FEDERAL COURT OF AUSTRALIA

Hilditch Pty Ltd v Dorval Kaiun KK (No 2)

[2007] FCA 2014

SHIPPING AND NAVIGATION – carriage of goods by sea – bill of lading – endorsement in blank – effect of – whether bill became a bearer bill by being endorsed in blank – whether delivery of bill of lading endorsed in blank was sufficient to vest property in cargo in the bearer of the bill – where endorsed bill was one of a set of three – whether necessary separately to endorse all three original bills of lading for the bearer to be able to claim delivery of the goods

SHIPPING AND NAVIGATION – carriage of goods by sea – contamination of cargo – point at which contamination occurred – whether carrier complied with its obligations to properly and carefully discharge the cargo under Art 3 r 2 of the amended Hague Rules

SHIPPING AND NAVIGATION – discharge of cargo – where cargo in good condition in ship’s tanks but later discharging at the ship’s manifold in a contaminated condition – where portion of cargo slopped at the direction of the owner of the goods – where cargo remained visibly contaminated at the conclusion of slopping – where owner of the goods permitted discharge to continue – whether owner of the goods was responsible for any part of its claimed loss in these circumstances – whether conduct of the owner of the goods constituted an act or omission under Art 4 r 2(i) of the amended Hague Rules – concurrent causes of a loss

SHIPPING AND NAVIGATION – contamination of cargo – whether notice of loss or damage of cargo given in writing to the carrier 'at the time of' discharge for the purposes of Art 3 r 6 of the amended Hague Rules

PRACTICE AND PROCEDURE – interest under s 51A of the Federal Court of Australia Act (1976)– method of calculating pre-judgment interest

Amended Hague Rules, Art 3 r 2, Art 3 r 6, Art 4 r 2(i)

Carriage of Goods By Sea Act 1991 (Cth), Sch 1A

Sea-Carriage Documents Act 1997 (NSW), s 5

Borealis AB v Stargas Ltd [2002] 2 AC 205 cited

C V Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Ltd (2007) 160 FCR 342 applied

Consort Express Lines Pty Ltd v J-Mac Pty Ltd (2006) 232 ALR 341 applied

Glyn Mills Currie & Co v The East and West India Dock Company (1882) 7 App Cas 591 applied

Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad (1998) 196 CLR 161 referred to

Heskell v Continental Express Ltd [1950] 1 All ER 1033 discussed

Kalls Enterprises Pty Ltd (In Liq) v Baloglow (No 3) [2007] NSWCA 298 applied

Key v Cotesworth (1852) 7 Ex Ch 595 cited

Leduc v Ward (1888) 20 QBD 475 cited

Lickbarrow v Mason (1794) 5 TR 683 applied

Sewell v Burdick (1884) 10 App Cas 74 cited

Shipping Corporation of India Ltd v Gamlen Chemical Co (A/sia) Pty Ltd (1980) 147 CLR 142 discussed and applied

Tate and Lyle Ltd v Hain Steamship Co Ltd (1936) 55 Ll L Rep 159 cited

The ‘Al Battani’ [1993] 2 Lloyd’s Rep 21 cited

The Torenia [1983] 2 Lloyd’s Rep 210 cited

Walley v Montgomery (1803) 3 East 585 cited

Westpac Banking Corporation v ‘Stone Gemini’ (1999) 110 FCR 47 cited

Carver on Bills of Lading (1^st ed, 2001)

Gaskell N, Asariotis R and Baatz R, Bills of Lading:  Law and Contracts (2000)

Scrutton on Charterparties and Bills of Lading (18^th ed, 1974)

Tetley W, Marine Cargo Claims (3^rd ed, 1988)

HILDITCH PTY LTD (ACN 005 669 161) v DORVAL KAIUN KK

NSD 360 OF 2007

RARES J

14 DECEMBER 2007

SYDNEY

THE COURT ORDERS THAT:

1.                  There be judgment for the plaintiff in the sum of $637,571.37.

2.                  The defendant pay the plaintiff’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

FACTUAL MATRIX

1                     Hilditch Pty Ltd is an Australian importer of, among other things, refined oil products.  For many years Hilditch has imported products from SK Corporation, a Korean company.  In June 2006 Hilditch agreed to purchase from SK a cargo of three grades of refined oil products, known as Yubase 3, 4 and 6, for shipment from Ulsan, Korea, to Port Botany in New South Wales, CFR (Cost & Freight) for a total price of about USD1.327m.  That purchase included 400.69 metric tonnes of Yubase 6 for a total price of USD380,616.55.  Yubase 6 is ordinarily used as a lubricant of motor engines. 

2                     SK chartered the vessel, M/T Golden Lucy I, from Dorval Kaiun KK on a voyage charter from Ulsan to Port Botany.  The vessel was to carry the three grades of Yubase totalling about 1,700 metric tonnes on voyage 73.  The Golden Lucy I also carried a cargo of about 8,500 metric tonnes of caustic soda for delivery to another consignee at both Port Botany and Geelong. 

3                     Hilditch established an irrevocable letter of credit with National Australia Bank in favour of SK for USD1.324m with a permitted variance of plus or minus 5%.  One of the requirements of National Australia Bank was for a full set of shipped on board charterparty bills of lading made out to the order of shipper and endorsed in blank.

4                     On 18 June 2006 Dorval’s agent issued a set of 3 tanker bills of lading in the Asbatankvoy form to SK as shipper, acknowledging shipment on board the Golden Lucy I in apparent good order and condition of the three cargoes of Yubase, including the Yubase 6. The bill was made out to the order of the shipper and Hilditch was the notify party.  It noted that the freight was prepaid.  The bill provided that shipment was under and pursuant to the terms of the charterparty dated 1 June 2006 between Dorval and SK and all the terms and conditions of the charter, except the rate and payment of freight, applied to and governed the rights of the parties concerned in the shipment.  A clause paramount in the bill of lading provided that if it was a document of title then the Carriage of Goods by Sea Act 1936 of the United States of America, or similar legislation. applied to govern its terms.  It is common ground that the provisions of the Carriage of Goods By Sea Act 1991 (Cth) apply so that the amended Hague Rules in Schedule 1A of the Act govern the rights and liabilities of the shipper, any applicable assignee or holder, and the carrier in relation to the present shipment.

5                     In early July 2006 National Australia Bank provided one of the original three bills of lading to Hilditch.  On the back of that bill is a signature.  But there is no indication on the bill of the name of its author or on whose behalf he or she had signed.  Also, but separately, on the back of the bill there is another signature above a stamp asserting it to be an authorised signature for the structured trade finance office of the Export-Import Bank of Korea.  One issue in the proceedings is whether either signature was an endorsement in blank.  Hilditch arranged for presentation of that bill to Dorval’s agent in Richmond, Melbourne so that discharge of the Yubase 6 could commence at Port Botany on 8 July 2006.

6                     After its arrival at the bulk liquids berth at Port Botany, the Golden Lucy I began discharging its cargoes.  She had been but ceased discharging some of the caustic soda which was in a tank adjacent to those in which the Yubase 6 was carried.  As soon as discharge of the Yubase 6 began, it was discharging as cloudy in appearance and obviously contaminated.  It should have been water bright and clear in appearance.  It is common ground that the Yubase 6 in the vessel’s tanks remained in good order and condition.  Hilditch, through its surveyors, decided to slop a quantity in the hope of clearing the lines and pumps of the contaminant, which was then thought to be the residue of a cargo of molasses which had been carried two voyages previously.  But, after slopping about 12,000 litres, the Yubase 6 remained cloudy.  Hilditch decided to continue discharging the whole cargo to the Vopak terminal tanks VO 20 and VO 17.  After discharge, all the Yubase 6 was out of specification and commercially unusable by Hilditch.  It arranged for its insurer to dispose of the cargo, which it did for AUD19,487.50.  Hilditch claims that it suffered a net loss of AUD560,013.56.

7                     Very recently, scientific testing has eliminated molasses and instead identified caustic soda as a source of the contamination. 

ISSUES 

8                     It is necessary to go into more detail about a number of matters briefly summarised above.  They, however, give rise to the following substantive issues:

1.         Did Hilditch have title to sue as an endorsee of the bill of lading for the purposes of the Sea-Carriage Documents Act 1997 (NSW)?

2.         Did Dorval comply with its obligations to properly and carefully discharge the Yubase 6 within the meaning of Art 3 r 2 of the amended Hague Rules?  This involves considering where and how the damage to the Yubase 6 occurred - i.e. before or after the cargo had passed through the ship’s manifold - and whether the only source of contamination was caustic soda.

3.         Is Hilditch responsible for any part of its claimed loss because it allowed the discharge operation to continue notwithstanding its knowledge that the cargo was contaminated during the discharge operation:  see Art 4 r 2(i)?  Dorval argued that this conduct was an omission of the owner of the goods or its agent or representative.

