This Client Alert reviews the recent judgment of the Commercial Court in Bunge S.A. v ADM Do Brazil LTDA and Others (The "Darya Radhe"), dealing with the scope of "legally dangerous" cargo. Reed Smith represented Glencore Importadora e Exportadora S/A one of the successful respondents.

Facts

This was an appeal against eight arbitration awards issued in relation to disputes concerning the shipment of a cargo of 44,337.515 tonnes of Brazilian soyabean meal pellets at Paranagua under 30 separate Bills of Lading issued to nine different shippers for carriage to Iran. The Bills of Lading were issued by the Time Charterers, Bunge S.A. as Carriers, and incorporated the terms of the time charter and the Hague Rules. A cargo of maize was also loaded on board.

All the cargo was loaded by means of conveyer belts to loading spouts on ship loaders. Late in the loading of the soyabean cargo there were sightings of rats. The cargo was fumigated and the vessel remained at Paranagua for a significant period whilst the parties disputed responsibility, possible rejection of the cargo and issues such as the clausing of bills of lading. Eventually the vessel sailed and the cargo was discharged in Iran. No evidence of rat infestation was noted in the maize holds.

The Carrier brought claims for damages in excess of US$2 million against the shippers in respect of delay at Paranagua, the cost of a deviation to Lisbon to check the condition of the cargo and further fumigation, speed and consumption claims resulting from the stay at Paranagua and costs of a deviation for bottom cleaning. The arbitrations were heard together.

Arbitration Award

The Arbitrators found that the Master's evidence of sightings of rats was based on second hand reports, but that nevertheless during loading less than 20 and probably no more than 14 live rats had been loaded on to the vessel with the cargo. Despite this finding, the arbitrators determined that the Carrier's claims failed for two independent reasons. Firstly the Carrier was unable to show which shipper or shippers were responsible for loading any of the rats. Secondly the arbitrators concluded that a cargo loaded with one or more rats which were then neutralised by a phosphine fumigation, which could be expected to be 100% successful, was not a dangerous cargo.

Commercial Court

The appeal focused on the scope of the principles relating to dangerous cargo. The Carrier obtained leave to appeal on two questions of law:

  • Did the presence of between 14 and 20 rats in the cargo loaded on board the vessel render some or all of the cargo dangerous for the purpose of the terms of (a) the charterparty incorporated in the bills of lading and/or the common law and/or (b) Article IV Rule 6 of the Hague Rules?
  • Did the Tribunal adopt the correct test as to what the carriers have to prove to make one or more of the shippers liable for (a) damages at common law and/or (b) all damages and expenses directly or indirectly arising out of or resulting from such shipment in accordance with Article IV Rule 6 of the Hague Rules?

On the facts found by the Tribunal, the SBMP cargo loaded on The "Darya Radhe" did not pose a threat of direct or indirect physical damage to the ship or to the other cargo onboard; accordingly it was not physically dangerous within the meaning of the Hague Rules or corresponding common law principle.

The Carrier submitted that in accordance with the principle extracted from the decision of Atkin J in Mitchell, Cotts & Co v Steel Bothers & Co. Ltd1 a cargo is dangerous if it is liable to cause delay to the vessel and/or to the carriage of other cargo. In this instance the risk of rejection of the cargo, resulting in e.g. re-fumigation, had caused undue delay.

In giving judgment, Mr. Justice Tomlinson referred to the "confusing but two distinct principles in relation to the shipment of goods which cause loss to the shipowner" identified by Longmore J at first instance in The "Giannis NK"2, namely that (i) a shipper undertakes not to ship goods which are liable to cause damage to the vessel or other cargo, without giving notice to the shipowner; and (ii) a shipper undertakes not to ship goods which are liable to cause delay to the vessel; such as where the cargo is contraband or cargo for which an import licence is required which is not obtained.

Discussing the second principle, the Judge noted that the editors of Scrutton on Charterparties and Bills of Lading summarise this as a particular incident of the first principle; "goods may be dangerous within this principle if, owing to legal obstacles as to their carriage or discharge, they may involve the detention of the ship".

The Judge observed that both Mitchell v Steel, and The "Giannis NK" involved a violation of the local laws at the discharge port. The Carrier in this case was seeking to extend the principle laid down in Mitchell v Steel and The "Giannis NK" by suggesting that the issue of delay was not dependent upon the existence of any legal obstacle such as one imposed by the local law at the discharge port, but rather that there was a general duty not to ship goods likely to involve unusual danger or delay. The Court rejected this approach, noting that the shippers had argued that it was common place for cargo to be loaded which carries with it a risk that it will cause delay to the ship or other cargo. It had been pointed out as long ago as 1922 in Transoceania Societa Italian di Navigazione v H. S. Shipton & Sons3 that if the rule as to dangerous goods is extended to matters not involving physical danger, "a wide vista of responsibility opened as against the shippers of goods". The Court held that:

"The principle in Mitchell Cotts is concerned with the violation or non-compliance with some municipal law which is of direct relevance to the carriage or discharge of the specific cargo in question."

"The arbitrators' findings in my view preclude the possibility of success of any argument based on local law, since the thrust of their findings is that fumigation was routine and intended and could be expected to eliminate all but cosmetic problems, which it did."

In fact local law was not in issue at all in the arbitration and the Carrier's suggestion that the matter be remitted to the Tribunal for further findings was rejected.

The second question concerning the Carrier's burden of proof in such cases was dealt with shortly; the Judge found that the Tribunal had correctly posed the question for decision, namely whether, on a balance of probability, there were rats present in every shipper's cargo or only some; if so, which? The Carrier had not proved that any one shipper had loaded at least one rat.

Comment

The issue of the potential liability of charterers or shippers for shipping legally dangerous cargo under a charterparty or contract of carriage is often raised when delay or other loss can be attributed in a broad sense to the cargo shipped. Detention claims may arise where foreign bodies are found in a bulk cargo, perhaps damaging shore equipment, or when defective goods are rejected by receivers, with the carrying vessel possibly also being arrested in a jurisdiction where it may be all too easy to pursue a cargo claim. As the shippers in this case pointed out, it is commonplace for cargo to be loaded which carries with it a risk that it will cause delay to the ship or other cargo and the Judge reasoned that "In truth all or most cargo is at risk of rejection on discharge, whether justifiably or not and the allocation of the risk of delay arising therefrom is dealt with in contracts of carriage quite independently of the regime as to dangerous cargo".

This judgment confirms that the scope of legally dangerous cargo is confined to cases "concerned with the violation of or non-compliance with some municipal law which is of direct relevance to the carriage or discharge of the specific cargo in question".

The Carrier may or may not have alternative remedies under the contract of carriage, possibly within the regime for laytime and demurrage, warranties concerning lawful merchandise or the cargo description clauses.

As for the burden of proof issue, whilst it is unlikely to be relevant in cases not involving multiple co-mingled bulk cargoes, the case illustrates the importance to all parties of good, early, first hand evidence of the facts.