FEDERAL COURT OF AUSTRALIA
NSD 104 of 2015
Date of judgment:
Date of order:
31 August 2018
ADMIRALTY – carriage of goods by sea – whether charterparty or bill of lading is contract of carriage
ADMIRALTY – charterparty – provision for substitution of vessel – whether substitution clause effects novation of charterparty with owners of substitute vessel
EVIDENCE – where party destroys or fails to preserve real evidence consisting of damaged machinery – where court orders retention – whether all possible adverse inferences should be drawn against party
EVIDENCE – proof of reasonableness of settlement – where cargo owner settles claim by salvor in respect of cargo owner’s liability for salvage – factors to be considered – where shipowner does not explain to cargo owner how event giving rise to salvage occurred
SHIPPING AND NAVIGATION – salvage – 1989 Convention on Salvage – whether vessel was in danger – factors relevant to quantification of salvage award
EVIDENCE – where witness disbelieved – whether positive inference can be drawn to opposite of false story
SHIPPING AND NAVIGATION – transhipment – whether cargo owner entitled to claim transhipment costs of part of cargo while vessel repaired at a port not being the port of discharge – where transhipment costs incurred due to ship owner’s breach of obligation in contract of carriage to exercise due diligence before and at commencement of voyage to make ship seaworthy under Art 3(1) of amended Hague Rules – where cargo owner had signed letter of indemnity – construction of letter of indemnity
ADMIRALTY – general average – York-Antwerp Rules, rule D – whether shipowner at fault can claim contribution to general average expenses where ship unseaworthy
Evidence Act 1995 (Cth) s 136
Federal Court of Australia Act 1976 (Cth) s 22
Navigation Act 2012 (Cth) ss 14, 241
Protection of the Sea (Powers of Intervention) Act 1981 (Cth) ss 10, 11, 16, 17B, 19
Admiralty Rules 1988 (Cth) rr 19, 22, 23, 36, 80
Federal Court Rules 2011 rr 8.03, 16.02
Navigation Regulation 2013 (Cth) reg 17
Sea-Carriage Documents Act 1996 (Qld) ss 3, 6, 8
Carriage of Goods by Sea Act 1971 (UK)
Allen v Tobias (1958) 98 CLR 367
Australian Iron & Steel Ltd v Greenwood (1962) 107 CLR 308
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345
Banco de Portugal v Waterlow & Sons Ltd  AC 452 Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279
Beluga Shipping GmbH & Co v Headway Shipping Ltd  FCA 1791
Biggin & Co Ltd v Permanite Ltd  2 KB 314
BNP Paribas v Pacific Carriers Ltd  NSWCA 72
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472
CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Commonwealth Bank of Australia v Barker (2014) 253 CLR 169
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466
Compagine Générale Transatlantique v Owners of TF Barry and Auburn (The Amerique) (1874) LR 6 PC 468 at 465
Corry v Coulthard (1876) 3 Asp MLC 546
Dimech v Corlett (1858) 12 Moo PC 199
E.G. Cornelius & Co v Christos Maritime Co Ltd (The “Christos”)  1 Lloyd’s Rep 106
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Fisher v The Oceanic Grandeur (1972) 127 CLR 312
Fratelli Sorrentino v Buerger  3 KB 367
Goulandris Brothers Ltd v B. Goldman & Sons Ltd  1 QB 74
Hadley v Baxendale (1854) 9 Exch 341
Hamilton v Whitehead (1988) 166 CLR 121
Hansen v Harrold Brothers  1 QB 612
Henderson v Public Transport Commission of New South Wales (1981) 56 ALJR 1
Hi-Fert Pty Limited v Kuikiang Maritime Carriers Inc (The Kuikiang Career) (2000) 173 ALR 263
Hilditch Pty Ltd v Dorval Kaiun KK (No 2) (2007) 245 ALR 125
James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd  AC 141
JI MacWilliam Co Inc v Mediterranean Shipping Co SA (The Rafaela S)  2 AC 423
Joseph Watson & Son Ltd v Fireman’s Fund Insurance Company of San Francisco  2 KB 355
Leveraged Equities Ltd v Goodridge (2011) 191 FCR 71
Louis Dreyfus & Co v Tempus Shipping Co  AC 726
Love and Stewart Ltd v Rowtor Steamship Co Ltd  2 AC 527
Mitsui & Co Ltd v Beteiligungsgesellschaft LPG Tankerflotte MSBH & Co KG (The “Longchamp”)  1 Lloyd’s Rep 1
Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad (1989) 167 CLR 219
Plaintiff M61/2010E v Commonwealth (2010) 243 CLR 319
President of India v Metcalfe Shipping Co Ltd (The “Dunelmia”)  1 QB 289
Robinson v Harman (1848) 1 Exch 850
Rodocanachi v Milburn (1886) 18 QB 67
Schloss v Heriot (1863) 14 CBNS 59
Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640
Strang, Steel & Co v A Scott & Co (1889) 14 App Cas 601
The Batavier (1853) 1 Spinks (E&A) 169
The Beaverford (Owners) v The Kafiristan (Owners)  AC 136
The Charlotte (1848) 3 W Rob 68
The City of Chester (1884) 9 PD 182
The Henry Ewbank 11 F Cas 1166 (1833)
The M. Vatan  1 Lloyd’s Rep 336
The “National Defender”  Lloyd’s Rep 40
The Ship “Socofl Stream” v CMC (Australia) Pty Ltd  FCA 961
The Strathnaver (1875) 1 App Cas 58
The Roanoke 214 F. 63 at 65 (1941: CA 9)
The Sarpen  P 306
The Tramp  2 Lloyd’s Rep 363
The Velox  P 263
Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Turner v Haji Goolam Mahomed Azam  AC 826
United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC (2006) 163 FCR 151
United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC (2007) 163 FCR 183
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603
Vale v Sutherland (2009) 237 CLR 638
Vickery v Woods (1952) 85 CLR 336
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530
Bennett H (ed), Carver on Charterparties (Sweet & Maxwell, 2017)
Cooke J, Lowndes & Rudolf: General Average and the York-Antwerp Rules (14th ed, Sweet & Maxwell, 2013)
Cooke J, Young T, Ashcroft M, Taylor A, Kimball J, Martowski D, Lambert L, Sturley M, Voyage Charters (4th ed, Informa, 2014)
Davies M, Dickey A, Shipping Law (4th ed, Lawbook Co, 2016)
Eder B, Bennett H, Berry S, Foxton D, Smith C, Scrutton on Charterparties and Bills of Lading (22nd ed, Sweet & Maxwell, Thomson Reuters, 2011)
Girvin S, Carriage of Goods by Sea (2nd ed, Oxford University Press, 2011)
Reeder J (ed), Brice on Maritime Law of Salvage (5th ed, Sweet & Maxwell, 2011)
Rose F (ed), Kennedy & Rose: Law of Salvage (8th ed, Sweet & Maxwell, 2013)
New South Wales
National Practice Area:
Admiralty and Maritime
Number of paragraphs:
Solicitor for the Plaintiff:
Counsel for the Defendant:
Mr AM Stewart SC with Mr D Habashy
Solicitor for the Defendant:
Norton Rose Fulbright
DATE OF ORDER:
THE COURT ORDERS THAT:
1. The parties agree on orders to give effect to the reasons for judgment published today, on or before 31 August 2018.
2. The proceeding be stood over to 4.15pm on 31 August 2018 for the making of final orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
NSD 104 of 2015
MOUNT ISA MINES LTD
THE SHIP "THOR COMMANDER"
DATE OF ORDER:
31 AUGUST 2018
1. The Plaintiff is not liable to make any contribution in the General Average declared on 13 January 2015 in respect of the main engine breakdown of the ship “Thor Commander” on her voyage from Puerto Angamos, Chile to Townsville Australia.
THE COURT ORDERS THAT:
2. There be judgment for the Plaintiff against the Defendant and MarShip GmbH & Co. KG MS “Sinus Aestuum” in the sums of:
(a) USD1,010,262.60 (being damages of USD909,000 together with interest thereon of USD101,262.60 pursuant to section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth)).
(b) £47,492.46 (being damages of £42,660.47 plus £431.99 together with interest thereon of £4,400 pursuant to section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth)).
(c) AUD175,956.27 (being damages of AUD147,956.27 together with interest thereon of AUD28,000 pursuant to section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth)).
3. The Cross Claim be dismissed.
4. The Defendant and MarShip GmbH & Co. KG MS “Sinus Aestuum” pay the Plaintiff’s costs of the proceedings (including its costs of and occasioned by the Cross Claim).
5. The Plaintiff’s application for an order for costs on an indemnity basis from 18 June 2017 be stood over for hearing to 26 October 2018 at 2.15pm.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
1 The mythological Norse god, Thor, wielded a hammer and (like his Greek and Roman counterparts, Zeus and Jupiter) was associated with, among other phenomena, thunder, lightning and storms. Fortunately, it is not necessary to decide whether Thor was at work at about 15:20 local time (LT) on 11 January 2015 when the main engine of Thor Commander suffered a major breakdown in close proximity to the Great Barrier Reef. There were other causes operating that resulted in the main engine’s No 5 cylinder (cylinder 5) seizing, that have a more prosaic explanation.
2 The engine failure occurred while Thor Commander was en route from Puerto Angamos, in Chile, to Townsville on the north eastern coast of Australia. She was a general cargo vessel of 6,351 gross registered tonnes, with a value for limitation and general average purposes of USD7,344,289.83. The ship was carrying a cargo of 3,044 bundles of altonorte copper anodes, weighing 8,508.768 metric tonnes, worth USD63,178,742.45, owned by the plaintiff, Mount Isa Mines Ltd.
3 Mount Isa was a member of the Glencore International AG group, as was Copper Refineries Pty Ltd, that operated the Townsville Copper Refinery.
4 On 27 November 2014, Mount Isa and a company in the Danish fleet operator group controlled by Thorco Shipping A/S (Thorco Denmark) agreed the terms of the recap for a voyage charter of Thorco Challenger to carry the cargo from Angamos to Townsville. The recap did not name the disponent or actual owner of Thorco Challenger, but, in the past, Mount Isa had regularly chartered vessels in Thorco Denmark’s fleet.
5 The recap allowed “owners” to substitute another vessel seven days before the laycan commenced, subject to charterer’s approval. The recap provided that any bill of lading be claused “freight payable as per CP”. Thor Commander came to be substituted as the carrying vessel. There is a dispute as to whether her German owner, MarShip GmbH & Co KG MS “Sinus Aestuum”, carried the cargo on terms governed by a bill of lading or the charterparty reflected in the recap. If the bill of lading was the contract of carriage, then it was governed by the amended Hague Rules in Sch 1A to the Carriage of Goods by Sea Act 1991 (Cth) (COGSA) as provided in cl 2(b) of the bill.
6 The copper anodes had a purity of 99.7% of copper that would be ameliorated at the refinery to 99.995% purity to enable the copper to be sold into the world market for copper cathode production. The refinery comprised 37 sections each of which required a constant supply of anodes for refining. An electrolytic process operated in a cycle of 18 days. If a section of the refinery could not be reloaded, it had to be shut down until the next 18 day production cycle began. And, because of the constancy of the worldwide demand for purified copper cathode anodes, any loss from a section of the refinery being withdrawn from a production cycle could not be made up by later cycles, as the refinery ran continuously at full capacity.
7 After the main engine breakdown, Thor Commander drifted in the Coral Sea, off Mackay towards the Reef. As I will explain in more detail below, her owners organised for a tug, Smit Leopard, to leave Townsville to tow the vessel to Gladstone. However, the Australian Maritime Safety Authority (AMSA) and the Ukrainian master of Thor Commander, Captain Glib Chaplin, were uncertain whether Smit Leopard would arrive in time before the prevailing weather conditions might cause the ship to ground on the Reef.
8 At about 07:45 LT on 12 January 2015, AMSA issued a pan-pan signal (that is an international alert of an urgent situation) seeking assistance to provide a tow for the distressed ship. Later that morning, Captain Li Fazhong, the master of Xinfa Hai, a 289 metre l.o.a. capesize of 174,766 metric tonnes, made contact with both AMSA and Capt Chaplin to offer assistance. Xinfa Hai was in ballast heading south to Newcastle to load a cargo. As events unfolded, Xinfa Hai came to tow Thor Commander away from the Reef to where she was met, on 13 January 2015, by Smit Leopard which then towed her to Gladstone.
9 On 13 January 2015, Thor Commander declared general average. Those events resulted in three issues in this proceeding, first, whether Xinfa Hai was entitled to a salvage reward, secondly, whether the USD1 million that Mount Isa, through its marine cargo insurers, paid for salvage was a reasonable sum, and if not, what was, and thirdly, whether Mount Isa acted reasonably in incurring about AUD147,956.27 in costs to tranship some of the cargo from Gladstone to the refinery to maintain it in full production while Thor Commander underwent repairs at Gladstone.
10 MarShip argued that it is not liable for the transhipment costs because of, for among other reasons, the terms of a letter of indemnity dated 19 January 2015 between it and Mount Isa pursuant to which the ship partially discharged about 1,030 metric tonnes of the cargo at Gladstone.
11 On 31 October 2016, Groninger, Welke, Janssen reported their preliminary adjustment of general average. That ascertained that the cargo interest (Mount Isa) was liable to pay the owners of Thor Commander (i.e. MarShip) was USD1,163,681.77. Mount Isa denies that it is liable to contribute to general average because of MarShip’s actionable fault within the meaning of rule D of the York-Antwerp Rules 1994 (as amended) at London in respect of the maintenance of the ship’s main engine.
12 In substance, there are six major issues to resolve, namely:
(1) What was the contract of carriage (the contract issue)?
(2) What was the cause of the breakdown of the main engine on 11 January 2015 and was MarShip at fault or negligent in the circumstances in which the breakdown occurred (the causation issue)?
(3) Was Thor Commander in need of salvage by Xinfa Hai (the salvage issue)?
(4) Was the USD1 million settlement of the cargo owner’s liability for salvage reasonable and, if not, what sum was reasonable (the salvage quantum issue)?
(5) Is Mount Isa able to recover its transhipment costs (the transhipment issue)?
(6) Is Mount Isa entitled to a declaration that it is not liable to contribute to general average and is entitled to reimbursement of its costs in providing its general average bond (the general average issue)?
13 Before I deal with each of the above issues, it is necessary to explain the structures of the Thorco Denmark and MarShip groups. That will assist in ascertaining the identity of the parties to the contract of carriage and the charterparty.
14 Thomas Mikkelsen was the chief executive officer of Thorco Denmark. He said that Thorco Denmark was “a controlling shareholder” of each of the Brazilian company, Thorco Shipping Brazil-Empress de Navagacao Ltda (Thorco Brazil), the Chilean company, Thorco Shipping SpA (Thorco Chile) and the German company, Thorco Shipping Germany GmbH (Thorco Germany), in which it held 60%, or 150, of the 250 issued shares.
15 On 17 February 2014, MarShip entered into a pool agreement together with other ship owners and disponent owners (including Thorco Denmark, as disponent owners) as pool partners on the one part and, on the other part, with Thorco Germany as pool manager. The pool partners agreed to form “an undisclosed civil law partnership” for the purposes of creating a revenue pool to evenly distribute the risks of fluctuating returns in the chartering trade. The revenue earned by each pool partner’s ship or ships (including, as cl 6(6) provided, charter hire and freight) would be pooled together in a bank account conducted in Thorco Germany’s name.
16 Thorco Germany would manage each pool vessel (cl 1(3)). Although the pool agreement was executed on 17 February 2014, cl 2(1) provided that it had commenced on 31 May 2013. Importantly, cl 5 provided that the pool manager conducted the commercial employment of the pool vessels and it could enter into all contracts of affreightment, charterparties “and all other services in connection with the commercial management as agent for and on behalf of the owners”, subject to obtaining a respective owner’s written consent for contracts with a term greater than three months. In addition, cl 6(6) provided that, as Mr Mikkelsen explained:
It is understood that the Pool Manager [Thorco Germany] is entitled to subcontract administration tasks to the mother company in Copenhagen [Thorco Denmark] at their own cost and risk.
17 In June 2013, MarShip entered into a BIMCO SHIPMAN 2009 form standard ship management agreement (the Shipman agreement) with Thorco Germany in relation to the commercial management of Thor Commander. The Shipman agreement excluded technical and crew management from its scope of management services (boxes 6 and 7 and cl 1.5) but included chartering services (box 8).
18 Thorco Germany would carry out the management services in respect of the vessel as agents for and on behalf of her owners, MarShip (cl 3), including seeking and negotiating her employment, and the conclusion and execution of charterparties (subject to first seeking MarShip’s written consent if the term exceeded six months (cl 6(a) box 9)). Because Thorco Germany was not providing technical services under the Shipman agreement, cl 9(c) required MarShip to procure satisfaction of the requirements of Thor Commander’s flag State and to notify the name and contact details of the organisation that MarShip had engaged for that purpose. And, cl 11 provided that all moneys would be collected and dealt with under the pool agreement that (or an earlier version) was an annexure.
19 On 1 November 2013, each of Thorco Brazil, Thorco Chile and Thorco Germany entered into a separate, but relevantly identical, commercial agreement with Thorco Denmark that recited that Thorco Denmark “partly owned and controlled” the other respective party. Each commercial agreement was in materially identical terms. Each recited that the respective partly owned company provided vessel chartering and management services to Thorco Denmark acting on its behalf in commercial matters.
20 Thorco Germany’s version of the commercial agreement provided it would act as agents on behalf of Thorco Denmark and be responsible for the commercial chartering, booking and fixing of vessels defined as Thorco Vessels, in an annexed list of vessels that Thorco Denmark owned, chartered or commercially managed (cll 1.1, 1.3). Thorco Germany had to cooperate with Thorco Denmark “and other Thorco offices in fixing Thorco Vessels” (cl 1.2). Importantly, cl 1.4 provided:
All fixtures relating to Thorco Vessels concluded by Thorco Germany are to be made on behalf of, in the name of, and at the risk of Thorco Denmark.
21 Moreover, in providing the services, Thorco Germany “acts under the instructions of Thorco Denmark” (cl 1.5). Thorco Germany was responsible for providing the services under cl 1.1 in the area of Germany and elsewhere as agreed (cl 2). Thorco Germany received stipulated rates of commission for fixtures depending on whether Thorco Denmark owned, time chartered or commercially managed the vessel and whether the fixture was within or outside the agreed area under cl 2 (cl 3). The Thorco Vessels in Thorco Denmark’s commercial management, relevantly, included Thor Glory, Thorco Challenger and Thor Commander (albeit that she was named in the list of Thorco Vessels as “Thorco Commander”).
22 Michael Dragsbæk was the managing director of Thorco Chile in 2014 and responsible within the Thorco group for fixing the charter of Thor Commander with Mount Isa. Prior to holding that position, he had been chartering manager for Thorco Brazil. He was aware of the terms of the commercial agreements that each of his employers had with Thorco Denmark that provided that each acted as agent of Thorco Denmark in fixing of ships that it owned, chartered or commercially managed. He had acted for Thorco Brazil in fixing shipbrokers for charters with Mount Isa in respect of an unnamed vessel on 11 June 2013, and Thor Glory on 17 July 2013, similarly for Thorco Chile, in fixing Thor Asia on 8 July 2014, Thorco Clairvaux on 27 August 2014, Thorco Atlantic on 29 October 2014 (that was subsequently cancelled), Thor Asia on 30 October 2014 and, importantly, Thorco Challenger on 27 November 2014.
23 Thor Commander was a single screw, general cargo ship, with a Rolls-Royce main engine. She displaced 9,739 deadweight tonnes and was 132.2 metres l.o.a. She was launched in November 2010. Jan Held was the managing director of MarShip GmbH and the fleet manager of the MarShip group. MarShip GmbH was the sole partner authorised under German law to act on behalf of MarShip. Another company in the MarShip group was MarShip Bereederungs GmbH & Co KG (MarShip Management).
24 On 3 January 2011, MarShip entered into a ship management agreement in respect of Thor Commander with MarShip Management, as ship operator. MarShip Management agreed to carry out all measures necessary to operate, use, maintain and charter the ship exercising due care, including conducting technical inspections and taking all measures necessary to maintain her class and certificates necessary for her to operate (cl 2(1)). Its primary tasks included adequately maintaining the ship, including providing services such as qualified masters, officers, engineers and crews required for that purpose and maintaining her and all her machinery and equipment in operational condition (cl 2(3)(b), (e), (f)). MarShip Management also had to provide MarShip with a report on Thor Commander’s technical condition after each docking, quarterly operating reports on her ongoing operations and immediate reports about any unusual events. It also had to allow MarShip to inspect business documents relating to the ship’s operation (cl 6). MarShip Management had authority under cl 7(2) “to create seamen’s work contracts in its own name on behalf of” MarShip.
25 Mr Held graduated in 1998 as a master mariner and was at sea in that role from then until 2001. After holding two positions in shipping companies he became managing director of Held Bereederung from 2003 to 2013 when, as he said in his affidavit, “after a change in corporate structure” he became managing director of MarShip GmbH and was fleet manager responsible for overseeing the management of about 40 ships, including Thor Commander. He described MarShip Management as the technical manager of Thor Commander.
26 Mr Held said that he assigned a technical superintendent to each vessel, and that in about June 2012, he assigned Vladimir Smirnov to that role in respect of Thor Commander and seven other vessels. Mr Held said that he employed Mr Smirnov after receiving details of his qualifications and experience, and interviewing him. Mr Held routinely met weekly with Mr Smirnov and the group’s other technical superintendents to discuss issues or concerns in relation to any vessel in the fleet. Mr Held had begun this practice in 2003. He said that as at 2014, he did not have a practice of minuting these weekly meetings. He said that Mr Smirnov also routinely provided him with quarterly reports relating to Thor Commander that he read.
27 Mr Held said that his practice was he would “take any appropriate action required”. He said that, “I delegate to Mr Smirnov the day to day technical management of” Thor Commander. Mr Smirnov had authority to purchase, in any one order, technical supplies up to a value of €10,000, while Mr Held had full authority, on behalf of MarShip GmbH and MarShip, to approve operating and capital expenditure for any amount in excess of that sum.
28 Mr Held said that he was also available to Mr Smirnov as and when required, in addition to their weekly meetings, in respect of any matter relating to the technical management of Thor Commander. Mr Held had conducted a spot inspection of the ship, her records and her equipment in Emden in October 2013. He said that MarShip Management was the ISM Code Document of Compliance holder for Thor Commander and that it had to conduct regular internal audits to keep her in class.
29 Mr Held said that MarShip had appointed Thorco Germany as commercial manager of Thor Commander. He said that Thorco Germany was responsible for negotiating the ship’s employment “as agent for” MarShip. He said that MarShip had never made any agreement or charterparty with any Thorco company to allow the latter to charter out the ship as owner or disponent owner.
30 Mr Smirnov gave oral evidence as a result of which I formed the view that what he said and did could not be taken at face value. As I will explain, I am satisfied that he was party to the fabrication of maintenance records for Thor Commander’s oil filters. Although English was not his first language, Mr Smirnov willingly and fluently gave most of his evidence in English (by video link to Germany) without using or requiring assistance, except on a few occasions, from the Russian interpreter who was present in court throughout Mr Smirnov’s evidence.
31 Mr Smirnov graduated as a mechanical engineer in 1981 and was at sea from then until 2006. He served as an engineer rising to the rank of chief engineer in 1992. In April 2006, he began employment as a technical superintendent. His role as technical superintendent of Thor Commander included:
involvement with the crew manager in selecting and evaluating the performance of masters and chief engineers of the ship and oversighting their choice of lower ranks as crew members;
routinely, usually twice a year, attending on board the ship to meet the master and chief engineer in order to discuss any issues in reports that the vessel had sent that he had identified in advance and others that they might raise. He also said that he examined the deck log, engine log and the oil record book for the period since his preceding visit. He conducted spot checks and other activities that he thought necessary. After the attendance, he prepared an inspection report for MarShip, as owners;
routinely reporting to Mr Held, at least quarterly, on budgets for any identified maintenance needs. In addition, Mr Smirnov had weekly meetings with Mr Held to discuss any issues with the eight vessels in his section of the fleet; and
reviewing all monthly technical reports from the ship that he received by email, such as monthly measurement reports and engine run[ning] time reports, as well as other reports or emails that the vessel might send to him.
32 Mr Smirnov said that when he attended on board the ship, he examined the deck log, the engine log, the oil record book and the air pollution prevention file for the period since his previous examination. He would discuss any reports that the vessel had sent him if necessary. He would also perform spot checks and other tasks that he considered necessary. Following these attendances, Mr Smirnov prepared a report for the owners.
33 Mr Smirnov also said in his affidavit that the run[ning] time reports and measurement reports would provide information from which it can be seen that one or other component of the ship’s machinery requires servicing, renewal or replacement. He said that he was responsible for, took control of, and organised, “the big items (e.g. cylinder heads, turbochargers)” and that he relied on the chief engineer who had responsibility for, and would organise, work in respect of lesser items, such as fuel injector valves and fuel injector nozzles (and somewhat inconsistently, replacing turbochargers). And, Mr Smirnov said that he would raise any queries that he had about matters in the reports that he received with the appropriate person on board, such as the chief engineer. He said that he used his qualifications, training and experience as a former chief engineer, together with relevant manuals, to oversee the maintenance and service requirements for Thor Commander generally, including her main engine. He also received requests for, reviewed, approved (as he thought appropriate) and then arranged for delivery of, spare and replacement parts for the ship.
34 He said that he routinely took control of any substantial maintenance or replacement matters (such as replacing cylinder heads) and relied on the chief engineer to manage smaller, day-to-day matters such as replacing fuel injector nozzles (which, as will appear below, were key items associated with the failure of Thor Commander’s main engine on her voyage in January 2015).
35 Mr Smirnov said that he had attended on board and inspected Thor Commander twice in 2012, once in November 2013, again in May and July 2014 and that, when he was on vacation, another colleague had done so in January 2014. He said that he followed the practice described above on each inspection. He said that in his July 2014 inspection, in Burgas, Bulgaria, he had not identified any issue that he found of concern in relation to cylinder 5 of the main engine.
36 Thus, Mr Smirnov exercised considerable control over the performance of the maintenance of Thor Commander. In particular, he controlled what spare and replacement parts could be obtained for the ship and the port at which those parts would be delivered.
37 He had arranged for an inspection of the ship by another colleague to occur when she was scheduled to dock in Townsville in January 2015. Mr Smirnov said that the ship had received “technical supply” on 5 November 2014 and 1 December 2014 in Port Calliao, Peru, and a further such supply was scheduled for Townsville in January 2015.
38 I will describe what the crew and Mr Smirnov did in relation to the circumstances in which the main engine failed in discussing the causation issue below.
39 The Sea-Carriage Documents Act 1996 (Qld) contained the following relevant definitions in s 3:
bill of lading means a bill of lading (including a received for shipment bill of lading) capable of transfer—
(a) by endorsement; or
(b) as a bearer bill, by delivery without endorsement.
contract of carriage, in relation to a sea-carriage document, means—
(a) for a bill of lading or a sea waybill—the contract of carriage contained in, or evidenced by, the document; or
(b) for a ship’s delivery order—the contract of carriage in association with which the order is given.
goods, in relation to a sea-carriage document, means the goods to which the document relates.
sea-carriage document means a bill of lading, a sea waybill or a ship’s delivery order.
sea waybill means a document, other than a bill of lading, that—
(a) is issued by the carrier of the goods; and
(b) is a receipt for the goods; and
(c) contains or evidences a contract for the carriage of the goods by sea; and
(d) identifies the person to whom delivery of the goods is to be made by the carrier in accordance with the contract.
ship’s delivery order means a document, other than a bill of lading or a sea waybill, that—
(a) is given in association with a contract for the carriage of goods by sea, including goods to which the document relates; and
(b) contains an undertaking by the carrier to deliver the goods to which the document relates to a person identified in the document. (bold, non-italic emphasis added)
40 Section 6 provided:
6 Transfer of rights
(1) All rights under the contract of carriage in relation to which a sea-carriage document is given are transferred to—
(a) for a bill of lading—each successive lawful holder of the bill; or
(b) for a sea waybill—the person (other than an original party to the contract) to whom delivery of the goods is to be made by the carrier in accordance with the contract; or
(c) for a ship’s delivery order—the person to whom delivery of the goods is to be made in accordance with the order.
(2) Rights in a contract of carriage transferred to a person under subsection (1) vest in that person as if the person had been an original party to the contract.
(3) Rights in a contract of carriage in relation to which a ship’s delivery order is given are transferred under subsection (1)—
(a) subject to the terms of the order; and
(b) only in relation to the goods to which the order relates.
41 The amended Hague Rules in Sch 1A of COGSA relevantly provided definitions in Art 1, including that “carrier” included the owner or charterer who entered into a contract of carriage with the shipper (Art 1(1)(a)) and:
(b) “Contract of carriage” means a contract of carriage covered by a sea carriage document (to the extent that the document relates to the carriage of goods by sea), and includes a negotiable sea carriage document issued under a charterparty from the moment at which that document regulates the relations between its holder and the carrier concerned.
(g) “Sea carriage document” means:
(i) a bill of lading; or
(ii) a negotiable document of title that is similar to a bill of lading and that contains or evidences a contract of carriage of goods by sea; or
(iii) a bill of lading that, by law, is not negotiable; or
(iv) a non negotiable document (including a consignment note and a document of the kind known as a sea waybill or the kind known as a ship’s delivery order) that either contains or evidences a contract of carriage of goods by sea.
[NOTE: These Rules do not apply to all sea carriage documents—see Article 10.] (emphasis added)
42 Article 3(1)(a) and (b) provided the carrier was bound before and at the beginning of the voyage to exercise due diligence to, first, make the ship seaworthy and, secondly, properly man, equip and supply her. Article 3(3) required the carrier or its agent or the master, on demand of the shipper, to issue a sea carriage document showing identifying details of the goods, their quantity and weight as furnished by the shipper and their apparent order and condition.
43 Importantly, Art 3(8) provided:
8. Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connexion with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability.
44 Next, Art 4(1) provided:
1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, … in accordance with the provisions of paragraph 1 of Article 3. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this article. (emphasis added)
45 By force of Art 10(2), the amended Hague Rules applied to the carriage of goods by sea from ports outside Australia to ports in Australia, whereas it is common ground in this proceeding, no international convention for carriage of goods by sea applied to the carriage. And, Art 10(6) and (7) provided:
6. These Rules do not apply to the carriage of goods by sea under a charterparty unless a sea carriage document is issued for the carriage.
7. These Rules apply to a sea carriage document issued under a charterparty only if the sea carriage document is a negotiable sea carriage document, and only while the document regulates the relationship between the holder of it and the carrier of the relevant goods. (emphasis added)
46 The fixture of Thorco Challenger in the recap of 27 November 2014 did not proceed and Thor Commander carried the cargo instead. How this occurred, who were the parties to the charterparty, what were its terms and whether Mount Isa can sue MarShip only as the charterer under the recap or as holder of the bill of lading are the questions that arise on the contract issue.
47 On 20 March 2008, Mount Isa as buyer entered into a copper anodes/blister purchase and sale agreement with Xstrata Commodities Middle East DMCC (another Glencore subsidiary) as sellers for a term that, originally, was to end on 31 December 2010, but would continue thereafter on a year to year basis until one party gave six months’ notice (cl 2). The agreement was for Mount Isa to purchase between 20,000 to 70,000 MT of copper anodes per annum for delivery to the Townsville refinery. Payment of the provisional invoice value was due no later than 30 days after the bill of lading date (cl 9). Risk passed to the buyer upon delivery of the material over the ship’s rail at the load port (cl 12), and under an amendment agreed on 9 April 2013, delivery would be FOB ST (free on board stowed and trimmed) Antofagasta, Chile.
48 Mount Isa’s shipbroker was OCT Ocean Chartering + Transport Mühle + Sachs (GmbH & Co) in Hamburg. OCT, usually through Jan Uleman, had negotiated several earlier charterparties on behalf of Mount Isa Mines and its parent, Glencore, for the ships to which Mr Dragsbæk referred.
49 The charterparty for the fixture of Thor Glory on 17 July 2013 that I describe below is relevant because it formed the basis of the terms of the recap under which Thor Commander came to be fixed as a substitute vessel to carry the cargo from Angamos to Townsville.
50 On 17 July 2013, OCT, on behalf of Mount Isa, agreed the terms of a recap with Thorco Brazil for Thor Glory to carry a cargo of 9,000 MT of copper anodes from Antofagasta to Townsville. The recap email provided that Mount Isa had the right to assign the charterparty to Glencore “at any moment”. The recap required the owners to perform several specific obligations. The ship was due at Antofagasta on 18 July 2013 and this recap made no reference to any right to substitute another vessel. The recap stated that the owners had to clause bills of lading, in case of any cargo damage, but otherwise would issue clean bills if the charterer provided a letter of indemnity. The recap concluded “[o]therwise as per attached Gencon 94 incl. rider terms”. It attached copies of Thor Glory’s classification certificate, which identified her owners as Eastern Comet Maritime S.A., and the classification society’s register of her lifting appliances. It also attached a copy of the ship’s technical specifications that named Thorco Denmark as her commercial managers.
51 The version of the GENCON 1994 form attached to the 17 July 2013 recap related to a 2011 charter by Glencore. Relevantly, it included cll 2 and 10 in Pt II of the GENCON 1994 form which, it is common ground, were also terms of the charterparty for Thor Commander. Clauses 2 and 10 provided (as amended in the GENCON 1994 form attached to the 17 July 2013 recap):
2. Owners’ Responsibility Clause
The Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by personal want of due diligence on the part of the Owners or their Manager to make the Vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied, or by the personal act or default of the Owners or their Manager.
And the Owners are not responsible for loss, damage or delay arising from any other cause whatsoever, even from the neglect or default of the Master or crew or some other person employed by the Owners on board or ashore for whose acts they would, but for this Clause, be responsible,
or from unseaworthiness of the Vessel on loading or commencement of the voyage or at any time whatsoever.
10. Bills of Lading
Bills of Lading shall be presented and signed by the Master as per the “Congenbill” Bill of Lading form, Edition 1994, without prejudice to this Charter Party, or by the Owners’ agents provided written authority has been given by Owners to the agents, a copy of which is to be furnished to the Charterers. The Charterers shall indemnify the owners against all consequences or liabilities that may arise from the signing of bills of lading as presented to the extent that the terms or contents of such bills of lading impose or result in the imposition of more onerous liabilities upon the Owners than those assumed by the Owners under this Charter Party. (emphasis added)
52 On 29 October 2014, Mr Uleman of OCT agreed the terms of a recap with Mr Dragsbæk on behalf of Thorco Chile for the fixture of Thorco Atlantic to carry a cargo of 7,500 MT of copper anodes from Antofagasta to Townsville with a laycan between 13 to 17 December 2014. Although this fixture was later cancelled, it again provided, after setting out the specific terms relevant to the intended voyage, that the terms were “otherwise as Thor Glory/Glencore 17 July 2013”. Relevantly, this recap nominated Thorco Atlantic and attached a copy of her technical specifications stating:
MV THORCO ATLANTIC – DESCR ATTACHED
OR OWS SUITABLE SUB (emphasis added)
53 I infer the last wording meant “or otherwise suitable substitute”. The recap went on to state “OWNERS TO PROVIDE UPON NOMINATION”, followed by a list of certificates. The recap then set out, the following clause:
In case owners nominate a substitute performing vessel then same to be nominated 7 working days prior laycan commencement – and to comply with vessel specification as set out at condition four (4) above. Substitute nomination to be subject to charters approval. (emphasis added)
There was no condition numbered 4 in this recap.