THE SHIPMENT AND SALE ARRANGEMENTS

9                     The Golden Lucy I was time chartered under a Shelltime 4 charterparty dated 14 October 2005 between Onar Maritime SA, as owners, and Dorval, as charterer, for a period of 12 months commencing at earliest 1 November 2005.  On 1 June 2006 Dorval entered into a voyage charter in the Asbatankvoy form with SK for voyage 73 from Ulsan to Port Botany carrying the cargoes of 600 metric tonnes of Yubase 3, 700 metric tonnes of Yubase 4 and 400 metric tonnes of Yubase 6.

10                  Dorval originally contended that cl 18 of its charter party with SK required it to clean the tanks, pipes and pumps to the satisfaction of SK’s inspector.  The clause also sought to exempt Dorval from liability for any admixture not caused by unseaworthiness or error or fault of Dorval or its servants in the loading, care or discharge of the cargo.  The clause does not cut down Dorval’s obligations to third parties such as Hilditch who become parties to or entitled to sue on the bill of lading, because it is inconsistent with Art 3 r 2.  Even as against SK, cl 18 would provide no relevant benefit to Dorval here because, as will appear below, Dorval was at fault in permitting the discharge in the circumstances:  see too:  Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (2000) 173 ALR 263 at 271-272 [50]-[54] per Tamberlin J and Petrofina SA of Brussels v Compagnia Italiana Transporto Olii Minerali of Genoa (1937) 57 Ll L Rep 247 at 251 per Lord Wright MR, 253 per Romer LJ.

11                  The Yubase 6 was loaded into tanks 6P (port) and 6S (starboard) on the Golden Lucy I.  They were located immediately forward of tanks 7P and 7S which abutted the pump room near the stern.  The wing tanks (6P, 7P, 6S and 7S) were on either side of a larger centre tank (7C) which held a cargo of about 2,050 metric tonnes of caustic soda.  Wing tanks 7P and 7S were empty of cargo.  Further forward, wing tank 5S held a cargo of about 200 metric tonnes of caustic soda, while wing tank 5P was also empty of cargo.  Between wing tanks 5P and 5S was a centre tank, 6C, which had a cargo of about 1,700 metric tonnes of caustic soda.  Further forward the Yubase 3 was carried in tank 5C and the Yubase 4 in tank 1C.  Other centre and wing tanks carried the balance of the caustic soda cargo, while the remaining tanks were empty of cargo.

12                  At the time of loading, SGS surveyors in Korea issued a certificate of analysis to SK stating that the Yubase 6 cargo was within the particular specification required by a number of specific tests.  In particular, its visual appearance was bright and clear.  SGS also reported that the immediately previous cargo carried in 6P and 6S tanks was tallow, preceded by two cargoes of molasses.  SGS reported that they had carefully inspected the cargo tanks and found them to be clean and dry and in a condition to load a cargo of Yubase 6.  They had been informed by the ship’s crew of the cleaning method and that the ship’s lines and pumps were said to be clean and dry by the chief officer.

13                  SK issued a commercial invoice to Hilditch for the three cargoes of Yubase.  The invoice was signed by one J Rock Lee on behalf of the general manager of SK’s base oil business team.  His signature on the invoice appears to be the same as that in the top right corner on the reverse of the bill of lading (which has no identification of the person who is the signatory).  During the course of argument, I suggested that the signature on the bill could be an endorsement in blank.  At that stage, I had not been taken to the signature on the commercial invoice which was in evidence.

14                  After I reserved judgment I drew the parties’ attention to the similarity of the signatures on the commercial invoice and the bill.   I invited further submissions as to why I should not find that J Rock Lee’s signature was on the bill and operated as an endorsement in blank.  In its further submissions made in response, Dorval:

·                    repeated its argument that all three bills in the set had to be endorsed.  (I deal with that argument below.)

·                    argued that I should not draw this inference because Hilditch had not called J Rock Lee.  Dorval referred to the principle in Jones v Dunkel (1959) 101 CLR 298.  However, there was no reason for J Rock Lee to be called.  Dorval did not suggest that his signature was not on the bill.  Nor did Dorval suggest what purpose the signature served if it were not an endorsement in blank made to satisfy the requirement of the letter of credit for such an endorsement.  It is not likely that SK would present documents which were not compliant with the requirements of the letter of credit.   SK would only be paid if the terms of the letter of credit were met by the documents it presented.

15                  Dorval also argued that Hilditch had not pleaded that SK had endorsed the bill.  Rather, it said Hilditch had only put a case that SK’s bank, the Export-Import Bank of Korea, had endorsed the bill.  Hilditch had made this assertion both in its particulars in a statement of issues and, again, in an explanation of its case, both of which Allsop J had ordered be filed.

16                  Hilditch had formally pleaded in its statement of claim that at all material times it was the holder of the bill.  That was a sufficient allegation to enable a finding to be made that it was the holder, despite the more limited particulars subsequently given by Hilditch.  A finding of an endorsement by SK is a disconformity between the evidence and the particulars.  But such a finding is still within the pleaded cause of action:  Dare v Pulham (1982) 148 CLR 658 at 664.  Hilditch always needed to put into evidence the bill of lading and the commercial invoice issued to it by SK, each of which bore J Rock Lee’s signature.  It was obvious that SK had endorsed the bill once one looked at the documents required in the letter of credit, including SK’s commercial invoice.

17                  Dorval further argued that there was no endorsement of the bill of lading delivered to it by Hilditch.  It said that the signature for the Export-Import Bank of Korea was a mere administrative measure to record satisfactory examination of the relevant documents stipulated in the letter of credit by it as a correspondent bank pursuant to Art 13 of the ICC Uniform Customs and Practice for Documentary Credits:  UCP 500, which provides:

‘Article 13

Standard for Examination of Documents

(a)       Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit.  Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles.  Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit.

            Documents not stipulated in the Credit will not be examined by banks.  If they receive such documents, they shall return them to the presenter or pass them on without responsibility.

(b)       The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly.

(c)        If a Credit contains conditions without stating the document(s) to be presented in compliance therewith, banks will deem such conditions as not stated and will disregard them.’

18                  There is nothing in Art 13 of UCP 500 which provides for a correspondent bank, or any other banker, to record on a negotiable instrument any ‘administrative’ notation as Dorval claimed.  Moreover, the stamp and signature of the Export-Import Bank of Korea do not have any appearance of administration about them.  The stamp provided for the inclusion of a written ‘authorized signature’.  Dorval did not explain what authority was needed for such a mere administrative measure as it asserted.  The stamp’s provision for an ‘authorized signature’ suggests that, when signed, the bank had authorised subsequent commercial dealings with the negotiable instrument.

19                  The evidence does not make clear what role the Export-Import Bank of Korea played in the dealings with the bill of lading between SK and its receipt by the National Australia Bank.  I find that J Rock Lee signed the reverse side of the bill of lading on behalf of SK as an endorsement in blank of the bill of lading.  That signature was written in accordance with the requirements of National Australia Bank to have the bill of lading endorsed in blank.  I am satisfied that SK had endorsed the bill in blank.

20                  I also find that the Export-Import Bank of Korea received the bill of lading endorsed in blank by SK.  I infer that the signature of the Export-Import Bank of Korea was intended to authorise, to the extent that it had any property in the bill or the cargo, further dealings in the property by delivery of the bill as a negotiable instrument.  Thus, if the Export-Import Bank of Korea had some financial dealings under which it obtained any property in the bill, whether as owner, pledgee, mortgagee or otherwise, I infer that it endorsed the bill in blank and permitted it to be delivered as a negotiable instrument to National Australia Bank.  If the Export-Import Bank of Korea were only acting as a correspondent bank, then its signature did not affect the efficacy of SK’s endorsement in blank.  The presence of the signature of the Export-Import Bank of Korea did not affect the character of the bill as a negotiable instrument endorsed in blank.

21                  I am satisfied that the bill was a negotiable instrument endorsed in blank when the National Australia Bank delivered it to Hilditch.

TITLE TO SUE

22                  Under the law merchant, an endorsement in blank of a negotiable instrument made out to order converts the instrument to a bearer instrument:  Sewell v Burdick (1884) 10 App Cas 74 at 83 per Earl of Selborne LC, 92-93 per Lord Blackburn.  In Lickbarrow v Mason (1794) 5 TR 683 at 686 the jury found that:

‘… by the custom of merchants, indorsements of bills of lading in blank, that is to say, by the shipper or shippers with their names only, have been, and are, and may be, filled up by the person or persons to whom they are so delivered or transmitted. …’

That custom has been accepted commercial practice since Lickbarrow v Mason 5 TR 683.  The case established that a bill of lading was a transferable document of title:  Glyn Mills Currie & Co v The East and West India Dock Company (1882) 7 App Cas 591 at 604 per Lord Blackburn.  In Scrutton on Charterparties and Bills of Lading (18^th ed, 1974)at 181 (20^th ed, 1996) at 184 the learned authors observed that a bill of lading endorsed in blank may pass from hand to hand by mere delivery so as to affect the property in the goods:  see too Keppel Tatlee Bank Ltd v Bandung Shipping Pte Ltd [2003] 1 Lloyd’s Rep 619 at 622 [18]-[20] (CA Singapore).

