In September and October 1999, a cargo of African round logs from three West African ports was shipped to Tuticorin, India, on board Ever Lucky Shipping Co Ltd's (the respondent’s) vessel, a bulk log carrier. A total of 2,212 logs were loaded and 21 bills of lading were issued. Most of the cargo was stowed in the holds, however, 430 logs were stowed on deck and this was noted in the relevant bills of lading. The appellants, Sunlight Mercantile Pte Ltd and Liberty Citystate Insurance Pte Ltd, were the owners of the deck cargo.

The vessel suffered multiple problems during the voyage including an explosion in its main engine crankcase. After the explosion, the engine could not be operated, and the vessel lay adrift in the ocean. The vessel was eventually towed to its port of discharge.

The plaintiff shipowner insisted that the defendant cargo owners were obliged to contribute to general average, alleging that of the total general average expenditure of USD 910,288.78, the amount of USD 746,967.18 was attributable to cargo interests.

The cargo owners asserted that, as the shipowner had failed to ensure that the vessel was seaworthy before and at the beginning of the voyage, the question of a contribution did not arise.

Held: The shipowner is entitled to recover from the defendants the deck cargo's share of the general average expenses incurred by the shipowner. The shipowner is not entitled to recover any contribution in respect of the under deck cargo. As 75% of the cargo was carried below deck this means the defendants have largely succeeded in their defence.

Rule A of the York Antwerp Rules 1974 defines a general average act as follows:

There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.

The rights to contribution are provided under Rule D:

Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure, but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault.

The defendants are not seriously disputing that the shipowner incurred extraordinary expenditure for the common safety for the purpose of preserving from peril the vessel and its cargo of round logs which were involved in a common maritime adventure. There are some disputes over the reasonableness of the expenditure but the main dispute is whether the shipowners have, in the light of Rule D, the right to claim a contribution towards that expenditure from the cargo interests.

The shipowners agrees that, under Rule D, if the general average sacrifice resulted from its fault, that would give the defendants a cause of action against the shipowner and the shipowner would lose its right to contribution. The 'fault' that has to be established by the defendants to escape from general average liability has been described as a legal wrong that is actionable as between parties at the time when the general average sacrifice or expenditure was made: see Goulandris Brothers Ltd v B Goldman & Sons Ltd [1957] 2 Lloyd's Rep 207.

The shipowner maintains that there was no actionable fault on its part because:

(1) it had in accordance with their obligations in law and in contract, provided a seaworthy vessel for carriage of the cargo;

(2) the matters complained of by the defendants in alleging that the vessel was unseaworthy were not causative of the main engine damage; and

(3) the main engine damage was caused by the failure of the no 1 connecting rod bottom end bearing bolt which had a latent defect that could not have been detected by the exercise of due diligence.

The defendants have a two-pronged position. In relation to the portion of cargo that was loaded under deck, they rely on arts 3 and 4 of the Hague Rules which impose an obligation on the carrier, before and at the beginning of the voyage, to exercise due diligence to make the ship seaworthy and, provided that obligation is complied with, relieve the carrier from liability for loss or damage arising from unseaworthiness. They maintain that the shipowner did not comply with this obligation and thus is liable for the loss. As regards the deck cargo, they maintain that there was an implied term in the contract of carriage that the shipowner undertook that the vessel was seaworthy at the commencement of the voyage and, as a result of a breach of that implied term, the casualty occurred. Accordingly, the shipowner would not be able to claim general average contribution. A separate issue here is whether certain clauses in the bills of lading excluding liability for deck cargo would be sufficient to absolve the shipowner of any actionable fault for breach of the contract.

On the balance of probability, that there were defects in the main engine from the time the vessel left Port Gentil and, as a result of such defects, the vessel was not in a seaworthy condition at the commencement of the voyage. The question which arises is whether that unseaworthiness is what led to the casualty. It is not possible to reach a firm conclusion on the probable cause of the engine failure because of the lack of sufficient evidence of the circumstances in which it took place and of the physical condition of the engine prior to and after the casualty. However, one can conclude that the vessel was unseaworthy by reason of the defects in the engine. Even if the exact cause of the damage is not known, it is probable that this unseaworthiness contributed to it. In this regard, the natural inference must be drawn that the vessel was unseaworthy when the voyage commenced.

