This was a cargo claim brought by the plaintiff against the defendants for breach of a contract of carriage and/or negligence resulting in the loss and/or non-delivery of the plaintiff's cargo (4,399.97 mt of scrap iron). The first defendant, Budget Marine Ltd, was the owner of the dumb barge, Budget 21, and the tugboat, Budget 11, which were managed and operated by the third defendant, NCT Forwarding & Shipping Sdn Bhd, under a bareboat charter. The second defendant, Budget Marine Sdn Bhd, was the former owner of the vessels and named as the carrier in the relevant bills of lading. The plaintiff's scrap metal was loaded onto the barge under tow at Sandakan and Kota Kinabalu for carriage to Butterworth, Penang. However, the cargo was lost en route.

The main issues were whether the defendants were liable for the total loss and/or non-delivery of the cargo, and if so, whether they could rely on the exclusions and/or limitation of liability provisions under the Hague Rules, or tonnage limitation under the LLMC 1957. The other issue was whether the plaintiff was liable for the second and third defendants' counterclaim for port charges, handling fees/expenses, and freight.

Held: The defendants are liable for the loss of the plaintiff's cargo, and are not entitled to limit their liability. The plaintiff is liable for the relevant charges outlined in the defendants' counterclaim.

A careful reading of cl 10 of the fixture note reveals that the defendants agreed to be fully responsible for, and comply with, the towage recommendations, including the agreed passage plan signed by the master, unless there was a valid reason for not doing so. Passage planning for the safety of navigation is regarded to be of 'essential importance': see The CMA CGM Libra [2021] UKSC 51 (CMI1619). The clear wording in cl 10 is wide enough to make the carrier fully responsible, even if the default and/or non-compliance with the agreed passage plan or towage recommendations was made by the master, crew, or servants of the defendants.

It is undisputed that the vessels deviated from the original passage plan after leaving Kota Kinabalu, and moved away from a direct and shorter route to the Singapore Strait and further away from the coast. The original passage plan took into account the requirement to replenish bunkers off Miri, and to stay as close to the coast as possible, which ensured that the vessels were close to shelter and emergency services in the event of bad weather. When the vessels encountered tropical storm Kai Tak, they took shelter at the lee of Pulau Serasan. However, for unknown reasons, the vessels came out of shelter while the sea and weather conditions were still adverse due to the tropical storm. This exposed them to severe weather which eventually resulted in the loss of the cargo.

No explanation or valid reason was given by the master or the defendants for the non-compliance with the original passage plan and failure to stay in shelter until conditions were no longer hazardous or adverse. The defendants breached cl 10 of the fixture note and the towage recommendations. This resulted in the total loss and non-delivery of the cargo, and amounted to a serious breach of the terms of the contract of carriage. The defendants and the master were also negligent and breached their duty of care as carrier of the cargo.

As the cargo was totally lost in the charge of the defendants' vessels, this loss is prima facie evidence of negligence on the part of the defendants. In Syarikat Lee Heng Sdn Bhd v Port Swettenham Authority [1971] 1 LNS 133, [1971] 2 MLJ 27, the Federal Court held:

Mere non-delivery, therefore, is prima facie evidence of negligence - this being a case of res ipsa loquitur. And 'once negligence on the part of the defendants had been established and this negligence could have caused the loss, it was eminently reasonable to ask them to prove that in fact it did not' ...

The defendants, however, contend that they are exempted from liability on the following bases:

(a) The master defaulted in his duties of good seafaring and his negligent navigational decisions which resulted in the incident. Accordingly, the defendants are exempted from liability under art 4.2.c [sic: art 4.2.a] of the Hague Rules (ie, the master's negligence defence).

(b) Further and/or in the alternative, the incident was caused by severe weather conditions brought about by tropical storm Kai Tak which only formed three days after the vessels departed from Kota Kinabalu. Accordingly, the defendants are exempted from liability under art 4.2.a [sic: art 4.2.c] of the Hague Rules (ie, the perils of the sea defence).

(c) As explained above, the incident was caused by the master's negligence and/or the severe weather conditions, which the defendants could not have taken any reasonable steps to avoid. The defendants are therefore exempted from liability under art 4.2.q of the Hague Rules, as the incident resulted without any actual fault or privity on their part.