23                    The terms of the contract for sale appear in the commercial invoice issued by SK and the import letter of credit issued in favour of SK by National Australia Bank at the request of Hilditch.  The letter of credit is incorporated expressly by number in SK’s commercial invoice.  Here, payment was due by Hilditch to SK under the commercial invoice 30 days after the charterparty bill of lading date.  The parties must have intended, in the underlying contract for sale of the Yubase, that property in the goods the subject of the bill would pass with delivery of the bill of lading.  The seller, SK, was entitled to draw on the letter of credit, 30 days after the bill of lading date.  Thus, it would be paid for the goods because of the issue of the bill of lading.

24                  By delivering a bill of lading endorsed in blank together with an invoice for apparent transmission to National Australia Bank in accordance with the letter of credit it had opened, SK vested property in the goods, including Yubase 6, in whomever was the bearer of the bill of lading:  Key v Cotesworth (1852) 7 Ex Ch 595 at 607 per Parke B giving the judgment of the Court of Exchequer;  see too Walley v Montgomery (1803) 3 East 585 at 591 per Lord Ellenborough CJ, Grose, Lawrence and Le Blanc JJ concurring;  see also Carver on Bills of Lading (1^st ed, 2001) at [6-030];  Gaskell N, Asariotis R and Baatz R,  Bills of Lading:  Law and Contracts (2000) at [4.80]-[4.81].

25                  Hilditch was entitled to delivery of the cargo because it was the holder of the bill of lading.  It presented the bill to Dorval and received delivery of the Yubase 6.  At the time of presentation, on the evidence, Hilditch was also the owner of the cargo and had the property in it.  (There is no evidence that its rights were subject to any security interest which National Australia Bank might have had.  But, in any event, such an interest does not prevent Hilditch having property in the cargo:  Sewell 10 App Cas at 84-85 per Earl of Selborne LC, 92-93 per Lord Blackburn;  Westpac Banking Corporation v ‘Stone Gemini’ (1999) 110 FCR 47 at 58-59 [36]-[37] per Tamberlin J.)

26                  Even though the bill of lading was originally made between SK, as charterer, and Dorval, as owner, incorporating the charterparty dated 1 June 2006 between them, the bill contained the clause paramount.  In the present circumstances it is common ground that that had the effect of incorporating the amended Hague Rules as a clause paramount in the bill of lading when it was transferred as a negotiable instrument by SK.  Once the bill had been transferred before delivery of the cargo, the terms of the bill, as amended by the clause paramount, constituted the contract of carriage for the Yubase 6 cargo.  This is because the bill had been endorsed by SK in blank and subsequently delivered to Hilditch:  Leduc v Ward (1888) 20 QBD 475 at 479 per Lord Esher MR;  The ‘A1 Battani’ [1993] 2 Lloyd’s Rep 219 at 222 per Sheen J;  Tate and Lyle Ltd v Hain Steamship Co Ltd (1936) 55 Ll L Rep 159 at 174 per Lord Atkin.  Hilditch became the holder and bearer of the bill.

27                  Dorval argued that SK had to endorse all three original bills of lading for Hilditch to be able to claim that the cargo had been duly delivered.  It said this was necessary so as to cause the bill of lading to become ‘accomplished’.  It asserted that it was ‘imperative’ that all three original bills had to be similarly endorsed.

28                  That argument is contrary to long settled principles of the law merchant and the express terms of the bill.  In 1882 the great commercial lawyer, Lord Blackburn, said in Glyn Mills 7 App Cas at 604:

‘And the very object of making the bill of lading in parts would be baffled unless the delivery of one part of the bill of lading, duly assigned, had the same effect as the delivery of all the parts would have had.’

29                   His Lordship observed that he had never been able to learn why merchants and shipowners continued the practice of making out a bill of lading in parts.  But, he said that so long as the practice continues it was of vast importance not to unsettle the principles which had already been settled:  Glyn Mills 7 App Cas at 605.  In that case, like this one, bills of lading were issued in a set of three.

30                  Here, the bill of lading contained the time honoured clause recording that the master had signed three original bills of lading ‘… of this tenor and date, one of which being accomplished, the others will be void’.  Hilditch was the holder for value of the bill of lading.  It was a negotiable instrument.  Hilditch was entitled to present the bill of lading to Dorval to enforce its right to delivery of its property, being the cargo referred to in that document of title.  On delivery of the bill by Hilditch to Dorval, the bill of lading was, as it said, ‘accomplished’.  The other two originals became void.  Dorval’s argument has no substance.

31                  I am of opinion that Hilditch became a lawful holder of the bill of lading for the purposes of the Sea-Carriage Documents Act.  This is because it had come into possession of the bill, in good faith, as a result of completion, by delivery, of the bill which was endorsed in blank.  The bill had become a bearer bill through it being endorsed in blank by SK.  It had been transferred from SK by delivery to the Export-Import Bank of Korea, then to National Australia Bank and, ultimately, by a transfer of the bill, as a bearer bill, to Hilditch (see the Sea-Carriage Documents Act;  s 5, definition of ‘lawful holder’, par (b)). 

ARTICLE 3 RULE 2:  THE DISCHARGE OPERATION

32                  The bulk liquids berth at Botany Bay comprises a ‘T’ jetty dock connected to the shore by a driveway and pipeline corridor.  The berth is a common user facility and serves several tank farms located in Port Botany.  A number of manifolds and loading arms are located on the jetty head.  They are connected to a range of pipelines running to the various terminals by way of ‘crossovers’.  Different pipelines are dedicated to different groups of products. 

33                  A manifold on a vessel (a ship’s manifold) is connected to a manifold on the jetty deck (the wharf manifold) using flexible hose strings supplied by those arranging the receipt of the cargo.  From the wharf manifold, a shore pipeline runs to one of the manifolds at the terminal.

34                  Sampling facilities are located at the ship’s manifold, the wharf manifold and the terminal manifold.  The ship’s manifold has a sample cock which is like a tap.  The crew open the cock and then a bottle is held underneath it to collect the sample.  Samples of the product being discharged which are taken at the ship’s manifold identify the quality of the cargo discharging from the vessel at the point of transfer from the carrier to the receiver of the cargo.  A sample taken at the wharf manifold will show whether there has been any change in the cargo from the time it passed the ship’s manifold (e.g. due to presence of contaminant in flexible hoses connecting the ship’s manifold to the wharf manifold).  Samples taken at the terminal manifold would reveal the presence of any contaminant in the shore pipeline connecting the wharf manifold to the terminal manifold.

35                  It is common ground that the Yubase 6 cargo in the ship’s tanks was in the good order and condition described in the bill of lading, and was within the specifications required for it to be acceptable for Hilditch’s purposes.  Thus, whatever was causing the cloudiness or contamination was affecting the cargo after it left the ship’s tanks.

36                  Until shortly before the trial, Hilditch’s case was that the source of contamination of the Yubase 6 was molasses.  However, recent further chemical testing of the samples taken during and after discharge of the Yubase 6 eliminated molasses and tallow as possible sources of the contamination.  That testing showed that caustic soda was a contaminant.

37                  Two Intertek Caleb Brett surveyors attended at Port Botany on behalf of Hildtich to oversee the discharge of the three Yubase cargoes.  They were Priyadharshan Kanagasabai, Intertek’s New South Wales State Manager, who is known as ‘PK’, and Matthew McCarthy, a cargo inspector employed by Intertek.  Mr Kanagasabai had been a master mariner and was an experienced surveyor.  Mr McCarthy was relatively inexperienced, having done only a limited number of surveys before this one.  Mr McCarthy had never done a discharge survey on a vessel like the Golden Lucy I.  He had asked Mr Kanagasabai to attend with him to train him.

38                  During the morning of 8 July, the vessel had been discharging caustic soda carried in tank 7C (centre) which was adjacent to the tanks in which the Yubase 6 was carried.  The caustic soda was to be delivered to Australian Vinyl Corporation.  It had arranged for Capt Peter Edgerton, who was then a marine surveyor, to attend for the purposes of supervising the discharge of the caustic soda at Port Botany.  Capt Edgerton and Mr Kanagasabai had known each other for quite a long time. 

39                  Capt Edgerton had considerable expertise in the operation of chemical and gas tankers and had been providing specialist services for the loading and discharge of cargoes and operation of chemical tankers for over 25 years.  Capt Edgerton said that where cargo in the ship’s tanks is known to be within specification (i.e. in good order and condition) and it passes the ship’s manifold outboard at the commencement of discharge ‘off specification’, this ‘… will be conclusive evidence of contaminant in the ship’s lines and/or pumps’.  This opinion of Capt Edgerton was not challenged and, in my opinion, it accords with commonsense.  As will appear, it provides a ready solution of where the damage to the Yubase 6 occurred.  The essential facts are as follow.

