JUDGMENT
Petroleo Brasileiro S.A. (Respondent) v E.N.E. Kos
1 Limited (Appellant)
before
Lord Phillips, President
Lord Walker
Lord Mance
Lord Clarke
Lord Sumption
JUDGMENT GIVEN ON
2 May 2012
Heard on 12 January 2012
Appellant Respondent
Timothy Brenton QC Andrew Baker QC
Henry Byam-Cook
(Instructed by Ince & Co
LLP)
(Instructed by Thomas
Cooper Solicitors)
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LORD SUMPTION (WITH WHOM LORD WALKER AGREES)
1. This appeal is about the rights of the owner of a time-chartered ship after
the ship has been lawfully withdrawn for non-payment of hire. The question must
often have arisen in practice but, oddly enough, there is no direct authority upon it.
2. The MT Kos is a 301,000 mt VLCC. She was time chartered by her
owners to Petroleo Brasileiro SA on 2 June 2006 for 36 months plus or minus 15
days at charterers’ option. The charterparty, which was on the Shelltime 3 Form,
contained a standard form of withdrawal clause providing that if hire was not paid
when due, the owners should have the right to withdraw the vessel “without
prejudice to any claim owners may otherwise have on charterers under this
charter.” It is increasingly common for such contracts to include anti-technicality
clauses requiring notice to be given before this right is exercised. But for whatever
reason no anti-technicality clause was included in this case. So when, on 31 May
2008, charterers failed to make the advance payment required for the month of
June, the owners were entitled to withdraw the MT Kos, and did so at 14.41 GMT
on 2 June 2008. It is agreed between the parties to the appeal that the charterers’
failure to pay hire was not a repudiatory breach of contract.
3. At the time of the withdrawal, the MT Kos was at Angra dos Reis in
Brazil, where she had just completed the loading of a parcel of cargo for the
charterers’ account in accordance with their orders. She was awaiting a second
parcel, which in the event was not loaded. There were no bills of lading in the
hands of third parties. On 2 and 3 June there was a number of exchanges between
the parties. The charterers tried to persuade the owners to cancel the withdrawal.
The owners refused. Their position was set out in a message at 11.30 GMT on 3
June 2008. They said that they would be willing to reinstate the charterparty or
continue on a voyage basis, but only at the current market rate, which was much
higher than the charterparty rate. Otherwise, they required the charterers to make
prompt arrangements to receive back their cargo. Ultimately, after further fruitless
exchanges, the charterers told the owners at 21.36 GMT on 3 June 2008 that they
would arrange for the terminal to receive back the cargo. The arrangements were
duly made, and discharge of the cargo was completed at 06.00 GMT on 5 June
2008. It is agreed that if the charterers had begun to make arrangements for the
discharge of their cargo as soon as they received the owners’ notice of withdrawal,
the vessel would have been detained at Angra dos Reis for one day. As it was, she
was detained there for 2.64 days.
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4. The issue before us is whether the owners are entitled to be paid for the
service of the vessel during that 2.64 days, and for bunkers consumed in the same
period. Leaving to one side points which have fallen by the wayside at earlier
stages of these proceedings, their claim is put forward on four bases: (i) under
clause 13 of the charterparty; (ii) under an express or implied new contract made
after the vessel was withdrawn, to pay for the time and bunkers; (iii) on the ground
of unjust enrichment; and (iv) under the law of bailment. The judge, Andrew
Smith J, held that they were entitled to succeed on basis (iv), but rejected every
other basis which they put forward. The Court of Appeal (Longmore and Smith
LJJ and Sir Mark Waller) rejected the claim on all four bases, except that they
allowed the owners to recover the value of bunkers consumed in actually
discharging the cargo.
New contract after withdrawal
5. The argument that there was a new contract turns entirely on the facts and
can be shortly dealt with. Once the charterparty came to an end, the owners no
longer had any obligation to carry the cargo to its destination or to discharge it.
Their duty was to make it available to the charterers. It was then for the charterers
to make any necessary arrangements for discharge. For a day and a half after the
notice of withdrawal, they did nothing because they declined to accept that the
owners were entitled to withdraw the vessel. Each party was trying to persuade the
other to resume the contractual service (or a variant of it) on its own terms. Each of
them rejected the other’s terms. On the footing that the owners were not willing to
treat the old contract as subsisting and that no agreement could be reached upon a
new one, both parties then submitted to the inevitable. Owners called on charterers
to take delivery of their cargo, as charterers in any event were bound to do. The
charterers then got on with it. Both courts below held that it was impossible to
spell a new contract out of these facts. I agree.
Implications of the owners’ decision to withdraw
6. Under all the remaining heads of claim, the charterers’ argument is
substantially the same, namely that any delay or loss arising from the need to
discharge the cargo results from the owners’ decision to withdraw. That was a
decision made at their own election and for their own commercial purposes. The
owners, it is said, must bear the adverse as well as the beneficial consequences of
an optional decision made in their own interest. It is clear that this consideration
influenced both courts below, and that it was decisive in the minds of the Court of
Appeal.
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7. The factual premise of the argument is of course correct. It is axiomatic
that a withdrawal clause operates at the election of owners, and not automatically.
Two main consequences follow from this. The first is that owners will not exercise
their right of withdrawal unless it is in their commercial interest to do so. Usually,
this will be because market rates of hire have risen. But it may be in owners’
interest to withdraw the vessel even if they have not risen, for example, where the
charterers are insolvent or owners depend on prompt payment to fund payments
under a head charter or charterers’ payment record occasions administrative or
other difficulties. The second consequence is that any failure on the part of the
charterers to pay hire when it falls due will not of itself entitle the owners to
damages representing the loss of the bargain or the expenses of termination simply
because the owners respond by withdrawing the vessel. This is because the nonpayment does not itself destroy the bargain or occasion the expenses, unless in the
circumstances it is a repudiation which owners have accepted as such. But the
present claim is not a claim for damages, and the non-payment of the June 2008
hire payment in this case was not a repudiation. This, however, is as much as can
usefully be said. The fact that rather than perform the contract the owners found it
more advantageous to exercise an express right of termination is morally and
legally neutral. There are no standards by which the owners’ reasons may be
judged, other than those to be found in the contract. There is no legal policy
specific to termination rights restricting their availability or the consequences of
their exercise more narrowly than does the language of the contract or the general
law. More generally, the reasons for any particular withdrawal cannot affect the
principle to be applied in resolving an issue like the present one.
Clause 13
8. Clause 13 provides, so far as relevant:
“The master (although appointed by owners) shall be under the
orders and direction of charterers as regards employment of the
vessel, agency or other arrangements. Bill[s] of lading are to be
signed as charterers or their agents may direct, without prejudice to
this charter… charterers hereby indemnify owners against all
consequences or liabilities that may arise from the master, charterers
or their agents signing bills of lading or other documents, or from the
master otherwise complying with charterers’ or their agents’
orders…”
9. Clause 13 is the employment and indemnity clause which is found in most
modern forms of time charter. The indemnity reflects the breadth of the powers
conferred on the charterers as to the employment of the vessel. As Devlin J
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observed in Royal Greek Government v Minister of Transport (1949) 83 Ll L Rep
228, 234, “if [the owner] is to surrender his freedom of choice and put his master
under the orders of the charterer, there is nothing unreasonable in his stipulating
for a complete indemnity in return.” Indeed, the courts have held that, subject to
the express terms of any particular charterparty and to the limitations which I shall
consider below, the indemnity is not just ‘not unreasonable’. It is necessary. It will
generally be implied even in forms of time charter (such as the New York Produce
Exchange Form) where it is not expressed.
10. The scope of the indemnity in clause 13, like that of the corresponding
implied term, is very wide (“all consequences or liabilities that may arise”). But it
is not “complete”, nor is it unlimited.
