it was raining. But his Honour found that it was more likely than not that, even if the coils were wet in the barge, water did not infiltrate the external and inner wrappers prior to loading the coils onto the Ankergracht. He accepted that it was a possibility that liquid water present from the rain while the coils were in the barge infiltrated the packaging. Nonetheless he found that the nature and distribution of the corrosion observed on the steel coils was consistent with condensation.
166 Additionally, there were differences in the timing and periods of ventilation between the Ankergracht and Archangelgracht which explained the differences in the damage observed after discharge. The judge noted that in only one case, in the Ankergracht cargo, was there evidence of water actually passing beneath the core edge protector’s outer paper wrap and entering one coil itself, and that the rest of the cargo did not exhibit any sign consistent with extensive external wetting being the source of the damage.
HOW THE VESSELS’ CREWS DEALT WITH MOISTURE IN THE HOLDS
167 The master of the Ankergracht, Capt Koenen, said that during the course of a voyage it was the normal practice of the chief officer to instruct able seamen on the vessel to wipe condensation, if any, from the cargo, ‘... in particular, the coils and steel plate, where access to the cargo is possible and the sea conditions permit doing so with safety. The seaman simply uses rags to wipe off the condensation from the cargo’. He said that, based on his experience of visiting the port of Yokohama in the 16 years prior to 2002, winter time there was mostly cloudy and overcast with rain or even, at times, snow. He said that when it was cloudy and overcast it was very difficult, if not impossible, to foresee rain showers and that the first one knew of it was when it started to rain. He estimated that it would take about 20 minutes for the crew to close all three hatches, if they were open, once the order to close them was given.
168 Capt Koenen had no specific recollection of how the actual cargo was loaded in Yokohama on the November 2001 voyage of the Ankergracht. But, he said that it was very often the position that some of the cargo would be wetted with rain at the time of loading. He knew from experience that at Yokohama cargo was often stored in the open, some of it consisting of machinery and other parts consisting of timber pallets, racks or timber crates. He said that if it rained prior to loading, those cargoes, including the timber pallets, racks or crates, would also get wet.
169 Capt Koenen then observed that if such cargo was loaded wet, his usual practice at the time was to instruct the crew: ‘... to try to dry that cargo as best they can before the vessel sails. They would try to do so using clean dry rags. However, such drying can only be done when and where it is safe to do so’ (emphasis added). I have emphasised in this passage and the next the imprecision of the practice of which Capt Koenen spoke. He continued:
‘If cargo operations are continuing in the area near the cargo which has been loaded wet, then I would not allow the crew to go into that area to try to dry the wet cargo whilst cargo operations are continuing, as it would be unsafe for them to do so. Also, wet cargo can be very slippery and this is another reason why I instruct the crew to try and dry it. Once the cargo operations have ceased completely, if some of the cargo is still wet, I would usually ventilate to try and remove the remaining moisture if the conditions are appropriate.’ (emphasis added)
170 Capt Koenen’s evidence showed that the practice at Yokohama was to load wet cargo and not to dry it thoroughly before the vessel sailed. Attempts would be made to dry the cargo. But as the chief officer on the Ankergracht, Mr Remminga, said in his evidence, if a lot of cargo had been wetted with rain, it was not possible for the crew to dry all of it manually. Some cargo is not capable of being dried thoroughly in any event. He gave as an example machinery, which Capt Koenen had said was frequently loaded wet because it was stored in the open. Chief Officer Remminga also said that if cargo had been loaded wet and it was over-stowed with other cargo, it may not be possible to get to the wet cargo to dry it with rags. He said that a good example was steel coils which usually would be stowed in rows two tiers high so that ‘it is physically not possible to reach all of the coils’. Each officer said that he would not reject cargo such as machinery or coils, wrapped with an outer casing, which was presented wet at the time of loading.
171 Chief Officer Remminga also said that if water entered the hold and was apparent on the vessel’s tank top or tween deck, then his usual practice at the time of the Ankergracht’s November 2001 voyage was to instruct the crew to mop it up ‘as best they can’. He said that the crew would use squeeze type mops to do so but that:
‘I will only instruct them to mop up such water as long as I think it is safe for them to enter that particular space. If [sic] would not be safe for them to do so if for instance cargo is being worked near that area and if that was the case, I would not instruct them to enter into that space.
It is not possible to mop up all the rain water that may have entered the hold. Some of the water may run under cargo or into spaces which are not accessible to the crew.’ (emphasis added)
172 Capt Woolthuis was the master of the Archangelgracht on the voyage from Yokohama in January 2002. Like Capt Koenen, he said that the normal practice of the chief officer was to instruct the vessel’s able seamen to wipe condensation, if any, from the cargo, and in particular the coils and steel plate, ‘where access to the cargo is possible and the sea conditions permit doing so with safety’. The seamen simply used rags to wipe off any condensation from the cargo.
173 The chief officer of the Archangelgracht, Mr Van Wijk, recalled sweating of the vessel’s cargo, particularly the coils and steel plate, during the voyage in question. He recalled giving an instruction to the able seamen to wipe the condensation from the cargo and that one of them injured his foot whilst climbing over coils in wiping them down. Of course, that activity occurred after it is likely that corrosion had damaged coils on the voyage. The condensation on the outer surfaces of the coils evidenced the presence of moisture not just there, but within the folds of the coils, where the real damage complained of occurred.
174 This evidence demonstrated that whatever may have been the practice of mopping or wiping the cargo and other areas to remove moisture, each ship’s master knew that this still left sufficient loose water to require ventilation during the voyage, if that were possible. And even then, that may not have been effective to remove all moisture from the holds.
175 The masters also knew that the loading of each vessel at the time of year in Yokohama was likely to result in the admission of free water by a number of means, including on wetted cargo, through rain entering the holds while they were open and on dunnage, which would not be removed completely by the wiping and mopping operations. Moreover, each ship’s officers emphasised that they would not direct mopping or wiping when the cargo was being worked (as would have been the case whenever the hatches could be opened) or when it was not safe to do so. The same applied when the vessels put to sea. In addition they were aware of the presence of moisture in air both within the holds and incoming during ventilation.
176 It follows that there was no certainty that if water entered the holds in any of the ways described, it would be removed prior to the commencement of the voyage or at any time during the voyage. Indeed, there was every reason to think that water would remain in the holds whatever attempts were made to remove it.
177 In this connection, Dr Sharp, a consultant research scientist called by the carriers, said that given the nature of the cargo carried there could have been liquid water present in the holds which was not obvious. He prepared a report which said that when the Ankergracht sailed from Yokohama on 14 November 2001, the total quantity of moisture present in the air within the hold was 213 kilograms. He estimated that the Archangelgracht sailed from Kobe on 22 January 2002 with a total quantity of moisture in the air within the hold of 81 kilograms. Dr Sharp also estimated that there was between 1,000 and 2,000 litres of ‘available moisture’ in the dunnage within the hold of each vessel at the time of sailing. He said moisture would be released by the timber dunnage as air circulated in the hold by fan or natural convection.
178 Dr Bellstedt had estimated that only 68 litres of open water needed to be present in the hold of the Archangelgracht to saturate the air at the time the hold was closed. And Capt Pyett said that cargo sweat was almost inevitable on the voyages.
WERE THE SHIPS SEAWORTHY?
179 The first question posed by Art 3 r 1(a) of the amended Hague Rules is an objective one, namely: was the ship seaworthy? If not, the next question is whether the carriers exercised due diligence in the provision of the ship so as to fulfil their obligations under Art 3 r 1(a). Like his Honour, I will approach each of these in turn.
180 The operation of the amended Hague Rules was discussed in Great China Metal Industries Co Limited v Malaysian International Shipping Corporation Berhad [1998] HCA 65; (1998) 196 CLR 161. The detailed content of the obligation to exercise due diligence to make the ship seaworthy was not the subject of consideration by Gaudron, Gummow and Hayne JJ, or Kirby J or Callinan J (see 196 CLR at 175 [33], 216 [143], 241-243 [221]-[226]). Rather, their Honours looked at the question of whether, when the ship put to sea, she was seaworthy in order to be able to meet the perils of the sea. That case involved consideration of the kinds of conditions that the vessel might encounter in the sense that, first, she would arrive safely at her destination and, secondly, she would carry her cargo safely to that destination, so as to be found to be seaworthy (196 CLR at 175 [33] per Gaudron, Gummow and Hayne JJ).
181 The question of seaworthiness has to be judged at the time the vessel sailed. This involves considering how she was loaded and stowed (196 CLR at 174 [29]). Gaudron, Gummow and Hayne JJ pointed out that the standard of fitness is not unchanging and can and does rise with improved knowledge of ship building and navigation (196 CLR at 174 [30]). They said that some of those additional matters to which they had referred found direct expression in the amended Hague rules and in particular in Art 3 rr 1(b) and (c). They also said:
‘Fitness for the voyage may also encompass other considerations as, for example, the fitness of the vessel to carry the particular kind of goods or the fitness of crew, equipment and the like. The question of seaworthiness, then, may require consideration of many and varied matters.’ (196 CLR at 175 [31])
182 McHugh J said that the term ‘seaworthiness’ in Art 3 r 1 should be given its common law meaning, a meaning which depended upon the voyage to be undertaken (196 CLR at 193-194 [86]). He emphasised that Art 3 rr 1 and 2 have different operations. If unseaworthiness is relied on, the cargo owner must prove that the loss or damage resulted from the unseaworthiness proved to be a breach of the carrier’s obligations under Art 3 r 1. If such unseaworthiness is established, the carrier then has an obligation to prove that it had exercised due diligence to make the ship seaworthy. On the other hand, if the cargo owner alleged a breach of Art 3 r 1(b) or (c), his Honour said that the cargo owner must prove both a lack of due diligence in respect of that matter and that the loss or damage resulted from that breach (196 CLR at 194 [87]). McHugh J continued (196 CLR at 194 [88]):
‘[88] Article III, r 1 therefore effectively imposes an obligation on the carrier to carry the goods in a ship which is adequate in terms of its structure, manning, equipment and facilities having regard to the voyage and the nature of the cargo. If the carrier breaches that obligation and, as a result, the goods of the owner are lost, it is not to the point that a concurrent cause of the loss was a peril of the sea or one of the other matters enumerated in pars (a)-(q) of Art IV, r 2. Of course, it is possible that one of the matters referred to in those paragraphs may be the sole cause of the loss or damage even though the ship is unseaworthy. In that event, the cargo owner's claim will fail - not because the carrier comes within the immunities identified in Art IV, r 2 but because the owner has failed to prove that the loss or damage has resulted from unseaworthiness.’
183 And, in Huddart Parker Ltd v Cotter [1942] HCA 34; (1942) 66 CLR 624 at 663-664 Williams J said that if a defect is sufficient to render the ship unfit for the due and safe carrying of goods or the crew and it is not a defect which can be readily cured on the voyage, it would constitute unseaworthiness.
