1. (Cite as: [1994] 2 Lloyd's Rep. 506, *506) FOR EDUCATIONAL USE ONLY *506 Mediterranean Freight Services Ltd. v. BP Oil International Ltd., (The "Fiona") Court of Appeal CA June 13, 15, 16 and 17, 1994; July 7, 1994 Before Lord Justice Nourse ,Lord Justice Hirst and Lord Justice Hoffmann Carriage by sea - Dangerous cargo - Unseaworthiness - Carriage of cargo of fuel oil - Explosion occurred while vessel preparing to discharge - Whether explosion occurred because fuel oil contaminated with residues from previous cargoes - Whether owners consented to shipment of dangerous cargo - Whether owners failed to exercise due diligence to make vessel seaworthy - Hague- Visby Rules, art. III, rr. 1, 2, art. IV, r. 6. Unseaworthiness - Carriage by sea - Carriage of cargo of fuel oil - Explosion occurred while vessel preparing to discharge - Whether vessel unseaworthy - Whether owners failed to remove residues of previous condensate cargo from vessel - Whether owners failed to ensure that heating coils did not leak - Hague-Visby Rules art. III, rr. 1, 2, art. IV, r. 6. The plaintiffs' vessel Fiona was a tanker of 49,700 tonnes which had originally been built as an OBO but had been converted from OBO to tanker in August, 1985. The vessel had seven cargo spaces and was arranged with her engineroom, pump room and accommodation aft of these spaces. The cargo spaces were originally seven holds. Nos. 2, 4 and 6 were double length with two hatch covers per hold. The others were single length with one hatch cover each. All holds were surrounded on both sides, forward and aft, by void spaces. Between the hatch covers in, tanks 2, 4 and 6 were transverse saddle tanks 15, 16 and 17. Tanks 16 and 17 were used before 1985 as slop tanks for the pumping of bilges when carrying dry bulk cargoes. Tank 15 was a void space. During that conversion the hatches were welded so as to remain fixed in the closed position. Heating coils were fitted inside the holds and an inert gas system installed. The plaintiffs (owners) bought the vessel in 1988. For some 10 months prior to the change in ownership the vessel had carried a succession of fuel oil cargoes. The first cargo carried by the vessel after the change of ownership was a cargo of condensate loaded at Bejaia in Algeria and discharged at Rotterdam. The voyage was uneventful save for the fact that it demonstrated that some of the cargo valves which controlled the entry of cargo from the cargo ducts into the tanks were leaking. It was found on Aug. 16, 1988, after discharge that 22*507 cubic metres of unpumpable sediments remained in the tanks. On Aug. 10, 1988 a charter was concluded under which the owners agreed to carry fuel oil from a range of loading ports including Rotterdam to a range of discharging ports including New York. The cargo was shipped by the defendants. On the following day the master enquired whether the charterers required the vessel's tanks to be washed after discharge of the condensate and before loading fuel oil. The charterers replied that no tank washing was required but that it was most important to have the tanks free of any condensate sediments before loading fuel oil. In the event the tanks were washed. The tanks were passed for loading cargo on Aug. 17, and loading was completed on Aug. 20. The cargo was not heated until Aug. 29 but two of the six heating coils were known to be leaking and were not turned on. The vessel arrived at an off-shore platform near the Long Island Lighting Co.'s (LILCO's) power plant at Northport, New York. After arrival a Saybolt surveyor and an SGS surveyor began taking samples from the vessel's tanks. Tank 1 was the first to be sampled. Ullage soundings and temperature readings were taken preparatory to discharge. When the ullage port was opened a sound as of leaking steam was heard. The pumpman took the ullage reading and went to turn off the valves which controlled the supply of steam to the heating coils. The SGS surveyor then used an unearthed electronic temperature probe to determine the temperature of the cargo in the hold. The vessel's inert gas system was not in operation. As the surveyor was withdrawing the probe a yellow light was seen in the tank. This was followed by the sight of fire coming out of the ullage port. There was a rumbling noise followed by an explosion. The hatch cover of tank 1 was blown in two pieces over the side of the vessel and the explosion caused the death of the Saybolt surveyor who was thrown over the side of the vessel and died from drowning. The owners sought to recover the loss which they had sustained as a result of the explosion from the defendants (BP), the shippers of the fuel oil. The owners contended that the fuel oil cargo was dangerous because it had a propensity, known to BP and other oil companies but not to the owners or to shipowners generally to produce light hydrocarbon vapours which could and did give rise to an explosive atmosphere in the vessel's tanks. The owners contended that they properly relied on a safety factor applicable to the carriage of fuel oil cargoes namely that the carriage temperature of the cargo would be well below its flashpoint and they argued that it was known to BP but not to themselves or to shipowners generally that flashpoint has no apparent relationship to fuel oil tank headspace inflammability. The owners further submitted that the fuel oil cargo was dangerous, that they did not consent to its shipment with knowledge of its nature and character and that the explosion and the loss resulting from it arose from such shipment. The owners claimed either damages at common law from BP for shipping a dangerous cargo or

2. alternatively an indemnity under art. IV, r. 6 of the Hague-Visby Rules. BP submitted that the flammable gas/air mixture in tank 1 which gave rise to the explosion was not the result of any characteristic of the fuel oil but that it occurred because the fuel oil had become contaminated with residues from the previous condensate cargo, which residues had not been removed in the course of tank washing before the fuel cargo was loaded. BP further contended that, whatever the source of the flammable gas/air mixture in tank 1, the source of ignition was a static electrical discharge caused by steam from leaking heating coils and the use of an unearthed thermometer. Finally BP argued that even if the cargo was dangerous and the owners did not consent to its shipment, the explosion and loss resulting from it was caused by the failure of the owners to exercise due diligence to make the vessel seaworthy in that the owners failed to remove the residues of the previous condensate cargo from the vessel and failed to ensure that the heating coils did not leak. Held, by Q.B. (Com. Ct.) (Judge DIAMOND, Q.C.), that (1) on the evidence the fuel oil cargo shipped on Fiona was inflammable, explosive and dangerous; the danger consisted partly of the flammable vapours problem but the real danger lay in the fact that neither the carrier nor the crew nor anyone else concerned with the cargo had been informed that a fuel oil cargo was potentially flammable or had reason to suspect that this possibility existed or had notice of the measures that should be taken to counter the risks involved; (2) neither the carrier nor the master nor any agent of the carrier consented to the shipment of the fuel oil cargo with knowledge of its nature and character; the fuel oil cargo had dangerous characteristics which were wholly different from those commonly associated with fuel oil cargos in particular by reason of the position that no special precautions would have been considered necessary by a prudent owner provided that the flashpoint of the cargo was over 60 deg. C. and it was not carried within 10 deg. C. of that flashpoint; (3) the whole of the evidence of the sample analyses gave rise to a reasonable level of suspicion that the oil in tanks 1 and 7 was contaminated by condensate even though it did not go nearly far enough to constitute proof of condensate contamination; (4) the calculations of the explosive atmosphere in tank 1 did not exclude the possibility that the atmosphere at the time of the explosion could have been flammable whether or not the fuel oil was contaminated with condensate; but those calculations and the associated expert evidence left the Court with the distinct impression that if the oil was uncontaminated an explosion of the kind and force seen at LILCO would not in practice have occurred; (5) BP's submission that a fire occurred on tank 1 following the explosion and that this was strong evidence that the oil in tank 1 was contaminated with condensate since hydrocarbons would not*508 burn below their fire point and the fire point was not lower than the flashpoint would be rejected; there was a fire at some stage in tank 1 consisting of some flame but mostly smoke that continued for a short period after the explosion; however it was not possible to conclude on the evidence of the crew that the oil in tank 1 was ever on fire; the fact that smoke or flame was seen coming out of tank 1 for a short period after the explosion could be attributed to the burning of explosive vapour and to the effect of the explosion on combustible material on the side walls of the tanks; it did not necessarily indicate that the oil was on fire; (6) on the evidence there were available sources of condensate or water plus condensate in the vessel's lines after completion of discharge and as it was probable that no line or duct washing was carried out at Rotterdam this would have been available as a source from which the cargo could have become contaminated; (7) on the evidence, the experts' reports and other documents, the fuel oil in tank 1 was contaminated by condensate probably to some extent already by the time the loading port sample was taken at Rotterdam and also to a greater extent by the time the vessel reached her discharging port; (8) the condensate contamination was one of the causes of the explosion which occurred in tank 1; both the fact that the heating coils leaked and the fact that the thermometer was unearthed were contributory causes of the explosion; (9) the shipment of the fuel oil cargo by BP must be found to have been a cause of the explosion in that the flammable atmosphere in the headspace of tank 1 derived to some extent from the shipment of a fuel oil cargo to whose nature and character the owners had never consented; under art. IV, r. 6 it was not strictly correct to say that the shipper was under a duty to warn the carrier of any dangers inherent in a cargo of which the carrier was unaware and could not reasonably be expected to become aware; however if he did not convey such a warning to the carrier the shipper might become liable to indemnify the carrier for losses arising from the shipment; (10) the dominant or most efficient cause of the explosion was the contamination of the fuel oil in tank 1 by residues of the previous condensate cargo; (11) the failure to remove condensate residues from the vessel and in particular the failure to carry out a proper line and duct wash at Rotterdam before loading commenced constituted a breach by the owners under art. III, r. 1 of their duty to exercise due diligence to make the ship seaworthy and to make the holds and all other parts of the ship in which goods were carried fit and safe for their reception carriage preservation; the dominant cause of the explosion was a breach by the owners of art. III, r. 1; (12) since leaking or inoperative heating coils would not have caused the cargo to solidify or have prevented its eventual discharge and could not be expected to cause loss or damage to the vessel or to a fuel oil cargo, no breach of arts. III, rr. 1 or 2 was made out in relation to the heating coils; (13) the exceptions in art. IV, r. 6 were clearly subject to the performance by the carrier of his overriding obligation

