Israel's heavy burden for carriers

Israel's heavy burden for carriers
ZIM Israel Navigation Ltd v The Israel Phoenix Insurance Co Ltd

IN this recent case, the Israeli Supreme Court imposed a heavy burden on carriers looking to invoke the defence of perils of the seas in cargo loss and damage claims. The case dealt with a container which was supplied to an exporter for an Atlantic voyage in the month of February. The ship was involved in a storm, the container's side wall was destroyed and the cargo washed overboard.

The respondent insurance company sued the carrier under subrogation rights. The defendant carrier contended that it was entitled to avail itself of the defence of perils of the seas, within the meaning of Article IV (2) (c) of the Hague Rules. It was not disputed that the container belonged to the carrier, and as such the carrier was obliged to exercise due diligence in making it seaworthy at the commencement of the voyage.

The district court found that the container was unsuitable for the voyage and its foreseeable risks. A random inspection by the carrier was also found to be inadequate, particularly as it was not only the specific container concerned that fell apart under the impact of the waves.

Consequently, the principal contention remained the defence of perils of the high seas, which is closely connected with the question of seaworthiness. The carrier based its argument on the defence of perils of the sea, irrespective of the unseaworthiness issue. This argument was rejected by the court. Moreover, it was found that, in order to justify the defence of perils of the sea, the carrier must prove an exceptional and unforeseeable event, or the elements of nature.

The court based its position on the opinion of Prof William Tetley, that the criterion was, "Some catastrophic force or event that would not be expected in the area of the voyage at that time of year, and that could be reasonably guarded against."

The court adopted the US theory, as in Thysson v Eurounity, which differs from the European and Canadian precedents, allowing the carrier to exempt itself from liability where the harsh weather was not extreme, and totally unpredictable. The court reviewed the development of the law in Canada, which in subsequent years followed the US jurisprudence, and found, "A practical justification for the application of the stringent rule is attributable to technological developments in the last few decades in the field of meteorology. The fact that sophisticated and reliable prediction instruments exist enables the responsibility to be placed on the marine carrier, who has the ability to meet a storm in such a way that it is possible to reasonably predict in advance the strength and the risks.

"Despite the traditional name 'mutual venture', the contract of carriage by sea is no longer an adventure of equal risks being taken by the cargo owner and the carrier. Between these two only the carrier is held as possessing the knowledge, the means and the ability that is required in order to see in advance the common perils of the sea, and from these he is able and obliged to protect the cargo that is entrusted to him.

"The granting of an exemption to carriers in respect to the consequences that they were able to foresee and could prepare for, may, at the end of the day, damage maritime trade. On the other hand, the placing of responsibility on carriers will combine with the considerations of economic efficiency, since it will give them an incentive to carry out the necessary steps in order to ensure protection of cargo at a cost that - from the point of view of the public - is probably lower than the one that will be required to cover lost and damaged cargoes."

The judge added a note of caution, however, pointing out, "Note that I do not contend that the adoption of the said approach will place carriers under an absolute liability for the protection of the cargo. All this approach requires of them is to carry out, with due diligence, all that is required to make the ship seaworthy, whilst taking into account the maritime risks which may reasonably be foreseen in advance, and to prepare for them."

There are very few maritime decisions from high legal authorities in Israel. This is a landmark judgment which imposes a heavy burden on maritime carriers.
(By Peter Gad Naschitz, Naschitz, Brandes & Co, Tel Aviv, Israel.)

Protection for ship buyers
Rank Enterprises Ltd and others v Gerard

THE purpose of Clause 9 of the Norwegian Saleform was to protect the buyers of ships in respect of events which took place before delivery, and therefore the warranty in Clause 9 was not limited to actual liabilities incurred by sellers, but applied to any claims exposure incurred prior to delivery and made after delivery of the vessel to the buyer.

So held the Court of Appeal in London, allowing the appeal of the buyer, Rank, and dismissing the cross-appeal of the guarantor, Jacques Raymond Gerard, against the decision of Mr Justice Toulson in July 1999, making declarations on the construction of a guarantee given by Gerard in relation to the purchase of three ships from their previous owners.

In the appeal court, Lord Justice Mance said the trial court judge had taken too limited a view of the scope of the second sentence of Clause 9, which addressed claims made, the exposure to which stemmed from pre-delivery events, whether the liability asserted by such claims might prove to exist or not.

The appeal court said the buyers were entitled to be indemnified against all consequences of such claims and, under the guarantee to recover, subject to its limitations, for any loss, expenses or damages sustained arising out of or in connection with such claims.
(The Times Law Reports, February 28, 2000)

Enforcing exclusive jurisdiction clause
Youell v Kara Mara Shipping Co Ltd and Others

WHERE an insurance policy issued by underwriters provided an exclusive jurisdiction clause in English courts subject to English law, the English court could restrain a third party outside the jurisdiction, who had obtained a judgment against the insured from the federal court in Louisiana, from enforcing it against the underwriters of the policy containing that clause.

So held the Commercial Court of the Queen's Bench Division in London in granting leave to claimant Lloyd's underwriter John Richard Youell, suing as a representative of Syndicate 79 and fourteen other syndicates, to serve his originating summons. The court also granted an anti-suit injunction against the defendants, Kara Mara Shipping Co Ltd, as owner of the Ya Mawlaya, three managers and a first mortgagee of the ship, and World Tanker Carriers Corporation. The latter's application to set aside the original permission granted to serve the summons outside the jurisdiction was also dismissed.

The position was that World Tanker Carriers Corporation had asserted a claim on the policies under Louisiana law, giving a right of direct action against the insurer within the terms of the policy. The court said this was a statutory right to make a claim under a contract to which World Carriers had not originally been a party. The rights were confined to the terms and limits of the policy, which was a contract including the English proper law and exclusive jurisdiction clauses.

The court said there was no reason why the English courts should have regard to the Louisiana law concept of whether an exclusive jurisdiction clause in favour of the English courts was lawful, at least when, upon an English conflict of laws analysis, the contract was governed by English law.