KNOWLEDGE BANK>CLASSIC CASES

SAFE CARRIAGE OF LATERITE NICKEL ORE --Latest Judgment of Chinese Court

2016-04-27

 Abstract

 

 The issue of safe carriageof laterite nickel ore has attracted attention of international society. A latest judgment of Chinese court shows that the IMSBC Code shall be applicable to the safe carriage of the laterite nickel ore.

 

The master shall be cautious and prudent in decidingwhether the cargo is suitable for safe carriage. Where heavy moisture of cargo is visible to the naked eyes, the proportion of small particles (<7mm) is large and the moisture content of small particles is above the TML (Transportable Moisture Limit), even if large particles (>7mm) may have a comparatively lower moisture content, the master may, in his professional judgment, deem the cargo unsuitable for safe carriage and is further entitled to make decisions such as to cease the voyage, sun-dry the cargo and to carry out inspection etc. for the common safety of vessel, cargo and the crew, and the carrier shall not be held liable for his breach of obligation under shipping contract.

 

Facts

 

On 28 January 2011, vessel A arrived at Indonesia for cargo loading, and the loading continued until 11 February. On 12 February 2011, the master issued a full set of original clean bill of lading. After that, the master suspected that the laterite nickel ore was not suitable for safe carriage because of the high moisture content, so vessel A stayed at the anchorage of loading port for sun-drying and testing. On 27 March, vessel A proceeded to Philippines, and arrived and stayed there since 29 March, still for sun-drying and testing. On 16 May, vessel A departed from Philippines and proceeded to Lianyungang Port, and arrived on 23 May eventually.

 

Before loading, the shipper issued two Cargo Declarations indicating that the cargo was suitable for safe carriage. The weather was very rainy during the loading operation, and even free water was found in two holds. Two reports indicated that the moisture content of the cargo in above-mentioned two holds was in excess of its TML during loading period. After loading, a series of testing were carried out by different inspection organizations. The relevant reports divided the cargo into small particles (<7mm) and large particles (>7mm). The small particles, the proportion of which islarger, had the moisture content exceeding its TML, while the large particles, taking a smaller proportion, had lower moisture content. However, no reports indicated explicitly whether the moisture content of whole cargo was beyond the limitation.

 

The Plaintiff (the consignee) claims that, the Defendant made an unjustifiable deviation, and shall thus be liable for compensation for its significant losses in cargo’s market price. The Defendant (the ship owner) defends that, it made correct decisions and tookreasonable measures for the common safety of the hull, cargo and crew, so the Plaintiff has no right to claim for compensation.

 

Court’s Decision

 

The whole court process of this case lasted for 3 years and 6 months, going through the judgments by the 1st and the 2nd instances, as well as the Court Decision by the Supreme People’s Court.

 

The Supreme People’s Court holds that: 1) The IMSBC Code was applicable to the carriage of the laterite nickel ore. The two sets of Cargo Declarations issued by the shipper, stating that the moisture content of the cargo was below its TML, were only unilateral statements, which alone could not prove that the cargo was suitable for safe carriage. That the carrier issued a set of original clean bill of lading only reflected that the cargo was in apparent good order. The carrier shall not be deemed to have accepted the cargo as being suitable for safe carriage only because of the issuance of clean bill of lading by the carrier. All the survey reports after cargo loading never state about the TML for particles with a size >7mm, nor about the TML for the whole cargo. In accordance with the IMSBC Code and based on the evidence respectively presented by the shipper and the carrier, the Court should determine that it is justifiable for the carrier to judge that the cargo was not suitable for safe carriage at the port of loading. 2) The shipper failed to prove the actual resale of the cargo and the reasonableness of the resale price. Therefore, there was no basis for the alleged economic loss.