The plaintiff appears to be trying to argue that the defendants are not entitled to rely on the defences under art 4.2 of the Hague Rules on the ground that the vessels were unseaworthy. In order to comply with art 3 of the Hague Rules, the shipowner has to exercise due diligence to ensure that the vessel is seaworthy and cargoworthy. The plaintiff contends that the former includes whether the necessary certificates show that the vessel is able to float without listing to one side, contains the necessary equipment, and is properly manned; whereas the latter includes whether the vessel is able to carry the goods to its destination.

It has been held that due diligence depends on the surrounding circumstances at the relevant time, the available knowledge and technology, and on marine industry practices at the time of the act or omission: see Demand Shipping Co Ltd v Ministry of Food Government of the People's Republic of Bangladesh (The Lendoudis Evangelos II) [2001] 2 Lloyd's Rep 304.

It is also trite law that even if a vessel is seaworthy but is uncargoworthy, the carrier has failed to exercise its duty to make the vessel seaworthy: see Albert E Reed & Co Ltd v Page, Son & East Ltd [1927] 1 KB 743.

The plaintiff submits that the defendants failed to comply with art 3 of the Hague Rules by failing to exercise any due diligence to ensure that Budget 21 was cargoworthy. This was because the barge's steel side walls and supporting structures were riddled with heavy corrosion which took years to form, and the defendants did not have any maintenance records or any proof of its cargoworthiness prior to its departure from Kota Kinabalu, Sabah.

It is trite that the carrier's duty to exercise due diligence under art 3.1 is non-delegable, and the carrier remains responsible even though performance of the duties under art 3 are delegated to, and carried out by, a third party or independent contractor: Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807 (HL).

Although the vessels were certified by Bureau Veritas (BV) to be in class and fit to go to sea for the voyage to Butterworth, Penang, the vessels were required to be navigated in a safe manner and comply with the original passage plan, and take and/or remain in shelter in the event of adverse sea and weather conditions during the voyage. The fact that the vessels were certified by BV to be in class and fit to go to sea does not mean that the vessels were fit and safe to navigate through the eye of a tropical storm, or turbulent sea and weather conditions. In The CMA CGM Libra, the UK Supreme Court held:

The carrier's obligation under the Hague Rules was not subject to a category-based distinction between a vessel's quality of seaworthiness or navigability and the crew's act of navigating. The crew's failure to navigate the ship safely was capable of constituting a lack of due diligence by the carrier. It made no difference that the delegated task of making the vessel seaworthy involved navigation.

In the present case, the master and crew's failure to navigate the vessels safely by complying with the original passage plan and towage recommendations, and with no proper system in place to monitor or ensure compliance, was capable of constituting a lack of due diligence by the carrier.

Further, the defendants failed to call the master and any of the crew members to give evidence on what actually transpired on board the vessels during the voyage. The fact that on paper the vessels are manned by a master, chief officer, and crew members does not necessarily mean that the master and crew are actually on board or performing the duties that they are required to perform, or physically or mentally fit or competent to carry out their duties on board the vessels during the voyage. The Court finds that the defendants have failed to prove that they exercised due diligence to properly man the vessels at the beginning of the voyage and/or to navigate the vessels safely. Thus, the defendants are disentitled from relying on the exclusions and limitation of liability under art 4.2 of the Hague Rules.

In Owners of Cargo carried in the Ship 'Gang Cheng' v Owners and/or Persons Interested in the Ship 'Gang Cheng' [1998] 5 CLJ 548, [1998] 6 MLJ 468 (CMI480), the High Court held:

In any case, it is my judgment that even if any such evidence relating to the exculpatory provisions was proffered, the immunities provided under art IV of the Hague Rules will not help the defendants. These Rules will not apply if the defendants were in breach of art III r 1 of the said Rules. It was so held in Maxine Footwear Co Ltd v Canadian Government Merchant Marine Ltd [1959] AC 589, 602-603 (PC):

... Article III r 1 is an overriding obligation. If it is not fulfilled and the non-fulfilment causes the damage, the immunities of art IV cannot be relied on. This is the natural construction apart from the opening words of art III r 2. The fact that that rule is made subject to the provisions of art IV not so conditioned makes the point clear beyond argument. ...