184 Before us there was some debate as to whether seaworthiness included the notion of ‘cargoworthiness’. Long ago, Lord Esher MR said in Owners of Cargo on Ship ‘Maori King’ v Hughes [1895] 2 QB 550 at 556 that although ‘seaworthy’ in this context was not strictly an accurate term, it meant that, for example, machinery on a vessel had to be, at the time of shipment, fit as machinery to carry the cargo to the destination under the ordinary conditions of an ordinary voyage (see too at [1895] 2 QB at 559 per Kay LJ, 561 per AL Smith LJ). Scrutton LJ also showed that seaworthiness included cargoworthiness, as indeed Art 3 r 1(c) recognises, when he explained in AE Reed & Co Ltd v Page Son & East Limited [1927] 1 KB 743 at 754 that the common law warranty included ‘... fitness of the ship to receive the contemplated cargo as a carrying receptacle. A ship may be unfit to carry the contemplated cargo, because, for instance, she has not sufficient means of ventilation, yet be quite fit to make the contemplated voyage, as a ship.’ And, the very example chosen by Scrutton LJ is the issue on this part of the present case. In Treitel G and Reynolds FMB, Carver on Bills of Lading (Sweet & Maxwell, 2001) at [9-016], the learned authors say that the ship must be suitable for carrying cargo of the type contemplated on the voyage contemplated and that for this aspect of seaworthiness the word ‘cargoworthiness’ is sometimes used. They concluded that it is clear that the term ‘seaworthiness’ is nowadays to be taken as covering both concepts. Indeed, Hill J held that the concept of seaworthiness covered cargoworthiness in BHP Trading Asia Ltd v Oceaname Shipping Ltd (1996) 67 FCR 211 at 229C-D.
185 The question of seaworthiness is concerned with the state of the vessel, rather than whether the carriers acted prudently or with due diligence: Eridania S.p.A. v Rudolf A Oetkeer (The ‘Fjord Wind’) [2000] 2 Lloyd’s Rep 191 at 199 [24] per Clarke LJ. In Great China Metal 196 CLR at 174 [27], 194 [86], Gaudron, Gummow and Hayne JJ and McHugh J said that ‘seaworthiness’ was to be ascertained by reference to the voyage to be undertaken, applying what Williams J had said with the concurrence of Rich J (as the majority) in Cotter 66 CLR at 663. There, Williams J applied the following passage taken from Carver on Carriage by Sea (which was adopted by Channell J in McFadden v Blue Star Lines Ltd [1905] 1 KB 697 at 706 and by Scrutton LJ in FC Bradley & Sons Ltd v Federal Steam Navigation Co Ltd (1926) 24 Ll. L. Rep 446 at 454):
‘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 all the probable circumstances of it. Would a prudent owner have required that it should be made good before sending his ship to sea, had he known of it?’
186 Clarke LJ said that the only relevance of the standard of the reasonably prudent owner ‘... is to ask whether, if he had known of the defect [his Lordship’s emphasis], he would have taken steps to rectify it’ (The ‘Fjord Wind’ [2000] 2 Lloyd’s Rep at 199 [24]).
187 Scrutton LJ held that the vessel has to be ‘reasonably fit’ (FC Bradley 24 Ll. L. Rep at 454). He also held that it was well established that a ship was not unseaworthy, at the beginning of the voyage, because of a defect which could easily be rectified on the voyage in the ordinary course of management, giving the well known example of an open porthole used in Steel v State Line Steamship Co (1877) 3 App Cas 72 (see too Gilroy Sons & Co v WR Price & Co [1893] AC 56 at 64, 66, 67). Scrutton LJ said that, if an open porthole could be at once discovered and closed, the fact that it was open was not unseaworthiness, whereas if it were in such a position that it could not reasonably be discovered or reached on the voyage so as to close it, the vessel was unseaworthy (24 Ll. L. Rep at 455). His Lordship continued (24 Ll. L. Rep at 455):
‘But there are other cases where the facts, if known, would not be considered by a prudent owner, in the existing state of knowledge, dangerous; and also where, if the danger were known, the existing appliances on the ship could be used to remedy it, even if more suitable appliances were, after the danger was known, inserted. In such a case the ship would be seaworthy, though subsequent knowledge would have required different use of the existing appliances and even of more suitable appliances.’
188 In the House of Lords (FC Bradley & Sons Ltd v Federal Steam Navigation Co Ltd (1927) 27 Ll. L. Rep 395), Viscount Sumner (with whose speech Lords Carson, Atkinson, Wrenbury and Blanesburgh agreed), said in dealing with a case of alleged inadequate ventilation of a cargo of Tasmanian apples (27 Ll. L. Rep at 397):
‘Nor could the ship be said to have been sent to sea in an unseaworthy condition, on the ground that the stoppage of ventilation could not be undone in case of need - if, for example, damage was found to be extending in the cargo - for, if ventilation was required, the ship had very ready means of admitting air when necessary, by opening hatches and so forth; and to the extent to which, according to the knowledge of the time, this might be requisite, the officers were free and able to do so. They were not sent to sea fettered by inviolable orders never to alter the ventilation system at all, but they were instructed in what was believed to be the better system, and in general they kept the holds sealed.’
189 The test of seaworthiness expressed in the passage from Carver is of course but one way of putting the matter (see Boyd SC and Burrows AS, Scrutton on Charterparties and Bills of Lading (20th ed, Sweet & Maxwell, 1996) at 97; The Arianna [1987] 2 Lloyd’s Rep 376 at 386 per Webster J citing Kerr LJ in The Derby [1985] 2 Lloyd’s Rep 325 at 332). Importantly, Viscount Sumner said (27 Ll. L. Rep at 396):
‘In the law of carriage by sea neither seaworthiness nor due diligence is absolute. Both are relative, among other things, to the state of knowledge and the standards prevailing at the material time. The words "properly equipped" in the [Sea Carriage of Goods Act 1904 (Cth)] also, in my opinion, import no absolute propriety, whatever that may be, but must be read as being relative only. For seaworthiness, the material time is the date of sailing; for due care, the period of the voyage.’
190 That statement was approved by the Supreme Court of Canada in Western Canada Steamship Co Ltd v Canadian Commercial Corporation [1960] SCR 632 at 643; [1960] 2 Lloyd’s Rep 313 at 319 per Ritchie J (with whom Locke, Cartwright, Martland and Judson JJ concurred). McNair J applied the test in MDC Ltd v NV Zeevaart Maatschappij ‘Beursstraat’ [1962] 1 Lloyd’s Rep 180 at 186, saying:
‘It seems to me that, using that test, the shipowner who knows that in the ordinary way cargoes of this kind will inevitably suffer some minor damage by way of condensation staining or wasting of a few bags would not hesitate to send this ship to sea even though he knew that, if the ship had a bit of bad luck, she might run into some weather which involved rather longer periods of closing the hatches than would have been involved on another voyage.’
191 Article 3 r 1 is not in the absolute terms which the previous common law warranty of seaworthiness imported into a contract of carriage of goods by sea. The common law warranty of seaworthiness required the ship owner to have ‘... the ship reasonably fit for the carriage of the goods’: Tattersall v National Steamship Company Limited (1884) 12 QBD 297 at 301 per AL Smith J; applied in Atlantic Shipping and Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250; see too Steel 3 App Cas 72 at 76-77 per Lord Cairns LC. Lord Blackburn said (in Steel 3 App Cas at 86) that in every contract to carry goods in a ship, unless there be something stipulated which should prevent it, the carrier promises that the ship shall be fit for its purpose. He continued:
‘That is generally expressed by saying that it shall be seaworthy; and I think also in marine contracts, contracts for sea carriage, that is what is properly called a "warranty", not merely that they should do their best to make the ship fit, but that the ship should really be fit.’
192 That rigour of obligation was reduced by the obligation created in the Hague Rules and the amended Hague Rules that the carrier was bound to exercise only due diligence to make the ship seaworthy and to make the holds, relevantly, fit and safe for the reception, carriage and preservation of the goods that were to be carried (see also s 17 of the Carriage of Goods by Sea Act 1991 (Cth) which negates for Australian contracts of carriage of goods by sea any absolute warranty of seaworthiness). Williams J in Cotter 66 CLR at 663 (Rich J agreeing) referred with approval to Channell J’s statement in McFadden [1905] 1 KB at 706 that the absolute warranty of seaworthiness meant that ignorance of the shipowner of any defect in the vessel was no excuse.
193 And, as Auld LJ pointed out in Northern Shipping Co v Deutsche Seereederei G.m.b.H. (The ‘Kapitan Sakharov’) [2000] 2 Lloyd’s Rep 255 at 271, ‘unseaworthiness is a physical state’. Thus loading a cargo in a sealed container, which contained dangerous goods that were not declared to the carrier, was held to make a vessel unseaworthy because, its physical state, with that cargo, endangered her. But, the English Court of Appeal was not prepared in those circumstances to extend the reach of Art 3 r 1 to impose the liability which the common law warranty of seaworthiness entailed. Auld LJ explained that the inescapable personal obligation of a carrier to exercise due diligence, as applied in Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807 at 871:
‘... did not extend it to a responsibility for the conduct of manufacturers or exporters, or of shippers in their stuffing of containers and description of their contents; see also Maxine Footwear Co. Ltd. v. Canadian Government Merchant Marine Ltd ([1959] AC 589), per Lord Somervell at ... 602. In my view, there is no warrant in the facts of those cases or the rationes of them for extending a carrier’s duty of due diligence as to the structure and stowage of its ship to a physical verification of the declared contents of containers or other packaging in which cargo is shipped, unless put on notice to do so. As Mr. Macdonald observed, in the case of shipper-packed containers - the norm nowadays - the containers are, in any event, closed with a customs seal and not capable of internal examination by the carrier or his agents.’ ([2002] 2 Lloyd’s Rep at 272; Brooke and Hale JJ agreed.)
194 Auld LJ said that neither at common law nor under the amended Hague Rules was the carrier responsible for unseaworthiness of its vessel ‘... resulting from a shipper’s misconduct of which it, the carrier, has not been put on notice’ ([2000] 2 Lloyd’s Rep at 273). He equated this to a latent defect in cargo which a carrier could not with the exercise of reasonable skill and care have detected in the cargo. That is not apposite to a case like this.
SEAWORTHINESS, DUE DILIGENCE AND ARTICLE 4 RULE 2
195 The carriers here were aware that this cargo was susceptible to corrosion. The carriers argued that the insufficiency of packing exception in Art 4 r 2(n) evinced an intention in the amended Hague Rules to allocate risk between carrier and shipper interests. They said that the judge had subverted the scheme of risk allocation which the amended Hague Rules effected by imposing an absolute obligation on the carriers not to permit the entry of water vapour into the hold.
196 The carriers’ argument eschews the factual context. They had accepted the cargo as being in apparent good order and condition for the carriage on the voyage. The carriers knew of the sensitivity of the cargo to the effects of water vapour, and, in particular, to cargo sweat. The cargo bore its own, visible, warning sign that it should be kept dry. Under the settled interpretation of the amended Hague Rules, Art 3 r 1 operates to impose an obligation on the shipowner at a time before, and independently of, the operation of Art 3 r 2 and Art 4. The carriers had to conform to their obligations under Art 3 r 1 to exercise due diligence to make the vessels both seaworthy and cargoworthy in the senses explained above. There was nothing unusual about the cargo which the shipper (Tsuda) or Stemcor needed to reveal to the carriers, for the evidence showed its relevant characteristics were well known, unlike the characteristics of the fish in Albacora S.R.L. v Westcott and Laurance Line Ltd [1966] 2 Lloyd’s Rep 53. And the evidence justified the judge’s finding that the packaging was usual.
197 In that context, the obligation to exercise due diligence under Art 3 r 1 must relate to the known characteristics of the vessels on a voyage at the time of year between Yokohama to Sydney to experience condensation or cargo sweat. The exercise of due diligence had to have regard to the likelihood that either free water or water vapour would be present in the holds. And due diligence required preparation of the holds for the real possibility that it may not have been possible to ventilate them or, if it were, that water vapour could then enter the holds, because the temperature measurement methodologies available on the vessels were not sufficiently precise to ensure that condensation or cargo sweat would not occur. These issues are considered in more detail later in these reasons. Suffice to say that, in striking a practical balance for the exercise of due diligence under Art 3 r 1, his Honour was correct to avoid using Art 4 r 2(n) to confine or reduce the due diligence the carriers had to undertake to prepare the vessels for the voyage, on which known conditions, harmful to the cargo, were well understood but not the subject of reasonable efforts to eliminate them (see too Associated Metals & Minerals Corp v M/V Olympic Mentor 1997 AMC 1140 at 1155 (USDC S.D. NY)).
