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Apportionment of Risk in Shipping Contracts – High Court Ruling

Shipping contracts are a means of apportioning risk so that all sides understand with precision their potential exposure to loss – but any amount of careful drafting can still leave room for differences of interpretation. One example on point concerned a highly combustible cargo that was on fire when loaded into a ship’s hold and remained so throughout her lengthy voyage.

Container PortThe cargo of direct reduced steel (DRI) was known to pose a fire hazard in the presence of heat or water. A conveyor belt caught fire during loading but a safety inspection of the ship’s hold resulted in advice that loading could continue. The cargo was still alight when delivered to its destination port.

The ship’s owner launched arbitration proceedings against her charterer, seeking a declaration that the latter alone would be liable for damage caused to the cargo. The owner relied upon a clause in the contract that placed liability for losses arising out of loading, stowage, discharge or storage entirely on the charterer.

The charterer, however, pointed to other provisions in the contract that placed responsibility on the owner for losses arising out of the vessel’s unseaworthiness or errors or faults in her navigation or management. Although appointed and paid by the charterer, stevedores who loaded the cargo remained under the direction of the ship’s master and he alone bore responsibility for proper stowage and the seaworthiness and safety of the vessel. An arbitration panel ultimately found that liability for the loss should be split equally between the owner and the charterer.

In upholding the owner’s appeal against that ruling, however, the High Court noted that it was clearly unsafe to load a hot cargo of DRI and that the failure to halt the conveyor belt promptly, thus creating a risk that burning cargo would enter the hold, constituted improper loading. The clause relied upon by the owner prevailed without qualification and it was thus entitled to a 100 per cent indemnity from the charterer in respect of any claim made by the cargo owners.

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