This was an appeal from an arbitration award on a question of law regarding s 4(2)(a) of the US Carriage of Goods by Sea Act 1936 (the equivalent of art 4.2.a of the Hague Rules) as incorporated into a voyage charterparty, and in particular its application to employment orders given by the charterer. The appellant was the charterer of the vessel Afra Oak and the respondent was the owner.

The parties' disputes arose out of the detention of the vessel by the Indonesian Navy while it was anchored in Indonesian territorial waters near Singapore. The owner claimed that the vessel had complied with the charterer's orders, that the vessel had been entitled under the United Nations Convention on the Law of the Sea 1982 (UNCLOS) and Indonesian law to anchor there, and that the charterers had breached a warranty that the vessel would only be ordered to safe ports/places, as the anchoring place was politically unsafe since the vessel was exposed to a risk of unlawful detention. The Tribunal rejected these claims. The charterer's counterclaim, that the vessel was unseaworthy on two grounds: (a) the passage plan for the short voyage was defective as it failed to record that the vessel should not anchor in territorial waters; and (b) the master had a disabling lack of knowledge in relation to anchoring in territorial waters, was also dismissed.

The Tribunal held that the owner was entitled to rely upon the art 4.2.a exception. The appellant appealed on the following question of law: 'Does Article IV(2)(a) of the Hague Rules provide a defence where, in breach of an order of its charterers, a vessel proceeds into territorial waters and waits at anchor there in breach of local law?'

Held: Appeal dismissed. The answer to the question is: 'It may or may not do so depending upon the facts of the particular case.'

The owner says that, where an employment order is breached, the owner has a defence if it can show either a good reason (under the master's general discretion as regards matters of seamanship), or an act, neglect or default of the master in the navigation or management of the ship. The charterer anchored its case on the decision of the House of Lords in The Hill Harmony, Whistler International v Kawasaki Kisen Kaisha [2001] 1 AC 638. In The Hill Harmony, Lord Hobhouse addressed the exceptions clause at 658:

In the present case, the exception did not provide a defence. First, the breach of contract was the breach of both aspects of the owners' obligations under clause 8 of the time charter - to prosecute the voyage with the utmost dispatch and to comply with the orders and directions of the charterers as regards the employment of the vessel. As a matter of construction, the exception does not apply to the choice not to perform these obligations: Knutsford Steamship Co v Tillmanns & Co [1908] AC 406; Suzuki and Co Ltd v J Beynon and Co Ltd 42 TLR 269. In the words of Lord Loreburn LC [1908] AC 406, 408: the master 'simply broke his contract, interpreting it erroneously'. In the same case, at p 410, Lord Dunedin said, referring to the exception of error of judgment in navigating the ship or otherwise: 'It seems to me fantastic to extend it to the idea of a captain forming a wrong legal opinion on the meaning of a clause in the bill of lading and then proceeding to act upon it.' (See to the same effect Kennedy LJ in the Court of Appeal (1908] 2 KB 385, 406-407.) Secondly, any error which the master made in this connection was not an error in the navigation or management of the vessel; it did not concern any matter of seamanship. Thirdly, the owners failed to discharge the burden of proof which lay upon them to bring themselves within the exception. This was clearest with regard to the second of the two relevant voyages where the arbitrators could only guess at, 'suspect', why it was that the master acted as he did.

Lord Hobhouse did not say that where there has been a failure to follow an employment order the exception in respect of a fault in the navigation of the vessel is not available. Instead, he said that 'in the present case' the exception did not provide a defence, and proceeded to give three reasons. Moreover, it is well established that where the Hague Rules or US COGSA are incorporated into a charterparty, the owner has the benefit of the immunities in art 4 or s 4 in respect of all the contractual activities performed by it under the charter: see Adamastos Shipping v Anglo-Saxon Petroleum [1959] AC 133 (CMI2122) and The Satya Kailash [1984] 1 LR 588. Thus, there would appear to be little room to argue that where an owner fails to comply with an employment order it can never avail itself of the negligent navigation exception. The charterer did not question the approach of the courts in Adamastos Shipping or The Satya Kailash, but said that it did not apply to employment orders. However, in The Hill Harmony at 649, Lord Hobhouse referred to the fact that three clauses paramount were incorporated into the charterparty, said that no point arose about their application, and referred in parenthesis to Adamastos Shipping. He said: 'It was accepted that their effect was to incorporate an exception for loss or damage arising from the act, neglect, or default of the master in the navigation or management of the ship in article IV rule 2(a) of the amended Hague Rules.'

Lord Hobhouse's reference to 'a matter of construction' reflects the need, when considering the ambit of the exception, to have full regard to the charterer's right to direct the employment of the vessel and to the owner's duty to comply with such directions. The master's decision or choice in that case not to comply with the charterer's employment orders did not concern any exercise of seamanship. The charterer submitted that: 'Where owners fail to comply with the employment orders of their charterers and thus breach the charterparty, the Hague Rules' negligent navigation defence is not available to the owners.' The Hill Harmony did not establish that proposition, save in the sense that if there is a choice not to comply with employment orders that choice cannot, without more, be described as negligent navigation. In The Hill Harmony there was nothing more. There was no negligent navigation, and so the owner was unable to rely upon the defence of negligent navigation. The charterer's proposition, that the defence of negligent navigation is not available when there is a breach of employment orders, is not compatible with the manner in which Lord Hobhouse approached the defence at 658.

It is clear in this case that the Tribunal regarded the master as having acted negligently in the navigation of the vessel: 'The failure to take due account of the risk of anchoring in territorial waters was a mistake and cannot be characterised as good navigation and seamanship.' This finding was supported by expert evidence and by the vessel’s passage plan. The facts of this case are materially different from those of The Hill Harmony and Knutsford v Tillmans. The three reasons why the defence of negligent navigation did not avail the owner in The Hill Harmony do not apply in the present case. In circumstances where, as found by the Tribunal, an error in navigation caused the master to anchor where he should not have done so, the Tribunal did not err in law in the manner suggested by the charterer when holding that the owner was entitled to rely upon s 4(2)(a) of the US COGSA as a defence to the claim that the owner had failed to comply with the charterer's order.

The charterer referred to the defence of negligent navigation being 'expanded so as to apply to failures to follow employment orders', and urged the Court not to do so in circumstances where the defence is an anachronism not to be found in the Rotterdam Rules or the Hamburg Rules, and where the original justification for the defence (that once the vessel had sailed, the vessel was out of the control of the owner) no longer holds true. Whether or not the defence is an anachronism, it was agreed by the owner and charterer in the present case and has to be applied. The suggestion that the Tribunal's decision in this case or a decision of the Court dismissing the appeal from that decision expands the defence is mistaken. The defence did not apply in The Hill Harmony because the master's choice of route was not caused by any error in navigation or seamanship. The defence does apply in the present case because the master's decision to anchor where he should not have done was caused by his error in navigation and seamanship. That does not expand the defence. It merely applies it.