On 4 July 1993 the plaintiff’s container vessel Kapitan Sakharov was carrying laden containers of the defendants on a short voyage from Khor Fakkan, near the entrance to the Arabian Gulf, to other ports in the Gulf. A container on deck which contained dangerous cargo exploded, causing a fire on deck which spread and caused the vessel to sink shortly after midnight the next day. The plaintiff faced claims by the dependents of two seafarers who lost their lives, by shippers (including the defendants) for loss of cargo and containers, and by the Iranian authorities for pollution damage. All of the material contracts were governed by the Hague Rules.

The plaintiff claimed against the defendants for damages for its losses and an indemnity in respect of the claims it faced. The defendants disputed the claims and counterclaimed for the loss of their cargo and for an indemnity in respect of claims that they faced from cargo and other container owners.

The defendants together operated a world-wide container service in which one or the other of them shipped containers for carriage of goods on ocean vessels. At the material time, the vessel was acting as a 'feeder' vessel for containers shipped to Khor Fakkan making deliveries to various ports within the Gulf. Most of the cargo consisted of the defendants' laden containers. The initial explosion occurred when the vessel was proceeding slowly in hot sunny weather with the access hatches to the holds closed.

The plaintiff’s case was that the initial explosion that caused the fire and eventual loss of the vessel occurred on deck in a container owned by the first defendant that contained an undeclared and dangerous cargo (probably an unstable chemical). It was common ground that it resulted in the cracking open of hatch 3 and a fire that spread down into hold 3 where there were eight CYL tank containers of isopentane (owned by the third defendant), a liquid more flammable than petrol. The hold was not well ventilated. The intense fire in the hold led to over-heating of diesel fuel in the wing tanks causing them to explode which caused a breach in the bulkhead separating holds 2 and 3 allowing them to flood in common. The result was that fire-fighting water directed into hold 3 accumulated in hold 2 as well, causing the vessel to sink.

At first instance, the Court held that the initial explosion occurred in undeclared dangerous cargo in a container owned by the first defendant stowed on deck on hatch 3; that the stowage of that cargo had rendered the vessel unseaworthy, though not because of any lack of due diligence by the plaintiff; that the explosion and fire on deck caused damage to part of the ship and part of the cargo and were an effective cause of the sinking and loss of the vessel; but that they would not have caused those further losses if the plaintiff had not stowed the third defendant’s isopentane below deck; that that stowage rendered the vessel unseaworthy and was due to the plaintiff’s lack of due diligence; that stowage contributed to the fire below deck and explosion in one or both of the diesel tanks and was a further effective cause of the loss of the vessel and most of the cargo.

The Judge therefore allowed the plaintiff’s claim against the first defendant in respect of its loss from the initial explosion and fire on deck. The Judge dismissed the plaintiff’s claim against the first defendant for damages and an indemnity in respect of third party claims arising from the isopentane fire and loss of the vessel; dismissed the claim against the third defendant; dismissed the first and second defendant’s counterclaim; dismissed the third defendant’s claim for loss suffered from the initial explosion and fire; and allowed the third defendant’s counterclaim in respect of damage to and loss of its containers and cargo caused by the isopentane fire.

The Court of Appeal considered four issues:

1. Did the Judge apply the correct test in finding that the cause of the explosion was undeclared and dangerous cargo of the first defendant stowed on deck and was his finding, in any event, supported by the evidence?
2. Was he correct in finding that the vessel was unseaworthy by reason of the plaintiff's stowage of the third defendant's isopentane below deck and, if so, that the unseaworthiness was caused by plaintiff's lack of due diligence?
3. If so, was he correct in holding that plaintiff's lack of due diligence excused the first defendant from liability to the plaintiff under art 4.6 of the Hague Rules and at common law for the total loss of the vessel and all its cargo?
4. Was he correct in holding that the third defendant's counterclaim under art 3.1 of the Hague Rules for its losses resulting from unseaworthiness of the vessel by reason of the initial explosion and fire and from the isopentane fire could only succeed as to the latter because the unseaworthiness resulting from the carriage of the first defendant’s undeclared dangerous cargo on deck was not caused by any want of due diligence of NSC?

