In August 2017, the MV Cheshire carried a cargo of just over 42,600 mt of NPK fertiliser for Yara Asia Pte Ltd (Yara) from Herøya, Norway. The cargo was destined for Thailand, but the fertiliser underwent a chemical process along the way that led to strong heat generation and toxic gases. The crew was evacuated south of Gran Canaria, Spain, nine days after departure. Most of the cargo was destroyed, and the ship was declared a total loss. Yara claimed compensation for the cargo and other costs incurred. Its claim was directed at the carrier, J Lauritzen Singapore Pte Ltd (Lauritzen), and the shipowner, Bibby Transport Ltd (Bibby). Bibby and Lauritzen filed counterclaims against Yara for compensation for loss of the ship and other costs resulting from the accident.

On 20 February 2020, the Oslo District Court ruled in favour of Yara on both the main claim and counterclaims (see Yara Asia Pte Ltd v J Lauritzen Singapore Pte Ltd TOSLO-2017-180657-2 (17-180657TVI-OTIR / 01) (CMI1054). Lauritzen and Bibby appealed to the Borgarting Court of Appeal.

The appellants argued that the crux of the matter regarding the main cargo damage claim was the cargo's ability to undergo self-sustaining decomposition, which Yara knew about, but did not disclose. Section 275 of the Maritime Code (the Code) provides that '[w]hen fault or neglect on the part of the carrier combines with another cause to produce losses, the carrier is only liable to the extent that the loss is attributable to such fault or neglect'. The nature of the cargo constituted 'another cause', with the consequence that Yara must bear the cargo loss. It was not due to the crew's fault or negligence that this cause was not discovered or dealt with earlier.

As to the counterclaim - the damage to the ship - the appellants argued that Yara violated its duty under s 257 of the Code to disclose the dangerous nature of the cargo, and necessary safety measures, with the result that Yara was objectively responsible for the loss of the ship under s 290 of the Code, which provides for shipper liability. Alternatively, Yara was liable because of the breach of its duty to provide information about dangerous goods under s 291 of the Code.

Yara argued that the District Court's judgment was correct both in terms of result and - in essence - reasoning. The maritime transporters were jointly liable to Yara for loss of the fertiliser: see s 274 of the Code, which sets out the period of the carrier's responsibility. It is clear that the carrier violated the norm of liability in s 275 of the Code, which provides that the 'carrier is liable for losses resulting from the goods being lost or damaged while in his or her custody on board or ashore, unless the carrier shows that the loss was not due to his or her personal fault or neglect or that of anyone for whom he or she is responsible'. The crew of the Cheshire ignored the safety standards of the IMSBC Code, internal instructions given by Bibby, as well as safety rules and information given by Yara before loading, by leaving a lamp on in the cargo hold with the cargo on board. It is undisputed that it was the lamp that triggered the decomposition of the cargo. This was a visible and foreseeable risk of injury and damage. The damage could have been averted, or at least significantly limited, by simple investigations early in the course of events.

Yara argued that the carriers had not proved that the damage was wholly or partly due to circumstances on its part under s 275 of the Code. Yara provided adequate information about the cargo. The cargo was correctly classified according to the IMSBC code. Yara did not undercommunicate the consequences of the cargo coming into contact with heat sources. The cargo was not dangerous according to s 257 of the Code. NPK fertiliser is one of many types of cargo that must be kept away from heat sources in cargo holds, without the cargo type itself being characterised as dangerous. Yara could not be held responsible for the loss of the ship.

Held: Appeal dismissed. The quantum of the District Court ruling on the cargo damage is amended from USD 20.9 million to USD 18.2 million.

Pursuant to s 274 of the Code, the carrier is responsible for the goods while they are in its custody. Pursuant to s 262 of the Code, the carrier shall carry out the transport with due care, take care of the goods, and otherwise look after the cargo owner's interests. If the goods are damaged, it follows from s 275 of the Code that the 'carrier is liable for losses resulting from the goods being lost or damaged while in his or her custody on board or ashore, unless the carrier shows that the loss was not due to his or her personal fault or neglect or that of anyone for whom he or she is responsible'. The main requirement is anchored in this provision. The provision entails negligence and employer liability, with a reversed burden of proof. The carrier will be liable for damages to the cargo, unless it can prove that the loss is not due to fault or negligence on its part. The carrier is responsible for those who perform work in the ship's service, and for sub-carriers. If both the carrier and the sub-carrier are liable, they are jointly and severally liable.