SEAWORTHINESS AND DUE DILIGENCE – OTHER ISSUES
198 The judge noted that water had entered the holds on and within other items of cargo that were loaded, including timber packaging and dunnage. The amount of water in the holds meant that condensation during the voyages was virtually inevitable unless a proper method of removing the moisture were in place. The holds were more than 84 metres long and more than 15 metres wide. The amount of water that was required in the hold of either vessel for condensation to occur was 68 litres.
199 His Honour found that there was no evidence that the hatches of either vessel were defective in any way so as to render them unseaworthy or not fit and safe for the reception and carriage of the coils. And there was no evidence of any leakage of moist air into the hold of either vessel through the hatch covers. He found that the parallel increases in temperature inside and outside the holds could be explained by the conduction of heat through the structure of the vessels as well as inevitable breathing through holds that were not defective, and that, as the temperature of the outside air and water rises, one would normally expect the temperature of a vessel and its holds to follow that rise. The primary judge found that the evidence did not establish that the use of heaters in vessels was a common place, and that there was no evidence that enabled any finding of unseaworthiness to be made because of absence of any heaters in the holds.
SEAWORTHINESS AND DUE DILIGENCE – DEHUMIDIFIERS
200 The primary judge, however, held that the Ankergracht and the Archangelgracht were unseaworthy at the commencement of their respective voyages because of the absence of dehumidifiers to remove water from the holds.
201 The judge found that there was no evidence that general cargo carrying vessels such as the Ankergracht and the Archangelgracht were regarded as unseaworthy merely because they did not have dehumidifiers fitted. And he said that there was no evidence that the absence of a dehumidifier on a general cargo carrying vessel meant that the hold was not regarded as fit and safe for the carriage and preservation of steel coils ‘of the nature in question’ (i.e. with the sensitivity of unchromated and unpassivated cold rolled steel). His Honour found that there was no evidence of any industry practice, standard or custom for coils of this nature to be carried only on vessels with dehumidifiers. He also said there was no evidence of any industry practice or custom as to the temporary installation and use of dehumidifiers or of any example of such use either generally or for the carriage of steel coils of this particular kind.
202 Nonetheless, his Honour reasoned that due diligence required that at least temporary dehumidifiers should have been installed in each vessel for the two voyages. He noted, based on the evidence of Capt Frost, an expert marine surveyor called by Tsuda and Stemcor, that dehumidification systems had been used on vessels carrying moisture sensitive cargoes for many years prior to the voyages in question. He said that, since 2003, vessels operated by PAS which were fitted with dehumidifiers had been carrying similar coils with no incidents of corrosion, although there was no evidence as to whether dehumidifiers were operated during the voyages.
203 In his written evidence in chief, Capt Frost said that it was well accepted in the shipping industry, and had been since well before the two voyages in question, ‘that ... some steel cargoes are particularly susceptible to corrosion damage.’ Indeed, the carriers’ expert witness, Capt Pyett, had said:
‘You’re – you weren’t suggesting by that answer that the cold rolled aluzinc or galvanised coils, lightly oiled and not chromated, is something new to you? --- No, that’s quite a normal product.’
204 Capt Pyett said that a master of a vessel accepting a cargo of steel like those the subject of the proceedings, would be required to inform himself at the time of loading as to the type of cargo and its susceptibility to damage, such as that from corrosion. He continued:
‘--- Yes, provided it’s nothing special about the cargo, yes.
There’s nothing special about this particular cargo. Cold rolled steel has been shipped on board vessels of this nature for many years, correct? ---That’s true.
But in the event that somebody booked this type of cargo on board a ship, you would expect a master to appreciate that it was a cargo with a particular susceptibility and to take whatever steps are necessary to protect that cargo, correct? --- Yes.
... The susceptibility of cold rolled steel has been known to those involved in the shipping of that steel for many years; would you agree to that?--- Susceptibility to what?
To corrosion damage? --- Yes, that’s reasonable to say.
In the event that a carrier was to carry coils of this nature, having regard to that susceptibility a reasonably prudent master would take steps to ensure that moisture was not brought into contact with the cargo during the course of the voyage; correct? --- Yes.’
205 This approach accorded with the evidence given by Capt Frost. He said it was the duty of a master employed on a vessel engaged in the carriage of cargo to have a knowledge of the cargo that the vessel carried and its management. He explained that this would include the stowage and securing requirements and ‘the properties and sensitivities of the particular product and the means by which that cargo may be safely carried’.
206 Capt Pyett gave evidence that when shipping steel coils from cool to warm climates ‘... it is inevitable in my opinion that there will be some cargo or ship sweat’. He said that, subject to weather conditions, it was often appropriate to ventilate the holds in the earlier stages of the voyage to remove moist air.
207 The carriers asserted that there was no evidence to support the judge’s finding that standard practice in the shipment of steel from cold to warmer climates is not to ventilate the hold. But, his Honour clearly accepted the expert evidence of Capt Frost who said that the practice with non-hygroscopic cargoes, such as steel, was never to ventilate. However, he also said that where water or fine moisture got into a ship’s cargo space, it was necessary to remove the moisture from the hold. One way to do so, advocated by Capt Frost, was to use a dehumidifier. He was then asked:
‘But if you don’t have a dehumidifier on board your vessel, that obviously can’t be employed? --- It presents you a problem, yes.
Another way which it can be done is ventilating the whole space, correct? --- If – it can be done if the conditions for ventilation are available to you. They may not.’
208 I am of opinion that his Honour was not only entitled, but was correct, to make his findings concerning:
• the knowledge which a carrier in the position of the owners of the Ankergracht and the Archangelgracht had or ought to have had about the sensitivity to corrosion which the steel coils the subject of the proceedings may have had to corrosion, including from cargo sweat;
• the state of knowledge of the vessels’ masters and owners;
• the precautions that needed to be taken to prepare, with due diligence, each vessel and its hold to receive, and then, with due diligence, to care properly for this particular type of cargo on a voyage in the conditions in which the two vessels sailed from Yokohama to Sydney.
PRACTICALITY OF USING OR INSTALLING DEHUMIDIFICATION SYSTEMS
209 Stemcor and Tsuda argued that his Honour was entitled to proceed on the basis of accepting the expert evidence of Capt Frost. Capt Frost had studied at the University of Southampton and obtained a Masters Certificate in 1977. His experience at sea had been with the United Kingdom Ministry of Defence where he obtained the rank of Second Officer Cadet Training. Since 1977, however, he had been exclusively employed in the business of marine surveying. He had only had experience of steel coil losses in respect of the present proceedings. He had never been involved in installing portable dehumidifiers on a bulk vessel and had never surveyed a vessel in Sydney which had had a portable dehumidifier on board carrying steel cargo.
210 Capt Frost said he was aware of ships that had permanent dehumidification systems, such as the Cape Darby, which had been built in 2001. He was aware, however, of ships built in the 1980s that had permanent dehumidifiers and carried bulk steel cargoes. He had served on general cargo vessels with multiple hatches, upper, lower and tween decks and which were fitted with installed dehumidification systems. Those ships sailed on the Europe-Japan route.
211 There was evidence, which his Honour accepted, that dehumidification units were commonly installed on ships and that such units were available for installation on the vessels at Yokohama at the time of the voyages in question. He found that installation of dehumidification systems on either a temporary or permanent basis was reasonably practicable in the circumstances for each of the Ankergracht and the Archangelgracht.
212 In practical terms the primary judge found that a number of matters needed to be arranged for the installation of dehumidifiers prior to each vessel sailing on the voyage to Sydney. First, electrical supplies and specifications for the dehumidifiers would have to comply with those of the vessel. Next, modifications would be required to each vessel including to their structures. It would be necessary to ensure that those modifications were structurally sound and watertight. Classification society approval of the installations would be required and there may have been a need for additional equipment such as alternators, generators and condensate storage tanks. A lead time would be required for the preparatory work and modifications, even if temporary. His Honour found that the time for installation would be 2-3 weeks for delivery of components, 3-4 days for the installation and commissioning, and 1 day for survey and testing. He said that that time had to be contrasted with the usually short duration of a vessel’s stay in port for unloading and loading and the relatively short time between production of the coils and their shipment.
213 There were 3 different types of dehumidifier which might have been installed, costing about AUD200,000 each or AUD22,000 per month to hire. His Honour found that an appropriate method of fitting the dehumidifiers would have been to mount them on the tween deck pontoons, with 2 units fitted forward in the cargo hold and 2 fitted aft. Each unit weighed between 400 and 500 kilos but that difference would not affect the installation. The 3 different types of units had similar performance characteristics. When operating they would have consumed about 577 litres of diesel for the voyage from Yokohama to Sydney. The vessel’s inbuilt power system or separate generators temporarily fitted on deck would have been able to generate the power of 184 kilowatts required to ensure the operation of the units. His Honour found that the 3 diesel driven generators and 1 shaft generator fitted on the vessel had an output of 320 kilowatts and would therefore have had sufficient electrical power to run the dehumidification units.
214 The cranes on the vessel would have to be isolated when the dehumidifiers were operating and cables could be run from the No 1 and No 2 cranes through deck penetrations to the dehumidification units. Air supply for the dehumidifiers could be taken from the ventilation fans by use of flexible trunking fed from the cargo hold ventilation systems.
215 His Honour found that the employment of dehumidifiers could have an impact on the cargo carrying capacity of the vessels and there may be costs involved in the return of any units which had been installed temporarily. He said that the carriers did not adduce any evidence as to the loss of opportunity cost or the costs of returning hire equipment to the port of loading. He did note that the vessels in question travelled regularly on the Japan-Australia route. The cost of carrying out installation either in Japan or Australia would have been between AUD67,400 and AUD115,406. The judge said that the question of whether expenditure of up to AUD115,406 for the installation of the dehumidifiers could be regarded as reasonable had to be gauged in light of the following factors:
• The freight earned by the carriage of coils in respect of the Ankergracht was USD75,909.70, and in respect of the Archangelgracht, USD57,164.24.
• Stemcor and Spliethoff had entered into a year long affreightment contract which required the use of Spliethoff’s vessels to ship any steel for Stemcor unless no Spliethoff vessel was available at the time.
• There was no evidence that the carriers had any knowledge of the value of the coils. There was no disclosure of value on the bills of lading or other documents provided to the carriers.
216 The carriers complained that his Honour was in error in having regard to the year long contract between a third party, Spliethoff, and Stemcor. The primary judge referred to the possibility that the cost of installing dehumidifiers may not have been one the carriers wanted to incur. He was mindful that this was a commercial matter of some significance. He said the cost could have been factored into the freight for the particular voyage or for the period of the affreightment contract. While his Honour said the affreightment contract was a factor to be considered in the incurring of expense by the carrier in installing dehumidifiers, he did not use the existence of that contract in an impermissible way. What his Honour said was that the recovery of the expenditure could have been achieved by the carriers or Spliethoff in one of a number of ways, including through the affreightment contract. That method was a commercial matter open for the carriers to consider in response to their complaint concerning the financial burden which a finding of unseaworthiness would impose on carriers. The judge did not say that it was unreasonable for the carriers to recover the cost as part of the freight for voyages in question. I do not consider that his Honour erred in this part of his reasoning.