40                  Capt Edgerton had been supervising the discharge of caustic soda held in tank 7C.  That discharge operation utilised bottom line 2 to carry the caustic soda to cargo pump 3 on the vessel.  The wing tanks, 6P and 6S, were separated by part of tank 7C.  Bottom line 2 had a bulk head isolating valve (described in the evidence as valve P21).  If valve P21 were open, and if cargo was being discharged from either tank 6P and 6S and tank 7C, the cargoes could intermix in bottom line 2.  If valve P21 were closed and operating effectively, intermixing could not occur in the way I have just described.

41                   When the caustic soda was being discharged two suction valves (described as valves 703 and 704) were opened in tank 7C.  The caustic soda was drawn up through those suction valves and directed into bottom line 2.  It then flowed towards cargo pump 3 on the vessel.  Initially, the caustic soda would flow forward towards the bow in bottom line 2 before being redirected aft to pump 3.  The pumps were located in the pump room near the stern of the vessel.  Next to pump 3 was pump 2.  If valve P21 were closed, cargo taken from tank 6S would flow aft in bottom line 2.

42                  Shortly before the discharge of the Yubase 6 commenced Capt Edgerton told Mr McCarthy that he had stopped the pumping of some of the caustic soda ashore ‘in order to avoid pressure on one of the valves on both sides’.  By that he meant that if valves 703 and 704 were open to permit pumping out of tank 7C the only point in the ship’s lines potentially separating the Yubase 6 and caustic soda cargoes was valve P21.  Capt Edgerton discussed with Mr McCarthy how they should manage discharging their respective cargoes before discharge of the Yubase 6 began.  He handed Mr McCarthy a schematic drawing of the ship’s pipeline arrangement on which he or the chief officer had illustrated the interaction between the discharge plans for the respective cargoes.  The drawing used the descriptions of the lines, valves and tanks above.  Capt Edgerton highlighted to Mr McCarthy the potential for contamination of one or both of the Yubase 6 and caustic soda cargoes. 

43                  Capt Edgerton was concerned about both the possibility of cross-contamination between the cargoes and the highly corrosive nature of caustic soda, which was a difficult cargo to handle.  He was aware that there were two suction valves in tank 6S (labelled on the diagram 601 and 602) which would draw the Yubase 6 up into, ultimately, the section of bottom line 2 leading aft from valve P21.

44                  Each suction valve and valve P21 was opened and closed on the deck of the vessel by the crew turning a wheel connected to a spindle which ran down into the tank or line.  Capt Edgerton said that before discharge of the Yubase 6 commenced, he asked the crew to cease discharging caustic soda from tank 7C.  He said that it was good practice to close valves 703 and 704 as well as valve P21 if the discharge of caustic soda from tank 7C stopped to enable the discharge of the Yubase 6 to proceed.  That was because, as he said, it was prudent to prevent any leakage from any of the valves from which there could be contamination.  Such a procedure of shutting all of the valves, both in the tank and in the common line (here valve P21 in bottom line 2) was good practice.  If valve P21 had been open when either of valves 703 and 704 was, caustic soda would be drawn aft of valve P21 into the same part of bottom line 2 as the Yubase 6.

45                  Capt Edgerton sought to ensure that valve P21 was closed.  He asked the chief officer whether he could feel the valve wheel on the deck of the vessel which the crew had used to close it.  He turned it and it could not close any further.  He then formed the view that he ‘knew’ that valve P21 was closed.  This was based on his experience of performing the operation thousands of times.  Capt Edgerton did not himself physically check whether valves 703 and 704 had been closed.  He could not recall seeing anyone else closing them prior to the discharge of the Yubase 6 commencing on 8 July.  He emphasised that it was critical that valve P21 be closed before the discharge of the Yubase 6 commenced and that is why he checked that valve P21 was closed.  He said pump 2 had not been used to discharge caustic soda.  Mr McCarthy said that, on Capt Edgerton’s advice, he observed the chief officer checking each valve on the main deck which he had been told should be open or closed.  But Mr McCarthy did not check these himself and he did not know if they had been correctly set for the discharge of the Yubase 6.

46                  Prior to discharge of the Yubase 6 cargo, Mr Kanagasabai and Mr McCarthy also met with the chief officer of the Golden Lucy I to discuss the proposed arrangements for its discharge. The chief officer said that there were only two lines available for pumping out the cargo and that the crew had prepared line 2 for the discharge of the Yubase 6 from tanks 6P and 6S.  He said that the ship would not be using line 1.  The chief officer told them that line 2 had been cleaned, flushed with water and dried.  The chief officer told them that two pumps were available:  pump 1, which was very small, and pump 2, which he proposed to use.  Mr Kanagasabai said that he would like to look at the pumps and lines that the chief officer proposed be used.  They were only able to inspect the ship’s lines at the openings where they were accessible because of their length and diameter.

47                  The chief officer opened the strainer of pump 2 so that Mr Kanagasabai and Mr McCarthy could inspect it.  They noticed the presence of a brown coloured liquid on the bottom of the strainer.  Mr McCarthy said that it had a sweet, strong and pungent odour.  Mr Kanagasabai thought it had an odour similar to molasses.  Mr Kanagasabai told the chief officer that the strainer was no good and still had molasses in it.  The chief officer said that he would clean it.  Mr Kanagasabai asked to look at the pump side and tank side valves.  The chief officer showed Mr Kanagasabai and Mr McCarthy the number 2 lines. Those lines, so far as they could see, appeared to be clear of liquid.  A member of the crew cleaned the strainer while the surveyors watched.

48                  Mr Kanagasabai and Mr McCarthy then asked to see, and were shown, pump 1 and its lines.  The strainer for pump 1 appeared clean and there was no liquid evident in the line on the pump side.  However, when the tank side valve for pump 1 was opened, a brown coloured liquid flowed into the strainer.  According to Mr Kanagasabai, it smelt similar to molasses. 

49                  Following their observations of the condition of the strainers on pumps 1 and 2, Mr Kanagasabai asked Mr McCarthy to issue a notice of protest to the Master of the Golden Lucy I concerning the dirty condition of the two strainers.  The notice of  protest, as completed by Mr McCarthy stated, materially:

‘Inspection of pump strainers found them to be containing molasses.  We hold you responsible for any time lost, damages or contamination caused by this.’

The Master acknowledged receipt of the notice but wrote on it:

‘The crew clean [sic] the pump strainers before start discharging.’

50                  After discussion with the chief officer, Mr Kanagasabai telephoned Jimmy Lafkiotis, Hilditch’s logistics co-ordinator.  Mr Kanagasabai told him that he had a look at the lines and pump and the ship had only cleaned line 2 for the cargo and no other lines were available for discharge.  He told Mr Lafkiotis that he had asked for the strainer to be cleaned again, which had happened.  Mr Kanagasabai suggested that discharge commence and the product be slopped until they knew that everything would be alright.  Mr Lafkiotis agreed with that proposal.

51                  In Mr Kanagasabai’s experience, it was usual practice for a terminal operator to provide slop tanks to which product can be directed in order to check that it is within specification.  The practice of slopping is a precaution to ensure that, in case of contamination, defective product can be isolated.  Also, an initial discharge into a slop tank may clear the lines and pumps of contaminant.  That would then allow uncontaminated product to be discharged to the main shore storage tanks.  Initially, Mr Kanagasabai thought that about 1,000-2,000L would need to be slopped.

52                  It was usual practice for surveyors at the commencement of discharge to draw a sample of a product like Yubase 6 at the ship’s manifold and to inspect it for its visual appearance.  If the product passes such a visual inspection, the ship can pump it to the terminal tanks.  If not, it can be pumped to a slop tank ashore.  After a reasonable interval, a second sample is taken from the ship’s manifold.  If that does not pass visual inspection, the vessel can be asked to stop pumping so that the cause of the contamination can be investigated.  When the product has the correct appearance and passes visual inspection at the ship’s manifold, the surveyor will draw a sample at the slop tank.  Depending on the visual appearance there, usually the surveyor will consult with the terminal representative and either direct the ship to continue pumping into a slop tank or allow the cargo to be pumped into the main shore storage tanks.  If product is being slopped, the surveyor continues inspecting its visual appearance until it appears as it should (eg Yubase should appear clear and bright), at which time it will be pumped to the main shore storage tanks.

53                  Capt Edgerton and Mr Kanagasabai said that it is normal practice for surveyors to take samples from the ship and shore manifolds to check whether the samples appear to be in order.  Sometimes surveyors show the sample to members of the ship’s crew nearby, sometimes they do not.

