LAW REPORT: 27 JANUARY 1998; Shipper is strictly liable for dangerous cargo

A shipper of dangerous cargo was strictly liable to the carrier for damage caused by the cargo, regardless of the absence of fault or neglect on its part, and the danger need not be direct.

Effort Shipping Co Ltd v Linden Management SA and ors (the Giannis N K); House of Lords (Lord Goff of Chieveley, Lord Lloyd of Berwick, Lord Steyn, Lord Cooke of Thorndon and Lord Clyde) 22 January 1998

The House of Lords upheld the decision of the Court of Appeal, dismissing the appellant shipper's appeal against a finding that it was liable to the respondent carrier for delay caused by the shipment of dangerous goods.

Under a bill of lading incorporating the Hague Rules a cargo of groundnut extractions was loaded in the carrier's vessel the Giannis N K, to be shipped to Rio Haina in the Dominican Republic. At the time of shipment the cargo was infested with khapra beetles, although neither the shipper nor the carrier knew. A cargo of wheat pellets had previously been loaded for carriage to San Juan, Puerto Rico and Rio Haina. There was no danger of the beetle infestation's spreading from the groundnut cargo to the wheat cargo, but the infestation nevertheless rendered the vessel and its entire cargo subject to exclusion from the countries where the cargo was to be discharged.

The vessel was quarantined and fumigated at Rio Haina, but the insects were not eradicated. The vessel was ordered to leave port with all her cargo. She had, meanwhile, been arrested by receivers, but was able to leave port when the arrest was lifted on an undertaking. She returned to San Juan in an attempt to find a purchaser for the cargo but the United States authorities issued a notice requiring the carrier to return the cargo to its country of origin, or to dump it at sea. The cargo was dumped at sea in February 1991. After further fumigation, the vessel was cleared to load her next charter after a delay of two and a half months.

David Johnson QC and Edmund Broadbent (Richards Butler) for the shipper; Alistair Schaff (Bentley Stokes & Lowless) for the carrier.

Lord Lloyd said that the carrier claimed to be entitled to damages under Article IV, rule 6 of the Hague Rules, which provided that all damages and expenses directly arising out of the shipment of goods of "an inflammable, explosive or dangerous nature", to which the carrier had not knowingly consented, should be borne by the shipper.

The carrier had argued that a "dangerous" cargo included one which was physically dangerous to other cargo. The shipper had maintained that cargo was only dangerous within the meaning of Article IV rule 6 if it caused direct physical damage. The carrier's argument was, however, to be preferred.

Although prima facie liable to the carrier, the shipper claimed that its liability was limited by Article IV rule 3 of the Hague Rules, which provided that a shipper should only be liable for loss sustained by the ship or the carrier in case of some fault or neglect on its part. However, Article IV rule 6 imposed strict liablity on shippers in relation to the shipment of dangerous goods, irrespective of fault or neglect on their part.

The shipper had argued that, even if it were otherwise liable to the carrier, that liability had been divested when the property in the groundnuts had passed to the receivers by endorsement of the bill of lading. Whilst it was true that under section 1 of the Bills of Lading Act 1855 all rights passed to the holder of the bill on endorsement, the liabilities were not transferred: the holder of the bill became subject to the same liabilities as the shipper, by way of addition, not substitution. The 1855 Act had now been repealed, and the point at issue was now expressly covered by section 3(3) of the Carriage of Goods by Sea Act 1992.

- Kate O'Hanlon, Barrister