This was an action in rem against the defendant vessel, the MV Lady Rea, under the Admiralty Jurisdiction of the High Courts Ordinance 1980 (the Ordinance). In 2008, an interim order was made by which the vessel was ordered to be detained, but was allowed to sail if surety in the sum of EUR 550,000 was paid into Court. The required surety was provided and remains in place. If the plaintiff's application is allowed, the order of 29 August 2008 shall stand confirmed and the surety will continue for the duration of the suit. If the application is dismissed, the surety will stand discharged.

The plaintiff is a Greek company, which entered into a contract with Karachi Electric Supply Co Ltd. For purposes of the contract, plant and machinery and other material had to be imported into Pakistan by the plaintiff. A contract of affreightment was entered into whereby the plaintiff's cargo was to be shipped on board the vessel. The port of loading was Volos in Greece and the port of discharge was Karachi in Pakistan. Two bills of lading were issued in respect of the cargo, which showed the plaintiff as the shipper. At the time the cargo was loaded on board the vessel, it was on time charter with Worldwide Shipping Co Ltd (registered in the Seychelles), although the plaintiff was not aware of the terms thereof. The charterparty between the charterer, Worldwide Shipping Co Ltd, and the shipowner, Rea Navigation Inc, was on the New York Produce Exchange form. The principal issue is whether the bills of lading were issued by the charterer or the shipowner.

Under the contract of affreightment, the vessel was to proceed straight to Karachi from Volos. However, it stopped at Jeddah in order to discharge some cargo. The plaintiff argued that this was a deviation from the voyage and a breach of the contract of affreightment. The vessel was due for an annual survey at the time that it sailed from Volos. This was not completed. When the vessel arrived at Jeddah, its certification had expired, or was about to do so. The Jeddah port authorities refused to allow the vessel to leave until the appropriate certification was in place, which meant that the survey had to be completed. This required all the cargo, including the plaintiff's, to be off-loaded and then reloaded once the survey had been completed. It was only then that the vessel was allowed to sail. The plaintiff submitted that in these circumstances, the vessel was not seaworthy.

The defendant submitted that a suit in rem did not lie on the facts and that the vessel could not be arrested. The defendant argued that the contract of affreightment was between the plaintiff as shipper and the charterer as carrier. In other words, the shipowner was not party to the contract of affreightment. Since the charterer did not own the ship, under ss 3(2)(h) and 4(4) of the Ordinance an action in rem did not lie against the vessel.

Held: The plaintiff's application is allowed with the result that the order dated 29 August 2008 is confirmed. The surety provided pursuant to that order is to remain in place for the duration of the suit.

The international carriage of goods by sea is the subject of a number of Conventions and agreements. Here we are concerned with the International Convention (of 1924) for the Unification of Certain Rules of Law relating to Bills of Lading. The rules agreed upon by this Convention were subsequently amended in certain respects by a Protocol of 1968, both by way of substitution as well as addition. The rules contained in the 1924 Convention are known as the Hague Rules, and those rules as amended by the 1968 Protocol are known as the Hague-Visby Rules. The Hague-Visby Rules were incorporated into English law by means of the Carriage of Goods by Sea Act 1971 (UK) (the Act), the Rules being appended as a Schedule to the Act. The bills of lading in this case incorporate the charterparty 'Law and Arbitration Clause', which provides that disputes are to be referred to arbitration and such arbitration is to be governed by English law. This could indicate that English law was to apply to the bill of lading and therefore the Act and the Hague-Visby Rules as incorporated therein are applicable. However, the reverse side of the bill of lading also contains a typical 'general paramount clause' (of the sort considered in The Bukhta Russkaya [1997] 2 Lloyd's Rep 744, 746-7) and this expressly refers to the Hague Rules. In The Komninos S [1991] 1 Lloyd's Rep 370, where there was an express submission to 'British Courts' but no express choice of law, the Court of Appeal concluded that while the relevant bills of lading were governed by English law, the Act and hence the Hague-Visby Rules did not apply. Here, the express provisions of the general paramount clause should prevail rather than any indirect incorporation by reference to the Act, and hence it is the Hague Rules (rather than the Hague-Visby Rules) that apply to the bills of lading.

On the facts and circumstances of this case, there can, prima facie, be hardly any doubt that the bills of lading issued in respect of the plaintiff's cargo were the charterer’s and not the shipowner's bills. Prima facie therefore, there was no contract of affreightment between the plaintiff and the shipowner. It necessarily follows that on the contractual plane the defendant succeeds and the plaintiff's case cannot be sustained.