54                  Intertek’s practice for Yubase cargoes was to take samples from the manifolds in glass jars during the course of discharge.  The surveyor wrote on the jar the name of the ship, the nature of the product, and the time and place at which the sample was taken.  Later, after returning to Intertek’s office, the samples were formally recorded and relabelled.

55                  Contemporaneous records kept by Mr Kanagasabai and the Golden Lucy I show that discharge of the Yubase 6 commenced at about noon on 8 July.  When the discharge operation commenced at least one of the ship’s officers and some crew were at the ship’s manifold.  Mr McCarthy, assisted by the crew, took the first sample from the ship’s manifold as soon as the Yubase 6 began discharging.  He saw it was brown.  The crew also took a sample of their own.  Mr Kanagasabai observed that each of the two samples had a brown colour and were cloudy in appearance.  Mr Kanagasabai said that those two samples also had settled particulate matter in them and had a sweet smell similar to that of molasses.  Mr McCarthy left the jar containing the sample he took near the ship’s manifold then went to the wharf manifold to take another sample.  Mr Kanagasabai saw a crew member tip out the initial brown coloured sample Mr McCarthy had taken from the ship’s manifold.  He said that the crew member (who was not an officer) had not deliberately tipped it out.  Mr Kanagasabai said the crew did not speak English and had simply made a mistake.  Mr Kanagasabi immediately took another sample of 500Ml from the ship’s manifold.  By then, the liquid was no longer brown, but cloudy.  

56                  The officer also observed the taking of the two brown-coloured samples.  Mr Kanagasabai spoke to him about their condition.  He told the officer to stop the discharge of the Yubase 6 and asked for the master to be informed that the ship’s manifold samples were contaminated.  He went to the cargo control room where the chief officer helped him to speak to the master who then asked him to visit him in his cabin.  Mr Kanagasabai attended on the master and told him that the Yubase 6 was contaminated at the ship’s manifold.  He suggested that the master contact the vessel’s P & I Club.  The master said:  ‘OK’.

57                  Twenty minutes after discharge commenced a second sample of 500Ml was taken at the ship’s manifold.  Other samples were taken on 8 July at the terminal manifold and retained, but no other samples taken on that day at the ship’s manifold were recorded or retained.  Mr Kanagasabai showed Capt Edgerton two or three samples that had been drawn from the ship and shore manifolds as the Yubase 6 was being discharged.  Mr Kanagasabai told him that they were contaminated.  Capt Edgerton confirmed in his evidence that the samples he had been shown were not bright and clear. 

58                  I infer that Mr Lafkiotis of Hilditch decided to begin slopping the initial discharge of the Yubase 6 cargo in the hope that, first, whatever was causing the cloudy appearance or contamination would clear, and secondly, any contaminated cargo would be segregated from other cargoes.  Both Mr Kanagasabai and Mr McCarthy told Mr Lafkiotis that the product was ‘off spec’.

59                  After 12,000L of the Yubase 6 had been slopped, no more slopping tanks were available at the terminal.  Before the last slop tank had filled, Mr Lafkiotis decided to continue discharging the whole cargo, after discussing the matter with the Intertek surveyors.  Yubase 6 was then pumped from the ship to tank VO 20 at the terminal.  All Yubase 6 discharged on 8 July 2006 was cloudy.  And, although it was becoming clearer, it was not clear or clean.  Discharge continued until about 16.20, when it was suspended by the vessel for the day.  Discharge resumed on Sunday 9 July 2006 at about 7.10am.  Mr Kanagasabai took a sample of 300Ml from the ship’s manifold at 7.15am.  He immediately wrote in his note book the taking of the sample, location and time and that the sample was cloudy.  After tank VO 20 filled, the discharge was then made to the next empty tank, VO 17.  At about 8.55am the whole of the cargo had been discharged.  For about the last 15 minutes of discharging, the cargo appeared to be clear. 

60                    Intertek took a total of 23 samples in glass jars during the discharge operation, 3 from the ship’s manifold and 20 from the terminal manifold.  Mr Kanagasabai also took 5 samples in 1 litre tins from the storage tanks VO 20 and VO 17.  He wrote a statement of events on 14 July 2006 which recorded observations made during the discharge operation, including, specifically, the taking of the three cloudy samples at the ship’s manifold.  It also recorded that ‘[d]uring discharge, samples drawn at the ship and shore manifolds appeared cloudy but clearing [sic] progressively’.

61                  Mr Kanagasabai said in oral evidence that a number of other samples was taken at the ship’s manifold on 8 July by him, Mr McCarthy and the crew, but Intertek did not retain any.  Each was cloudy.  No record was made of those.  That contrasts with Intertek’s retention of 3 samples from the wharf manifold, 13 from the terminal manifold and 1 from the wharf line on 8 July.  Dorval criticised Mr Kanagasabai’s late introduction (during his cross-examination) of the taking of more samples at the ship’s manifold and contended I should not accept that evidence.  While the failure to keep those samples and to refer to their having been taken was unfortunate, nothing turns on it.  I accept Mr Kanagasabai’s evidence that a number of cloudy samples was taken at the ship’s manifold which were not retained or recorded.

SAMPLING:  RELIABILITY AND RESULTS OF TESTING

62                  Dorval argued that the way in which Intertek took, and kept, records of the samples undermined their reliability.  It noted that the receipt prepared by Intertek for samples provided to Mr Flynn, an expert chemist, on 12 October 2007 did not record any sample from the ship’s manifold taken on 9 July 2006.    The receipt was not prepared by either Mr Kanagasabai or Mr McCarthy.  Nor was it a contemporaneous business record taken at the time of the original sampling.  I do not consider it to be reliable.   I accept Mr Kanagasabai’s evidence and contemporaneous entry in his notebook that he took and retained a sample from the ship’s manifold at 7.15am on 9 July.  That sample was included in the receipt and samples provided by Intertek in October 2007 but erroneously described as having been taken at the shore manifold.

63                  Each of the three retained samples taken at the ship’s manifold appeared cloudy when it was taken.  That cloudiness or presence of contamination has been confirmed by scientific testing done shortly before the trial by Mr Flynn.  He found caustic soda present in each of the samples taken from the ship’s manifold and at the terminal (either from the slopping or main storage tanks).  Mr Flynn found no evidence of any molasses or vegetable oil present in any of the samples.

64                  I accept Mr Flynn’s evidence that he tested each of the 22 extant glass sample jars which included the three taken from the ship’s manifold (the 23^rd was broken) and found they all contained caustic soda.  He also found caustic soda in the 5 tins sampled from tanks VO 20 and VO 17 into which the bulk of the Yubase 6 had been discharged.

65                  Mr Ambler, a laboratory supervisor at Intertek, supervised analytical tests in July 2006 on the samples in the 5 tins.  He found that samples taken from the terminal tanks were cloudy in visual appearance and failed a copper corrosion test, indicating the presence of a corrosive substance, which was not then identified.  The tests which he caused to be performed showed that sulphur was present in minuscule proportions (less than one part per million).  Subsequently, during the course of his evidence, Mr Ambler indicated that the 5 tins had been retained, a fact of which the parties had not previously been aware.

66                  After Mr Flynn had given his evidence, both he and Mr Novella, the technical manager of SGS, performed further tests on the samples in the tins.  Their testing was done during a weekend adjournment of the trial.  Mr Flynn found that caustic soda was present in each of the samples in the tins.  Mr Novella agreed with that conclusion.  Mr Novella also found in the samples from the tins concentrations of potassium (about 2Mg per Kg) and sulphur (about 100Mg per Kg, when the maximum permissible in the Yubase 6 specification was 1Mg per Kg).  Mr Novella also found in some, but not all, samples some calcium, phosphorus and zinc in varying amounts.  He considered that those variations may indicate some inconsistency in sampling.

67                  Dorval argued that Mr Novella’s finding of sulphur and other elements in the samples he tested showed that some other source of contamination was responsible for rendering the Yubase 6 unusable by the time it was stored in the terminal tanks.  It argued that the presence of those elements could not be linked to the Golden Lucy I. 

68                  However, Mr Novella had never come across Yubase 6 before and did not know its chemical composition.  He was not aware that Yubase 6 was mildly acidic.  But, he said, assuming that some additive or additives which were mildly acidic or acidic were present in the Yubase 6, the acidic material would react with the caustic soda.

69                  Mr Flynn, whose evidence I accept, had said Yubase 6 contained acidic material which caustic soda, being highly alkaline, would attack, resulting in a change to the nature of the oil.  In his further report prepared after he had given evidence, Mr Flynn said that particulates appeared in the 4 tins he was asked to test (which did not include the ‘dead bottom sample’ from tank VO 20).  They were taken from tanks VO 20 and VO 17.  The particulates appeared to be rust (iron hydroxide).  He said their possible sources were either the pipes and valves through which the Yubase was pumped or corrosion of the metal sample tins in which the samples had been stored.  In the sample from tank VO 17, the concentration of caustic soda was 98 ppm (parts per million) by weight (i.e. milligrams of caustic soda per kilogram of Yubase 6) and, correspondingly, the level of corrosion on a test copper strip was severe.  By contrast, each of the 3 samples from tank VO 20, which were taken from the upper, middle and lower sections respectively, showed a concentration of caustic soda at 12 ppm.  Mr Flynn said that in the samples from tank VO 20 there was only slight corrosion on a test copper strip.