3. set out in art. III, r. 1 as was the right to an indemnity conferred by the first paragraph of the rule; it therefore constituted a defence to a claim made by a carrier under art. IV, r. 6 that the relevant damages and expenses were incurred through a breach by the carrier of his overriding obligation under art. III, r. 1 to exercise due diligence to make the vessel seaworthy; the owners' claim failed; (14) even if the owners' breach of art. III, r. 1 did not preclude them from relying on art. IV, r. 6 they could not prove that the relevant damages and expenses claimed by them arose directly or indirectly from the shipment of the fuel oil cargo, since the damages and expenses claimed by them arise from two concurrent causes one of which was specified in the rules and the other of which was a non-excepted peril. The owners appealed the issue for decision being whether the learned Judge was correct in his conclusion that the carriers' obligation under art. III, r. 1 overrode any claim the shipper BP might otherwise have had under art. IV, r. 6. The shippers cross-appealed. Held, by C.A. (NOURSE, HIRST and HOFFMANN, L.JJ.), that (1) it was a well established rule that exemption and indemnity clauses were, in the absence of a contrary intention, not construed as applying to loss caused by the negligence of the party who invoked them; art. IV, r. 6 was an indemnity clause to which this principle of construction applied; it was a provision that if the conditions of the rule were satisfied the shippers would be liable to indemnify the owner for all damages and expenses directly or indirectly arising out of or resulting from such shipment (see p. 518, col. 2; p. 521, cols. 1 and 2); -Canada Steamship Lines Ltd. v. the King, [1952] 1 Lloyd's Rep. 1, applied. (2) the safety of the crew was an important matter but they were not parties to the bill of lading; their interests were protected by public and criminal laws and the law of torts and the sanctity of life did not require the Hague-Visby Rules to be construed so as to enable the owners to shift their share of liability onto BP (see p. 519, col. 1; p. 521, col. 2; p. 522, col. 1); (3) there was no reason to construe "directly or indirectly" in art. IV, r. 6 as excluding the normal rule of construction; the words in their natural meaning did refer to causation (see p. 519, col. 1; p. 522, cols. 1 and 2); (4) art. IV, r. 6 proceeded on the assumption that dangerous goods had been loaded without the shipowners' consent and then laid down a code of rules for dealing with that eventuality; art. III, r. 1 was an overriding article and as the shipowners were in breach of their obligations under art. III, r. 1 to exercise due diligence to make the vessel seaworthy they were not entitled to invoke the*509 indemnity under art. IV, r. 6 (see p. 519, col. 2; p. 522, col. 2; p. 523, col. 1); (5) art. III, r. 6 on its proper construction operated as a complete discharge of a suit by reason of the fact that the claim had ceased to exist; and it was not an obstacle to the defence raised by BP under art. III, r. 1 (see p. 520, col. 1; p. 523, col. 2); (6) the submission of BP that the learned Judge had erred in finding that the fuel oil was a co-operating, contributory or any other kind of cause in that he could not so have found unless he thought that but for the fuel oil there would not be any explosion, would be rejected; it was impossible to accept that after weighing up the matter so carefully the learned Judge would have described as a cause of the explosion something which he thought had made no difference; the appeal and cross appeal would be dismissed (see p. 520, col. 2; p. 523, col. 2). The following cases were referred to in the judgments: AMF International Ltd. v. Magnet Bowling Ltd., [1968] 1 W.L.R. 1028; Aquacharm, The (C.A.) [1982] 1 Lloyd's Rep. 7; Aries Tanker Corporation v. Total Transport Ltd., (H.L.) [1977] 1 Lloyd's Rep. 334; [1977] 1 W.L.R. 185; A/s Rendal v. Arcos Ltd., (H.L.) (1937) 58 Ll.L.Rep. 287; Canada Steamship Lines Ltd. v. the King, (P.C.) [1952] 1 Lloyd's Rep. 1; [1952] A.C. 192; Hadley v. Baxendale, (1854) 9 Ex. 341; McGhee v. National Coal Board, (H.L.) [1973] 1 W.L.R. 1; Maxine Footwear Co. Ltd. v. Canadian Merchant Marine Ltd., (P.C.) [1959] 2 Lloyd's Rep. 105; [1959] A.C. 589; Monarch Steamship Co. Ltd. v. A/B Karlshamns Oljefabriker, (H.L.) (1948) 82 Ll.L.Rep. 137; [1949] A.C. 196; Paterson Steamships Ltd. v. Canadian Co-Operative Wheat Producers Ltd., (P.C.) (1934) 49 Ll.L.Rep. 421; [1934] A.C. 538; Philco Radio v. Spurling, [1949] 2 All E.R. 882; Photo Productions Ltd. v. Securicor Ltd., (H.L.) [1980] Lloyd's Rep. 545; [1980] A.C. 827; Smith Hogg & Co. v. Black Sea and Baltic General Insurance Co., (H.L.) (1940) 67 Ll.L.Rep. 253; [1940] A.C. 997; Smith v. South Wales Switchgear Co. Ltd., (H.L.) [1978] 1 W.L.R. 165; Walters v. Whessoe Ltd. and Shell Ltd., (C.A.) [1960] 6 B.L.R. 23; Wilsher v. Essex Area Health Authority, (H.L.) [1988] A.C. 1074; Xantho, The (H.L.) (1887) 12 App.Cas. 503. This was an appeal by the plaintiff owners, Mediterranean Freight Services Ltd. from the decision of His Honour Judge Diamond, Q.C. ([1993] 1 Lloyd's Rep. 257) dismissing their claim for damages in respect of the loss they sustained as the result of an explosion which occurred on board the owners' vessel Fiona on Aug. 31, 1988 while she

4. was preparing to discharge her cargo of fuel oil which had been shipped by the defendants BP Oil International Ltd., the owners contending that the cargo was a dangerous cargo. Representation Mr. Stewart Boyd, Q.C. and Mr. Nicholas Hamblen (instructed by Messrs. Dorman & Co.) for the plaintiff owners; Mr. Michael Harvey, Q.C. and Mr. Simon Crookenden (instructed by Messrs. Jarvis & Bannister) for the defendants. The further facts are stated in the judgment of Lord Justice Hirst. Judgment was reserved. Thursday July 7, 1994 JUDGMENT Lord Justice HIRST: Introduction On Aug. 31, 1988 the appellant plaintiffs' tanker Fiona was preparing to discharge her cargo of fuel oil at an off- shore platform near Long Island Lighting Co.'s power plant at Northport, New York when an explosion occurred in No. 1 tank. The fuel oil cargo had been shipped by the respondent defendants. Immediately prior to the explosion SGS and Saybolt surveyors had approached the tank, which was slack and only loaded to about 3.6 per cent. of its capacity, in order to take ullage soundings and temperature readings. The SGS surveyor inserted an unearthed electronic temperature probe, whereupon the tank exploded, tragically causing the death of the Saybolt surveyor, and also inflicting severe damage to the vessel. By reason of the Carriage of Goods by Sea Act, 1971*510 and the terms of the bill of lading the contract was subject to the Hague-Visby Rules (the rules). On Oct. 25, 1989 the plaintiffs issued proceedings in the Commercial Court, claiming both damages and indemnities against any cargo claim or personal injury claim against themselves on the ground that the cargo of fuel oil shipped by the defendants was of a dangerous character, as a result of which the plaintiffs were entitled to the relief provided by art. IV r. 6 of the rules. The defendants by their defence denied liability, and contested the claim inter alia on the grounds that the plaintiffs were in breach of art. III, r. 1 of the rules, by reason of their failure to discharge from the vessel part of its previous cargo of volatile petroleum condensate, which mixed with the fuel cargo and rendered the vessel unseaworthy. The action was tried over a period of several weeks by His Honour Judge Diamond, Q.C., who held on Nov. 12, 1992 in a judgment now reported in [1993] 1 Lloyd's Rep. 257: (i) That the defendants had shipped a dangerous fuel oil cargo by reason of the tendency of this particular blend to give off light hydrocarbon gases in tank head spaces which sometimes approach and occasionally exceed the lower explosive limit (LEL) irrespective of flashpoint temperature; that this was one of the causes of the explosion; and that since the plaintiffs had never consented to the shipment of this dangerous cargo, the plaintiffs were in principle entitled to rely on art. IV, r. 6 of the rules. (ii) That the oil in tank 1 was contaminated by the highly volatile condensate left on board from the previous voyage, which was a concurrent, and indeed the dominant and most efficient cause of the explosion, with the result that the plaintiffs had failed to exercise due diligence to render the vessel seaworthy; and that in consequence the plaintiffs were in breach of art. III, r. 1. (iii) That a shipowners' rights under art. IV, r. 6 were subject to the performance by him of his overriding obligation under art. III, r. 1 to exercise due diligence to make the vessel seaworthy, so that the plaintiffs' breach of that overriding obligation furnished a defence to their claim under art. IV, r. 6, which therefore failed. The plaintiffs now appeal against the dismissal of their claim, and the central issue in the appeal is whether the learned Judge was correct in his conclusion that the carriers' obligation under art. III, r. 1 overrides any claim the shipper might otherwise have under art. IV, r. 6. Article III, r. 1 provides as follows: The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to - (a) Make the ship seaworthy. (b) Properly man, equip and supply the ship. (c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. In contrast to art. III, r. 2, art. III, r. 1 contains no stipulation that it is subject to the provisions of art. IV. Article IV, r. 6 provides as follows: Goods of an inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or agent of the carrier has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place, or destroyed or rendered innocuous by the carrier without compensation and the shipper of such goods

5. shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and consent shall become a danger to the ship or cargo, they may in like manner be landed at any place, or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any. The essence of Mr. Boyd's submission on behalf of the plaintiffs is that art. IV, r. 6 is the overriding rule since it is concerned not merely with the safety of the cargo and of the vessel, but also of the crew; that this conclusion is reinforced by the very wide words: . . . damages and expenses directly or indirectly arising out of or resulting from such shipment . . . and that in any event the defendants, having shipped dangerous goods without the plaintiffs' consent, placed themselves outside the pale of art. III, r. 1, and were owed no duty thereunder. Mr. Harvey contested these submissions, and supported the learned Judge's conclusion, relying at the forefront of his argument on a line of authority which he submitted conclusively demonstrated the overriding superiority of art. III, r. 1. As a second string to his bow, Mr. Boyd submitted that the defendants were debarred from relying on art. III, r. 1 by reason of the one year time-bar laid down by art. III, r. 6, commencing with the date of delivery of the goods. *511 In addition, by the respondents' notice, Mr. Harvey challenged the Judge's finding that the shipment of the fuel oil cargo was one of the co- operating causes of the explosion, on the footing that such a conclusion was not consistent with his primary findings of fact. The facts in more detail Fuel oil at the relevant time was generally considered to be one of the safest hydrocarbon cargoes to carry. Assuming therefore that the cargo consisted of uncontaminated fuel oil, there was no characteristic of the cargo notified to the plaintiffs which should have led them to consider that the cargo was dangerous or such as to require the vessel's tanks to be inerted (ie., by pumping in inert gas usually CO 2 into the tanks). Turning now to the fuel oil cargo actually shipped in Fiona, BP by formal admissions served before the commencement of the trial admitted that before shipment of the cargo they knew (inter alia): (i) That some residual fuel oils had a propensity to produce significant amounts of light hydrocarbon vapours (including amounts approaching and/or exceeding the lower explosive limit [LEL] in the headspace of ship or shore tanks at temperatures below the flashpoint of the cargo, although the incidence of high percentage LEL readings was infrequent both on ship and shore. (ii) That tests had been carried out which indicated that flashpoint as measured by the Pensky Martin Closed Cup (PMCC) test has no apparent relationship with fuel oil tank headspace flammability . . . (iii) It was desirable that an industry programme be implemented to educate users and carriers of fuel oil of the potential hazard associated with the development of flammable headspaces in fuel oil tankage. This was as a result of research in the oil industry, which showed that certain modern residual fuel oils such as the present cargo had a tendency to give off light hydrocarbon gases in tankhead spaces in quantities which usually fell well below but sometimes approached and occasionally exceeded LEL, irrespective of flashpoint temperature. The Fiona cargo was principally made up from two types of residue, namely visbroken residue and main column bottoms which have the greatest propensity to produce a flammability problem. As a result the learned Judge concluded that the fuel oil cargo shipped on Fiona was inflammable explosive and dangerous. The danger, he said, consisted partly in the inherent flammability, and partly in the fact that neither the carrier nor the crew had been informed or had reason to suspect that this cargo was potentially flammable, or had notice of the measures which should be taken to counter the risks involved. Turning to the condensate contamination, the learned Judge held on the balance of probabilities that no line or duct washing was carried out on board the vessel at Rotterdam after discharge of the previous cargo of highly volatile condensate. He further concluded that the fuel oil in tank 1 was contaminated by condensate probably to some extent already before the vessel left Rotterdam, and also to a greater extent by the time the vessel reached New York, thus greatly increasing the volume of explosive gases in the headspace of that tank. As a result, the vapour mixture in tank 1 derived from these two sources at the time of the explosion was at a level very substantially greater than 100 per cent. of the LEL, though how much in excess of that level it was not possible to say. Of this, a realistic figure for the contribution of the fuel oil cargo, on the assumption that no contamination had occurred, was between 70 and 74 per cent. The evidence on which these conclusions were based is summarized in considerable detail in the full report of the judgment in Lloyd's Law Reports (sup.). The causes of the explosion as found by the Judge On his full analysis of the evidence the learned Judge concluded without hesitation that the condensate contamination was one of the causes. This is not challenged by the appellants. He then proceeded to conclude, albeit "only with some hesitation" that the shipment by BP of the fuel oil cargo, to

6. which the owners had not consented with knowledge of its nature and character, must on balance be regarded as one of the co-operating causes of the explosion. For this he gave two reasons: The first reason which has weighed with me is that the "process " calculations performed by BP's experts and carried out on the assumption that no contamination occurred give relatively high predicted percentages for the headspace vapour in tank 1 at LILCO (i.e. 70 to 74 per cent. on the footing that only 60 per cent. of the fuel oil is assumed to have equilibrated). In these circumstances I cannot avoid the conclusion (even taking account of matters such as non- isothermal conditions) that light hydrocarbon vapours from the fuel oil played a part in contributing*512 to the explosion. While it is probable that but for the condensate contamination the explosion would never have occurred, still the flammable atmosphere in the headspace of tank 1 derived to some extent from the shipment of a fuel oil cargo to whose nature and character the owners had never consented. As to the second reason, I do not consider that under art. IV, r. 6 it is strictly correct to say that the shipper is under a duty to warn the carrier of any dangers inherent in a cargo of which the carrier is unaware and cannot reasonably be expected to become aware. The true position, it seems to me, is that if he does not convey such a warning to the carrier, the shipper may become liable to indemnify the carrier for losses arising from the shipment. But, however the shipper's duty under the rule be analyzed, I see force in the argument that the shipment by BP of fuel oil in circumstances where the owners did not know of its flammability hazard and could not reasonably be expected to become aware of it, had the result that precautions may not have been taken to guard against that hazard which might have been taken had the nature of the problem been made known to the owners before or at the time of shipment. As previously mentioned at an earlier stage of this judgment, I was not persuaded by the answer given by the chief officers in reexamination that if the owners had been warned by BP of the flammability problem the master would probably have inerted the cargo. What I think can be inferred is that, if BP had informed the master or chief officer that fuel oil had a tendency to release explosive vapours into the headspace of a vessel's tanks during carriage, BP would also have advised the master to take the steps later recommended to the masters of BP owned and operated vessels in BP's circular of Mar. 21, 1989. These recommendations could have led to greater precautions being taken in countering the flammability hazard, e.g. by keeping the vessel's tanks well ventilated, or by ensuring that steam was expelled from the tanks before temperature readings were taken or by ensuring that the thermometer probe was earthed. While the evidence before me was far too tenuous to enable me to find that these precautions would in fact have been taken, it is in my view not unlikely that the making of the recommendations set out in BP's circular of Mar. 21, 1989 might have led to some greater precautions being taken. I have concluded therefore that, on balance, the shipment by BP of a fuel oil cargo to which the owners had not consented with knowledge of its nature and character must be regarded as one of the co-operating causes of the explosion. It is common ground between the two sides that the second of these two reasons is not pertinent in the art. IV, r. 6 context, seeing that the article is concerned with the shipment of inflammable, explosive or dangerous goods. The first ground, on which of course Mr. Boyd strongly relies, is challenged by the respondents' notice. He further held that there were two other co-operating causes, neither of which is relevant for present purposes, namely the use of the unearthed thermometer by the SGS surveyor, and a static electrical discharge caused by steam leaking from the heating coils, which the learned Judge held was not in the circumstances in breach of the plaintiffs' obligation under art. III, r. 1. The Judge then proceeded to analyse which of the causes had the greatest efficacy in bringing about the explosion, and concluded as follows: Having thus identified the various causes of the explosion I turn to consider, in case it be relevant, which of these causes had the greatest efficacy in bringing about the explosion. Of the various causes I have identified, viz the condensate contamination, the leaking heating coils, the use of the unearthed thermometer, the shipment of the fuel oil cargo, I have no hesitation in concluding that the dominant or most efficient cause of the explosion was the contamination of the fuel oil in tank 1 by residues of the previous condensate cargo. In view of the evidence that there has been no previously recorded instance of an explosion occurring in a vessel's tank, let alone a slack tank, as a result of flammable vapours released from uncontaminated fuel oil, I regard this conclusion as being virtually inescapable. The failure to remove condensate residues from the vessel, and in particular the failure to carry out a proper line and duct wash at Rotterdam before loading commenced, constituted a breach by the owners of their duty under art. III, r. 1 to exercise due diligence to make the ship seaworthy and to make the holds and all other parts of the ship in which goods are carried fit and safe for their reception carriage and preservation. It follows that the dominant cause of the explosion was a breach by the owners of art. III, r. 1. *513 The Judge's analysis of the two rules This is the crux of his judgment for present purposes, and it is convenient to quote it in full: Counsel for the owners submitted, as I understood his argument, that even if one of the causes of the explosion and of the resulting loss and damage was the failure of the owners to exercise due diligence to make the vessel seaworthy, still the owners were entitled to recover the relevant damages and expenses so long as one of the co- operating causes of their being incurred, and not necessarily a dominant cause, was the shipment by BP of a dangerous cargo to which the owners had not consented with knowledge of its nature and character. He also