This does not, however, conclude the matter. A shipowner has a duty to provide a seaworthy vessel and that this duty is absolute in nature. In so far as this obligation is an implied term of the contract of affreightment, it is of no avail to the plaintiff since the bills of lading were the charterer's bills. However, this obligation has another aspect, which lies in tort. Adopting the broad interpretation of the House of Lords in Samick Lines Co Ltd v The Owners of the Antonis P Lemos (The Antonis P Lemos) [1985] 1 All ER 695 (CMI2212), 'any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship' (s 3(2)(h) of the Ordinance) can sustain a claim in tort and all that is required is that it be 'connected with' an agreement of the nature as stated therein. Furthermore, it is not necessary that the parties to the action based on tort be themselves party to the agreement. It therefore follows that if the plaintiff can establish a claim in tort against the shipowner on the basis that the vessel was not seaworthy, that claim would be 'connected with' an agreement relating to the carriage of goods in the vessel, namely the agreement as evidenced by the bills of lading in which the plaintiff is the shipper and the charterer is the carrier. It is irrelevant when considering such a claim that the shipowner was not itself directly party to the agreement of affreightment. Since the matter would fall within the ambit of s 3(2) (h) of the Ordinance and be a claim against the shipowner, it would necessarily come within the scope of s 4(4) of the Ordinance and hence an action in rem would be maintainable against the vessel.

There is no question that a duty to provide a seaworthy vessel is an implied term of the contract of carriage, and at common law this duty is an absolute undertaking. However, the Hague Rules (as also the Hague-Visby Rules) have modified this obligation to the exercise only of due diligence, and eg s 3(1) of the Act expressly provides that 'there shall not be implied in any contract for the carriage of goods by sea to which the Rules apply by virtue of this Act any absolute undertaking by the carrier of the goods to provide a seaworthy ship'. The position at law relevant for present purposes is stated in Carver's Carriage by Sea (13th ed, 1982) where in vol I, at p 269, the following passage is to be found under the heading 'Liability in tort': 'The cargo-owner may sue in tort either in negligence, for conversion or for unseaworthiness'. There does appear to be a tort of the nature stated in Carver, namely that a shipowner owes a duty to the cargo owner (ie shipper) that its vessel is seaworthy. If this duty is breached, then the cargo owner would be able to bring a suit directly against the shipowner, regardless of whether it is the shipowner or the charterer (at least in relation to a voyage or time charter) that is the contractual carrier.

The Hague Rules apply to the bills of lading under consideration. There is a difference between the Hague Rules and the Hague-Visby Rules that may cause some confusion. The Hague Rules are silent on the issue of tort. However, the Hague-Visby Rules do contain a provision in relation to tort. This is art 4 bis (which was added by the 1968 Protocol), para 1 of which states: 'The defences and limits of liability provided for in these Rules shall apply in any action against the carrier in respect of loss or damage to goods covered by a contract of carriage whether the action be founded in contract or in tort.' Since art 3.1 only requires the carrier to exercise due diligence, the duty imposed on it even in tort is significantly different, and reduced, in respect of cargo shipped under a bill of lading to which the Hague-Visby Rules apply. If the Hague-Visby Rules were applicable to the present bills of lading, and the shipowner was also the contractual carrier, it would be entitled to the benefit of art 4 bis.1. However, here the bills of lading are the charterer's and not the shipowner's bills. But could the shipowner, nonetheless, still be entitled to the benefit of art 4 bis.1 if the Hague-Visby Rules had applied to the present bills? It appears that to this question divergent answers have been given. The better view is that if the 'actual' carrier (the shipowner) is not party to the bill of lading, it should not be able to invoke the Hague-Visby Rules and hence be unable to avail the benefit of art 4 bis.1. It follows that even if the Hague-Visby Rules were applicable, the shipowner in the present case would not have been able to enjoy the benefit of art 4 bis.1 in relation to any breach of duty owed by it in tort to the plaintiff. In other words, regardless of whether the Hague Rules or the Hague-Visby Rules applied, the ultimate outcome in respect of the present point would be the same.

If a vessel requires a document that may, among other things, be required by or at or called for by the port authorities of any port that the vessel may visit, that may well be something that the shipowner is required to provide as part of its obligation to provide a seaworthy ship. The duty to provide a seaworthy ship is determined at the commencement of sailing. It appears (although it is not clear from the record) that the vessel's certification may have been current when it sailed from Volos, though it was certainly imminently expiring and had to be renewed. The shipowner was therefore prima facie in breach of its duty notwithstanding that in a technical sense the vessel may have had a valid certification when it sailed from Volos.