70                  No evidence was given to explain how the samples tested in July 2006 by Mr Ambler could have produced a reading of sulphur of less than one part per million and those same samples, when tested by Mr Novella on 2 December 2007, showed much higher concentrations of sulphur.  Moreover, no testing was done on the 22 extant samples in glass bottles to compare their composition, and in particular, their sulphur content, with that found by Mr Novella.

71                  Because Mr Novella did not know the chemical composition or properties of the Yubase 6 in its pure state and did not analyse the effect of contaminating it with caustic soda, I do not consider that the presence of sulphur and the other elements he detected in testing occurred independently of the reaction of the caustic soda with the Yubase 6 or the tins.  Mr Novella did not investigate the reason for any possible discrepancies between the July 2006 tests and his own.  Nor did he test the other 22 extant samples.  I prefer Mr Flynn’s evidence as more reliable, because of his knowledge of the properties of Yubase 6, where there is any difference with Mr Novella’s evidence.  I find that it is more likely than not that differences in, and any changes to, the samples in the tins between the Intertek testing in July 2006 and Mr Novella’s occurred as a result of the continuing corrosive effect of the caustic soda on the Yubase 6 oil and the tins themselves.

72                  Dorval also argued that the water content of the samples analysed by Intertek and Mr Flynn was markedly different.  Intertek’s results from July 2006 showed a very small amount of water.  Mr Novella’s testing showed that in the ‘dead bottom sample’ taken from tank VO 20 there was an aqueous phase with a density of oil to aqueous material of 2,000Ml to 40Ml.  This aqueous phase was not present in any of the other 4 tins.

73                  Mr Flynn initially thought that 2 samples, both taken as the first samples at the wharf manifold at the beginning of discharging on 8 and 9 July (samples 2 and 21 or 013586 and 013600) had more than 130,000 ppm of water.  Although he kept no records of the other samples, he said the testing indicated that the contamination in most was less than 2,500 ppm.  However, subsequently, he actually tested the substance, which he had earlier assumed to be water.  He then found it to be caustic soda in water.  He reported that the reason he had not detected caustic soda in the earlier tests was because it was present in such a significant amount that the pH electrode went into ‘electrolyte shock’ and could not measure the high pH levels.

74                  I am satisfied that Mr Flynn’s initial assumption of the presence of water in the amounts he described was an error.  He corrected it after discovering that the substance was a caustic soda solution.  There is no reason to doubt Mr Flynn’s analysis.  Neither he nor Mr Ambler was asked to reconcile Mr Flynn’s findings of the amount of caustic soda solution present with Intertek’s reports of July 2006 concerning water content.  Mr Novella did not find any aqueous phase in the samples from the tanks, except in the dead bottom sample, and even that had a high caustic soda content.

75                  All the samples had been contaminated with caustic soda.  I find that there was a leak on the Golden Lucy I.  The leak permitted the caustic soda which she was carrying to admix with the Yubase 6 before it passed the ship’s manifold.  It may be that the strength or quantity of the leak varied so that sometimes more and sometimes less caustic soda became admixed with the Yubase 6 before it passed the ship’s manifold.  There is no evidence to suggest, however, that lightning, in the form of caustic soda or some other contaminant, struck the Yubase 6 twice – once before and once after it passed the ship’s manifold.  Dorval did not identify how admixture could have occurred through two different causes in the same discharge operation.

76                  I am satisfied that the admixture happened on the ship before discharge of the Yubase 6.  I am satisfied that Dorval’s failure to comply with Art 3 r 2 was an operative and commonsense cause of the damage to the Yubase 6 cargo.

ARTICLE 3 RULE 2:  LIABILITY

77                  I accept that Capt Edgerton tested to ascertain whether valve P21 was closed and that he believed that it was.  None of the ship’s company gave evidence.  Nor was there any evidence of their practice or whether it accorded with Capt Edgerton’s views that good practice would have required closing valves 703 and 704 as well as valve P21.  There was no evidence that valve P21 was in good working order or how it had been maintained, if at all.  There was no evidence about whether valves 703 and 704 were closed, were in good working order or had been maintained.  However, the three samples taken by Intertek’s surveyors from the ship’s manifold were all contaminated with caustic soda, as was the rest of the cargo of Yubase 6, apart perhaps from that discharged in the last 15 minutes.  I am comfortably satisfied that the contamination occurred, on the ship, prior to discharge.  Capt Edgerton’s evidence and commonsense support that finding.

78                  The obligation of the carrier under Art 3 r 2 of the amended Hague Rules is a compound one.  It requires not only that the carrier exercise reasonable care in the discharge of the goods, but also that it have a sound system for discharging them:  Albacora SrL v Westcott & Laurance Line Ltd [1966] 2 Lloyd’s Rep 53 at 58 per Lord Reid, 62 per Lord Pierce and 64 per Lord Pearson;  Shipping Corporation of India Ltd v Gamlen Chemical Co (A/sia) Pty Ltd (1980) 147 CLR 142 at 163 per Mason and Wilson JJ (with whom Gibbs J and Aickin J agreed at 149, 168);  C V Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Ltd (2007) 160 FCR 342 at 370 [88] per Ryan and Dowsett JJ, 405 [229]-[230], 413 [266], [268] per Rares J.  Dorval did not lead any evidence of the system, if any, for discharge of a cargo such as Yubase 6 from the Golden Lucy I. 

79                  As Capt Edgerton said, caustic soda could not have become admixed with the Yubase 6 prior to it passing the Golden Lucy I’s manifold unless there had been some contamination in the ship’s lines or pump.  I am satisfied that the Yubase 6 was contaminated while the Golden Lucy I was discharging it by it being mixed with caustic soda after it left tanks 6S and 6P and before the cargo passed the ship’s manifold.  This contamination by the caustic soda constituted a breach by Dorval of its obligation under Art 3 r 2 properly and carefully to discharge the goods carried.  I find that in discharging the Yubase 6 cargo, Dorval failed to do so properly and carefully in breach of Art 3 r 2 of the amended Hague Rules.

ARTICLE 4 RULE 2:  IS HILDITCH RESPONSIBLE FOR ANY PART OF THE LOSS?

80                  Article 3 r 2 is, of course, expressly subject to the provisions of Art 4.  The interaction between the two articles was discussed recently by the Full Court in the Ankergracht 160 FCR 342.  It is well established that in order for a carrier to rely on the exceptions contained in Art 4 r 2 it must not be negligent or at fault, that is to say in breach of, relevantly, Art 3 r 2:  Gamlen Chemical 147 CLR at 152, 154 per Stephen J, 164-165 per Mason and Wilson JJ;  Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad (1998) 196 CLR 161 at 193 [85], 195-196 [91]-[95] per McHugh J, 216-219 [143]-[146] per Kirby J, 243 [228] per Callinan J, see too at 180-181 [49]-[50] per Gaudron, Gummow and Hayne JJ;  the Ankergracht 160  FCR at 413-414 [270] per Rares J.

81                  Dorval argued that it was entitled to the benefit of Art 4 r 2(i) which provides:

‘2         Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from …

(i)         Act or omission of the shipper or owner of the goods, his agent or representative.’

82                  Dorval said that Hilditch permitted discharge to continue in circumstances where it knew that the Yubase 6 was in good condition in the ship’s tanks but was discharging at the ship’s manifold in a contaminated condition.  Dorval argued that Hilditch should have stopped the discharge operation. Dorval pointed to the control which Hilditch exercised.   Initially it directed the slopping of about 12,000L into six different slop tanks.  Mr Lafkiotis said before deciding to stop that he understood from Mr Kanagasabai that the source of contamination was on the vessel.  During that operation the bulk of the slopped Yubase 6 remained visually contaminated.   Immediately after the last slop tank had been filled, Hilditch continued the discharge into tank VO 20 during the afternoon of 8 July.  When discharge operations resumed on 9 July, again, Mr Kanagasabai was aware that the cargo was still contaminated from the sample taken at the ship’s manifold at 7.15am.  Yet, Dorval argued, the cargo was still discharged by Hilditch.  Dorval said that in those circumstances, there was an act or omission of Hilditch, as owner of the goods, which caused the loss or damage.  It contended that Hilditch permitted the discharge operation to continue in circumstances where it made no contact, through its surveyors, with the ship’s officers about the contamination, other than the initial notice of protest.  That had been delivered immediately after the pump strainer for pump 2 was found to have been unclean, prior to any discharge occurring.