54 On 27 November 2014, Mr Uleman of OCT, on behalf of Glencore, agreed with Mr Dragsbæk of Thorco Chile, first, the cancellation of the fixture of Thorco Atlantic and, secondly, the terms of a new recap. The new recap was for a voyage (which ultimately became the subject of this proceeding) from Angamos to Townsville. It commenced:
MV THORCO CHALLENGER – DESCR ATTACHED
OR OWS SUITABLE SUB
– Owners/ Disponent Owner/ commercial manager Thorco confirm vessel is fully suitable for Australia trading.
55 The recap then set out four more matters that “Owners/ Disponent Owner/ commercial manager Thorco” had to confirm or do relating to the vessel’s compliance with local and flag State legal requirements and past cargoes she had carried. The recap set out verbatim the same substitution clause as in the 29 October 2014 recap for Thorco Atlantic (although, again there was no condition numbered 4). It provided that the charter was for Mount Isa’s account. The cargo was to be 8,500 MT of copper anodes with a laycan between 5 and 8 December 2014. The recap provided that bills of lading be claused “Freight payable as per CP”. It provided that 95% of the freight had to be paid “within 3 banking days from signing releasing OBL’s [on board bills of lading]”. It concluded, again “– otherwise as Thor Glory / Glencore 17 July 2013”. The recap provided that the freight was “LUMPSUM 618,750 - USD”.
56 There was no direct evidence of how Thor Commander came to be the ship that loaded the cargo at Angamos instead of the ship nominated in the 27 November 2014 email, namely, Thorco Challenger. Neither of the parties had been able to locate the emails or other documents by which that change of vessel occurred.
57 On 8 December 2014, Capt Chaplin, in a letter written in Angamos, authorised Ultramar Agencia Maritima of Antofagasta to sign on board bills of lading for cargo loaded on Thor Commander on three conditions, one of which was that they be claused:
All terms, conditions, liberties, exceptions and arbitration clause of relevant Charter Party/Booking Note, and any addenda thereto, are herewith incorporated.
58 The master began the letter by noting that the bills would not be presented to him for his signature before the vessel’s departure. He instructed Ultramar to contact “my ship’s despondent [sic] managers via Thorco Shipping, Denmark” if it encountered any difficulty.
59 On 10 December 2014, Bianca, an employee of OCT, emailed Mr Dragsbæk a PDF of a filled in working copy of the GENCON 1994 form under the heading “M/V Thorco Commander or sub”. That named Thorco Brazil as owners and the vessel, in box 5, as “M/V Thorco Commander or sub. see Clause 21”. Clause 21 dealt with the vessel’s description, again naming her as “MV Thorco Commander or Owners’ suitable sub”.
60 Mr Dragsbæk replied to that email on 11 December 2014, “Thanks below, well received”. He said in his affidavit that he had no specific recollection “but I probably did not read the document closely or perhaps at all before I responded back to Bianca”.
61 On 13 December 2014, Ultramar signed and issued a set of three original clean on board bills of lading “as agents only for and on behalf of the carrier” in respect of the cargo of 8,508,768 kgs of copper anodes that had been loaded on board Thor Commander at Angamos on 13 December 2014 for carriage to Townsville. The shipper was Compelejo Metalurgico Altonorte Panam Norte KM of Antofagasta (CMA) and Mount Isa was named as both consignee and notify party. The bills stated that freight was “payable as per CHARTER-PARTY dated 27-11-2014”. The bills of lading were in the CONGENBILL Edition 1994 form. The reverse side of the bills of lading contained five conditions of carriage, including, relevantly, conditions that:
(1) All terms and conditions, liberties and exceptions of the Charter Party dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.
(2) General Paramount Clause
(a) The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment, shall apply to this Bill of Lading. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.
(b) Trades where Hague-Visby Rules apply
In trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on February 23rd 1968 – the Hague-Visby Rules – apply compulsorily, the provisions of the respective legislation shall apply to this Bill of Lading.
(c) The Carrier shall in no case be responsible for loss of or damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel or while the cargo is in the charge of another Carrier, nor in respect of deck cargo or live animals.
(3) General Average
General Average shall be adjusted, stated and settled according to York-Antwerp Rules 1994, or any subsequent modification thereof, in London unless another place is agreed in the Charter Party.
Cargo’s contribution to General Average shall be paid to the Carrier even when such average is the result of a fault, neglect or error of the Master, Pilot or Crew. The Charterers, Shippers and Consignees expressly renounce the Belgian Commercial Code, Part II, Art. 148. (emphasis added)
62 It is common ground that if the bill of lading evidences the contract of carriage between Mount Isa and MarShip, then the amended Hague Rules apply as part of that contract pursuant to COGSA. MarShip, however, contends that the charterparty was the contract of carriage.
63 Also on 13 December, Glencore issued a provisional invoice to Mount Isa for the cargo under which USD62,559,992.45 was payable on 12 January 2015.
64 On about 29 December 2014, Glencore emailed Mount Isa attaching a copy of the set of bills of lading and the originals arrived at the refinery on 2 January 2015. Keryn Thomson, an employee of Mount Isa, had responsibility for administration of, among others, metal sales and purchases. She arranged to send the original bills of lading to Townsville Shipping Agencies in order that it could present them and take delivery of the cargo when Thor Commander arrived, as was then expected, in Townsville.
65 After the failure of Thor Commander’s main engine, she was towed to Gladstone. Ms Thomson retrieved one of the original bills of lading in the set of three from Townsville Shipping Agencies and provided it to John Cordingley, Mount Isa Mines’ Townsville superintendent of port operations.
66 I will describe the circumstances more fully in discussing the transhipment issue below, but for present purposes, it suffices to say that, in order to obtain partial delivery of about 1,030 MT of the cargo at Gladstone while Thor Commander was being repaired, Mount Isa had to agree to provide her master with the letter of indemnity. On 19 January 2015, Richard Harvey, Mount Isa’s chief operating officer (and chief processing officer of the refinery), signed the letter of indemnity. It was addressed to Thorco Denmark as agents of the owners of Thor Commander (i.e. MarShip). The letter asked MarShip to deliver 1,030 MT of the cargo to Mount Isa at Gladstone in consideration of which it agreed:
1. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of the ship proceeding and giving delivery of the cargo against production of at least one original bill of lading in accordance with our request.
3. If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship’s registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified. (emphasis added)
67 On about 22 January 2015, after the master received the letter of indemnity, Thor Commander discharged over several days a total of 1,033.6 MT of the cargo that Mount Isa then transhipped to Townsville.
68 MarShip argued that the contract of carriage was the charterparty, not the bill of lading. It contended that when Thor Commander was substituted as the chartered vessel under the 27 November 2014 recap, MarShip was also substituted as, or became, the disponent owner with which Mount Isa contracted for the charter of that ship. It submitted that because the recap permitted the substitution of a vessel for Thorco Challenger, when that substitution occurred the recap contemplated, and operated to effect, its contemporaneous assignment to, or novation with, the owner (or disponent owner) of Thorco Challenger. It relied on authorities including Leveraged Equities Ltd v Goodridge (2011) 191 FCR 71 to advance its contention that the parties to the recap could (and did) consent in advance to its novation with the owner (or disponent owner) of any substituted ship, if and when any substitution occurred.
69 MarShip also contended that it and Mount Isa subsequently had entered into a further contract in terms of the letter of undertaking. MarShip claimed, in its amended cross-claim, that Mount Isa had agreed, by the letter of indemnity, to indemnify it for any claim arising in respect of the transhipment costs. (I will deal with this claim when I consider the transhipment issue.)
70 Finally, MarShip argued that Mount Isa could not sue on the bills of lading because they were straight bills and the named shipper, CMA, had not transferred its rights to the consignee, Mount Isa, pursuant to s 6 of the Sea-Carriage Documents Act or its analogues.
71 For its part, Mount Isa relevantly contended that the use of the expression “Owners/ Disponent Owner/ commercial manager Thorco” in the recap dated 27 November 2014 and the version of the charterparty that OCT sent to Mr Dragsbæk on 10 December 2014 naming Thorco Brazil as owners of the chartered ship, indicated that Thorco Denmark was intended to be a party to the recap, and hence, the charterparty, and that Thorco Denmark continued as a contractual party whatever the outcome of MarShip’s novation argument.
72 I reject MarShip’s argument that it became the owner or other party to the recap dated 27 November 2014 or charterparty it evidenced. The substitution clause permitted the owners of the chartered vessel, namely Thorco Challenger, to substitute another vessel that was suitable to perform the voyage. How those owners arranged for the substitute to perform the voyage was a matter for them. They might source her within their own fleet, as an owned or chartered vessel, or enter a subcharter to ensure that they complied with their obligation under the recap to have Thorco Challenger or a suitable substitute ready at Angamos and there in time to perform the voyage.
73 In ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue of the State of New South Wales (2012) 245 CLR 338 at 346 , French CJ, Crennan, Kiefel and Bell JJ said:
A novation, in its simplest sense, refers to a circumstance where a new contract takes the place of the old [Olsson v Dyson (1969) 120 CLR 365 at 389]. It is not correct to describe novation as involving the succession of a third party to the rights of the purchaser under the original contract. Under the common law such a description comes closer to the effect of a transfer of rights by way of assignment. Nor is it correct to describe a third party undertaking the obligations of the purchaser under the original contract as a novation. The effect of a novation is upon the obligations of both parties to the original, executory, contract. The inquiry in determining whether there has been a novation is whether it has been agreed that a new contract is to be substituted for the old and the obligations of the parties under the old agreement are to be discharged. (emphasis added)
74 Their Honours held that a novation of a contract necessarily involves the rescission of the existing contract (for which the new one is a novation) and a release of any person to the existing one who is not a party to the new one (245 CLR at 349-350 -). They explained that, as Dixon J had held in Vickery v Woods (1952) 85 CLR 336 at 345, rescission and novation ultimately depend on intention, and that such an intention can be express or inferred, including from conduct (245 CLR at 350-351 -).
75 MarShip’s argument, if accepted, did not answer why the original owner under the recap would escape all liability if the vessel that the owners sought to substitute turned out not to be suitable, in accordance with the requirements of the recap (e.g. because it was not fully suitable for Australian trading). MarShip did not offer a reason why the substitution clause in the recap would operate to excuse the original owners from their obligations in that respect when they had chosen to substitute a different vessel from that initially agreed, or how any novation of the contract in the recap came into being between Mount Isa and the owners of the substituted vessel.
76 The purpose of the substitution clause was to enable the owners who were the original party to the recap to discharge their obligation to provide Thorco Challenger by substituting another vessel that they had arranged to perform the voyage. I agree with what Mance J held in E.G. Cornelius & Co v Christos Maritime Co Ltd (The “Christos”)  1 Lloyd’s Rep 106 at 110, namely:
Any contract by which a substitute vessel or a transhipment vessel is chartered in is a matter between owners and the owner of that other vessel.
77 Of course, for the purpose of the further performance of the charterparty (as evidenced in the recap) by the owners of Thorco Challenger, many references to that or any performing vessel will be read as referring to the substitute: Bennett H (ed), Carver on Charterparties (Sweet & Maxwell, 2017) at [3-047]-[33-050]; Cooke J, Young T, Ashcroft M, Taylor A, Kimball J, Martowski D, Lambert L, Sturley M, Voyage Charters (4th ed, Informa, 2014) at [3.7], [3.12].
78 Because Thorco Denmark was the commercial manager of a pool of vessels in different ownership, it could arrange the substitution of Thor Commander without needing to subcharter another vessel. However, that happenstance cannot determine the construction of the terms of the substitution clause. The construction of a written contract depends on how a reasonable person in the position of the parties would have understood the clause, read in the context of the contract as a whole and having regard to the surrounding circumstances known to the parties and the purpose and object of the transaction: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179  per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. French CJ, Hayne, Crennan and Kiefel JJ further explained the principles of construction of such a contract in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657  as follows:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean [McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589  per Gleeson CJ; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462  per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160  per Gleeson CJ; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188  per Gleeson CJ, Gummow and Hayne JJ, citing Investors Compensation Scheme Ltd v West Bromwich Building Society [No 1]  1 WLR 896 at 912;  1 All ER 98 at 114. See also Homburg Houtimport BV v Agrosin Private Ltd (The Starsin)  1 AC 715 at 737  per Lord Bingham of Cornhill]. That approach is not unfamiliar [See, eg, Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co  1 QB 500 at 504 per Lord Esher MR; Bergl (Australia) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199 per Knox CJ, Isaacs and Gavan Duffy JJ; see generally Lord Bingham of Cornhill, “A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision”, Edinburgh Law Review, vol 12 (2008) 374]. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract [Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462  per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179  per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160  per Gleeson CJ; at 174  per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Byrnes v Kendle (2011) 243 CLR 253 at 284  per Heydon and Crennan JJ. See also Charter Reinsurance Co Ltd v Fagan  AC 313 at 326, 350; Rainy Sky SA v Kookmin Bank  1 WLR 2900 at 2906-2907 ;  1 All ER 1137 at 1144]. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating” [Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 per Mason J, citing Reardon Smith Line v Hansen-Tangen  1 WLR 989 at 995-996;  3 All ER 570 at 574. See also Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559  per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160  per Gleeson CJ]. As Arden LJ observed in Re Golden Key Ltd [ EWCA Civ 636 at ], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience” [Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559  per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464]. (emphasis added)
79 If MarShip’s argument (namely, that the owners of Thorco Challenger ceased to be a party to the charterparty, by novation), were correct, once Mount Isa agreed to its substitution, then the charterer would have no contractual recourse against those owners if, for example, the substituted vessel turned out not to be suitable or never arrived at the load port. The charterparty evidenced in the recap works well enough by treating the substituted vessel as that of, or under the contractual control of, the owners of Thorco Challenger (whether she is in their ownership or they subchartered her or made other arrangements, such as those Thorco Denmark could make on their behalf by resort to the pool of vessels it managed).
80 The next question that arises is if the substitute vessel is not owned by the original owners under the voyage charterparty, does a bill of lading, that her master signs, become or evidence the contract of carriage for the cargo rather than the charterparty itself?
81 In the ordinary course, a charterparty between owners (or a disponent owner) and a charterer under which the charterer loads goods to be carried on the chartered ship to a destination, will provide the terms of the contract of carriage of those goods and any bill of lading issued by her master will operate as a mere receipt in the hands of the charterer. That is because such a charterparty is treated as containing the terms on which the charterer, as shipper, and the owners, as carrier, have agreed are to govern their relationship both for the voyage itself and the carriage of the shipper’s goods: Rodocanachi v Milburn (1886) 18 QB 67. There, Lord Esher MR (at 75), Lindley LJ (at 78) and Lopes LJ (at 79) held that a bill of lading issued to the shipper did not alter the pre-existing contract in the charterparty between him and the owners. Rather, in such a case, the bill of lading served only as an acknowledgment of receipt of the goods, as between the charterer or shipper and owners although, if the bill were later endorsed to a third party, it would then contain the terms of the contract of carriage between the third party and owners; see too: Turner v Haji Goolam Mahomed Azam  AC 826 at 836 per Lord Lindley, giving the advice of himself, Lord Macnaghten and Sir Arthur Wilson.
82 Ordinarily, a charterparty will operate as the only contract of carriage where the charterer has contracted to buy goods from a vendor who, under the contract for sale, will be the shipper of the goods on the chartered ship. This principle was first explained by Lord Sumner, with whom Lords Parker of Waddington and Wrenbury agreed in Love and Stewart Ltd v Rowtor Steamship Co Ltd  2 AC 527 at 540. There, the vendor sold goods f.o.b. and obtained a bill of lading from the master of the ship that the purchaser had chartered for the voyage. Lord Sumner said:
… in presenting the hill [sic] of lading the [purchaser] merely did what they must needs do in order to get delivery of their cargo. They received it from [the vendor] under the contract of sale as the symbol of the delivery of goods while afloat. Nothing had occurred by which any contract for the carriage of the goods arose between them and the shipowners other than the charter itself. No new bargain had been made, under which the [shipowners] carried for the [purchaser] under a bill of lading instead of a charter. The freight earned was chartered freight and the bill of lading in the [purchaser’s] hands was only the ship’s receipt for the goods. This is the ordinary effect of documents such as these under such circumstances, and the cases cited do not bear upon them. (emphasis added)
83 As Lord Denning MR explained in President of India v Metcalfe Shipping Co Ltd (The “Dunelmia”)  1 QB 289 at 305B-C, before applying what Lord Sumner had said, as a matter of principle:
whenever an issue arises between the charterer and the shipowner, prima facie their relations are governed by the charterparty. The charterparty is not merely a contract for the hire of the use of a ship. It is a contract by which the shipowners agree to carry the goods and to deliver them.
He held that the master could not vary the contract, being the charterparty, by signing and issuing bills of lading, where the charterparty provided that in doing so he would act “without prejudice to the terms of the charterparty”, as Lord Esher MR earlier had explained in Hansen v Harrold Brothers  1 QB 612 at 619 (see too per Edmund Davies LJ  1 QB at 309, and Fenton Atkinson LJ at 310).
84 Here, cl 10 of the GENCON 1994 form, that was a term of the charterparty created by the recap dated 27 November 2014, reflected this position. But that raises the question here as to whether the bill of lading, that the master authorised to be issued, was given by him as agent of the owners of Thorco Challenger under the charterparty in the recap, or as agent of MarShip, as owners of Thor Commander. The answer to that question depends on whether there is privity of contract between Mount Isa and MarShip in the charterparty; in other words, whether the effect of the substitution of Thor Commander for Thorco Challenger was to assign or novate the charterparty to MarShip so that it can be said to have agreed with Mount Isa, as opposed to the owners of Thorco Challenger, to perform the voyage and carry the cargo under that contract.
85 As Ryan, Tamberlin and Conti JJ held in The Ship “Socofl Stream” v CMC (Australia) Pty Ltd  FCA 961 at , The Dunelmia  1 QB 289 does not cover the circumstances where there is no privity of contract. They referred to Hi-Fert Pty Limited v Kuikiang Maritime Carriers Inc (The Kuikiang Career) (2000) 173 ALR 263 at 268 - with apparent approval. There Tamberlin J had held that the bill of lading was the contract of carriage between the owners of Kuikiang Career and the voyage charterer. That was because the vessel’s owners had time chartered her to the disponent owner which, in turn, had entered into both a voyage charter to, and a contract of affreightment with, the owner of the cargo shipped on board under a bill of lading. The voyage charter and bill of lading, as here, were both on GENCON forms.
86 Tamberlin J held that, in The Dunelmia  1 QB 289, “the parties to the charterparty and the bills were effectively identical”, whereas in the case before him there were two contracts, the charterparty was between the owners and charterer/disponent owner, while the bill of lading was between the owner and cargo owner, so that the latter document was the contract of carriage. That was because the parties to the bill were not the same as to the charterparty (Kuikiang Career 173 ALR at 268 ). Ryan, Tamberlin and Conti JJ said (Socofl Stream  FCA 961 at ):
The Court, of course, will not find, wherever there are different parties to a bill of lading and a charterparty, that the bill of lading must be considered as a contract of carriage. Much will depend on the surrounding circumstances. Nevertheless, the distinction between the two sets of parties is an important consideration.
87 Here, the bill of lading issued for the copper anodes will only be capable of operating as a mere receipt for the cargo if MarShip was already in a contractual relationship with Mount Isa under which Thor Commander would carry the cargo.
88 In my opinion, MarShip was not in such a contractual relationship. The substitution clause in the recap operated to authorise the owners of Thorco Challenger to substitute, with Mount Isa’s approval, another vessel to perform the voyage. If that vessel were also owned by Thorco Challenger’s owners, then her master would be acting as their agent in signing (or authorising the signing) of any bill of lading for the cargo. In consequence, the bill of lading would be only a mere receipt and the recap charterparty would continue to operate as the contract of carriage. However, if a vessel not owned by Thorco Challenger’s owners were substituted for her, then the master of the substituted ship would take the cargo into his possession as agent of his owners (here MarShip) and when he signed (or authorised the signing of) the bill of lading, it would be the contract of carriage; see too: Girvin S, Carriage of Goods by Sea (2nd ed, Oxford University Press, 2011) at [12.06]; Eder B, Bennett H, Berry S, Foxton D, Smith C, Scrutton on Charterparties and Bills of Lading (22nd ed, Sweet & Maxwell, Thomson Reuters, 2011) at [4-019]; Davies M, Dickey A, Shipping Law (4th ed, Lawbook Co, 2016) at [12.10], [12.69]-[12.70].
89 I reject MarShip’s argument that the substitution clause operated as an actual or prospective authority to the owners (or disponent owner) of Thorco Challenger, as a party to the recap, to novate the recap so as to create a new voyage charter between Mount Isa and MarShip. The substitution clause is a permission to the owners, as a party to the charter, to perform the voyage using a different ship, subject to the charterer’s approval. The clause expressly dealt with the identity of any vessel that is to perform the voyage, as opposed to a clause dealing with assigning or novating the recap itself. In Leveraged Equities 191 FCR at 85 , the assignment and novation clause expressly provided that the bank there could both assign or novate the benefit of the contract with its borrower.
90 The essence of the substitution clause is that it permits the contracting owner (or disponent owner with the charterer’s consent) to substitute a vessel in lieu of the original ship as that owner’s performance of his contractual duty to provide a ship to undertake the voyage. The clause supplies an agreed method by which the contracting owner can perform the charterparty. There is no commercial necessity to add unexpressed contractual terms or concepts, such as assignment, or to interpolate both a rescission of the original contract in the recap and to infer a novation, to make the charterparty work according to its terms: ALH Group 245 CLR at 346 , 349-351 -, -. And, because it must have been in the reasonable contemplation of the parties when they entered into the recap on 27 November 2014, that if a substitution occurred, the owners of the substituted vessel would be bound by any bill of lading issued by her master, they could have made, but did not, provision for the contract of carriage to be under an assigned or novated recap. Indeed, the express terms of the recap permitted the substitution of a vessel, not the discharge of the existing contract and a novation of its terms with different parties.
91 Ordinarily, a shipowner’s obligations under a charterparty are of a personal nature that cannot be performed vicariously. In Fratelli Sorrentino v Buerger  3 KB 367 at 371-372, Bankes LJ said of a situation in which the owner sold the ship while she was under charter (see too Scrutton at [4-019]; Dimech v Corlett (1858) 12 Moo PC 199 at 223; 14 ER 887 at 896 per Coleridge J for Dr Lushington, the Right Hon Pemberton Leigh and Cresswell J):
Each case must depend upon the language of the charterparty and its own particular circumstances. It can, however, I think, be stated as a general rule that where a charterparty contains obligations which can from their nature only be performed by the party himself who entered into the contract, that party cannot, by parting with the ship or otherwise, do anything which puts it out of his power to fulfil the obligations personally. He has no right to substitute any other person to perform those obligations in his place. It is not, however, every parting with a ship, whether by sale or otherwise, while she is under charter which puts it out of the power of the vendor to perform the obligations (if any) which he has undertaken to perform personally. (emphasis added)
92 Here, the owners of Thorco Challenger agreed with Mount Isa that they could perform the charterparty by substituting a vessel, with Mount Isa’s approval. They did not agree that a new party could be substituted into the charterparty itself. There is a distinction between a substitution of a vessel that the parties to the recap contemplated in their contract were the originally nominated vessel not to undertake the voyage, and a substitution of one of the parties to the recap, for which it made no express provision.
93 Although Anglo-Australian principles of maritime law proceed on the personification theory that attributes a legal personality to a ship in a proceeding in rem, that theory does not make the ship a party to a contract of carriage on it or to a charterparty of it or to a contract for the sale of the vessel itself. MarShip cited no authority involving a clause permitting owners (or a disponent owner) in a charterparty to substitute not only a different vessel but her different owners as parties to that contract as well. As I have noted, the only Admiralty authorities on this point that counsel or my researches have found rejected the proposition that the original owners whose ship was contracted to perform a voyage under a charterparty can novate that contract to other owners (and so remove themselves as contracting parties) when exercising a right to substitute a vessel.
94 A charterer (here Mount Isa) may have a contracted right to approve the substitution of the ship to perform the charter. This can be a ship in the same ownership as, or chartered by, the owners of the originally proposed ship who, after all, need to make the substitution in order to perform their contractual obligations under the charterparty. The right to substitute affords the owners (or disponent owner) of the vessel originally agreed on to undertake the voyage the ability to perform their obligations by a different mode of performance, namely by the substituted vessel.
95 Here, there was no express term in the voyage charter that provided for a novation or assignment of the owner’s rights and liabilities to the owners (or disponent owners) of the substituted vessel. Nor was there any evidence that such a novation or assignment was an ordinary incident of commercial dealings in ship chartering contracts. In essence, MarShip’s argument has a silent premise that the substitution clause included an implied term that, if a vessel were substituted then, her owners (or disponent owner) too would become parties in substitution for the contracting party whose ship was no longer going to perform the charter.
96 For a court to imply a term in a contract, based on the factual circumstances of the parties, Lord Simon of Glaisdale (for himself, Viscount Dilhorne and Lord Keith of Kinkel) in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 (as applied by French CJ, Bell and Keane JJ in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 185-186  and see too per Kiefel J at 201 , 209 ) held that:
the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
97 Here, the substitution clause works well enough without the need for any implication of a novation when a substitution occurs. There is no commercial need to make the implication to give any business efficacy to the charterparty. Nor is the proposed implication “so obvious that it goes without saying”.
98 The context in which the recap was agreed included Mount Isa’s insistence that “Owners/ Disponent Owner/ commercial manager Thorco” had to confirm or do several things in relation to Thorco Challenger (see - above), including that she was fully suitable for Australian trading. That requirement, of course, would also apply to any substituted vessel – namely each of the owners, any disponent owner and Thorco Denmark had to confirm or ensure that the substitute ship met the five particular requirements. If the owners or disponent owners of Thorco Challenger wanted to substitute another vessel, there is no apparent reason why it would give business efficacy, or it would be obvious, that they would cease to be liable if the substituted ship did not comply with any of those requirements and the owners or disponent owner would assume that liability in substitution. To the contrary, when the owners or disponent owner of Thorco Challenger wished to change the ship to perform the charterparty, there is every reason why they should remain liable to ensure that any substitute also met the five requirements.
99 When Thorco Denmark negotiated the recap on behalf of its unnamed and undisclosed principals, being the owners or disponent owner of Thorco Challenger, Mount Isa required that, in addition to the other terms, the undisclosed principal and Thorco Denmark comply with the five additional requirements.
100 The form of the recap also raised a further issue as to the identity of the parties to the charterparty evidenced in that recap. That arose because on five occasions the recap provided that “Owners/ Disponent Owner/ commercial manager Thorco” promised something, including, for example, confirming that “the vessel is fully suitable for Australia [sic] Trading.”
101 On one view, the form of those five promises could suggest that the undisclosed persons or entities described as ‘Owners’, ‘Disponent Owner’, and ‘commercial manager Thorco’ were all parties who together promised to provide the ship for Mount Isa, and that whatever Thorco entity was the undisclosed principal would also make each promise. Finn, Rares and Besanko JJ discussed such a construction in Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472 at 479-482 -.
102 In my opinion, the five promises were expressed in such a way that having regard to the terms of the recap as a whole, the collocation of three promisors (Owners/ Disponent Owner/ commercial manager Thorco) became parties to a collateral contract with Mount Isa and made the five promises to it in consideration of which Mount Isa entered into the charterparty with the owners (or disponent owner) of Thorco Challenger on the terms set out in the balance of the recap dated 27 November 2014. In context, this collateral contract operated in much the same way as a guarantee offered by a director or shareholder of a contracting party to the other party. I have formed this opinion because, first, the balance of the terms of the recap had nothing to do with the collocation of the three promisors, except that one of them, being the person that, in fact, had the immediate right to charter Thorco Challenger to Mount Isa, would be a party to both the charterparty and the collateral contract, and secondly, the substitution clause in a practical, commercial sense could only have conferred a right and corresponding obligation on a person who actually had such control of the vessel that they could ensure that, it or a substitute would perform the voyage.
103 For these reasons, I am of opinion that the contract of carriage under which Thor Commander carried the cargo was the bill of lading and not the charterparty constituted in the recap dated 27 November 2014.
104 The amended Hague Rules in Sch 1A to COGSA have force of law in Australia in respect of, and apply to, a contract of carriage of goods by sea pursuant to ss 7 and 10(1)(b)(i) and (iii) of that Act, where, as s 10(2)(b)(iii) provides, the contract is relevantly:
contained in or evidenced by a non-negotiable document (other than a bill of lading or similar document of title), being a contract that contains express provision to the effect that the amended Hague Rules are to govern the contract as if the document were a bill of lading.
105 The amended Hague Rules apply to the carriage of the cargo on Thor Commander since cl 2(a) and (b) of the bill of lading so provides. That is because, it is common ground, no enactment that gave effect to the Hague Rules or the Hague-Visby Rules was in force in Peru, the country of shipment.
106 The amended Hague Rules define certain expressions differently to the Sea-Carriage Documents Act. Had there been any relevant difference between the Sea-Carriage Documents Act and the amended Hague Rules, a question may have arisen (but did not arise) under s 109 of the Constitution as to how much, if any, of the former still could operate consistently with the latter.
107 Importantly, Art 3(8) operated to apply the provisions of the amended Hague Rules, and to invalidate any provisions of the bill of lading or the charterparty, so far as its provisions may have been incorporated into the bill as part of the contract of carriage of the cargo, that might otherwise have relieved or lessened the liability of Thor Commander or MarShip, as her owners, for any loss or damage that Mount Isa suffered.
108 Relevantly, Art 10(7) applied the amended Hague Rules only to a negotiable sea-carriage document “issued under a charterparty … and only while the document regulates the relationship between the holder of it and the carrier of the relevant goods”.
109 Here, the bill of lading was not “issued under the charterparty” – i.e. as a receipt to the charterer – but under the obligation of the master to issue CMA, as shipper, with a bill of lading to evidence the contract of carriage of the anodes on MarShip’s vessel. That is because, although the master of Thor Commander acted under the instructions of his owners to sign (or authorise the signing of) the bill of lading in accordance with the charterparty, MarShip was not a party to that charterparty, for the reasons above.
110 It follows that the bill of lading was not issued “under the charterparty” in the circumstances. Indeed, if the expression in Art 10(6) and (7) “under a charterparty” referred to the mere fact that the ship happened to be under charter (including a demise charter), the amended Hague Rules would be likely to have little utility. That would be contrary to the object identified in s 3(1) of COGSA of providing a regime of marine cargo liability that is up-to-date, equitable, efficient, and compatible with that of Australia’s major trading partners and current developments within the United Nations in relation to marine cargo liability arrangements.
111 The purpose of Art 10(6) and (7) of the amended Hague Rules is to give effect to the principle discussed above, that where the shipper or cargo owner has entered into a voyage or time charter with a ship’s owners (or disponent owner) for the carriage of cargo, the charterparty will be the contract of carriage unless and until any bill of lading or other sea carriage document is transferred or delivered to a third party who has, or acquires, an interest in the goods to which it refers.
112 I reject MarShip’s arguments that, first, because the bill of lading is a straight bill, it is not “a bill of lading or similar document of title”, and secondly, that under which CMA had not transferred its rights in the goods, as described by the bill, to Mount Isa, as consignee.
113 In essence, a straight bill of lading is a sea carriage document (as defined in meaning (iv) of the definition of sea carriage document of the amended Hague Rules) being a non-negotiable document that contains or evidences a contract of carriage of goods by sea.
114 Here, the master authorised the issue of the bill of lading after the cargo was shipped on board Thor Commander in accordance with Art 3(3). The bill of lading had to be presented to obtain delivery of the cargo. Thus the bill of lading represented the key to the warehouse that gave its bearer, being the rightful owner (here, Mount Isa), the right to demand delivery of the cargo to it at the port of discharge in the sense explained by Lord Bingham of Cornhill in JI MacWilliam Co Inc v Mediterranean Shipping Co SA (The Rafaela S)  2 AC 423 at 444  - ; see also my reasons in Beluga Shipping GmbH & Co v Headway Shipping Ltd  FCA 1791.
115 As Lord Bingham (with whom Lords Nicholls of Birkenhead, Steyn (at 459), Rodger of Earlsferry (at 466) and Browne of Eaton-under-Heywood agreed) said in his erudite speech in The Rafaela S  2 AC at 443-444 -:
It is always the task of the court to determine the true nature and effect of a legal document, and in performing that task the court is not bound by the label which the parties have chosen to apply to it. Where, however, the court is considering a bona fide mercantile document, issued in the ordinary course of trade, it will ordinarily be slow to reject the description which the document bears, particularly where the document has been issued by the party seeking to reject the description. This document called itself a bill of lading. It was not a bill transferable by endorsement, and so was not “negotiable” in the somewhat inaccurate sense in which that term is used in this context: Kum v Wah Tat Bank Ltd  1 Lloyd’s Rep 439, 446. But if this document was a mere receipt or sea waybill there was no purpose in following the traditional practice of issuing more than one original, and the time honoured language used in the attestation clause (see para 4(6) above) was entirely meaningless. The contract conditions clearly envisage that the consignee and bill of lading holder may become a party to the contract of carriage, and the conveyance of contractual rights by transfer of the bill of lading has been a, if not the, distinctive feature of a bill of lading, at any rate since the Bills of Lading Act 1855 (18 & 19 Vict c 111). The conditions of this contract make no sense if the consignee, although holding the bill of lading, remains a stranger to the contract of carriage. They are unlike the standard terms of non-negotiable sea waybills of which examples are given in Gaskell, Bills of Lading: Law and Contracts (2000), pp 727-733, paras 22.35-22.43.
The carrier responds to this argument by pointing out that the form may be used in the case of either an order bill or a straight bill, and that if it is used for the latter purpose some of the stated conditions (such as the attestation clause quoted in para 4(6) above) are inapposite. The first of these points is plainly correct: if “order of” or words to that effect are added in box (2) the bill becomes an order bill, and if they are not it is a straight bill. It is also true that it is necessary in some cases (as in Homburg Houtimport BV v Agrosin Private Ltd  1 AC 715) to reject some printed conditions of a contract as inconsistent with other provisions. Here the requirement that one of the bills must be surrendered “duly endorsed” in exchange for the goods could not in all cases be given effect, since even in the case of an order bill the named consignee might require delivery as holder of the bill, and in that case there could be no endorsement. It would, however, be extraordinary to treat the detailed terms of this contract as inapplicable to a named consignee holding a straight bill. In particular, I can see no reason not to give effect to the requirement that an original bill be surrendered in exchange for the goods. This provision is of course even more efficacious in the case of an order bill, since until such a bill is presented the carrier will not know the identity of the party entitled to delivery, and it has long been the “undoubted practice” to deliver “without inquiry” to the holder of such a bill of lading: Glyn Mills Currie & Co v East and West India Dock Co (1880) 6 QBD 475, 492; (1882) 7 App Cas 591, 603. But the requirement does not lack a commercial rationale in the case of a straight bill: the shipper will not wish to part with an original bill to the consignee or buyer until that party has paid, and requiring production of the bill to obtain delivery is the most effective way of ensuring that a consignee or buyer who has not paid cannot obtain delivery. In this case, therefore, as in the case of an order bill, the bill is “a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be”: Sanders Bros v Maclean & Co 11 QBD 327, 341, per Bowen LJ. (emphasis added)
116 The House of Lords held unanimously that a straight bill of lading was a bill of lading within the meaning of the Hague Rules, the Hague-Visby Rules and the Carriage of Goods by Sea Act 1971 (UK). In my opinion, that is also the position under the amended Hague Rules.