 

Comment

 

The issue of safe carriage of laterite nickel ore has attracted heavy attention of international shipping society in recent years. Especially, from October to December 2010, 5 vessels sunk near Bass Strait and its northern water area, because of accidents caused by the carriage of laterite nickel ore. This action arose at the beginning of 2011. The master chose to stop the voyage and take certain measures to ensure the safety, while this act also caused a breach of contract under B/L relationship. The court’s attitude towards the master’s choice would have major influence on similar cases in the future. We Wintell & Co., acting for the ship owner to defend in the 1st, the 2nd and the last instance trial, found the following 3 key points merit our attention:-

 

1. Whether the IMSBC Code was applicable to the carriage of the laterite nickel ore

 

China is a contracting party to SOLAS Convention 1974as amended. As per the Convention, the IMSBC Codeis mandatory and it has come into effect in China as of 1 January 2011. The cargoes in this case, i.e. the laterite nickel ore in bulk, are crude ore with different sizes. This cargo is not listed as solid bulk cargo in Appendix 1 to the IMSBC Code, whilethe IMSBC Codehowever provides that the current list of typical solid bulk cargo carried by sea is “not exhaustive” and Section 1.7.5 of the IMSBC Codealso states that “cargoes which may liquefy mean cargoes which contain a certain proportion of fine particles and a certain amount of moisture. They may liquefy if shipped with moisture content in excess of their transportable moisture limit”. The nature of laterite nickel ore is of course in accordance with this definition. In addition, Article 4 ofSafety Management Rules for Waterway Transport of Solid Bulk Cargoes that are Liable to Liquefypromulgated by Chinese Ministry of Transport on 9 November 2011 explicitly indicates that laterite nickel ore is one kind of solid bulk cargoes that are liable to liquefy. All the three courts of different instances held the same view towards this issue, i.e. the IMSBC Code shall be applicable to the carriage of the laterite nickel ore.

 

2. The criteria for masters to judge whether solid bulk cargoes that are liable toliquefy is suitable for safe carriage or not

 

The first generally accepted method for testing the TML, flow table test, stipulated in Appendix 2 of the IMSBC Code, was designed for mineral concentrates and other fine materials with a maximum grain size of 7mm. Therefore, most of the inspection organizations in this case divided the cargo into small particles and large particles accordingly. For small particles, the moisture content and TML could be tested and then be compared; while for large particles, only the moisture content could be tested but notthe TML.

 

The 1st instance court held that, Article 7.2.1 under Article 7.2 “Conditions for hazards” of the provisions of Section 7 “Cargo that may liquefy” under the IMSBC Codeprovides that: “Group A cargoes contain a certain proportion of small particles and a certain amount of moisture. Group A cargoes may liquefy during a voyage even when they are cohesive and trimmed level.”Therefore, it could be seen that, the fine grainsare crucial elements that may easily cause liquefy. Under the circumstances where the proportion of the small particles was larger, it is reasonable for the Defendant to apply the IMSBC Codein this case and to compare the moisture content of the small particles with its TML, and eventually to judge that the cargo was not suitable for safe carriage.

 

The 2nd instance court held that, the moisture content of large particles is obviously lower than that of small particles.There was no sufficient evidence forthe master to make thejudgment that the whole cargo was not suitable for safe carriage, only by comparing the data of small particles.

The Supreme Court held that, in consideration of the whole situation during loading period, it is not inappropriate forthe carrier to reasonably initially suspect that the cargo was not suitable for safe carriage. On the basis that the proportion of small particles was larger and the moisture content of small particles was above the TML, it is reasonable for the carrier to conclude that the cargo was not suitable for safe carriage.

 

3. Master’s discretion when safety of life at sea is threatened

 

Article 34-1 “Master’s discretion” of the SOLAS Convention 1974as amended provides that: “The owner, the charterer, the company operating the ship as defined in regulation IX/1, or any other person shall not prevent or restrict the master of the ship fromtaking or executing any decision which, in the master’s professional judgment, is necessary for safety of life at sea and protection of the marine environment.” As China is a contracting party to the Convention, this article also has legal binding force within mainland China. Another thingto note is that, the discretion of a master should also be exercised within a reasonable and necessary scope. As in this case, the master decided to stop at Philippines, which was not in the normal route from Indonesia to Lianyungang, so the carrier has the burden of proving the reasonableness and necessity of this act. Finally, the Supreme Court held that, Philippines is very close to the normal route from the loading port to the destination port, thus it could be concluded that, it was for common safety of the ship, the crew and the cargo on board when the vessel sailed to Philippines, which shall be deemed as “or any justifiable deviation” as provided for in the Maritime Code of China. The essence of master’s discretionis the respect for life. The judgment of 1st instance cited the Convention directly, while the Supreme Court’s decision did not apply this article directly but followed its spirit thoroughly.


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