217 In my opinion, the carriers had to install dehumidifiers in the present circumstances if they were to exercise due diligence, regardless of the affreightment contract. This consequence of the obligation of a carrier under Art 3 r 1 flows from the carriers’ decision to offer each vessel to carry the particular cargo. A reasonable carrier can have regard to the longer term benefit accruing to it (including the ability to fulfil contractual obligations of related parties such as Spliethoff under the affreightment contract) in weighing up whether to accept a cargo and improving the vessel, eg by installing dehumidifiers, so as to comply with Art 3 r 1. Due diligence to make the vessel seaworthy for carrying particular cargo may be very expensive. In the present case the expenditure could be for temporary or permanent appreciation of the carrier’s asset, namely the vessel. A prudent owner, in deciding to carry a particular cargo, would be able to, and ordinarily would, weigh in making its decision the cost of improving its vessel to make her cargoworthy for that cargo. One factor is that the improvement could enable the carrier to earn the freight not just for that cargo, but in the future, for similar ones.
218 The judge said that the decision to offer the vessels for loading should only have been made after the exercise of due diligence in arranging for the installation of dehumidifiers. He concluded:
‘However, in circumstances where the coils in question were known to be sensitive to moisture and it was known or ought to have been foreseen by the Carriers that water would be admitted into the holds on other cargo and on dunnage and possibly because of rain, the vessels were not seaworthy for the purpose of carrying the coils in question on the voyages in question at the relevant time of year. In the light of those circumstances, it was reasonable for the Carriers to take steps to ensure that water could not be admitted into the holds or, if that was not practicable, to install a dehumidification system to remove excess water from the holds and ensure that the dew point temperature of air in the holds would not fall below the surface temperature of the coils. The failure to do so was a failure to use due diligence to make the vessels seaworthy or, putting it another way, to make the holds fit and safe for the carriage and preservation of the coils.’
219 The carriers contend that his Honour’s reasoning on the question of seaworthiness has significant implications for cargo carriers engaged in north-south trade. His Honour commenced the discussion of the carrier’s obligation of due diligence for the purposes of Art 3 r 1 by saying:
‘A carrier must demonstrate that it has exercised all reasonable skill and care to ensure that the vessel is seaworthy at the commencement of the voyage. The test to be applied is an objective one. The carrier must act in accordance with international standards and the standards of a reasonable carrier in the particular circumstances of the problem at hand. The more serious the consequences of seaworthiness, the greater the effort that should be made to make the vessel seaworthy.’ (emphasis added)
That statement of the test accords with what Auld LJ said in The ‘Kapitan Sakharov’ [2000] 2 Lloyd’s Rep at 266.
220 There was no evidence that the vessels were not fit to carry cold rolled steel cargoes which were either chromated or passivated. Nor was there any suggestion that other steel cargo had suffered corrosion from the effects of cargo sweat on either voyage. Moreover, as his Honour found, a very small amount of water, 68 litres, in the considerable size of the 16,000m3 holds of the two vessels, was all that had to be present to cause damage of the kind suffered. As the judge found, and Capt Frost’s and Capt Pyett’s evidence showed, the carriers ought to have been aware that these cargoes had particular susceptibility to corrosion. Even so, the carriers argued that they were not informed by Tsuda, as shipper, or by Stemcor, of this susceptibility or the exact nature of these cold rolled steel coils as being unpassivated and unchromated. The presentation of the steel coils was in packaging which made it physically indistinguishable from other kinds of steel. Each coil had the open umbrella symbol with ‘keep dry’ on it to indicate what common sense would suggest with steel cargo, that it should be kept dry.
221 There was no evidence or finding that other steel cargoes required the installation of dehumidifiers on the two vessels for them to be safely carried from Yokohama to Sydney. Indeed, Mr Whitehead’s May 2003 memorandum was evidence that other steel, which was chromated and packaged in the same way, was carried at the same times, and discharged at Sydney in a sound condition.
222 The primary judge was correct to have found on the evidence that each vessel was unseaworthy and the holds were not fit and safe for the reception, carriage and preservation of the coils. The evidence demonstrated that, as the judge found, this type of cargo required special treatment to avoid the risk of corrosion. The carriers knew or ought to have known of that risk because the cargo was not unusual. The coils would be exposed to damage by reason of:
• the weather conditions prevalent in Yokohama in the winter;
• the actual weather conditions at the time of loading at Yokohama;
• the loading of wet cargo and dunnage;
• the inability of the crew to dry all wetted cargo, or even to mop up all moisture because of the way cargo was stowed and cargo operations;
• the likelihood of conditions in the holds which would give rise to cargo sweat.
223 There was ample evidence to support his Honour’s finding that the amount of water in the holds at the time the vessels loaded meant that condensation during the voyages was virtually inevitable. I agree with that finding. The risk of corrosion could have been avoided if the carriers had chosen to fit dehumidifiers at Yokohama when the Ankergracht and the Archangelgracht accepted the cargoes for loading.
DUE DILIGENCE – PRINCIPLES
224 The carriers argued that Art 3 r 1(c) omits the definite article before the words ‘goods are carried’ in contradistinction to Art 3 r 2. This, they said, suggested that the due diligence required to make the ship seaworthy or cargoworthy related generally to the carriage of goods, as opposed to the carriage of the particular goods presented. No authority was cited by either side as to this question of construction. But, at common law, the ship had to be fit to carry the particular goods presented for her to be seaworthy. Under the amended Hague Rules the objective test of seaworthiness, including cargoworthiness, requires that the ship be fit as a receptacle to carry the shipper’s cargo as presented. The carrier’s obligation under the amended Hague Rules is not now an absolute warranty. It is measured by asking whether the carrier has exercised due diligence in preparing the vessel and its holds to receive and carry safely the cargo, presented as it was. Lord Devlin once said that lack of due diligence under Art 3 r 1 was negligence, and that where an error of judgment occurred in what was to be done to prepare a vessel, the question was whether the error amounted to professional negligence (Union of India v NV Reederij Amsterdam (‘The Amstelslot’) [1963] 2 Lloyd’s Rep 223 at 235 (HL)).
225 In order to be able to exercise due diligence to prepare the vessel for the reception of goods on the next voyage, the carrier must have some knowledge of what it is that will be carried. Williams J explained that the obligation under a provision such as Art 3 r 1 was not that of an insurer but one that due care would be used, so that a plaintiff must prove not only that the defective condition of the vessel made her unseaworthy, but also that the failure to discover the defect before the voyage began was due to negligence (Cotter 66 CLR at 665).
226 The questions of seaworthiness and whether due diligence has been exercised are, of course, questions of fact (see Paterson Steamships Ltd v Canadian Co-operative Wheat Producers Ltd [1934] AC 538 at 543 per Lord Wright). Lord Wright said that all this required was that all necessary and reasonable precautions should be taken. He referred to the distinction between bad stowage and ‘... that type of unseaworthiness which does not endanger the ship, but involves damage to the cargo in her’. Practice in the industry also bears on the answer to this factual question (FC Bradley 27 Ll. L. R. at 396 per Viscount Summer; Paterson Steamships [1934] AC at 542-543; Great China Metal 196 CLR at 194 [86], [88], [89] 216-217 [143] ).
227 Where unseaworthiness and a failure to comply with the obligation of due diligence imposed by Art 3 r 1 is a cause of the loss, the fact that some other excepted cause under Art 4 r 2 may have operated concurrently will not relieve the carrier (Paterson Steamships [1934] AC at 550-551). And in Riverstone Meat [1961] AC at 839 Viscount Simonds cited with approval Brown J’s explanation in the Colima 82 Fed. Rep 665 (1897) at 678 of the statutory qualification of due diligence on the common law absolute warranty of seaworthiness. Judge Brown had said that the difference:
‘... is of great importance, as it avoids responsibility for latent and undiscoverable defects. But the warranty of diligence remains: and this requires the application of the usual rule, that the acts and negligences of the agent are deemed those of the principal.’
228 Lord Radcliffe described the manner in which the carrier’s obligation had to be examined as follows:
‘It is to ask the question, when there has been damage to cargo and that damage is traceable to unseaworthiness of a vessel, whether that unseaworthiness is due to any lack of diligence in those who have been implicated by the carriers in the work of keeping or making the vessel seaworthy.’ (Riverstone Meat [1961] AC at 862)
He explained that the policy behind treating the obligation in Art 3 r 1 to exercise due diligence to make the ship seaworthy was not equivalent to ‘due diligence to see that the ship is made seaworthy’. He said this offered protection to the cargo owner who could not have any control over the vessel or what had been done to it in order to prepare it for the voyage. In contrast, the carrier had some form of ownership or control over the vessel and thus it was appropriate to impose a measure of responsibility for seeing that it was fit and in proper condition for the carriage undertaken (Riverstone Meat [1961] AC at 863).
229 As Lord Reid said in Albacora [1966] 2 Lloyd’s Rep 53 at 58 in relation to the obligation under Art 3 r 2 to properly and carefully carry the goods:
‘In my opinion, the obligation is to adopt a system which is sound in light of all the knowledge which the carrier has or ought to have about the nature of the goods.’
(Lords Guest and Upjohn agreed at 60, 63; see too Shipping Corporation of India Ltd v Gamlen Chemical Co (A/Asia) Pty Limited [1980] HCA 51; (1980) 147 CLR 142 at 163, 167 per Mason and Wilson JJ (with whom Gibbs J and Aickin J agreed at 149, 168).) But, in Albacora [1966] 2 Lloyd’s Rep 53, the cargo was unusual for such a voyage. It was not proved or argued that the carrier ought to have been aware that the wet salted ling fillets that were carried required refrigeration. The only instructions given by the consignor were that the cases containing the cargo should be kept away from engines and boilers (Albacora [1966] 2 Lloyd’s Rep at 57). And Lord Pearce quoted with approval from what Viscount Sumner had said in FC Bradley 27 Ll. L. Rep at 399, namely:
‘The carrier has at least some means of controlling his crew and has full opportunity of making his ship seaworthy, but of the cargo he knows little or nothing and, as the shipper has the advantage over him in this respect, he must bear the risks belonging to the cargo.’
230 The word ‘properly’ in Art 3 r 2 of the amended Rules was held by the House of Lords in Albacora [1966] 2 Lloyd’s Rep at 53, following GH Renton & Co Ltd v Palmyra Trading Corporation of Panama [1957] AC 149, to add something to the word ‘carefully’ in Art 3 r 2. Their Lordships construed ‘properly’ to mean ‘in accordance with a sound system’. Lord Pearce, in Albacora ([1966] 2 Lloyd’s Rep at 62) said that a sound system did not mean a system suited to all the weaknesses and idiosyncrasies of a particular cargo, but a sound system under all the circumstances in relation to the general practice of carriage of goods by sea. He said that it was tantamount to efficiency.
DUE DILIGENCE – CONSIDERATION
231 The trial judge found that in order to satisfy the obligation of due diligence under Art 3 r 1 of the amended Hague Rules, the carriers had to install dehumidifying equipment, either on a temporary or permanent basis, once they agreed to carry the cargo on each vessel.
232 Here, it was not inevitable that all cold rolled steel in coils would suffer damage from cargo sweat in the ordinary incidents of the voyage from Yokohama to Sydney. That must be so because a considerable number of the coils on both voyages arrived without damage from cargo sweat. So, there was no inevitability of damage being sustained to every one of the coils in the ordinary incidents of the voyage. But, there was, on the evidence, a real and significant risk that cargo sweat would occur – indeed Capt Pyett had said it was inevitable. And if cargo sweat occurred, there was a real risk that ventilation would not be able to be used effectively or at all to remove moisture or the risk of corrosion.