117 Indeed, the significance of the bill of lading (for the carriage of the copper anodes on Thor Commander) as the “key to the warehouse” is apparent from MarShip’s demand that, when Mount Isa sought the partial delivery of some of the cargo at Gladstone in January 2015, it produce not only at least one of the original bills in the set of three, but also provide the letter of indemnity. Once the bill of lading came into Mount Isa’s possession on 2 January 2015 it was, first, the owner of the cargo and, secondly, the person entitled to demand delivery of it from Thor Commander (as in fact it did both on presentation of an original bill and the letter of indemnity at Gladstone on 22 January 2015, and, later, at Townsville for the balance of the cargo) so that Mount Isa became both entitled to enforce, as lawful holder of the bill, all rights under it as the contract of carriage and liable on it as if it had been an original party, by force of ss 6 and 8 of the Sea-Carriage Documents Act.
118 Thor Commander’s main engine was a Rolls-Royce Bergen Type B32:40L8PHF. It was capable of developing 4,000 KW at 750 rpm (revolutions per minute).
119 On 11 January 2015, at about 15:20 LT, cylinder 5 in Thor Commander’s main engine suffered a seizure off the Queensland coast that caused that cylinder to fail. That, in turn, caused the destruction of parts of the crankshaft associated with cylinder 5 and other components essential to the operation of not only cylinder 5, but also the safe operation of the main engine. Various documents in evidence record differing times for the same events. That was so because the computer or person making the particular document was in or calibrated to a different time zone from that recorded in other contemporaneous or identical documents. The parties prepared an agreed chronology that largely resolved the apparent timing differences and, unless I have otherwise explained, I have used those agreed times in these reasons.
120 During the course of their concurrent evidence, the engineering experts Trevor Cosh (called by Mount Isa) and Olivier van der Kruijs (called by MarShip) narrowed the range of possible causes of the failure by cylinder 5 essentially to either:
(a) the faulty operation of the fuel injector valve for cylinder 5 that led, ultimately, to the piston in that cylinder seizing which, in turn, caused its bottom end bearing to fail at the point where it connected to the crankshaft (being Mr Cosh’s view); or
(b) that bottom end bearing failed because of a latent defect unconnected to the maintenance of the main engine (being Mr van der Kruijs’ view).
121 It is necessary to describe the way in which Thor Commander’s main engine operated in order to understand the circumstances of its seizure. The main engine was an 8 cylinder diesel. Each cylinder contains a piston that moves up and down within the cylinder. A cylinder head closes off the top of the cylinder to which the piston crown, being the uppermost portion of the piston, advances within its upwards and downwards action within the cylindrical cylinder liner.
122 The piston crown is bolted to a piston skirt to make a long cylindrical unit that fits within the cylinder liner. At the base of the piston is a gudgeon pin, which is a pivot that is attached to a connecting rod at a point called the “top (or small) end”. The connecting rod is connected by a crankpin to the crankshaft at its bottom end by a bearing, called “the bottom (or big) end bearing”. The two illustrations below show, in Figure 1, Rolls-Royce’s depiction of the main engine’s connecting rod with the top (or small) and bottom (or big) end bearings on the left, and in Figure 2, a picture and description by Mr van der Kruijs of a crankshaft in which the crankpin (to which the big end bearing connects) is shown in blue:
123 The crankshaft is in a much larger aperture than the cylinder into which it leads. It is at an oblique angle to the cylinder so as to enable it to move up and down into the cylinder liner. There is a cap bolted into position at the base of the piston skirt that fits around the connecting rod. Thus, the lower half (or portion) of the connecting rod projects out of the cap at the base of the cylinder skirt. The connecting rod ends in a bearing, being the big end bearing, that is connected to a crankpin on the crankshaft. In turn, as the crankshaft rotates by the action of the pistons, it drives the propeller.
124 The piston forces the crankshaft to move when it interacts with diesel fuel in the following way. As the piston moves downwards in its cylinder (towards the crankshaft), fresh air is forced through valves in the area of the cylinder head, to enter the enlarging cavity between the seal created by the cylinder head and the receding piston crown. Then, as the crankshaft rotates further, it begins driving the piston upwards in the cylinder. The valves that had let air in close, as the piston descends, and do not let the air escape, so the air then begins to compress in the decreasing space between the piston crown and cylinder head. As the air compresses it also heats progressively to a high temperature. Mr Cosh used the analogy of the heat generated at the end of a bicycle hand pump where the air leaves the pump when one uses it to inflate a bicycle tyre, to explain the principle of how the air heats as the piston crown compresses it when it moves upwards in the cylinder liner toward the cylinder head.
125 At the top of the crankshaft’s stroke (that moves the piston upwards), a fuel injector nozzle at the tip of the fuel injector valve injects an atomised spray of very fine droplets of fuel oil through into the hot air. The Rolls Royce’s manual for the main engine depicted a fuel injector valve as in Figure 3 below:
126 The fuel injector valve is bolted into place in the cylinder head. The fuel injector nozzle (numbered (9) in Figure 3) is located at the tip of the fuel injector valve. The nozzle has a series of small holes around its perimeter. The fuel injector valve injects at a high pressure an atomised spray of very fine droplets of fuel oil into the hot air. Pumps create very high pressure, that forces the fuel through those small holes to create the very fine droplets, and the temperature of the droplets of fuel oil increases, due to the heat of the air, until the droplets self-ignite. The resulting combustion increases the pressure in the remaining space within the cylinder, between the piston crown and the cylinder head, causing the piston to move downwards in the cylinder liner. That downwards motion exerts force through the connecting rod to the crankshaft, which then rotates. The rotation turns the propeller. The process continues because, as the piston crown descends within the cylinder, the air valves in the area of the cylinder head open again, letting in fresh air, which also assists the downward motion of the piston. The overall power of the engine derives from the coordinated operation of all its cylinders driving the crankshaft through this process.
127 The fuel injector valve, when operating correctly, creates an evenly dispersed mist of fine droplets of fuel oil that will ignite in a relatively uniform way within the confined hot, compressed air between the piston crown and the cylinder head. However, if the fuel injector valve is faulty, liquid fuel accumulates around the holes of the nozzle and it begins to form a drip. In a bad case, the fuel oil emitted from the fuel injector nozzle can become a stream of liquid. The heat of the metal and air in both the cylinder head and the fuel injector valve itself will be insufficient to cause this accumulated fuel oil to vapourise or ignite in the air between the nozzle tip and the piston head. Some of the drops of accumulated fuel oil will then form into a stalactite of carbon that hangs downwards from the fuel injector nozzle pointing towards the piston crown. The longer the faulty fuel injector nozzle remains in place, the more stalactites or carbon trumpets will form and grow. This results, in turn, in a decrease, first, of the amount of fuel oil that the valve can inject into the chamber and, secondly, in the efficiency of its atomisation into very fine droplets. The consequence is a decrease in the overall efficiency of the main engine.
128 The fuel must atomise properly during its injection into the very hot air at the top of the cylinder to create the fine mist of sufficiently small droplets so that, when mixed with the air, the droplets burn before they can touch the metal surfaces of the approaching piston crown and the remaining exposed adjacent surfaces of the cylinder liner. The margins between the piston crown and skirt and cylinder liner are very small, and there is lubricating oil on the surfaces of the cylinder liner and piston skirt as well as within the crankcase. The lubricating oil is a different oil from the fuel oil and, as their different names indicate, each oil has its own purpose in the operation of the engine.
129 If atomisation does not occur because the fuel injector nozzle is leaking (as discussed above), the carbon trumpets or faulty nozzle holes can create a stream of liquid that is not readily ignited. So, the fuel oil does not burn as efficiently as it should causing, first, a rise in temperature of the cylinder, secondly, burning on, or of, the piston crown on which the larger droplets or stream has fallen, and thirdly, microseizures of the piston.
130 A microseizure occurs as follows: unatomised fuel, that has made its way onto the sides of the cylinder and or the piston shaft, causes the lubricating oil on those surfaces to wash away. That process eventually causes the surfaces of the moving piston and its adjacent cylinder liner to overheat. This causes microscopic welding of the two surfaces to occur. The weld is subsequently severed as the force of the piston’s movement breaks the bond. In turn, small particles created by the severed weld then scrape down in the space between the cylinder liner and the piston skirt into the engine crankcase and the lubricating oil that circulates within the engine’s moving parts (including the cylinder shafts). The lube, or lubrication, oil (lube oil) filters are designed to catch any much finer particles.
131 Another consequence of a faulty fuel injection nozzle is that the temperature of the exhaust gas or smoke emitted through the ship’s funnel is higher than normal and the gas is a darker colour rather than the normal greyish blue; indeed, the higher the temperature, the darker the gas or smoke will be. The two experts explained that if the fuel injector nozzle is operating normally, it will inject the fuel into the combustion chamber (i.e. the place in the cylinder between the approaching piston crown and the cylinder head) a little before the piston crown reaches its highest point of approach to the cylinder head. But, if the nozzle is leaking (or malfunctioning), some fuel enters the combustion chamber late and, when it ignites, it creates a higher temperature.
132 Thor Commander’s main engine was manufactured in 2008 and had run 18,321 hours when it failed. Rolls-Royce had issued a service manual for the engine which included items 1501 and 1502.
133 Item 1501 comprised two pages, the first was headed “Routine Maintenance in General” and the second was a table titled “Expected service life for some engine components”. The first page informed the reader that different components of the engine required regular maintenance and cleaning “in order to keep [it] in continuous good operating condition”, and referred to item 1502. The information advised the reader, “Don’t wait until the operating troubles occur”. It noted that the frequency of maintenance and overhaul was primarily dependent on the operating conditions of the engine, although the quality of each of the fuel and lubricating oils was of great importance. It stated that:
The number of operating hours given in the table is approximate and valid for normal operating conditions.
134 The reference to “the table” was to the second page of item 1501. That table gave the expected service life of a fuel oil nozzle (or fuel injector) in a heavy fuel oil engine (such as Thor Commander’s) as 4,000 running hours. There was a note at the foot of the table that read:
The indicated hours are for guidance only and for normal operating conditions.
135 Both experts agreed that the table’s use of the expression “expected service life” would be understood as the timeframe for the next service of relevant engine component. They also agreed that if conditions were harsher than “normal”, the service should be performed earlier. If, when a component such as a piston, cylinder liner or cylinder head was examined it appeared to be in a suitable operating condition, after due examination, the engineer need not, and ordinarily would not, replace it merely because it had reached its expected service life. However, as Mr Cosh observed, those three examples were major components that did not have “a fatigue life on them” unlike smaller components, such as fuel filters or fuel injection nozzles. As he said, “you would be a fairly brave chief engineer that didn’t change them (i.e. the smaller components) at the required time”.
136 Both experts agreed that it was not necessary to adhere rigidly to the timeframes in the recommended maintenance, or service life, recommendations in a manual (such as the service manual) and some degree of deviation was allowable. Mr van der Kruijs gave the practical example of deferring until the next port, maintenance or replacement of parts if the recommended number of running hours for the step occurred while the ship was at sea. Both experts recognised that a manufacturer’s manual allows some margin between the recommended timeframe for a task and the actual necessity to undertake that particular task. That is, an engineer is entrusted to take (and usually will take) essentially a practical approach but will not allow too long a period to pass after the recommended time for the task. But, as Mr van de Kruijs said of the importance of a maintenance schedule in a manufacturer’s manual, from the point of view of a marine engineer on a working ship:
The manual is the only guidance that you have on board, so you have to follow what the manufacturer says in that guidance. (emphasis added)
137 Item 1502 set out a routine maintenance schedule that, in the August 2001 revision, provided guidance for replacing the fuel injector nozzles after every 5,000 running hours. This was, clearly enough, inconsistent with the statement in the table in item 1501 that the expected life of a fuel injector nozzle was 4,000 running hours (see  above). The instruction also provided that the whole fuel injection valve should be checked after 4,000 running hours, cleaned after 8,000 hours, overhauled after 10,000 running hours, cleaned after 13,000 running hours, checked after 15,000 running hours and cleaned after 18,000 running hours. The notes in the instruction stated that:
• [it] is only valid for normal operating conditions as defined in the … relevant technical documentation from Rolls-Royce.
• [t]he intervals in this schedule are for guidance only!
• [t]his schedule may only be changed by a service letter from Rolls-Royce.
138 The service manual identified causes of abnormal exhaust gas as including, where the gas temperature in one cylinder was too high, a partly clogged or leaking fuel injector nozzle.
139 In addition, the routine maintenance schedule in item 1502 also provided (in item 706) that lubricating oil filter elements (lube oil filters) should be replaced, first after 1,000 hours, next after 10,000 hours and thereafter every 10,000 hours or when there was a pressure drop. Both experts said that this item referred to the paper filters used in the dual lube oil system that filtered the lubricating oil used in main engine for its moving parts, including the lubrication of the cylinder liners, the pistons and the crankshaft. Both experts also agreed that in their experience such filters did not last 10,000 hours and it was not normal engineering practice to change such filters, which were comprised of paper elements, at such long intervals. The next item (item 707) in the routine maintenance schedule was the “centrifugal separation filter lubr. oil (clean every 500 h[ours])”. In contrast, the expected service life, that the service manual indicated in item 1501, for both the fuel oil filters and lubr[icating] oil filter element, was left blank for heavy fuel oil engines. Those were the only two blank entries in that table, which had 5,000 and 2,000 running hours respectively for the corresponding components in medium fuel oil engines.
140 Prior to the breakdown of Thor Commander’s main engine on 11 January 2015, the fuel injector nozzles of six of the eight fuel injector valves had not been cleaned or replaced for over 7,000 running hours and there was no planned scheduled time for their maintenance. In addition, Thor Commander’s engineers ran out of spare lube oil filters on the voyage from Angamos and eventually had to clean them by hand after 2 January 2015 every 24 hours. This situation came about in the following circumstances.
141 Anatoliy Sereda had been the chief engineer on Thor Commander since September 2012 . He gave evidence through a Russian interpreter. Mr Sereda worked on four monthly swings and on 11 January 2015, he was in the course of a swing that had begun on about 24 or 25 October 2014 when he rejoined the vessel in Antofagasta, Chile. He was an experienced chief engineer having worked in that position on cargo ships since 1999. He began working for MarShip in 2007.
142 As Mr Sereda explained, the chief engineer had responsibility to create or approve records and reports in respect of the ship’s performance and maintenance on a routine and regular basis. If he did not create such a record or report himself, he would check and approve what the engineering crew under his supervision had recorded or reported. The records and reports for which the ship’s chief engineer was responsible included the general log (that was prepared daily), the hard copy engine log (that was completed by hand at regular intervals during each day and checked by Mr Sereda, when on board, daily), monthly measurement indication reports, monthly main engine running hours reports, three monthly lube oil sample reports, monthly job reports (that the second engineer prepared and the chief engineer checked) that were based on data extracted from the engine log book and a three monthly crankshaft deflection report.
143 The ship’s chief engineer had to provide the monthly reports (referred to above) to the ship’s technical superintendent, being Mr Smirnov. Mr Smirnov had held that position since June 2012 in respect of Thor Commander, as one of eight vessels for which he was responsible in that role.
144 Between 29 August 2013 and 1 September 2013, Mr Sereda and his then replacement as chief engineer, Mr Stoian, changed all of the fuel injector valves in the eight cylinders of Thor Commander’s main engine while she was in port, as part of the engine’s 10,000 running hour maintenance program. By then, the main engine had run for 10,548 hours. The fuel injector valves for cylinders 3 and 4 immediately before then had only 1,634 and 1,457 running hours respectively, and the other six had had 5,598 running hours since their previous replacements according to the main engine running hours report for 31 August 2013. However, despite the installation of the eight new fuel injector valves then, the main engine running hours report that Mr Stoian appeared to have prepared for 30 September 2013 and 31 October 2013 repeated the same running hours figures for those valves as had appeared in the 31 August 2013 report. In contrast, the recorded engine running hours themselves and those for the other major engine parts (such as the cylinder heads and pistons) increased to 11,104 hours and 11,687 hours respectively. Then, in his 30 November 2013 report, Mr Stoian appeared to have recorded that the main engine running hours were 12,323, while he recorded that all eight fuel injector valves now had 1,764 running hours.
145 In the period between 1 September 2013 and 30 November 2013, the main engine had run a total of 1,825 hours. Therefore, the adjustment that Mr Stoian appears to have made was approximately correct for the 8 new fuel injection valves. In his 31 December 2013 report, Mr Stoian recorded that the main engine running hours had increased by 690 hours to 13,013 hours and those for the eight fuel injector valves correspondingly to 2,454 hours.
146 Mr Sereda prepared the next main engine running hours report for 31 January 2014. That reported an increase of 503 hours for each of the engine (to 13,516 hours) and the fuel injector valves (to 2,959 hours).
147 In his monthly job report for January 2014 (that was mis-dated “Feb 2014”), Mr Sereda recorded on 3 January 2014 “Main Engine fuel injectors overhauled and fitted new nozzles 4 units for ready spares”. He explained in his evidence that this entry referred to changing the nozzles on the four spare fuel injector valves that were carried on board as spare parts and that there had been no change made to any of the nozzles on any installed fuel injector valves. He said that he did this to ensure that there would be sufficient spare nozzles to replace any nozzle that became “unserviceable in less than 5000 hours” as well as to have them available for scheduled routine maintenance, however, he did not further explain why the spare nozzle had to be fitted to the spare valves.
148 But, when Mr Sereda prepared the 28 February 2014 main engine running hours report, he recorded that the engine had run a further 531 hours (and a total of 14,047 hours) but he left unchanged the January 2014 report’s 2,959 running hours for the fuel injector valves for cylinders 1 to 7. Mr Sereda reported in his monthly job report for February 2014, that on 24 February 2014, he had fitted the spare cylinder head on cylinder 8 with a new full injector valve. Hence, the monthly running hours for those and associated components for cylinder 8 were reset to zero.
149 In late March 2014, the ship took delivery of nine new fuel injector nozzles that Mr Sereda had ordered. However, none of those nozzles was used before Mr Sereda left his swing in June 2014.
150 In the main engine running hours reports for 31 March 2014, 30 April 2014 and 31 May 2014, Mr Sereda increased the figures in the 28 February 2014 report by the respective monthly running hours (457, 322 and 533) for all of the entries, except that he had left unaltered the running hours for the fuel injector valve in cylinder 2 in the April 2014 report, but corrected that error in the May 2014 report so that, by then, the recorded running hours for the fuel injector valves in cylinders 1 to 7 were 4,271 and in cylinder 8 were 1,312. Thus, the reports remained inaccurate because they did not record the 531 running hours for all of the fuel injector valves that had been omitted from the 28 February 2014 report.
151 On 19 and 20 May 2014, Mr Smirnov attended on board in Rotterdam and prepared a lengthy report of inspection of Thor Commander for MarShip. The report noted that the ship was due for her next dry dock on 1 October 2014. Mr Smirnov wrote that the engine room was “in general, in good technical condition”, that all equipment was in normal working condition and that the required spare parts were on board. He wrote:
The main engine is in general, in normal technical condition. The M[ain] E[ngine] performance is as per the makers requirements. However, we see the ME lubricating oil consumption is increased for the last 6-8 months –– the overhaul of the M[ain] E[ngine] cylinders with the renewal of the piston rings is to be done soonest. (emphasis added)
152 He said that the main engine’s oil consumption was higher than normal “but more or less acceptable for owners”. Despite his recommendation that the overhaul, due at 20,000 running hours, should “be done soonest”, Mr Smirnov said in evidence that the decision whether the work would be undertaken was not his, but the owners. Significantly, when he made this inspection report in May 2014, the running hours were over 15,000 (15,333 hours according to the 31 May 2014 running hours report). I think that what Mr Smirnov meant to convey by “soonest” was a reference to waiting a further 5,000 running hours until the scheduled 20,000 hour routine maintenance, with a 1 October 2014 due date for the ship to go into dry dock, about which Mr Smirnov wrote earlier in the inspection report.
153 Mr Smirnov conveyed a similar meaning to his use of “soon” as “when due” in a report that he wrote on 10 July 2014 (see  below). However, given his concern about the state of Thor Commander’s main engine as at May 2014, it was the more important that Mr Smirnov and the owners reviewed carefully the regular reports from the ship to monitor the current maintenance of those components of the main engine that would be the subject of an overhaul, including, the fuel injector nozzles. I found Mr Smirnov to be a witness whose evidence had to be approached with considerable caution and he was not always truthful. Of course, I have made allowance for English not being his first language, but I observed, and listened to, him closely on the video link to Germany where he was giving his evidence over many hours in arriving at my assessment of him.
154 One example of my caution in accepting Mr Smirnov’s evidence arose out of his affidavit sworn on 22 December 2016. Mr Smirnov said that Mr Sereda and Marian Biernatowski (who did not give evidence) rotated on Thor Commander as chief engineers on four months on, four months off, swings and that:
As the technical superintendent, I am very pleased to have each of them working on board the Vessel. I find them both to be very experienced and skilled Chief Engineers and both are very reliable, effective and efficient in their role. (emphasis added)
155 In oral evidence, Mr Smirnov said that in July 2014 Mr Biernatowski was new and had commenced his employment on Thor Commander about two weeks before his July 2014 inspection at Burgas. By this stage of his cross-examination, as I will explain later in these reasons, Mr Smirnov had realised that his assertions of his supposedly careful supervision and the adequacy of what had occurred in respect of the maintenance of the main engine, including timely replacement of the fuel injection valves, were inconsistent with the contemporaneous documents that he either had written or had received. He was asked about his inspection of the main engine in July 2014 and gave this evidence:
MR NELL: But as a new chief engineer, did you not raise with him [Mr Biernatowski] the fact that the time under the PMS [planned maintenance schedule] for the replacement of the fuel injector nozzles was about to pass and that he would have to undertake that work?
THE WITNESS: No, sir. No, sir. We cannot view our jobs, I mean our superintendent jobs, in such way like you just asked me, yes. No, that is impossible. If and if you think, if no any signs of problem of major running operations, yes, and so on yes, so for us, the most important to be sure that spares are on board in case of yes to be ready. And to know the chief engineer knows his duties, he understands what to do and when to do and how to do. That’s all. We cannot discuss with him fuel valves, this, this, this. It’s a lot of items, yes? It’s impossible … I need to check vessel …
MR NELL: As part of that consideration did you not consider whether any maintenance was likely to be due shortly on the components of the main engine, including the fuel injection nozzles?
THE WITNESS: We discussed with the chief we discussed with the chief engineer a forthcoming job and so on. It was in preparation of Mr Biernatowski had been okay. He had been on board only two weeks. Yes. He look at fuel preparation experience and chief engineer, he was working at sea for more than 30 years, yes, so more than 30 years, so about 35 years, yes, so but willingness of job, later on we could feel that there had been not so good, so we discussed with the chief engineer forthcoming job and so on. It’s a typical discussion between the technical superintendent and chief engineer … so chief engineer knew that he should take care about forthcoming plenty ... of jobs in nearest convenient point.
HIS HONOUR: Did you say that you formed a favourable view or a good view of Mr Biernatowski when you saw him in Bulgaria in July 2014, but some time later that good impression of him changed?
THE WITNESS: Yes. Yes, sir. Unfortunately, yes, it is, yes. There was there was the sign there has been one month later when vessel approach to Panama Canal and the vessel …crew had problems with the ship’s air-conditioning plan. He was not able to fix a simple issue, so it is already clear sign that his notices are very, very weak, unfortunately.
HIS HONOUR: Well, if you look at paragraph 19 of your affidavit, you’ve stated there that you were … pleased when you were swearing your affidavit in December last year that you had both of them on working on board the vessel. They were both very experienced and skilled and very liable, effective and efficient in their role. Are you saying that that’s not correct about Mr - - -
THE WITNESS: Yes, it is. Yes. It was … I had been on board the vessel around a couple of days. We discuss it with this man a lot of technical matters and first impression had been really not so bad, but I don’t know why maybe due to age, but I got ... he didn’t want to work. That that was problem with Mr Biernatowski. (emphasis added)
156 In my opinion, Mr Smirnov sought to blame Mr Biernatowski (and contradict his own affidavit evidence) knowing that, in fact, it had been part of his (Mr Smirnov’s), and not only the chief engineer’s, duty and his ultimate responsibility to ensure that the maintenance and replacement of the fuel injection nozzles occurred at around July 2014 in accordance with the planned maintenance schedule and the observed operation of the main engine. Instead, replacement of the fuel injection nozzles did not occur before the main engine failure in January 2015.
157 Mr Biernatowski prepared the main engine running hours report for 30 June 2014. That showed that the engine had run for 15,835 hours, the fuel injector valves for cylinders 1 to 7 had run 4,773 hours (or, if the omitted hours were included 5,304 hours) and cylinder 8 had run 1,814 hours.
158 In the June 2014 job report, Mr Biernatowski reported that the lube oil filters had been changed on 8 June 2014 and he wrote that, on 20 June 2014, “Overhauled ME Fuel Oil Injection Valves 3 units. Fitted new nozzles”, but he did not identify in which cylinders the three new nozzles were fitted, as Mr Sereda acknowledged, he should have done. Mr Biernatowski made a similar entry in the engineer’s log book. Mr Sereda gave this evidence:
MR NELL: But if you’re just overhauling valves for use of spares, there would be no reference to any cylinders because they’re not taken from any cylinders; would you agree with that?
THE INTERPRETER: There’s no indication here that these – it merely says that the fuel or injecting valves were overhauled, but there’s no indication that they were put in the store.
MR NELL: But there’s also no indication that they were taken from any cylinders, is there, Mr Sereda?
THE INTERPRETER: That’s correct, yes.
MR NELL: And when you returned to the ship in October, I think it was, Mr Biernatowski didn’t tell you that he had replaced either fuel-injection valves or fuel-injection nozzles in three cylinders, did he?
THE INTERPRETER: He didn’t say it. He said that all the nozzles had been replaced. (emphasis added)
159 I do not accept that Mr Biernatowski told Mr Sereda that he had replaced all the fuel injection nozzles. Rather, I find that in giving that evidence Mr Sereda was seeking to avoid responsibility for the defect that emerged in the operation of the fuel injector nozzle in cylinder 5 after it was opened following the breakdown. There was no reason for Mr Biernatowski to have failed to include any reference in the June 2014 job report to the cylinder numbers had he replaced three or all of the nozzles on 20 June 2014, as Mr Sereda claimed. Mr Sereda agreed, when shown the engineer’s log book entry for 20 June 2014 that it, too, did not contain any indication that any nozzle had been changed or overhauled in an operating cylinder and, as he conceded, had that happened “it would have been recorded something like “cylinder 1, 3, 5” whatever”.
160 Accordingly, by 30 June 2014, each of the fuel injector nozzles in cylinders 1 to 7 had exceeded both the 4,000 hours life expectancy in item 1501 and their scheduled routine maintenance after 5,000 hours in item 1502 in the Rolls-Royce service manual. Mr Smirnov inspected Thor Commander soon after, in July 2014 at Burgas. Yet, he did nothing to prepare or require any maintenance for the fuel injector nozzles. If the chief engineer had not already done so (as should have been the priority by this time), a reasonable technical superintendent in his position would have reviewed the monthly main engine running hour reports and other reports of work done on the ship, that Mr Smirnov received from Thor Commander, and appreciated that the routine maintenance schedule provided that those nozzles were due, or past due, for replacement. Such a superintendent should have arranged for, or asked others to order, replacement nozzles to be fitted.
161 In his April to June 2014 fleet management report dated 10 July 2014, Mr Smirnov wrote that the main engine was in a “normal technical condition” and that its planned overhaul would be done “soon” in accordance with the Rolls-Royce planned maintenance schedule (i.e. at 20,000 running hours as set out in item 1502 of the manual). He wrote that: “We are keeping the budget of the vessel under tight control”. And, in the 19 and 20 May report of inspection, Mr Smirnov added in his general remarks about the ship “The chief engineer should pay attention to some very important items, as we’ve discussed with him”. In his evidence Mr Smirnov said that those items related to the cleanliness of the engine room and the control of the engine room crew.
162 The main engine running hours report for 31 July 2014 recorded that the engine had run for 16,155 hours, the fuel injector valve for cylinder 8 had run for 2,134 hours, and the other seven valves for 5,093 hours. Thus on the face of that report, those seven fuel injector valves had reached the longer of the scheduled times for the replacement of the fuel injector nozzles in the seven cylinders (leaving aside the effect of the earlier omission of the extra 531 hours from the total running hours for those valves).
163 When confronted with this report and his own inaction (that continued for months after it, as the running hours increased), Mr Smirnov became evasive as appears in the following evidence:
MR NELL: Mr Smirnov, in your role as a technical superintendent, in checking whether routine maintenance had been carried out, you were aware that that was to be done by reference to the number of running hours that that particular component had run. Correct?
THE WITNESS: You know, chief engineers are qualified engineers. Yes. They know what to do and how to do and so on. We are not able to control any routine job – I repeat, yes – any routine job on board of the vessel. That is impossible. We control performance of big jobs and he pay attention to vessel performance, speed and fuel consumption and main engine performance. If any signs of main engine performance, yes, we immediately ask chief engineer what did you do previously? What do you plan? Can you spare us to fix this issue? Already a period issue. But all normal routine jobs they are open ... case, different inspections. Series of inspection of fuel valves before ... running hours, maybe even early. This is normal daily routine jobs, daily responsibility of chief engineer. We don’t need to ask him, “Did you make this, this, this job?” Chief engineer says, “No.” He has – he know – he knows – chief engineer that his job and two-fold. The ship main engine performance ... every day at sea – when vessel at sea because they send – they send us daily report and they see vessel performance and consequently main engine performance.
HIS HONOUR: Can you help me by telling me what the purpose of having the entry on the running hours main engine reports for the number of running hours in each cylinder of the injection valve? What’s the purpose of that line and why is that in – have to be in the report that’s given to you?
THE WITNESS: Purpose – when the purpose of this line to keep under control ... to be – to keep under control our statistic – our statistic so sometimes reinforce it make a change fuel valves, for instance – put in a valve – fuel valve ... in monthly running hours so we just install it. New delivery of fuel nozzle ... for Rolls-Royce but out of order so we send our claims to Rolls-Royce. Why? Why? You should exchange – exchange on this. The vessel can sail – sail a lot of times. This is the important statistic and also budget of the vessel – financial side because issue item cost so we should keep under control. Most important safety ... the vessel, safety – proper operations the main engine, vessel performance, main engine performance then financial side to this question. (emphasis added)
164 Mr Smirnov sought to blame only Mr Biernatowski, who, I accept, is likely to have had some responsibility for the delay in replacing the fuel injection nozzles. However, as his answer to my question exposed, a purpose of Mr Smirnov, as technical superintendent, receiving the regular monthly reports of engine running hours was to “keep under control our statistics … [to] make a change [of] the fuel valves” and to order new parts from Rolls-Royce. He was also conscious, no doubt on the instructions of MarShip or Mr Held, about the financial consequences of ordering parts and installing them.
165 In light of the relatively small cost of the nine replacement nozzles in March 2014 (about €4,275), Mr Smirnov’s reference to the “financial side” suggests that MarShip was more concerned about minimising its expenses than undertaking routine maintenance with appropriate diligence when it was due, so long as everything appeared to be working. Indeed, as events unfolded, in the second half of 2014, Mr Smirnov, and I infer MarShip generally, were not concerned to replace or even check the state of the nozzles, despite knowing that they were well past both the 4,000 and 5,000 running hours referred to in the Rolls-Royce service manual (at items 1501 and 1502).
166 Next, something curious happened with the main engine running hours report for 31 August 2014. The report noted the total running hours at 16,586, and that the engine had run 431 hours in August 2014. But, the entries in that report for the fuel injector valves added only 111 hours to the July 2014 report figures for cylinder 8, taking them to 2,245 hours, and for the other seven to 5,204 hours. Had the report added all of the 431 running hours to the fuel injector valve figures reported at July 2014, the totals would have been 2,565 hours and 5,524 hours respectively (although that would again understate the true position of 6,055 running hours).
167 Similarly, in the main engine running hours report for 30 September 2014, the running hours were recorded as 662 hours for the month out of a total of 17,248 hours, but the running hours for the fuel injector valves in the eight cylinders increased by only 231 hours. Thus, the report reported the valve in cylinder 8 had run for only 2,476 hours and the valves in the other seven cylinders for 5,435 hours. Had the curious understatements in the August and September 2014 reports not occurred, the running hours for the valves would have recorded an extra 761 hours as at September 2014, showing that they had run for 3,227 hours and 6,186 hours respectively. And the true figure for the seven valves was by then 6,717 hours (because of the continuing omission of the 531 hours for February 2014: see  above).
168 In his fleet management report for July to September 2014, dated 8 October 2014, Mr Smirnov wrote that the main engine was performing in accordance with the manufacturer’s requirements. He wrote that seven new main engine cylinder heads should be purchased at the end of November 2014 for an overhaul of four to five days duration that should be planned for December 2014 or January 2015. He wrote that it would be desirable to do the overhaul closer to Norway (where Rolls-Royce’s manufacturing plant appears to have been) to reduce the transport expenses for the cylinder heads. He also wrote that a new main engine lube oil auto filter would be installed in the overhaul at a cost of €3,000. In re-examination Mr Smirnov said that this was an additional filter to the already installed ones that he wanted to address the problems that were occurring with regular clogging of the existing lube oil filters.
169 On 17 October 2014, MarShip sent to the master of Thor Commander a pro forma invoice recording orders for spare parts for the ship. The invoice did not include any fuel injector valves or nozzles.
170 Mr Sereda commenced his next swing at Antofagasta, Chile on about 24 or 25 October 2014.
171 Mr Sereda gave evidence in chief that after her returned to the ship he prepared the 31 October 2014 main engine running hours report. He said that:
I had a suspicion that the hours had been incorrectly calculated since the meter on the main engine wasn’t working properly, so I recalculated the hours and in the recalculation, the number of hours became less... (emphasis added)
He said that he used the hours in the engine log to make his recalculation. I do not believe that evidence.
172 The October 2014 running hours report recorded the total engine running hours as 17,459 hours, and those for the month as 211 hours. That new total was 211 hours more than the total in the September 2014 report. But, the running hours in the October 2014 report were recorded as 5,195 hours for the fuel injection valves of cylinders 1 to 7, and 2,236 hours for cylinder 8, being a reduction of 240 hours.
173 When cross-examined on this, Mr Sereda said that he recalculated the running hours for the fuel injection valves based on the main engine running hours each month since the fuel injector valves were replaced in September 2013. If that were true, he would have deducted the 31 August 2013 total of 10,548 running hours from the 31 October 2014 total of 17,459 hours and arrived at 6,911 hours. That calculation was both simple and its result was radically different from the 5,195 hours that Mr Sereda used. When confronted with the obvious absurdity of reducing only the figures for the fuel injector valves and leaving intact all of the other running hour figures for the main engine and its components in the October 2014 report, Mr Sereda asserted that Mr Biernatowski recorded incorrect figures only for the fuel injector valves. He said, implausibly:
THE INTERPRETER: When I saw this error on the injector valve, I could see the injector could not have possibly operated 6000 hours in a year. That’s too high a figure. A vessel doesn’t work that many hours in a year.