7. responded to BP's contention that the relevant damages and expenses were caused by a breach of art. III, r. 1 or art. III, r. 2, of the Hague-Visby Rules by seeking and obtaining leave to amend the owner's points of reply so as to add the following: Further, if, which is denied, the Plaintiffs were in breach of contract as alleged or at all, it is denied that the Defendants are entitled so to contend, having failed to bring suit within one year of discharge as required by Article III, r. 6 of the Hague-Visby Rules. Counsel for BP submitted that a shipper is not liable under art. IV, r. 6 where a cause of the damages and expenses being incurred by the carrier was either a breach by the carrier of his obligation under art. III, r. 1 to exercise due diligence to make the ship seaworthy or else a breach by the carrier of his obligation under art. III, r. 2 properly and carefully to load, handle, stow, carry, keep, care for and discharge the goods carried. Counsel for BP accepted that he was prevented by art. III, r. 6 from advancing a counterclaim based on a breach of art. III, r. 1 or 2 but he submitted that, as a matter of the proper construction of the rules, art. IV, r. 6 has no application where the relevant loss has been caused by a breach of either rule. He contended that the failure by the owners to remove condensate residues from the vessel before loading began constituted a breach of both rules and especially of art. III, r. 1. In my judgment BP's submissions on this matter are in general well founded. It seems to me that it would be manifestly unjust to permit a carrier to recover an indemnity from another person in respect of the consequences of the carrier's own wrong unless, at any rate, the relevant contract or statute makes it clear that the carrier's right of indemnity is to be unaffected by the carrier's wrongful conduct. Prior to 1924 when the rules came into operation there had been a long history of construing exception clauses in bills of lading so that they did not apply to protect the carrier where the loss had been caused either through the negligence of the carrier, his servants or agents or else through a breach of the warranty of seaworthiness implied at common law into every contract for the carriage of goods by sea. Moreover, it had long been established that a carrier's right to claim a contribution from other parties to the marine adventure in respect of a general average sacrifice or expenditure was defeated where the general average act had been brought about by the actionable fault of the carrier. Against this background art. II of the Hague-Visby Rules provides: Subject to the provisions of Article VI, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth. It is clear that those who framed the rules intended that there should be a close relationship between, on the one hand, the performance by the carrier of the responsibilities set out in the rules and, on the other, the enforcement by him of the rights and immunities set out in these rules. I can find no hint of a suggestion in the wording or context of the rules that a carrier should be entitled to claim the rights and immunities set out in art. IV irrespective of whether he has performed the responsibilities specified in art. III. In Maxine Footwear Co. Ltd. v. Canadian Merchant Marine Ltd., [1959] 2 Lloyd's Rep. 105 at p. 118, col. 1; [1959] A.C. 589 at pp. 602-603 Lord Somervell of Harrow giving the opinion of the Privy Council explained the nature of the relationship between art. III and art. IV, as follows: Article III, rule 1 is an overriding obligation. If it is not fulfilled and the non-fulfilment causes the damage, the immunities of Art. IV cannot be relied on. This is the natural construction apart from the opening words of Art. III, rule 2. The fact that that rule is made subject to the provision of Art. IV and Rule 1 is not so con-*514 ditioned makes the point clear beyond argument. While this reasoning has never been doubted, it has not previously been applied to art. IV, r. 6 and the editors of Scrutton on Charterparties 19th ed. (1984) p. 457 express the view that: . . . the shipowner can presumably exercise his rights under this rule (viz art. IV, r. 6) even if in breach of his obligations as to seaworthiness. I have to say, with respect, that I cannot agree. Article IV, r. 6 contains provisions some of which are in the nature of exceptions clauses and one of which confers on the carrier a right to an indemnity. The exceptions are very far- reaching. If goods of an inflammable, explosive or dangerous nature are shipped and if they become a danger to the ship or cargo, then whether or not the carrier consented to the shipment and whether or not he had knowledge of their nature and character at the time of shipment, the carrier may land and destroy the goods without incurring liability to the shipper except in general average; see both the first and second paragraphs of the rule. It would be wholly contrary to the scheme of the rules and likewise inconsistent with equity and commercial common sense that a carrier should be entitled to destroy dangerous goods without compensation and without liability except to general average if the cause of the goods having to be destroyed was a breach by the carrier of his obligations as to seaworthiness. The exceptions in art. IV, r. 6 are clearly in my judgment subject to the performance by the carrier of his overriding obligation set out in art. III, r. 1. So also in my judgment is the right to an indemnity conferred by the first paragraph of the rule. For these reasons I conclude that it constitutes a defence to a claim made by a carrier under art. IV, r. 6 that the relevant damages and expenses were incurred through a breach by the carrier of his overriding obligation under art. III, r. 1 to exercise due diligence to make the ship seaworthy. If this be right, it follows that the fact that BP did not commence "suit" within one year of the delivery of the goods does not prevent BP from raising as a defence that the relevant damages and expenses were caused by the owners'

8. breach of art. III, r. 1. Article III, r. 6 - . . . brings about only a discharge of liabilities and not a barring of defences [per Mr. Justice Pearson in Goulandris Brothers Ltd. v. B. Goldman & Sons Ltd., [1957] 2 Lloyd's Rep. 207 at p. 221; [1958] 1 Q.B. 74 at p. 104]. In the present case I have found that the failure to remove condensate residues from the vessel, and in particular the failure to carry out a proper line and duct wash at Rotterdam before loading commenced, constituted a breach by the owners of their obligations under art. III, r. 1. It follows that the owners' claim must fail whether or not they can bring it within the terms of art. IV, r. 6. Mr. Boyd's submissions At the outset of his argument Mr. Boyd referred to the well-established principle, mentioned by the learned Judge in the passage just quoted, that as a matter of principle exception clauses (e.g. perils of the sea) are overridden by a breach by the owner of the obligation of seaworthiness. This is established by a line of House of Lords cases, viz. Paterson Steamships Ltd. v. Canadian Co-Operative Wheat Producers Ltd., (1934) 49 Ll.L.Rep. 421; [1934] A.C. 538, Smith Hogg & Co. v. Black Sea and Baltic General Insurance Co., (1940) 67 Ll.L.Rep. 253; [1940] A.C. 997 and Monarch Steamship Co. Ltd. v. A/B Karlshamns Oljefabriker, (1948) 82 Ll.L.Rep. 137; [1949] A.C. 196. In the Smith Hogg case Lord Wright stated the principle as follows at p. 258, col. 2; p. 1004: [Skeleton p. 6] . . . From the nature of the contract, the relevant cause of the loss is held to be the unseaworthiness . . . , not the peril of the sea, where both the breach of the obligation and the objective peril are co- operating causes . . . I think that the contract may be expressed so that the shipowner will be liable for any loss in which those causes covered by exceptions co-operate, if unseaworthiness is a cause, or if it is preferred, the real, or effective or actual cause: However, Mr. Boyd submitted that there was no warrant for transferring this principle, derived from the special common law rules governing the carriers' responsibility for the goods bailed to him, into the quite different field of the shippers' responsibility for the shipment of dangerous goods, since under the latter heading the Court is concerned with an obligation of even greater importance, affecting not*515 only the safety of the cargo in the vessel, but also the safety of human life. There was nothing, he submitted, in art. IV, r. 6 to suggest that it is subordinate to art. III, r. 1, and no grounds for implying such a relationship between the two articles. The Maxine Case (Maxine Footwear Co. Ltd. v. Canadian Merchant Marine Ltd., [1959] 2 Lloyd's Rep. 105), cited by the Judge, was he submitted not in point, since it concerned the exceptions contained in art. IV, r. 2, which were clearly subordinate to art. III, r. 1; there was however, nothing in that or any other case which suggests that art. IV, r. 6 cannot be relied upon when there has been a breach of art. III, r. 1. The Judge, he submitted, approached the case from the wrong angle, and should have asked whether the shipowner is to be deprived of his right to his indemnity, when