11. In the first place, it has to be read in the context of the owners’ obligations
under the charterparty as a whole. The owners are not entitled to an indemnity
against things for which they are being remunerated by the payment of hire. There
is therefore no indemnity in respect of the ordinary risks and costs associated with
the performance of the chartered service. The purpose of the indemnity is to
protect them against losses arising from risks or costs which they have not
expressly or implicitly agreed in the charterparty to bear. What risks or costs the
owners have agreed to bear may depend on the construction of other relevant
provisions of the contract, or on an informed judgment of the broad range of
physical and commercial hazards which are normally incidental to the chartered
service, or on some combination of the two. The classic example of a loss within
the indemnity, and probably the commonest in practice, is one which arises from
the master complying with the charterers’ direction to sign bills of lading on terms
of carriage more onerous than those of the charterparty. But the indemnity has
been held to be applicable in principle to a wide variety of other circumstances,
including compliance with an order to load cargo which is dangerous even on the
footing that appropriate care is taken of it, or an order to proceed to a legally
unsafe port. On the other hand, the indemnity will not apply to risks which the
owners have contractually assumed, which will usually be the case where they
arise from, for example, their own negligence or breach of contract or
consequences such as marine fouling which are incidental to the service for which
the vessel was required to be available.
12. Secondly, clause 13 itself limits the indemnity to losses which were
caused by complying with the charterers’ orders. Like all questions of causation,
this one is sensitive to the legal context in which it arises. It depends on the
intended scope of the indemnity as a matter of construction, which is necessarily
informed by its purpose. We are not therefore concerned with questions of
remoteness and foreseeability of the kind which would arise in the law of damages,
where the object is to limit the range of consequences for which a wrongdoer may
be said to have assumed responsibility in the eyes of the law. Indeed, as Sir Donald
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Nicholls V-C pointed out in Triad Shipping Co v Stellar Chartering & Brokerage
Inc (The Island Archon) [1994] 2 Lloyd’s Rep 227, 238, the more foreseeable the
owners’ loss, the more likely it is to be an ordinary incident of the chartered
service and therefore outside the scope of the indemnity. The real question is
whether the charterers’ order was an effective cause of the owner having to bear a
risk or cost of a kind which he had not contractually agreed to bear. I use the
expression “effective cause” in contrast to a mere “but for” cause which does no
more than provide the occasion for some other factor unrelated to the charterers’
order to operate. If the charterers’ order was an effective cause in this sense, it
does not matter whether it was the only one.
13. For present purposes, the relevant order of the charterers was the order to
load the parcel of cargo which was on board the vessel when it was withdrawn. In
my judgment the loss claimed by owners was the consequence of that order. The
need to discharge the cargo in the owners’ time arose from the combination of two
factors, namely (i) that the cargo had been loaded, and (ii) that the purpose for
which it had been loaded (ie carriage under the charterparty to its destination) had
come to an end with the termination of the charterparty. In other words, the cargo
which charterers had ordered the vessel to load was still on board when the
charterparty came to an end. On any realistic view, this was because the charterers
had put it there. The analysis would have been exactly the same if the charterparty
had come to an end for any other reason with cargo still on board, for example by
frustration or expiry at the end of the contractual term.
14. Andrew Smith J and the Court of Appeal both rejected the claim under
clause 13 on the ground that the true cause was the owners’ withdrawal of the
vessel. The judge said at para 35 of his judgment that the owners’ claims were “too
remote” from the order to load. Longmore LJ, giving the reasons of the Court of
Appeal, observed at para 15 that it was
“not a natural consequence of ordering [the cargo] to be loaded that
it would have to be discharged at the self-same port. The true cause
of the necessity for the discharge of the cargo was the fact that, in the
light of the withdrawal, the owners required the charterers to
discharge the cargo.”
In effect, therefore, both courts below found that the withdrawal of the vessel was
an independent cause of the loss, breaking the chain of causation between the order
to load the cargo and the detention of the vessel after withdrawal.
15. The difficulty about this is that because the cargo had been loaded, it had
to be discharged somewhere, if not at the port of loading then at its destination or
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possibly at an intermediate port. The owners’ decision to withdraw the vessel or, to
be precise, the adventitious timing of that decision, merely determined the place at
which the discharge of the cargo occurred. If the owners were to withdraw the
vessel, they had to do it promptly upon hire going into default, and it so happened
this was when the vessel was still at the port of loading. But the precise timing of
the withdrawal and location of the discharge are irrelevant to the owners’ loss. If
the vessel had been withdrawn immediately before discharge at the destination, the
consequence would have been exactly the same. It is of course true that discharge
at the destination would have been a great deal more beneficial to the charterers
than discharge at the port of loading. This is a point that seems to have influenced
the Court of Appeal. But a claim under clause 13 does not depend on the benefit
conferred on the charterers. It depends on the detriment to the owners. They would
have suffered a detriment of much the same kind wherever the vessel had
discharged.
16. It is fair to say that it was only because of the withdrawal of the vessel
that the subsequent discharge of the cargo at Angra dos Reis had to be done in the
owners’ time and without earning contractual hire. But that is the very reason why
the detention of the vessel falls within the indemnity. The need to discharge the
cargo in their own time and at their own expense was not an ordinary incident of
the chartered service and was not a risk that the owners assumed under the
contract. It arose after the chartered service had come to an end in accordance with
the withdrawal clause in the contract. Mr Baker QC for the charterers asked
rhetorically whether, in that case, the owners would be entitled to claim the cost of
sending the vessel in ballast from Angra dos Reis to somewhere else where she
could start employment under a new charterparty. But a claim like that, although
ultimately dependent on its particular facts, would be likely to fall on the other side
of the line. The need for a ballast voyage before a vessel can begin her next
employment is an ordinary commercial risk associated with the trading of the
vessel under a time charter.
17. It remains to consider the measure of the indemnity on the facts of this
case:
(1) In my judgment the whole of the 2.64 days during which the vessel was
detained resulted from the cargo being on board on the charterers’ orders at
the time of the withdrawal. The time required to remove it was unnecessarily
prolonged by the charterers’ refusal to recognise the owners’ right to
withdraw the vessel or to make immediate arrangements for the removal of
their cargo from a ship that was no longer at their disposal contractually, but
that does not alter the character or cause of the delay.
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(2) It is not suggested that there is any difference, in the circumstances of this
case, between (i) the measure of the owners’ loss in having to await discharge
and then discharge in their own time, and (ii) reasonable remuneration for
involuntarily making their ship available during that period. On the face of it,
the opportunity cost to the owners of the detention of their ship is the market
rate of hire at the time. In the absence of any subsisting contractual obligation
to make her available at any other rate, the owners’ loss is the market rate of
hire for 2.64 days.
(3) Although the Court of Appeal distinguished between the owners’ right to the
value of bunkers consumed (in actually discharging the cargo) and the rest of
the owners’ claim, it seems to me that the two heads of loss must stand or fall
together. The owners are therefore entitled to the value of bunkers consumed
during the whole period of detention.
Bailment
18. Strictly speaking, this makes it unnecessary to address any of the other
legal bases put forward by the owners in support of their claim. But I propose to
deal with the question whether the owners were also entitled to succeed at
common law as non-contractual bailees of the cargo after the withdrawal of the
vessel. I do so partly out of respect for the trial judge who decided the case on that
basis, and partly because I think that the commercial and legal logic of the claim in
bailment is close to the logic which brings it within clause 13 and would bring it
within any corresponding implied term. On the whole, one would expect a
coherent system of law to produce a consistent answer under both heads, and in
my judgment it does.
19. Unlike many civil law systems, English law does not allow a general right
of recovery for benefits conferred on others or expenses incurred in the course of
conferring them. In the pejorative phrase which has become habitual, there is no
recovery for benefits “officiously” conferred. In Falcke v Scottish Imperial
Insurance Co (1886) 34 Ch D 234, 248 Bowen LJ said:
“The general principle is, beyond all question, that work and labour
done or money expended by one man to preserve or benefit the
property of another do not according to English law create any lien
upon the property saved or benefited, nor, even if standing alone,
create any obligation to repay the expenditure. Liabilities are not to
be forced upon people behind their backs any more than you can
confer a benefit upon a man against his will.”
