International Commercial Contracts Paper. Carrier s duty not to deviate

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1 Duty not to deviate is a prescribed and implied condition in all voyage charter parties. 1 It is not hard to realize the significance of fulfilling this duty for the proper and satisfactory performance of the charter party contract. Timely delivery is extremely important for the shipper. One can easily imagine consequences for the shipper that may arise from the failure to deliver goods on time. Notwithstanding which party of the sales contract the shipper is it is his essential and primary interest to have the goods delivered on time. Late delivery may not only result with the liability for the breach of contract, both carriage and sales with all its consequences provided by law. Subsequently late delivery may result in liability for damages for lost profits and anticipated contracts. The carriage of goods by sea is a high-risk activity. Factors like distances, weather, sea conditions, natural disasters, embargos, strikes, military actions and so forth influence sea transport more than any other types of transportation and business activities. Aforementioned factors may, with high probability affect the timelessness of the delivery of the goods carried by sea. Bearing that in mind one can realize that additional threat for timely delivery, such as deviation should be eliminated in advance. Contrary to other obstacles deviation is usually predictable and dependent on the master s will, so it can be contracted out. Deviation means departure from the prescribed or ordinary route which the ship should follow in fulfilment of a contract of carriage. 2 If the parties of a contract had stipulated a route of the ship in the contract, change of course and departure from this route shall constitute deviation. Situation becomes more complicated when there were no contractual provisions about the route. In practice very few standard charter forms make an express provision for the route to be followed. 3 In this case the ordinary trade route should be applicable. In the lack of evidence the direct geographical route shall be presumed to be an ordinary or usual route, but this presumption may be rebutted by the evidence of the practice actually adopted in a particular trade or even in a particular shipping line. 4 1 E.R.H. Ivamy, Carriage of Goods by Sea, 21, 13 th ed. (1989) 2 id. 7 3 J.F.Wilson, Carriage of Goods by Sea, 17, 4 th ed. (2001) 4 A.D. Hughes, Cases on Carriage of Goods by Sea, 80, 2 nd edition (1994) 1

2 In Reardon Smith Line Ltd v. Black Sea and Baltic Insurance Co. 5 the Reardon s vessel Indian City, sailing from the port of Poti to Baltimore, USA called at the port of Constanza to bunker. During entering the seaport she ran aground and was seriously damaged. Part of the cargo had to be thrown overboard and the ship could not continue her voyage to Baltimore. The charterers withheld the value of undelivered cargo from the freight. Reardon demanded full payment m but other party claimed that the fact that the vessel had added more than 200 miles to call at Constanza and that fact constituted a deviation. It must be emphasized that in 1930s cheap oil was available in the Romanian port of Constanza. Therefore Constanza became a customary refilling port for ocean going vessels. It had been shown that 25 % of vessels sailing through Bosphorus were calling at and bunkering at Constanza. Court held that not geographical direct route had to be followed, but the usual route, and in that case it was usual for the oil burning ships to call at Constanza. In this case custom of calling at Constanza decided that there was no deviation. The existence of such custom must be universal and uniform though. 6 Having in mind the Court s opinion rendered in Reardon case, The test of what is usual and reasonable in a commercial sense may arise in very different circumstances and must be decided whenever it arises by the application of sound business consideration and by determining what is fair and reasonable in the interest of all concerned it should be noted that the uniformity and universality of the custom can not be interpreted absolutely and objectively. The application of aforementioned must be conducted in respect of any given particular case and fact pattern. It must be noted that deviation not necessarily means the deviation from the geographical route. Delay in performing the contract of voyage may also constitute a deviation. 7 Such approach is fully justified. Reasoning by analogy one may argue that if taking geographical route different than stipulated in contract or bill of lading constitutes deviation performing the carriage contract in a different time frame should be treated as such as well. The reason why duty not to deviate is an implied carriage contract term is that deviation brings additional, unnecessary risk for the vessel and her cargo. The risk is 5 Reardon Smith Line Ltd v. Black Sea and Baltic Insurance Co., [1939] AC 562 (HL) 6 J.C.T. Chuah, Law of International Trade, 215, 2 nd ed. (2001) 7 S. C. Boyd, A.S. Burrows, D.Foxton, Scrutton on Charterparties, 257, 20 th ed. (1996) 2