MR NELL: If the vessel didn’t work that many hours in the year since September 2013, then wouldn’t that mean that the total running hours for the vessel was also incorrect?
THE INTERPRETER: He [Mr Biernatowski] adds the figure that he has written down. He started the wrong number of hours for the injectors. I wasn’t there in June. I have to show my report for the month of May. (emphasis added)
174 As I noted above, after Mr Sereda’s May 2014 report, Mr Biernatowski’s reports appear to show, also, a reduction only one set of figures, being those for the fuel injector valves. And, even on his own, supposed, recalculation, Mr Sereda’s figure of 5,195 hours for the fuel injector valves and nozzles in cylinders 1 to 7 was over both the 4,000 and 5,000 hour life expectancy figures for replacing the nozzles in the Rolls-Royce service manual. Mr Sereda’s explanation was:
THE INTERPRETER: Yes. It’s 195 hours more. But I didn’t have enough – I didn’t have enough injectors spare to replace them all. When I left the vessel in June, there was a complete set of injectors spare. Of course, having seen what the hours were over, I would have – if I had the spares, I would have changed them. But I only had three injectors at that point. I couldn’t. And when I read that there had been a replacement, I didn’t know which one needed to be changed, because when I looked at all this, I could see that it wasn’t the chief engineer who prepared this. (emphasis added)
175 Giving further evidence the following day, Mr Sereda said that his (manuscript) signature was not on the October 2014 report, even though his name appeared in typescript above “Chief engineer”. He claimed not to recall his earlier evidence of recalculating the figures in the report and said, in respect of the figures in the October 2014 report:
my signature is not here, and I can’t assert that this figure is accurate or not, because I sent my report with a signature. The same on the vessel. There’s one on the vessel. I don’t know if it’s still there or not, one with a signature. If it had been sent in the electronic form, when you add 211 hours, in all the columns, that figure is added automatically. (emphasis added)
The emphasised part of the answer immediately above demonstrates that the figures for the fuel injector valves in the monthly running hours reports were altered deliberately to reduce them substantially.
176 Mr Smirnov said that, when he received the October 2014 running hours report, he noticed that the running hours for fuel injection valves were lower than in the September 2014 report. He said that he knew that the October 2014 figure was not an error and was, in fact correct. He denied that the October 2014 figure understated the true position “because Mr Biernatowski made mistakes in his calculation”. Mr Smirnov gave the evidence (such as I set out in  above and below), that I find was deliberately false. He said:
HIS HONOUR: Did you see any documents to show how Mr Sereda made the adjustments to show you what he had changed or anything?
THE WITNESS: Of course, yes, but we discuss it with him, because he also has been very … such calculation of running hours, yes, of ... incompetence by previous chief engineer. And we had history so – jobs ... port when fuel injectors were exchanged. So it was not so difficult to make a recalculation ... to make a – to make corrections in the report for October.
HIS HONOUR: And did you yourself do any checks of what Mr Sereda had done to make sure that you were happy with those adjustments?
THE WITNESS: Yes, of course, because we discuss it about his report, here with Mr Biernatowski twice, more than twice in September and, you know, beginning of October when he ... and when Mr ... come back on board to the vessel I told him
“Please take care about the monthly reports because, Mr Biernatowski was not able to make ..... correctly”.
MR NELL: Mr Smirnov, in relation to the October monthly report which gives the figure of 5195, did Mr Sereda provide to you any documentation identifying how he had calculated that figure or reached that figure?
THE WITNESS: Of course, but all the documentations in our hands job ... jobs ... report, yes.
MR NELL: It is – –
THE WITNESS: Jobs ... report from – appears like ... report. We have all ... report in our ... So we knew about it, and we discuss it by phone and email with Anatoliy Sereda. (emphasis added)
177 I find that Mr Smirnov directed Mr Sereda to create a false paper trail of fuel injector valve running hours to disguise what both men knew accurate versions of the main engine running hours reports would have shown (about the actual running hours of the failed injection valves). In my opinion, this conduct evidenced a consciousness of guilt that the true running hours figures would have shown that MarShip knew, as did Mr Smirnov and Mr Sereda, as I find that all three of them did, that the fuel injector nozzles were long overdue for replacement well before Thor Commander left Angamos for Townsville in December 2014. I also find that this conduct is connected with MarShip’s destruction or concealment of the physical evidence of the parts from cylinder 5 that, on 13 February 2015, the Court had ordered it to retain (see  below).
178 Moreover, there was no need for Mr Smirnov to ask Mr Sereda to recalculate the figures because, as he said: “It’s very easy to … check and make a recalculation”. And, Mr Smirnov knew that the figures for the main engine running hours were accurate. He gave the game away in answer to my question:
HIS HONOUR: Why was it important to you to have the injection valve figures corrected?
THE WITNESS: Sir, it is important to know all ... running hours after previous overall inspection. Not only fuel nozzle, fuel valves. All components, because we need to follow to the ... system, actually. We need to follow the ... system and to keep planning for job maintenance and for a ... actually delivery ... so for these components financial side of this matter is also important and to time of delivery also important, particularly for Rolls Royce engine, because delivery time of ... Rolls Royce spares is really significant. (emphasis added)
179 Mr Smirnov needed to create records for this proceeding to make it appear that MarShip, Mr Sereda and himself had not failed to ensure that the replacement of the fuel injector nozzles occurred within a reasonable time of when that ought to have happened. Mr Smirnov knew that this had not occurred as it should have. He said that when he received the October 2014 report:
I am the technical superintendent for this vessel and that time we knew that it is overdue [for] maintenance of fuel valves. (emphasis added)
He then gave this evidence:
HIS HONOUR: And also if you had appreciated that when the Rolls-Royce revised operating hours for the planned maintenance for the fuel injection valves had been reduced to 4000 hours, did you think about why Rolls-Royce had said that they thought this should happen more – less number of hours than before?
THE WITNESS: Yes. I – I thought about this.
HIS HONOUR: And what did you think about that, for the reason why Rolls-Royce recommended that they be done at 4000 rather than 5000 hours?
THE WITNESS: Quality of Rolls-Royce supplier, because quality of fuel valves is bad. We already discussed this question with Rolls-Royce some time before this problem ... derivative nozzle element is absolutely shit. Yes. Rolls-Royce didn’t accept our claims. Yes. So this is like one of option from my side, personally from my side, yes. But due to quality, because all other makers of the same powered engine, for instance MAK, Zeppelin ... engine ... they have running hours of fuel valves, the same power of engine, 4000 kilowatt. We have such engines for such vessels ... engines, yes. Minimum 6000 running hours, and they didn’t reduce PMS for fuel valves. Rolls-Royce only reduce, reduce, reduce. That’s all. Only quality of spares. Something wrong with main engine design, my explanation for this. (emphasis added)
180 I find that Mr Sereda and Mr Smirnov knew by 6 November 2014 and through, one or both of them, MarShip, that the fuel injection nozzles for cylinders 1 to 7 needed to be replaced and the fuel injection valves cleaned. But, they did nothing to prepare for that to be done at any time before Thor Commander left Angamos for Townsville on 13 December 2014, or even when she was scheduled to arrive in Australia. That was a failure to exercise due diligence before and at the beginning of the voyage from Angamos to make the ship seaworthy and to properly equip and supply her in breach of Art 3(1)(a) and (b) of the amended Hague Rules. Indeed, prior to the main engine breaking down on 11 January 2015, MarShip, Mr Smirnov and Mr Sereda had not done anything to arrange the long overdue maintenance or replacement of the fuel injection nozzles or even to check their condition.
181 As Mr Held said in his affidavit, “I delegate to Mr Smirnov the day to day technical management” of Thor Commander (see  above). Therefore, Mr Smirnov was MarShip for the purposes of that task, which included that it exercised due diligence before and at the commencement of each voyage, to make the ship seaworthy and to properly man, equip and supply her for the purposes of Art 3(1)(a) and (b) of the amended Hague Rules. In Hamilton v Whitehead (1988) 166 CLR 121 at 127, Mason CJ, Wilson and Toohey JJ explained the difference between an act of an employee or officer being treated as an act of the company itself or as an act for which it is vicariously responsible. They said:
The distinction was drawn by Viscount Haldane L.C. in Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [ AC 705 at 713]. Its significance is explained by Lord Reid in Tesco Supermarkets Ltd. v. Nattrass [ AC 153 at 170]:
“I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability.”
See also the statement of Denning L.J. in H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd. [ 1 QB 159 at 172] .
There can be no doubt, on the facts of the present case, that the respondent, in placing the advertisement and in dealing with those who replied to it, was the company. He was its managing director and his mind was the mind of the company. The company therefore was liable as a principal. (emphasis added)
182 Mr Smirnov was the delegate of MarShip’s managing director in the day to day technical management of the ship. His mind was relevantly that of MarShip and his acts and omissions, as delegate, were its acts and omissions, including the performance, or lack of performance, of his role to exercise due diligence for the purpose of Art 3(1)(a) and (b) of the amended Hague Rules, to oversee the maintenance and service requirements of Thor Commander and properly review her regular main engine running hours and other reports (see  –  above).
183 Also, when he rejoined the ship in late October 2014, Mr Sereda asserted that he was told that instead of working for 10 to 15 days before replacement, the lube oil filters were “now good for only five or six days”. He claimed that he took steps at that time to check what the problem might have been, including, satisfying himself, which I accept he did at least to some degree when he became aware of the problem (although I have doubts as to whether that was as early as October 2014), that there was no evidence of metal filings (such as might occur from microseizures within the main engine cylinders) in the lubricating oil. When the ship left Angamos, it had 12 spare filters on board as well as four installed, which allowed for three filter changes on the expected voyage of 24 to 26 days. He said that he expected the filters to last a minimum of 10 days.
184 However, Mr Sereda gave no evidence of what, if anything, had occurred after he rejoined the ship in late October 2014, that had improved the longevity of the filters beyond five or six days. Nor did he give any evidence that he or any crew member ever checked the oil filters for evidence of metal filings after about late October 2014. As events transpired, by 2 January 2015 the filters had been changed four times since the ship began the voyage to Townsville and there were, by then, no new spares. When the next change was required he had the engine room crew wash the old filters. He said that he saw only the normal dirty sediment being washed out with no indication of any metal traces.
185 On 6 November 2014, Rolls-Royce published to MarShip and others a service letter that contained an updated routine maintenance schedule. The service letter attached the October 2014 revision of the routine maintenance schedule, item 1502. Crucially, it changed the guideline instruction for item 7208, in respect of fuel injection nozzles, to provide for replacing them every 4,000 running hours (thus making this guideline consistent with the existing item 1501). The new schedule also provided that the fuel injection valves should be cleaned or adjusted every 4,000 running hours, until being overhauled at 20,000 running hours.
186 Later on 6 November 2014, Mr Smirnov emailed the service letter to each chief engineer of the eight vessels in his fleet, including that of Thor Commander, instructing them:
Please keep updated [sic] in your [file] and follow this in your daily works and planned works with the maintenance of the M[ain] E[ngine].
187 Mr Smirnov said that the service letter was important and that, when he forwarded it to the chief engineers in his email of 6 November 2014, he was asking them to follow it. However, his true attitude was disclosed by the following evidence that revealed his consciousness that he was responsible for the failure to cause the fuel injector nozzles for cylinders 1 to 7 to be replaced promptly in November 2014:
HIS HONOUR: Does that orient you now that there was a change in November 2014 from 5000 running hours that Rolls-Royce recommended for replacement of the nozzles to 4000?
THE WITNESS: Yes. Yes, sir. This is – we have recommendation. However, as I thought early, this ... is only really for blah, blah, blah.
MR NELL: Mr Smirnov … when you received the letter and the revised table that you have before you, you appreciated that it resulted in a decrease of the number of running hours at which Rolls Royce recommended that the fuel injection nozzles be replaced, by 1000, from 5000 to 4000. Do you agree with that?
THE WITNESS: I was really surprised. This is Rolls Royce ... All my engines have six, seven thousand running hours. This is Rolls Royce engine. Only Rolls Royce. MAN, MaK, Caterpillar, Deutz, Japanese makers. (emphasis added)
188 Mr Sereda understood that the instruction in the updated routine maintenance schedule was to replace the fuel injection nozzles every 4,000, rather than 5,000, hours, and that this was a significant reduction. Mr Sereda agreed that when he received the updated schedule it was all the more important that any fuel injector valves that were overdue for service be serviced as soon as possible. However, he gave this evidence:
MR NELL: …you knew that the fuel injector valves were already well overdue for service in accordance with the more lenient recommendations of Rolls-Royce set out in the manual; that’s correct, isn’t it?
THE INTERPRETER: I was told by the previous chief engineer that those injector valves – injector nozzles that needed to be replaced were replaced, then I knew the number of hours that had been reported – recorded, and I would have changed the nozzles if I had new injectors. But I know I didn’t have them, and so they were not replaced. (emphasis added)
189 Mr Sereda said, and I accept, that following his return to the ship in October 2014, Mr Smirnov never raised with him that the running hours for the fuel injector nozzles for cylinders 1 to 7 were in excess of the time for their replacement in Rolls-Royce’s scheduled maintenance program. Mr Sereda said that Mr Smirnov never raised or discussed with him that those nozzles were overdue for service or replacement. He received no communications in that period from Mr Smirnov about what spare nozzles were on board that would be available to carry out the scheduled maintenance either.
190 On 10 December 2014, the day before Thor Commander arrived at Angamos, Mr Sereda said that the crew changed the fuel injection valve for cylinder 6 because the temperature of its exhaust gas rose quite significantly. That valve, in turn, needed to be replaced the next day, 11 December 2014, because it was faulty. These changes used two new spare valves (including, of course, the nozzles on each). Mr Sereda said that, when he came back on board in late October 2014, there was three or four spare fuel injector valves, leaving a maximum of two spare for the voyage to Townsville. He said that after receipt of the 6 November 2014 Rolls-Royce update to the planned maintenance schedule:
I would not allow 6,000 hours to go by … I knew we had to change every 4,000 hours, and if I had the injectors, I would have changed them. I wouldn’t have dragged it out.
Of course, he knew that as at 6 November 2014, 6,000 running hours had gone by, hence his falsification, with Mr Smirnov, of the main engine running hours reports.
191 Unsurprisingly, the main engine running hour reports for 30 November 2014 and 31 December 2014 continued to misstate the running hours of all the fuel injector valves except for that in cylinder 6 which was replaced on 11 December 2014. The actual running hours for the fuel injector valve in cylinders 1 to 7 as at 30 November 2014 were 7,017, the main engine having only run for 107 hours in that month. In the December 2014 report, the running hours for cylinders 1 to 5 and 7 were said to be 5,801 hours (including the 500 extra hours added that month) instead of the actual 7,517 hours.
192 In his fleet management report for September to December 2014, dated 7 January 2015, Mr Smirnov wrote that preparations for the overhaul of the main engine were in progress and that all spares, including cylinder heads, were ready for delivery on board at a convenient port before 1 March 2015.
193 Late on 13 December 2014, Thor Commander began the voyage from Angamos to Townsville.
194 On 26 December 2014, the ship’s electrical switchboard failed causing a blackout. Although the switchboard was quickly fixed, on 28 December 2014, the ship’s Praxis alarm monitoring system failed and could not be restored.
195 The Praxis system was used to monitor each cylinder’s exhaust gas temperatures and compression pressure (called PZ) automatically and to sound an alarm if a temperature or compression pressure was excessive or too low. An abnormal temperature of exhaust gas or compression pressure indicates that the relevant cylinder is not functioning properly.
196 Ordinarily, the engine room crew regularly recorded exhaust gas temperature readings from the Praxis system. Once the Praxis system failed, Mr Sereda said that the crew had to make visual observations of the exhaust gas emitted from the ship’s smoke stack in order to monitor engine performance but they could not monitor either the gas temperature or the compression pressures in the cylinders for the rest of the voyage. Mr Sereda said that if the PZ fell, the exhaust gas temperature would rise and that would indicate that the fuel injector nozzle in the affected cylinder was failing.
197 As noted above, the last new set of lube oil filters was installed on 2 January 2015. After that, the old filters were washed and reused and the filters were changed almost daily.
198 At about 15:20 LT on 11 January 2015, Thor Commander was in the Coral Sea off the coast of Queensland relatively close to the Great Barrier Reef. The second engineer, Andriy Gubanov, alerted Capt Chaplin and Mr Sereda, who was asleep, that there was a loud abnormal noise coming from the main engine. Mr Sereda went straight to the engine room. He heard a loud abnormal noise coming from the turbocharger and also heard valves beating. That indicated to him that one of the cylinders had a problem. He shut the main engine down immediately and worked with Mr Gubanov to remove the cylinder “caps” (which I infer to mean the cover) so as to be able to inspect inside the cylinders.
199 When they took the head off cylinder 5, Mr Sereda saw that the distance between the [exhaust] valve and the rocker was too big. They opened the crankcase and Mr Sereda saw that one half of the big end bearing was sitting on the other half of the big end bearing. That convinced him that the main engine had suffered serious damage. When they took out the rockers, Mr Sereda saw that the push rods had become bent and the piston crown was displaced.
200 Mr van der Kruijs gave the following explanation of the push rods and rocker mechanism:
201 The engineers log contained the following notations in the general remarks section that Mr Gubanov appears to have written:
11 January 2015 Breakdown of ME
Dismounted cylinder head No 5 was found curved push rod and drainpipe of exhaust valve.
After opening crankcase Cover N.5 found the destroyed big end bearing shells, and metal [sic] pieces on the strainer plates
12 January 2015 Watchkeeping
After removing the piston found that a piston head had teared off from the skirt, big end bearing shells and oil scraper ring damaged
202 The ship’s job report for January 2015 repeated most of those remarks in the entries for 11 and 12 January 2015, but described what was seen on 12 January 2015 as:
Removing the piston shown that the head of the piston has teared off from the skirt, all rings and big end bearing shells have [been] destroyed.
203 I will describe, later in these reasons, what occurred on and to Thor Commander as she drifted towards the Great Barrier Reef following the breakdown until she arrived, under tow, in Gladstone on 14 January 2015.
204 On 15 and 16 January 2015, Erik Meijer, who worked for Rolls-Royce Marine Australia, attended on board Thor Commander, in Gladstone. He inspected cylinder 5 and crankshaft pin 5 to assess what replacement parts would be needed to repair the main engine. His report did not refer to the fuel injection valve or nozzle (including not mentioning either in the list of replacement parts). That report was not prepared for the purpose of assessing the cause of the engine failure but to assess what was damaged and what was needed to repair the engine. It is not surprising that the report did not refer to the fuel injection valve which, in the scheme of necessary repair work was a small part that may have been included, in any event, as a component of the new cylinder head.
205 On 13 February 2015, I made consent orders that, among other things, required MarShip to preserve and keep in Australia the piston crown with rings, the broken bolts securing the crown to the piston and the fuel injector from cylinder 5, any debris recovered from the crankcase, the crankshaft and cylinder units 4 and 6 (the retention order).
206 I also ordered that MarShip permit Mount Isa’s expert marine surveyor (who, though not named in the orders, was Mr Cosh) to attend on board the ship on 17 February 2015 to inspect, photograph, video and measure in the main engine room space, engine control room and all parts of the main engine, including those parts removed or disassembled (and to take oil samples). I ordered that MarShip’s employees give that surveyor all reasonable assistance to perform those tasks.
207 MarShip’s solicitor, Dimity Maybury, sent the Court orders of 13 February 2015 later that day to Capt Chaplin and MarShip’s technical superintendent, Marcin Pacholik, who had arrived in Gladstone on 13 January 2015 to oversee the repairs because Mr Smirnov was then on leave. Ms Maybury concluded her email by requesting that, once the inspection occurred on 17 February 2015 “and assuming you no longer have a need for it on the vessel, please place all parts of #5 cylinder into a wooden box together with the items put aside by Mr Brown in a plastic bag. We will arrange for it to be collected from you and stored offsite”. Capt Chris Brown was a master mariner surveyor acting for Thor Commander’s owners or insurers. He did not give evidence and I infer that nothing that he could have said would have assisted MarShip’s case.
208 Mr Pacholik stayed on board Thor Commander until he left Australia on 1 April 2015. He sent an email to Ms Maybury on 15 February 2015 saying that MarShip would comply with what she had sent in her email.
209 Ms Maybury said that, on 25 April 2015, Capt Brown had emailed her. In the email he identified the bottom end bearing shell and connecting bolts as items that should be secured as evidence and he wrote that he would arrange for those components to be secured.
210 Ms Maybury did not offer any explanation as to how the items identified by Capt Brown would not have fallen into her request (that was broader than the retention order of 13 February 2015, since the components were, in any event, part of cylinder 5 that she had requested be placed in the wooden box). She said that after April 2015, she understood that Capt Brown took possession of the wooden box and kept it at his offices in Port Kembla, New South Wales.
211 In early May 2017, Ms Maybury asked Capt Brown to deliver the wooden box to her firm’s Sydney office where it arrived on 9 May 2017. The wooden box remained sealed until Mr Cosh and Mr van der Kruijs arrived at her firm’s offices on 16 June 2017 to perform a joint inspection. When opened, all the box contained was the bottom end bearing cap, two connecting bolts and a nut. Ms Maybury said that, on 20 June 2017, Capt Brown said to her: “The only box I received from the Vessel was the box I sent to you”.
212 She also made email enquiries of Capt Chaplin and Mr Pacholik, after 16 June 2017, as to whether there was a second box and what had happened to the parts that the order of 13 February 2015 specified be kept. Capt Chaplin responded that he remembered that the engine crew had collected one wooden box before he disembarked and returned home to Odessa on 14 February 2015. Mr Pacholik responded to Ms Maybury saying “all parts you requested to keep in one place have been stored in that box” and that he did not know what happened after he returned home to Poland on 1 April 2015. Since Capt Brown only requested on 25 April 2015 that, what turned out to be the contents of the box, should be preserved, I infer that all of the other parts the subject of the retention order have been destroyed or made unavailable by MarShip.
213 MarShip’s failure to comply with the retention order is unexplained. There could have been no reason to keep the box or boxes, to which Capt Chaplin and Mr Pacholik referred in their emails, on board the ship until after Capt Brown’s 25 April 2015 request. Moreover, Capt Brown has not explained what he did to secure the parts that were found in the box or what role, if any, he had in putting them in an otherwise empty box. Nor did Ms Maybury, or anyone else, explain what happened to give effect to the statement in her email of 13 February 2015, that her firm would arrange for the box containing “all of the parts of #5 cylinder” to be collected. In cross-examination she said that she recalled that “arrangements were made on the vessel to deliver the box to the agent in Gladstone, and I believe that that was done” but she was not privy to what occurred and did not recall that anyone else at her firm was part of those arrangements.
214 In these circumstances, the principle to be applied against MarShip is omnia praesumuntur contra spoliatorem as explained by Dixon CJ, McTiernan and Williams JJ in Allen v Tobias (1958) 98 CLR 367 at 375. Although the components the subject of the retention order were not documents, they are relevantly indistinguishable from the operation of the principle in respect of documents, the more so because MarShip breached the retention order without any explanation. Their Honours held (98 CLR at 375):
In the first place to presume the fact against the defendant seems but a proper application to the circumstances of the principle omnia praesumuntur contra spoliatorem. It is a far cry from the municipal warfare of the present case to a case in Prize but no statement of the principle could be more apposite than that of Sir Arthur Channell delivering the opinion of the Privy Council in The Ophelia [(1916) 2 A.C. 206]: “If any one by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him; and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case” [(1916) 2 A.C. at 229-230]. (emphasis added)
215 Accordingly, I find that, had the parts the subject of the retention order been preserved, they would have told against MarShip’s case and supported Mount Isa’s as to the cause of the main engine failure being the defective fuel injection nozzle in cylinder 5. In any event, it is not necessary for me to make a finding whether MarShip’s conduct in breaching the retention order was more than coincidentally consistent with its fabrication of the records of running hours of the failed injection valves (see  above): Allen 98 CLR at 375.
216 Moreover, MarShip did not lead evidence from Capt Brown or anyone present on the ship (apart from Mr Sereda) when she was at Gladstone and to their observations of the physical evidence, such as the fuel injection nozzle and engine parts recovered or removed from cylinder 5, yet it chose to attack Mr Cosh’s credit about observations he was able to make and the photographs he took.
217 Mr Cosh was a marine engineer, marine surveyor and marine consultant. He qualified as a marine engineer in the United Kingdom in 1977 and was at sea on cargo and container ships working in all engineering ranks, including chief engineer. He also worked as a classification society surveyor and engineering superintendent for a shipping line.
218 Mr van der Kruijs held chief and second engineer certificates and had spent six years at sea before commencing his current work as a marine surveyor in 1999.
219 During the course of their concurrent evidence, the experts agreed about a significant further number of issues. Both experts prepared a joint report on 31 May 2017.
220 Mr Cosh visited Thor Commander at Gladstone first, on 27 January 2015 and, secondly, on 17 February 2015 pursuant to the orders of 13 February 2015. On each visit he made observations, took photographs and then prepared reports dated 30 January 2015, 26 February 2015 and 2 February 2017 to which each earlier report was annexed. Following rulings on the admissibility of the expert reports that I made, Mr Cosh supplemented his evidence in his affidavit of 5 June 2017.
221 Mr Cosh explained in his second report that one reason why he needed to access the ship again after his first visit was to further examine what he had been allowed to see, to view components in better lighting than on the first visit and to see parts that subsequently had become available to view.
222 On his first visit Mr Cosh was not allowed to photograph anything except damaged parts and was not allowed even to inspect cylinder 6, from which the cylinder head had been removed. He said that he was given very limited access and that the way in which the damaged parts had been displayed made it difficult for him to examine them closely or to take good photographs. Despite this, MarShip challenged Mr Cosh as biased because after his second visit, he changed some of his views about the cause of the breakdown. While Mr Cosh gave some evidence that I have not accepted, I formed the view that, generally, he was reliable, honest and impartial.
223 Mr van der Kruijs first received instructions on 13 January 2016 and prepared three reports dated respectively, 26 January 2017, 14 April 2017 and 7 June 2017. He did not inspect the vessel or any of the engine parts, except for the contents of Capt Brown’s box (see  above). Some of the issues between the two experts arose because, first, they could not examine together the components the subject of the retention order and, secondly, some of the photographs or features that they depicted that Mr Cosh took of components in less than ideal lighting conditions could be interpreted differently. In the joint report, the experts said:
It was considered between experts that an inspection of the piston crown of the #5 unit, which had been stored for future purpose, could provide more mutually available information on the kind and extent of the burn marks.
224 Mr van der Kruijs opined that, on the basis of documents and photographs (but without his ever having seen any of the relevant parts of the main engine, unlike Mr Cosh) the likely cause of the breakdown was the collapse of the crankpin (i.e. big end) bearing of cylinder 5. He opined that once this collapsed, there was additional clearance at the big end of the piston assembly, that enabled the piston crown to travel higher than normal inside the cylinder liner and caused it to touch the cylinder liner itself, as well as the cylinder cover and valves, when it reached its zenith position. That caused the hammering damage and loud sounds that the ship’s engineers observed and heard. Eventually (over a matter of minutes after the initial collapse of the big end bearing), he opined, that activity caused the piston to seize, following which the piston crown separated from the piston skirt. In turn, once cylinder 5 was not operating properly, Mr van der Kruijs considered that the turbo charger would have surged because of the disturbance to the balance between the main engine’s intake of air and its production of exhaust gas. He initially postulated three possible causes but subsequently agreed in the joint report that one of his theories, namely a general failure of lubrication oil flow could not be sustained. His other two postulated causes for failure of the big end bearing were first, a localised failure of the lubrication oil flow in cylinder 5 and, secondly, a latent defect of the bearing shells.
225 Both experts said that because of the extensive damage to the big end bearing it was not possible to deduce, from examining it, what had caused the engine failure. Mr van der Kruijs agreed during oral evidence that there was no evidence to suggest that there had been a latent defect in the big end bearing, and he gave this evidence as to his alternate postulated cause:
MR NELL: But you’ve certainly seen nothing in the material that has been provided to you to indicate that any blockage in the big end bearing, or anywhere else within the lubrication oil system for cylinder 5, was found or discovered. Is that correct?
MR VAN DER KRUIJS: Other than the consequences of it, being the damage to the engine, there is no such indication.
MR NELL: Okay. And when you say other than the consequences of it being the damages to the engine, that’s assuming that the breakdown was caused in the manner that you have postulated. That’s correct, isn’t it?
MR VAN DER KRUIJS: If the failure of the big end has been to court that would lead to a damage pattern, and those damages are described being the failure of the big end bearing. And --- the further seizure of the piston.
MR NELL: But if the cause of the destruction of the big end bearing was as Mr Cosh has postulated, and therefore a consequence of the earlier seizure of the piston, then the damage to the big end bearing would not itself be evidence of a local failure of lubrication oil flow. Would you agree with that?
MR VAN DER KRUIJS: The nature of the damage to the bearing would not be specific.
MR NELL: Right. But the – neither the fact that the bearing was damaged nor the nature of the damage, if it was caused in the manner postulated by Mr Cosh, would be evidence or indication of a local failure of lubrication oil flow. That’s correct, isn’t it?
MR VAN DER KRUIJS: Well, the nature of the damage, for me, would keep open both possibilities as a cause. (emphasis added)
226 There was no evidence of the state of lubrication of the top end bearing although Mr Cosh was able to move the connecting rod backwards, forwards and sideways when he attended the ship. However, he said that he had not seen the parts opened up to allow visual examination of the top end bearing.
227 On 27 January 2015, Mr Cosh took the close up photograph below showing carbon trumpets emanating from the nozzle of the fuel injection valve that was in place in the cylinder head of cylinder 5:
(The notations are by Mr Cosh)
228 On his second visit, on 17 February 2015, Mr Cosh took the photograph below of the piston crown from cylinder 5:
(The notations are by Mr Cosh)
229 The two photographs in Figures 6 and 7 above show the faces of the components that corresponded to each other within cylinder 5. As I explained above, the piston crown moves towards the cylinder head and as it does the fuel injection nozzle sprays a mist of fuel oil that, ordinarily, would all ignite before any droplet could meet the approaching piston crown. Mr van der Kruijs agreed (after considerable questioning) with Mr Cosh that the carbon trumpets that appear on the nozzle in the above photographs (other copies of which became exhibit 3), first should not have been there had the nozzle been operating efficiently, secondly, had been leaking fuel and, thirdly, had built up over some time. Moreover, as Mr van der Kruijs said, there is a normal amount of wear and tear that a full injector nozzle experiences so that, after 5,000 running hours, it will not operate as it did when first installed, and that, itself, was “a very good reason” to replace the nozzle after that period of use.
230 Both experts agreed that the piston crown in the above photograph in Figure 7 exhibited signs of corrosion or pitting damage from burning fuel that was not normal for a properly functioning piston crown after 18,000 running hours. The red markings on that piston crown are indicative of problems with the fuel injector valve’s operation. The pitting or darker colour that can be seen near those red marks is caused by burning fuel as Mr Cosh said. Mr van der Kruijs was less sure, saying that he would need to see the piston crown itself to decide what its surface might have revealed. He said that it was very difficult to ascertain from just looking at the photograph the exact extent of the pitting. He gave this evidence in answer to questions I asked:
HIS HONOUR: And, in your view, are you able to tell me what you think caused those darker pitting marks that cross over the red appearance and the ones that go towards the centre?
MR VAN DER KRUIJS: Your Honour, I wouldn’t classify them particularly as darker. It depends on the lighting, of course, whether they’re – appear dark or - - -
HIS HONOUR: Well, when I say darker, I mean the marks that are the different colour to red.
MR VAN DER KRUIJS: That could very – could very well be a consequence of – of burning fuel.
HIS HONOUR: Are you able to tell me any other likely cause of that, besides the burning fuel?
MR VAN DER KRUIJS: I would say that – that would be the most likely cause. (emphasis added)
231 Both experts agreed that the corrosion or pitting damage to that piston crown was such that proper engineering practice would have led to its replacement at the scheduled 20,000 running hour overhaul. As Mr van der Kruijs explained, for a piston crown to be in that condition, the fuel injection nozzle above it would not be clean. In other words, as I find, the condition of both the fuel injector nozzle and the piston crown in cylinder 5 were consistent with the nozzle leaking fuel that burnt on the piston crown and its corresponding cylinder liner for some time prior to the main engine breaking down.
232 I find that the pitting markings on the piston crown were caused by burning fuel from the malfunctioning fuel injector nozzle that occurred over a reasonably long period before the main engine failed.
233 Mr van der Kruijs agreed with Mr Cosh that when liquid fuel has burnt while running down towards the edges of the piston crown, the fuel will continue to burn on it and the cylinder liner, as I find it did in cylinder 5. That burning activity, in turn, would remove the lubricating oil from those two adjacent surfaces (namely the cylinder liner walls and the piston skirt).
234 Both experts said that one would also expect that the exhaust gas temperatures for cylinder 5 would exhibit some abnormality while fuel oil was leaking from the nozzle. They also agreed that it was likely that this would produce some degree of interference with the film of lubrication oil in the cylinder between the cylinder liner’s sides and the piston crown and skirt. Mr Cosh said that in that situation microseizures were inevitable. Mr van der Kruijs said that it was likely that there would be a partial, but not complete, lack of lubricating oil and that this would lead to some microseizures between the piston crown and skirt and cylinder liner sides that would be manifest in some vertical scoring of the cylinder’s surface.
235 Mr Cosh’s photograph of the cylinder liner of cylinder 5 showed significant vertical scoring and surface tearing. Both experts agreed that this condition could be consistent with either microseizure activity over time or the sudden failure of the big end bearing. However, Mr Cosh said that the pattern of scoring around the whole cylinder liner consisted of many vertical strips with a relatively uniform loss of metal from the whole liner surface and that this feature was consistent with microseizure activity over a relatively longer period. He compared that observed failure with what he said would be the different result of a complete seizure in which the piston welded together with the liner so that it could no longer move.
236 Critically, Mr van der Kruijs said that the situation that causes microseizures to occur:
is not an instanteous and very short process. On the other hand, it is my opinion, also not a process which can go for months and months.
He also said that, however, such a process would go on for significantly longer than the relatively instantaneous seizure that the failure of the big (or bottom) end bearing would cause.
237 Both experts agreed that the process of microseizure in the cylinder puts strain on the big end bearing because the bearing must support an extra force to break each microseizure between the piston crown or skirt and the cylinder liner. The microseizure, while it is intact, causes the piston to remain in a fixed position. Thus, the crankshaft is inhibited in its ordinary turning motion in respect of the affected cylinder while, at the same time, it continues to be driven in that ordinary turning motion by the action of the other seven cylinders that are operating correctly. That situation puts a strain on the big end bearing for the affected cylinder. The big end bearing must absorb the resistance to movement of the piston caused by the microseizure and the concurrent impetus to move it, emanating from the operation of the crankshaft driven by the other operating cylinders.
238 Thus, if the big end bearing (or crankpin) of the affected cylinder is resisting being turned by the action of the crankshaft, the latter will tend to bend and does so until the microseizure is fractured. Over time, this action produces wear marks of the kind that both experts recognised on the photographs of the relevant parts of the main engine. As Mr van der Kruijs said:
HIS HONOUR: And then a long duration of such of a force that could produce the damage to the big bearing, or the wear to the big bearing is likely to have imposed extra strain on the big end bearing. Is that right?
