In Gard Marine & Energy Ltd v China National Chartering Co Ltd (Rev 1) [2015] EWCA Civ 16, the Appellant sub-charterers appealed the 2013 judgment of Teare J.1

Facts On or around 12 September 2006, the sub-charterers ordered the vessel, “Ocean Victory”, a Cape-size bulk carrier, to discharge a cargo of iron ore at Kashima, Japan. The vessel sought to leave the port during bad weather on the advice of sub-charterers’ representative at the port, a local experienced mariner. The immediate concern was that, in view of the weather conditions, there was a risk that she could not be restrained by her moorings and/or tugs. As she left the protection of the harbour, she encountered a severe northerly gale and considerable swell (as a result of long waves) in the Kashima Fairway; she was driven onto the breakwater, then ran aground and subsequently became a total loss.

First instance judgment The principal issue at trial concerned the question of whether Kashima was an unsafe port, thereby putting the intermediate charterers and sub-charterers (together the “Charterers”) in breach of their respective safe port warranties. The Charterers had argued that the coincidence of long waves and a severe northerly gale preventing the vessel from leaving Kashima safely was an “abnormal occurrence”, within the meaning of the safe port warranty given by them.

The Judge disagreed and held that Kashima was unsafe because of the possible coincidence of swell from long waves (which might have forced the vessel to leave the berth) and a very severe northerly gale (which meant that the vessel could not exit safely the port). He held that, though a concurrent occurrence of those two events may be rare in the history of the port, such an event flowed from the characteristics or features of the port and, accordingly, the port was unsafe because the coincidence of long waves and gale winds must be “at least foreseeable” in Kashima. The concurrence (or“juxtaposition”, as the Judge put it) of long waves and a severe northerly gale could not be characterised as an “abnormal occurrence”, contrary to Charterers’ argument. Kashima, therefore, was prospectively unsafe when the Charterers ordered her to proceed to, and discharge, there.

By way of an additional argument at first instance, the intermediate charterers had contended that, on a true construction of the terms of the demise charter between the registered owners and the demise charterers, the demise charterers had no liability to the registered owners in respect of insured losses, notwithstanding that those losses may have arisen as a consequence of the port being unsafe. The Judge found that the demise charterers did have such a liability to the registered owners, and accordingly the demise charterers’ claim could be passed down the charterparty chain.

Accordingly, the Judge held that the sub-charterers were liable in damages to the intermediate charterers, and that they in turn were liable to the Claimant underwriters (who had taken an assignment of the demise charterers’ rights), for breach of the safe port warranties in the chain of charter-parties.

Grounds of appeal The sub-charterers appealed successfully. At the appeal hearing, there were three principal issues for determination:

  1. whether, as a matter of law, there had been a breach of the safe port warranty
  2. whether, even if there had been a breach of the safe port warranty, the cause of the casualty was not the breach but instead the Master’s navigational decision to put to sea in extreme conditions, rather than stay at the berth; and
  3. whether, on a true construction of the terms of the demise charterparty, the demise charterers, who had insured the vessel at their expense, had any liability to the registered owners in respect of insured losses, notwithstanding that such losses may have been caused by a breach of the safe port warranty

Judgment of the Court of Appeal

This update considers, principally, issue 1:

Issue 1 – breach of the safe port warranty

Longmore LJ, gave the judgment of the Court:

Citing the “The Evia No.22, the Court approved the speech of Lord Roskill in that: “a charterer does not assume responsibility for unexpected or abnormal events which occur suddenly and which create conditions of un-safety after he has given the order to proceed to the relevant port”. The responsibility for such risks should fall on the vessel’s H&M insurers, or, if no such insurance, the owners themselves.

Citing, respectively, the “The Saga Cobb3 and the “The Mary Lou4, the Court approved the views there expressed: (i) that the fact an event was theoretically foreseeable did not make it a “normal characteristic” of the port; and (ii) that an abnormal occurrence had to be assessed on the basis of whether it had occurred sufficiently frequently so as to become a characteristic of the port.

The evidence was that long waves affected the quay at which the vessel was berthed about two to three time every year and that their incidence was not predictable. From time to time storms caused by low pressure, non-tropical storms, produced gale force winds from the northerly/north easterly quadrant which made the Kashima fairway unnavigable by Cape-size vessels. In the period 1986 to 2010 there had been approximately 22 such storms (or possibly fewer), so they were not an annual occurrence.

In the 2001-2006 period only 4-5 vessels had left the relevant quay, departed and then returned. In respect of one departure only was there evidence that the departure was necessitated by long waves. It was not clear what necessitated the other 3-4 departures – weather or swell from long waves.

There was no evidence that the 4-5 departures had occurred in circumstances where there were both: (i) long waves affecting the quay such that it was not safe to stay at the berth because of the risk of damage or mooring breakout; and (ii) a very severe northerly gale affecting the fairway and so severe as to make navigation dangerous or impossible for Cape-size vessels (the “Critical Combination”).