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20. While this remains the general principle, the exceptions have over the
years become more important than the rule. The particular feature of the present
case which makes it difficult to apply the general rule is that the original bailment
of the cargo had occurred under a previous contractual relationship. The bailment
was therefore consensual, albeit that after the withdrawal of the MT Kos from the
time charter, it was no longer contractual. It is common ground, and clear on the
authorities that in these circumstances, the owners had a continuing duty to take
reasonable care of the cargo, which they could not escape except by retaining it
until arrangements were made to discharge it. But the owners had in no sense
officiously put themselves in this position, nor had they (as the charterers put it in
argument), “voluntarily assumed” possession of the goods. There is a thin, but
consistent line of authority which deals with the legal consequences of this
situation.
21. In Gaudet v Brown (1873) LR 5 PC 134 (“Cargo ex Argos”), petroleum
was shipped in London on the Argos under a bill of lading providing for delivery
at Le Havre. The vessel arrived at Le Havre in the later stages of the FrancoPrussian war, when the port was full of munitions, and the landing of flammable
cargoes was forbidden. The master therefore discharged the petroleum into lighters
in the outer harbour, and it seems that the shippers (who had retained the bill of
lading) could have taken delivery of it there and transported it elsewhere. But they
failed to present the bill of lading or to make any arrangements to receive it.
Having waited for as long as the port authorities would allow him to, the master
reshipped the cargo and carried it back to London. The owners then successfully
sued the shippers for freight for the return voyage. The case appears to have been
decided on the footing that the contract of carriage was at an end when the Argos
left Le Havre for London, either because the contractual service had been
completed or because the contract was frustrated at Le Havre. The ground of the
decision was expressed at pp 165-166 as follows:
“…not merely is a power given, but a duty is cast on the master in
many cases of accident and emergency to act for the safety of the
cargo, in such manner as may be best under the circumstances in
which it may be placed; and that, as a correlative right, he is entitled
to charge its owner with the expenses properly incurred in so doing…
In a case like the present, where the goods could neither be landed
nor remain where they were, it seems to be a legitimate extension of
the implied agency of the master to hold that, in the absence of all
advices, he had authority to carry or send them on to such other place
as in his judgment, prudently exercised, appeared to be most
convenient for their owner; and if so, it will follow from established
principles that the expenses properly incurred may be charged to
him… The authority of the master being founded on necessity would
not have arisen if he could have obtained instructions from the
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defendant or his assignees. But under the circumstances this was not
possible.”
22. A year later, the Court of Exchequer reached a very similar conclusion in
Great Northern Railway Co v Swaffield (1874) LR 9 Ex 132. Mr Swaffield sent his
horse by railway to a station at Sandy. The horse arrived late at night, and the
railway company lodged the horse overnight for their own account at a livery
stable. Mr Swaffield failed to collect it on the following morning. The only basis
on which he was prepared to give any instructions about the fate of his horse was
that the railway company assumed all responsibility for storing and delivering it to
him from the time of its arrival at Sandy. After four months of this, the railway
company lost patience. They unilaterally delivered the horse to Mr Swaffield’s
farm and then sued him for the livery charges to date. As in Cargo ex Argos, the
case was decided on the footing that the contract of carriage had come to an end, in
this case on the day after the arrival of the horse at Sandy, when the performance
required of them as carriers was completed. Counsel did not refer to Cargo ex
Argos. But Baron Pollock drew attention to it in the course of argument and based
his judgment upon it. Having referred to previous authority to the effect that the
railway company was bound to take reasonable care of the horse notwithstanding
the termination of the contract of carriage, he observed (p 138) that “if there were
that duty without the correlative right, it would be a manifest injustice.” In his
concurring judgment, at page 136, Kelly CB treated the principle as applying
because it was necessary for the railway company to incur the expenditure. “They
had no choice unless they would leave the horse at the station or in the high road to
his own danger and the danger of other people.”
23. The principle applied in these cases has commonly been analysed as
depending on the agency of necessity of the carrier, which indeed is how
Longmore LJ analysed it in his judgment in this case. The existence of a coherent
doctrine of agency of necessity has occasionally been doubted: see Goff & Jones,
The Law of Unjust Enrichment, 8th ed (2011), para. 18-50, where it is suggested
that “the cases in which it has been invoked are now best understood in other
ways.” But so far as the doctrine does have a coherent existence, the case law
requires that a bailee of goods should have taken steps in an emergency for the
sole benefit of the cargo in circumstances where it was impossible to communicate
with the owners of the goods. On that ground, the Court of Appeal held that the
doctrine had no application to the present case, and that that was the end of the
matter.
24. It is true that in Cargo ex Argos the Privy Council used the language of
agency and necessity. But the master of the Argos was not in fact acting as the
cargo-owner’s agent, as he would have been if (for example) he had purported to
bind him to a contract with a third party, such as a lighterman or a warehouseman.
On the face of it, he was simply carrying the goods back to London on behalf of
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his owners, in circumstances where there was no contract to do so but no
reasonable or practical alternative. His claim was for additional remuneration for
his own services, in excess of the performance required of him under the contract.
As for Swaffield, although Baron Pollock cited authority on agency of necessity,
on its facts there was no emergency and no agency. The true basis of the
judgments in Swaffield was that where the property was originally bailed under a
contract of carriage and the carrier had no choice but to remain in possession after
the contract had ended, the existence of a continuing duty to care for the cargo was
a sufficient basis for imposing on its owner an obligation to pay. Pollock B, I think
rightly, regarded this as the principle on which Cargo ex Argos was really
founded.
25. This view of the matter was accepted by the House of Lords in China
Pacific SA v Food Corpn of India (The Winson) [1982] AC 939. The facts were
that the Winson, bound for Bombay with a cargo of wheat, stranded on a reef in the
South China Sea. Salvors retained on behalf of the ship and cargo interests offloaded the wheat into barges and took it to Manila, where it was stored for their
account in warehouses. It was common ground that storage under cover was
necessary to prevent deterioration of the wheat, and that upon its arrival at the
warehouse the salvage services came to an end. Some time after that, the owners
gave notice that they were abandoning the voyage and the contract of carriage
thereupon came to an end. The salvors wrote to the cargo-owners’ solicitors asking
them to take delivery of their property, but received no answer. On these facts the
salvors were bailees under the salvage agreement from the time that the cargo was
taken off the stranded vessel until it reached the warehouse, and were thereafter
non-contractual bailees until the cargo-owners finally took possession of the wheat
from the warehouse. The issue was whether the cargo-owners were liable to the
salvors for warehouse charges incurred up to the time when the owners gave notice
that they abandoned the voyage. The cargo-owners accepted liability for the
charges after that point, but contended that while the contract of carriage subsisted
the warehouse charges were the responsibility of the carriers alone. It was held that
the salvors were entitled to succeed. The leading speech was given by Lord
Diplock, with whom the rest of the House agreed. Lord Diplock considered (p
957) that the case turned on the application of “well known and basic principles of
the common law of salvage, of bailment and of lien.” He expressed the principle
(at p 960) as follows:
“… the bailment which up to the conclusion of the salvage services
had been a bailment for valuable consideration became a gratuitous
bailment; and so long as that relationship of bailor and bailee
continued to subsist the salvors, under the ordinary principles of the
law of bailment too well known and too well-established to call for
any citation of authority, owed a duty of care to the cargo owner to
take such measures to preserve the salved wheat from deterioration
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by exposure to the elements as a man of ordinary prudence would
take for the preservation of his own property. For any breach of such
duty the bailee is liable to his bailor in damages for any diminution
in value of the goods consequent upon his failure to take such
measures; and if he fulfils that duty he has, in my view, a correlative
right to charge the owner of the goods with the expenses reasonably
incurred in doing so.”