At the same time, it is essential that the cargo owner provides the carrier with the necessary information about the goods to be carried. When it has done so, however, the carrier has a stricter duty of care. The cargo owner's duty to provide information is regulated in both the Code and the IMSBC Code. Section 258 of the Code requires the shipper to state if the goods must be treated with special care, and to specify the safety measures that may be necessary. Section 257 of the Code regulates the shipper's duty to provide information in respect of dangerous goods. This duty to provide information is elaborated on in NOU 1993: 36:

The shipper's duty to provide information is contractual and may go beyond the obligations arising from the public law rules on dangerous goods. In the same way as under current law, public law definitions of which types of goods are to be considered dangerous will not necessarily be exhaustive, in relation to the rules of transport law, goods may be considered dangerous even if they are not covered by the rules of public law.

The counterclaim in the case is anchored in s 291 of the Code, which makes the shipper liable for damages if it has not provided information about dangerous goods and necessary security measures, as required under s 257. A subsidiary legal basis for the counterclaim is s 290 of the Code, which provides that the shipper is liable for damage resulting from fault or negligence on the part of the shipper, or someone for whom it is responsible.

The IMSBC Code, s 1.2.1, states that the IMSBC Code is not exhaustive, and that the properties of the different types of cargo are provided for guidance. It is emphasised that the carrier must therefore obtain information from the shipper about the goods' properties. Section 4.2.1 of the IMSBC Code specifies that the shipper must provide the carrier with sufficient information about the cargo so that the carrier can take the necessary precautions for safe transport.

According to this, the legal starting point is that the shipper of the goods must in all cases provide all necessary information about the properties of the goods, and special measures that may be necessary to process the goods. If the goods are dangerous, the shipper must inform both the carrier and the sub-carrier of this, and of the necessary safety measures. The classification of the IMSBC Code will not be decisive for what is considered dangerous goods under s 257 of the Code. However, the carrier has a strict due diligence requirement, and is considered to be a professional in sea transport. The carrier has an independent responsibility to have sufficient information about the cargo that it is to carry.

Section 275 of the Code is also invoked. This provision provides a basis for division of responsibilities when there are several causes of damage. Missing or incorrect information from the cargo owner may be such a reason on the part of the shipper. Here, too, it is the carrier who has the burden of proving that there are co-operating causes of damage that are not linked to the carrier's negligence.

With regard to the main claim - Yara's claim for compensation for damage to the cargo - the Court finds it clear that the conditions for liability under s 275 of the Code are met. There has been 'fault or neglect' by someone for whom Bibby and Lauritzen are jointly and severally responsible, namely the crew on board the Cheshire. Bibby and Lauritzen have acknowledged that it was negligent of the crew to leave the lamp on in cargo hold 4 in violation of clear instructions. This alone may, depending on the circumstances, be sufficient to lead to liability for the entire cargo damage. In addition, it was negligent of the crew not to address the problem immediately, investigate further, and notify the shipping company and Yara when they discovered signs that something unexpected and irregular was happening in cargo hold 4. Had the crew acted with reasonable speed, the extent of the damage would probably have been significantly less. In the Court of Appeal's view, their degree of fault is in no way in the lower tier of the negligence norm. The reversed burden of proof and stricter standard of proof in s 275 does not come to the fore in this case.

There are no concurrent causes for the damage that can lead to a division of responsibilities according to s 275 of the Code. The appellants' allegation is that the reason for the substantial extent of the damage was that the cargo had more dangerous properties than the carrier had reason to believe, based on the information provided by Yara. The Court does not agree. The appellants have also not proved that any part of the large extent of the damage was due to Yara providing insufficient information on how a decomposition event could be detected and stopped. It would be useful for the crew to know that not only a rise in temperature, but also a drop in oxygen, constituted early signs of decomposition, something of which Yara was aware. However, the overall signs of an irregular development in cargo hold 4 that were already available - water accumulation from drainage pipes, clearly deviating gas measurements, and observation of gas emissions from the hold - were sufficient to trigger a duty of action on the part of the crew. Had the crew carried out simple investigations then, and/or notified the shipping company and Yara, further decomposition would most likely have been stopped.