Having regard to these essential points, the Court found that the first instance Judge had erred in his analysis: he had failed to formulate the key unitary question which he had to answer: whether the simultaneous co-incidence of the Critical Combination was an abnormal occurrence or a normal characteristic of the port of Kashima. The first instance Judge had not considered the Critical Combination; instead he had considered its two constituent parts separately, finding that neither could be said to be rare and that both were attributes or characteristics of the port. That was the wrong approach – what mattered was not the nature of the individual component dangers but rather the nature of the Critical Combination.

Further still, the Judge ought not to have concluded that if the events making up the Critical Combination were each theoretically foreseeable because of Kashima’s location that they were, without more, an attribute of the port. When, in “The Mary Lou”, Mustill J said “it may be said that the loss is not recoverable unless events of this type and magnitude [events said to have been dangers to the particular vessel] are sufficiently regular or at least foreseeable to say that their occurrence is an attribute or characteristic of a port, or it may be said that abnormal or casual events do not found a claim5, Mustill J did not, the Court of Appeal held, propose an alternate test which excluded questions such as frequency. The Judge had erred in picking up the words “at least foreseeable” and in using minimum foreseeability as some sort of 'litmus test' for establishing whether an event was an attribute of the port, without having regard to the evidence as a body, including what the evidence showed as to the frequency of the events in question.

The Judge ought to have looked at the reality of the Critical Combination in the context of all the evidence to ascertain whether it was sufficiently likely to occur to have become an attribute of the port. The consequences of a “mere foreseeability test lead to wholly unreal and impractical results”, the Court of Appeal observed. The Court concluded that if the first instance Judge had properly considered the evidence surrounding the frequency of occurrence of the Critical Combination, he would have found that the Critical Combination was, in fact, an “abnormal occurrence” within the meaning of the safe port warranty. Accordingly, the Court of Appeal held that the Critical Combination did amount to an “abnormal occurrence” within the meaning of the safe port warranty, with the effect that the first instance Judge’s finding had to be overturned.

Issue 2 – Master’s alleged negligence

In the light of its finding as to Issue 1, the Court of Appeal did not need to consider this issue any further. At first instance, the Judge found that the Master could not be criticised for his decision to leave the berth when, and in the circumstances in which, he did. He could not be said to have failed to exercise good navigation and seamanship, and therefore the chain of causation was not broken.

Issue 3 – Recoverability issue

Although not strictly necessary, the Court decided to consider and determine this issue as one raising an issue of principle in relation to the construction of the demise charter. As mentioned above, this update does not set out to consider this issue in any detail. Suffice it to say that the Court found that the demise charterers, if there were a liability for breach of the safe port warranty, would be under no liability to the registered owners for that breach, because the registered owners had agreed to look to the insurance proceeds rather than to the demise charterers for compensation for that breach. Accordingly, if there were a breach of the safe port warranty, the demise charterers would not be able to show they had suffered any loss as a result of their charterers’ (i.e. the intermediate charterers) breach and the intermediate charterers therefore would have no liability to pass on to their charterers, the sub-charterers.

Comment The decision of the Court of Appeal in the “Ocean Victory” is one that has been keenly, and somewhat nervously, awaited and nowhere more so than amongst the wider shipping community in Japan. As the Court of Appeal observed in its judgment, on the conclusion of the first instance Judge “… the port [of Kashima] remains unsafe to date, since the changes to the port procedures made since the casualty would not have prevented it had they been in place in 2006. Yet no similar incidents to that befalling the “Ocean Victory” and the Ellida Ace as they sought to leave Kashima on 24th October 2006 have occurred subsequently”. It was this consequence which has continued to cause very real concern amongst the Japanese shipping community at large and amongst the users of Kashima port in particular. The decision of the Court of Appeal is unquestionably welcome within this community.

More specifically, the decision confirms that a realistic approach must be adopted for the determination of the essentially factual question of whether an event or events giving rise to the casualty are properly to be characterised as an “abnormal occurrence” or as resulting from some “normal” characteristic of the port. Dangers must be viewed in context and against the evidence. The frequency with which the events amounting to the danger take place will be an important factor.

The fact that an event is theoretically foreseeable does not make it a “normal” characteristic of the port, and, whether an event is abnormal necessarily depends on an evidential evaluation of that event (whether or not that be comprised of multiple factors) giving rise to the damage and the relevant history of the particular port.

As noted above, mere theoretical foreseeability, on its own, will not be sufficient to establish whether an event is an attribute of the port in question. This is not to say foreseeability has no role – the degree of foreseeability of the event should be a factor but by no means the only one: one must have regard to the history of the port and the frequency of the event in its history.

The Court of Appeal’s judgment should be welcomed, if only to re-confirm that the correct approach as to whether an event is “abnormal” for the purposes of a safe port warranty is the orthodox and rounded (or perhaps even holistic) approach set down in “The Mary Lou6 and in “The Evia No. 27. Without doubt evidence is king.

In closing it is worth noting that the Court of Appeal refused to give permission to the Claimant underwriters for a further appeal to the Supreme Court. It remains to be seen though whether the Claimant underwriters will seek to petition the Supreme Court for the same and whether such permission might be granted.