The Sanko Harvest carried a cargo of phosphate consigned by and to Sumitomo Australia Ltd (Sumitomo) from Tampa, Florida, to Esperance, Western Australia, when it grounded on a reef in the Recherche Archipelago near the Western Australian port of Esperance on 14 February 1991. A few days later, it sank with a total loss of cargo.

Sumitomo sued the disponent owner and time charterer, Sanko Steamship Co Ltd (Sanko), and demise charterer, Grandslam Enterprise Corp (Grandslam), for the loss of its cargo valued at AUD 8.9 million.

Grandslam and its ship manager, Eastern Shipping Co Ltd (Eastern Shipping), were wholly-owned subsidiaries of Sanko. Grandslam engaged Eastern Shipping to operate and manage the Sanko Harvest. While Grandslam was the bareboat charterer, it had no employees. Eastern Shipping employed the crew members on the Sanko Harvest.

Sanko and Grandslam sought to limit their liability under the US Carriage of Goods by Sea Act 1936 (US COGSA). The voyage charterparty had a paramount clause (cl 41) providing for the applicability of US COGSA to the voyage charterparty and all bills of lading issued under it.

The voyage charterparty also provided that the owners would be responsible for loss or damage to goods or delay in delivery only if caused by improper or negligent stowage of the goods or by personal want of due diligence of the owners or the manager to make the vessel seaworthy or by the personal act or default of the owners or the manager (cl 2).

Sanko and Grandslam argued that:

1. They were immune from suit. The entire casualty was due to the act, neglect, or default of their master or other servants. The cause of the grounding was the grossly negligent conduct of Capt Kim In Hyeon (the master) and Mr Gim Dong Uk (the second officer);
2. The Sanko Harvest was neither unseaworthy, nor established by Sumitomo to be unseaworthy; or
3. If the Sanko Harvest was unseaworthy, Sumitomo's loss was not caused by want of due diligence on its part to make it seaworthy.

Sumitomo cross-claimed, contending that the LLMC 1957 did not entitle Sanko and Grandslam to limit their liability. The cargo loss resulted from their actual fault or privity (art 1.1). Sumitomo submitted that the Sanko Harvest was unseaworthy. It was using uncorrected charts and was manned by incompetent officers.

Held: Sanko's and Grandslam's application for limitation of liability is dismissed. Sumitomo's cross-claim application is granted. Sanko's application to claim for the balance of freight is dismissed.

US COGSA follows the Hague Rules. It provides that every bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea to or from ports of the United States in foreign trade shall have effect subject to its provisions. If applicable, a carrier will have US COGSA liabilities but may escape liability if its master's or servants' navigation or management of the ship caused the loss, neglect, or default.

A claimant must establish unseaworthiness for a carrier to bear US COGSA liabilities. If unseaworthiness is established, the carrier may claim immunity if it exercised due diligence to make the ship seaworthy and properly crew, equip, and supply the ship. The carrier bears the onus of establishing that it exercised due diligence.

Grandslam and Eastern Shipping did not exercise due diligence to make the Sanko Harvest seaworthy and properly crew and equip it. The cargo was neither delivered nor properly and carefully carried, kept, or cared for. It was loaded onto an unseaworthy ship, not equipped with up-to-date charts, and not operated by a competent crew. The unseaworthiness of the Sanko Harvest was a cause of Sumitomo's loss.

The Sanko Harvest was sailing on uncorrected charts. A competent shipowner or manager should have a system of checking chart corrections by an inspection by a company superintendent who visits the ship at least twice a year (cp LLMC 1957: Alstergen v Owners of the Ship 'Territory Pearl' (1992) 36 FCR 186, 187-193 (Heerey J); Grand Champion Tankers Ltd v Norpipe A/S (The Marion) [1984] AC 563, 572, 576-577 (Lord Brandon); Rederij Erven H Groen v The England [1973] 1 Lloyd's Rep 373, 383 (Willmer LJ); The Lady Gwendolen [1965] P 294, 345 (Willmer LJ)). Those who navigate ships throughout the world need high standards of skill and seafarership. Those responsible for operating and/or managing ships also need to ensure their ships are safe, properly crewed, and equipped for their voyages.