233 Of course, the fact that a considerable number of coils was carried safely is not, of itself, determinative of the issue of seaworthiness. In Burges v Wickham (1863) 3 B & S 669 at 690-691 Blackburn J pointed out that, as a matter of fact, a vessel, though far from seaworthy, may, and often does, successfully perform a voyage, and so proves in one sense capable of performing it, while a seaworthy vessel may, and often does, perish without any extraordinary accident. Thus, he pointed out that there must be some other criterion by reference to which one should determine seaworthiness. He held that because the standard of seaworthiness can be raised by improvements in technology and knowledge, no fixed degree of capacity to encounter the perils of the voyage is necessary to constitute seaworthiness. As he said (Burges 3 B & S at 693-694) of the warranty of seaworthiness in a policy of marine insurance:
‘A merchant in old times about to send out a vessel, if he did his utmost to fit her for what was then a perilous voyage, fulfilled his duty to his co-adventurers who risked their goods, and the crew who risked their lives, on board the vessel; if he did so to the extent which was then usual and of course in the transaction, he could not be expected to do more than was then practicable; but a modern ship owner, who was to send a ship on the same voyage no better fitted than the ancient vessel, would not fulfil his duty to either one or the other, for the very reason ... that the standard of seaworthiness had been raised.’
234 Blackburn J said that the vessel should be put into that state of fitness into which a prudent owner, uninsured, would, as of course, put his vessel and that that state would increase with the increased power to put her in a fit state. Seaworthiness was therefore to be seen as being relative to the kind of adventure (see also Great China Metal 196 CLR at 174 [27], [30] per Gaudron, Gummow and Hayne JJ; 194 [86] per McHugh J; Cotter 66 CLR at 663).
235 Carriage of goods by sea inherently involves certain risks on each voyage. The amended Hague Rules seek to distribute responsibility for those risks between the carrier and the cargo owner. In both Gamlen Chemical (147 CLR 142 at 166) and Great China Metal (196 CLR 161 at 176-181 [38]-[51]) the High Court held that sea and weather conditions which may reasonably be foreseen and guarded against could nonetheless constitute a peril of the sea for the purposes of the exception of the carrier from liability under Art 4 r 2(c). But, the carrier cannot bring itself within the exception for any loss or damage to cargo by the action of the sea which, as Mason and Wilson JJ explained (in Gamlen Chemical 147 CLR at 166), ‘... could be avoided by reasonable care on the part of the carrier’. This is important because the obligation under Art 3 r 2 properly and carefully to carry, keep and care for the goods carried is subject to the exception in Art 4 r 2(c), which can apply even where the master knows that the vessel may sail into very rough weather but continues the voyage in circumstances where he or she is acting with skill and prudence (147 CLR at 166). And, of course, carriers know that there will be a risk of encountering such conditions as are comprehended in the expression ‘perils of the sea’ when they prepare the vessel to sail.
236 Due diligence in Art 3 r 1 does not require the carrier to prepare the ship to encounter every foreseeable incident of the proposed voyage. The emphasis on due diligence in Art 3 r 1 is on the carrier acting as a prudent owner, preparing the vessel and its holds for the voyage and cargo. McHugh J in Great China Metal 196 CLR at 194 [88] described the obligation of the carrier under Art 3 r 1 as being to carry the goods in a ship which is adequate in terms of its structure, manning, equipment and facilities having regard to the voyage (including anticipated weather conditions – see 196 CLR at 194 [86]) and the nature of the cargo.
237 Nonetheless, the carriers argued that it is a large thing to require a shipowner to undertake substantial structural work, even on a temporary basis, to alter its vessel in circumstances like the present where this cold rolled steel had a particular susceptibility to damage from cargo sweat. They argued that the practice to wipe or mop up moisture on cargo and the vessel together with proper ventilation of the vessel during the voyage could have avoided the incidents of cargo sweat entirely. Thus, they contended, no breach of Art 3 r 1 could be found because the vessels were seaworthy, since they could carry the coils safely and they were following appropriate practices to remove moisture by the methods they adopted.
238 The common law warranty of seaworthiness required of carriers ‘not merely that they should do their best to make the ship fit, but that the ship should really be fit’: Steel 3 App Cas at 86 per Lord Blackburn. Thus, a ship will be unseaworthy if she is not equipped with the latest, most up-to-date, charts for use on the intended voyage. The corollary of this is that the carrier will not have exercised due diligence for the purposes of Art 3 r 1 of the amended Hague Rules simply by appointing a competent master and leaving all questions of safe navigation entirely to that master, including the obtaining, at their expense, of all necessary charts and other nautical publications: Grand Champion Tankers Ltd v Norpipe A/S (The Marion) [1984] 1 AC 563 at 572 D-E per Lord Brandon of Oakbrook; Sanko Steamship Co Ltd v Sumitomo Australia Ltd (No 2) (1995) 63 FCR 227 at 274G per Sheppard J. Those cases involved the somewhat different considerations which arise under Art 3 r 1(b), which commences by using the word ‘properly’ to qualify the obligation to man, equip and supply the ship. Nonetheless, they illustrate that the obligation of the carrier to exercise due diligence under Art 3 r 1 is not insulated from improvements or changes which are capable of affecting the safety of the vessel or the cargo which the carrier agrees to take on board.
239 And these cases show that the obligation of the carrier to exercise due diligence to make a vessel seaworthy or cargoworthy before or at the beginning of the voyage requires attention to the actual nature of the voyage and the cargo to be carried. The obligation to ensure that charts are up to date does not impose on a carrier a requirement to update every possible chart which might be used on every possible voyage, at the beginning of each voyage. Rather the obligation is to ensure that the charts are up to date for the actual voyage which is to be undertaken.
240 Likewise, when a carrier accepts cargo known to be particularly susceptible to corrosion caused by moisture, such as the coils in this case, Art 3 r 1 imposes on it an obligation to exercise due diligence to make the vessel cargoworthy for that cargo, including all its known susceptibilities. Tenterden’s Law of Merchant Ships (11th ed, Shaw & Sons, 1867, edited by Shee J) at p 305 adopted Lord Ellenborough CJ’s description of the carrier's obligation at common law to provide a seaworthy vessel. He said it required the vessel to be ‘tight, and fit for the purpose or employment for which he offers and holds it forth to the public. It is the very foundation and immediate substratum of the contract that it is so’: Lyon v Mells (1804) 5 East 428 at 436.
241 Here, the relevant purpose was to carry coils known to have the characteristic of being particularly sensitive to corrosion. Each vessel had to be ‘fit for the purpose’ if it were to be seaworthy. And each carrier, before and at the beginning of the voyage from Yokohama, had to exercise due diligence to make the vessel seaworthy for the purpose of carrying those very coils.
242 The carriers relied on the absence of evidence of any practice of installing dehumidifiers in vessels, or of the use only of vessels fitted with them, to carry coils of the kind in question. They argued that the Court should not set a standard which was not reflected in the practice of those experienced in the maritime industry.
243 The concept of the role of practice as being relevant to seaworthiness may introduce a confusion into the discussion. Seaworthiness is not an absolute concept but is related to the purpose for which the vessel is engaged at the time of assessment: FC Bradley 27 Ll. L. R. at 396 per Viscount Sumner; see too Papera Traders Co Ltd v Hyundai Merchant Marine Co Ltd (The ‘Eurasian Dream’) [2002] 1 Lloyd’s Rep 692 at 736 [126] per Cresswell J. But the vessel is either fit for the purpose of the particular voyage or it is not (Great China 196 CLR at 174 [28], 194 [86]; Cotter 66 CLR at 663). And, Cresswell J said that seaworthiness is to be judged by the standards and practices of the industry at the relevant time, ‘at least so long as those standards and practices are reasonable’ (The ‘Eurasian Dream’ [2002] 1 Lloyd’s Rep at 736 [127]). That question of reasonableness is one of law. And the rigour of the requirement is regulated by the qualification in Art 3 r 1 that the carrier must use ‘due diligence’ to make the ship seaworthy.
244 The senior officers in the crew of each vessel knew of the ambient conditions at the time of loading and of the inadequacy of the methods of wiping and mopping to remove all moisture from the cargo and holds. They also were aware of rain during the loading operations and of wet cargo and dunnage being loaded. This demonstrates that unless it were possible to remove the moisture during the voyage before condensation could occur, the vessels were unseaworthy at the commencement of their voyages from Yokohama, as his Honour found.
245 The argument that there was no practice for dehumidifiers to be present on vessels carrying such coils is, in this situation, unpersuasive. Indeed, as Capt Koenen said:
‘If I was to have rejected all cargo to be loaded at Japanese ports such as Yokohama because the cargo had been wetted prior to loading but not otherwise damaged, I would not have carried very much cargo from Japan during that country’s winter months.’
246 That was a frank recognition that the carriers’ systems for loading cargo during the Japanese winter accepted the risk that it would be wet together with dunnage, and not all the moisture would be able to be removed from vessels’ holds. When the carriers loaded coils that were particularly sensitive to moisture, such as those the subject of these proceedings, their failure to have on board the vessels at the time each voyage commenced a dehumidification system meant that the holds and vessels were uncargoworthy for that cargo. There was, moreover, the added risk that if the vessels were to stop at another Japanese port prior to sailing south, more moisture would enter into the holds which could not, with certainty, be removed before any condensation could form. Far from indicating that the crew were mopping the cargo to remove moisture before condensation formed, Chief Officer Van Wijk’s evidence showed that the mopping activity occurred after that particular horse had bolted.
247 In Morris v West Hartlepool Steam Navigation Co Limited [1966] UKHL 1; [1956] AC 552 at 574, Lord Reid said that if a practice had been generally followed for a long time in similar circumstances and there had been no mishap, a reasonable and prudent man might well be influenced by those matters and it might be difficult to say that the practice was so obviously wrong that to rely on it was folly. In Podmore v Aquatours Pty Limited [1984] 1 NSWLR 111 at 116C-D Glass JA (with whom Samuels JA agreed) said that a finding of want of due care could properly be made even though the defendant had obeyed all statutory requirements and followed a common, or even universal, practice. Here, the phenomenon of condensation or cargo sweat was well known. And when the two vessels were being prepared for their voyages, dehumidifiers were a ready means of avoiding the damage which condensation might occasion to coils of the kind in question.
248 Ultimately, it is a matter for the Court to determine whether or not a vessel was seaworthy and whether or not the carriers exercised due diligence to make them so. Evidence, or lack of evidence, about the practices of carriers may be of assistance in reaching such a conclusion. However, it is the responsibility of the Court to determine the question of law on the evidence by the application of a legal standard to the facts. This was emphasised in Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479 at 487 where Mason CJ, Brennan, Dawson, Toohey and McHugh JJ said that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill. But, they cautioned, ‘that standard is not determined solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant profession or trade’. Rather, they held, that was a question for the Court to determine after giving appropriate weight to any professional practice or opinion.
249 So, in Waterwell Shipping Inc v HIH Casualty & General Insurance Ltd (1997) Aust Torts Reports SS81-444 Giles CJ in Comm D said that practice is not conclusive as to the appropriate way in which the Court would apply the standard of reasonableness to the conduct of a chief engineer of a vessel in closing or not closing a suction valve (an appeal was dismissed on other grounds: HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601).