He regarded this as being the principle applied in Cargo ex Argos and Swaffield in
which the decisive facts, on his analysis, had been (i) that the bailee was left in
possession of the goods after the termination of the contract under which the
bailment had originally been made, and (ii) that in the absence of any contrary
instructions from the cargo-owner, the warehousing of the goods was necessary for
their preservation: see p 960G-H. Lord Diplock added, at p 961:
“It is, of course, true that in English law a mere stranger cannot
compel an owner of goods to pay for a benefit bestowed upon him
against his will; but this latter principle does not apply where there is
a pre-existing legal relationship between the owner of the goods and
the bestower of the benefit, such as that of bailor and bailee, which
imposes upon the bestower of the benefit a legal duty of care in
respect of the preservation of the goods that is owed by him to their
owner.”
26. Lord Diplock went on to consider the doctrine of agency of necessity,
because it had been submitted on behalf of the cargo-owners that a bailee in
possession of goods could have authority on that basis only if it was impossible to
communicate with the owner of the goods. The argument was that although the
cargo-owners were not very communicative, they were never actually out of
contact. This submission was rejected because the restrictions placed by the case
law on a bailee’s authority as an agent of necessity applied only where the bailee
was acting as a true agent, ie by purporting to bind the bailor to arrangements with
third parties. They did not apply to a bailee’s right to reimbursement of his own
expenses. It was sufficient for that purpose that the bailor should have failed to
give instructions: see pp 961G-962B. It is clear that the relevance of this last point
was that if the owner of the goods had given instructions, the salvor could by
complying with them have relieved himself of any further responsibility. The
decisive point, and the sense in which the word “necessity” is used in these cases,
is that if the bailee is in a position where he has no way of discharging his
responsibility to care for the goods without incurring loss or expense, then the loss
or expense is for the account of the goods-owner.
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27. Lord Simon of Glaisdale, who delivered a concurring judgment, took the
same view. He thought (p 965E) that to confine agency of necessity to cases where
the issue was the bailee’s authority to bind the bailor to contracts with third parties
was “justified by the fact that the law of bailment will often resolve any issue
between alleged principal and agent of necessity, as it has done here.” The Winson
was a decision about the law of bailment. It was not a decision about agency of
necessity.
28. The circumstances which entitle the owners to recover in the present case
correspond to those which were decisive in The Winson. They are (i) that the cargo
was originally bailed to the owners under a contract which came to an end while
the cargo was still in their possession, (ii) that as a matter of law their obligation to
look after the cargo continued notwithstanding the termination of the charterparty,
and (iii) that the only reasonable or practical option open to them once the
charterparty had come to an end was to retain the cargo until it could be discharged
at the port where the vessel was then located.
29. The Winson was a claim for expenses incurred by the salvors, although
Lord Diplock’s adoption of the decision in Cargo ex Argos suggests that he would
have applied the same principle to a claim for remuneration where the claimant
stored and handled the goods with his own facilities. In principle, that seems right.
The opportunity cost of retaining the vessel in Angra dos Reis while the charterers’
cargo remained on board was a true cost even if it was not an out of pocket
expense. However, it is unnecessary to go any further into that question because in
this context as in that of clause 13, no point is taken about the difference between
expenses and remuneration.
30. In the result, I agree with the conclusion reached on this point by Andrew
Smith J.
Unjust enrichment
31. It may well be that in the light of recent developments in this area of law,
the owners might be entitled to succeed on this basis also, although the measure of
recovery would not necessarily be the same. This, however, raises larger issues
which would be better decided in a case where they arise, and possibly in a less
specialised context than a dispute about carriage by sea.
Conclusion
32. I would allow the appeal and restore the order of Andrew Smith J.
Page 14
LORD PHILLIPS
33. I agree, for the reasons given by Lord Sumption, that this appeal should be
allowed. I wish only to add a brief explanation of why I agree with him and Lord
Clarke that the express indemnity provided by Clause 13 applied to the facts of this
case.
34. I do not view the issue as turning upon a choice between competing
causes of the requirement to discharge the cargo. The obligation to discharge a
cargo loaded under a time charter will normally be proximately caused by the
order to load the cargo. The reason why the consequences of the obligation to
discharge are not normally covered by an indemnity clause such as clause 13 of the
charter in this case is that those consequences form part of the services that the
owners has contracted to provide under the charter and for which hire is being
paid. Where, however, the charter comes to an end before the cargo has been
discharged in circumstances where the consequences are not expressly covered by
the charter, those consequences fall naturally within the scope of the indemnity
clause. I accept that the application of the indemnity clause in such circumstances
appears to be a novelty, but I can see no argument of principle that precludes this.
LORD MANCE
35. I agree with the result reached by the majority, but I do so not under
clause 13, but on the basis of the principle in The Winson (China Pacific SA v
Food Corpn of India [1982] AC 939), with which Lord Sumption deals in paras
18-30. As he notes (para 29), the charterers in the present case have expressly
disclaimed any reliance upon the distinction between reimbursement of expenses
and remuneration (as to which, see eg The Principles of the Law of Resitution by
Graham Virgo 2nd ed (2006), p 290). They have done this on the basis that the two
would on the facts here equate (ie it “cost” the owners the market rate to wait in
Angra dos Reis). It is unnecessary to consider the correctness of this concession,
and I do not do so.
36. There is much case law on time charter indemnities. They may be express,
as in the time charters which were the subject of Larrinaga Steamship Co Ld v The
King [1945] AC 246, 253 and Royal Greek Government v Minister of Transport
(The Ann Stathatos) (1949) 83 Ll L Rep 228 and in the Shelltime 3 form of charter
in issue in the present case. They may also be implied, as in the case of the New
York Produce Exchange form of charter, in which the only relevant express
obligation is that the owners or master shall be under the orders and directions of
the charterers as regards employment, agency and other arrangements. The
Page 15
existence of an implied time charter indemnity in respect of compliance with
charterers’ orders and direction has long been recognised: see The Athanasia
Comninos [1990] 1 Lloyd’s Rep 277, 290 per Mustill J, and Triad Shipping Co v
Stellar Chartering & Brokerage Inc (The Island Archon) [1994] 2 Lloyd’s Rep
227, 234 per Evans LJ.
37. The scope and application of an indemnity clause depends upon its precise
terms read in the context of the contract as a whole. Other terms of the contract
may mean that it is necessarily or impliedly limited in its scope. In addition to that,
an indemnity clause in the form of clause 13 will not cover matters of navigation
or in respect of which owners can by the contract be taken to have assumed the
risk. Within its scope, the present clause also only applies to “consequences or
liabilities that may arise from [here] the master complying with charterers’ or their
agents’ orders”. This raises a question of causation. The search is for “the
‘proximate’ or ‘determining’ cause”. This was stated in relation to a materially
identical clause in Larrinaga Steamship Co Ltd v The King [1945] AC 246, 253 by
Viscount Simon LC, with whose speech Lord Thankerton and Wright agreed at pp
253-254.
38. The issue of causation was considered in depth by Devlin J in The Ann
Stathatos 83 Ll L Rep 228. The decision is at the root of the modern jurisprudence
on time charter indemnity clauses, and Lord Sumption cites it in para 9. One
particular passage is worth citing in full, because it bears on an argument advanced
by owners in the present appeal, which the majority might otherwise be thought to
be accepting.