83                  Dorval relied on the evidence of Capt Edgerton and another expert it called, Capt Hannaway, who asserted that Hilditch’s Mr Lafkiotis had the responsibility and capacity to refuse to accept the cargo.  That evidence is inconsistent with the obligations of the carrier in Art 3 r 2 to discharge cargo properly and carefully.  It seeks to place a responsibility on the recipient of the cargo to exercise control over what is done or not done on the ship.  Of course, it was open to Hilditch to reject or refuse to receive the Yubase 6 once contamination was detected.  And that would have been a reasonable course for it to have taken.  But the possibility that Hilditch, as the recipient of cargo, might take such a decision must not be confused with the legal responsibility imposed on the carrier by Art 3 r 2.  The carrier must be aware of the nature of the cargo and must properly and carefully discharge it.  The fact that a recipient of the cargo can see that the carrier is performing the discharge operation on the ship’s side of the rail badly or negligently does not create a legal obligation or responsibility on the recipient to ask the carrier to stop.  A carrier which does not comply with its obligation to discharge properly and carefully in accordance with Art 3 r 2 acts at its peril.

84                  In construing the amended Hague Rules it is important to appreciate that they represent a scheme of allocation of responsibilities between the carrier and cargo interests.  The price which the carrier must pay if it breaches its obligations is also a compromise limited in its quantum by Arts 4 and 4 bis.  The rules do not contain a defence of, or exception of liability for, contributory negligence by a shipper or owner of cargo.  No authority was cited by Dorval to support the availability of a defence based on its attempt to make Hilditch responsible for the damage to the Yubase 6.

85                  The fundamental question which the rules require to be addressed in a case like this is why was the cargo damaged:  Great China 196 CLR at 173 [26], 181 [49] per Gaudron, Gummow and Hayne JJ, 195-196 [91]-[95] per McHugh J, 218-219 [146] per Kirby J, 243 [226] per Callinan J.  Here, the answer is clear:  because the ship did not properly and carefully discharge the Yubase 6.  It permitted the admixture.  The exceptions in Art 4 r 2 and particularly Art 4 r 2(i) simply cannot be engaged by a carrier who seeks to assert, as Dorval did here, that the cargo interest must direct it in performing its responsibilities under Art 3 r 2.

86                  Article 3 r 8 expressly prohibits a carrier contracting out of its responsibilities and liabilities under the amended Hague Rules.  I am of opinion that Dorval’s contention that Hilditch had a responsibility to stop Dorval discharging when it was in breach of its obligations under Art 3 r 2 should be rejected.

87                  Mr Kanagasabai and Mr McCarthy both gave evidence that during the discharge operations, the ship’s officers observed the taking of samples from the ship’s manifold from time to time.  They said, and I accept, that each of those samples was contaminated.  Each said that not all of the samples which he took were retained.  I accept their evidence.  I find that it was evident to both the ship’s officers and crew and Hilditch’s surveyors that the Yubase 6 was being discharged in a damaged condition and that the damage had occurred on the ship.  Hilditch could have asked for the discharge to be halted and the cause of contamination investigated.  Mr Kanagasabai did make such a request, but it appears to have been put to one side by him and the ship’s officers.  Just as obviously, the ship’s officers could have, and should have, halted the discharge operation after seeing that the cargo was discharging in a contaminated condition.  There is no evidence of why the officers and crew did nothing.

88                  I am of opinion that the damage did not arise or result from an act or omission from Hilditch to stop the discharge within the meaning of Art 4 r 2(i).  The damage arose or resulted from Dorval’s breach of Art 3 r 2 properly and carefully to discharge the Yubase 6, including its failure to stop the discharge.  There would have been no loss if the ship had taken steps or had a system in place to prevent the contamination occurring to the Yubase 6 in the course of the discharge operation.

89                  Article 4 r 2(i) provides an exception to the carrier’s liability in matters in which the damage arises or results from something which is beyond the control of the carrier or its servants:  Gamlen Chemical 147 CLR at 164 per Mason and Wilson JJ.  The damage here did not arise or result from something beyond the control of the ship or its servants.  Quite the contrary, the damage arose because the ship’s officers and crew could easily have stopped the discharge but did not.  Nor did they explain their failure to give evidence.  In Gamlen Chemical 147 CLR 142, Mason and Wilson JJ were considering the Hague Rules, but their comments are equally applicable to the amended Hague Rules.  They said that the scheme of the Rules was to impose certain responsibilities and liabilities on the carrier of goods by sea from which it could not contract out, by force of Art 3 r 8, but to give it immunity in respect of loss or damage caused otherwise than by negligence for which it is responsible, save in special cases to which they referred:  Gamlen Chemical 147 CLR at 165.

90                  In Gamlen Chemical 147 CLR at 163-164 Mason and Wilson JJ considered the question of concurrent causesof a loss under the Hague Rules.  There, the carrier argued that even though in breach of Art III r 2, the goods had not been properly stowed, it was entitled to the benefit of the exception in Art IV r 2(c) because the vessel had encountered conditions which amounted to a peril of the sea.  The trial judge had found that had the goods been properly stowed, the damage would not have occurred.  Thus, the negligent stowage and the perils of the sea were concurrent causes of the loss.  Mason and Wilson JJ said:

‘It seems to us that an accurate reflection of these findings requires one to treat the two concurrent causes of the loss as inseparable, and therefore joint. The loss would not have occurred but for the faulty stowage, but on the other hand, the faulty stowage did not cause the loss by itself. On this view, and treating the matter strictly as a matter of construction of the rule, it cannot be said that the damage resulted from a peril of the sea, and the appellant fails.’

91                  Thus, the carrier could not escape liability by proving the existence of a circumstance excepting it under Art IV r 2 where its negligence in breach of Art III r 2 had caused damage to the cargo.  Mason and Wilson JJ said that a construction which excepted the carrier from liability in that scenario would denude the obligation imposed by Art III r 2 of much of its substance.  They recognised that a number of the exceptions in Art IV r 2 involved situations which were beyond the control of the carrier or its servants.  They said that any reference in that context to negligence was inappropriate because the events excepted were, of their nature, ones which occurred independently of negligence on the part of the carrier.

92                  Mason and Wilson JJ explained (Gamlen Chemical 147 CLR at 165):

‘To the extent to which Art. III, r. 2, by using the word “properly” imposes on the carrier a more onerous duty than an absence of negligence then clearly to that extent the immunities described in Art. IV, r. 2 operate to qualify the liability otherwise resting on the carrier; indeed, if this is not the case then as Temperley points out in his monograph, Carriage of Goods by Sea Act 1924, 3rd ed, p 48, pa.r (q) is not an immunity at all, for it would do no more than shift the onus of proof on to the carrier. On the other hand, if such a line of reasoning seeks to extract a greater symmetry of purpose than the Rules viewed in their entirety will admit, then the proper observation is simply that it must not be thought that the effect of the prefatory words to Art. III, r. 2 is to compel some impact on the scope and operation of the obligation imposed by that rule from every provision in Art. IV.’

93                 At the end of the day, the question of whether a carrier can rely upon an immunity under Art IV r 2 must be answered by reference to all the circumstances of a particular case:  Gamlen Chemical 147 CLR at 165 per Mason and Wilson JJ.  Where the facts disclose that a loss was caused by the concurrent effects of an excepted and non-excepted circumstance, the carrier remains liable.  The carrier will only escape liability if it proves that the loss or damage was caused by an excepted circumstance alone:  cannot The Torenia [1983] 2 Lloyd’s Rep 210 at 218;  see also Tetley W, Marine Cargo Claims (3^rd ed, 1988) p 328.

94                  It follows that despite Hilditch not applying some commonsense and halting the discharge, the damage did not arise or result from any act or omission of Hilditch so as to enliven the exception of Dorval’s liability within the meaning of Art 4 r 2(i) of the amended Hague Rules.  There would have been no loss if Dorval, as the carrier, had properly and carefully discharged the Yubase 6.

95                  In Heskell v Continental Express Ltd [1950] 1 All ER 1033 at 1046-1048 Devlin J discussed the operation of concurrent causes on the ability of a plaintiff to recover damages in both tort and contract.  He concluded that whatever the true rule of causation may be, if a breach of contract is one of two causes, both co-operating and both of equal efficacy, it was sufficient to entitle the plaintiff to recover damages for breach of contract:  Heskell [1950] 1 All ER at 1049.

96                  By force of ss 8 and 10 of the Sea-Carriage Documents Act, Hilditch as a lawful holder of the bill of lading for the Yubase 6 cargo was entitled to assert the rights of the shipper and was subject to its liabilities under the bill of lading.  Because Art 2 of the amended Hague Rules makes the carrier subject to the responsibilities and liabilities and grants it the entitlement to the rights of immunities set out in the Rules as part of the contract of carriage of goods by sea incorporated in the bill of lading, the contractual analysis adopted by Devlin J is apposite here:  cf:  Borealis AB v Stargas Ltd [2002] 2 AC 205 at 221 [26] 226-227 [31] per Lord Hobhouse of Woodborough.