MR VAN DER KRUIJS: That is what I understood, indeed, the theory as described by Mr Cosh just now and that theory exists and I don’t dispute that theory.
239 In addition, both experts agreed that the wear pattern on the main bearings of the crankshaft that Mr Cosh had observed, did not conform to that expected from an instantaneous failure of the big end bearing. That wear pattern could have been produced by microseizures occurring in cylinder 5. This is because the microseizures would place pressure on the crankshaft that would cause it to flex or misalign over a relatively long period of time.
240 Both Mr van der Kruijs and Mr Cosh said the wear pattern on the main bearings resembled more closely that caused by microseizures than “the sudden collapse of the main bearing”.
241 As I have noted at - above, there was no evidence that Mr Sereda or any crew member ever checked the lube oil or the filters, including as they were washed, for evidence of any metal filings (or other detritus that would be produced by microseizures in a main engine cylinder) after late October 2014. Mr van der Kruijs explained that one reason why the lube oil filters might need to be changed (or as happened on the voyage from Angamos, washed and reused) more frequently than normal is because of contamination from the detritus caused by such microseizures. There was no evidence about any cause of the need, or particularly the increase in the need during the voyage from Angamos, to change or wash and reuse the lube oil filters as frequently as occurred.
242 Mr van der Kruijs also acknowledged that normally any detritus produced from microseizure activity in a cylinder would not cause any blockage of the type necessary in order for the big end bearing to fail in the way that he postulated. In their joint report, both experts agreed that the intervals between changes (or reuse of washed) lube oil filters after Thor Commander left Angamos:
reducing to 24 hours, could be considered very abnormal. Both experts agree that such an interval would have required the vessel’s engineers to act by [investigating] the source of the blockage. (emphasis added)
243 There was no evidence that the vessel’s engineers undertook such an inspection. The experts agreed that the cleaning and reuse of the filters would have reduced their filtering capacity. They also agreed that the appearance of the bearings, other than those that were in use in cylinder 5, indicated that the engine failure had not been caused by first, contamination of the general lubrication oil used throughout the main engine, secondly, failure of the piston bolt, thirdly, the condition of the lubricating oil pipe system, and fourthly, the overdue maintenance of parts other than the fuel injection valves.
244 Mr van der Kruijs ultimately acknowledged that the wear patterns shown on photographs of the main bearings in the crankshaft did not resemble those that were likely to have occurred in the relatively short period of the engine’s operation if there had been an instantaneous failure of the big end bearing. He agreed that Mr Cosh’s opinion that the main engine failure occurred because of microseizures in cylinder 5 over a relatively longer period of time was “a realistic theory” and said (with Mr Cosh agreeing), that considering the wear pattern appearing on the main bearings:
I’m inclined to say that … it would be more resembling, indeed, the microseizure than it would be a sudden collapse of the big end bearing.
245 Mr van der Kruijs said that he had not seen any evidence to support his theory that there was a source for a blockage of the lubrication oil flow into the big end bearing for cylinder 5 that would cause it to fail as he had suggested. He then gave this evidence about the frequent changing of the lube oil filters during the voyage:
HIS HONOUR: But as I understand you to be saying, it’s possible, if scoring was happening through microseizure, that one reason for the fuel filters needing more frequent cleaning and replacement when cleaned, is that the micro seizure resulted in particles going into the oil system?
MR VAN DER KRUIJS: If you start with the phenomena microseizure and then ... from that particles ending up in the oil then, yes, that would explain blocking of the filters. If you look at it from the blocking of the filters and then trying to reason back what must have caused it, then I could say that that could be more reasons for the oil becoming contaminated than only microseizure.
MR NELL: But on the material that you had seen, there are no other reasons that you can point to, working backwards, to identify what was the cause of the contamination in the lubrication oil. Is that correct?
MR VAN DER KRUIJS: Apart from what I – what I heard from the chief engineer, that there was nothing abnormal in the lube oil. I have not seen anything further in the evidence. (emphasis added)
246 Mr van der Kruijs frequently approached giving both his written and oral evidence by leaving open other possibilities, as he did in the above evidence, even though he could not identify any material to support the existence of those possibilities. This may have been an appropriately cautious approach, given that Mr van der Kruijs had not seen the ship or the relevant engine parts, unlike Mr Cosh. Also, English is not Mr van der Kruijs’ first language and, although he gave his evidence fluently in English without needing an interpreter, he expressed himself orally on occasion in an idiomatically awkward way.
247 Overall, I formed the view that, generally, both he and Mr Cosh were honest witnesses each of whom, however, sometimes went too far in defending his previously expressed conclusion, before conceding that the material then under consideration did not support that view. In the end, with the benefit of their assistance in their concurrent evidence, several of the prior areas of contention between them clarified to an agreed position.
248 I have set out in these reasons some examples of that process of agreement. I do not consider that Mr Cosh was biased or gave evidence in a manner that caused me to doubt his honesty or integrity, albeit that he exaggerated or misstated some matters that were exposed and, largely, retracted when he was challenged in cross-examination. However, I formed the view that both experts did not easily accept challenges to their written or oral conclusions but that, eventually, each overcame his initial resistance to the factual or theoretical challenge to those conclusions and engaged in an appropriate way to assist me in resolving the difficult engineering issues.
249 Once the Praxis system failed on 28 December 2014 (see  above) there was no means of monitoring the exhaust gas temperatures or compression pressure within the individual cylinders of the main engine. The experts said that the smoke colour of a ship’s main engine operating normally should be clear. If blue or brownish smoke were emitted that would indicate that the engine was burning more lubrication oil than it should, and a discoloured tinge in the smoke will be visible against a clear sky.
250 If the engine is not properly atomising the fuel oil, then the smoke will have a black or blacker tinge. Both experts agreed that the carbon trumpets on the fuel injection valve in cylinder 5 would have developed over a period of time, and that the colour of the smoke would remain constant, once it had made the initial change from normal and that colour would vary depending on the degree of the failure in the atomisation process. However, the change in colour of the exhaust may not have been great. Both experts agreed that, because of the degree of carbon trumpets on the fuel injection nozzle in cylinder 5, a change in the colour of the smoke would have been readily observable.
251 Yet, Mr Sereda said in his affidavit:
I am advised that cargo interests say that there was a failure to maintain the vessel’s fuel injectors. I reject that. It was my practice to regularly observe the colour of the exhaust fumes.· I recall that at about 10:00 (during my watch) on 11 January 2015 I observed that the engine was discharging the usual blue transparent exhaust smoke - it was not abnormal white or black smoke. After the engine was shut down later that day, when we opened cylinder number 5, I observed that there was no evidence of burning or soot in the cylinder head or around the valves. (emphasis added)
252 I do not believe that evidence. When cross-examined about the photograph in Figure 6 (see  above) showing the underside of the cylinder head and carbon trumpets on the fuel injector valve in cylinder 5 (in exhibit 3) he said, implausibly:
MR NELL: And what I want to suggest to you is that, in the photographs that forming part of exhibit 3, there is also a carbon deposit on the nozzle depicted in those photographs; would you agree with that?
THE INTERPRETER: I see that there is a deposit. I see it, but I can’t understand what it is. There are some pieces here. You get the impression that something hit the nozzle. These are some kind of – some plasticity which broke the – or smashed the – I can draw. But here one gets the impression that something hit some – some pieces hit the – if I had seen it, I would have noticed. There would be no need to – I would have shown – when Rolls-Royce arrived, they would have also seen no nozzle and would have said so.
MR NELL: Mr Sereda, when you observed the underside of the cylinder cover for the number 5 cylinder, your observation was that the nozzle was undamaged; is that correct?
THE INTERPRETER: Yes, that’s right, the nozzle was undamaged.
HIS HONOUR: Sorry, when you say when you observed the underside of the nozzle for the number 5 cylinder and it was undamaged, is this after you removed it on board on 11 January 2015?
THE INTERPRETER: Yes, while I was removing it, I could see it, but if I had seen something like this – there’s a letter to Jan Held where I indicated what happened on 11 January. I don’t know if that letter is available because Smirnov was still on vacation. And if the nozzle had been smashed like this, I would have told the company management about that. But I wrote that the rocker arms were bent, the valves were damaged. When Captain Chaplin was sending off the letter, I was dictating from the engine room what to write, and Chaplin sent it off to the captain, because I couldn’t leave the engine at the time to write the letter; I had no time. If that was the nozzle, I would have mentioned that to the company management. (emphasis added)
253 Mr Sereda then asserted that he had removed the fuel injector valve from the head of cylinder 5 on 11 January 2015 and that the photographs of that cylinder head that Mr Cosh took on 27 January 2015, including those with the carbon trumpets emanating from the fuel injector nozzle, were not of cylinder 5 at all. I do not believe that evidence.
254 Mr Sereda was acutely conscious that he had failed to replace the fuel injector nozzles in accordance with either of the original recommendations in Rolls-Royce’s service manual (i.e. after 4,000 or 5,000 hours) and with the 6 November 2014 update at 4,000 hours. That is why he and Mr Smirnov created the false records of the running hours of the fuel injector valves as I have found above. He coupled his affidavit denial of his failure to maintain the fuel injectors with an assertion that he regularly observed, including at 10:00 on 11 January 2015, the colour of the exhaust fumes and that it was “the usual blue transparent exhaust smoke”. I also do not accept that evidence.
255 As both experts said, Mr Sereda’s description of the colour of the exhaust fumes was not consistent with the condition of the carbon trumpets on the underside of the head of the failed injector nozzle or cylinder 5. If the fuel injector nozzle had not been operating correctly for some time, and the crew (including Mr Sereda) had not perceived that the colour of the exhaust fumes had changed so as to alert them to the problem, then the crew may have become accustomed to a relatively slight change in the colour of the smoke. I find that this is what is likely to have occurred.
256 Both experts said that given the carbon trumpets, they would expect that the Praxis system, while it was functioning, would record the abnormality with an increase in gas temperature of cylinder 5 and neither could explain why that had not appeared in the exhaust gas temperature records of the Praxis system prior to 28 December 2014. There was no evidence of why the Praxis system failed or whether whatever caused its failure may have affected its accuracy in the period preceding its failure.
257 The consequences of the imperfect atomisation of the fuel oil in cylinder 5, that the carbon trumpets manifested, were, first, burning off of some lubrication oil that had fallen on the cylinder liner and piston skirt surfaces and, secondly, the formation of microseizures. Both experts agreed, ultimately, that the exhaust gas recordings of the Praxis system until shortly before its failure, were inconsistent with those phenomena. They also agreed that there seemed to be a minor issue about the accuracy of the recording of the PZ or pressure measurements that the Praxis system was making in the period before its failure however, they agreed that the pressure readings as recorded “did not show alarming values”.
258 However, Mr van der Kruijs accepted that despite there being no significant increase in the recorded exhaust gas temperature for cylinder 5, the degree to which the fuel injection nozzle had failed properly to atomise the fuel oil must have led, at some stage, to the burning evident on the piston crown. He said:
MR STEWART: In other words, a very gradual process which hadn’t yet got to the stage of releasing sufficient amounts of fuel in excess of what should be released as to be reflected in noticeably deviant exhaust gas temperatures?
MR VAN DER KRUIJS: Well, at some point in time in this engine, there must have been some excess of fuel, otherwise you wouldn’t to need have burning, because the burning is not a normal process. But looking at the exhaust gas temperatures records, I cannot exclude that it had not reached a certain level that would be such that it could lead to failure of the engine. That could be a conclusion to draw. It’s not 100 per cent supported by facts, but that’s a conclusion on the basis of the facts we have. (emphasis added)
259 As both experts observed, defective atomisation of the fuel would lead to some of the unatomised fuel oil burning on the piston head. That would cause the pitting that had occurred as depicted in the photograph of the piston skirt, that Mr Cosh took, in Figure 8 below:
260 And as Mr van der Kruijs observed of the amount of carbon on the side of the piston crown as depicted in Figure 8 above:
HIS HONOUR: And does that suggest that the oil that was not atomised properly leaked down the side and came into contact with and perhaps washed away the lubricating oil in the operation, given the amount of deposits that appear on that photo or am I just clutching at straws?
MR VAN DER KRUIJS: Whenever you take out a piston, there will always be some level of carbon on the piston because it’s in contact with the combustion chamber. However, on this picture, it seems to be quite thick, but maybe Mr Cosh can confirm that it is more thick than you would expect in normal conditions, but on the picture, it’s difficult to see.
HIS HONOUR: Mr Cosh.
MR COSH: That was certainly the case. There is quite thick carbon there. There was also quite thick carbon on the skirt further down… (emphasis added)
261 As part of such a process other unatomised fuel oil would flow down the cylinder liner and piston skirt washing off the lubrication oil on those surfaces. This process would lead to microseizures that would inhibit the movement of the piston and cause the crankshaft to flex putting pressure on the big end bearing.
262 In the end, I am comfortably satisfied that this is what occurred, namely that the failure to replace the faulty fuel injector nozzle in cylinder 5 caused the improper atomisation of fuel oil. That led to a process that occurred over a relatively long period of time involving both some burning of liquid fuel oil that had fallen onto the piston crown and some washing off of the lubrication oil from the cylinder liner and piston skirt so as to cause microseizures that ultimately led to the failure of the main engine on 11 January 2015. I find that this would not have occurred had the fuel injection nozzle in cylinder 5 been changed, as each of a reasonable technical superintendent and chief engineer exercising due diligence should have ensured, within a reasonable time of the nozzle having been in use for 5,000 running hours in about July or August 2014 (see  above) and, certainly, before the ship commenced her voyage to Townsville on 13 December 2014. Indeed, once Mr Smirnov and Mr Sereda received the updated routine maintenance schedule recommendation, on 6 November 2014, that the nozzles be replaced after 4000 hours, a reasonable professional in each of their positions would have caused the nozzle to be replaced as soon as possible.
263 The evidence of the experts established that the carbon trumpets that were on the fuel injection nozzle of cylinder 5 would not have developed only during the relatively short period of the voyage from Angamos and that the faulty atomisation of fuel that the carbon trumpets manifested together with the burn marks and scoring on the piston crown, piston skirt and cylinder liner were the result of such a gradual process.
264 Accordingly, the failure of MarShip to exercise due diligence to maintain the fuel injection nozzles was the operative cause of the main engine failure. That failure continued from August 2014. The revised Rolls-Royce recommended service schedule, that MarShip and Mr Sereda received on 6 November 2014, should have caused a reasonable person in Mr Smirnov’s and Mr Sereda’s positions immediately to check the actual condition of each of the seven fuel injection nozzles that, by then, had run for nearly 7,000 hours (see  above). Had that occurred, the main engine would not have failed on 11 January 2015 because the fuel injection nozzle of cylinder 5 would have been replaced before Thor Commander left Angamos on 13 December 2014.
265 In addition, the need to replace the fuel injection valve for cylinder 6 on 10 December 2014, immediately before Thor Commander arrived at Angamos, would have prompted a reasonable chief engineer in Mr Sereda’s position to check the other six valves and their nozzles that, by then had been in operation for over 7,000 hours, well beyond the 4,000 or 5,000 running hours by which time Rolls-Royce had recommended the replacement of the nozzles.
266 For the reasons above, I have found that first, the bill of lading was the contract of carriage, secondly, Thor Commander was unseaworthy at the commencement of her voyage on 13 December 2014 because the fuel injector nozzle in cylinder 5 was operating in a faulty manner by then and should have been replaced and, thirdly, MarShip failed to exercise due diligence before and at the commencement of that voyage to make her seaworthy and to properly equip and supply her so as to be able to replace the faulty nozzle of cylinder 5.
267 MarShip breached each of Art 3(1)(a) and (b) of the amended Hague Rules and has not established a defence under Art 4(1), and accordingly, MarShip is liable to compensate Mount Isa.
268 The Navigation Regulation 2013 (Cth) gave force of law to Arts 6-8, 12-19, 21-23, 26 and 30 the International Convention on Salvage done at London on 28 April 1989 (the 1989 Convention), as amended and in force for Australia (set out in Australian Treaty Series 1998 No 2  ATS2) pursuant to s 241(1)(a) of the Navigation Act 2012 (Cth). The Navigation Act defined “salvage operation” in s 14 as follows:
salvage operation means any act or activity undertaken to assist a vessel or any other property not permanently and intentionally attached to the shoreline (including freight at risk) in danger in any waters.
269 Relevantly, Art 6(1) applied the 1989 Convention to any salvage operations save to the extent that a contract otherwise provided. Xinfa Hai did not enter into a contract for salvage of Thor Commander. The salvor (Art 8(1)(b)), as well as the owner and master of the vessel (Art 8(2)(b)), had a duty to exercise due care to prevent or minimise damage to the environment. Under Art 8(2)(a), the owner and master of the ship in danger owed a duty to cooperate fully with the salvor during the course of the salvage operations.
270 Article 12(1) provided that salvage operations that “have had a useful result give right to a reward”. Articles 13 and 14, relevantly, provided:
Criteria for fixing the reward
1. The reward shall be fixed with a view to encouraging salvage operations, taking into account the following criteria without regard to the order in which they are presented below:
(a) the salved value of the vessel and other property;
(b) the skill and efforts of the salvors in preventing or minimizing damage to the environment;
(c) the measure of success obtained by the salvor;
(d) the nature and degree of the danger;
(e) the skill and efforts of the salvors in salving the vessel, other property and life;
(f) the time used and expenses and losses incurred by the salvors;
(g) the risk of liability and other risks run by the salvors or their equipment;
(h) the promptness of the services rendered;
(i) the availability and use of vessels or other equipment intended for salvage operations;
(j) the state of readiness and efficiency of the salvor’s equipment and the value thereof.
2. Payment of a reward fixed according to paragraph 1 shall be made by all of the vessel and other property interests in proportion to their respective salved values. However, a State Party may in its national law provide that the payment of a reward has to be made by one of these interests, subject to a right of recourse of this interest against the other interests for their respective shares. Nothing in this article shall prevent any right of defence.
3. The rewards, exclusive of any interest and recoverable legal costs that may be payable thereon, shall not exceed the salved value of the vessel and other property.
1. If the salvor has carried out salvage operations in respect of a vessel which by itself or its cargo threatened damage to the environment and has failed to earn a reward under article 13 at least equivalent to the special compensation assessable in accordance with this article, he shall be entitled to special compensation from the owner of that vessel equivalent to his expenses as herein defined.
2. If, in the circumstances set out in paragraph 1, the salvor by his salvage operations has prevented or minimized damage to the environment, the special compensation payable by the owner to the salvor under paragraph 1 may be increased up to a maximum of 30% of the expenses incurred by the salvor. However, the tribunal, if it deems it fair and just to do so and bearing in mind the relevant criteria set out in article 13, paragraph 1, may increase such special compensation further, but in no event shall the total increase be more than 100% of the expenses incurred by the salvor.
3. Salvor’s expenses for the purpose of paragraphs 1 and 2 means the out-of-pocket expenses reasonably incurred by the salvor in the salvage operation and a fair rate for equipment and personnel actually and reasonably used in the salvage operation, taking into consideration the criteria set out in article 13, paragraph 1(h), (i) and (j).
4. The total special compensation under this article shall be paid only if and to the extent that such compensation is greater than any reward recoverable by the salvor under article 13.
5. If the salvor has been negligent and has thereby failed to prevent or minimize damage to the environment, he may be deprived of the whole or part of any special compensation due under this article.
6. Nothing in this article shall affect any right of recourse on the part of the owner of the vessel.
271 Regulation 17(b) of the Navigation Regulation provided that the “common understanding” concerning Arts 13 and 14 was:
It is the common understanding of the Conference that, in fixing a reward under article 13 and assessing special compensation under article 14 of the International Convention on Salvage, 1989 the tribunal is under no duty to fix a reward under article 13 up to the maximum salved value of the vessel and other property before assessing the special compensation to be paid under article 14.
272 A person liable for a payment (including the owners of any cargo) due under the 1989 Convention had to provide satisfactory security for a claim if the salvor so requested (Art 21).
273 The States Party to the 1989 Convention recognised in its recitals that the stimuli to replace the Convention for the Unification of Certain Rules of Law relating to Assistance and Salvage at Sea, done at Brussels 23 September 1910, included the increased concern for the protection of the environment, the major contribution that efficient and timely salvage operations can make to the protection of the environment and the need to ensure that persons had adequate incentives to undertake salvage operations in respect of vessels in danger. This recognition is, in part reflected in Arts 13(1)(b) and 14(2) and (5) in the 1989 Convention, and in the definition of “damage to the environment” in Art 1(d) as meaning:
substantial physical damage to… marine life or to resources in coastal or inland waters or areas adjacent thereto, caused by pollution, contamination, fire, explosion or similar major incidents.
274 Importantly, the definition of salvage operations in s 14(1) of the Navigation Act does not create a precondition that the salvor be a volunteer. Rather, salvage operations consist of any act or activity undertaken to assist a vessel in danger in any waters. Thus, the character of an act or activity that fulfils the definitional criterion, namely that it is undertaken to assist a vessel in danger in any waters, determines whether the act or activity amounts to salvage operations for the purposes of those parts of the 1989 Convention that have force of law in Australia.
275 The Protection of the Sea (Powers of Intervention) Act 1981 (Cth) (the Intervention Act) gave AMSA a variety of powers. Those included a power to give directions under s 10(2) where AMSA was satisfied that oil or a noxious substance was likely to escape from a ship (in among other circumstances) engaged in trade or commerce between Australia and a place outside Australia, in the Australian coastal sea (including the territorial sea of Australia) or in the exclusive economic zone of Australia, to take such measures as AMSA considered necessary to prevent or reduce the extent of likely pollution by the oil or noxious substance of any Australian waters, any part of the Australian coast or any Australian reef and to prevent likely pollution from such oil or noxious substance in any of those locations (s 10(1)(a)(ii), (b), (ba), (2)(a) and (c)). AMSA had power under s 11 to issue directions to, among others, the owner or master of the ship or to any other person, by force of s 10(3)(b).
276 The measures that s 10(2) authorised included, by force of s 10(3)(a), the taking of action, whether or not AMSA had issued a direction under s 10(3)(b), a direction to move or salvage or take control of the ship. AMSA could issue a direction under s 11 in respect of a ship referred to in s 10(2) that required another ship to be made available for purposes in connection with towing the former (s 11(1)(h)). A direction under the Intervention Act had to be in writing (s 16).
277 A person had a right, pursuant to s 17B, to recover as a debt from its owner, the amount of a reasonable expense incurred in complying with a direction under the Intervention Act to supply a service to a ship referred to in s 10(2) if the person was not an owner of that ship. A person subject to a direction under the Intervention Act committed an offence, punishable by 2,000 penalty units or imprisonment for five years or both, if the person engaged in conduct that breached the direction unless it was not possible to comply with it or the breach resulted from the need to save life at sea (s 19).
278 The parties agreed on a joint chronology of what occurred following the breakdown of Thor Commander’s main engine relating to the salvage claim that the owners of Xinfa Hai made. Many of the emails in evidence had differing times depending on the time used in the computer from which they were sent (namely Australian Eastern Standard time in Queensland (AEST), being the local time where the events occurred and the time I will use below, Australian Eastern Daylight time or summertime in use in Canberra (AEDT), Universal Time Coordinated (UTC) and European time).
279 After Mr Sereda shut down the main engine at about 15:20 on 11 January 2015, he and his crew began investigating what had happened with a view to repairing the engine and getting the ship back underway on her voyage to Townsville. At about 15:45, Capt Chaplin began communicating by phone and email with MarShip, as owners, Thorco personnel, the ISM designated person and Mount Isa, as charterers.
280 At 16:15, the master sent a message to Reef VTS Australia via Inmarsat C informing the local authorities that the main engine had broken down. At 16:45, he sent an email to MarShip and Thorco, including Mr Smirnov, advising them of the “urgent situation that happened on board” of damage to cylinder 5 in the main engine that was being investigated. The master stated:
- The most dangerous fact, that from present moment distance from current positions to nearest reef is 17Nm and our speed is 0.8 - 1.5 knots (from current) and Vsl [vessel] is pushing directly to reef.
- Australian Reef VTS was informed by lnmarsat C. From the information that I received from Chief Engineer Sereda Anatoliy [sic], it seems that We will NOT start our ME. again. Chief Engineer wants to request tugs. (emphasis added)
281 He also told the owners in the email that the “pushing bar” (meaning a rocker bar (see Figure 4 in  above)) was damaged and that there was no spare for it on board.
282 At the time he sent that message, Capt Chaplin said in his evidence that he understood that the ship was drifting in the direction of both Perkins and Elusive Reefs in a current running at between 0.8 and 2 or more knots, where she was about 17 nautical miles away from those reefs. Capt Chaplin thought that the closest port was Gladstone. He said that the swell was approximately 3 to 3.5 metres and that there was a large rolling period of 20 to 25 degrees. He said that the direction of the drift “was south-western changing all the time”. He intended to convey, in the above email, the seriousness of the ship’s situation as it drifted without power towards the area of reef. As he said, he was also concerned “to avoid an environmental catastrophe, pollution”.
283 At 17:10, Capt Chaplin reported to Mr Held, as MarShip’s fleet manager. At 18:10, the master reported to his owners “that vessel have risk of grounding. Distance to reef D = 20.0 NM [nautical miles] speed 0.5-1.0 KN [knots]” and entered that information in the ship’s log.
284 At 19:00, Reef VTS emailed the master asking for his satellite phone number, the nature of the damage, the estimated time of the repairs, the drift rate and course of the vessel.
285 At 19:16, Capt Chaplin emailed his owners, including Mr Held, informing them that although the ship had a spare cylinder, piston liner and cylinder head, it did not have any spare rocker bars. Soon after, he began reporting hourly to owners on the position of the vessel. At 19:40, Mr Sereda told the master that he needed about four to five hours to make the repairs. The master also emailed Reef VTS with this information about 20 minutes later at 20:00 and that, then, the ship was drifting at 210 degrees (i.e. south westerly) at 0.7 knots.
286 At 20:10, AMSA emailed the master asking for information about, among other matters, the time that the repairs would take and any contingency plans that he had. By then AMSA, through the Joint Rescue Co-ordination Centre (JRCC), appears to have assumed responsibility from Reef VTS for dealing with the evolving situation.
287 At 21:02, Mr Held emailed the master informing him that MarShip’s insurers were searching for a tug and had made contact with a tug owner in Gladstone. About 40 minutes later, Mr Held emailed the master informing him that the owners were preparing a contract with the towing company to be “on the safe side”, even if the engine were repaired.
288 The vessel continued to drift at about 210 degrees until around 02:00 on 12 January 2015, when the ship’s log recorded that it was on a course of 170 degrees at 0.7 knots.
289 At 02:55, on 12 January 2015, Mr Sereda told Capt Chaplin that he had identified a serious problem with cylinder 5, namely that, as he reported to Mr Held and Mr Smirnov:
bil [scil: big end] bearing is splyed [scil: split] from powerful punch. In this situation our ME can NOT be started at all.
290 Mr Smirnov replied at 03:03 informing the master of his (Mr Smirnov’s) discussion with Mr Sereda in which he asked that the crankcase and the big end bearing of cylinder 5 be inspected as soon as possible.
291 At 03:43, Capt Chaplin emailed AMSA informing it that “we have some delay in Main Engine repair. We are waiting Tug boat as per info from our Owner”. He informed the ship’s Townsville agents (Townsville Shipping Agency) about one hour later that, he was still awaiting confirmation from owners about a tug. However, Smit Leopard’s records suggest that its operators had made a mobilisation call at about 04:00.
292 Around 05:00, Capt Chaplin sent the insurers the ship’s emergency towing booklet and exchanged some emails with Mr Smirnov, who was anxious for the ship’s engineers to ascertain the condition of the big end bearing.
293 Around 06:00, Capt Chaplin and Mr Smirnov exchanged some emails. The master told Mr Smirnov at 06:19 that the vessel was drifting SE/SSE and the nearest reef was 17.5nm away “but it can change at any moment” (emphasis added). The drift then was at about 0.5 knots.
294 At 07:43 on 12 January 2015 (or 21:43 UTC on 11 January 2015), AMSA, through JRCC, issued the pan-pan (see  above). The pan-pan informed its recipients that all attempts to repair Thor Commander had failed and she was “drifting towards the dangers of the Perkins and Elusive Reefs currently at 16NM”. It said that the tug Smit Leopard had been tasked but had an ETA on the scene in about another 19 hours (or about 03:00 on 13 January 2015 or 17:00 UTC on 12 January 2015). It asked all vessels within 10 hours of Thor Commander’s position that would be available to provide her with immediate assistance to prevent her drifting onto the reefs or to act as standby for rescue to contact the JRCC.
295 Capt Chaplin initially asserted in giving evidence that he did not consider that, at any stage, it was necessary to issue a pan-pan. Later, he said that pan-pans were issued “when the threat is imminent; but we still had time”. Ultimately, he said “the current was changing and I couldn’t make a prognosis of where … we would end up” and there was a risk of the ship running aground on the reef. In his evidence, the master sought to downplay this risk saying that it was “well maybe, maybe not. Fifty/fifty”, and that the sense of urgency and uncertainty that his contemporaneous emails conveyed (such as that of 06:00, less than two hours before the pan-pan (see  above) was “to avoid trouble and to announce that to my owner, who would take the right decision”.
296 I do not accept Capt Chaplin’s evidence about his state of mind. His contemporaneous emails revealed what he actually thought. In my assessment, in giving his evidence, he was being cautious not to prejudice his employer’s case. No doubt he was in a difficult situation on the vessel. He knew that he had to be cautious in asking for salvage services that might expose his employer to having to pay for those services by contract or salvage reward, hence his reference to his owners (MarShip) making “the right decision”.
297 Smit Leopard departed her berth at Gladstone at 07:54 on 12 January 2015.
298 At about 11:00, AMSA had received an offer of assistance from Xinfa Hai. AMSA broadcst that the Queensland Police vessel, Lyle M Hoey was proceeding towards Thor Commander and could act as a line runner for any attempts at towage.
299 By 11:50, Xinfa Hai was about 20nm from Thor Commander. Capt Li told AMSA that he had been in contact with Thor Commander which was in “no danger at the present moment” but that it “require towage assistance and be off the reef area” and that his ship would try to assist. Capt Chaplin also emailed AMSA saying that Xinfa Hai was about 1.5 hours away and:
They want to proceed for Our side to make towing assistance … we have no confirmation our owner.
300 At 12:00 on 12 January 2015, Capt Chaplin sent his regular noon daily report to Thorco Shipping advising it of the ship’s position. The report said that she was drifting in a current of 1 knot, in a swell up to three metres in a Beaufort scale wind of force 4, awaiting both “Xinfa Hai for safe distance from reef and tug boat Smit Leopard for towing operation”. He also wrote that he was waiting for instructions from the owner.
301 At about 12:46, Capt Chaplin emailed AMSA that the ETA of Lyle M Hoey was 14:00 and the estimated time of arrival of Smit Leopard was 09:00 on 13 January 2015. AMSA asked to be informed which vessel was best placed and equipped to be the on the scene coordinator.
302 At about 13:03, Xinfa Hai emailed AMSA that she had arrived near Thor Commander and was standing by awaiting “owners agreement if need towage service”. At this point, she had deviated about 61.5nm from her voyage to Newcastle and was about 2 to 3 nm away from Thor Commander. Capt Chaplin said that, at about this time, Capt Li told him that he had decided to wait for the police boat to establish a line connection between the two vessels.
303 Capt Chaplin responded to AMSA at 13:20 saying that his vessel should be the scene coordinator.
304 At about 13:53, Capt Chaplin sent an email to the search coordinator at AMSA, Bruce Whitby, saying that Xinfa Hai was waiting for instructions from her owners and would not take any action until those owners had confirmed that she could assist.
305 At 13:56, Capt Li emailed AMSA saying that his ship “has no special towing equipments for this towage assistance” and had only a line throwing appliance, messenger lines, mooring lines, bollards and small portable fenders.
306 At 14:00, first, Thor Commander was now about 12nm from the nearest reef and drifting south towards it at about 1 knot, secondly, Lyle M Hoey had arrived at the scene and remained on standby to receive a towline from Xinfa Hai and, thirdly, Capt Chaplin spoke to Capt Li over VHF. Capt Li said that he was waiting for instructions from his owners. The respective officers of the watch on the two ships communicated over VHF regularly thereafter. Also at 14:00, MarShip’s Mr Boese emailed Capt Chaplin asking for hourly position reports and that he “Please inform us immediately if your position will be to[o] close to the reef!”.
307 At 14:23, Capt Chaplin emailed Mr Held with his positions over the previous two hours and wrote in bold type: “Remain 12nm to reef, speed 1.0nm per hrs! We have SAFE 12 hrs!”. The nature of Capt Chaplin’s concern in that email belied his downplaying of it when giving evidence.
308 At 15:05, one of the officers of the watch recorded in the ship’s log (Capt Chaplin could not recollect whose writing it was): “Confirmation fm [from] owners due to S&R [search and rescue] operation – received”. I infer that this recorded that MarShip had agreed to Thor Commander accepting a tow.
309 At 15:21, ASMA gave a direction to the master and owners of both Thor Commander and Xinfa Hai under s 11 of the Intervention Act (the AMSA direction). The AMSA direction required Thor Commander to accept a tow, if safe to do so, and Xinfa Hai to take Thor Commander under tow and to hold her in a safe position until relieved by emergency towage vessel(s) that were en route. The AMSA direction specified that it applied “irrespective of whether or not a Lloyds Open form or other similar agreement has been signed”.
310 Capt Chaplin claimed that, at 15:30, he spoke over VHF to the officer of the watch on Xinfa Hai whom, he said, told him that he was awaiting instructions from his owner and would not act until he received these. I do not accept that evidence. It is inconsistent with both the 15:05 entry in the Thor Commander’s log book and Mr Held’s response by email to AMSA’s notice at 15:42 in which he confirmed receipt of the notice and said that:
the Master will act accordingly. I heard from the Master that the operation will be started now and Xinnfa [sic] Hai is starting engines.
311 At 15:54, Capt Chaplin emailed AMSA informing it that his ship was ready for towing and “Yes, we rcvd acceptation from towing vessel, we are awaiting start ME of m/v Xinfa Hai”. Capt Chaplin also said that he spoke over VHF to an officer on Xinfa Hai at 16:15 who then confirmed that his owners had given instructions to proceed with the tow. I find that this conversation preceded Mr Held’s 15:42 email and Capt Chaplin’s own at 15:54.
312 I find that Capt Chaplin was not always reliable in his evidence, particularly when he perceived that an answer may not have assisted the case of his employer, MarShip. Another example of this tendency, was the following:
MR NELL: And the Xinfa Hai was a capesize vessel, which is significantly bigger than your ship; correct?
THE INTERPRETER: What – what – what do you mean “significantly bigger”? Of course it was bigger, but what do you mean by “significantly”?
MR NELL: It was a – would you agree with me, Captain, that a capesize vessel, such as the Xinfa Hai, was less manoeuvrable than the Thor Commander?
THE INTERPRETER: I don’t know about that.
MR NELL: Okay. Do you have any experience in the navigation of capesize vessels, Captain?
THE INTERPRETER: I’ve never worked on them. (emphasis added)
313 Then, when he was cross-examined about the attachment of the tow rope, Capt Chaplin gave this evidence:
MR NELL: And the Xinfa Hai in performing that manoeuvre had to approach slowly in order to allow sufficient time for the mooring line to be run out from it across to your vessel; correct?