39. In The Ann Stathatos the vessel had been damaged by an explosion
resulting from an explosive atmosphere created by the cargo of coal and some
unidentified act during repair work causing a flame or spark leading to a series of
explosions. The arbitrator selected as “the direct or immediate or effective cause”
of the explosions the latter act. Owners argued that it was enough that the
explosive atmosphere generated by the cargo was “a” cause. The argument mirrors
a submission made by owners on the present appeal, which was rejected in the
following passage:
“This conclusion clears the ground for consideration of a further
submission on behalf of the owner. The loading, if not the proximate
cause, was at any rate, it is argued, a cause of the explosion, and that
is sufficient for the purpose of clause 9. Sir Robert Aske does not in
this contention rely on the phrase ‘all consequences’; in this I think
he is right, having regard to the dictum of Willes J in Ionides v
Universal Marine Insurance Co (1863) 14 CB (NS) 259, 289. He
relies on the principle applicable in cases of tort, and he referred
Page 16
again to Burrows v March Gas and Coke Co LR 7 Ex 96, though
Baron Pigott, in the court below (LR 5 Ex 67, 73) hardly supports
the contention. He referred also to Minister of Pensions v Chennell
[1947] KB 250, where Denning J discusses the whole matter. As
against this, Sir William McNair argues that the term ‘a cause’ can
properly be used only when there are two or more causes equal in
proximity, as in Reischer v Borwick [1894] 2 QB 548. I need not
consider this last contention, for I think it is clear that clause 9 is
concerned with the proximate cause. It is a contract of indemnity,
and I can see no reason for treating it differently from any other
contract of insurance. The observations of Lord Shaw in The Ikaria
[1918] AC 350, 368 and the dicta he there cites are also in point.”
40. The search is therefore for the proximate cause. Devlin J cited Reischer v
Borwick [1894] 2 QB 548 as indicating that there can be situations in which two
causes are so closely matched that both are identified as proximate causes. That is
a largely theoretical analysis which finds little practical application in the
authorities, and has achieved any prominence only in discussion about exception
clauses. Reischer v Borwick itself was a case on a marine insurance policy
covering “only …. collision”, and so not perils of the seas. The vessel was holed
by collision, the hole was temporarily plugged, but the plug failed as she was being
towed to safety and she sank due to the inflow of water. Not surprisingly, the claim
succeeded. Only Lindley LJ addressed the possibility that this situation could and
should be analysed as one of concurrent proximate causes (although even he in his
concluding remarks identified the injury by collision as “really … the cause of the
loss – the causa causans and not merely the causa sine que non”). Both Lopes and
Davey LJJ analysed the position throughout in what one would have thought to be
more conventional terms as involving a single proximate cause of the sinking (the
collision holing the vessel).
41. Another of the few cases in which courts have discussed the possibility of
concurrent causes is Wayne Tank and Pump Co Ltd v Employers Liability
Assurance Corpn Ltd [1974] QB 57. The case involved an insurance claim
following on from the decision in Harbutt’s “Plasticine” Ltd v Wayne Tank and
Pump Co Ltd [1970] 1 QB 447. Harbutt’s factory was burnt down in a fire. The
fire occurred because Wayne Tank had installed a pipeline made of unsuitable and
dangerous plastic material and wrapped in heating tape attached to a useless
thermostat, and had then switched on the heating and left it unattended overnight
without testing. Wayne Tank’s policy contained an exclusion of damage caused by
the nature or condition of any goods which they sold or supplied. Again not
surprisingly, both Lord Denning MR (pp 66G-67B and 68A) and Roskill LJ (p 74
B-C) preferred to analyse the situation as one of a single effective, dominant and
proximate clause (the defective plastic material and thermostat supplied), while
only Cairns LJ (p 69A) preferred an analysis of “approximately equal” causes. All
Page 17
three member of the Court also indicated that the claim anyway failed (because of
the exclusion) even if analysed as one of two concurrent proximate causes (pp
67B-68A, 69B-D and 74D-75E). In both Reischer v Borwick and Wayne Tank, the
courts further noted that merely because one can identify concurrent causes does
not mean that both are in law proximate causes.
42. The same point had been made by Lord Shaw fifty years earlier in another
leading authority on proximate cause, Leyland Shipping Co Ltd v Norwich Union
Fire Insurance Society [1918] AC 350, 370, when he said: “Where various factors
or causes are concurrent, and one has to be selected, the matter is determined as
one of fact, and the choice falls upon the one to which may be variously ascribed
the qualities of reality, predominance, efficiency”. That reasoning was followed
and applied in Yorkshire Dale Steamship Co Ltd v Minister of War Transport
[1942] QC 691. The issue in that case was whether a vessel lost by stranding in the
course of a warlike operation was lost by reason of the warlike operation.
Viscount Simon LC said: “Most results are brought about by a combination of
causes, and a search for “the cause” involves a selection of the governing
explanation in each case” (p 698), Lord Macmillan said: “it is not enough that the
casualty arose in the course of a warlike operation. It must also arise out of, and be
proximately caused by the warlike operation” (p 702), and Lord Wright underlined
the point in a well-known passage, including the statements that “This choice of
the real or efficient cause from out of the whole complex of the facts must be made
by applying commonsense standards. ….. The question always is what is the
cause, not merely what is a cause” (p 706).
43. Another case involving an exceptions clause where the possibility of rival
causes was considered briefly and obiter was Handelsbanken v Dandridge [2002]
EWCA Civ 577. [2002] CLC 1227, where in para 47 Potter LJ remarked that “the
first task of the court is to look to see whether one of the causes is plainly the
proximate cause of the loss” and that “It is only if the court is driven to the
conclusion that there was ‘not one dominant cause, but two causes which were
equal or nearly equal in their efficiency in bringing about the damage’ one being a
period, the other an exception, that the exception prevails”, citing in support
Wayne Tank, p 67. That dictum may go further to blur lines than I would in
referring to causes “nearly equal in their efficiency”, but, once again, the Court’s
actual view was that this was not the situation on the facts. The position regarding
exclusion clauses in situations where two causes might be said to be operating
concurrently was most recently discussed in Global Process Systems Inc and
another (Respondents) v Syarikat Takaful Malaysia Berhad [2011] UKSC 5, para
88. As Devlin J pointed out in The Ann Stathatos at p 237, bottom left, the
existence of an exceptions clause is itself likely to affect what falls to be regarded
as dominant, proximate or relevant; this is because “the whole of what one might
call the area naturally appurtenant to the excepted area must be granted to it”.
Page 18
Indemnity clauses are not subject to such considerations. They cover consequences
proximately caused, no more and no less.
44. This is underlined by another way in which the scope of time charter
indemnities is delimited in the case law. Implied time charter indemnities and
indemnities like clause 13 apply only where there is “a direct causal link” between
the orders and the consequences. The phrase and the emphasis are Lord Hobhouse
of Woodborough’s in the leading speech, with which all other members of the
House agreed, in Whistler International Ltd v Kawasaki Kisen Kaisha Ltd (The
Hill Harmony) [2001] 1 AC 638, 656. Lord Hobhouse made the comment in the
course of discussion of the decision in Larrinaga Steamship Co Ltd v The King
[1945] AC 246, a case like the present of an express indemnity. He cited in support
The White Rose [1969] 1 WLR 1098, another case of an express indemnity. As to
implied indemnities: see The Hill Harmony itself and Triad Shipping Co v Stellar
Chartering & Brokerage Ltd. (The “Island Archon”) [1994] 2 Lloyd’s Rep 227,
238, where Sir Donald Nicholls V-C noted that “the underlying principle” is that
the implied indemnity “extends only to certain consequences flowing from a
shipowner complying with charterer’s orders”, one limitation being that “to be
within the implied indemnity the loss must arise directly from the charterer’s
instruction” (another being that it must also be one which, on a fair reading of the
charter-party, the shipowner cannot be taken to have accepted: see para 37 above).
45. In The White Rose, Donaldson J had the benefit of the formidable
advocacy of Mr Anthony Evans for owners and Mr Robert Goff QC and Mr
Davenport for charterers. He recited Mr Goff’s submission that one vital element
had been omitted from Mr Evans’s case:
“namely, that the right to indemnity only arises if and in so far as the
loss suffered by the shipowners can be proved to have been caused
by compliance with the time charterers’ instructions” (p 1107).
Donaldson J went on to note Mr Goff’s further observation that causation is rarely
a live issue in cases where an owner has on charterers’ instructions signed bills of
lading committing him to liabilities over and above his charterparty liabilities, but
that causation is all important in other cases.