in breach of his duty through having placed dangerous cargo aboard, simply because in some respects he failed to make the vessel seaworthy. Once the loading of dangerous goods was established, the burden of proof was on the shipper to show that, if he had complied with his duty, it would have made no difference and the same damage would have ensued. In support of this argument Mr. Boyd placed strong reliance on the decision of the House of Lords in A/s Rendal v. Arcos Ltd., (1937) 58 Ll.L.Rep. 287. In that case the plaintiff shipowners claimed against the defendant charterers for damage caused by ice-pressure to the vessel's hull when leaving the loading port (Leningrad) in January, 1931, on the ground that the charterers were in breach of a clause in the charter-party that the charterers should provide icebreaker assistance to enable the vessel to enter and leave that port. Lord Wright (with whom Lords Atkin, Thankerton and Macmillan agreed) stated as follows at p. 297: The Special Referee distinguished between pressure or screwing damage suffered while the ship was being held in the ice, and forward damage caused while she was moving ahead. As she was bound to move ahead anyhow, it was argued that she would have sustained the same damage in any event, because even if she was delayed by the absence of icebreakers, still she had to proceed forward in order to get out of the ice. The respondents accordingly contended that there was no evidence on which it could be found that the cost of repairing the forward damage and the consequential loss and expense, constituted damage caused by the breach of contract. The Special Referee was not satisfied, as I read his report, that had the vessel received proper icebreaker assistance any of this damage would have been sustained. The learned Judge accordingly entered judgment for the whole amount. As the Court of Appeal rejected the whole claim on the preliminary points, they did not find it necessary to consider this matter and your Lordships have not the benefit of their assistance. But I think the Judge was right in the course he took. In my opinion the respondents cannot escape liability for any part of the damage unless they can show affirmatively that the same damage must have occurred if there had been no breach of contract. There is nothing to show that any ice damage would have been suffered by the Rendal if she had been clear of the ice, as she ought to have been, by Jan. 17. As from that time the breach of contract was in full force and effect, and the delay in the transit was in constant operation. Ice conditions were steadily getting worse, and the Rendal was exposed to these conditions. Even if she had to traverse anyhow the same course, she did so at different times, under different weather conditions, with thicker ice floes and

9. had to pass over a wider area of frozen water as the severe frost continued. In my opinion, under these circumstances, all the ice damage, without distinction (except for trifling damage sustained on her inward journey), is properly attributable to the breach of contract, since so far as appears it was all caused while the breach was operating, as it necessarily operated from the time when the delay commenced. I apply here the Judge's finding in the similar case of the Oddvar ((1935) 52 Ll.L.Rep. 250), that "the vessel would have had quite a good passage for a winter passage if she had been got out and helped in the earlier part of January." The contract here is in many respects different from contracts of carriage by sea under which shipowners have been held liable for unjustified deviation or delay: such a case was Davis v. Garrett 6 Bing 716, at p. 724, where Tindal, C.J., lays down a general principle: But we think the real answer to the objection is that no wrongdoer can be allowed to apportion or qualify his own wrong; and that as a loss has actually happened whilst his wrongful act was in operation and force, and which is attributable to his wrongful act, he cannot set up as an*516 answer to the action the bare possibility of a loss, if his wrongful act had never been done. He added that it might be different if it were shown that the same loss not only might have happened, but must have happened, if the breach had not been committed. Among modern statements of the same principle, I may refer to James Morrison & Co. Ltd. v. Shaw, Savill & Albion Co. Ltd., [1916] 2 K.B. 783, at pp. 795 and 800; Tate & Lyle, Ltd. v. Hain Steamship Co. Ltd., 55 Ll.L.Rep. 159, at p. 177, where it was said that the casualty must be deemed to have been caused by the deviation since it is impossible to say that the casualty would have occurred if there had been no deviation. The deviation had resulted in delay. On the same principle, in the case of bailments on land, the bailee, who has unjustifiably shifted the place of bailment, is held liable for the loss of the goods while in the unauthorised place, even though he would have had a defence if the goods had been lost by a similar peril while in the place where under the contract they should have been (Lilley v. Doubleday, 7 Q.B.D. 510; Gibaud v. Great Eastern Railway Company, [1921] 2 K.B. 426). The principle is not limited to cases where the defendant is a bailee, nor has . . . merely the effect of depriving the defendant of the benefit of contractual exceptions, which it is held cannot be applied to a manner of performance not contemplated by the contract. The essence of the principle is that damage has been sustained under conditions involving danger other than and therefore different from the conditions which would have operated if the contract had been fulfilled; for the consequences of such conditions the defendant is held liable. The principle thus applies whenever the breach of contract has the consequence of exposing the subject-matter to conditions of risks different from those which would have operated if the contract had not been broken. The thing exposed to the risks in this case was a ship, which it is true was in the possession and control of the shipowner. The charter-party exposed the ship necessarily to certain sea perils including perils of ice, but the respondents' breach of their obligation to furnish reasonably the means necessary for the ship to pass through the ice, needlessly increased the hazards, so that in such a case when damage ensues after such a breach the onus of proof is shifted. The defendant must show (if he can) that there must have been the same damage if the contract had not been broken. The superiority of art. IV, r. 6 was, Mr. Boyd submitted, reinforced by two further considerations; first, the absence of any qualification for due diligence and secondly, the presence of the words "directly or indirectly " which emphasised its wide ambit. The latter words, he submitted, referred to causation, and showed that the application of the clause went wider than cases where the shipment in question was the proximate cause of the damage suffered; in support of this he relied on The Xantho, (1887) 12 App. Cas. 503 at p. 510 where Lord Herschell contrasted marine insurance policies (where the proximate cause alone is considered) with other maritime contracts where more remote causes may be taken into account; this contrast, he submitted, was likely to have been in the minds of the draftsmen of art. IV, r. 6. In support of his submission that special priority should be given to a provision concerned with the safety of life, Mr. Boyd drew attention to the Merchant Shipping Act, 1894 where, by ss. 457 and 474 respectively, unseaworthiness which endangers life and the consignment of dangerous goods are both made criminal offences. Finally, Mr. Boyd submitted that, at the very root of the case, a shipowner on whose vessel a shipper consigned inflammable explosive or dangerous goods which, under the terms of art. IV, r. 6, the shipowner was entitled to dump, ceases to owe any duty under art. III, r. 1 to those goods, thus providing a complete answer to the Canada Steamships line of cases (infra), relied upon by Mr. Harvey. Mr. Harvey's submissions Mr. Harvey submitted that the learned Judge's decision that art. III, r. 1 overrode art. IV, r. 6, and that the breach of the former deprived the shipowner of any rights he might otherwise have under the latter, was supported by a clear line of cases stamped with House of Lords' authority. In Canada Steamship Lines Ltd. v. the King, [1952] 1 Lloyd's Rep. 1; [1952] A.C. 192 a lease of premises by the Crown to Canada Steamship contained a clause that the lessee should at all times indemnify the lessor from and against claims by whomsoever made in any manner based upon any action taken or things done by virtue of the lease. The premises were burnt down as a result of the negligence of the Crown's servants while carrying out repairs, and the Judicial Committee of the Privy Coun-*517 cil held that in those circumstances the Crown was not entitled

10. to rely on the indemnity clause. Lord Morton of Henryton, giving the opinion of the Board, laid down the principle as follows at p. 8, col. 1; p. 208: Their Lordships think that the duty of a Court in approaching the consideration of such clauses may be summarized as follows: (1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called "the proferens") from the consequence of the negligence of his own servants, effect must be given to that provision. Any doubts which existed whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in The Glengoil Steamship Company v. Pilkington, (1897) 28 S.C.R. 146. (2) If there is no express reference to negligence, the Court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens in accordance with article 1019 of the Civil Code of Lower Canada: "In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation." (3) If the words used are wide enough for the above purpose, the Court must then consider whether "the head of damage may be based on some ground other than that of negligence," to quote again Lord Greene in the Alderslade case ([1945] 1 K.B. 189). The "other ground" must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene's words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants. In Walters v. Whessoe Ltd. and Shell Ltd., [1960] 6 B.L.R. 23 the plaintiff's deceased husband died as a result of an industrial accident when hit by the lid of a petrol oil drum while working on a construction project as an employee of the first defendant at the second defendant's plant. The trial Judge held that both defendants were negligent, the latter because the drum had not been cleaned of its contents, and the former because their welders were operating in an unsafe