Although not necessary for the Court's conclusion, there is no evidence that the master and crew would have reacted in any other way if they had had the information stated in the proposed new Appendix to the IMSBC Code for Group B NKP Fertilizer (MHB), to the effect that decomposition, if initiated, can gradually spread throughout the cargo. Bibby did not prove what the crew would have done differently in that case.

The appellants have stated as the main ground for acquittal for the main claim that Bibby would not have accepted this cargo if Yara had provided correct and complete information about its properties. This allegation is based on a factual premise that does not hold true, namely that Yara provided insufficient information about the properties of the cargo. Even if the Court had come to the conclusion that Yara, for example, should have provided the information that appears in the proposal for a new Appendix to the IMSBC code for NKP fertilizer in group B (MHB), the explanation of Bibby's general manager alone is not sufficient to prove that Bibby would not have accepted the cargo if it had known this. There is no other evidence to substantiate such an allegation.

As the District Court held, the appellants are jointly and severally liable for Yara's loss.

Liability for Yara for loss on the part of the ship pursuant to ss 290 or 291 of the Code presupposes that Yara provided insufficient information about the hazards of the cargo and the measures that may be necessary. In assessing the question of co-operating causes pursuant to s 275 of the Code, the Court has concluded that this was not the case. Consequently, in accordance with the District Court's conclusion, Yara must be acquitted of the counterclaims.

Determination of compensation for Yara's cargo damage claim should take place in accordance with s 279 of the Code, which provides:

Damages for loss of or damage to the goods are calculated on the basis of the value of goods of the same kind at the place and time when the goods were or should have been delivered according to the contract of carriage.

The value of the goods is determined on the basis of the exchange price or, in the absence thereof, the market price. If there is neither an exchange price nor a market price, the value shall be determined according to the current value of goods of the same kind and quality.

In contrast to what usually applies in contract and tort law, the Code thus provides instructions for measuring an objective normal loss, regardless of what loss the individual injured party has demonstrably suffered. In other words, Yara's loss is to be calculated on the basis of what would have been the value of the NKP cargo on the Cheshire at the port of Thailand as of mid-August 2017 as bulk cargo - ie lying in a pile on the quay. The parties agree on this starting point, and also that it is decisive for the valuation 'at what stage in the turnover goods of the kind and the quantity are normally traded at the destination'.

As in the District Court, the parties presented three different calculation methods. One is called 'CIF + 10%', and is based on the invoice value for the cargo, plus transport and insurance expenses, with the addition of a 10% surcharge for profit etc. Yara's insurance settlement was based on this method. The second method, which Yara basically applies, is a calculation method that determines the value 'backwards'. It is based on the prices that dealers in Thailand actually pay for the relevant type of NKP fertiliser packed in sacks, and a deduction is made for the increase in value that has occurred locally, since the fertiliser was in a pile on the quay. The third method, which Bibby believes provides the most correct valuation, is calculated on the basis of what three different market analysis agencies report on prices for NKP fertiliser in bulk in different markets in Southeast Asia in the relevant period.

All three of these methods are suitable. In principle, one should arrive at approximately the same value, regardless of which method one uses. However, the problem with Bibby's calculation method is both that the delivery points reported appear to be far from Thailand, and that there is no information on which qualities of NPK fertiliser the prices are based on. The problem with Yara's calculation methods is that there are no independent price determinations in any section. All stages of sales are governed by internal agreements in the Yara Group. These challenges lead to a significant gap in the parties' compensation calculations according to the various methods. Based on the market analysis agencies' reports, Bibby calculates the value of the cargo at around USD 14 million. According to its principal method, Yara calculates the value of the load at around USD 22.3 million.

After deliberation, the Court of Appeal determines Yara's net loss at an estimated USD 18.2 million. This means that a correction must be made in the amount of compensation that appears in the District Court's ruling. Otherwise, the appeal is rejected.