3 brought upon the ship not only when she deviates from the geographical voyage route but when the voyage is delayed as well. Analogically as in the case of geographical route deviation the test must be conducted whether the damage or loss would have taken place if there was no deviation- delay. The justification for this reasoning is that delay prolongs the risk of a voyage, for example taking another ship in tow had been held to be an equivalent to deviation, since it must retard the progress of a towing vessel and thereby to prolong the risk of a voyage 8 The crucial characteristic of deviation is that it must be intentional. The essence of deviation is a voluntary substitution of another voyage for a contract voyage 9. The deliberate act of deviation must be a part of ship s owner or her officers. 10 Consequently there will be no deviation in the situation where the vessel had sailed of the course due to the master s illness, where the ship is blown off the course. 11 The question arises how the involuntariness of the deviation caused by an error should be treated. Deviation caused by an error, resulting from negligence or even in cases of lack of good, proper or reasonable sea practice should not be treated, as it was deliberate, with all consequences. Deviation constitutes breach of contract and results in the rise of the liability of the carrier. The question arises whether it constitutes fundamental breach. Traditionally deviation had been treated as such, the contract had been commonly said to be terminated by the deviation, with no protection usually given to common carriers stipulated. 12 Most commonly deviation was treated as giving right to the party of carriage contract to consider the breach a repudiation bringing the contract to an end and claim damages. The charterer may also choose to accept the deviation and continue the contract and claim damages only. It must be emphasized though that in this latter case the carriers right for freight will remain untouched supra note 7, footnote 75 9 supra note 1 10 J.F.Wilson, J.C.T. Chuah, A.D. Hughes, Cases on Carriage of Goods by Sea, 90, 2 nd edition (1994) 13 S. C. Boyd, A.S. Burrows, D.Foxton, Scrutton on Charterparties, 260, 20 th ed. (1996) 3

4 According to US doctrine unjustified deviation makes the carrier insurer of the goods, under a breach of contract theory, as a wrongdoer in tort 14, hence the liability and the risk for loss or damage of goods passes on the carrier. One should ask himself a question what is the moment of passage the risk and whether the risks passes back after returning to the contractual or usual route. The first question seems to be prima facie clear and one would agree that liability for the loss or damage of goods occurs from the moment of going of course. The issue becomes more complicated though when there was an involuntary deviation caused by an error resulting from mal practice or negligence. For the sake of certainty and integrity it should be assumed that the liability and passage of risk occurs also from the moment of going of course, not from the moment of error, negligence or the act of bad practice taking place. It should be emphasized that aforementioned circumstances do not give rise to the passage of risk, but deviation does. The more complicated issue is the question of liability for the damages or the loss of goods after returning to the contractual or usual route. One must examine the casual link between deviation and the occurrence of the event causing damage or loss of goods. If the event causing damage could have been avoided providing that there was no delay caused by deviation there would be sufficient justification for the carriers liability. From the other side when the event could not be prevented from or avoided even if the voyage was continued, following the contractual or usual route. 15 Another question that arises is to what extend would the deviating carrier be liable. Aforementioned doctrine that tells to treat the deviating carrier as if he was an insurer tends to favour the strict approach and the extensive liability of the carrier. Would that liability be so extensive as to cover the cases of force majeure? Though the liability should be extended, as the insurer bears the extensive risk, such as perils of the sea, it should not be extended that far to cover force majeure. Ivamy also points out that in case of unjustified deviation the shipowner cannot rely on the exception clauses in the charter party and then is then only entitled to the benefit of the exceptions available to a common carrier, e.g. act of God, loss by the Queens Enemies, if he can prove that the loss would have occurred even if no 14 T.J.Schoenbaum, Admiralty and Maritime Law, 627, 3 rd ed. (2001) 4