250 A similar approach has been applied in the United States: see Wabash Railway Co v McDaniels 107 US 454 (1882) at 460-461 per Harlan J giving the opinion of the Court. In The TJ Hooper v Northern Barge Corporation 60 F2d 737 at 740 (CA2: 1932) (cert. denied 287 US 662) Judge Learned Hand, writing for the Second Circuit Court of Appeals, upheld a finding that tugs were unseaworthy because they had not been equipped with radio receiving sets. He said:
‘Is it then a final answer that the business had not yet generally adopted receiving sets? There are yet, no doubt, cases where courts seem to make the general practice of the calling the standard of proper diligence; we have indeed given some currency to the notion ourselves. Ketterer v. Armour & Co. (C. C. A.) 247 F. 921, 931, L. R. A. 1918D, 798; Spang Chalfant & Co. v. Dimon, etc., Corp. (C. C. A.) 57 F.(2d) 965, 967. Indeed in most cases reasonable prudence is in fact common prudence; but strictly it is never its measure; a whole calling may have unduly lagged in the adoption of new and available devices. It never may set its own tests, however persuasive be its usages. Courts must in the end say what is required; there are precautions so imperative that even their universal disregard will not excuse their omission. Wabash R. Co. v. McDaniels, 107 U. S. 454, 459-461, 2 S. Ct. 932, 27 L. Ed. 605; Texas & P. R. Co. v. Behymer, 189 U. S. 468, 470, 23 S. Ct. 622, 47 L. Ed. 905; Shandrew v. Chicago, etc., R. Co., 142 F. 320, 324, 325 (C. C. A. 8); Maynard v. Buck, 100 Mass. 40. But here there was no custom at all as to receiving sets; some had them, some did not; the most that can be urged is that they had not yet become general. Certainly in such a case we need not pause; when some have thought a device necessary, at least we may say that they were right, and the others too slack.’
That approach was cited with approval by Brennan J, giving the opinion of the Court, in Salem v United States Lines Co 370 US 31 (1962) at 37, and described as a ‘classic opinion’ recently in Surles v Greyhound Lines Inc 474 F3d 288 (CA6: 2007) at 301. (See too Tug Ocean Prince, Inc. v United States 584 F2d 1151 (CA2: 1978) at 1156-1157 and Marshall v Ove Skou Rederi A/S 378 F2d 193 (CA5: 1967) at 201-202.)
251 Here, water was in the holds and it could not be readily removed on the voyages with the vessels in their then state. It follows that the carriers had not exercised due diligence at or before the commencement of the voyages to make them seaworthy: Cotter 66 CLR at 663-664.
252 However, the carriers knew or ought to have known that there were real risks that weather conditions would not permit such ventilation to occur and because of the moisture (including in the air) admitted into the holds during loading which had not been removed that cargo sweat could cause corrosion. Weather conditions which might be experienced in an ordinary voyage from Yokohama to Sydney at the time of year at which each of these voyages occurred may make ventilation difficult or impossible. Because of this characteristic of the incidents of the voyage, which were known to the carrier, the primary judge determined that each vessel was unseaworthy at the commencement of each voyage because the exercise of due diligence should have prepared her to encounter the known perils of moisture in the holds (as water and vapour), an inability to ventilate and cargo sweat. That is why he said that, unless the cost was prohibitive or it was otherwise unreasonable to incur it, due diligence would require that the cost of installing the dehumidifiers had to be borne by the carriers prior to offering the vessels for loading.
253 I am of opinion that the primary judge was correct in that finding. The test applicable to due diligence is not one which requires a carrier to take every precaution which might guard against any possibilities of damage to the cargo. But each vessel was unseaworthy at the beginning of its voyage and there were means reasonably available to make her seaworthy. Here, in a practical sense, damage from cargo sweat was a known risk and the ventilation capacities of each vessel when the voyages commenced were insufficient to protect the coils properly from their known susceptibility to corrosion. I am of opinion that, applying the tests in the authorities to which I have referred, an ordinary prudent owner would not have been able to put to sea with the vessels in the state in which they actually were having regard to all probable consequences of what might occur during the course of the voyage. Due diligence to make the vessels seaworthy required, in the circumstances, the installation of dehumidifiers.
ARTICLE 3 RULE 2
254 Next his Honour considered the question whether the carriers did not properly and carefully load, handle, stow, carry, keep, care for and discharge the coils within the meaning of Art 3 r 2. Stemcor and Tsuda contended that the carriers were in breach of this obligation because they:
• loaded each vessel in circumstances where free water was able to enter the hold either on wetted cargo or as rain; and
• failed to manage the cargo by ventilating only in accordance with accepted proper practice;
• additionally or alternatively permitted further water to enter the hold in some other manner during the course of the voyage to enable the dew point to rise (either through ventilating or failing to seal the hatches properly).
255 The judge held that there was no evidence that the system which each vessel employed for closing the hatches when it rained in Yokohama during loading was other than a proper system, and there was no reason to believe that the system was not implemented in relation to each of the voyages in question. He held that there was no express evidence of any ingress of water occurring into the holds of either vessel by way of the hatches at any stage during the respective voyages and that such a possibility was inconsistent with the evidence as to the good condition of the hatch covers and the seals recorded in the surveys taken at the time of loading and discharge. Nonetheless, there was a possibility of water entering the holds while loading was taking place and before the hatch covers could be closed after it commenced to rain. His Honour held that a carrier would not normally be in breach of Art 3 r 2 merely by reason of having loaded damp or moist cargo or dunnage so long as it exercised due diligence, with a proper system, to remove moisture admitted into the holds. It was not possible for the carrier to dry cargo before it was loaded, especially if it was on barges or on the wharf. The coils were on barges when it rained and were not then in the possession of the carrier.
256 His Honour identified the real question as being whether the carriers properly and carefully carried, kept and cared for the coils. He said that, if there were water in the holds, the ventilators would need to be operated in a way that would remove the moisture. And, if the ventilators were operated in a fashion that permitted the ingress of further moisture, he held that would be a failure to comply with the obligation under Art 3 r 2.
257 His Honour found that it was common practice to ventilate the holds of the vessel so as to allow the ingress of air from the atmosphere which would have the characteristics of the ambient temperature and humidity of the local air at the time of ventilation. If the outside air were more humid than that in the holds, humidity in holds could be increased through ventilation. Conversely, if the outside air was drier than that inside the hold, the level of humidity in the hold could be reduced. Similarly, where there was a difference in temperature between the air inside and outside the hold, the temperature within the hold could be affected. In light of the relationship between air temperature and humidity, ventilation is capable of causing condensation on colder items within the hold.
258 His Honour found that it was normal to find a ventilation system in holds carrying general cargo. Proper practice was that ventilation should occur only where the dew point of the air outside the hold is lower than the dew point of the air inside. Each of the Ankergracht and Archangelgracht was ventilated on a number of occasions during the voyage from Yokohama to Sydney. His Honour held that it was not practical to make holds completely airtight and that there would always be some flow of air. He found that all the elements of the system of ventilation of each vessel were consistent with both usual practice and good practice and that each vessel was ventilated only when it was considered appropriate to do so based on the readings taken each day in accordance with application of the dew point rule.
259 One of the effects of ventilation is that where cargo has been loaded wet, or moisture has entered the hold in other circumstances, the moisture can be removed. His Honour found that the ventilation records for each vessel confirmed that on all occasions but one the crew only ventilated the holds when the dew point of the outside air was less than that of the air inside the hold, consistent with the dew point rule. He found that it was impracticable to measure the actual temperature of cargo, particularly in vessels such as the Ankergracht and the Archangelgracht which had only one long hold with many different items of cargo of different natures loaded at different ports at different times. The use of the dew point rule, accordingly, is only an approximation. Therefore, that rule is not necessarily decisive on the question of whether the carriers properly and carefully handled, stowed, carried, kept and cared for the coils in question.
260 The judge found that because of the imprecision of the criteria for determining when to ventilate and when not to ventilate, the question of installation of a dehumidification system was critical. This, of course, referred to the carriers’ failure, before the commencement of the voyage, to exercise due diligence to make the vessels seaworthy under Art 3 r 1.
261 The judge found that the temperatures of particular cargoes could vary between themselves and could be different from the temperature of the air in the hold. The temperature of the air within the hold could be higher than the temperature of any particular item of cargo. Some cargoes which have a large surface area and a relatively low mass rise in temperature more quickly than cargoes with relatively high mass and a relatively small surface area exposed to the air. His Honour found that cargoes of high mass were slow to stabilise with the ambient temperature when a vessel moves fairly rapidly on a southerly course from a cool climate to a warmer climate. In those circumstances, the hold air space temperature may not reflect the actual temperature of the cargo within the hold.
262 His Honour found, accepting Capt Frost’s evidence, that non-hygroscopic cargoes passing from cold to warm climates should not be ventilated. (A hygroscopic cargo is one that absorbs or attracts moisture.) He found that it was standard practice in the shipment of steel from cold to warmer climates not to ventilate the hold.
263 The cargoes here included some which had timber and other non-metal packaging and some cargo had some water on or in it. Likewise, the wood used as dunnage was hygroscopic. There was no finding whether use of wooden dunnage affected the practice of not ventilating steel cargoes.
264 His Honour found that it was more likely than not that water in the form of vapour was introduced into the hold of each vessel in the course of the ventilation which occurred during the voyages. The judge found that because the coils ‘were known to be sensitive to moisture’ and there was no dehumidification system installed in the holds, the admission of water into the holds during the course of the voyages was a failure to comply with the obligation of Art 3 r 2 to carry, keep and care for the coils properly and carefully.
265 The carriers contended that there was a real issue as to whether the particular kind of sensitivity to water which resulted in the damage to the coils was made known to the carriers, as opposed to the general sensitivity of steel cargoes. His Honour found that for the carriage of steel cargo it was normally essential that airflow be maintained at a level in which the environment within the hold was not affected by the moisture content of weather systems through which the vessel passed. He held that an objective of carrying ‘steel of the nature of the coils in question’ should be to maintain the dew point of the hold below the temperature of the cargo.
266 If the vessels were seaworthy when each voyage began, the absence of a dehumidification system is irrelevant to the question of whether a breach of Art 3 r 2 occurred. If the carrier has both a proper system in place for the care of the goods and has not been shown to have failed to take care, then no breach of Art 3 r 2 will be established (Gamlen Chemical 147 CLR at 163; Albacora [1966] 2 Lloyd’s Rep at 63-64).
267 Because there was no dehumidification system installed, the carriers had to do the best they could with the vessels as they were. His Honour did not find any substantive failure of the carriers to follow proper practice in the ventilation they undertook. Rather, the judge found, as the evidence clearly established, that during the ventilation which occurred, moisture entered the holds when ordinarily the cargo should not have been ventilated. Ventilation was required because there was already moisture in the holds from the time of loading at Yokohama and, in the case of the Archangelgracht, Kobe.
268 The imprecision of the carriers’ systems to measure when to and not to ventilate allowed the introduction of moisture into the holds during ventilation. This justified his Honour’s finding of a breach by the carriers of Art 3 r 2. They did not ‘properly’ ventilate because they did not do so ‘in accordance with a sound system’ (GH Renton [1957] AC at 166; Albacora [1966] 2 Lloyd’s Rep at 58). The inability to measure with certainty when all of the steel coils were at dew point temperature made the decision to introduce ventilation of the holds problematic with the known sensitivity to moisture of these steel coils.
EXCEPTIONS RELIED ON BY THE CARRIERS
269 Each carrier relied on the packaging of the coils as the foundation of a claim to the benefit of the exceptions under Art 4 r 2(i), (n) and (q). Additionally, the Ankergracht also relied on the exception of inherent defect, quality or vice of the coils under Art 4 r 2(m) on the basis that if the coils were wet before loading, the water from that external wetting was able to infiltrate the external and inner wrappers and was therefore present on, and possibly within, the coils at the time they were delivered to her.
270 It is well established that in order for a carrier to rely on the exceptions contained in Art 4 r 2, it must not be negligent or at fault, that is to say in breach of Art 3 r 1 or Art 3 r 2: Gamlen Chemical 147 CLR at 152, 154, per Stephen J, 164-165 per Mason and Wilson JJ; Great China 196 CLR at 193 [85], 195-196 [91]-[95], 216-219 [143]-[146], 243 [228]; see too at 181 [50].