46. Donaldson J accepted Mr Goff’s submission, holding that it was
“necessary in every case to establish an unbroken chain of causation”, and that:
“A loss may well arise in the course of compliance with the time
charterers’ orders, but this fact does not, without more, establish that
Page 19
it was caused by and is in law a consequence of such compliance
and, in the absence of proof of such causation, there is no right to
indemnity”. (p 1108)
47. The facts in The White Rose were that a Finnish vessel had been ordered
to load in Duluth, Minnesota, where Mr de Chambeau, an employee of charterers’
stevedores was injured while on board. He had left his proper place for purposes
unconnected with his work, but owners were liable to him under Minnesota law on
the ground that the part of the ship where he had gone lacked fencing. The owners
were, it seems, in breach of Finnish law in this respect, but that was expressly
disregarded as being irrelevant. Donaldson J nonetheless agreed with the umpire
that owners’ indemnity claim failed because “what connected the accident with,
and gave rise to, a potential liability and an actual loss was the provisions of
Minnesota law”. There was lacking “the necessary causal connection between the
order to load and the loss” (p 1108).
48. The selection of the proximate, determining or, in the more modern
terminology, real or efficient cause for the purposes of an indemnity has
traditionally been described as involving a “choice … to be made by applying
common sense standards as the man in the street or a business or seafaring man
would apply them”: The Ann Stathatos 83 Ll L Rep 228, 236 per Devlin J, citing
Lord Wright in Yorkshire Dale Steamship Co Ltd v Minister of War Transport
[1942] AC 691, 706. Lord Wright’s words were more recently cited under the
implied indemnity which was in issue under a voyage charter in Total Transport
Corpn v Arcadia Petroleum Ltd (The Eurus) [1998] 1 Lloyd’s Rep 351, 361-362.
Such an approach does not, or should not, “conceal, or perhaps reveal” – in Lord
Hoffmann’s extra-judicial words giving the Chancery Bar Association lecture in
1999 on “Common Sense and Causing Loss” – “a complete absence of any form of
reasoning”. Rather, it should involve a conclusion reached after identifying the
relevant context and purpose of the question and the relevant considerations. I do
not however regard it as wholly irrelevant that three experienced commercial
judges have concluded, without it seems real doubt, that the present indemnity
clause does not cover the present case.
49. Perhaps more striking, since the present constitution is also heavy in
commercial experience, is the fact that no previous claim like the present can be
identified under any express or implied time charter indemnity; this, despite the
fact that time charter clauses entitling owners to withdraw in default of payment of
any hire instalment, without anti-technicality provisions, have been commonplace
and have given rise to other contentious issues over many past decades. Robert
Goff J made no mention of any such possibility in Tropwood AG of Zug v Jade
Enterprises Ltd (The Tropwind) [1982] 1 Lloyd’s Rep 45, when considering “the
nature of a shipowner’s right to recover from charterers remuneration for services
rendered after a ship has been withdrawn from the charterers’ service under a time
Page 20
charter, pursuant to an express contractual right of withdrawal” (p 53). Apart from
any express request which might be found to have been made (to render such
services), he thought that “their liability (if any) to pay remuneration for the
services so rendered can only derive from the principles of the law of restitution”.
50. Of course, if the owners were bound to third parties by bills of lading
which charterers had required them to issue, the continuation of the voyage under
those separate bill of lading contracts could engage the time charter indemnity, and
could (despite Lord Denning MR’s contrary dictum on appeal in The Tropwind
[1982] 1 Lloyd’s Rep 232, 237) lead to charterers having to pay owners the
market, rather than the charter, rate. Further, if owners were left with no practical
option but to carry the cargo to its destination, then they might still have an
argument that their time and money were spent “in compliance with the time
charterers’ instructions”. No assistance on this latter situation is derived from the
New South Wales Supreme Court decision in J Gadsden Pty Ltd v Strider 1 Ltd
(The Aes Express) (1990) 20 NSWLR 57, where the owners failed in a claim
against bill of lading holders, who, before the vessel’s withdrawal from charter,
had pre-paid freight to charterers under what were charterers’ bills.
51. The present case differs materially from both these situations. Here, if one
asks whether the loss suffered by the shipowners was “caused by compliance with
the time charterers’ instructions” – Robert Goff QC’s words accepted by
Donaldson J in The White Rose [1969] 1 WLR 1098, 1107-1108 – the natural
answer, it seems to me, is: certainly not. It was caused because the charter was at
an end, the owners were not performing the charterers’ instructions and they were
not receiving hire for the time wasted prior to discharge. The “direct” or
“unbroken” causal link required by the authorities is lacking. The loss did not even
arise “in the course” of compliance with charterers’ orders, to use Donaldson J’s
words quoted in paragraph 70 above. It is true, historically, that no cargo would
have been on board but for charterers’ instructions. But that is no test of the
proximate or the effective cause, as the authorities make clear: see paragraphs 37
to 47 above. It is also unrealistic to scissor up the instructions between loading and
carriage to destination, and to attribute the loss to the instructions to load ignoring
the failure to carry. When one engages in such a division, one is in fact recognising
that subsequent events superseded charterers’ orders and rendered them a matter of
history.
52. The general contractual context in my view also supports a conclusion
that the express indemnity clause is inapt to apply to the present situation. Clause 8
of the charterparty gives owners a simple contractual option. It is accepted that the
mere late payment of one instalment did not constitute a repudiatory breach (or a
breach of a condition in a sense like that used in the Sale of Goods Act 1979)
which could entitle the owners to damages for loss of the charter. That loss flowed
from the owners’ exercise of their option to withdraw. The phrase in clause 8
Page 21
“without prejudice to any claim owners may otherwise have on charterers under
this charter” does not create a right of action, and looks on its face only to preexisting claims. So there is no way in which the time spent discharging in Angra
dos Reis can be claimed as damages. Yet it is submitted that, because the owners
exercised an option to terminate the charter in mid-flow, the charter indemnity
provides them as of right not merely with the charter rate (US45,000 per day), but
with the market rate (US158,864 per day) in respect of any delay before the vessel
is free to move elsewhere to take advantage of the increased market rate. That
would be to give them a claim by way of indemnity for loss they cannot claim by
way of damages.
53. It is also unclear where this submission could or would end. In shipping
law certainty is of recognised importance and disputes not to be encouraged. The
charter required redelivery at the same port as the port of delivery in the Arabian
Gulf (clause 3), with hire being paid up to that point. Logically, the consequences
of the charterers’ orders to proceed to and load cargo at Angra dos Reis could, on
owners’ case, embrace the whole period during which the vessel was returning to
the Arabian Gulf, unless she found other paid employment to take her back. The
risk of having to return in ballast to her Arabian Gulf delivery port (or anywhere
else) could not be described as an “ordinary commercial risk” which the owners
were prepared to accept under this time charter (cf the last sentence of paragraph
16 of Lord Sumption’s judgment), since the owners expressly stipulated against it.
54. The silence of clause 8 regarding the position post-withdrawal also
contrasts with clause 18 which expressly provides that, should the vessel be on a
ballast or laden voyage at the date the charter should otherwise terminate,
“charterers shall continue to have the use of the vessel” at the charter rate or the
market rate if higher. Under clause 18, the charterers are paying for completion of
the services requested. Under clause 8, owners, having elected to determine the
charter, are now seeking by way of “indemnity” to recover the market rate, without
of course having to give any credit for the considerable benefit likely to have
accrued to them from such termination.
55. In conclusion, the majority’s present decision stretches the application of
the express charter indemnity beyond any previous decision, without justification,
without regard to the potential consequences (including the uncertainty – or
certainty – of ever more ambitious claims) and without need. The law is capable of
dealing with this situation in a more conventional manner. It will impose on
charterers an obligation as bailors to reimburse the owners as bailees for their time
and expense spent in looking after the cargo prior to its discharge. It would, even
apart from that, probably also impose on charterers an obligation in restitution in
respect of any benefit they could be said to have had through the storage on board
the vessel of the cargo. But those remedies flow either from the service rendered in
that respect by the owners under the compulsion of their legal obligations as
Page 22
bailees, or from the benefit received thereby by the charterers, and not from the
express indemnity.