5 deviation had taken place. 16 Some authors go even further, claiming that unless he proves that the damage or loss had been a result of an act of God or by the King s enemies or by inherent vice of the goods and the loss or damage must have had occurred even if there was no deviation the carrier would be liable irrespectively the loss or damage had arisen after the deviation had ceased, during the deviation or even before deviation. 17 The latter case is especially interesting. The example is loss covered by an exemption in bill of lading, for example the sea perils and occurred before deviation had taken place. The deviation is said to have displaced and destroyed the special contract (exemption in bill of lading). 18 Another effect of unjustifiable deviation is that the carrier cannot claim the contractual rate of freight payable under charter-party. It may be entitled to a reasonable sum if the goods are carried to a destination safely. 19 In some circumstances deviation is permissible and does not give rise to carrier s liability. Traditionally Common Law allows deviation for purposes of saving human life, to avoid danger to ship or cargo and when it is made necessary by some default on the part of charterer. 20 Deviation for saving human life is always justified and permitted. Saving life at the sea is fundamental moral duty and should not be distressed by any threat of legal liability for the possible damage to a ship or cargo. Saving human life should be interpreted broadly and also should include deviation for communicating with a vessel in distress. The impulsive desire to save human life when in peril is one of the most beneficial instincts of the humanity, and nowhere more salutary in its results than in bringing help to those who, exposed to destruction from the fury of winds and waves, would perish without assistance. 21 Common Law does not justify deviation for the sole purpose of saving property. In the case Scaramanga & Co v. Stamp 22 the steamship Olympias, owned by defendants had sighed another ship ( Arion ) in distress. Arion s 16 E.R.H. Ivamy, Carriage of Goods by Sea, 23, 13 th ed. (1989) 17 S. C. Boyd, A.S. Burrows, D.Foxton, Scrutton on Charterparties, 259, 20 th ed. (1996) 18 id. footnote E.R.H. Ivamy, Carriage of Goods by Sea, 23, 13 th ed. (1989) 20 J.F.Wilson, Scaramanga & Co. v. Stamp, (1880) 5 CPD 295 CA 22 id. 5

6 machinery had been broken down and the ship was in a very bad condition. The weather and the sea conditions were fine and Olympias could have had taken the Arion s crew on board easily and save them. Instead the captain of Olympias decided to attempt to salvage the ship in order to claim salvage remuneration. After having taken Arion a tow Olympias had got ashore and both ship and cargo were lost. In this case Court had confirmed permissibility of deviation for the purpose of saving human life and did not justify deviation for saving property. In Scaramanga case it was clear that the crew could have been saved without putting the salvage ship and her cargo to risk and danger. As indicated above salvage operation and towing brought additional not necessary risk upon Olympias. It not only prolonged risk of a voyage but as well introduced substantial, significant risk in navigation and sailing. One should bear in mind that towing another vessel changes the sailing conditions significantly and requires skills and experience from the master and the crew. Court clearly distinguished deviation for saving human life from saving property, where prior is protected and latter results with all the effects of unjustified deviation. Court stated that if lives of the persons on board a disabled ship can be saved without saving the ship, as by taking them off, deviation for the purpose of saving the ship will carry with all the consequences of an unauthorized deviation. 23 In the situation when the only possible way to save human life would be salvage of the ship such deviation would be justified, providing that the motive leading to deviation is saving human life and the salvaging ship s master and crew are acting in bona fide of saving lives. 24 The limitation of the liability in case of saving human life is high. The deviation for saving human life would not involve forfeiture of insurance nor liability to the owner of the goods. 25 The deviation to avoid danger to the ship or cargo is also justified. It must be emphasized, that it is not necessary that the danger should be common for ship and cargo. It is enough that either ship or cargo would be in danger to justify deviation. 26 One of the main duties of the master is to ensure bringing the adventure to successful conclusion. 23 See supra note id. 25 J.C.T. Chuah, S. C. Boyd, A.S. Burrows, D.Foxton, Scrutton on Charterparties, 265, 20 th ed. (1996) 6