THE INTERPRETER: I don’t know the manoeuvrability or the characteristics of the Xinfa Hai.
MR NELL: But what I’m suggesting is, Captain, that the – in approaching your vessel for the purposes of connecting the line, the Xinfa Hai travelled at a very slow speed; correct?
THE INTERPRETER: He was travelling at about three knots.
MR NELL: Not when the line was connected, surely, Captain?
THE INTERPRETER: Well, at the point of – of connecting the line, he stopped the main engine.
MR NELL: Yes. And in approaching at that point where the line was run out, the Xinfa Hai did so at a slow speed; correct?
THE INTERPRETER: Probably. I don’t know. … I don’t understand the question. One knot is slow and six knots is slow. (emphasis added)
314 While Capt Chaplin may never have worked on a capesize, I do not accept his evidence that he did not know that a vessel more than well over twice the length and several times the beam weight and displacement of Thor Commander was less manoeuvrable than his. I found that evidence to be disingenuous. While six knots may be slow, the speed of one knot is dead slow, being the intermediate speed between the engine orders “stop” and “slow”. As a master mariner he would have known that the capesize because of its greater beam, weight, displacement and momentum when underway, would take appreciably longer that his vessel to slow down or change direction.
315 At 16:00, Thor Commander was drifting at 170 degrees at 1.0 knot. At 16:41, AMSA issued a suggestion to the two ships as to how to effect the towage.
316 Next, Capt Chaplin gave confusing evidence about which master had responsibility for the tow. In his witness statement, he said that after 15:54 on 12 January 2015, he took responsibility, including the navigational manoeuvring of both vessels. He said this involved deciding on the most appropriate course and instructing Xinfa Hai accordingly. Yet, when he was asked about that written evidence he said: “I had no choice” and:
MR NELL: That where you say you took responsibility for the towing operation, you determined the course that the vessels were to take when the Xinfa Hai was towing your vessel away from the point at which it was picked up; that’s correct?
THE INTERPRETER: No. The course was chosen by the Xinfa Hai. (emphasis added)
317 Capt Chaplin gave no orders or instructions to Xinfa Hai about how it approached from 2 to 3nm to the point where it ran a messenger line to Lyle M Hoey to carry a mooring line to effect the tow at about 17:35 and then, after the police vessel had taken the line to Thor Commander and it had made the tow line fast at about 17:55, how the capesize manoeuvred to begin the tow. Capt Chaplin said, and I accept, that he gave no orders at all to Xinfa Hai as to how to navigate or perform the tow from its initiation until the tow line was released. The master of Xinfa Hai decided where to tow Thor Comander away from proximity to the reef and the course that the ships would follow. I find that Capt Li had full responsibility for, and charge of, the towing operation at all times.
318 The tow commenced at about 18:00 and Xinfa Hai proceeded at a course of 045 (i.e. north east) and about 4.3 knots until she began to slow at around 22:10. Thor Commander released the tow line at about 22:50. By then, about 4 hours 50 minutes had passed and the ships had travelled about 15.78 nm with Thor Commander under tow.
319 At about 23:12, Xinfa Hai emailed AMSA advising that she had completed the towing operation successfully using a 370 metre tow line and would stand by until the towing tug arrived. Her master asked AMSA to get Thor Commander to sign the Lloyds open form salvage agreement that he had signed. However, that never eventuated. Thereafter, Thor Commander drifted until Smit Leopard established a tow at about 08:00 on 13 January 2015. The tug had arrived on station at 05:35 and AMSA released Xinfa Hai from the AMSA direction at about 09:00 on 13 January 2015.
320 At 05:45 on 15 January 2015, Smit Leopard arrived at Gladstone with Thor Commander in tow and the latter ship berthed there at about 10:45. Later that day, AMSA revoked the balance of the AMSA direction in respect of Thor Commander.
321 Drew Shannon gave expert evidence concerning estimations of the likely positions of Thor Commander at various times while she drifted between the breakdown and the commencement of the tow based on available information. He was a consulting master mariner, marine surveyor and management consultant.
322 Mr Shannon estimated that, had Thor Commander not been towed away and continued to drift at a speed of 0.8 knots and hearing of 175o from her position when the main engine broke down, she would have reached a point about 1.4 nautical miles off Elusive Reef at around 04:30 on 13 January 2015 when Smit Leopard would have arrived and been in a position to initiate a tow.
323 During his oral evidence, Mr Shannon had to respond to various different new assumptions that counsel put to him. He created some new computer generated plots of the ship’s drifting course based on the new assumptions about which he gave further evidence. As he said, there are many variables that will affect the rate and degree of drift, including the weather conditions, the direction and speed of any current, wind and tide in the position where the ship is, and her own size and shape. He said that the predominant weather experienced in the Coral Sea was a south-easterly trade wind that was known to blow “with remarkable persistence: at a strength of 3-4 on the Beaufort scale (i.e. between 7-10 knots (Force 3) and 11-16 knots (Force 4)). This wind blows the sea towards the Great Barrier Reef and the coast of mainland Australia.
324 Mr Shannon said that the drift speed of a drifting vessel will be affected by changes in wind strength and sea conditions (including the strength of the tide and current). He said that he had created his original plot based on information that AMSA had supplied as to Thor Commander’s positions up to 16:38 on 12 January 2015. However, he said that the next positions of Thor Commander and Xinfa Hai that AMSA had supplied began at 20:07 that day, which left him without data for the 3 hours 29 minutes during which the tow was established.
325 The new assumptions that Mr Shannon plotted varied the speed of the drift from 0.8 knots to 0.5 knots and the heading from 175o to 185o. The new assumptions sought to reflect the ship’s known drift and heading at all known positions following the breakdown. Extrapolating from the new assumptions, Mr Shannon calculated that, had Xinfa Hai not towed Thor Commander, and she had continued to drift, she would have reached Elusive Reef at 12:00 on 13 January 2015.
326 However, MarShip argued that Smit Leopard would have reached her about six hours earlier because the tug, in fact, arrived at Elusive Reef at about 04:30 and then would have steamed north to reach the drifting vessel at 10 knots for about 1.5 hours. MarShip contended that it could be seen from these factors that Thor Commander was not in imminent danger of drifting onto Elusive Reef and that the tug would have reached her well in time to commence a tow without the need for Xinfa Hai’s intervention. It submitted that this supported Capt Chaplin’s assertion in his oral evidence that at 07:46 on 12 January 2015, when AMSA issued the pan-pan, “at that point there was … no threat. There was no menace” and the ship “still had the day, 24 hours, up our sleeve”.
327 However, I have rejected Capt Chaplin’s oral evidence that there was no danger (see e.g. ,  above). In my opinion, his state of mind at the time that the pan-pan was issued continued to be that he was fearful that his ship was in danger of grounding on a reef if it continued to drift because, as he wrote to Mr Smirnov at 06:19 on 12 January 2015, only 1.5 hours before the pan-pan, even though the nearest reef was 17.5nm away “it can change at any moment” (see ).
328 Ordinary experience of life confirms that assessment. The choice confronting AMSA and Capt Chaplin at the time that the pan-pan was issued was whether it was better to be sure than sorry. Stephen J, in Fisher v The Oceanic Grandeur (1972) 127 CLR 312 at 323 approved the observation of the Court of Appeals in The Roanoke 214 F. 63 at 65 (1941: CA 9) (a salvage case) that “wisdom born after the event is the cheapest of all wisdom”. The issue of the pan-pan relieved Capt Chaplin from the necessity to make a decision to call for assistance. From that time he, and MarShip, had no need to exercise a judgment as to whether to seek a salvor to assist, because this was now out of their hands and in the hands of the Australian authorities, namely AMSA. And, when later at 15:21 AMSA gave the AMSA direction (see ), that relieved MarShip from having to decide whether to enter into a salvage contract and left it free to contend later, as it has, that Xinfa Hai’s assistance was not necessary. Yet, Capt Chaplin’s email of 14:23 (see ), less than one hour earlier, demonstrated that as he perceived matters, time was running out and the moment of decision was at hand.
329 At the time that Xinfa Hai began the tow, no one could have known with certainty that Smit Leopard, in fact, would have an uneventful voyage and would arrive in time to take Thor Commander in tow. After all, Smit Leopard may have broken down, or encountered some unforeseen circumstance that delayed or prevented her reaching the drifting ship. One knows, only with hindsight, that the tug did reach Thor Commander and tow her to Gladstone. But, until the tug arrived on scene, there was always a real and sensible risk that some unforeseen problem might arise to place Thor Commander and her valuable cargo in actual peril of grounding on the reef.
330 Once Thor Commander’s main engine broke down, the ship was drifting at the mercy of the elements in a direction towards reefs and would have been likely to have been carried on to Elusive Reef unless another vessel toward her away before she reached the reef. Unaided by a vessel capable of providing effective towage, first, to safety away from the real and sensible risk of grounding on a reef in the immediate path of the likely continuing direction of her drift, and, secondly, to a port where she could be repaired, Thor Commander was in danger within the meaning of the expression “salvage operations”.
331 In The Strathnaver (1875) 1 App Cas 58 at 65, Sir Robert Phillimore giving the advice of the Privy Council (consisting of himself, Sir Montague Smith and Sir Robert Collier) said:
it may be useful to state what is really the law with respect to services rendered to a vessel in danger or apparent danger, the law is laid down in the case of The Charlotte [3 W Rob 71] by Dr. Lushington. He says, “It is not necessary, I conceive, that the distress should be actual or immediate, or that the danger should be imminent and absolute.” (emphasis added)
332 The question is whether, objectively, danger existed; that is, as Dr Lushington explained in The Charlotte (1848) 3 W Rob 68 at 71 [166 ER 888 at 889] immediately after the passage that their Lordships quoted (and see too: the Oceanic Grandeur 127 CLR at 324-325; Rose F (ed), Kennedy & Rose: Law of Salvage (8th ed, Sweet & Maxwell, 2013) at [5-004]; Reeder J (ed), Brice on Maritime Law of Salvage (5th ed, Sweet & Maxwell, 2011) at [1-144]-[1-150]):
it will be sufficient if, at the time the assistance is rendered, the ship has encountered any damage or misfortune which might possibly expose her to destruction if the services were not rendered. (emphasis added)
333 David Steel J put the test in The Tramp  2 Lloyd’s Rep 363 at 365  as whether the vessel had encountered a situation that would expose it to damage if the service were not rendered “such that no reasonable person in charge of the venture would refuse a salvor’s help if it was offered to him upon the condition of paying a salvage award”.
334 Obviously, in one sense, the ship had to have a tow in order to reach port and be repaired. But, the objective situation at the time that Xinfa Hai arrived at 13:03 to provide a tow was that Thor Commander was, as Capt Chaplin reasonably had perceived over one hour later at 14:23 when he emailed Mr Held: “Remain 12nm to reef, speed 1.0nm per hrs! We have SAFE 12 hrs!”. That objectively suggested that the master, bona fide, perceived that his ship was in danger and was telling Mr Held, MarShip’s managing director, that was the position. Moreover, at 15:05, 16 minutes before AMSA gave the AMSA direction, the entry in the ship’s log recorded that the owners had already confirmed that MarShip had agreed that Xinfa Hai would tow Thor Commander to a safe location to await Smit Leopard (as also confirmed in Mr Held’s email to AMSA sent at 15:42 (see - above).
335 I infer that, because Mr Held gave no evidence in his affidavit on this point when he could have done so, MarShip feared that any evidence that he could have given about his instructions to Capt Chaplin to accept the tow would have exposed facts unfavourable to MarShip: Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 E-G per Handley JA; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 525-526  per Weinberg, Bennett and Rares JJ.
336 Capt Chaplin said that when he sent his 14:23 email he was conveying that, given the ship’s distance to the reef and the speed at which it was then travelling, there were only 12 hours before she “probably” would hit the reef if it maintained its then present drift speed and course. He sought to use the word “probably” to continue his downplaying of his unqualified contemporaneous communications. He agreed that he was seeking to convey in this email that the vessel’s position was deteriorating and the risk of her grounding was increasing in the context where Smit Leopard would not arrive until the next morning. He asserted that his email “caused the [Smit] Leopard to travel at a faster rate and [the tug] arrived eight hours earlier than … was calculated” at about 04:00 the next morning being about five hours earlier than the time of 09:00 that he had given AMSA at 12:46 (see  above). He then gave this evidence:
HIS HONOUR: I take it that at the time you sent this email you had no belief that the engine would be repaired within that safe 12 hours to avert any danger to the vessel grounding unless it received assistance from Smit Leopard or some other ship.
THE INTERPRETER: Well, I – I lived in hope.
HIS HONOUR: Well, can you explain why you used the bold type and the capitals for SAFE in that report to your owners?
THE INTERPRETER: To accelerate the arrival of the tows – the tugs – the tugs. (emphasis added)
337 I do not believe that Capt Chaplin was seeking to accelerate the arrival of the tug that at 12:46, less than two hours earlier, he had told AMSA would not arrive for another 20 hours (i.e. 09:00), when he believed that there were only 12 hours before his ship would ground, or would be in real danger of doing so. I do not accept that he had genuine hope or belief that Smit Leopard would arrive in time or that the main engine could be started. I find that before the danger that he then perceived would materialise, he was seeking to accelerate his owner’s agreement to use the only known tow available in a realistic timeframe, namely Xinfa Hai.
338 In my opinion, no reasonable person in charge of Thor Commander at the time she accepted towage from Xinfa Hai would have refused that assistance if it were offered to that person upon condition of paying a salvage award. The fact that MarShip itself did not authorise Capt Chaplin to sign the Lloyd’s open form proffered by Capt Li and his owners does not derogate from this finding. Mr Held and Mr Smirnov gave no evidence about that circumstance and MarShip had no other evidence to explain it beyond Capt Chaplin’s evidence in cross-examination that “my owner … would take the right decision” (see  above). I infer that MarShip chose not to sign the Lloyd’s open form in order to leave it to later negotiations to deal with quantifying a salvage reward, knowing or believing that the cargo was far more valuable and so would be likely to bear the major share than Thor Commander: Ferrcom Pty Ltd (1991) 22 NSWLR at 418E-G.
339 The general maritime law has long recognised the importance of there being an enforceable obligation on persons, such as shipowners and cargo owners, to reward salvors who had sought to assist a vessel in danger. The 1989 Convention extended the public policy considerations underlying the established ones by expressly providing that the protection of the environment, in itself and quite apart from the protection of the ship or cargo, now provides a separate justification for encouraging and appropriately rewarding salvage operations in respect of a ship that is in danger.
340 In United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC (2006) 163 FCR 151 at 168-169 -, Tamberlin J discussed the meaning of Art 13(1)(b) (and his reasons on this point do not appear to have been doubted by Ryan, Kiefel and Dowsett JJ in the salvors’ unsuccessful appeal: United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC (2007) 163 FCR 183 at 195-196 ). Tamberlin J said that Art 13(1)(b) was not concerned with economic loss or with remote, possible or hypothetical damage to the specified aspects of the environment, but with the prevention of an actual risk or danger of “substantial physical damage” to marine life or resources in coastal or inland waters. He held that the issues in respect of Art 13(1)(b) are whether, first, there is some realistic prospect of such significant physical damage to the environment caused by the incident or circumstance the subject of the claim for salvage, secondly, if so, was that risk avoided by the skill and expertise of the salvor and, thirdly, if so, the weight to be given to those circumstances in arriving at any award.
341 The Full Court said that the 1989 Convention had not altered the discretionary nature of an award of salvage by its enumeration in Art 13 of the factors that are to inform the formation of that discretionary assessment. Their Honours noted that Art 13 itself specifically stated that it gave the factors no ranking but left it to the Court to give such weight to particular factors as the circumstances require: United Salvage 163 FCR at 193 -. They said (at 192 -):
The authorities are clear as to the nature and extent of the discretion involved in such an award. In The City of Chester (1884) 9 PD 182 at 187 Brett MR said:
“There is no jurisdiction known which is so much at large as the jurisdiction given to award salvage. There is no jurisdiction known in which so many circumstances, including many beyond the circumstances of the particular case, are to be considered for the purpose of deciding the amount of salvage reward. All these circumstances have been repeatedly enunciated by Lord Stowell, Dr. Lushington, and others; it is useless to repeat them. It follows that there is no jurisdiction known the administration of which is more within the discretion of the judge who has to administer it … .”
It is a matter upon which two Tribunals may rarely be expected to agree: The Cuba (1860) 1 Lush 14 at 15; 167 ER 8 at 8. Benedict on Admiralty (7th ed, 2006 rev M Bender, New York, 2006, Vol 3A s 236), refers to the statement of Story J in The Emulous Case No 4480 (1832) 8 F Cas 704:
“ … it will be found difficult in practice to lay down any rules which would furnish a just guide to limit the discretion of the court. The court must endeavour to work its own way through every case, upon a comprehensive survey of all the circumstances.” (emphasis added)
342 In a sense, this description is different from the task of a jury in assessing general damages only to the extent that Art 13 provides a specific enumeration of factors that may be taken into account in arriving at an award. Windeyer J once described the jury’s task in Australian Iron & Steel Ltd v Greenwood (1962) 107 CLR 308 at 326 as:
Juries are told, of course, that they must use their common sense, that they must not give an extravagant sum, that they must not be unreasonable, that if they do their award will be set aside, that they must give fair compensation. And, as the law is, that perhaps is all that they can properly be told. Their task may, therefore, be fittingly described by a sentence Lord Goddard, then Goddard L.J., used in his judgment in Mills v. Stanway Coaches Ltd. [ 2 K.B. 334] “Of course, different minds have different ideas as to what is moderate and seeking for a mean, a normal or an average, where there is really no guide is very like Lord Bowen’s illustration of a blind man looking for a black hat in a dark room”[ 2 K.B., at 349].
343 Ryan, Kiefel and Dowsett JJ also discussed the principles relevant to Art 13(1)(f), namely the costs and expenses of salvage: United Salvage 163 FCR at 196 . They held that Story J, in The Henry Ewbank 11 F Cas 1166 at 1170 (1833), had identified, correctly, that salvage is not a “mere matter of compensation for labour and services”, but had a source in deeper policy and should be treated as a “mixed question of public policy and private right, equally important to all commercial nations, and equally encouraged by all.”
344 The Full Court also said that the value of the salved vessel and property (including cargo) should be viewed as more than a fund from which an award may be met (United Salvage 163 FCR at 197 ). In essence, Ryan, Kiefel and Dowsett JJ reasoned that where the value of what was salved was high, that value may be taken into account and used to increase the quantum of the award, even though that quantum, as a proportion of the value of the property, might be proportionately less than an award in respect of broadly comparable circumstances involving property of substantially less value, where in such circumstances, the quantum awarded may represent a larger proportion of the value of the salved property.
345 In other words, there is no fixed percentage of the value of the property salved that can, or should, be used to assess the quantum of an award. Rather, the principle requires that while the value of the property salved is relevant to the assessment of the award, that value cannot be used to raise it to an “amount altogether out of proportion to the services actually rendered” (163 FCR at 197  applying what Sir James Colville said for the Privy Council had said in Compagine Générale Transatlantique v Owners of TF Barry and Auburn (The Amerique) (1874) LR 6 PC 468 at 475).
346 But the fact that a salvor acts under an order or direction given by a government or one of its authorities, such as the AMSA direction, will not prevent the salvor from receiving an appropriate salvage reward for its services, if in fact they were salvage operations. In The Beaverford (Owners) v The Kafiristan (Owners)  AC 136 at 147, Lord Wright, with whom Lords Atkin, Thankerton, Macmillan and Maugham agreed, said (and see too: Kennedy & Rose at [8-034]; Brice at [1-226]) said:
I think it is clear law that the duty cast by the Merchant Shipping Acts on one of the two colliding vessels to stand by and render assistance does not in itself prevent even that vessel if she renders assistance from claiming salvage. I adopt the words of Lord Phillimore in The Melanie  AC 246, 262]. It is also clear that the policy as to maritime law favours the grant of awards for meritorious salvage in order to encourage the rendering of salvage services. (emphasis added)
347 This is distinct from the position where ordinarily, if the act or activity is undertaken under a pre-existing contract, then although it has the effect of assisting the vessel in danger it is not undertaken to assist her, unless, as Art 17 of the 1989 Convention provides, the services rendered exceed what can reasonably be considered as due performance of a contract entered into before the danger arose or the contract is one for the provision of salvage operations.
348 Importantly, neither the definition of salvage operations in the Navigation Act nor the articles of the 1989 Convention to which reg 17 of the Navigation Regulation give force of law in Australia qualify the character of “salvage operations” as being only voluntary. The words of the statutory definition identify that what amounts to “salvage operations” consists of an act or activity undertaken to assist a vessel or property in danger. The character of the act or activity that satisfies the definition depends on its purpose, not its motivation. The motivating reason for an act or activity, whether voluntary or done under statutory or official compulsion, does not change its character.
349 The House of Lords recognised in The Beaverford  AC at 147 that a person who obeys a statutory duty or obligation, ordinarily, can be a salvor because that duty or obligation is not enforceable against the salvor by the ship in danger, but by a governmental authority. Thus, an act or activity done in obedience to a statutory duty or obligation that assists a ship in danger, is voluntary as between the putative salvor and the ship, since those parties are not in a pre-existing legal relationship. In any event, I am of opinion that nothing in the Intervention Act or the Navigation Act, including the 1989 Convention, provides a basis to treat an act or activity as involuntary, if it is undertaken to assist a ship in danger pursuant to a direction to assist her given under the Intervention Act, in accordance with the principle that Lord Wright recognised in The Beaverford  AC at 147.
350 Moreover, in a passage that Stephen J approved in The Oceanic Grandeur 127 CLR at 331, Pickford LJ said in The Sarpen  P 306 at 315 (and see too The “National Defender”  1 Lloyd’s Rep 40 at 45 per Judge Milton Pollack (SDNY)):
the defendants allege that the plaintiffs are not entitled to claim salvage, because they are prohibited from doing so by s. 557 of the Merchant Shipping Act, 1894. This is not the form of the pleading, but it is the substantial question. It is also alleged that the services are not voluntary because they were rendered by the orders of the naval authorities.
It may be as well to dispose of this point at once. It rests, in my opinion, on no sound basis. The test of voluntariness is only applicable as between the salvor and salved, and if the services be voluntary in relation to the salved, i.e., not rendered by reason of any obligation towards him, it is quite immaterial that the salvor has been ordered by some one who has control of his movements to render them. (emphasis added)
351 For these reasons, the mere fact that Xinfa Hai may have acted in accordance with the AMSA direction does not change the character of her acts or activity as “salvage operations” within the meaning of the Navigation Act and the 1989 Convention. It matters not whether Xinfa Hai decided voluntarily or had a legally enforceable obligation (such as that imposed by the AMSA direction or another direction under ss 10, 11 and 16 of the Intervention Act) to undertake the act or activity of providing the tow. That act or activity was undertaken and it assisted Thor Commander when she was “in danger”. That fulfilled the requirements of the definition of “salvage operations”: The Beaverford  AC at 147.
352 I reject MarShip’s argument that the salvage operations lasted only less than 24 hours from the time of the pan-pan at 07:46 on 12 January 2015 to 05:40 on 13 January 2015 when Thor Commander’s log recorded that Xinfa Hai “completed supporting operations” plus the time taken to resume her original course.
353 Smit Leopard’s statement of facts recorded that the tug began towing Thor Commander to Gladstone at 08:30 on 13 January 2015.
354 In my opinion, Xinfa Hai carried out salvage operations by taking Thor Commander in tow to a place of safety and, after releasing her, standing by until after Smit Leopard had established a tow at 08:00 on 13 January 2015 (see  above). The time that the salvage operations lasted was about 25.5 hours (being the 24:15 hours between 07:46 on 12 January 2015 and 08:00 on 13 January 2015 and the time it took to steam back to her original course to Newcastle that MarShip calculated as about 1.15 hours, being 16nm at 12.5 knots).
355 It is now necessary to assess which criteria in Art 13(1) of the 1989 Convention applied to Xinfa Hai’s claim for salvage and the weight that they reasonably could be given for the purposes of evaluating whether the settlement by Navigators Syndicate 1221 and its co-insurers (Navigators) on behalf of Mount Isa of that claim (of USD1 million) was reasonable.
356 The salved value of Thor Commander was USD7,344,289.83 and of the cargo was USD63,178,742.45. The total value of the salved property (including bunkers) found in the general average calculation was USD 70,559,183.89 (Art 13(1)(a)).
357 The skill and efforts of Xinfa Hai in preventing and minimising damage to the environment consisted in the safe establishment of the tow and the subsequent towage of Thor Commander to a safe distance from the reefs, particularly Elusive Reef towards which she was drifting (Art13(1)(b)). There was a considerable skill and effort that the master and crew of Xinfa Hai exercised in establishing the tow. The capesize was not adapted to providing towage services to smaller or any vessels. Capt Li and his crew were not professional salvors. The capesize was not readily manoeuvrable in navigational situations requiring close cooperation between vessels (here, the conveying of a messenger line and then a tow line assisted by the police boat, Lyle M Hoey, between Thor Commander and Xinfa Hai) in comparison to the manoeuvrability and ordinary function of specialist tugs that are a fraction of the size of a capesize vessel. Capt Li, as master of Xinfa Hai, had to execute the manoeuvres to effect the connection of the tow line and then to navigate with Thor Commander in tow using considerable skill and seamanship, he had to undertake tasks that he and his vessel ordinarily would not perform.
358 The salvors achieved complete success in that Xinfa Hai towed the disabled ship to safety and averted the danger (Art 13(1)(c)). The danger involved, first, the real and sensible risk of the ship grounding on a reef and either sustaining hull and other damage or sinking, including the potential for her bunkers to pollute the water, loss of the cargo (if the ship sank) and delay in its delivery (Art 13(1)(d)). The salvors’ skill and efforts that I considered above in relation to Art 13(1)(b), were the same in respect of salving Thor Commander and her cargo (Art 13(1)(e)).
359 However, as Mr Shannon’s evidence showed, with hindsight, there was a real likelihood that Thor Commander would not have grounded on any reef. That is because we now know that Smit Leopard arrived and was able safely to carry out the towage contract and what the actual weather and conditions in the general area were, although there was no direct evidence of those in the actual positions that Mr Shannon hypothesised that the ship would have drifted over if she had continued to drift. Those matters were by no means certain for the persons involved as the contemporaneous events unfolded.
360 As I have found above, Xinfa Hai diverted from her course and spent about 25.5 hours engaged in salvage operations. There is no evidence of the cost of her consumption of bunkers, or the prolongation of her voyage for the purposes of Art 13(1)(f). However, it is safe to assume that those costs, depending on any charter hire and the market for bunkering fuel, could be over $10,000, perhaps by a substantial sum.
361 Because of Xinfa Hai’s inexperience in performing salvage operations, such as those it rendered, there was some risk of collision or mishap run by her in performing her role (Art 13(1)(g)).
362 Xinfa Hai responded very promptly to the pan-pan (Art 13 (1)(h)). She was not a vessel intended for use in salvage operations and Smit Leopard, which was such a vessel, was unavailable to assist at the relevant time (Art 13(1)(i)). I do not consider that Art 13(1)(j) applied to the salvage operations, because Xinfa Hai was not a professional salvage vessel.
363 It is not possible to consider the availability, if any, of special compensation under Art 14 in the absence of evidence from the owners of Xinfa Hai of the expenses that they incurred.
364 On 15 January 2015, Mount Isa’s cargo underwriters, Navigators, issued general average guarantees to MarShip and on 20 January 2015 Mount Isa itself, as consignee of the cargo, gave an average bond.
365 On 16 January 2015, Clive Beesley of C Solutions (Hong Kong) Ltd wrote on behalf of their clients, being the owners, master and crew of Xinfa Hai (whom I will continue to refer to for simplicity as the salvors) to representatives of MarShip and Mount Isa making a claim for a salvage reward. C Solutions sought substantial security, noting that the combined value of the salved ship and cargo was about USD70 million. It asserted that Capt Li showed exemplary navigation skills and put his ship at risk, manoeuvring in ballast, less than 8nm from the reef in connecting the tow line and then maintaining the tow for five hours.
366 Navigators retained, under its right of subrogation, Waltons & Morse, solicitors of London, to act for Mount Isa. Settlement negotiations began in March 2015. Mark Lloyd, was a partner in Waltons. He reported in an email on 7 April 2015 to among others, Anthony Durnford, Navigators’ marine and energy technical claims manager, and Paul Whellams, a marine claims adjuster at Navigators who reported to Mr Durnford, that he (Mr Lloyd) had had without prejudice discussions in Hong Kong with C Solutions. C Solutions told him that it had obtained advice from John Reeder QC (who, I note, is the current editor of Brice) that the salvors had a valid salvage claim either because a Lloyd’s open form had been agreed or at common law, but that MarShip had not yet provided any security for that claim.
367 Mr Durnford began his career in the insurance industry in 1989 and had extensive firsthand experience in all aspects of marine, non-marine and energy claims handling, including in multi-party litigation and complex coverage questions. He oversaw on a technical basis Navigators’ London claims teams, including its marine and energy team. He had authority to settle, on Navigators’ behalf, claims up to USD5 million, while Mr Whellams’ authority was limited to settling claims up to USD250,000. Mr Durnford had overall responsibility and authority on behalf of Navigators and its co-insurers to settle the salvors’ claim against Mount Isa, although Navigators had to receive approval and authority to do so from its co-insurers. Mr Durnford said that due to the amounts involved, he thought that any settlement of the salvors’ claims would require his authority.
368 Mr Whellams had worked in the marine claims industry since 1974 and began working for Navigators in 2009. He had the day to day conduct of the salvage claim against Mount Isa including responsibility for instructing Waltons, subject to Mr Durnford’s supervision. Both Mr Durnford and Mr Whellams gave evidence.
369 On 13 April, Jim Ireland, a non-lawyer, senior marine manager at Waltons, reported in an email to Mr Whellams and Mr Durnford on his review of three documents that C Solutions had provided Waltons without prejudice, namely a statement by Capt Li, an informal transcript of the audio from Xinfa Hai’s bridge camera and a plot of the relevant positions. I admitted each of those documents and the evidence relating to both the settlement negotiations and reasoning leading to the settlement of the salvage claim against Mount Isa but limited its use, pursuant to s 136 of the Evidence Act 1995 (Cth), to being evidence only of what was before, and considered by, Navigators and Waltons and how they used it. Thus, this material (provided by C Solutions) was not admitted as evidence of the truth of the facts asserted within it as to what was said, done, recorded or seen at the time of the salvage operations or the events leading to them.
370 Mr Ireland noted that Thor Commander’s owners had not provided Mount Isa with any documents, other than a copy of the AMSA direction under s 16 of the Intervention Act. Mr Ireland’s report discussed principally whether the material supported the making of an agreement to provide salvage assistance or that Xinfa Hai had acted under AMSA’s direction. After receiving this email, Mr Durnford discussed with Mr Ireland the latter’s recommendation not to be too quick to enter into full negotiations with C Solutions at that point, but rather to wait for documents the subject of an application to AMSA under freedom of information legislation to ascertain whether the salvors acted voluntarily or under legal compulsion, as well as seeking documents from MarShip’s solicitors and, if none of the sought information was provided, to press ahead with this proceeding. Mr Durnford agreed with that recommendation.
371 The statement of Capt Li asserted that Xinfa Hai had consumed about 27 metric tonnes of heavy fuel oil and “0.3 metric tonnes of DO”. He said that his ship had a single marine diesel engine that, when operated at lower than her maximum continuous rating of 91rpm, significantly reduced the transfer of power to the propeller. The vessel had no bow thruster and had a single rudder that was capable of operating up to 35o to either port or starboard. He said that all manoeuvres had to be planned and executed well in advance of the intended result and that the ship reacted very slowly.
372 Capt Li said that the swell on 12 January 2015, in winds of Beaufort force 3 to 4, caused his vessel to roll easily. He said that Xinfa Hai was in ballast on the voyage. After receiving the $, he told the JRCC that he would respond subject to obtaining support from his owners (COSCO) that they gave. He said that he considered that he had an obligation to attend the casualty as his ship was close. He then discussed with his chief officer using a mooring rope as the tow line and how to manoeuvre the vessel to establish the tow with a 440 metre mooring rope. He said that the only practical messenger line was 150 metres long which was not as long as they thought desirable (I should note that the parties did not provide any agreed facts as to the correct time or the time corresponding to local time in respect of the times that Capt Li used in his statement which I have simply repeated in this account).
373 Subsequently, while still en route, Capt Li learnt that Lyle M Hoey would be able to assist in establishing the tow. When Xinfa Hai arrived about 2.5nm from Thor Commander, Capt Li said that the wind was from the south east at force 4 to 5, the swell was 1 to 2 metres and the current was from the south east at about 1 knot. However, he saw from the radar plot that, first, his vessel was drifting south west at about 0.5 knots, which he put down to the effect of the wind, and secondly, Thor Commander was drifting in a southerly direction at about 1 knot. He said that at 14:00, Thor Commander was about 9 miles north of Elusive Reef and that she was in danger and in need of assistance since Smit Leopard was not due to arrive until 10:00 on 13 January 2015. Capt Li set out in some detail his version of discussions with his owners, JRCC and the master of Thor Commander before and after receiving the AMSA direction.
374 Capt Li said that he put the engine at dead slow ahead at 17:09 and began to sail about 3 or 4 miles towards Thor Commander which, he said, was then only about 8 miles from Elusive Reef towards which she was drifting. He observed that his ship was about three times the length of Thor Commander. He explained that if he wanted to change the heading or reduce the speed of his vessel, he had to execute helm or engine orders well in advance and was concerned that, if he made a misjudgement, his ship may not have sufficient time or distance to correct its effect.
375 Capt Li described the fixing of the tow line, which he said was only about 370 metres long and had a certificated nominal breaking load of only about 135 tonnes. He commenced the tow by picking up the slack of the mooring line carefully and in a way to avoid the risk of the line parting while turning Thor Commander to starboard. He said that over the next hour he gave 30 engine orders for either dead slow ahead or stop so as to prevent Xinfa Hai gaining too much momentum which, he was concerned, could cause the mooring line to part. Eventually, he was able to proceed at about 3.5 knots with Thor Commander in tow lying on the starboard quarter, having managed to turn both vessels about 100o since beginning the tow. He said that at the conclusion of the tow the ships had travelled about 16nm. Capt Li then set out more of his version of discussions in respect of seeking to agree terms for the towing or salvage operation.
376 On 13 May 2015, Mr Ireland emailed Mr Whellams and Mr Durnford attaching copies of letters of undertaking that MarShip had given and advice from HWL Ebsworth, who act for Mount Isa in this proceeding on Waltons’ and Navigators’ instructions. Ebsworth advised that, despite not having sighted any written salvage agreement, it was possible that a court might find that, first, Thor Commander had requested assistance before AMSA issued the AMSA direction or, secondly, if Xinfa Hai had only acted under the AMSA direction, nonetheless its acts were salvage operations. Ebsworth recommended that they obtain counsel’s advice.
377 On 18 May 2015, Ebsworth briefed senior counsel (namely Gregory Nell SC, who also appeared for Mount Isa at the trial) seeking advice on the prospects that the Court would grant a declaration that the services that Xinfa Hai had provided were not salvage. The instructions noted that the salvors had claimed a salvage reward of about 10% of the value of the cargo. On 2 June 2015, Ebsworth supplemented senior counsel’s brief.
