Dangerous cargo has always been a hazard to it’s owner and it’s insurer, and in a recent decision out of a New York Court holding a chemical company and tank container operator strictly liable for the cost of repairs to a large container ship and the loss of most of its cargo highlights the significant increase in liabilities caused by the introduction of huge container ships.

This exposure affects everybody involved in the international transport of cargo that can cause harm to other cargo or the ship, including shippers, receivers, freight forwarders, container operators and their liability insurers.

A disastrous fire took place on the mv MSC Flaminia in 2012 – a 300 metre long modern container vessel capable of carrying almost 7000 containers. Bound from New Orleans to Antwerp, an explosion and subsequent fire took place in a container of divinylbenze which had spontaneously combusted.  Three crew member were killed, thousands of cargo containers were destroyed and the vessel was seriously damaged.

Claims of around US$700 million are being advanced by various interests.

Amongst these are claims for lost and damaged cargo against MSC. MSC, in turn, sought an indemnity from the shippers and receivers of the cargo that caused the fire as well as the operators of the tanktainer (tank container) that the cargo was carried in.

Tanktainers
Tanktainers

In finding the shipper of the cargo and the tanktainer operator strictly liable, this court adopted a similar approach as that in the common law countries.  Under the Hague-Visby Rules applicable in terms of the contract of carriage, the shipper was held strictly liable for damage to the ship by “goods of inflammable, explosive or dangerous nature”.  This does not mean that the goods have necessarily to be hazardous goods as defined by the International Maritime Dangerous Goods Code. They merely have to be goods of the type described which either actually caused physical damage or which posed a threat of physical damage to the ship or to other cargo on board the ship.

The court held that MSC had not been proved to be in breach of its obligations to provide a seaworthy ship. It held that, provided the shipowner complied with its obligations under the Hague-Visby Rules, it would be entitled to rely on the protection offered by those Rules in relation to goods of a dangerous nature.  If MSC had in fact breached this obligation it would not have been entitled to rely on contractual claims against the shipper and tanktainer operator.

MSC was entitled to rely on information given to it by the shipper and tanktainer operator on the characteristics and dangers of all cargoes accepted for shipment.  The latter two were found to have ignored the fact that this product was particularly prone to spontaneous combustion if it was stored at a high temperature.  In this case the tanks had been filled and left in the New Orleans summer sun for several days before the ship arrived.

One of the factors that persuaded the court to find the shipper and tanktainer operator liable was the fact that modern container ships carry thousands of containers and it would be unreasonable to expect that the shipowner could undertake research on any particular container or its contents.

The South African market has been hit by claims for lost and damaged cargo as a result of at least three major ship fires caused by spontaneous combustion from calcium hypochlorite.  The MSC case and its common law cousins are a reminder that the ship and cargo owners can successfully proceed against the shippers of cargo that cause a fire.  This may not be a real risk to small traders with no assets but constitutes a definite risk to multi-nationals with assets that can be proceeded against by claimants.  The case is also a reminder to those large companies that routinely ship cargoes that have the potential to be hazardous to ensure that they have appropriate liability insurance and risk avoidance practices in place.

Containers
Containers

The Institute Cargo Clauses A which cover the vast majority of cargo transported by sea do not cover liabilities arising out of damage caused by the cargo to the ship or other cargo.  Even if liabilities fell within the risks covered section of the policy, liability would be excluded by the general exclusions including the fact that a loss of the nature to the mv MSC Flaminia and her cargo was caused by an inherent vice or nature of the subject matter insured.  It might also be hit by the general exclusion for loss or damage caused by unsuitability of packing or preparation of the subject matter insured.

The mv MSC Flaminia, although a huge vessel by the standards of 2012, is now dwarfed by the latest container vessels with capacities in excess of 22 000 containers. This exponential growth in container ship size has increased the risk of catastrophic fire given that most of the containers are completely inaccessible by the ever decreasing number of crew on board the vessel.  The growth has also exponentially increased the potential liability of anyone whose cargo causes a ship’s fire.

All parties involved in the logistics chain need to re-assess their exposure to claims for damage to ships and other cargoes and to ensure they have appropriate insurance and precautions in place.