56. It follows that I too would allow the appeal and restore the order of
Andrew Smith J, although I would do so for the reasons and on the basis that he
gave, and not those adopted by the majority.
LORD CLARKE
57. I agree with Lord Sumption that, for the reasons he gives, this appeal
should be allowed on the Winson point (China Pacific SA v Food Corpn of India
[1982] AC 939). I wish to add a few words of my own on the construction of
clause 13 of the charterparty in the light of the sharp difference of opinion between
Lord Mance and Lord Sumption.
58. I have not found this an easy question. Lord Mance makes a powerful
case for a narrower application of clause 13 than that preferred by Lord Sumption.
His analysis owes much to the approach adopted in a number of decided cases.
However, none of them is on facts such as these. As I see it, the question whether
the owners are entitled to succeed under the indemnity provided for in clause 13
involves two sub-questions. The first is one of construction of the clause and the
second is whether the owners have shown that they are entitled to succeed under
the clause on the particular facts of this case, which is essentially a question of
causation.
Construction of clause 13
59. In order to succeed, the owners must show that the expenses (or loss) they
sustained as a result of discharging the cargo at Angra dos Reis in Brazil, which
was of course the loading port, in the circumstances described by Lord Sumption,
were a consequence of their complying with the charterers’ order to load the cargo.
The relevant part of clause 13 is in these terms:
“charterers hereby indemnify owners against all consequences …
that may arise from the master … complying with charterers’ …
orders …”.
60. I agree with Lord Sumption in paras 10 to 12 that the clause is very wide
but that it is neither complete nor unlimited. In particular, I agree with him that the
Page 23
indemnity is not intended to include consequences which are incidental to the
service for which the vessel was required to be available under the charterparty.
So, for example, it would not include any cost of or in relation to the discharge of
the cargo in the ordinary course of events, which would be covered by clauses 5
and 6 of the charterparty, which provide for the services to be provided and paid
for by the owners and charterers respectively, or by clause 7, which provides for
hire to be paid by the charterers to the owners. Nor, as Lord Mance observes at
para 37, would clause 13 cover matters of navigation or in respect of which owners
can be taken to have assumed the risk by contract.
61. I further agree with Lord Sumption that the real question under clause 13
is whether the charterers’ order to load the cargo was an effective cause of the
owners having had to bear a risk or cost of a kind which they had not contractually
agreed to bear and that, if the charterers’ order was an effective cause in the sense
that it was not a mere “but for” cause which did no more than provide the occasion
for some other factor unrelated to the charterers’ order to operate, it does not
matter whether it was the only effective cause.
62. It is not I think helpful to use other adjectives to describe the cause.
Different adjectives have been used over the years, including “proximate cause”,
“dominant cause” and “direct cause”. To my mind they are somewhat misleading
because they tend to suggest that the cause must be the most proximate in time or
that the search is for the sole cause. Lord Mance says at para 37 that the search is
for “the ‘proximate’ or ‘determining’ cause”. However, I respectfully disagree
because such a formulation suggests that there can be only one such cause,
whereas there may, depending upon the circumstances, be more than one effective
cause.
63. It is true that the cases make some reference to “the determining” or “the
proximate cause”. For example, in Larrinaga Steamship Co Ltd v The King [1945]
AC 246, 252 Viscount Simon LC said that the proximate cause of the stranding of
a vessel was not “warlike operations”. As he put it at p 253, the vessel was
attempting to make a voyage without cargo and suffered from a marine peril when
doing so. The fact that she was ordered to leave port sooner than her acting master
thought was wise could not turn her disaster into the consequence of a warlike
operation. He concluded that the “proximate” or “determining” cause was a
misfortune in navigation, not attributable to any warlike operation at all. The
House of Lords was not considering the possibility of two effective causes.
64. Lord Mance refers (at paras 38 to 40) in some detail to the decision of
Devlin J in Royal Greek Government v Minister of Transport (The Ann Stathatos)
(1949) 83 Ll L Rep 228. On my reading of the arbitrator’s findings in that case (as
described at pp 231-232) he identified four causes of the first explosion (using the
Page 24
word “caused” in the wide sense of the word). Omitting two causes which are
irrelevant for present purposes, the arbitrator found that the first explosion was
caused by (a) the loading on board of gassy and dusty coal and the battening down
of the hatches so as to trap the gasses and leave coal dust suspended in such air as
existed in tween deck space and (d) some act on the part of the crew who were
repairing the tanks, which act caused a flame or spark.
65. Devlin J said at p 237 that by “the wide sense of the word”, the arbitrator
meant to include all suggested or possible causes, however remote, and whether
causes in the legal sense or not. He added:
“From these five [the arbitrator] selects the act which caused the
flame or spark and the explosive atmosphere as the direct or
immediate or effective causes of the first explosion.”
The first explosion is the only explosion which is relevant for present purposes. It
would seem to follow from that conclusion that there were two effective causes
and not one. It would also seem to follow that the arbitrator was choosing causes
(a) and (d) as the two effective causes. However the arbitrator then held (as stated
at p 232) that “the loading of the coal, while one of the causes of the damage to the
ship (using the word ‘causes’ in its wide sense), was not the direct or immediate or
effective cause of the loss or expenses claimed”.
66. It is not clear to me how these findings can be reconciled. One possibility
is that the arbitrator treated cause (a) as two causes and not one, by treating the
loading of the coal as a different cause from the presence of the gas. If that is
correct, the arbitrator held that there were two effective causes, namely the
presence of the gas and the flame or spark. It is not easy to see how that is
consistent with the view later expressed by the judge that the arbitrator seems to
have taken “what is immediate in time”, by which he must have meant the flame or
spark (p 237). If the arbitrator treated (a) as one cause, namely the loading of cargo
in a gaseous state, it is not easy to see how his conclusion that the flame or spark
and the explosive atmosphere were the direct or immediate or effective causes of
the explosion is consistent with his conclusion that “the loading of the coal, while
one of the causes of the damage to the ship (using the word ‘causes’ in its wide
sense) was not the direct or immediate or effective cause of the loss or expenses
claimed”.
67. As I read the judgment of Devlin J, he concluded (at pp 237-238) that the
arbitrator favoured the cause that was immediate in time, namely the initial flame
or spark which ignited the gas. He rejected the submission that the arbitrator
misdirected himself by confusing immediate cause with direct or effective cause.
Page 25
He also rejected (at p 238) the submission that the flame or spark was too remote
in law to be the cause of the first explosion. He then considered whether the
loading, which the arbitrator rejected as the direct cause, was too remote in law to
be a cause at all.
68. It was in the light of those conclusions that, in the passage quoted by Lord
Mance at para 39, Devlin J considered, at p 238, whether, if it was not the
proximate cause, loading was a cause of the explosion. This part of Devlin J’s
judgment must be set in the context of the facts. Perhaps naturally in the light of
the arbitrator’s award, he started with “the proximate cause”, which the arbitrator
had held was the flame or spark which ignited the methane gas. He considered the
possibility of there being more than one proximate cause, but said that it was not
necessary to consider it because the indemnity clause was concerned with “the
proximate cause”. He then expressed his conclusion thus:
“So the matter comes down to this, that the arbitrator has selected
one cause in preference to another as the proximate or direct cause. I
cannot see that any question of law is involved in this selection”.
In short, Devlin J held that that conclusion was a conclusion of fact and that the
arbitrator had not misdirected himself in law.
