This case involved rust contamination of a cargo of unpackaged salt carried from Spain to Iceland on the Lobo. The Lloyd's agent found that the damage was caused by rust flaking from the sides of the holds and contaminating the cargo. Plastic lining, which had been laid along the sides of the holds, and was supposed to prevent the cargo from sliding against the side, fell off during loading and was therefore of no use. There was considerable rust in the cargo along the sides, especially in the after hold of the ship. Part of the cargo was therefore unusable.

The appellant insurer of the cargo owner, Saltkaup hf, compensated the latter and sought recourse from the respondent carrier. The Reykjanes District Court held in favour of the respondent carrier, on the basis that the salt was carried on a 'Freight to be based on FIOS/T terms and to be calculated per metricton [sic] discharged/weighed clean' basis. The Court held that the ship's holds were in a satisfactory condition for the reception, transport, and preservation of the salt cargo at the start of loading. The FIOS/T terms and conditions meant that the carrier was not obliged to do anything other than transport the goods from the port of loading to the port of discharge. Accordingly, the loading and discharge of the salt was to be carried out by Saltkaup hf, at their responsibility. The respondent carrier was not directly involved in the loading process, as it had no obligation to do so.

The insurer appealed to the Supreme Court.

Held: Appeal allowed.

The evidence proves that part of the cargo of the Lobo was contaminated with rust and plastic due to incidents in connection with the loading of the ship in Almeria, Spain. It is not clear who handled the loading in Almeria, but the evidence suggests that it was not the crew. However, it cannot be concluded with certainty that the personnel who worked on the loading caused the plastic sheets to deform and become entangled in the salt.

It is not disputed that the respondent carrier was obligated to prepare the holds of the Lobo for loading, among other things by lime-washing them and installing protective plastic sheets. The respondent is therefore liable for damages that can be attributed to inadequate preparation in this respect.

The carriage contract specifically states that loading and stowage of cargo shall always be carried out under the supervision of the master. This is in accordance with the principle in art 26 of the Shipping Act/Siglingalög No 34/1985 (the Act) [which gives domestic effect to art 3.1.c of the Hague-Visby Rules].

From the evidence, it can be concluded that the plastic sheets that were supposed to protect the cargo from rust contamination came loose due to winds that were not higher than expected at the loading location at this time of year. It must therefore be assumed that the sheets were not sufficiently secured before loading of the Lobo began. The problems in question arose shortly after loading began.

The master was required to ensure that the salt cargo was not loaded into the ships until the cargo was adequately secured: see art 6 of the Act [cp art 3.1.a of the Hague-Visby Rules]. The master's report states that he allowed loading to continue, even though the plastic sheets had deteriorated. The report also shows that part of the plastic sheets had been removed in order to prevent the salt from further mixing with the plastic. It must be assumed that these oversights by the master resulted in the ship being unable to transport the salt cargo at the beginning of the voyage without the risk of it being damaged by contamination from foreign substances. The respondent is liable as a carrier for this unseaworthiness: see art 68.3 of the Act [cp art 4.1 of the Hague-Visby Rules].

Accordingly, since part of the cargo of the Lobo was damaged by contamination caused by the unseaworthiness of the ship, the respondent, who is indisputably a carrier within the meaning of art 21.1 of the Act [art 1.a of the Hague-Visby Rules], is liable for damages.

The respondent has not presented adequate arguments for determining the amount of compensation according to rules other than art 70 of the Act. Article 70.1 states that compensation shall be determined according to art 68 of the Act according to the value that the undamaged goods would have had upon delivery at the right place and time [cp art 4.5.b of the Hague-Visby Rules].

In the District Court proceedings, the appellant based its claim on the FOB price of the salt according to the invoice from its seller, plus the freight charge for its transport to Iceland. The respondent does not dispute the data or figures on which the appellant bases its calculation. It is accepted that the appellant has in this way sufficiently demonstrated that this price of the salt may be used when determining the amount of compensation pursuant to art 70.1 of the Shipping Act.