The defendants further contend that their liability is limited by the Merchant Shipping (Implementing of Conventions Relating to Carriage of Goods by Sea and to Liability of Shipowners and Others) Regulations 1960, which incorporate the LLMC 1957 in Sabah. Pursuant to reg 11(1)(b)(ii), the defendants' liability is limited to 1,000 XFO per ton. The MYR equivalent figure for 1,000 XFO is MYR 203.07.

The defendants contend that where the cause of damage is the improper navigation of a tug, it is well established that liability will be limited to the tonnage of the tug. Even where the damage is caused wholly or partly by the tow, the causative negligence is in such cases treated as negligence in the navigation of the tug alone. The defendants submit that this principle applies regardless of whether tug and tow are in common or separate ownership.

The defendants submit that the raison d'être of the LLMC 1957 is to promote shipping by preventing carriers from being exposed to unlimited liability whenever cargo is lost. This makes it easier and less expensive to obtain the insurance vital to the conduct of shipping. Without the LLMC 1957, shippers such as the plaintiff would have to bear much higher costs, as carriers would need to charge much higher freight in exchange for the unlimited liability undertaken.

Under the LLMC 1957, a shipowner is entitled to limit liability as long as the loss or damage to cargo occurred without its 'actual fault or privity'. Such 'actual fault or privity' refers to blameworthy conduct which is personal to the owners of the ship, or to which they consented, or of which they had knowledge. The actual fault or privity must be of someone who is the directing mind and will of the shipowner. It is recognised at law that this usually refers to the board of directors, a director, or a high-ranking officer holding a managerial position. A mere employee or servant of the shipowner would not be regarded as its directing mind and will. A master who is appointed to command a vessel is an example of an employee whose act or omission is not attributable to the shipowner. Accordingly, the defendants contend that if cargo was damaged or lost as a consequence of a negligent act or omission of an employee (such as a master) without any actual fault or privity of a person who is the directing mind and will of the shipowner, the shipowner will be entitled to limit liability.

In Newfield Peninsula Malaysia Inc v The Owners of the Ship or Vessel 'Tanjung Pinang 1' [2012] 1 LNS 1084, [2013] 10 MLJ 650, Nallini Pathmanathan J held that the issue to be determined in assessing whether there is 'actual fault or privity' on the shipowners is:

whether the ship owner has in fact implemented safe operational practices and systems which in the ordinary course of events would have precluded or reduced the opportunity for the incident to occur. If the ship owner can be said to have done so, or put another way, if it is clear that the error is entirely attributable to the act or omission of an employee or agent who is not the directing mind and will of the defendant, then the ship owner is entitled to the benefit of tonnage limitation...

In Owners Or Other Persons Interested in the Ship Or Vessel The 'Red Gold' v Sarawak Shell Bhd [2012] 8 CLJ 164 (CMI482), the Court of Appeal held:

[38] On the issue of supervision of the maintenance of a vessel by the owners and the degree of responsibility of the owners for any lack of supervision, Lord Brandon in The Marion opined that:

In considering whether this lack of supervision was a fault on Mr. Downard's part, the practices of other reputable shipowners at or about the same time is clearly relevant, although, unless the evidence of such practices is all one way, or nearly all one way, it cannot be decisive.

In the present case, there was a lack of supervision by the defendants of the compliance by the vessels with the original passage plan and the deviation from the agreed passage plan to a longer and unsafe route in stormy weather and sea conditions. The defendants did not call other shipowners to give evidence on the practices of other shipowners in complying with an agreed passage plan or deviation from it. Nor is there any evidence from other shipowners to prove that it is unnecessary for a shipowner to supervise and advise the master to comply with the agreed passage plan, even when the shipowner has undertaken full responsibility under the terms of the contract of carriage to comply with the passage plan and towage recommendations.

The Court finds that the defendants were under a duty to supervise and advise the master of the vessels to comply with the passage plan in the interests of safety of the crew and cargo on board the vessels. The defendants admit that they received WhatsApp messages and information, including weather reports, from the master during the voyage. The defendants were, or ought to have been, aware that the vessels did not comply with the agreed passage plan. There is no evidence from the master and/or the crew to show that the defendants did not know, or were not informed, that the vessels did not comply with the passage plan. The failure to supervise and advise the master on compliance with the passage plan, and to seek and remain in shelter when the tropical storm was still intense, resulting in the loss of the cargo, is attributable to the actual fault and privity of the defendants. Hence, they are not entitled to limit their liability pursuant to the LLMC 1957.