Carrier’s paradise lost?

Jacobus Bracker, partner at Hamburg-based law firm BBL Rechtsanwaelte, looks at the implications of the ISM Code on carrier’s liability in Germany

SINCE 1 July 2002, the International Safety Management Code (ISM Code) has been in force for all kinds of cargo vessels above 500grt. It is widely expected that the ISM Code will be an instrument that can be used to concretise the carrier’s duties under Art 3 Hague/Visby-Rules, for example to make the ship seaworthy or to care for the goods. However, no case law is yet available in Germany.

The Court of Appeal in Hamburg had to decide the case of the Cita which stranded off the Scilly Isles. The reason for the stranding was that the watch keeping officer had fallen asleep because the watch alarm was switched off. The plaintiffs alleged that the watch alarm on this vessel was switched off constantly, which was disputed by the defendants. The court held that this question had not to be decided as the ISM Code was not yet in force when the accident happened. The court decided that the carrier was not liable for losses of cargo as the switching off of the watch alarm was considered as an error in navigation under Art 4 sec 2a Hague/Visby-Rules. The court further stated that the outcome of the proceedings may have been different if the ISM Code had already been in force.

The ISM Code may not only be of interest for substantiating the carrier’s duties or bypassing the exclusion of liability for errors in navigation, but also for breaking the limitations of liability under Art 4 sec 5e Hague/Visby-Rules. According to that rule the carrier is not entitled to the benefits of the limitation of liability if it is proven that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result. The German jurisprudence on the latter form of default has been a nightmare for carriers of other means of transport like road or air carriers and a paradise for cargo interests. It is likely that this jurisprudence will be extended to carriage by sea.

Recklessness (plus knowledge that damage would probably result) is a concept of fault which is known also from Art 25 Warsaw Convention or, since 1 July 1998, from sec 435 German Commercial Code which is part of the general law of affreightment and, through Art 29 CMR, is also relevant for international road transportation. In cases of international air and road transportation and forwarding there is a vast jurisprudence on recklessness. Furthermore, German courts very often and, in international comparison, very easily come to the conclusion that a forwarder or road or air carrier caused damage recklessly, especially by a reckless organisation of its business.

The claimant has to prove the preconditions of recklessness but as it is often difficult to produce such evidence, the German Federal Supreme Court (Bundesgerichtshof – BGH) developed an instrument called “secondary burden of demonstrating and proving” (sekundäre Darlegungs- und Beweislast) which has to be borne by the carrier. This instrument is very dangerous for carriers, especially when it comes to the question of faulty organisation.

The claimant only has to show that there is a not too farfetched possibility that there is something wrong with the carrier’s organisation which may have caused the loss. The above-mentioned instrument then comes into play. The carrier then has to demonstrate and, if disputed, prove its general and concrete safety and security measures and has to narrow down the circumstances of the loss as to the time and place and personnel involved. If the carrier cannot fulfil this duty (the demands are very high) the court will simply assume that the carrier organised its business recklessly. Consequently the carrier will not be entitled to limitations or exclusions of liability. The instrument developed by the BGH comes close to a total shift of the burden of proof in respect to recklessness.

The assumption of a reckless business organisation is something road carriers and forwarders are very much used to before the German courts. However, this jurisprudence has not yet been applied to carriage by sea. There is no obvious reason for that.

The ISM Code may be a catalyst for change here. The objectives of the ISM Code are to ensure safety at sea, prevention of human injury or loss of life, and avoidance of damage to the environment, in particular to the marine environment and to property (the last element may be most relevant for the carrier’s liability under a contract of carriage by sea). The ISM Code does not address the carrier but the owner or operator of the vessel. Carrier and owner or operator will often be the same person but do not necessarily have to be. Nevertheless, the ISM Code will also determine the carrier’s duties owed to the shipper as the shipper can expect that the carrier uses a vessel which is operated in compliance with the ISM Code.

The ISM Code imposes numerous organisational duties on the carrier. Its objectives are inter alia to provide for safe practices in ship operation and a safe working environment, to establish safeguards against all identified risks, and to continuously improve safety management skills of personnel ashore and aboard ships, including preparing for emergencies related both to safety and environmental protection. The carrier or operator has to develop, implement, and maintain a safety management system which includes inter alia, as functional requirements, a safety policy, instructions and procedures to ensure safe operation of ships, defined levels of authority and lines of communications, procedures for reporting accidents, procedures to prepare for and respond to emergency situations.

A lot of these requirements in organising the operation of the vessel are generally the same as those which German courts would impose on air and road carriers in operating their business. It seems likely, therefore, that the German courts will recognise that there is no reason to treat carriers by sea differently than carriers of other means of transport. The previous reluctance of courts may be generated by reasons reaching back to the times of tea clippers.

There may be another reason that could support a change or development of German jurisprudence. Until 2002 the 2nd Civil Senate of the BGH was competent for contracts of carriage by sea whilst the 1st civil Senate, which developed the instrument of the secondary burden of demonstrating and proving, was only competent for all other contracts of carriage. In 2003 there was a change of competences in the BGH and now the 1st Civil Senate is competent for all matters of affreightment including carriage by sea. This may promote a unification of jurisprudence.

What could the consequences be? If a marine claimant shows possibilities that there may be a lack of compliance with the ISM Code on the carrier’s side, which could have contributed to the loss, the carrier will have to prove its safety management. He will have to produce the safety manuals and prove that its contents have been implemented in daily practice. If no or obviously faulty manuals are at hand that could easily lead to the assumption of recklessness.

Previously, times for carriers by sea have been agreeable in matters of liability before the German courts. The ISM Code this may change all this as it will become more and more difficult to rely on exclusions and limitations of liability.
In March this year a seminar on transport liability and recourse was held in Vienna assembling participants from around Europe. As regards CMR-matters and the concept of recklessness and its carrier-unfriendly construction by German courts, the common understanding was that Germany will remain a tempting forum for cargo interests. It may not be too farfetched to advise claimants who are pursuing marine cargo claims to take a German forum into closer consideration.