69. In these circumstances, I do not think that the decision or reasoning in The
Ann Stathatos is of any real assistance. The arbitrator had expressly held that there
was a sole proximate cause. It may be that, in the light of his earlier conclusion
that the direct or immediate or effective causes of the collision were both (a) the
act which caused the spark or flame and (b) the explosive atmosphere, the
arbitrator made an error in concluding that the spark or flame was the proximate
cause, in the sense of sole proximate cause. However, if he did, on Devlin J’s
approach it was an error of fact, not an error of law.
70. In all the circumstances the decision of Devlin J is an unconvincing basis
for a conclusion that the search is for the proximate cause. As I see it, the question
in each case, whether under a contract of insurance or under a contract of
indemnity, is whether an effective cause of the alleged loss or expense was a peril
insured against or an indemnifying event. By reference to Devlin J’s citation of
Reischer v Borwick [1894] 2 QB 548, Lord Mance accepts in para 64 that two
causes may be so closely matched that both are identified as effective causes.
However he says that that it is a largely theoretical analysis which finds little
practical application in the authorities.
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71. It is true that the authorities do not contain much discussion of the
circumstances in which there may be two effective causes. However, in my
opinion, they clearly show that two effective causes can, in principle, exist. To my
mind this can be clearly seen from Wayne Tank and Pump Co Ltd v Employers
Liability Assurance Corpn Ltd [1974] QB 57, Lloyd (JJ) Instruments Ltd v
Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd’s Rep 32 and
Midland Mainline Ltd v Eagle Star Insurance Co Ltd [2004] EWCA Civ 1042,
[2004] 2 Lloyd’s Rep 604.
72. The present position can be most clearly seen from the Midland Mainline
case, where Sir Martin Nourse, with whom Brooke and Jacob LJJ agreed,
expressly held at para 48 that there can be more than one proximate cause of loss.
He cited Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd
[1918] AC 350, Wayne Tank and The Miss Jay Jay as authority for that
proposition.
73. It is true that in Wayne Tank [1974] QB 57, on the facts (which are
described by Lord Mance at para 41) the majority of the Court of Appeal, Lord
Denning MR and Roskill LJ, held that the proximate cause of the fire was the
defective plastic material and thermostat supplied and not the act of switching on
the heating and leaving it unattended without testing. However, in a passage
quoted by Sir Martin Nourse at para 10 of the Midland Mainline case, Roskill LJ
said that he found it impossible to say that the latter was the sole proximate cause
of the fire and, that if he was wrong to say that the defective state of the material
and thermostat was the sole proximate cause of the fire, there were two effective
proximate causes. Cairns LJ, whose approach Sir Martin described as different but
instructive, said at p 68:
“But for my part I do not consider that the court should strain to find
a dominant cause if, as here, there are two causes both of which can
be properly described as effective causes of the loss. Mr Le Quesne
recognised that if there are two causes which are approximately
equal in effectiveness, then it is impossible to call one rather than the
other the dominant cause. I should prefer to say that unless one cause
is clearly more decisive than the other, it should be accepted that
there are two causes of the loss and no attempt should be made to
give one of them the quality of dominance.”
74. Those were cases in which it was held that, where the or a proximate, or
effective, cause of the loss is excepted by the policy, the insurers are not liable. It
is, however, clear from The Miss Jay Jay that, where there are two effective
causes, neither of which is excluded but only one of which is insured, the insurers
are liable. In the Court of Appeal Slade LJ underlined (at p 39) that the authorities
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show that the question of proximate cause has to be determined by “a broad
commonsense view of the whole position” and that, by proximate, is meant
proximate in efficiency. It was held that the faulty design and construction of the
vessel, which was neither an insured peril nor an excepted cause, and perils of the
seas, which was an insured peril, were both proximate causes of the loss since they
were, as Slade LJ put it at p 40 “equal or at least nearly equal in their efficiency in
bringing about the damage”. These principles are as I see it correctly summarised
in McGillivray on Insurance Law, 11th ed (2008) at para 19-005 under the heading
“Two effective causes” and in McGee on The Modern Law of Insurance 3rd ed
(2011) at pp 260-261. See also to the same effect McCann’s Executors v Great
Lakes Reinsurance (UK) Plc [2010] CSOH 59, para 112 to 117, where Lord
Hodge also stressed the importance of context; Orient-Express Hotels Ltd v
Assicurazioni General SpA (UK branch) (trading as Generali Global Risk) [2010]
EWHC 1186 (Comm), [2011] Bus LR 7 per Hamblen J; and Global Process
Systems Inc v Syarikat Takaful Malaysia Bhd [2011] UKSC 5, [2011] Bus LR 537,
para 88 per Lord Mance and, in the Court of Appeal, [2009] EWCA Civ 1398,
[2010] 2 All ER 248, para 32 per Waller LJ.
75. I entirely agree with Lord Mance that there must be a causal link between
the order and the consequences relied upon. In short, there must be no break in the
chain of causation between the order and the consequences. This is clear from The
White Rose [1969] 1 WLR 1098. As Lord Mance says at para 45, Donaldson J
there accepted that it was “necessary in every case to establish an unbroken chain
of causation”. That is the sense in which I read Lord Hobhouse of Woodborough’s
reference to the necessity for a “direct causal link” in Whistler International Ltd v
Kawasaki Kisen Kaisha Ltd (The Hill Harmony) [2001] 1 AC 638, 656. Lord
Hobhouse was not considering a case like the present. I do not read him as
intending a direct causal link to be different from an effective cause. I remain of
the view expressed above (and in agreement with Lord Sumption) that the question
is whether the relevant order was an effective cause of the alleged consequence.
76. I agree with both Lord Sumption and Lord Mance that in deciding
whether causation was established on the facts, it is important to have in mind the
context in which the question is asked. I do not think that the answer can be found
in the conclusions on the facts to which Lord Mance has referred. In particular, I
do not think that Donaldson J’s conclusion based on the vagaries of Minnesota law
in The White Rose is of any assistance in deciding the relevant question of fact in
this appeal.
Causation on the facts
77. Lord Sumption has identified the relevant commercial context. It is that
the charterers gave an order to load the cargo in the ordinary way. The
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consequence of that order was that the cargo was indeed loaded and therefore had
sooner or later to be discharged. The failure of the charterers to pay hire timeously
triggered the owners’ right of withdrawal. When they exercised that right, the
question was what should be done with the cargo which was still on board the
vessel. It had to be discharged somewhere. As it happened, it was discharged at the
port of loading but it might have been discharged at the port of discharge or at an
intermediate port. I entirely agree with Lord Sumption’s analysis at paras 9 to 16.
In particular I agree with Lord Sumption that the owners’ motive for exercising the
right to terminate is irrelevant.
78. It was adventitious where and when the termination occurred. The
position would have been the same if the termination had occurred for some other
reason than the exercise of an option by the owners, as for example as a result of
frustration. The owners would have had to procure discharge of the cargo and
would have incurred expenses and perhaps loss. They would not have been able to
recover such expenses and loss under any of the other provisions of the
charterparty. The reason they would have to incur the expenses is that the cargo
was still on board the vessel. Just as here there are two effective causes of the
expenses and loss, namely the withdrawal and the fact that cargo had been loaded,
so in a frustration case, there would be two such causes, namely the frustration and
the fact that cargo had been loaded and was on board.
79. I agree with the view expressed by Lord Mance at para 50 that, if the
owners were bound to third parties by bills of lading which charterers had required
them to issue, the continuation of the voyage under those bill of lading contracts
could engage the indemnity under clause 13. Lord Mance further recognises (to
my mind correctly) that if owners were left with no practical option but to carry
the cargo to its destination, then they might have an argument that their time and
money were spent “in compliance with charterers’ orders”. Indeed, at present I see
no reason why they should not succeed under the indemnity in such circumstances.
As I see it, that would be on the basis that the charterers’ orders would be the
orders to load. In terms of causation, I see no distinction in principle between that
case and the present.
80. For these reasons and the reasons given by Lord Sumption I would allow
this appeal on the indemnity point as well as the Winson point.