manner. Shell claimed that under the terms of their contract with Whessoe they were entitled to rely upon an indemnity under a clause of the contract which provided that the latter would indemnify and hold the former free and harmless against all claims arising out of the building operations being undertaken pursuant to the contract. This was rejected by the Court of Appeal, and Lord Justice Sellers giving the leading judgment stated as follows at p. 33: It is well established that indemnity will not lie in respect of loss due to a person's own negligence or that of his servants unless adequate and clear words are used or unless the indemnity could have no reasonable meaning or application unless so applied. Lord Justice Devlin stated as follows at p. 34: It is now well established that if a person obtains an indemnity against the consequences of certain acts, the indemnity is not to be construed so as to include the consequences of his own negligence unless those consequences are covered either expressly or by necessary implication. They are covered by necessary implication if there is no other subject-matter upon which the indemnity could operate. Like most rules of construction, this one depends upon the presumed intention of the parties. It is thought to be so unlikely that one man would agree to indemnify another man for the consequence of that other's own negligence that he is presumed not to intend to do so unless it is done by express words or by necessary implications. The reason for the rule is illustrated by one of the earliest cases in which it was enforced - Phillips v. Clark [1857] 2 CB(NS) 866. In that case the question was whether a shipowner who had inserted in a bill of lading the stipulation, "not accountable for leakage or breakage", was exempted from responsibility for a loss by leakage and breakage if it arose from his own negligence. In the course of the argument Cockburn CJ at page 159, said: I think it can hardly be permitted to him to contend that he inserted the clause for the purpose of protecting himself against negligence . . . Can we in a court of justice put so absurd a construction upon language that is susceptible of another and a more rational construction. Crowder J, delivering judgment at p. 163, said: The simple question is, what did the parties intend by the contract they have entered into: and this we must gather from the words they have used. It could hardly*518 have been contemplated by the plaintiff that the defendant should be utterly absolved from the obligation of taking any care of the goods. The law therefore presumes that a man will not readily be granted an indemnity against a loss caused by his own negligence. Such a loss is due to his own fault. No similar presumption can be made if he is made responsible for the negligence of others over whose acts he has no control. A responsibility of this sort may arise in law in the case of an employer and his workmen or an occupier and persons whom he invites to the premises. Similarly, a man may be responsible without negligence on his part for breach of statutory duty committed either by himself or by his servants or by someone for whom he was vicariously liable. In none of these cases is there any negligence on his part and there is therefore no reason to presume an intention to exclude them from the indemnity. The indemnity which we have to construe does not contain any express words covering negligence. Its terms are wide enough to cover breaches of statutory duty and acts of independent contractors which may impose a liability on Shell without any fault on the part of themselves or their servants. It is not therefore necessary, in order to give the clause subject-matter, to construe it as covering negligence and so the indemnity does not cover the consequences of a negligent act committed by Shell's servants.

11. Mr. Justice Slade delivered a concurring judgment. This case was followed by Mr. Justice Moccatta in AMF International Ltd. v. Magnet Bowling Ltd., [1968] 1 W.L.R. 1028 where a similar problem arose under an indemnity clause. In Smith v. South Wales Switchgear Co. Ltd., [1978] 1 W.L.R. 165 the House of Lords on appeal from the Court of Session, on facts identical mutatis mutandis to Walters v. Whessoe and Shell, held that the indemnity clause failed all three tests laid down by Lord Morton in the Canada Steamship case, and expressly approved the Walters case (at p. 180 per Lord Keith of Kinkel, with whom Lord Wilberforce, Viscount Dilhorne and Lord Salmon agreed). This line of authority was also applied by the Court of Appeal in The Aquacharm, [1982] 1 Lloyd's Rep. 7. Mr. Harvey submitted that these authorities were conclusive in his favour, and that the inclusion of the words "directly or indirectly" was nothing like sufficient to bring the case within the first of Lord Morton's three tests in the Canada Steamship case; in any event, he submitted, those words were directed not to causation but to foreseeability under the second rule in Hadley v. Baxendale, as was demonstrated by a contrast between the Hague- Visby Rules and the exactly contemporaneous York-Antwerp Rules, 1924 which provide in r. C of the Rules of Interpretation: Only such losses, damages or expenses which are the direct consequence of the general average act shall be allowed as general average. Loss or damage sustained by the ship or cargo through delay, whether on the voyage or subsequently, such as demurrage, and any indirect loss whatsoever, such as loss of market, shall not be admitted as general average. The basic theme set out in the Canada Steamship line of cases was, he submitted, fully in line with other streams of authority, namely the trilogy of unseaworthiness cases in the House of Lords starting with Paterson Steamships, cited above when considering Mr. Boyd's argument, and the Maxine Footwear case (sup.). Analysis and conclusions Clearly the Canada Steamship line of authority (and in particular Walters v. Whessoe and Shell which was affirmed by the House of Lords in Smith v. South Wales Switchgear) is a very formidable obstacle in Mr. Boyd's path. He sought to distinguish these cases from the present case on the footing that in the former both parties were not at fault, seeing that the party claiming under the indemnity was seeking recovery of the entire amount for which he had been held responsible on the apportionment between the two tortfeasors. I am unable to accept this argument, seeing that it is perfectly clear that in those cases both defendants were originally at fault (as both the plaintiffs and defendants were in the present case) and the question at issue (just as in the present case) was whether the party indemnified was entitled to rely on his indemnity notwithstanding his own fault. I therefore reject the distinction which Mr. Boyd sought to draw in this respect. His second submission in answer to those cases was that the better line of authority for the purposes of the present case is to be derived from A/s Rendal v. Arcos, (sup.), which is also a decision of the House of Lords. This was a more cogent argument, but in my judgment it was unsound. As Lord Wright's speech shows, the A/s Rendal case is one of a class of cases into which deviation cases also fall. In Photo Productions Ltd. v. Securicor Ltd., [1980] 1 Lloyd's Rep. 545; at p. 550, col. 2; [1980] A.C. 827*519 at p. 845, Lord Wilberforce, giving the leading speech, with which Lord Keith of Kinkel and Lord Scarman agreed, stated that the deviation cases can be regarded either as - . . . proceeding upon normal principles applicable to the law of contract generally viz. that it is a matter of the parties' intentions whether and to what extent clauses in shipping contracts can be applied after a deviation, ie. a departure from the contractually agreed voyage or adventure [ - or, (possibly preferably) that they should be -] considered as a body of authority sui generis with special rules derived from historical and commercial reasons. It follows that I think Mr. Harvey was right in submitting that this class of cases including the A/s Rendal case are in a separate category of their own and do not lay down any general principle. Moreover to hold that they do lay down any general principle as to the incidence of the burden of proof would, as Mr. Harvey rightly submitted, be in direct conflict with the recent decision of the House of Lords in Wilsher v. Essex Area Health Authority, [1988] A.C. 1074 that as a matter of principle the burden of proving causation rests with the plaintiff. Mr. Boyd laid great stress on the protection of human life and I do not for one moment seek to minimize its great importance; but the rules are essentially concerned with the carriage of goods by sea, as indicated by the title of the English statute which incorporates them into English law. In these circumstances I do not think much assistance is to be gained by reference to the Merchant Shipping Act 1894, which amongst many other provisions regulates comprehensively all aspects of safety at sea, and which in any event only applies to British ships. It follows that in my judgment this case is governed by the general rule laid down in the Canada Steamship Co. line of cases. This conclusion is I think strongly reinforced by the Paterson Steamship's line of cases, which, despite Mr. Boyd's submissions to the contrary, I consider to be directly apposite in the present context; and also with the Maxine Footwear case, on which I consider the learned Judge rightly relied. The inclusion of the words "directly or indirectly" in art. IV, r. 6 does not in any view alter the position, even assuming (as I am inclined to do) that Mr. Boyd is right in his submission that those words relate to causation not foreseeability, despite the contrast with the York-Antwerp Rules. These two adverbs are of nothing like sufficient