The master navigated the Recherche Archipelago negligently. He did not understand the position of the critical rocks due to language difficulties. While his ignorance of navigational English might not point to fault, it indicated his incompetence in navigating the Sanko Harvest. The second officer only updated the Sanko Harvest's charts with information from up-to-date copies of Notices to Mariners and the Australian Pilot but omitted the position of the critical rocks, directly causing the disaster. The deck officers' conduct on the night of the grounding also demonstrated 'collective incompetence', causative of the grounding.

The onus of establishing the exercise of due diligence is upon the carrier. Sanko and Grandslam will only be entitled to limit any liability if they establish that the cargo loss was not due to their actual fault or privity.

Sanko had not discharged that onus and was thus liable for Sumitomo's loss caused by the vessel's unseaworthiness. It was unlikely that any prudent ship manager would risk sending a master on the borderline of competence and a second officer who had not been to sea for two or three years halfway around the world on a voyage which would conclude with a passage through treacherous waters. The whole exercise was a gamble that should never have been taken.

A shipowner is responsible for loss or damage to goods, howsoever caused, if the ship was not in a seaworthy condition when it commenced the voyage and if the loss would not have arisen but for that unseaworthiness (see Smith Hogg & Co Ltd v Black Sea & Baltic General Insurance Co Ltd [1940] AC 997, 1004-1005 (Lord Wright)).

The Court nullified the legal effect of 'only' in the voyage charterparty to give effect to the overall intention of the parties. There had been many cases where a court must disregard words, including whole terms which the parties have put in their contract (Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133, 174 (Lord Reid); Glynn v Margetson & Co [1893] AC 35).

Eastern Shipping was Grandslam's alter ego. Grandslam could not escape its obligations under US COGSA by claiming that it employed a competent manager, Eastern Shipping, to manage and operate the Sanko Harvest on its behalf. Grandslam did not have employees, and so Eastern Shipping should be considered Grandslam's proxy for managing and crewing the ship. Grandslam failed in its duty to exercise due diligence to make the Sanko Harvest seaworthy and ensure that it was properly crewed. The crew's attempt to steer the ship into Esperance harbor was extremely reckless, and showed grave incompetence in navigating the vessel. The ship's management was also at fault for allowing such poor seafarership. The irresponsibility of those overseeing the Sanko Harvest indicated deeper issues with how Eastern Shipping operated and supervised its vessels.

Sanko also did not discharge the onus imposed by US COGSA. None of the evidence established, or even came close to establishing, that Sanko exercised due diligence. In fact, Sanko made no attempt to do so. Had it done so, it would have discovered that many charts on the Sanko Harvest were uncorrected, that Eastern Shipping improperly supervised the vessel and its officers regarding both chart corrections and other issues, and that the crew consisted of four deck officers who were, objectively, incompetent. While Sanko was the time charterer of the Sanko Harvest from Grandslam, and entered into the voyage charterparty as disponent owner, Sanko was also liable for Sumitomo's loss.

While US COGSA applied, the relationship between Sanko and Sumitomo was contractual. The charterparty governed the relationship between Sanko and Sumitomo. The provisions of US COGSA became contractual only by incorporating them in the charterparty.

The Limitation of Liability for Maritime Claims Act 1989 (Cth) came into force on 31 May 1991, after the grounding. Before 31 May 1991, the LLMC 1957 applied by operation of the Navigation Act 1912: Victrawl Pty Ltd v AOTC Ltd [1993] FCA 485 (CMI722); Victrawl Pty Ltd v Telstra Corp Ltd (1995) 131 ALR 465 (CMI667); Sanko Steamship Co Ltd v Sumitomo Australia Ltd (1995) 131 ALR 490 (CMI2050).

The importation of the Hague Rules into charterparties may sometimes give rise to difficult questions of construction and the need to investigate complex factual situations (Scrutton on Charterparties and Bills of Lading (19th edn, 1984) 372, 420).

Sanko's claim for the balance of freight failed. A shipowner must not be culpable in order to limit its liability for loss or damage to cargo (James Patrick & Co Ltd v The Union Steamship Co of New Zealand Ltd (1938) 60 CLR 650, 670 (Dixon J)). The cargo was lost due to Sanko's and Grandslam's breach of obligations. The clause provided that the balance of freight was payable once 'agreed demurrage/despatch' was settled. That did not, and could not, happen because Sanko and Grandslam, especially Sanko, caused the cargo loss.