7 Protecting the ship and her cargo from undue risks would be a justified reason for taking the ship off the contractual or usual course. 27 The risks that may cause such deviation include storms, icebergs, heavy fog, pirates and the fear of capture by hostile forces. 28 The danger that justifies the deviation must be of reasonably permanent nature. In case that deviation was reasonable the charterer cannot refuse full freight payment. The other reason that justifies deviation is when the ship moors to the port for necessary repairs when she suffered damage. It is unclear though whether in such situation ship should be put for repairs into nearest port or to some other. Ivamy, favours the first concept 29, while Chuah supports the second concept: The liberty to take the ship to port for repairs is not confined to using the nearest port; it is always question of fact as to what is reasonable decision of the shipmaster. 30 Chuah opinion seems to be more adequate. The distance from he port should not be the sole consideration in such case. Master should also take into consideration factors like quality of repairs in given ports, costs, time of repairs and general condition of a vessel, and the nature of the damage. After having examining those factors it may happen that some more distant port should be more suitable in given situation. The question arises whether deviation for repairs is justified in the situation were repairs were necessary due to prior unseaworthiness of the vessel. The United States Courts have held in the case The Louise 31 that deviation was unjustified in the situation when shipowner was aware of unseaworthiness before sailing away. On contrary English Courts held that deviation for repairs, even caused by unseaworthiness is justified. House of Lords held that justification of deviation lies in the necessity to avoid the danger, and is not affected by the cause of that danger, therefore deviation for repairs, even caused by initial unseaworthiness should be justified. 32 It seems that the view the first view, expressed by the American jurisprudence is more justified. It is hard to give account to opinion justifying breaching one fundamental duty of a party to a contract, to avoid 27 See supra note 19, at id 29 id. 30 J.C.T. Chuah, The Louise [1945]AMC 363, J.F. Wilson, 19, footnote J.F.Wilson, 19 7

8 danger arising from breaching another fundamental duty. Supporters of the approach represented by English Courts may argue that the charterer may always claim his remedies on the grounds of carrier s breach of duty to provide seaworthy ship. The arguments for such approach would be certainty and integrity of the doctrine: the deviation doctrine would be clear and free from exceptions; harmed party would still be satisfied on the basis of seaworthiness. On the face of it such approach seems satisfactory, but one must pay attention to the practical side of the problem, namely question of the burden of proof. The advantage of restrictive deviation doctrine is presumption that deviating carrier is to be held liable. If only it is proved that the deviation actually took place, which is relatively easy to show the carrier is liable and faces all consequences of unjustified deviation. The presumption may be overruled by evidence by the carrier that he deviated to conduct necessary repairs. Deviation made necessary by default by a charterer is also permitted. This is fully justified. It may be in the situation when charterer had load on board some dangerous goods without carrier s consent or when charterer had breached his contractual duty to load a full cargo. In the first case the carrier will be justified to deviate in order to discharge those dangerous goods, in the latter situation he will be entitled to deviate to load full cargo. 33 One might wonder why in case of necessity of discharging dangerous goods deviation is not permitted on the basis of avoiding the danger to the ship or cargo. As emphasized above such danger must be of reasonable and permanent nature. Although the second condition seems to be undoubted- dangerous goods are stored on board of the vessel continuously and permanently, the fulfilment of the first condition, raises questions. It must be noted that possible threat is not inevitable and reasonable enough. Dangerous goods may or may not bring peril upon the vessel and other cargo; secondly the mere fact of carrying dangerous goods is nothing unusual. Dangerous goods are commonly carried every day practically on all seas. The wrongdoing is not in placing the dangerous goods on board, but in doing that without consent and knowledge of the carrier, therefore it is justified to distinguish grounds for justifying the deviation and give right to deviate on the basis of default by a charterer. 33 id. 20 8