INSUFFICIENCY OF PACKAGING
271 The focus of the carriers’ arguments centred on the insufficiency of packaging. The carriers asserted that, as a matter of commonsense, the packaging of the coils was insufficient. In this respect they relied on a number of matters in their pleaded defences. In substance their particulars alleged that the design of the coil wrapping system permitted moisture through sweat, condensation or wetting to enter beneath the coil core and outer edge protectors and thus failed to keep moisture out of the coil interior. In effect, the carriers’ particulars asserted that the coils were not wrapped in a watertight fashion and that the inner wrapper, or kraft paper, was unable to withstand moisture if it was folded or worked in a way that the plastic membrane of the inner wrapper could then separate from its brown backing paper, allowing moisture to penetrate.
272 The judge analysed the packaging question by identifying the real issue as being the question of whether, having regard to the nature of the steel, the packaging had to be able to prevent water vapour entering into the interior of the packaging, or whether the packaging was sufficient if it was adequate to prevent the entry of loose water from external wetting. He said that the burden was imposed on the carrier to ensure in the latter case that the condition in which the goods were carried was such that water vapour in the air which might infiltrate the outer and inner packaging would not condense on the steel coils. In other words, his Honour said, the question was whether the shipper was entitled to rely on the carrier to ensure that the conditions in which the goods were carried would preclude condensation of water vapour in the air, or whether the carrier was entitled to assume that the packaging would be such as would preclude the entry of water vapour through the packaging.
273 The judge found that it was apparent that the method of packaging employed by Tsuda, while in accordance with usual practice, was not such as would prevent the entry of water vapour in the air. He also found that there was no evidence that the kraft paper of the quality actually used by Tsuda was typical of that form of paper ordinarily used for the shipment of unchromated galvanised or aluzinc coated coils. And, there was also no evidence as to whether such coils had been shipped with this particular inner wrapping paper without damage.
274 The carriers accepted at the trial that the method of packing employed was typical for the shipment of coils of steel generally and had been described in a text book, Sparks A, Steel Carriage by Sea (LLP Professional Publishing, 2003). His Honour annexed to his reasons an illustration from that book that had been tendered in evidence before him. As he pointed out, the mere fact that the method of packaging was typical did not in itself mean that the actual packaging employed was sufficient.
275 The carriers criticised this reasoning, asserting that it was inconsistent for the judge to find that the packaging used was typical but that there was no evidence about the actual characteristics and quality of the paper Tsuda used on these coils or of Tsuda having made earlier successful shipments using this paper or packaging. I am unable to see any flaw in his Honour’s analysis or reasoning. The packaging appeared to be typical but there was no evidence that the paper Tsuda used, or that its actual, rather than apparent, packaging worked as typical packaging should work.
276 The carriers pointed to his Honour’s finding that they had ‘... not established any insufficiency of the packaging other than the fact that the ingress of moisture was permitted’. They argued that this establishes proof of the exception under Art 4 r 2(n). The carriers said the primary judge was wrong to identify the issue in different terms. He said the question was ‘whether packaging which permitted the ingress of moisture was insufficient’ and concluded that it was not. In doing so the primary judge preferred Prof Jones’ evidence to Capt Pyett’s.
277 The carriers argued, before the primary judge, that packaging that did not protect the coils against exposure to water vapour in the air was insufficient for the purposes of Art 4 r 2(n). Before his Honour and before us, the carriers argued that sufficient packaging required the adoption of a method that would not trap resulting moisture against the surface of the coils but would allow condensation to evaporate or otherwise run off the coils. As his Honour correctly pointed out, there was no method identified by the carriers that would achieve that end. It is difficult to conceive a method of packaging that would result in it. The judge said that the suggestion accepted that it would not be possible to devise a method of packaging that prevented all ingress of moisture. In essence, the carriers’ argument amounted to an assertion that water should not be permitted to enter the coils, but, if it did, that the packaging should permit its evaporation or evacuation from them, presumably before any corrosion could occur. The absence of any evidence to support the carriers’ case, the onus being on them under Art 4 r 2(n), is fatal to the contention. His Honour was correct to dismiss it.
278 Prof Jones said that the packaging would provide no protection should condensation occur within the coils, rather it was designed to prevent external wetting of the coils. The risk which the carriers knew had to be guarded against on the voyage was cargo sweat from moisture within the air contained in the hold. The packaging provided for the coils appeared to be typical. The purpose of the packaging was to prevent external wetting of the coils. No expert evidence was called to show that there was packaging available which would prevent internal wetting of the coils as a result of cargo sweat. His Honour was correct to conclude that the carriers had not established that the packaging was insufficient so as to cause the damage to arise or result from that insufficiency within the meaning of Art 4 r 2(n).
279 Rather, the carriers did not comply with their obligation under Art 3 r 2 properly and carefully to carry, keep and care for the cargo so that cargo sweat did not occur on these coils known to have a sensitivity to corrosion. This occurred in circumstances where if there were no dehumidifiers, cargo sweat was a known incidence of the voyage.
280 In Silver v Ocean Steamship Co Ltd [1930] 1 KB 416 the English Court of Appeal held that a ship owner, by issuing clean bills of lading stating that the goods had been shipped on board ‘in apparent good order and condition’, was precluded from asserting that they were insufficiently packed. If the insufficiency of the packing is obvious, the cargo cannot be described as being received ‘in apparent good order and condition’. But, if a ship owner issues a bill of lading so describing the condition of the goods on receipt by it, it is estopped from contending that the packaging is insufficient: Silver [1930] 1 KB at 426-427 per Scrutton LJ; at 434 per Greer LJ and at 441 per Slesser LJ.
281 As Greer LJ pointed out (Silver [1930] 1 KB at 434), the apparent order and condition of the goods is what could have been ascertained by a reasonable examination when they were delivered for shipment. Slesser LJ said that the capacity of the goods safely to travel was part of their order and condition (Silver [1930] 1 KB at 441). Here that order and condition included the placement of the symbol of the umbrella together with the words ‘keep dry’ on the exterior of each coil. The presence of the symbol and the words ‘keep dry’ on the exterior of the packaging suggests to an ordinary reasonable person looking at it that the condition of the goods when received by the carrier was not such that they could be kept in circumstances where water could enter the packaging. The symbol and the words ‘keep dry’ suggested that the packaging may have afforded some protection against water, but that, whatever the degree of protection it afforded, was not absolute so as to make the contents encased in the outer wrapping of the coil proof against moisture penetration. And, if the packaging was not enough to prevent it being apparently susceptible to damage from water, its condition and the symbol and words were suggestive to an ordinary reasonable person that the goods were at least just as susceptible to damage from water vapour condensing on them.
282 In Silver [1930] 1 KB 416, the peculiar features of the packaging were obvious to the shipowner when issuing the clean bills of lading claused with an acknowledgement of receipt of the goods in apparent good order and condition. I am of opinion that the judge correctly identified what the real issue was having regard to the well established principles upon which adequacy of packaging and the issue of a clean bill of lading recording receipt of goods in good order and condition are based. Moreover, the presence of the symbol and words ‘keep dry’ were hardly calculated to induce the carriers to believe that the cargo could withstand exposure to water vapour. As his Honour had found, and as the facts referred to above justify, the carriers knew, or ought to have been aware, of the particular sensitivity of these coils to moisture. By accepting the goods packed in what was apparently the usual way, the carriers cannot now complain, having said they were in apparent good order and condition for carriage by sea (by issuing clean bills of lading), that the packaging was insufficient to ensure that they arrived at their destination undamaged from the corrosion which they in fact suffered.
283 The carriers also rely on the fact that water had been shown to have penetrated the packaging. They say that, when his Honour found that the packaging of the coils was not capable of preventing the ingress of water in the form of vapour, he should have found it was defective or inadequate. They argued that it was self-evident that the packaging was insufficient because, in effect, it did permit entry of water vapour.
284 There was no representation on the packaging itself that it was proof against any form of water penetration. To the contrary, the packaging on its face conveyed the express warning that the goods had to be kept dry. And, the carriers then issued clean bills of lading recording that the goods had been received in apparent good order and condition. That being so, for the reasons given in Silver [1930] 1 KB 416, the carriers’ position cannot be accepted. As Scrutton LJ said, a shipowner is not allowed to reduce his liability by proving or suggesting, contrary to his statement in the bill of lading, that the goods in respect of matters externally reasonably visible were not in good condition when shipped ([1930] 1 KB at 427).
285 Moreover, what was being described by the carriers in the bills of lading was the order and condition of goods known in the shipping industry to be sensitive to corrosion. As his Honour said, there was no evidence of an industry practice of wrapping these coils in a way that ensured that there was no possible ingress of water in the form of vapour or otherwise. Coupled with the symbol of the open umbrella and the words ‘keep dry’, that fact suggests that a shipowner would not assume that the packaging was proof against any form of water in liquid or vapour form entering into the internal part of the package.
SUBSEQUENT CHANGE OF PAPER WRAPPER USED BY TSUDA IN SHIPMENTS
286 In mid 2003, Stemcor’s managing director, Mr Whitehead, caused Tsuda to change from kraft paper for the internal wrapping of the coils to different paper another steel manufacturer, Nippon Steel, used. Earlier, in about September 2002, vessels operated by Project Asia Service began carrying some of Stemcor’s imports of steel for on sale to ACC and by mid 2003 only PAS vessels were used. No incidence of corrosion involving PAS vessels was reported. The PAS vessels were fitted with humidifiers, although, as his Honour found, there was no evidence one way or the other as to whether the humidifiers operated during any relevant voyage. Mr Whitehead gave evidence concerning the circumstances of the change in wrapping paper. In late May 2003 he prepared a report dealing with the ‘coil corrosion problem’. Relevantly the report said:
‘We have been experiencing an ongoing problem with corrosion damage to [Tsuda] galvanised and aluzinc coils supplied to ACC Australia. The problem is most common during the peak Japanese winter months, which correspond with the peak Australian summer months. However we also see some corrosion damage to coils during the course of the year.
The extent of damage on some shipments exceeds 30% of the cargo and at time [sic] up to 50% of the coils have had to be rejected as unusable by ACC. This is causing significant problems for our marine insurers who have come to believe that in some way the [Tsuda] packing is inadequate ...
The rusting damage caused to [Tsuda] supplied coils is a significant issue which must be addressed and resolved promptly in order for the business to be able to continue. It is also causing significant damage to [Tsuda’s] reputation as quality supplier.
In order to report specifically and in detail on this problem we inspected two coils one [Nippon], one [Tsuda] from a recently arrived shipment, MV Parkgracht, which loaded in Japan on 29/3/2003 and arrived in Sydney on 16/4/2003. The results of this inspection are typical of the problems seen with [Tsuda] coils which are not evident on the [Nippon] coils...’
The report then set out photographs of coils from both source and continued:
‘It would therefore seem that the problem with [Tsuda] coil does not relate to the outer metal wrapping. From the above photos, it does seem that the inner paper wrapping by [Tsuda] is not effective. The inner paper wrapping used by [Nippon] does appear to be effective and can stop water, or possibly water vapour, from transmitting through to the other side.
However we have also shipped a lot of [Tsuda] coils with chromte [sic] protection on board the same vessels with the same inner paper coating without any rust claims. On these occasions the paper does an effective job it would seem.
In conclusion there are a number of issues we would need to address in order to try to stop this continuing problem.
1. The coils are getting wet through condensation of moisture during the voyage. This is worse during the Japanese winter season as the vessel sails into the warm tropical region. We are intending to trial another shipping line who we believe will be able to provide greater ventilation of the hold and reduce the amount of condensation.
