In August 1978, the plaintiff agreed to buy 1,000mt of jute from a Thai company, and at about the same time agreed to sell the same goods to a German company controlled by Iranians for delivery to Khorramshahr in Iran. Cargo space was booked on the defendant's vessel, the Kota Sejarah, and the goods were loaded on board on 3 January 1979. Two clean bills of lading were issued for the goods. The ship was also carrying other jute for another consignee in Khorramshahr. The Kota Sejarah sailed from Bangkok on 6 January 1979 and arrived on or about 26 January 1979 at Basrah, a port situated across the Shatt al-Arab waterway from Khorramshahr. Due to congestion arising from a stevedores' and port workers' strike on account of the political unrest in Iran, the ship could not get into Khorramshahr to await berthing for discharge of the goods. The goods eventually ended up in a godown in Porbander.

After protracted and complex negotiations, the parties reached an agreement, without prejudice, to have the goods reshipped to Bangkok at an agreed freight rate. Unfortunately, there was no happy ending to the dispute as the Kota Agung, after arrival in Khorramshahr on 17 June 1979, caught fire on 9 July 1979 in the course of unloading its cargo, resulting in the total constructive loss of the goods. The plantiff sued for the loss of the cargo.

Held: Judgment for the plaintiff.

Having construed the bills of lading, the Court held that the defendant had no power to tranship the goods after the voyage was abandoned at Porbander, and that the unauthorised transhipment was sufficient to constitute conversion of the goods. On the evidence, the defendant had no right to retain possession of the goods on board the Kota Agung. The defendant's wrongful possession constituted trespass to the goods. The goods were lost whilst they were still in unlawful possession. The defendant’s position was, by analogy to a bailee’s position in Mitchell v Ealing London Borough Council [1979] QB 1, that of an insurer and in the events that happened, the defendant was liable for the loss of the goods, whether or not it was negligent.

The plaintiff has also claimed against the defendant as a bailee who was negligent or in breach of duty in the performance of the transhipment of the goods, whereby the same was totally lost by fire on board the Kota Agung. The onus is on the defendant to establish that the goods were lost without its negligence: see Port Swettenham Authority v T W Wu & Co (M) Sdn Bhd [1979] AC 580. As the fire started on board the Kota Agung, which was in the possession and control of the defendant, the onus is on the defendant to prove that the fire occurred without its negligence. The Court found that the master was negligent or in breach of duty in not closing the hatches during the lunch break or in leaving them open for such a long period of time. In any case, the defendant in failing to prove the probable cause of the fire has not discharged the onus of proving that its servants were not negligent in allowing the fire to occur in the circumstances it did.

The defendant also relies on s 271 of the Merchant Shipping Act 1988 (the Act) which provides as follows: 'The owner of a British ship shall not be liable to make good to any extent whatever any loss or damage happening without his actual fault or privity in the following case: (a) where any goods, merchandise or other thing whatsoever taken in or put on board his ship are lost or damaged by reason of fire on board the ship. ...' Under s 3 of the Act, 'British ship' is construed as 'Singapore ship'.

The defence was that even if the master were negligent the defendant would not be liable if the loss occurred without its actual fault or privity, the onus of proving which is on the defendant. Counsel referred to the following authorities: The Lady Gwendolen [1965] P 294, Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705, and Tempus Shipping Co Ltd v Louis Dreyfus & Co Ltd [1930] 1 KB 699. Counsel contended that on the evidence the Kota Agung was a seaworthy vessel, it was under the control and management of a qualified and experienced master, and it was not the defendant's responsibility to give specific instructions to him in the handling of the ship and the cargo. The plaintiff's case was that: (a) there was no evidence that the vessel was not seaworthy; and (b) the defendant has not been able to give a satisfactory explanation for the cause of the fire.

As to (a), the Court held that the plaintiff had not proved that the ship was unseaworthy. As to (b), the fact that a fire occurred does not prove that the ship was unseaworthy. It cannot be disputed that the Kota Agung was fully classified in all respects at the material time. The decision of Pendle & Rivett Ltd v Ellerman Lines Ltd (1927) 29 Ll L Rep 133 relied upon by counsel for the plaintiff is not relevant to the point. In that case, MacKinnon J held that by reason of the wholly inexplicable conflict of evidence on both sides, the shipowners had not discharged the onus of proving that the short delivery was not due to their actual fault or privity under art 4.2 of the Carriage of Goods by Sea Act 1924. Pendle's case has no relevance to the present case on the ground that the exemption clause in the Hague Rules operate in a different way from s 271 of the Act. The latter exemption is based on public policy (see the Preamble to 26 George III c 806 (1786) on which the Singapore Act is based). The policy was to exempt shipowners from liability for any loss or damage to goods as a result of any fire happening to or on board the vessel. The exception to this exemption was the actual fault or privity of the shipowner. Under the Hague Rules, the shipowner is vicariously liable for the negligence or wrongful acts of its servants, but not under s 271. It must follow that the defendant's inability to explain the cause of the fire does not mean that it has not discharged the onus of proof that the loss occurred without its actual fault or privity. On the evidence, the defendant has discharged it for the purpose of s 271 of the Act.

This finding merely means that if s 271 of the Act were applicable, it would have provided a defence to the defendant in respect of the negligence of the master. But s 271 has no application in the present case where the cargo is carried on board a ship without the consent of the owners of the goods. Although, in the present case, the goods were, initially, taken or put on board lawfully in the sense that it was not a trespass to the goods, it became a trespass once the plaintiffs objected and required that it be unloaded. There was conversion of the goods when the transhipment was effected and also breach of bailment when the defendant insisted to keep the goods on board the ship. Although the transhipment to Khorramshahr was not the causa causans of the loss, it was a sine qua non of the loss. Bearing that in mind, the legislature could not have intended (it being contrary to good sense and justice) for s 271 to protect a shipowner in a case where it wrongfully takes in or puts on board its vessel goods which is subsequently destroyed by fire on board the ship. Section 271 has no application except where the goods are lawfully taken in or put on board a Singapore ship.