12. strength to fall within Lord Morton's first exception in Canada Steamships. Mr. Boyd's final argument, which suggests that a shipper who places dangerous goods on board without the consent of the shipper places himself outside the pale of art. III, r. 1, I find wholly unacceptable. Far from that being a proper interpretation of art. IV, r. 6, it seems to me that art. IV, r. 6 proceeds on the assumption that dangerous goods have been loaded without the shipowner's consent, and then lays down a code of rules for dealing with that eventuality, which do not touch on art. III, r. 1. If Mr. Boyd were right, the absurd result would follow that, where a shipowner put to sea in a vessel so unseaworthy that it sank shortly after leaving the loading port, taking to the bottom its cargo, a shipper in the position of BP in the present case would be deprived of any remedy under art. III, r. 1, even though the da ngerous cargo had in no way contributed to the sinking. For all these reasons, I hold that art. III, r. 1 is the overriding article, and that, seeing that the shipowners were in breach of their obligations under art. III, r. 1 to exercise due diligence to make the ship seaworthy, they are not entitled to invoke the indemnity under art. VI, r. 6. Time Bar Article III, r. 6 provides as follows: The carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered. This period may, however, be extended if the parties so agree after the cause of action has arisen. Mr. Boyd submits that as a result, seeing that over a year had passed after the date of delivery, the shippers are debarred from relying upon art. III, r. 1 in any way whatsoever in any legal proceedings. In support of this he relies on the decision of the House of Lords in Aries Tanker Corporation v. Total Transport Ltd., [1977] 1 Lloyd's Rep. 334 at p. 336, col. 1; [1977] 1 W.L.R. 185 where Lord Wilberforce stated as follows: The contract contemplates the possibility of a cross-claim by the charterers in respect of loss or damage to the cargo and it expressly provides by incorporation of art. III, r. 6 of*520 the Hague Rules that the carrier and the ship shall be discharged unless suit is brought within one year after the date of delivery or the date when delivery should have been made. This amounts to a time bar created by contract. But, and I do not think that sufficient recognition to this has been given in the Courts below, it is a time bar of a special kind, viz., one which extinguished the claim (cf. art. 29 of the Warsaw Convention 1929) not one which, as most English statutes of limitation (e.g. Limitation Act 1939, the Maritime Conventions Act 1911), and some international conventions (e.g. the Brussels Convention on Collisions 1910, art. 7) do, bars the remedy while leaving the claim itself in existence. Therefore, arguments to which much attention and refined discussion has been given, as to whether the charterer's claim is a defence, or in the nature of a cross-action, or a set-off of one kind or another, however relevant to cases to which the Limitation Act 1939 or similar Acts apply, appear to me, with all respect, to be misplaced. The charterer's claim, after May 1974 and before the date of the writ, had not merely become unenforceable by action, it had simply ceased to exist, and I fail to understand how a claim which has ceased to exist can be introduced for any purpose into legal proceedings, whether by defence or (if this is different) as a means of reducing the respondents' claim, or as a set- off, or in any way whatsoever. It is a claim which, after May 1974, had no existence in law, and could have no relevance in proceedings commenced, as these were, in October 1974. In my judgment there is a very short answer to this point. The article, on its proper construction, and as interpreted by Lord Wilberforce, operates as a complete discharge of a suit by reason of the fact that the claim has ceased to exist. It does not in my judgment bar a defence such as is raised by the defendants in the present case. Furthermore art. III, r. 6 is directed to liability of the carrier and the ship, which does not touch on the present case, seeing that the defendants do not seek to allege any claim against either the carrier or the ship, but rather to resist either the carrier's claim against them on the basis that the carriers' loss was caused by their own breach of an overriding stipulation in the contract of carriage. For these reasons I do not consider that art. III, r. 6 is any obstacle to the defence raised by the defendants here under art. III,r. 1. Conclusion on appeal It follows that this appeal fails and the judgment of His Honour Judge Diamond, Q.C. must be affirmed. On the cross-appeal I agree with Lord Justice Hoffmann. Lord Justice HOFFMANN: While the tanker Fiona was moored in Long Island Sound preparing to discharge a cargo of fuel oil, her No. 1 cargo tank exploded. A man was killed and the ship badly damaged. The cargo was shipped by the defendant ("BP") on terms which incorporated the Hague-Visby Rules. The question in this appeal is whether on the true construction of the rules the plaintiffs, who are the owners of the ship, are entitled to be indemnified by BP against the loss and

13. damage caused by the explosion. What was the cause of the explosion? There was an inquiry in New York and a trial before the Judge which lasted 32 days. Several experts gave evidence. The Judge found that a spark caused by a discharge of static electricity had ignited a mixture of explosive gases in the tank. The charge of static had been created by steam from a leaking heating coil and the spark occurred when a surveyor inserted an unearthed metal temperature probe into the tank. But such a spark would have been harmless if the tank had contained only fuel oil. It is difficult to ignite and until a few years before the accident was generally thought not to give off any significant quantities of hydrocarbon gas. It was therefore a very safe cargo. Unlike more volatile petroleum products, it did not need to be carried in tanks from which the oxygen had been expelled by an inert gas like carbon dioxide or nitrogen. In any case, the No. 1 tank was filled to only 3.6 per cent. of its capacity. Unknown to the surveyor who used the probe, the tank held explosive gases derived from two sources. The first, which the Judge held to be the main cause of the casualty, was the remains of a previous cargo of natural gas condensate which the owners had failed to wash out of the ship's ducts and lines before loading the fuel oil. Condensate is highly volatile and explosive. It has to be carried under inert conditions. Not realising that some condensate was still present, the master had not used the ship's inert gas system. The second source of gas was the fuel oil itself. BP had discovered before the accident that a change in refinery methods was producing a fuel oil which could give off appreciable quantities of explosive gas, probably by the escape of tiny bubbles of methane trapped in the oil. It had not however given the*521 owners this information before shipping the cargo. The Judge found that the condensate and the fuel oil were contributory causes of the explosion. By respondent's notice, BP claims that he should have held that the fuel oil was not a cause at all. I shall return later to this aspect of the case, because the Judge went on to hold that even if the fuel oil was a contributory cause, as a matter of construction of the Hague-Visby Rules, BP was not liable to indemnify the owners. If this is right, the causal effect of the fuel oil gas does not matter. The Judge found that if the fuel oil gas had been the sole cause of the explosion, BP would have been liable under art. IV, r. 6: Goods of an inflammable, explosive or dangerous nature to the shipment whereof the carrier, master or agent of the carrier has not consented with knowledge of their nature and character, may at any time before discharge be landed at any place and be destroyed or rendered innocuous by the carrier without compensation and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. But he denied the right to indemnity on the ground that the damages and expenses had been partly caused by the owner's breach of art. III, r. 1: The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to - (a) make the ship seaworthy, (b) properly man, equip and supply the ship. (c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, safe fit for their reception, carriage and preservation. The failure to wash out the condensate was a breach of the owner's obligation to make the ship seaworthy. There is no challenge to this finding. BP rely on the well established rule that exemption and indemnity clauses are, in the absence of a contrary intent, not construed as applying to loss caused by the negligence of the party who invokes them: see Canada Steamship Lines Ltd. v. the King, [1952] 1 Lloyd's Rep. 1; [1952] A.C. 192 and Smith v. South Wales Switchgear Co. Ltd., [1978] 1 W.L.R. 165. Article IV, r. 6 is in my judgment an indemnity clause to which this principle of construction applies. It is not framed simply as a contractual duty on the part of the shipper to disclose the nature and character of dangerous goods. It is a provision that if the conditions of the rule are satisfied, the shipper will be liable to indemnify the owner for "all damages and expenses directly or indirectly arising out of or resulting from such shipment." In this case the owner's negligence was only one of the causes of the explosion. Another cause was the shipment of the dangerous fuel oil. But Walters v. Whessoe Ltd. and Shell Ltd., [1960] 6 B.L.R. 23 shows that the principle also applies when the negligence of the party relying on the indemnity is one of the causes of the damage. In that case Whessoe had agreed to indemnify Shell against any loss or damage arising out of building work they were doing at Shell's oil refinery. A workman was killed by the explosion of an empty oil drum ignited by a spark from Whessoe's welding equipment. The Judge found that one cause of the accident was Whessoe's failure to take adequate precautions to prevent the escape of sparks. But the main cause was the negligence of Shell in leaving an empty drum filled with explosive vapour lying about on the site. He held Whessoe and Shell liable to the workman's widow in the proportions of one-fifth and four-fifths. The Court of Appeal held, applying the principle of construction to which I have referred, that Shell was not entitled to be indemnified by Whessoe under the contract for its share of liability. Does the language or context of art. IV, r. 6 show an intention that it should apply even when the owner's negligence is a cause of the damage? One indication that it should so apply is where the indemnity would have little or no effect unless it did. But the rule has ample scope for application in cases in which the owners have not been negligent. Mr. Boyd for the owners said that the rule should for two reasons be regarded as "overriding" and therefore effective whether or not their negligence has contributed to the damage. The first is that shipping dangerous cargo without