378 On 12 June 2015, senior counsel gave a lengthy and detailed memorandum of advice. He noted his advice was subject to the constraint that he had not received any account of relevant events from the master of Thor Commander and that the only material that had emanated from her consisted of message logs and email communications between vessels. Accordingly, he warned (correctly) that if there were a trial it was likely that there would be more evidence than currently in his brief that may affect any advice that he was then giving.
379 Senior counsel advised that, on the material in his brief, it could not be said that the salvors provided their services in reliance on any written agreement or terms contained in a document. He discussed the contents of Capt Li’s statement, in which he had asserted that Thor Commander’s master had told him over VHF that his owners had contacted Xinfa Hai’s owners and sent a copy of a paper that Thor Commander’s master had signed, but that Capt Li did not believe his counterpart. He opined that there did not appear to be any basis to conclude that the parties had entered into a written or oral agreement on a Lloyd’s open form or other basis. Nor did senior counsel consider that Thor Commander could argue that it had made an agreement for Xinfa Hai to provide towage services. However, he opined that the salvors’ decision to provide, and their provision of, towage would be likely to be found to be in the nature of salvage operations and that the salvors would be entitled to a salvage reward.
380 Importantly, senior counsel said that he was not expressing any opinion on the likely amount of that reward, except that he expected that it would be more than the equivalent of a commercial charge for towage, but towards the lower end of the scale, given the relatively short time and distance of the tow, good conditions and Xinfa Hai later standing by for a further six hours until the tug arrived.
381 Senior counsel also opined that a salvor’s compliance with a statutory duty or obligation to provide the assistance, did not preclude the salvor from claiming a salvage reward if that assistance produced a useful result. He said that, as between themselves and Thor Commander, the salvors acted as volunteers, since they owed no duty or obligation to the salved ship, as opposed to owing a legal duty to comply with the AMSA direction.
382 On 15 June 2015, Mr Lloyd emailed a copy of senior counsel’s advice and his own summary of its effect to Mr Durnford and Mr Whellams. Mr Lloyd said that the advice was “a stepping back from [Ebsworth’s] previous advices” and that Mount Isa’s prospect of obtaining a declaration that there were no salvage operations was less than 50%.
383 On 16 June 2015, Ebsworth asked senior counsel whether s 17B of the Intervention Act, by giving a person who complied with a direction a right to recover “expenses incurred”, indicated a legislative intention to preclude such compliance from being capable of amounting to salvage operations (I should interpolate that MarShip did not argue that point at the trial).
384 On 23 June 2015, senior counsel responded in the negative in a lengthy and detailed supplementary memorandum of advice, following his having expressed the same view in conference with his instructing solicitors.
385 Mr Durnford understood that Mr Lloyd had expressed his or Waltons’ view in his email of 15 June 2015 that it was more likely than not that the salvors would receive a salvage award and, with that understanding (including his understanding of senior counsel’s first advice) he instructed Waltons to have the without prejudice meeting that occurred on 24 June 2015. Mr Durnford had not at this time received senior counsel’s supplementary advice which he only got on 30 June 2015 (see  below).
386 On 24 June 2015, Mr Ireland and Mr Lloyd had a without prejudice meeting with Mr Beesley, and Mr Ireland made a file note of the discussion. Mr Lloyd told Mr Beesley that he considered the salvage award of AUD850,000 upheld in United Salvage 163 FCR 183 to be comparable. Mr Beesley retorted that he would recommend a settlement of USD2 million inclusive of the salvors’ then considerable costs, that he suggested could be as high as USD50,000. Mr Lloyd said that:
We would do a round robin around the office [i.e. Waltons] to take a view from the practitioners on the potential award that may be given.
387 In his email of 30 June 2015, Mr Ireland informed Mr Durnford and Mr Whellams not only of senior counsel’s supplementary advice of 23 June 2015 (which he attached), but also of the without prejudice discussion of 24 June 2015. Mr Ireland noted that the United Salvage 163 FCR 183 award, which he said was about USD650,000, was significantly less than Mr Beesley’s proposed USD2 million. He said that the cargo, on a rough apportionment, represented about 90% of the salved value of the ship and cargo. Mr Ireland wrote that while the salvors’ services were of a relatively short duration involving minimal expense, they were carried out by non-professionals operating a large cargo ship using only mooring ropes for towage. He said:
THOR COMMANDER was drifting towards the reef and undoubtedly if assistance had not been provided would have grounded on the reef causing environmental damage. Whilst the SMIT LEOPARD was underway to the casualty she did not get to the casualty vessel until some hours after the services had been provided by the XINGFA [sic] HAI. If the matter was to proceed to Court there is a strong possibility that the Courts could award a favourable reward taking in to account the potential environmental implications and to give encouragement for shipping to assist in such circumstances.
We agreed with CS[olutions] that we would revert to them once we had reported to you and received your instructions with regards to the possibility of settlement. In this regard we have given consideration to quantum and would recommend that an initial offer of settlement in the global sum of USD500,000 including interest plus costs be made with a view to concluding matters on best terms up to USDl,000,000 including interest and costs. (emphasis added)
388 Subsequently, Mr Durnford and Mr Whellams discussed Mr Ireland’s 30 June 2015 email and both of senior counsels’ advices. Mr Durnford understood, at this time, that senior counsel had not advised at all on settlement and had qualified his advices because he had not seen Thor Commander’s version of events. Mr Durnford said that at the time of Mr Ireland’s 30 June 2015 email:
as far as he was aware, those acting for Navigators and Mount Isa had not done any plotting analysis to determine whether Thor Commander would have grounded on the reef; and
he did not know the basis of Mr Ireland’s statements in that email that:
(a) Thor Commander “undoubtedly if assistance had not been provided would have grounded on the reef causing environmental damage”; and
(b) “there is a strong possibility that the Courts could award a favourable award taking into account the potential environmental implications and to give encouragement for shipping to assist in such circumstances”.
389 Moreover, Mr Durnford said, and I accept, that he did not read or understand that Mr Ireland’s use of the expression “strong possibility” as suggesting that Mr Ireland or Waltons had any substantive differences from senior counsel’s advice that Mount Isa had a less than 50% chance of successfully defending a salvage claim. Mr Durnford understood that, although Mr Ireland was not professionally legally qualified, he had been in the insurance market for many years and was “an expert in salvage and such cases”. He understood that Mr Ireland was giving insurance, not legal, advice and that if he (Mr Durnford) wanted legal advice he would speak to Mr Lloyd. He assumed, but did not know, that because Mr Ireland had copied Mr Lloyd in to the 30 June 2015 email, Mr Lloyd “would have been happy with its content before it’s sent out”.
390 Crucially, as Mr Durnford accepted in cross-examination, Mr Ireland did not give a reasoning process for his recommendation of his negotiating strategy of beginning with an offer at USD500,000 with a view to concluding on best terms up to USD1 million.
391 On 9 July 2015, Mr Ireland emailed Mr Durnford, Mr Whellams and Mr Lloyd informing them that C Solutions had rejected the offer of USD500,000 and had said that it would recommend settling at USD1.5 million. Mr Ireland said that Waltons recommended a counter offer of USD750,000.
392 On 17 July 2015, Mr Ireland emailed Mr Durnford, Mr Whellams and Mr Lloyd informing them that C Solutions had rejected the offer of USD750,000 and maintained that it wanted a global settlement of USD1.5 million inclusive of interest and costs that it now estimated at around USD100,000. Mr Ireland wrote that there were very few precedents as to what an Australian court might award. He noted that if a reward were fixed using the same percentages in United Salvage 163 FCR 151, then it would be USD1.4 million, but that there were some distinct differences from the circumstances of Thor Commander. He said that:
Clearly, it is not so simple as to say that the same percentage should be adopted as you will be aware that there are a number of criteria to be applied in the assessment of a salvage award. (emphasis added)
393 Mr Ireland also noted that Marship’s solicitors had enquired about whether they should be involved in the salvage claim negotiations. He said, perspicaciously, that Waltons saw no prejudice in this occurring and that, if MarShip did not agree on the settlement sum, then it could take issue with its quantum and “if they are able to prove that the amount settled was unreasonable this would impact on the potential recovery amount”. He also observed that MarShip might have some additional information and or documents “which we have not yet seen which might influence the determination of the quantum of the salvage award” so that its participation in the negotiations would be beneficial in getting a consensus on a reasonable award.
394 On 10 September 2015, Mr Ireland emailed Mr Durnford, Mr Whellams and Mr Lloyd. He noted that MarShip’s solicitors were “being quite cagey about obtaining instructions” on the salvage claim and advised that Mount Isa should no longer involve MarShip in the settlement discussions. He recommended:
In order to move matters forward, and with a view to concluding this matter on an amicable basis for a maximum of USDl,000,000, we would recommend that we make an offer of cargo’s share of global settlement figure USD900,000 including interest and costs.
Mr Durnford was not aware of any further information about the claimed salvage services than that which he had received earlier to which I have referred above.
395 On 6 October 2015, Mr Ireland updated matters in his email to Mr Durnford, Mr Whellams and Mr Lloyd. He said that C Solutions had not yet rejected the previous offer but had told Waltons that it would recommend settling at USD1.25 million. He suggested that Mount Isa should not offer USD908,300 being 90.8301% of an award of USD1 million based on the total salved value. He said that Ebsworth had said that if there were no settlement of the salvage claim, the costs of litigating it at a trial would be in the region of AUD100,000 and a further AUD50,000 if there were an appeal. He noted that the difference between C Solutions’ and Mount Isa’s positions was USD341,700 and that, if C Solutions rejected the proposed USD908,300 offer:
having regard to the potential costs exposure in the event that this matter should proceed to litigation, we consider that commercial considerations must then come in to play and that we could then recommend that that you make a final offer of settlement for cargo’s share of the salvage reward in the sum of USDl,000,000.00 inclusive of interest and costs (emphasis added).
396 Mr Whellams said that he and Mr Durnford discussed matters as they arose. In the end, he confirmed that, after receiving and discussing Mr Ireland’s 6 October 2015 email, they agreed to proceed in the negotiations on the basis that Waltons had recommended.
397 Mr Durnford did not recall that any new information had come to light, as at 6 October 2015 or later, apart from the information of Ebsworth’s estimates of litigation costs. Nor was he aware of any information about the costs or expenses of Xinfa Hai in providing its assistance. He said that he would have left that aspect of the claim to Mr Lloyd and Mr Ireland “before they made a recommendation of settlement to us”.
398 On 2 November 2015, the salvors entered into a settlement agreement with Mount Isa (effectively Navigators and its co-insurers) under which the latter agreed to pay USD1 million (which later occurred) in full and final settlement of the salvage claim against the cargo interests. In doing so, Mr Durnford, who was the decision-maker, acted on the advice he received from “my legal team”, which, I find, included Mr Ireland’s insurance advice.
399 On 13 November 2015, MarShip entered into a settlement agreement with the salvors in respect of its portion of the salvage claim for USD100,000.
400 As Mr Durnford explained in his affidavit, his basis for causing Navigators to enter (and, I infer, recommending through Mr Whellams that the co-insurers and Mount Isa also agree to enter) into the settlement agreement on 2 November 2015 was, first, the two advices from senior counsel, secondly, Waltons’ advices referred to above, thirdly, the potential risk that an Australian court would award significantly more than USD1 million and, fourthly, the time and legal costs that would be involved in litigating the salvors’ claim.
401 However, in doing so, the evidence revealed that those acting for Navigators had not ascertained what Thor Commander’s version of events was or how it might bear on the likely quantum of a salvage reward, even though senior counsel’s advices given in June 2015 had noted that such information may have affected his opinion. Indeed, Waltons had informed Mr Durnford and Mr Whellams that MarShip was being “quite cagey” about supplying that information in the period during which it had involvement in the tripartite settlement discussions.
402 The parties agreed during the hearing that if Mount Isa acted reasonably in settling, it was entitled to its agreed costs of £42,660.47 in respect of effecting the settlement.
403 Mount Isa argued that the USD1 million settlement was reasonable in all the circumstances having regard to the position it was in as a result of MarShip’s breaches of the contract of carriage and its duty to provide a seaworthy ship for the voyage. It contended that MarShip’s conduct had exposed it to a substantial risk of liability, or actual liability, to pay a salvage reward and that as a result, MarShip was liable to indemnify Mount Isa for the expense it had incurred. Mount Isa accepted that it bore the onus of establishing the objective reasonableness of the settlement amount based on the circumstances that existed at the time. It contended that one relevant consideration was the risk of what might occur if the claim were litigated and that predicting how an Australian court may have resolved the salvage claim was imprecise and uncertain. It submitted that there was no single answer as to what was a reasonable settlement.
404 Rather, Mount Isa argued that USD1 million was within the range of reasonable settlement sums on the material that Mount Isa then had. This included C Solutions’ assertions in its email to Mr Ireland of 16 January 2015 that Thor Commander was 8nm from the reef when the tow commenced, there was a risk of significant consequences if she did ground on the reef, and that the tow was more difficult to establish and undertake because of Xinfa Hai’s size, her relatively limited manoeuvrability, her being in ballast and the fact that she was not a salvage vessel or one with towing equipment. Mount Isa argued that the services that the salvors provided required an element of skill beyond what Capt Li ordinarily could be expected to deploy in the operation of his ship, the execution of manoeuvres to achieve a position to effect the establishment of the tow line and then the performance of the tow. Mount Isa contended that, as events turned out, although the tow was of relatively short duration, occurred in good conditions and was uneventful, Xinfa Hai also had to remain on standby at its conclusion. Mount Isa submitted that it had no direct involvement in, or access to information about, the events in issue. Thus, it argued, it was dependent on what Thor Commander and the salvors provided to it in the settlement negotiations concerning those events, together with AMSA’s records of communications and information that it provided in response to the freedom of information request.
405 Mount Isa contended that it acted reasonably in relying on the legal advice that it received and on Mr Ireland’s advice as a marine manager experienced in salvage claims. It submitted that, had it not settled, the salvors would have begun proceedings against it, first, where there would then have been a significant amount at risk, secondly, English and Australian senior counsel had advised that the services were in the nature of salvage and, thirdly, its lawyers had advised that the salvors were likely to succeed in a claim for salvage brought in Australia. Mount Isa argued that the salvors were likely to have received a substantial sum as a salvage reward and that its calculation of the quantum involved the exercise of a broad discretion having regard to the relevant factors in Art 13(1) of the 1989 Convention. It contended that the cargo salved had a significant value that was a most material and important consideration in arriving at a reward. It also noted that MarShip had settled subsequently for USD100,000 which was directly proportionate to the USD1 million in light of the respective salved values, especially where MarShip gave no evidence of how it arrived at its settlement.
406 Mount Isa also argued that, irrespective of, Waltons’ or Mr Ireland’s assertion in his advice of 30 June 2015 that Thor Commander “undoubtedly” would have grounded on the reef, there was a real and appreciable risk of grounding and consequential damage to the ship and her cargo had the salvors not acted. It contended that AMSA’s actions reflected the appreciation of that risk. It submitted that the absence of plotting to assess the imminence of danger was no reason to conclude that the decision to settle was unreasonable. It submitted that, in the absence of proceedings, it could not compel the production of the missing information and MarShip was not cooperating in providing it in the negotiations.
407 MarShip argued that Mount Isa had not proven that the settlement was reasonable in the circumstances at 2 November 2015 when it was made. It contended that Waltons’ advice to Navigators, including Australian senior counsel’s, was based on very little material in circumstances where he had said that any salvage award would be at the lower end of the scale. It submitted that there was no evidence that Navigators received any advice about Art 13 of the 1989 Convention and the factors to be weighed in arriving at the quantum of a salvage reward. Rather, MarShip argued, Mr Ireland’s advices amounted to him identifying the amount of a proposed offer and an upper limit as well as noting on 17 July 2015 that, if MarShip participated in the settlement negotiations, it may have documents or information that could influence the quantum of any award.
408 MarShip contended that the settlement was unreasonable because Mount Isa (through Navigators) never sought advice as to what level of salvage award an Australian court was likely to award, relying instead on Mr Ireland’s advice though he was not a lawyer. It submitted that Mr Ireland had no basis for stating on 30 June 2015, in his insurance advice, that Thor Commander would “undoubtedly have grounded”, even though there was no plotting analysis. It argued that it was not relevant that Xinfa Hai was a large ship and its master and crew were not professional salvors. It contended that non-professional salvors had no choice but to act because of the AMSA direction, unlike a professional. It submitted that there was no reasoning to support the advice that there was a strong possibility of a reward and there was no reasoning to support the choice of USD1 million.
409 MarShip contended that Mr Ireland’s 17 July 2015 advice referred to “criteria” relevant to quantifying a reward without explanation or exploration. It submitted that Navigators and its lawyers “relied almost exclusively on information supplied by” the salvors. Nor did Mount Isa call any lawyer or Mr Ireland to explain the advice given to Navigators. It argued that it should be inferred that evidence from those persons would not have assisted Mount Isa’s case. And, it argued, neither Mr Durnford nor Mr Whellams gave any reasoning process for deciding on the settlement sum other than that Mr Ireland had conveyed it.
410 Moreover, MarShip argued that were I to assess the salvage reward, it would be for a much lower sum.
411 The general rule of the common law is that the starting point for the assessment of damages for a breach of contract is that the innocent party should be placed, so far as money can do, in the same situation as it would have been if the contract had been performed: Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 667 per Wilson, Deane and Dawson JJ applying what Parke B had enunciated in Robinson v Harman (1848) 1 Exch 850 at 855; see also: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 607-608  per Brennan CJ, 613  per McHugh J, 650  per Hayne J. However, the application of this common law principle is subject to the limitation that Alderson B had expressed in Hadley v Baxendale (1854) 9 Exch 341 at 354, but which Wilson, Deane and Dawson JJ refined in Burns 161 CLR at 667, as follows:
These well-known principles have been discussed by Gibbs J. (as his Honour then was) in Wenham v. Ella [(1972) 127 CLR 454 at 471-472]. His Honour reminds us that the rule in Hadley v. Baxendale was expounded in C Czarnikow Ltd. v Koufos, where Lord Reid said [ 1 AC at 385]:
“The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”
412 Here, it must have been within the reasonable contemplation of the parties (and MarShip, in particular) that if MarShip breached its obligation to exercise due diligence to make Thor Commander seaworthy before and at the commencement of the voyage under Art (3)(1)(a) and (b) of the amended Hague Rules, then she may have broken down during the voyage and required salvage. This reasonable contemplation would include the parties’ understanding that if the ship were salvaged, Mount Isa, as owner of the cargo, would be exposed to paying a salvage reward and, if general average were declared, a share of that as well. And, since the recap provided that the freight and, I infer the charterhire, was USD618,750, MarShip also would have had in its reasonable contemplation, that the cargo was considerably more valuable than the amount of the freight and may have been many more times so. After all, it is common knowledge that copper is a valuable metal. Moreover, the parties would also have had it in their reasonable contemplation that if a claim for salvage were made, Mount Isa could enter into a settlement of that claim that was reasonable in the circumstances that it could then recover as damages from MarShip in an action for breach of the contract of carriage.
413 Accordingly, Mount Isa will be entitled to claim as damages the USD1 million that it paid in settlement of the salvage claim provided that its settlement was reasonable in the circumstances at the time it was made. However, if the decision to settle in that amount were not reasonable in the circumstances, Mount Isa can only recover, as damages, what it, acting reasonably in the circumstances at the time, ought to have paid: Unity Insurance 192 CLR 603 at 608-609 - per Brennan CJ, 612-613 -, 615-616 - per McHugh J, 649-650 -, 653 - per Hayne J.
414 Mount Isa had the onus of proving that, objectively, its settlement was reasonable in the circumstances at the time and that MarShip caused it to incur that loss: Unity Insurance 192 CLR at 607 , 608  per Brennan CJ, 613  per McHugh J, 653 - per Hayne J; BNP Paribas v Pacific Carriers Ltd  NSWCA 72 at ,  per Giles JA, with whom Sheller JA agreed at . As an incident of establishing its claim, Mount Isa must also show that it acted reasonably in collecting the information that it had when deciding to settle: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd  NSWCA 243 at  per Allsop P, Beazley and Campbell JJA agreeing; cf CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 at 16  per Gleeson CJ and Crennan J.
415 In assessing the reasonableness of Mount Isa’s conduct in entering into the settlement agreement, it is important to appreciate that MarShip had been “quite cagey” about its position for the short period in which it sought to participate in tripartite settlement discussions. In particular, MarShip did not provide documents or statements to Mount Isa (or those acting for it who were dealing with any aspect of the salvage claim) even though it had exposed Mount Isa to possible liability for payment of a salvage reward (see - above). MarShip did not lead evidence to explain or negate Mr Ireland’s assessment of its negotiating tactic as “cagey”. Moreover, at the time of the negotiations, MarShip had no enforceable obligation to provide Mount Isa with documents relating to the salvage claim because no proceedings had commenced to recover any salvage reward.
416 In this context, I reject MarShip’s assertion that, somehow Mount Isa was supposed to get more information on which to negotiate the settlement at the time. Mount Isa had obtained the material that the salvors had proffered (and there was no evidence that the CCTV tapes had not been translated accurately or, if viewed, showed something new or different). Mount Isa also had made a freedom of information request for and obtained and used AMSA’s documents under it.
417 I also do not accept MarShip’s argument that, because Mount Isa, its senior counsel, Waltons and Navigators all knew that there may be another side to the salvors’ claim, or more information about it that they did not have, those matters made its decision to settle for USD1 million unreasonable. The only likely source of further information was MarShip – and it had chosen to be “cagey” and not provide that information in the negotiations but rather to put Mount Isa into the position of either negotiating in respect of a potentially substantial claim or being sued. MarShip’s tactic was to keep its case and information up its sleeve so that it could run the very argument that it has – namely, that the settlement was unreasonable. As Lord Macmillan said in Banco de Portugal v Waterlow & Sons Ltd  AC 452 at 506 (to which Hayne J referred in Unity Insurance 192 CLR at 654 , as had the trial judge, in that case in the passage that McHugh J set out and upheld at 617 ):
Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken. (emphasis added)
418 The material available to Mount Isa included Capt Li’s statement that did not support the inference that Thor Commander “undoubtedly” would have grounded on the reef as Mr Ireland had asserted in his 30 June 2015 email (see  above). According to Capt Li, Thor Commander was 9nm away from Elusive Reef when his ship arrived at the scene at 14:00 and she had drifted to being 8nm away at 17:09, which suggested a drift of 1nm in three hours. At that rate of drift, Smit Leopard, which Capt Li said, at 14:00, was due to arrive on 13 January 2015 at 10:00, would be likely to have arrived before Thor Commander reached the reef, if the conditions remained constant.
419 Thus, Mr Ireland’s overstatement of the probability that the ship would ground on the reef is a reason to be cautious about a conclusion that Mount Isa acted reasonably in settling as it did in reliance on his advice. However, Mr Ireland’s statement was not the only information available to Mr Durnford (as the decision maker) and it was counterbalanced by other information that he had before him and that he considered during the course of the negotiation. By 15:21 on 12 January 2015, Thor Commander’s position was such that AMSA issued the AMSA direction, which fact both Capt Li and, I infer, the documents that AMSA produced showed. In other words, Mr Durnford was also aware that AMSA considered the danger of grounding significant enough to require Xinfa Hai to establish the tow. Moreover, both English and Australian senior counsel had advised Mount Isa that it was likely that, on the information then available, a court would find Xinfa Hai had engaged in salvage operations because Thor Commander was in danger.
420 Hayne J explained in Unity Insurance 192 CLR at 656  and 657 , that if, objectively, there is a real risk that the (salvage) claim could succeed and if the material on which the injured party acted made it reasonable to settle, the settlement itself can be found to be reasonable. He said there that one must remember that “there are uncertainties inherent in litigation and that predictions of the chances of success in litigation can never be precise”.
421 The evaluation of an appropriate salvage reward is notoriously difficult, as the Full Court explained in United Salvage 163 FCR at 192-193 -. Waltons and Ebsworth had considered that case and advised Navigators about it (see -) above. Indeed, Ryan, Kiefel and Dowsett JJ quoted with approval (at 192 ) what Brett MR had said over a century before in The City of Chester (1884) 9 PD 182 at 187, namely:
there is no jurisdiction known the administration of which is more within the discretion of the judge who has to administer it.
422 Thus, MarShip’s criticism rings hollow that there was, in effect, no detailed calculation or exposition of how the figures used in the negotiations were arrived at, in the context of a claim for a reward for salving a ship and cargo worth about USD70 million. First, C Solutions had provided some evidence and information about its case, including Capt Li’s statement of how difficult his ship was to manoeuvre and how apparently difficult it was to establish and perform the tow using only a mooring line from a ship that was never designed to operate as a towing vessel. That material showed, coupled with the advice of two senior counsel, that it was likely that there was a salvage claim that there was a real risk that the owner of a cargo worth over USD63 million would have to pay a salvage reward.
423 I discussed at a general level the relevant criteria in Art 13(1) above at -. The material available to Mount Isa and Navigators, at the time of the settlement, included Mr Ireland’s erroneous assertion that I have described. That assertion had a real capacity to affect an estimation of the degree of success. If he had been right, a disaster that was otherwise certain to occur, was averted, making the salvage far more valuable than a settlement of USD1 million would reflect. A settlement in that amount represented about 1.59% of the value of the cargo. In United Salvage 163 FCR 183, the salved ship had a value with her bunkers of about USD 20,390,000 and a cargo valued at USD5,000,000 totalling USD25,390,000 or AUD38 million (163 FCR at 184 , 185 , 188 ). The primary judge’s salvage award that the Full Court upheld was, AUD850,000 (or USD650,000), or about 2.24% of the total salved value. However, there, the salved ship had grounded and the professional salvors rescued her. Thus, the individual circumstances of that case were distinct from those of Thor Commander.
424 Mount Isa was also entitled to proceed on the basis that an early settlement would avert legal costs. In this regard and subject to its denial of liability for the settlement sum, MarShip accepted the reasonableness of Mount Isa’s claim of over £42,600 for Mount Isa’s legal costs of negotiating the settlement. And C Solutions had asserted that its clients had incurred about USD100,000 in that process. If the salvors brought proceedings, then Navigators would face incurring, first, some not insubstantial, but irrecoverable, difference between solicitor-client and taxed party-party costs and, secondly, the risk of losing and, then also being liable for, the salvors’ taxed costs. Moreover, the litigation would be likely to involve Thor Commander as a defendant and a contest over the facts that Mount Isa and Navigators did not then know, because MarShip had chosen not to reveal whatever defence might have been available to it or what new information might be available to minimise the size of any reward. In addition, any hearing of a claim for a salvage reward would be likely to be lengthy, involving conflicting evidence between the two masters (Capts Chaplin and Li), and possibly other crew, interpreters and experts, such as Mr Shannon.
425 The circumstances in which Navigators negotiated, on behalf of Mount Isa, the salvage settlement included, first, the commercial desirability of certainty at a price within the control of both (or at one stage all three) parties in dispute, secondly, that if Mount Isa agreed to pay any sum to the salvors, it would seek to recover that sum and associated expenses from MarShip as part of its damages in this, already extant, proceeding, and thirdly, the consequence that if (as happened) MarShip did not accept the agreed outcome as between Mount Isa and the salvors, Mount Isa would have to prove that the settlement was reasonable in all of the circumstances.
426 Because MarShip was not prepared to reveal to Mount Isa, at least, any defence or mitigation during the negotiations in 2015, it was reasonable for Navigators to proceed on the basis of a critical review of the materials that the salvors and AMSA had provided. However, the assessment of whether Mount Isa, through Navigators, acted reasonably cannot stop there.
427 Mount Isa gave no explanation for its failure to call either Mr Lloyd or Mr Ireland to expose his or their reasoning process for recommending Waltons’ bargaining strategy (that Navigators, through Mr Durnford accepted) that appeared to be focused on securing a settlement at a sum up to USD1 million. I infer that any evidence of Mr Lloyd or Mr Ireland would not have assisted Mount Isa’s case: Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at 413  per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.
428 It was likely that MarShip could, or would, not accept any settlement that Navigators, on behalf of Mount Isa, and the salvors reached, since MarShip had withdrawn from the negotiations. That circumstance made it important for Navigators and Waltons to understand how this Court (or Australian law) would approach, first, the quantification of a salvage award (which, I infer, they obtained to some degree through Waltons’ reading of Tamberlin J’s and the Full Court’s reasons in United Salvage 163 FCR 151 and 183) and secondly, (about which there is no evidence) the reasonableness of any settlement. Critically, in Unity Brokers 192 CLR 603, the High Court had departed from the approach to proof of the reasonableness of a settlement as damages that the English Court of Appeal previously had identified as the law of England in Biggin & Co Ltd v Permanite Ltd  2 KB 314.
429 There is no evidence that Waltons was aware of the requirements of Australian law for proof of the reasonableness of a settlement as against a person (such as MarShip) not party to it in litigation such as this. Yet, Waltons and Navigators never took the simple, common sense course of seeking advice from Australian lawyers as to, first, the range within which Mount Isa could expect a salvage award to be made by an Australian court, or secondly, what Mount Isa would need to do to prove that any settlement for which it claimed damages against MarShip would, or could be found to be recoverable as damages in this proceeding. Moreover, in his two advices of June 2015, Mr Nell SC had emphasised that he had not been asked for, and was not offering, any advice as to the quantum or range of any possible salvage award or settlement.
430 I am not satisfied that Mount Isa acted reasonably in settling with the salvors. That is because, first, I am of opinion that those acting on behalf of Mount Isa unreasonably failed to obtain any advice from Australian lawyers about the reasonableness of the USD1 million settlement before it was made and, secondly, Mount Isa failed to explain how it decided on that sum (to which my first reason no doubt contributed).
431 Accordingly, it is now necessary to consider what sum Mount Isa reasonably would have had to pay as a salvage reward. In this consideration, I have not had regard to the material which the salvors provided to Navigators and Waltons as evidence of the truth of the facts in them because of the limitation of the use of that evidence that I ordered under s 136 of the Evidence Act when admitting it (as I explained in  above). However, I propose to treat that material as evidence of the salvors’ claim to salvage, but not as proof of its substance or truth.
432 Here, MarShip agreed to settle its liability to pay a salvage reward for USD100,000 less than two weeks after Mount Isa agreed to the USD1 million settlement. MarShip argued, without leading any evidence about how it arrived at USD100,000, that its payment should be assumed to reflect a commercial approach that encompassed a balance between its potential exposure and the cost of litigating. Importantly, MarShip arrived at its settlement with knowledge of both the salvors’ claim and the facts (and any disputes about those facts) as known to it, including to Capt Chaplin and the crew of Thor Commander.
433 The USD100,000 figure represented about 9.1% of the total USD1.1 million paid to the salvors. The value of the ship represented about 10.4 % of the combined value of the ship and the cargo of USD70,523,032 (see  above). Thus, there was a very considerable salved value of the ship and cargo for the purposes of Art 13(1)(a) of the 1989 Convention. I consider that the total salved value should be given reasonably substantial weight in the assessment of the overall salvage award.
434 As I noted in  and  above, the salvors’ skill and efforts were considerable in both preventing or minimising damage to the environment and salving the vessel and cargo for the purposes of Art 13(1)(b) and (e). Moreover, the salvors were not professionals in salvage operations but had to adapt their ordinary skill and expertise as seafarers to a risky and unfamiliar task. Capt Li claimed that there were significant issues in establishing and maintaining the tow (see - above). I have found that Capt Chaplin was disingenuous in giving his evidence on these topics (see - above). Of course, ordinarily, such a finding cannot warrant the making of a positive finding contrary to the evidence that is disbelieved, but that is not always so: Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 694 per Gibbs J. In Henderson v Public Transport Commission of New South Wales (1981) 56 ALJR 1 at 3-4, 37 ALR 29 at 32, Gibbs CJ, Murphy and Aickin JJ said:
Although it is no doubt true as a general proposition to say that to disbelieve a witness who says “A” does not establish that the situation is “not A”, there may be surrounding circumstances which make the disbelief of a witness who says that “A” occurred amount to a finding that “not A” occurred. (emphasis added)
435 In Steinberg 134 CLR at 694 Gibbs J held:
The fact that a witness is disbelieved does not prove the opposite of what he asserted: Scott Fell v. Lloyd [(1911) 13 CLR 230 at 241]; Hobbs v. Tinling (C.T.) & Co. Ltd. [ 2 KB 1 at 21] . It has sometimes been said that where the story of a witness is disbelieved, the result is simply that there is no evidence on the subject (Jack v. Smail [(1906) 2 CLR 684 at 698] ; Malzy v. Eichholz [ 2 KB 308 at 321]; Ex parte Bear; Re Jones [(1945) 46 SR (NSW) 126 at 128]), but although this is no doubt true in many cases it is not correct as a universal proposition. There may be circumstances in which an inference can be drawn from the fact that the witness has told a false story, for example, that the truth would be harmful to him; and it is no doubt for this reason that false statements by an accused person may sometimes be regarded as corroboration of other evidence given in a criminal case: Eade v. The King [(1924) 34 CLR 154 at 158] ; Tripodi v. The Queen [(1961) 104 CLR 1]. Moreover, if the truth must lie between two alternative states of fact, disbelief in evidence that one of the state of facts exists may support the existence of the alternative state of facts: Lee v. Russell [ WAR 103 at 109] (emphasis added)
436 Here, Xinfa Hai was over 2.5 times the length of Thor Commander and the capesize’s beam, weight and momentum, whether carrying cargo or in ballast, would have been substantially greater than the much smaller vessel. A capesize ship is inherently likely to require a significantly longer distance to arrest her momentum, turn or manoeuvre (given her much greater beam, weight and displacement) than Capt Chaplin’s vessel, just as a tug can be expected in the ordinary course to be far more manoeuvrable than a vessel such as Thor Commander, let alone Xinfa Hai. The difficulties in Xinfa Hai establishing a tow, given its size, can be inferred from Capt Chaplin’s evidence (see  above) that at about 13:03 on 12 January 2015, Capt Li had told him that he would wait for the police boat (Lyle M Hoey) to establish a line connection between their two vessels, as later occurred. Moreover, throughout the whole of the towage operation, Capt Chaplin was passive and gave no instructions to Capt Li as to establishing or performing the tow (see  above).
437 Capt Li also claimed that he was concerned about the capacity of the tow line to withstand the stresses of the tow and the possibility that Thor Commander might gain too much momentum during the tow. Here again, there was no direct evidence of any particular difficulty, beyond Capt Li’s claim, about the towage operation from its inception to its conclusion other than that it was successfully and safely accomplished. Nonetheless, Xinfa Hai, as a non-specialist towing vessel, performed a successful tow for nearly five hours in relatively (but not completely) calm conditions. Mount Isa did not lead any evidence that Capt Li was unavailable to give evidence. However, the fact that Capt Li did not give evidence in Mount Isa’s case does not entail that he would have given evidence adverse to that case or affect the cogency of the evidence that Mount Isa led: Hellicar 247 CLR at 413 – 414 . In addition, Capt Li was not in Mount Isa’s employ and owed it no obligation to make his whereabouts known or himself available.