9 It has become a common practice to include in the contract or bill of lading so called liberty clauses. Justification of deviation stipulated expressly in the contract is permitted on the general rule of freedom of contracting. Such clauses give the master right to deviate in certain situations. It must be emphasized that as any exceptions from the rule liberty clauses should be interpreted narrowly. Deviation or liberty clauses are normally drafted in favour of the shipowner and courts interpret them restrictively. 34 Certainly too broad interpretation of liberty clauses cannot destroy the commercial object of the contract. In the Leduc v. Ward 35 case liberty clause permitted to call at any ports an any order. Court stated that such clause was too wide. Basically it had the same effect as if it was drafted any port in the world. Such construction was held to be too wide and not consistent with the mercantile object of the contract. The doctrine of commercial object of the contract is very significant in interpretation of liberty clauses. It must be noted that that is not the only test that have to be met in narrow interpretation of deviation clauses. Equally important is reasonable purpose of deviation. The liberty could not reasonably be intended to give the right to call at an intermediate to land or take on board friends of the shipowner for the purposes of a pleasure trip 36 It must be emphasized that liberty clauses, although interpreted narrowly and restrictively are valid and enforceable. When carefully and precisely drafted liberty clauses will have full effect J.F.Wilson, Leduc v. Ward (1888) 20 Q.B.D 475, J.C.T Chuah, J.C.T Chuah, id. 9

10 The Carrier s duty not to deviate looks slightly different according to the Hague-Visby Rules, introduced into the English law in The Carriage of Goods by Sea Act and Hamburg Rules 38, than in traditional common law. The most significant difference is that Hague-Visby rules expressly permits deviation for purposes of saving property. Art. IV(4) provides that Any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of these rules of contract of carriage and the carrier shall not be liable for any loss or damage resulting therefrom. On the face of the problem one may notice how wide this liberty is comparing to the common law rules. Not only deviation for saving the property is allowed but also deviation in attempt of doing that, which gives more flexible opportunities for the carriers to avoid liability, since there would be enough for them that they had taken an attempt of saving life or property. As one continue to analyse the article of Hague-Visby Rules the decrease of strictness is even more obvious. Permission to deviate for any reasonable purpose (reasonable deviation) is striking. In practice this provision should not have as significant effect as express permission for deviation with the purpose of saving property, since the courts would rather be careful and conservative in interpreting this provision. What is reasonable must be assessed in the light of every condition and every circumstance of the case. The deviation must be reasonable not only to one party but to both. 39 The Reasonable Deviation will most probably be interpreted in some accordance with traditional common law rules but permission to deviate for saving property materially alters the situation. Such provision threatens proper conduct of the carriage business. The main purpose of carriers business is carriage of goods not the salvage operations. There is a danger that carriers attracted by the salvage remuneration would engage too often in salvage operations at the cost and risk of charterers. Therefore test for reasonable deviation should also be applied in the cases of saving property. 38 UN Convention on Carriage of Goods by Sea J.C.T Chuah,

11 BIBLIOGRAPHY 1. STEWARD C. BOYD, ANDREW S. BURROWS, DAVID FOXTON, SCRUTTON ON CHARTERPARTIES AND BILLS OF LADING, 20 TH ED., LONDON 1996, 2. JASON.C.T. CHUAH, LAW OF INTERNATIONAL TRADE, 2 ND ED., SWEET & MAXWELL 2001, 3. A.D. HUGHES, CASEBOOK ON CARRIAGE OF GOODS BY SEA, 2 ND ED. BLACKSTONE PRESS 1994, 4. E.R. HARDY IVAMY, CARRIAGE OF GOODS BY SEA, 13 TH ED., LONDON & EDINBURGH 1989, 5. SZE PING-FAT, CARRIER S LIABILITY UNDER THE HAGUE, HAGUE-VISBY AND HAMBURG RULES, THE HAGUE, LONDON, NEW YORK 2002, 6. JOHN F. WILSON, CARRIAGE OF GOODS BY SEA, 4 TH ED., LONGMAN