14. telling the owner is an extremely serious matter. It can endanger the ship and the lives of the crew. The clause should therefore override the owner's breach of a lesser obligation like providing a seaworthy ship. The second is that art. IV, r. 6 covers loss caused directly or indirectly and therefore applies whenever the shipment provides an occasion for the loss, whatever the other causes and even if they include negligence by the owner. I am not persuaded by either of these arguments. The safety of the crew is an important matter but they are not parties to the bill of lading. Their interests are protected by public and criminal laws and the law of torts. If the personal representatives of the victim of this*522 accident were to sue in tort, they would in English law on the Judge's findings recover against both the owners and BP. Further, the greater part of the liability would, as between the joint tortfeasors, be apportioned to the owners because their negligence was, as the Judge put it, the dominating cause of the accident. I do not understand why the sanctity of life should require the Hague-Visby Rules to be construed so as to enable the owners to shift their share of liability onto BP. There is likewise no reason to construe "directly or indirectly" as excluding the normal rule of construction. There was some debate over what the words were intended to mean. BP suggested that notwithstanding their reference to cause, they were really intended to remove the limit on contractual damages normally imposed by the rules in Hadley v. Baxendale, (1854) 9 Ex. 341. These rules limit damages recoverable for breach of contract to loss which was reasonably foreseeable at the time of the contract. The basis of this rule is that liability for damage which was not reasonably in the contemplation of the parties falls outside the scope of the contractual promise, even if it was caused by the breach. When art. IV, r. 6 was first drafted in 1924 there was (and indeed there still is) some confusion between the rule that damage must have been caused by the breach and the rule that it must also have been within the scope of the contractual promise. There was a tendency to speak of damage as "indirectly caused" when what was actually meant was that the damage was not reasonably foreseeable. (See, for example, Rule C of the York- Antwerp Rules 1924). So BP says that "directly or indirectly" was only intended to make it clear that the shipper was assuming liability under art. IV, r. 6 for all the loss or damage caused by shipment of the dangerous goods, whether foreseeable or not. If this is right, the words do not evince any intention to exclude the particular rule of construction which I have been considering. They are directed to an altogether different matter. It seems to me, however, that in their natural meaning they do refer to causation. If so, their effect may be to make the shipper liable not only in cases like the present, where (if the explosive gases had been wholly derived from the fuel oil) one would say that the shipment of dangerous cargo caused the damage, notwithstanding that ignition was provided by the static electricity and the act of the surveyor (compare Philco Radio v. Spurling, [1949] 2 All E.R. 882) but also in cases in which one would ordinarily say that the shipment had merely provided an occasion for something else to cause the damage, e.g. if the gas had been deliberately ignited by an arsonist or the explosion caused by some highly abnormal accident. If this is the effect of the words, they obviously also exclude the Hadley v. Baxendale limitation as well. But even construed in this sense, they do not in my judgment assist the owners. There is no inconsistency about extending liability beyond what might otherwise be the limits imposed by normal criteria of causation and having an implied exclusion for damage partly caused by the owner's negligence. In order to displace the rule of construction, it is necessary that the words of the clause should on a fair reading be inconsistent with such an implied exclusion and in my judgment they are not. Once one has decided that (1) art. IV, r. 6 is an indemnity clause (2) there is nothing in its language which expressly or impliedly negatives a construction that it does not apply to damage caused or contributed to by the negligence of the owners and (3) the owners' negligence in failing to wash out the condensate materially contributed to the accident, that in my judgment is the end of the appeal. But I must also deal with certain arguments advanced by Mr. Boyd which did not seem to me to address any relevant issue. (1) Mr. Boyd placed considerable reliance upon the decision of the House of Lords in A/s Rendal v. Arcos Ltd., (1937) 58 Ll.L.Rep. 287. In that case a charter-party for a voyage from Leningrad in January, 1931 contained a clause which required the charterers to provide icebreaker assistance to enable the vessel to leave the loading port. The charterers provided inadequate assistance and the vessel suffered damage from ice. But the charterers said that the owners had not established that the damage would not have been suffered even if proper assistance had been provided. Lord Wright said (at p. 297): In my opinion the [charterers] cannot escape liability for any part of the damage unless they can show affirmatively that the same damage must have occurred if there had been no breach of contract. So Mr. Boyd says that BP is liable for the damage caused by shipping cargo in breach of art. IV, r. 6 unless it can affirmatively show that the same damage must have occurred if the shipment had not taken place. This it cannot do, because the Judge's finding that the fuel oil gas was a contributory cause entails a finding that but for the fuel oil there would have been no explosion. *523 I rather doubt whether A/s Rendal v. Arcos Ltd., illustrates any principle of general application. If it did, it would be difficult to reconcile with the principle reaffirmed by the House of Lords in Wilsher v. Essex Area Health Authority, [1988] A.C. 1074 that a plaintiff has the burden of proving that the breach of duty of which he complains caused or contributed to the damage which he suffered. It is more likely that A/s Rendal v. Arcos turns on the

15. construction of the particular obligation to provide icebreaking assistance, which for reasons analogous to those of Lord Wilberforce in McGhee v. National Coal Board, [1973] 1 W.L.R. 1, might be deprived of content if the Courts insisted on proof that each item of damage was caused by a floe which would not otherwise have been in the way of the ship. But Mr. Boyd's real difficulty is that even if A/s Rendal v. Arcos does lay down a general principle which reverses the burden of proof of causation of damage under art. IV, r. 6, this would be irrelevant to the rule of construction which prevents the owners from enforcing the indemnity. Mr. Boyd's problem is not, as in A/s Rendal v. Arcos, that he cannot prove that the fuel oil shipment caused or contributed to the explosion. On that question, subject to the cross-appeal, he has the Judge's finding in his favour. The obstacle which faces him is the implied qualification which prevents the owners from relying upon the indemnity if their own negligence contributed to the damage. On that point, A/s Rendal v. Arcos has nothing to say. (2) Mr. Boyd said that since under art. IV, r. 6 the owners would have been entitled to jettison the fuel oil, they owed BP no duty to carry it in a seaworthy ship. BP cannot therefore rely upon their negligent failure to wash out the condensate. This argument might or might not have served as an answer if BP had made a claim for damage to its cargo (I rather think not) but has in my view no relevance to whether the owners can enforce the claim for indemnity. (3) The Judge made reference to the rule that, a cargo owner can succeed in a claim for breach of the duty to exercise diligence to make the ship seaworthy if it was a contributory cause of the damage, even if another cause was an excepted peril under art. IV, r. 2. Mr. Boyd said that while this was true of the perils mentioned in that rule, the same was not necessarily true when the other contributory cause was a breach of the shipper's duty not to ship dangerous cargo. I express no view on this point. If it is a good one, BP would not have been able to succeed in a claim for damage to cargo. But the fact that BP might have failed in a cargo claim does not mean that the owners must be entitled to an indemnity. It would only mean that for both parties, as a matter of contract, the loss would lie where it fell. (4) Mr. Boyd relied upon the limitation period in art. III, r. 6 which, as the House of Lords decided in Aries Tanker Corporation v. Total Transport Ltd., [1977] 1 Lloyd's Rep. 334; [1977] 1 W.L.R. 185, extinguishes any claim against the carrier or ship unless suit has been brought within a year after the date on which the goods should have been delivered. BP made no claim within that period for damage to cargo and any claim it might have had is therefore extinguished. This might be relevant if BP was attempting to set off a claim for loss of fuel oil against its liability under art. IV, r. 6. But it seems to me irrelevant to whether the owners' negligence is a defence to the latter claim. Finally, I turn to the respondent's notice. On the conclusions I have reached about the effect of art. IV, r. 6, this is now irrelevant but I shall nevertheless express my view. The Judge found that but for the condensate there would have been no explosion. He did not make a finding in similar terms about the fuel oil. But, after some doubt and hesitation, he said that the fuel oil was a co-operating cause. Mr. Harvey said that this disclosed a logical error. The Judge could not have found that the fuel oil was a co-operating, contributory or any other kind of cause unless he thought that but for the fuel oil, there would not have been an explosion. With this last proposition I would certainly agree, but in my judgment it leads to the conclusion that the Judge must impliedly have so found. Mr. Harvey does not submit that there was no evidence to support such a finding. He did not invite us to look at the evidence but took his stand on the absence of an express finding that the fuel oil was a necessary condition of the explosion. For my part, I find it impossible to accept that after weighing up the matter so carefully, the Judge would have described as a cause of the explosion something which he thought had made no difference. I would therefore reject the submission in the respondent's notice but dismiss the appeal. Lord Justice NOURSE: I agree with both judgments. [Order: Appeal dismissed with costs; application for leave to appeal to the House of Lords refused.] (c) Lloyds of London Press Limited [1994] 2 Lloyd's Rep. 506 END OF DOCUMENT Copr. (c) West 2001 No Claim to Orig. Govt. Works