438 In all of the circumstances, including the absence of Capt Chaplin taking any initiative in effecting or conducting the tow and leaving the substantive decision-making for all the activity involved in the towage operation to Capt Li, and to a limited extent Lyle M Hoey (under Capt Li’s supervision), I infer that the salvors did exercise considerable skill and effort in the tow that had the effect of ensuring both the prevention of the risk of damage to the environment and the salving of the vessel with her valuable cargo. While the risk of damage to the environment was present, the contemporaneous perception of Capt Chaplin during the afternoon of 12 January 2015 was that it was both real and sensible, indeed appreciable (see - above). These matters were part of the nature and degree of the danger because, as Capt Chaplin graphically said in his emails to Mr Smirnov at 06:19 and to Mr Held at 14:23, the prevailing weather and sea conditions could change at any moment and, in the latter communication “we have SAFE 12 hrs!”.
439 In United Salvage 163 FCR at 165-166 -, Tamberlin J held that, having regard to the travaux préparatoires and its history, the 1989 Convention did not exclude consideration, as a factor in the assessment of a salvage reward, of the vessel’s exposure to liability or of the circumstance that some liability on her part “may have been avoided by the intervention of the salvors”. He said that it was not appropriate to investigate, admit or consider detailed evidence as to the nature and extent of any such liability. The Full Court did not find that his Honour erred in that approach (163 FCR at 196 ; see too Kennedy & Rose at [16-041], [16-043]; Brice at [2-137]). I agree.
440 Although I found (at ) that Mr Shannon’s evidence showed that, with hindsight, there was real likelihood that Thor Commander would not have grounded on a reef had she continued to drift, such a likelihood is a far cry from certainty and from the contemporaneous perceptions of all involved on 11 and 12 January 2015, including AMSA: cf The Longford (1881) 6 PD 60 at 65. As I have found (at -), before Smit Leopard actually arrived to carry out the tow and AMSA released Xinfa Hai from the AMSA direction, there had been a real and sensible risk of an actual peril of Thor Commander grounding on the reef, that Xinfai Hai’s salvage operations averted.
441 Thus, whether this risk should be characterised as within one or both of Art 13(1)(b), (d) or (e), or as an additional circumstance of the kind described by Tamberlin J (United Salvage 163 FCR at 165-166 -; see too: Kennedy & Rose [5-004]), it is a factor to which I have given some reasonable weight. As Dr Lushington said in The Batavier (1853) 1 Spinks (E&A) 169 at 171 [164 ER 98 at 100], the question is whether a ship is in danger at the period when the putative salvor came to render assistance; see too: Joseph Watson & Son Ltd v Fireman’s Fund Insurance Company of San Francisco  2 KB 355 at 358 where Rowlatt J in a marine insurance case applied the decision of Cockburn CJ, Brett and Baggallay LJJ in Corry v Coulthard (1876) 3 Asp MLC 546 (note) at 547. There Cockburn CJ said, in relation to whether a general average claim lay because the master had acted to avert a perceived, but not certain, danger:
The question is, not whether the event shows the wisdom of what was done, but whether, under all the circumstances, it was the exercise of a reasonable, prudent, sound judgment. (emphasis added)
(see too Kennedy & Rose at [5-004] where these cases are cited).
442 Indeed, as Dr Lushington held in The Charlotte 3 w Rob at 71, there will be a danger, for the purposes of the law of salvage if, at the time the assistance is rendered, the ship has encountered any damage or misfortune “which might possibly expose her to destruction if the services were not rendered”.
443 For the reasons I have given, I am comfortably satisfied that Thor Commander was in danger when Xinfa Hai answered the pan-pan and when she began to give her assistance in the salvage operations at 15:05 on 12 January 2015 and that that danger relevantly persisted until the tow ceased.
444 As I have found at , the salvors achieved complete success, and I have given that factor some substantial weight for the purposes of Art 13(1)(c). I have found that there was no evidence of any actual expense or cost to the salvors for the purpose of Art 13(1)(f) (see ), but clearly Xinfa Hai lost over one day’s sailing time, delaying her arrival at Newcastle to undertake a voyage carrying cargo and she consumed bunkers in rendering assistance. I have given this factor some weight. I have also given Xinfa Hai’s risk of some mishap or collision with Thor Commander some weight and (when establishing the tow), to a much lesser extent with Lyle M Hoey for the purposes of Art 13(1)(g). This also takes account of Capt Li’s claim as to his concerns about the potential risks with maintaining the tow rope over the duration of the tow and of Thor Commander gaining too much momentum during the tow.
445 I have also given some weight to the promptness of the salvors’ rendering of their services (Art 13(1)(h) – see  above).
446 In my opinion, it is appropriate to assess the salvage reward based on the total value of the salved property (here, the vessel, her bunkers and her cargo). That is because, as a matter of principle, the entirety of that property was salved and the ship (through a maritime lien) and, prima facie, the property’s owners, including Mount Isa, should bear the liability to pay the salvage reward to the salvors rateably based on the value of their respective salved property.
447 That approach, of course, does not mean that, as between the shipowners and the cargo-owners, one can eschew its own responsibility for creating the danger that required the salvors’ intervention. A court or arbitrator must be able to apportion, as between the owners of the ship and her cargo or other salved property, who should bear the ultimate burden of the cost of the salvage. Thus, where the nature of the cargo has created the need for salvage operations rather than, say a commercial towing operation, because, for example, the cargo is perishable, it may be just and or equitable to allow the shipowner to recover from the cargo-owner, as damages or compensation, the whole, or a proportion, of the salvage award that shipowner has paid, or is liable to pay, to the salvors. And, where, as here, the shipowner’s act or omission created the danger, by failing, for example, to exercise due diligence before and at the beginning of the voyage to make the ship seaworthy, the cargo interests should not have to bear (or may recover from the ship owner) any salvage award for which they (the cargo interests) are liable (or have paid) to the salvor.
448 The approach of making separate salvage awards to reflect different dangers to the ship and her cargo that Sir Gorell Barnes P took in The Velox  P 263 at 266-267 was, as he recognised, “not perhaps common”. There, Velox ran out of coal while carrying a perishable and valuable cargo of herrings that would have become wasted unless the ship were towed promptly to port. The salved ship was worth about 60% of the total value of the salved property and freight being about £3,000, but his Lordship made different awards totalling £600, 70% of which he made payable by the cargo-owners.
449 That approach is criticised by the leading texts (Kennedy & Rose at [16-058]-[16-061] and Brice [6-27]-[6-25]) and in The M. Vatan  1 Lloyd’s Rep 336 at 344, Sheen J concluded that The Velox  P 263 was wrong in principle. Sheen J explained that reasons of policy inform the adoption of a general rule that each person whose property has been salved must bear, pro rata, his, her or its proportion of the total salvage reward that is calculated on the total value of the salved property, regardless of whether the danger to any particular part of the property minimised or averted a particular risk not common to the other part or parts: The M. Vatan  1 Lloyd’s at 344.
450 As Sheen J demonstrated (at 341), there is an element of chance that plays a large part in salvage. For example here, if Thor Commander were unladen and in ballast when her main engine broke down on 11 January 2015, she and her bunkers would have been the only property that would then have been salved. That property was worth about USD7.34 million. The quantum of a salvage reward that would have been payable by MarShip is likely to have been much higher than its pro rata proportion were the ship to have been carrying (valuable) cargo, such as the copper anodes. Here, the salvors’ efforts benefitted property worth a total of about 10 times the value of the ship alone. Sheen J said that the general principle was ( 1 Lloyd’s Rep at 339):
that the liability of each salved interest is only for its pro rata share of the total salvage reward applies (1) even though ship and cargo are salved from different risks; (2) even though the claim against one party has been settled; (3) even though the claim against one party has failed; and (4) even though a claim is made only against one party.
451 His Lordship also noted that salvage awards are usually assessed in round figures (at 340) and that it would not be fair to impose on a shipowner the burden of making good the (unpaid) pro rata share of the salvage award payable by cargo-owners or vice versa (at 341). He added (at 341):
It is also important to bear in mind the element of chance which plays such a large part in salvage; both in the size of the total reward and of the individual shares of that total. In this country salvors are not entitled to recover a prescribed proportion of the value of the property salved. Indeed, when the value of the property is very high the award will be a very low proportion of that value because the Court will not make an award which is out of all proportion to the services rendered. High values make some, but not necessarily a great difference.
452 These views accorded with what Sir Robert Phillimore had held in The Longford 6 PD at 67, where he said:
It appears to me that the court would be involved in great difficulty if it admitted any other principle in salvage cases than that every description of property salved must, whatever be its nature, contribute equally in proportion to its value towards payment of the amount of salvage remuneration awarded. (emphasis added)
453 A judgment in rem against a ship for a salvage reward creates a maritime lien upon the ship and a res judicata as to her liability to the salvor: Ballantyne v Mackinnon  2 QB 455 at 461-462 per Lord Esher MR, Kay and AL Smith LJJ. However, the judgment or award in favour of the salvor does not preclude the ship’s insurer, or someone other than the parties to the in rem proceeding, from arguing in a separate claim on a policy of insurance or contract of carriage that, as between themselves, the liability to pay the pro rata amount of a salvage reward, that such a party had to pay to the salvor, was caused by the unseaworthiness of the ship, that in turn caused the need for the salvage operations, was or was not recoverable in contract.
454 The salvage award or judgment enforcing it is conclusive only as to the salvee’s liability (including as to the proportions of the salvage reward or judgment that each owner of salved property must pay to the salvor) to the salvor and does not bind the salvee as to their rights and liabilities inter se or in respect of third parties connected to the payment of the salvage reward.
455 The salvors were not professionals in salvage. They undertook a challenging and successful salvage operation. It is important that ships in the vicinity of a vessel that is in danger, or that poses a danger, if unaided, to the environment, be encouraged to respond and offer salvage services, especially in circumstances where professional salvors will not be able to assist in time to avert the danger or the real and sensible risk of its maturing into an actual peril. As Sheen J said, there was an element of chance at play here, because Mount Isa’s cargo was so valuable in proportion to the total value of the salved property. And, MarShip was at fault in causing the salved property to be in danger by its breach of its obligations under Art 3(1)(a) and (b) of the amended Hague Rules.
456 Having regard to all of the considerations above and the purpose expressed in the chapeau to Art 13(1), namely to fix a reward “with a view to encouraging salvage operations”, I am of opinion that an overall salvage award of USD1 million for all the salved property would have been appropriate and that Mount Isa is entitled to damages against MarShip for USD909,000 out of the USD1 million that it paid to the salvors, together with its agreed costs of £42,660.47 ( above).
457 Mount Isa transhipped from Gladstone to its Townsville refinery about 1,030 tonnes of the cargo in the days following 19 January 2015 at a total cost of AUD147,956.27. It claims that sum as damages from MarShip. The refinery comprised 37 separate sections, each of which operated using an electrolytic process on an 18 day cycle to refine copper anodes of the kind comprised in the cargo carried on Thor Commander. The copper anodes had a purity of 99.7% and the refinery processed them into cathode copper that had a purity of 99.995%.
458 Mount Isa decided that it required that part of Thor Commander’s cargo in order to keep the refinery in full production as it had no other copper anodes available at the time to use. MarShip contended that Mount Isa could not claim the costs it incurred in transhipping part of the cargo as damages because, first, the terms of the letter of indemnity (set out at  above) precluded such a claim and, secondly, it had acted unreasonably and had failed to mitigate its loss, because the costs incurred were for little benefit and, but for being insured, Mount Isa would not have incurred those costs.
459 There was no issue about the components of the total sum claimed for transhipment costs, other than that MarShip asserted that Mount Isa’s incurring of this expense at all was an unreasonable failure to mitigate.
460 Paul Taylor, the manager of the refinery, gave evidence that once so refined, Mount Isa or another member of the Glencore group, sold the cathode copper into the world market. Each section of the refinery was of variable size and became available to be reloaded every 18 days. Each section used, on average about 1,350 anodes, each weighing 350kgs (or a total of about 472.5 tonnes). Mr Taylor said that Mount Isa placed a high importance in ensuring that sufficient copper anodes were available to reload into each section of the refinery as it completed its 18 day cycle, else the opportunity to use the section would be lost for the following 18 days until the next cycle began. The refinery normally operated continuously at full capacity.
461 Once Mount Isa and other members of the Glencore group became aware, by about 14 January 2015, that Thor Commander had broken down and would not dock in Townsville as scheduled but instead would be towed to Gladstone, various persons within the Glencore group began assessing how to deal with the consequences.
462 Mr Taylor soon became concerned that, by the time that Thor Commander could be repaired and ready to sail (which at 16 January 2015, he understood would be around 1 February 2015) there would not be a sufficient supply of copper anodes available to load for the next production cycle. After assessing the matter with his staff, he concluded that any delay beyond 24 January 2015 in delivery to the refinery of at least 1,030 additional tonnes of copper anodes would be likely to result in a loss of some production. Other than what was in the cargo on Thor Commander, there was then no available source of supply to make up that shortfall. He said that Mount Isa’s principal source of supply for the refinery was from copper that it mined and smelted at Mount Isa. However, having considered the then anticipated smelter production figures, he concluded that without the additional 1,030 tonnes on Thor Commander, two sections of the refinery would have to be shut down for a cycle.
463 In order to shut down a section of the refinery, all anode and cathode copper in it must be removed, followed by all its permanent stainless steel mother plates that are then stacked on one side of the section. The electrolyte solution in the section must be drained from it and stored. The section then is not available for use until the beginning of the next production cycle 18 days later. At that stage, the mother plates must be replaced, the copper anodes loaded, the electrolyte solution returned into the section and its power at 26,500 amps must be restored to begin the refining process.
464 Between 16 and 18 January 2015, Mr Taylor had discussions with Mr Harvey and Mount Isa’s superintendent port and logistics, David Zammitt, about how to deal with the situation. Mr Taylor ascertained that any additional transhipment costs of moving part of the cargo from Gladstone to the refinery, over the cost of discharging the whole cargo later when the ship docked in Townsville, would be covered by Mount Isa’s insurances on the cargo. He had learnt by 17 January 2015 that the next shipment of 11,200 tonnes of copper anodes was being carried on Louisiana, which was not due in Townsville until the third week of February 2015.
465 I accept Mr Taylor’s evidence that, first, if the transhipment costs were not covered by insurance they would reduce the gross profit margin and that this would accordingly be less than what Mount Isa would normally make and, secondly, he was concerned that if, having incurred that expense, sufficient of the transhipped copper anodes did not arrive in time before the forthcoming new cycle began, “it could be a costly exercise for little benefit,” as he wrote in an email dated 17 January 2015 to several persons at Glencore’s head office in Baar, Switzerland.
466 MarShip sought to characterise the words I have just quoted as Mr Taylor’s contemporaneous view of the value of undertaking the transhipment, if Mount Isa’s insurance did not cover them. I reject that characterisation. Because the refinery normally ran at full production, any loss of production meant a reduction in Mount Isa’s overall ordinary cash flows and sales. If the two sections did not produce refined copper cathode on one cycle, that loss of production could not be made up in the ordinary course of events.
467 On the evidence, Mount Isa’s decision to undertake the transhipment did not involve it incurring a loss, as opposed to a reduced margin. I am of opinion that that decision was a reasonable commercial choice in a situation of difficulty for Mount Isa that MarShip’s breach of the contract of carriage caused. Accordingly, unless precluded by the terms of the letter of indemnity, Mount Isa is entitled to recover the transhipment costs: Banco de Portugal  AC at 506.
468 Mr Taylor asked Mr Harvey to arrange for part of the cargo (about 1,030 tonnes) to arrive at the refinery before 24 January 2015. As a result, after discussions between representatives acting for Mount Isa and after members of the Glencore group, with those acting for MarShip, on 19 January 2015, Mr Harvey signed the letter of indemnity on behalf of Mount Isa.
469 Subsequently, Mount Isa’s superintendent of port operations, John Cordingley, caused one original of the set of three of the bills of lading for the cargo to be presented to the master of Thor Commander to obtain delivery of the 1,030 tonnes of copper anodes at Gladstone. That part of the cargo arrived progressively at the refinery in time to ensure that all 37 sections could run for the cycle then due.
470 I reject MarShip’s argument that the letter of indemnity precluded Mount Isa from claiming the transhipment costs. It contended that Mount Isa’s claim in the writ under which Thor Commander was arrested for those, among others costs, was in respect of a “liability in connection with delivery of the cargo” within the meaning of cll 1 and 3 of the letter of indemnity. MarShip argued that cl 3 required Mount Isa to indemnify it for that claim.
471 In my opinion, the partial delivery of the cargo at Gladstone did not occur “as aforesaid” (i.e. under cl 1 or the letter of indemnity) “in connection with” the arrest of the ship within the meaning of cl 3. Mount Isa’s claim in respect of the ship’s and MarShip’s liability, loss, damage or expense for transhipment costs was not sustained “by reason of the ship proceeding and giving delivery of the cargo”. That liability was sustained because of the anterior breach of MarShip’s obligation in Art 3(1)(a) of the amended Hague Rules in the contract of carriage to exercise due diligence before and at the commencement of the voyage to make Thor Commander seaworthy.
472 The partial delivery of the cargo at Gladstone was not the source of, or a circumstance that fell within the meaning of, the wording in the letter of indemnity, namely:
liability, loss, damage of the expense of whatsoever nature which [the ship or MarShip] … sustain[ed] by reason of the ship … giving delivery of the cargo against production of at least one original bill of lading.
473 Mount Isa did not incur the transhipment costs, and the ship as well as MarShip did not sustain a loss, by reason of the ship discharging some of the cargo against production of an original bill of lading. The loss did not occur by reason of the delivery of some cargo to its owner which produced an original bill of lading to obtain them. The delivery occurred because Thor Commander was in Gladstone and not in Townsville.
474 The protection that cl 1 expressly gave was against any liability, loss, damage or expense sustained because the ship acted on the faith of the production of the bill of lading in discharging the cargo. The lawful owner, Mount Isa, had no complaint that the cargo was delivered against the production of the bill of lading, because that delivery was lawful and what Mount Isa had requested.
475 The commercial object of the standard form of a letter of indemnity, that the 19 January 2015 letter of indemnity reflects, is to protect a carrier from the consequence of wrongful delivery of goods to a person in circumstances that do not comply with the terms of the contract of carriage. If a third party had obtained one of the original bills and, having presented it, obtained delivery of all or some of the cargo, the letter of indemnity would have protected the ship and MarShip from a claim by Mount Isa based on that situation.
476 The letter of indemnity was, or was in the nature of, a commercial contract: see Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657  (see  above).
477 And, in Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad (1989) 167 CLR 219 at 227, Mason CJ, Brennan, Deane, Gaudron and McHugh JJ said:
In Darlington Futures Ltd. v Delco Australia Pty. Ltd. [(1986) 161 CLR 500, at 510] this Court said that:
“… the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.”
The context in which cl. 8(2) has to be construed includes…the carrier’s agreement to deliver the goods to the owner at Sydney. But, relevant as that object is in the construction of cl. 8(2), the meaning of that provision ultimately depends on its language, read in context, and not on any a priori notion that the non-delivery of goods was not intended to be protected. In determining whether an exemption clause should be construed so as to apply to an event which has defeated the main object of the contract, much must depend upon the nature of the events which the clause identifies as giving rise to the exemption from liability. If the happening of a stipulated event will always result in the defeat of the main object of the contract, there will be no scope for holding that that object requires the conclusion that the exempting clause is not applicable to that event. But even in cases where the occurrence of the events stipulated in the exemption clause will not always defeat the main object of the contract, the nature of those events may nevertheless give rise to the inference that the clause was intended to apply to those events even when they occur in circumstances which defeat the main object of the contract. (emphasis added)
478 The main object of the letter of indemnity was to enable Mount Isa to obtain delivery of some of the cargo at Gladstone because Thor Commander had failed to arrive, and would not arrive for some then indefinite time, in Townsville. The commercial context in which the parties entered into (or Mount Isa had been required to give) the letter of indemnity was that Mount Isa needed delivery of some of the cargo and a carrier of goods by sea, such as Thor Commander, her master and owners (MarShip), cannot deliver cargo except in accordance with, and upon production of, an original bill of lading: see Hilditch Pty Ltd v Dorval Kaiun KK (No 2) (2007) 245 ALR 125.
479 Thus, the commercial purpose of the letter of indemnity was to protect MarShip and Thor Commander, including her master, against the consequence of delivering at Gladstone some or all of the cargo to a person who presented an original bill of lading there, because the ship had not discharged the cargo at Townsville when it should have, some days earlier. That is, the commercial purpose and object of the letter of indemnity was to provide protection against a claim by Mount Isa for conversion of its property, represented by the bill of lading, were partial delivery given at Gladstone on presentation of an original bill, in circumstances where the parties understood that when the ship ultimately discharged the balance of the cargo at Townsville, there would be a shortfall of copper anodes; namely, those that the ship delivered at Townsville. Hence, the letter of indemnity had the purpose or object of giving the ship, master and crew, protection against a claim of short delivery at Townsville and enabled delivery of some cargo at Gladstone, against production of one original bill of lading.
480 In the contractual, commercial and factual context in which the terms of the letter of indemnity came to be negotiated, neither MarShip nor Mount Isa then knew what legal consequences would flow from the breakdown of Thor Commander en route to Townsville, including whether one or other of them would be liable to the other or would have to bear any loss that occurred from late delivery. It would be improbable that the parties intended the letter of indemnity, prospectively, to exonerate MarShip and Thor Commander from any pre-existing liability, that either or both had to Mount Isa, if there were a partial delivery under it at Gladstone, when no-one then knew all the facts. The letter of indemnity should be construed so as to avoid it making commercial nonsense or working commercial inconvenience: Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at 559  per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ.
481 In particular, in the context and market in which the parties were operating, Art 4A of the amended Hague Rules was, by force of Art 2, part of the contract of carriage. A carrier is liable under Art 4A to a shipper for loss, including pure economic loss and loss of markets, caused to the shipper because the shipper’s goods have been delayed if the carrier cannot establish that the delay was excusable and it took all measures reasonably required to avoid the delay in delivering them at their port of discharge as specified in the contract of carriage.
482 Mount Isa was entitled to the shipper’s rights by force of s 6(1) of the Sea-Carriage Documents Act 1996 (Qld) (see  above). Thus, it had a right to enforce Art 4A against the ship and MarShip if the contract of carriage were (as I have found) the bill of lading. Delivery of some of the cargo at Gladstone as contemplated by the letter of indemnity could mitigate both Mount Isa’s potential for loss from what would otherwise be late delivery of its cargo at Townsville and the potential damages that MarShip (and the ship) might have to pay for that delay.
483 In this commercial, legal and factual context, I am of opinion that the purpose and object of cl 1 of the letter of indemnity was to protect the ship and her owners when Thor Commander ultimately discharged the remaining cargo against a claim for conversion of any shortfall in the cargo delivered that a person could make who presented an original bill of lading in Townsville. A businesslike interpretation of the letter of indemnity in the circumstances requires cl 1 (and the indemnity that cl 3 provides in respect of the ship or MarShip acting under cl 1) to be read so that it protected against “any liability, loss, damage or expense of whatsoever nature” a carrier by sea would sustain if the ship delivered cargo otherwise than at the port of discharge nominated in the bill of lading and in accordance with the letter of indemnity. That is, the indemnity was to do with the delivery of the cargo to someone in accordance with its terms and to protect the ship and MarShip from any subsequent claim for short delivery of the cargo at Townsville. It was not, and in the context in which Mount Isa gave it, and the market in which the parties were operating, would not have been, understood as being an indemnity that operated to negate or defeat pre-existing rights, if any, of either party based on an earlier breach of contract by such a party.
484 For these reasons, Mount Isa is entitled to recover the transhipment costs as part of its damages.
485 On 13 January 2015, MarShip declared general average in respect of the breakdown of the main engine. In consequence, Mount Isa, as owner of the cargo on board, became potentially liable to contribute and on 20 January 2015 it entered into an average bond at a cost of £431.99 in order to obtain discharge of its cargo. The bill of lading provided in cl 3 that general average would be adjusted and settled in accordance with the York-Antwerp Rules 1994 in London (see  above).
486 Mount Isa claimed in its writ that it was likely to suffer loss and damage as a result of the general average claim in circumstances where MarShip, as owners, had failed to provide a seaworthy ship. Mount Isa also claimed a declaration in its statement of claim that it was not liable so to contribute by reason of the vessel’s relevant unseaworthiness.
487 MarShip opposed me making a declaration in the event that I found that the contract of carriage was the bill of lading on the bases that, first, Mount Isa had not sought that relief in the writ and thus, the prayer in the statement of claim went outside the terms of the originating process (relying on the dissenting reasons of Barwick CJ and McTiernan J in Renowden v McMullin (1970) 123 CLR 584 at 595-597), secondly, were there to be a finding of unseaworthiness (as there now is) that would give rise to an issue estoppel binding the parties in the final adjustment of general average, thirdly, MarShip’s hull and machinery insurers were interested in the general average, having paid, so MarShip asserted, the greatest share of the sums in issue in the adjustment and, fourthly, a declaration would cut across the orderly resolution of the arbitration for the adjustment process to which all interested persons are parties. MarShip argued that those factors justified the exercise of the discretion not to make a declaration.
488 I reject MarShip’s argument.
489 Rule 19 of the Admiralty Rules 1988 (Cth) provides that a proceeding, such as this, commenced as an action in rem, must be commenced by writ in accordance with Form 6. Form 6 required that the plaintiff specify the amount claimed or other relief sought and give enough short particulars of the claim to identify the cause of action. Rule 22(1) and (2) required a plaintiff, unless the Court otherwise ordered, to file and serve a statement of claim on each party who has entered an appearance and that statement of claim be in accordance with the rules of the court concerned. Thus, here, the Federal Court Rules 2011 applied. Rule 36 permitted a writ in rem to be amended and required, unless the Court otherwise ordered, the amended writ to be served on each person and on each ship on which the original writ was served. Rule 80 enabled the Court on application, or on its own initiative, to give any direction with respect to a proceeding and the Court, on such terms as are just, may dispense with compliance with the Admiralty Rules before or after the time for compliance.
490 Under r 16.02(1)(f) of the Federal Court Rules 2011, a pleading must state the specific relief sought or claimed. In addition, an originating application must also state, by force of r 8.03(1)(a), the relief claimed, and r 8.05(1)(a) relevantly, (unlike the Admiralty Rules) required the originating application to be accompanied by a statement of claim.
491 In my opinion, a statement of claim that pleads in accordance with the requirements of r 16.02 of the Federal Court Rules will identify the case that the defendant or respondent is called upon to answer as Owen J (with whom Kitto J and Menzies J agreed (at 606)) said in Renowden 123 CLR at 613. To the extent that it were necessary here, I would have granted Mount Isa leave to amend its writ and dispensed with service of the amendment on the ship, since service on the solicitors who have appeared under r 23 of the Admiralty Rules on behalf of the ship and MarShip, would be all that is necessary to ensure that justice is done.
492 However, that is not necessary here. Modern pleadings do not operate so rigidly in a case where the real controversy between the parties, as raised on the evidence, raises a fresh issue: Vale v Sutherland (2009) 237 CLR 638 at 651  per Gummow, Hayne, Heydon, Crennan and Kiefel JJ applying what Dawson J said in Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 296-297. Ever since the filing of the statement of claim in December 2015, the issues on which the parties have been in dispute included Mount Isa’s claim for the declaration. Moreover, s 22 of the Federal Court of Australia Act 1976 (Cth) is designed to ensure that the Court can grant relief which is appropriate to both legal and equitable claims and to avoid multiplicity of actions: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 161 per Gibbs CJ, Stephen, Mason and Wilson JJ.
493 MarShip did not contend that the second paragraph in cl 3 in the bill of lading applied to subject Mount Isa to liability to contribute. That no doubt was for two reasons. First, the general principle is that where the cause of the peril that enlivened the claim for general average is the unseaworthiness of the vessel due to the carrier’s fault, the carrier (or, here, MarShip as owner) cannot recover a contribution from the cargo owners. That is because the carrier’s fault necessitated the average expenditure: Louis Dreyfus & Co v Tempus Shipping Co  AC 726 at 734 per Viscount Dunedin (with whom Lord Thankerton agreed at 752), 745-747 per Lord Atkin and per Lord Macmillan agreeing at 752. Their Lordships approved the decision of Erle CJ, with whom Willes and Keating JJ argeed, in Schloss v Heriot (1863) 14 CBNS 59 at 64. Erle CJ held that, at common law, the carrier or shipowner cannot claim general average contributions from cargo-owners where “his actionable negligence and misconduct produced the very damage for which he seeks to recover contribution”, and that the cargo-owners could bring their own claim to recover back the whole sum claimed as their contribution; see too: Goulandris Brothers Ltd v B. Goldman & Sons Ltd  1 QB 74 at 92-95, 104 per Pearson J.
494 Moreover, the second paragraph of cl 3 only applies to a cause that is the fault, neglect or error of, relevantly, the master or crew. First, on my findings, the operative cause was also the fault, neglect or error of MarShip in its failure properly to ensure that the vessel’s scheduled maintenance occurred, as Mr Smirnov’s participation in the fabrication of the fuel injector running hours reports evidenced. Secondly, and decisively in this case, because the amended Hague Rules applied, Art 3(8) rendered the second paragraph of cl 3 “null and void and of no effect” because it purported to relieve the carrier or the ship from liability for loss or damage in connection with goods arising from negligence, fault or failure in their duties and obligations under Art 3(1) to exercise due diligence before and at the beginning of the voyage to make Thor Commander seaworthy.
495 Relevantly, rule D of the York-Antwerp Rules 1994 provided:
Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure; but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault. (emphasis added)
496 The effect of the final part of rule D is to preserve the right of a person called on to contribute to general average to sue to recover the amount payable from the carrier or shipowner for loss or damage because the latter has caused the need for the extraordinary sacrifice or expenditure for which the contribution is claimed. That exception from the general provisions of rule D reflects the common law position.
497 In Lowndes & Rudolf: General Average and the York-Antwerp Rules (14th ed, Sweet & Maxwell, 2013) at 158 [D.03], the authors described the exception in rule D as “actionable fault” and cite Schloss 14 CB(NS) 59 and Louis Dreyfus  AC at 738, 747. And, the authors gave an example that exactly matches the facts I have found where, in their view, the shipowners would have been liable for substantial damages: namely the ship was unseaworthy at the commencement of the voyage as a result of the want of due diligence on the part of the owner, she is salved by a tow to save her and her cargo from danger, and the cargo interests incurred liability to the salvors.
498 Of course, as Lord Neuberger PSC (with whom Lords Clarke, Sumption and Hodge JJSC agreed), said in construing rule F in Mitsui & Co Ltd v Beteiligungsgesellschaft LPG Tankerflotte MSBH & Co KG (The “Longchamp”)  1 Lloyd’s Rep 1 at 7 , the law cannot be decided by what is understood among writers and practitioners in the relevant field. Lord Neuberger PSC went on to hold that because the York-Antwerp Rules represented an international instrument, it is particularly inappropriate to adopt an approach to their interpretation that involves, first, reading in any words or qualifications, and, secondly, use of the law of the forum’s technical rules or judicial precedents. Rather, he held, applying what Lord Wilberforce had said in James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd  AC 141 at 152 that those Rules should be interpreted “on broad principles of general acceptation”: The “Longchamp”  1 Lloyd’s Rep at 8 . I agree.
499 The evident purpose of the exception in rule D is to separate from the process of adjusting general average, the question as to what, if any, fault of a person bound to contribute caused (or gave rise to) the sacrifice or expenditure. The Rules leave such a question to a court, arbitrator or other dispute resolution process. Thus, rule D contemplates that, initially, any fault of a party to the adventure must be ignored in arriving at the amount of a contribution assessed in accordance with the Rules themselves. However, the exception in rule D, expressly preserves remedies and defences created in the proper or governing law of the legal relationship between the parties that applies in the circumstances to attach or deny an enforceable remedy to a party in respect of the other’s fault.
500 However, the York-Antwerp Rules were written in the context of the ancient and well-known rights of (and liability to make) contribution if a general average act occurs. In Strang, Steel & Co v A Scott & Co (1889) 14 App Cas 601 at 606, 607 and 609, Lord Watson, giving the advice of the Privy Council (comprising him, Lords Fitzgerald, Hobhouse and Macnaghten), traced the principles of general average to Rhodian law. He cited a dictum of Brett MR in Burton v English (1883) 12 QBD 218 at 220-221 who had said there that the source of contribution to general average arose not from an implied contract “but from the old Rhodian laws, and has become incorporated into the law of England as the law of the ocean”. Lord Watson held (14 App Cas at 609-610):
The Rhodian law, which in that respect is the law of England, bases the right of contribution not upon the causes of the danger to the ship and cargo, but upon its actual presence; and such exceptions as that recognised in Schloss v. Heriot [14 CB(NS) 59] are in truth limitations on the rule, which have been introduced, from equitable considerations, in the case of actual wrongdoers, or of those who are legally responsible for them. (emphasis added)
501 For these reasons, I am of opinion that because of my findings holding Thor Commander and MarShip liable for breach of Art 3(1)(a) and (b) of the amended Hague Rules, and thus at fault for the event that gave rise to the expenditure, namely the breakdown of the main engine, Mount Isa has a remedy against them, within the meaning of the exception to rule D, to recover substantial damages equal to the amount of any liability that Mount Isa may have to contribute to general average.
502 The hull and machinery insurers’ rights and interests as against Mount Isa in the general average adjustment arise by subrogation and derive solely from the rights of its insured, MarShip. There is no evidence, or other identified legal basis, to find that those insurers could assert any right against Mount Isa other than in MarShip’s or Thor Commander’s name or names pursuant to the insurers’ right of subrogation. Thus, the findings against MarShip and its vessel that I have made bind the insurers, who cannot assert different rights or obligations to those of their insured as against a third party, such as Mount Isa.
503 The issue of whether Mount Isa is liable to contribute to the general average is an integral part of the real controversy in this proceeding. Indeed, that controversy was squarely raised in the pleading in the writ that Mount Isa was likely to suffer damage by reason of the general average claim. The declaration that Mount Isa later sought in the statement of claim reflected that apprehension and sought relief in respect of it. A declaration that Mount Isa is not liable to contribute to general average in respect of the breakdown of Thor Commander’s main engine is but a direct reflection of my findings on the cause and responsibility for that breakdown and MarShip’s and the vessel’s liability for it owed to Mount Isa.
504 Such a declaration is directed to determining the legal controversy as to whether, and what, liability Mount Isa has to contribute to general average and, if made, will have the effect of quelling it. Mount Isa is entitled to that remedy in the interests of justice: Plaintiff M61/2010E v Commonwealth (2010) 243 CLR 319 at 359 - per French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ, and to prevent multiplicity of proceedings: Thomson Australian 148 CLR at 161. That remedy is preferable to ordering MarShip itself to pay instead, and to indemnify Mount Isa, in respect of any liability that Mount Isa might be found to have in the adjustment of general average. MarShip must also pay damages in the sum of £431.99 in respect of Mount Isa’s having to arrange the general average bond.
505 I will make orders that MarShip pay Mount Isa the amounts of USD909,000 as its share of the salvage reward I have fixed, together with the sums of £42,660.47 for its costs on that issue, £431.99 as the costs of the bond and AUD147,956.27 for the transhipment costs, together with interest. The parties should seek to agree interest calculations for the foreign currency sums and use the Court rates for the transhipment costs.
506 MarShip’s cross-claim seeking relief in respect of the letter of indemnity must be dismissed. MarShip must pay the costs of the proceeding. I will give the parties the opportunity to prepare draft orders to give effect to these reasons.