Held: Appeals dismissed. All appeals to the House of Lords refused.

As to issue 1. There is no basis upon which the Court of Appeal could disturb the Judge’s finding that the explosion and fire on deck was caused by an undeclared and dangerous cargo in a container belonging to the first defendant. On the evidence before him, he was entitled to find that the explosion resulted from a dangerous cargo, probably an unstable chemical; that since none of the containers stowed at or near the point of explosion had such declared cargo, the cargo responsible must have been undeclared.

As to issue 2. The stowage of the tank containers of isopentane under deck contravened SOLAS, the IMDG and MOPOG. The Judge was correct to find that the stowage of the isopentane rendered the vessel unseaworthy. The plaintiff was required under art 3.1 of the Hague Rules to exercise due diligence to make the vessel seaworthy. The test is for the plaintiff to show whether it exercised all reasonable skill and care to ensure that the vessel was seaworthy at the commencement of its voyage, namely, reasonably fit to encounter the ordinary incidents of the voyage. The test is objective. It is to be measured by the standards of a reasonable shipowner, taking into account international standards and the particular circumstances of the problem in hand. The weight of the expert evidence was that the risk of any of the containers leaking in conjunction with a source of ignition was potentially catastrophic. It should be obvious to shipowners and experienced seafarers that such cargo should not be stowed in a confined space unless it was efficiently ventilated. The Judge’s finding that the plaintiff failed to exercise due diligence in this respect is unassailable both on the expert evidence and as a matter of common sense.

As to issue 3. Article 4.6 of the Hague Rules renders the shipper of inflammable, explosive or otherwise dangerous goods, who gives no notice of their nature and dangerous character, liable to the carrier 'for all damages and expenses directly or indirectly arising out of or resulting from … [their] shipment'. The shipper is liable irrespective of its knowledge of the dangerous nature of the goods. The Judge held that as the plaintiff’s want of due diligence in failing to render the vessel seaworthy was an effective cause of its loss, it could not recover damages for or an indemnity in respect of that loss against the first defendant under art 4.6 or at common law.

The obligation to furnish a seaworthy ship is the 'fundamental obligation'. Article 3.1 is the overriding obligation. The plaintiff’s lack of due diligence in the stowage of the isopentane causing unseaworthiness was an effective cause of the fire in hold 3. Therefore the plaintiff is not entitled to rely on art 4.6 to seek an indemnity for its loss. It is immaterial that there was another cause or as to which was the dominant cause. The principle is the same as that applicable to a breach of art 3.1 resulting in damage to or loss of cargo where the shipowner pleads an excepted peril under art 4.2 where it is for the shipowner to establish that the whole or a specific part of the damage or loss was caused by the excepted peril.

As to issue 4. Article 3.1 of the Hague Rules provides:

The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to -

(a) make the ship seaworthy

(b) properly man, equip and supply the ship

(c) make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.

To impose a responsibility on a carrier under art 3.1 for the shipment of undeclared dangerous cargo in a sealed container would run counter to the scheme of art 4.2 which excepts a carrier in general terms from liability in a number of respects including:

(b) Fire, unless caused by the actual fault or privity of the carrier; ...

(p) Latent defects not discoverable by due diligence;

(q) Any other cause arising without the actual fault or privity of carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

The shipper’s and the carrier’s respective orbits of responsibility are normally quite distinct and neither is agent of the other outside its own orbit. Those responsible for the manufacture, stuffing and shipping of containers are not carrying out any part of the carrier’s function for which they should be held responsible. There is nothing in the Hague Rules or at common law to make a carrier responsible for the unseaworthiness of its vessel resulting from a shipper’s misconduct of which the carrier has not been put on notice.