Comar SpA (Comar) chartered the Tern from Italco SpA (Italco), the disponent owner of the ship, on a time charterparty on the NYPE form for three months, with an option for a further 15 days. In October 1984, the vessel was made available by Italco at the port of La Spezia. After reaching Rotterdam and Hamburg, where it loaded a cargo of sugar and salt, the Tern sailed towards the port of Lagos in Nigeria. However, it collided with the Norse Venture off the coast of Lisbon.

The master of the Tern assessed the damages and reported them to Comar. The vessel then resumed its voyage. A storm ensued. Six containers fell into the sea and the vessel sank. In December 1985, arbitration proceedings concerning the sinking of the ship and the loss of the cargo were instituted in Genoa between Milano Assicurazioni SpA (MA) and Italia Assurazioni SpA (IA), the insurers of the cargo, on the one hand, and Italco and Comar on the other. The arbitral award supported the arguments of the carrier interests.

In September 1988, MA and IA appealed the arbitral award before the Court of Appeal of Genoa. The claimants invoked the lack of any indication of the applicable law in the arbitral award - in particular, whether the law of Panama (the law of the flag) or Italian law should apply. However, Comar argued that, even if there was no formal declaration in this regard, it emerged from the arbitral award that the arbitrators favoured Italian law. No dispute arose between the parties regarding the applicability of the Hague-Visby Rules, according to the paramount clause in the carriage agreement.

Held: The appeal regarding the carrier's liability is upheld.

Concerning the governing law, the Court noted that two legal regimes applied to the case: Italian law and the provisions of the Hague-Visby Rules.

The Court recalled the rules provided in the Hague-Visby Rules for exclusion of carrier liability. The loss in question must be due to one of the events envisaged as excepted perils in art 4.2 of the Rules. If the loss resulted from the unseaworthiness of the ship, the carrier must have fulfilled its obligation of due diligence established in art 3.1 of the Hague-Visby Rules.

In particular, the Court stressed the distinction drawn by the arbitral tribunal between fault in the management of the ship (excluding the carrier's liability) and fault in the custody of the cargo. In terms of this distinction, if the conduct of the carrier ensured seaworthiness, its conduct fell within the concept of nautical fault, thus excluding the carrier’s liability.

The Court recognised the nautical fault of the master and the crew of the vessel. However, it disagreed with the findings of the arbitral tribunal and held as follows.

The nautical fault of the master and the crew in this particular case fell within the ambit of the liability of the carrier, Comar. This is justified by considering the decision taken by the carrier to allow the vessel to resume its voyage, despite having been informed of the collision which had occurred, without prior intervention and inspection by experts on board to determine the effective suitability of the ship to continue with its route. In other words, the interruption of the voyage off the coast of Lisbon would have allowed the carrier to exercise due diligence in respect to its obligation to ensure the seaworthiness of the ship, which was not limited in this case to the commencement of the voyage.