This was an appeal against a final declaratory arbitration. The underlying dispute arose from an explosion on board a ship owned by MS ER Hamburg Schiffahrtsgesellschaft GmbH & Co KG (the owner) and chartered by Compania Sud American Vapores (the charterer) on the NYPE 46 form.

The owner brought a claim against the charterer for loss of hire and damage to the ship in the amount of USD 63 million. The charterer counter-claimed USD 12 million. The cause of the explosion was not determined by the arbitrators. The owner said that the explosion was caused by the loading of a container of calcium hypochlorite which it said was inherently unstable. The charterer said that the explosion was caused by incorrect stowage of the container of calcium hypochlorite which was stowed adjacent to a bunker tank which was heated during the voyage and therefore caused the cargo to become unstable and explode.

The arbitrators found that the Chief Officer was negligent in allowing the container to be stowed next to the bunker tank when he saw the stowage plan provided by the charterer, but as the charterparty placed responsibility on the charterer for the actual stowage, the charterers would be responsible, subject to common law exceptions. The arbitrators also found that the heating of the bunker fuel was something done as part of running the ship and not specifically related to cargo, therefore the owner was not liable for failing to take reasonable care of the cargo.The charterer appealed.

There were two issues before the Court. The first concerned the proper interpretation of cl 8 of the charterparty, which placed responsibility on the charterer for stowage, in light of cl 24 which expressly incorporated the Hague-Visby Rules as a clause paramount. The second question was, assuming the bunkers were heated to a temperature above what was required to keep the fuel oil reasonably thin and this was causative, did the owner have a defence for a breach of art 3.2 of the Hague-Visby Rules by reason of art 4.2?

Held: Appeal dismissed.

The correct interpretation of cl 8 is that it does not impose a duty on the owner to intervene in the loading process but rather affords a right to intervene. Making the vessel unseaworthy through improper stowage does not, contractually, make the owners liable; rather, all damage caused directly by improper stowage will be for the charterer’s account. The clause cannot be interpreted to say that so long as the loading is carried out badly by the charterer to the extent that it puts other cargo at risk but not the vessel, the charterer is liable; but the moment loading is done so badly that the vessel is made unseaworthy, the owner is liable and the charterer relieved of liability.

The question of the application of art 4.2.a of the Hague-Visby Rules is one of fact for the arbitrators. The parties agreed on the legal principles set out in Cooke on Voyage Charters. Taking the Cooke test as right, an element of purpose is brought into the picture when the question arises as to whether the act (the heating of the bunker tanks) was done as part of the care of the cargo or as part of the running of the ship, not specifically related to the cargo. 'Is an act done as part of this or that' begs the question 'why was the act done' or 'for what purpose was the act done'? There can only be one answer to the question whether the (excessive) heating of the bunker oil was done as part of the care of the cargo or was done as part of the running of the ship not specifically related to the cargo. That is the answer which the arbitrators gave. The heating of the bunker tank was to facilitate the transfer of oil from it to the engines. It was a single act which did not relate in any way to the care of the cargo; albeit it may have indirectly adversely affected the cargo.

The fact that the act damages the cargo is, a given, otherwise the issue does not arise at all. By asserting that an act directly causes damage to the cargo does not alter the nature of the act itself. If the act was done as part of the running of the ship, then the damage to the cargo is indirectly caused by that act; whereas one would say that an act which was done as part of the care of the cargo and which caused cargo damage, directly caused that damage.