The shipowner did not exercise due diligence to make the vessel seaworthy by simply arranging for the class surveyor to survey the vessel over four or five days at the delivery port. It should have ensured that the entire engine was opened up and the parts carefully inspected as there was no history of maintenance of the engine and the previous class special surveys were overdue. It should also have arranged for a proper technical inspector. The duty to ensure seaworthiness is not delegable and the shipowner is responsible for any failure to exercise due diligence on the part of those whom it has relied upon to make the vessel seaworthy.

Whilst the shipowner maintains that it did exercise due diligence it argues, in the alternative, that the defect in the bolt was a latent one and therefore the casualty was not due to the shipowner's fault. It is agreed that a latent defect is one that cannot be discovered by due diligence. The burden of proving the defect was latent lies on the shipowners as art 4 of the Hague Rules makes plain. In this connection, the shipowner is not disputing that the relevant time when due diligence had to be exercised was the period between delivery of the ship and commencement of the voyage. The crack in the no 1 bolt was not a latent defect as it could have been detected by a dye penetration test if the no 1 unit had been opened up and the bolt inspected for cracks. Since a special class survey of the bolts was long overdue and there were no maintenance record to show when the bolts were last replaced or whether or not there was any propensity for bolt failures, a proper inspection of the bottom end bolts should have been carried out prior to the commencement of the voyage.

As Scrutton on Charterparties (20th ed, 1996) at art 51 makes plain, at common law a shipowner who contracts to carry goods on board its vessel impliedly undertakes that its ship is seaworthy. This is an absolute undertaking of seaworthiness. A breach of the undertaking would amount to actionable fault of the shipowner and would accordingly deprive the shipowner of a general average contribution from the cargo owners. The undertaking applies to deck cargo unless, contractually, a different regime has been provided for which is possible when the cargo concerned is deck cargo not covered by the Hague Rules. The Hague Rules only cover 'goods' as defined in the Rules. Under art 1.c the term does not cover cargo 'which by the contract of carriage is stated as being carried on deck and is so carried'. It is accepted by both parties that in this case 430 logs were stated in the relevant bills of lading to be carried on deck and were actually stowed on deck.

In this case, the vessel was not seaworthy at the commencement of the voyage. Prima facie therefore, the shipowner is in breach of the contract of carriage in respect of the deck cargo. The shipowner contends, however, that it excused from the consequences of such breach by exclusion clauses in the relevant bills of lading. The shipowner relies on the holding in The Imvros [1999] 1 LLR 848. There, a charterparty required that where cargo under the charter was carried on deck, the bills of lading issued should be claused: 'Carried on deck at Shippers' risk without responsibility for loss or damage however caused'. Langley J held that this exclusion covered any cause and there was no justification for excluding unseaworthiness as a cause; in respect of deck cargo, the parties were free to exclude the carrier's liability under the Hague Rules and the words 'however caused' were clear and could not be qualified by in effect adding 'but not if the loss is caused by unseaworthiness of the vessel'.

The clause before the Court is similar to the one that was before the Judge in The Imvros and, given that the Hague Rules did not apply to the deck cargo, there was no law or contractual agreement operating to prevent the shipowner from limiting its liability for unseaworthiness. The clause is plain. It provides that the shipowner is not liable for any damage however the same may have been caused. The words 'however caused' are wide enough to cover unseaworthiness. In respect of the cargo on deck, therefore, the shipowner is not at fault despite failing in its obligation to provide a seaworthy vessel as a result of which the casualty occurred. As there is no actionable fault on its part, it is entitled to recover the general average contribution from the deck cargo.

[For the successful appeal to the Court of Appeal, see Sunlight Mercantile Pte Ltd v Ever Lucky Shipping Co Ltd [2004] 1 SLR(R) 171 (CMI215).]