Voyage Charterparty Due Diligence

If the charterparty is one which requires ‘due diligence’ to have been exercised ‘before and at the beginning of the voyage’ to make the ship seaworthy, an obligation found in the Hague or Hague-Visby Rules, then the shipowner must, in effect, have acted reasonably in relation to his preparation of the vessel. The obligation to exercise due diligence cannot be delegated. That is to say it is not sufficient for the shipowner to entrust his vessel to a third party to undertake work on the vessel. So, in the case of Riverstone Meet v Lancashire Shipping 1961 the shipowner had entrusted his vessel to a reputable first-class shipyard for the undertaking of certain repair work. The repairers had failed to fasten down certain plates on board the vessel in the appropriate and prescribed manner. As a result, sea water ingress through the plates was possible and cargo damage resulted. The owner was found not to have exercised due diligence in that the plates had been secured incorrectly and the shipowner was not allowed to argue that in entrusting the work to a reputable shipyard he had exercised due diligence in the maintenance and operation of his vessel. Seaworthiness relates to every aspect of the fitness of the ship so, in circumstances where a vessel’s chief engineer was habitually drunk, and the vessel suffered repeated breakdowns, the vessel was held to be unseaworthy. Similarly, in a situation where the vessel carried on board uncorrected and out-of-date charts the vessel was held to be unseaworthy. If the ship is unseaworthy the charterer can claim damages for any loss suffered. If the unseaworthiness is discovered prior to the vessel’s departure then the charterer need not load, or continue to load, cargo. Indeed, if the charterer elects to continue loading cargo in full knowledge of the unseaworthiness of the vessel an argument may be made by the owner that the charterer has waived his rights to complain of that unseaworthiness. The charterer will be entitled to claim damages for losses which he suffers as a result of the unseaworthiness. However, the charterer is not also, necessarily, entitled to terminate the charterparty in the event of unseaworthiness being found. Termination of the charterparty is often restricted to situations where the unseaworthiness, in effect, is such as to frustrate the commercial purpose of the voyage. So, in the ‘Hong Kong Fir’ case, where the vessel suffered repeated and frequent engine breakdowns whilst on a long voyage due to the incompetence of the vessel’s crew the vessel was held to be unseaworthy due to the lack of competent crew and the Court considered the question of whether or not the delays suffered by the vessel due to breakdown were sufficient to frustrate the commercial purpose of a long term time charterparty and allow termination. In the ‘Liepaya’, a time charterparty case, where the vessel caused cargo contamination due to ineffective tank cleaning the charterers were not entitled to terminate the charterparty but were entitled to claim damages. The ‘Liepaya’ case has been referred to as a watershed in the courts’ approach to the exercise of due diligence and unseaworthiness. In that case, whilst the owners were found liable, the court indicated that had the owners’ theory for the cause of the contamination been accepted then the vessel would have exercised due diligence and the owners were likely to have been entitled to defend the case. The matter involved the vessel’s failure to load a cargo of caustic soda due to contamination of the first foot examples with palm oil residues from previous cargoes. Two competing theories were advanced. The charterers argued that the vessel had failed to clean after the palm oil cargoes thoroughly and therefore palm oil residues remained somewhere within the pipeline system which resulted in the contamination. Owners, on the other hand, advanced the theory that proper cleaning had been undertaken and that, despite such proper cleaning and the carriage of intervening solvent cargoes, the palm oil had lain hidden behind areas of tank coating breakdown which lifted, when the caustic soda was loaded, resulting in the caustic soda becoming contaminated with palm oil.