2. The paper being used as the inner wrapper is not effective at protecting oiled coils in this environment when some moisture can be expected to ingress through the outer metal wrapping. Initial [sic] we request that [Tsuda] investigate the [Nippon] paper and urgently make a change to that paper.
Although we cannot be certain that these changes will resolve our problems we are hopeful that in combination they will almost eliminate rusting on [Tsuda] coils. Samples of [Nippon] and [Tsuda] inner paper have been sent to you with this report including [sic] [Nippon] paper with rusting on one side and [Tsuda] paper that has partially stuck to the coil.
We look forward to your urgent comments on this issue.’
287 His Honour said that there was no evidence as to the addressee of the report. However, this was an error. The report was sent to Stemcor’s Japanese representatives. In turn, they passed it to Tsuda’s engineers who were to study it and prepare a report in response. While there was no evidence of such a report in response, in late July 2003 Tsuda applied the polyethelene crossed paper used by Nippon as wrapping paper for the coils it sent on the PAS vessel, Cape Darby. From then on, Tsuda’s steel was wrapped in the Nippon papers. Thus, by July 2003 both the type of vessel and the type of paper used for the Tsuda steel importations had changed. The galvanised and aluzinc coils were now wrapped in the same paper as Nippon had used and were shipped in vessels fitted with dehumidifiers.
288 The primary judge held that Mr Whitehead’s report was equivocal in that it simply drew attention to his belief that the problem of corrosion was the result of condensation and that the kraft paper may or may not have been effective to protect the coils against ingress of water vapour. The judge noted that there was no evidence of any testing of either of the types of papers to demonstrate differences in specification or characteristics attaching to them or to determine their capacity to prevent the ingress of water. And he said that the fact that no corrosion occurred on coils carried by the Cape Darby was equally explicable as resulting from the use of the dehumidifiers. He was not persuaded that the evidence about the Cape Darby shipment or the change of paper assisted in the resolution of the issues raised in the proceedings.
289 Before us there was a debate as to whether the carriers were entitled to rely upon the change of paper as demonstrating their defences under Art 4 r 2 of act or omission of the shipper, insufficiency of packaging, inherent vice or other fault not attributable to the carrier. The carriers’ particulars of their defences did not assert that the paper used by Nippon to wrap equivalent products should have been used and was effective to prevent corrosion. Nor did they assert in their pleaded defences that Tsuda or Stemcor had failed to inform the carriers of the special susceptibility of the unchromated and unpassivated coils to corrosion. Instead, the defences pleaded, in substance, that the design of the coil wrapping was deficient and that there were tears in the kraft paper on damaged coils which allowed entry of moisture.
290 Lastly, the particulars asserted that the coils should have been wrapped so as to provide a waterproof barrier and that the inner wrapping failed in its function of excluding moisture. Tsuda and Stemcor argued before us that the carriers could not rely upon the failure to wrap in the Nippon paper because it was outside the particulars in the defences. But the carriers raised this argument in their final written submissions to the primary judge and Tsuda’s and Stemcor’s written submissions to him in reply, to which we were referred, did not raise such an objection.
291 Tsuda and Stemcor said that the carriers had conducted the case below on the basis that the paper used for wrapping should have been both watertight and vapour tight so as to prevent entirely the possibility of moisture entering below the wrapping. They argued that there was no evidence before his Honour that the Nippon paper was available in 2001 or that it would have solved the problem. They said that at the trial Capt Pyett, an expert called by the carriers, accepted that the method of packaging used in 2001 by Tsuda was typical for the cold rolled steel coils. However, Mr Whitehead’s report said that chromated coils shipped on the same vessels in the past and wrapped in kraft paper arrived ‘... without any rust claims. On these occasions the paper does an effective job it would seem’.
292 His Honour found Mr Whitehead’s report to be inconclusive. He did not have any technical qualifications for arriving at his conclusions, although he had obviously had considerable experience in the importation of steel cargoes of varying kinds. Mr Whitehead said it was quite fortuitous that two unchromated coils, one from Tsuda, the other from Nippon, had been discharged from the MV Parkgracht on the occasion on which he inspected them. He had no idea whether they had been carried in the same hold.
293 Because the out turns from the Ankergracht and the Archangelgracht showed that some coils were affected while others were not, the precise location in the hold is likely to have been a critical factor in whether condensation formed on any particular coil. There was no material in evidence which indicated whether it was the paper or the location in the hold, or a combination of those two factors, which made a difference to the incidence of corrosion on unchromated coils.
294 Mr Whitehead’s report also stated:
‘The above photos demonstrate the typical rust problem we have incurred with [Tsuda] material. Similarly all [Nippon] material arrives looking very bad due to the outer cold rolled coil wrapping however we have never had any problem with rusting of [Nippon] oiled coil.’ (emphasis added)
295 Mr Whitehead’s report suggested that the wrapping used by Tsuda was ineffective to exclude moisture since, at the time of the earlier shipments, both Tsuda and Nippon unchromated, unpassivated (ie oiled as opposed to chromated) coils were being carried on Spliethoff vessels, which did not have humidifiers, but only Tsuda’s unchromated coils arrived with corrosion damage. However, Mr Whitehead said that the Nippon material had a very restricted specification range and Stemcor had imported only very little of this product from when it first started to do so in 2001 or 2002.
296 The carriers called no expert evidence to show that any difference in the characteristics of the paper used by Nippon, compared to that previously used by Tsuda, would have solved the problem of corrosion suffered on the voyages of the Ankergracht and the Archangelgracht. Mr Whitehead’s evidence of the small quantities of Nippon imports in the period between 2001 and 2003, before the Tsuda paper changed, also weakens the drawing of an inference that the paper made a difference. The carriers had the onus of proving that the packaging brought them within one of the exceptions in Art 4 r 2 on which they relied. It would not have been difficult for the carriers to have led scientific evidence as to the respective qualities of the two papers or to call other, clearer, evidence as to the qualities or quantities of the Nippon product which was shipped so as to enable the drawing of more precise inferences. Mr Whitehead’s report raised real questions about the adequacy of the wrapping. His Honour held that the carriers did not discharge their onus of proving that the change in paper made a difference to the likelihood of corrosion. Rather the carriers left this matter, which was fundamental to their defences under Art 4 r 2, to inference based on imprecise evidence.
297 One other cause of condensation was the presence in the coils of air within the wrapper (whatever paper it consisted of), when it reached its dew point. That was a source of water vapour which could cause condensation resulting from changes in temperature and a coil’s position in the hold when the vessel travelled.
298 For these reasons, his Honour made no error in concluding that the evidence as to the Cape Darby or the change of paper did not assist in the resolution of the issues.
RESPONSIBILITY FOR THE DAMAGE TO THE COILS
299 The trial judge said that packing capable of preventing even the most minor damage was not practicable and could not be expected for most commodities. He also noted that the degree of care that would have to be exercised by a carrier in order to avoid all minor damage is also not always practical or expected. Thus he said, correctly, that the Court had to undertake a balancing exercise in dealing with the question of sufficiency of packaging which would involve a common-sense compromise between the interests of the shipper and the carrier.
300 It is common ground that his Honour failed to consider in express terms Art 4 r 2(q), namely that the damage was due to another cause arising without the actual fault or privity of the carrier or its servants and agents. However, the only suggested basis upon which this exception could arise was already the subject of the defences under Art 4 r 2(i), (m) and (n). It is difficult to see what his Honour needed to have done, apart from expressly mentioning Art 4 r 2(q) and dismissing the defence as unarguable in light of his previous findings. There was no need for his Honour to consider Art 4 r 2(q) because he had found that the carrier was in breach of its obligations under Art 3 rr 1 and 2 and, thus, at fault and a cause of the damage.
301 For these reasons, the carriers cannot succeed on the insufficiency of packing exception. Likewise, the exception of act or omission of the shipper or owner of the goods or his agent or representative under Art 4 r 2(i) must fail. The shipper put a clear warning on the external packaging that the goods had to be kept dry.
INHERENT VICE
302 The Ankergracht argued that the existence of water within the inner wrapping of the coils was sourced from the exposure of those coils to external wetting from rain while they were on the barge awaiting loading at Yokohama. It argued that this fact brought it within the exception of inherent vice of the goods. The Ankergracht said that the water from this external wetting was able to infiltrate the external and inner wrappers of the coils. When, on this theory, the water came to be inside the wrapping, it constituted inherent vice since corrosion would occur very rapidly, within hours of the coils’ surfaces being in contact with the moisture or condensation, based on the unchallenged expert evidence as to the sensitivity of the cargo.
303 His Honour found that there had been no internal wetting of the coils, as noted above. He accepted Prof Jones’ evidence that it was highly unlikely that external wetting would have led to internal wetting. This was because every exposed surface of the coils, including the inside of the core, had been wrapped in paper and the inside of the coils was also protected by another sheet of galvanised steel. In addition the coils were laid in a horizontal orientation so that their axis was parallel to the deck. Prof Jones considered that if external wetting of a coil occurred, the water would not be taken into the wrapped product unless the unsealed longitudinal edge of the paper were lying directly along the deck. He thought that the chances of that occurring in about 57% of the Ankergracht coils were remote.
304 As His Honour noted, again on the basis of Prof Jones’ unchallenged evidence, if the horizontally carried coils were exposed to extensive external wetting, the water would run down the end caps, pass beneath the core edge protectors, then pass beneath the outer paper wrap and enter the coil itself. But that was unlikely, since the core of the coil was also wrapped with waterproof paper and the core edge protectors had a firm fit on the end of the coil. He found, accepting Prof Jones, that, if water had entered in that fashion, one would expect to see a circumferential band of white rust around the inner edge of the end caps. Only on one coil was such a band present. He found that, because the core of the coil was wrapped and taped, even if a small amount of water managed to percolate behind the core edge protector, the water would not enter the coil itself.
305 In coming to this conclusion his Honour rejected the evidence of Capt Pyett concerning corrosion and adequacy of packaging and preferred the evidence of Prof Jones. He found that it was more likely than not that even if the coils had been wetted before loading on the Ankergracht, no water infiltrated the external and internal wrappers prior to the loading of the coils on that vessel. He recognised that it was a possibility that that had happened but rejected it as the likely explanation. He said that the nature and distribution of the corrosion observed on the steel coils was consistent with condensation and that there were also other explanations of the differences in the extent of damage of the cargo carried on the two vessels, including differences in the timing and periods of ventilation during the respective voyages.
306 There does not appear to be any serious challenge to his Honour’s finding on the failure of the inherent vice defence in the appeal. In any event, having considered the evidence before his Honour independently, I have come to the same conclusion as the primary judge. His Honour correctly rejected the inherent vice defence.
CAUSE OF THE LOSS
307 In light of the above findings, his Honour was correct to have concluded that Tsuda and Stemcor proved that the unseaworthy condition of each vessel was the cause or an effective cause of the damage to the coils. And the carriers failed to establish that they had exercised due diligence to make the vessels seaworthy at or before the beginning of the voyages. The inability to remove water and vapour from the air so as to ensure that no condensation would occur internally within the coils was the effective reason why, when the vessels were ventilated during the voyage, water was present and vapour entered the holds so that ultimately the coils were damaged by the effect of corrosion from cargo sweat. Each of the failures to remove the moisture present when the voyage began, and to prevent moisture entering the holds when ventilation did occur, was a failure to care for the coils contrary to the carriers’ obligations under Art 3 r 2.
308 For these reasons the appeals must be dismissed with costs.
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URL: http://www.austlii.edu.au/au/cases/cth/FCAFC/2007/77.html