97                  Even if Dorval had been entitled to rely on the immunity in Art 4 r 2(i), because the causes were at least concurrent, it would have remained liable to Hilditch in damages.  I am of opinion, however, that the responsibility for the damage, as a matter of commonsense, was substantively greater on the part of Dorval.  Its breach of Art 3 r 2 caused the contamination to occur in the first place.  The crew of the vessel were in as good a position as Hilditch to see the contamination as the cargo was passing through the ship’s manifold.  Both the ship’s crew and Hilditch’s surveyors observed, by sampling at the ship’s manifold, the condition of the Yubase oil in its contaminated form.  Each had the opportunity to stop the discharge.  Neither did.  To that extent their contribution to the damage may have been of equal efficacy, but superimposed on that were the obligations of Dorval under Art 3 r 2.  There was no explanation, for example, how a proper system could have allowed the cargo to be discharged in the state it did.  Dorval called no evidence as to how the cargo could have been discharged by the ship in the circumstances where there was evident contamination when it was passing through the ship’s manifold which indicated the source was on the ship.  I accept Capt Edgerton’s evidence that good tanker practice required the valves in the tanks and connecting pipes which could permit the entry of caustic soda into the conveying lines for the Yubase to be sealed when the Yubase was being discharged.  It is likely that there was some failure in that sealing process which led to the damage through contamination of the Yubase prior to its discharge from the Golden Lucy I.  That being so, had the ship’s crew been applying due care and acting under a proper system, they would not have permitted the discharge of the Yubase 6 to commence or continue without first investigating and stopping the source of  the contamination.

98                  At the hearing, Dorval only pressed an argument on the exception under Art 4 r 2(i) and did not advance any assertion that it relied on any other exception in that rule referred to in the parties’ filed statement of issues.

99                  Accordingly, I am of opinion that the predominant responsibility for the damage lies with Dorval.  And, even if Hilditch’s and Dorval’s responsibility for the continuation of the discharge while contamination was occurring on board the Golden Lucy I were equal, Gamlen Chemical 147 CLR 142 requires me to find Dorval liable for damages.

OTHER DEFENCES:  ARTICLE 3 RULE 6

100               Relevantly Art 3 r 6 provides:

‘6.        Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, or, if the loss or damage be not apparent, within three days, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the sea carriage document.’

101               Immediately following completion of the discharge, Mr Kanagasabai delivered to the master at about 9.00am on 9 July a second notice of protest.  He said to the master that he was giving him a ‘consolidated notice’ and that he had protested previously but had included everything in the latest notice.  The notice stated, relevantly:

‘We … draw your attention to the following irregularities.

1.         Prior to discharge No 2 pump strainer was inspected and noted to contain Molasses.

2.         At the commencement of discharge, manifold samples were noted to be discoloured and contained substance like Molasses.

3.         Approximately 12000 litres were slopped in to shore slop tanks due to cloudy samples.

4.         Throughout the discharge, ship and shore manifold samples drawn were cloudy.

5.         There were delays to discharge because of cleaning No 2 pump strainer and slopping to minimize contamination.

Details of any claim will be submitted in due course if considered necessary.

Should you or your agent wish to make contact on any matter arising out of this notice, please contact our principals or ourselves.’

The master recorded on the notice:

‘The substance like molasses is incorrect.  The quantity counts only from Caleb Brett Surveyor.’

102               Significantly, the master denied that molasses was the contaminant but did not comment on, let alone deny, that the samples drawn from the ship’s manifold were cloudy throughout the discharge.

103               Despite pars 3 and 4 of the second notice of protest, Mr Dempster of Dorval asserted that the first notice of a claim for damage which it received was a letter from Hilditch’s solicitors dated 19 March 2007 advising of the commencement of these proceedings.  Dorval argued that neither notice of protest was a notice of loss or damage within the meaning of Art 3 r 6.  It said that each notice merely indicated that if there were loss or damage suffered, Hilditch would seek to hold Dorval accountable.  Dorval thus argued that it was entitled to the prima facie presumption that Art 3 r 6 provides, namely that the Yubase 6 was delivered in the good order and condition in which it had been received.

104               First, pars 3 and 4 of the second notice refer to the cargo being cloudy throughout the whole discharge operation. That conveyed that the Yubase 6 was discharged in a damaged condition.  The master did not comment on that complaint.  I infer that he did not do so because it was correct to his knowledge.  Secondly, the master was given the second notice as soon as discharge was complete.  If the goods were not a liquid pumped off the ship, but were carried in a container, a notice given immediately after they had been discharged onto the shore would meet the requirements of Art 3 r 6.  The rule must be interpreted in a practical way.  When Art 3 r 6 speaks of ‘… the removal of the goods into the custody of the person entitled to delivery …’, it contemplates that the goods may have been discharged from the ship and stored at the wharf before they are removed by that person.  The purpose of the requirement is to afford the carrier an opportunity to inspect, even after discharge but before removal from the vicinity of the ship.  The rule cannot have been intended to require a notice to be given as soon as the cargo was above, and no later than it passed, the ship’s rail:  cp Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300 at 309 per Lord Wilberforce (dealing with contractual provisions concerning delivery).

105               Thirdly, the prima facie position provided in Art 3 r 6 has been displaced by the reality established in the evidence that the cargo was damaged after it left the ship’s tanks and before it passed the ship’s manifold.  Since Hilditch brought the proceedings within the year allowed in Art 3 r 6, even if it did not give a notice, having proved its case it is entitled to succeed.

106               Dorval’s argument based on Art 3 r 6 is without substance.  I am of opinion that the second notice of protest was given within the period ‘at the time of discharge’ of the Yubase 6 within the meaning of Art 3 r 6.

DAMAGES

107               Dorval argued somewhat faintly that Hilditch should have tried to separate the Yubase 6 from its contaminant after discharge.  Dorval did not prove that any other use or refinement was available for the Yubase 6 to give it a value greater than Hilditch’s insurer obtained.  That decision to sell the Yubase 6 as it was, and the sale, occurred when the information available to Hilditch suggested contamination by molasses.  There is no evidence that it was possible to restore the contaminated Yubase 6 to the quality it ought to have had.  I accept Mr Flynn’s expert opinion that caustic soda attacks acidic material in the Yubase 6 oil which then changes its nature.  That precludes decanting being an effective response because the nature of the Yubase 6 will not be the same after the admixture with caustic soda.

108               Richard Connor was the sales manager of Hilditch.  He had over 15 years’ experience working for oil companies.  Mr Connor gave unchallenged evidence that any level of water or caustic soda in Yubase 6 would make it unacceptable to Hilditch and its customers.  He said that it was used in the manufacture of high quality engine oils and that it must be perfectly clear and pure.  Mr Connor said that any level of caustic soda would attack the block and head of a modern engine and cause substantial damage to it.  He was not aware of any use available for Yubase 6 with such contamination.  I accept that evidence.

109               I accept Hilditch’s calculation of its loss as AUD560,013.36.  The methodology for that figure was not contested.  Hilditch is entitled to judgment in that amount with interest and costs.

110               The usual practice of the Court when awarding interest under s 51A of the Federal Court of Australia Act 1976 (Cth)is to adopt the rates of interest applied by the Supreme Court of the State or Territory in which the Court is sitting.  I have previously considered that to be appropriate in a case like the present:  Consort Express Lines Pty Ltd v J-Mac Pty Ltd (2006) 232 ALR 341 at 358 [97].  The Supreme Court of New South Wales has a similar power to order interest before judgment under s 100 of the Civil Procedure Act 2005 (NSW).  As with s 51A, there is no prescribed rate under s 100 of the Civil Procedure Act.  However, Schedule 5 of the Uniform Civil Procedure Rules 2005 (NSW) prescribe as the rate payable on judgment debts 9% per annum for the period between 1 March 2002 and 31 December 2006 and 10% thereafter.  That compares to 10.5% which, since 1997, O 35 r 8 of the Federal Court Rules 2001 (Cth) has prescribed as the equivalent rate on judgment debts in this Court.  The practice in the Supreme Court of New South Wales has been to use its prescribed rates as a ‘broad standard approach’ to the award of prejudgment interest:  Kalls Enterprises Pty Ltd (In Liq) v Baloglow (No 3) [2007] NSWCA 298 at [22] per Giles, Ipp and Basten JJA.

111               There should be added to the judgment sum interest of $77,558.01 (175 days at 9% from 9 July 2006 to 31 December 2006 and 348 days at 10% from 1 January 2007 to today).  Therefore, I will give judgment for the plaintiff in the sum of $637,571.37. 

Associate:

Dated:         14 December 2007