In What Circumstances The Shippers And Buyers Of Bulk Commodities May Become Liable Under The Bill Of Lading Contract Of Carriage For Damages Or Losses Caused By The Shipment Of Dangerous Goods
A potential liability in international commodity trade is the liability for the shipment of dangerous goods. Given that the Bill of Lading forms used in the commodity trade contain or incorporate charter party clauses providing for the settlement of disputes based on the English law1, the shippers and buyers of commodities may become liable under the Bill of Lading contract of carriage if their cargoes cause damage to or loss of the ships. The intermediate holders of the Bills of Lading do not remain liable under the contract of carriage after they endorsed over the Bills of Lading to the next buyers in the chain, but the shippers remain liable as the original party to the Bill of Lading contract of carriage, because the shippers` liability under the Bill of Lading does not pass by endorsement to the subsequent holders. The section 3(3) of the UK COGSA 1992 has the following provisions:
"This section, so far as it imposes liabilities under any contract on any person, shall be without prejudice to the liabilities under the contract of any person as an original party to the contract."
The provisions of section 3(3) of UK COGSA 1992 are similar to the provisions of section 1 of the Bills of Lading Act 1855. Based on this similarity, in the English law case Effort Shipping Company Ltd. v. Linden Management S.A. and Others (The "Giannis N.K.")2, Lord Lloyd of Berwick made the following comments:
"Whereas the rights under the contract of carriage were to be transferred, the liabilities were not. The shippers were to remain liable, but the holder of the bill of lading was to come under the same liability as the shippers. His liability was to be by way of addition, not substitution. […] [T]he shippers have not been divested of their liability for shipping dangerous goods by the operation of the Act of 1855. It is satisfactory that this conclusion accords with the recommendations of the Joint Law Commissions3, and that the result would have been the same under section 3(3) of the Carriage of Goods by Sea Act 1992."
Lord Hobhouse of Woodborough made a similar interpretation in The "Berge Sisar"4 case:
"How did endorsement affect the liabilities of the shipper? The answer was given in Fox v. Nott (1861) 6 H&N 630 and Smurthwaite v. Wilkins (1862) 11 CB (ns) 842. The endorser is not liable after he has endorsed over the bill of lading to another who is; the shipper remains liable as an original party to the contract. Two considerations seem to have weighed with the courts in these and the later cases. The words "subject to the same liabilities" were to be contrasted with the words "have transferred to him." The liability of the endorsee was to be additional to that of the original contracting party."
In the sales of bulk commodities the buyers at the end of the chain can become subject to liabilities under the Bill of Lading contract of carriage only if they become the lawful holders of the Bills of Lading and exercise their rights thereunder either by demanding delivery of the goods transported under the Bills of Lading or by making a claim against the carriers. If the buyers do not become the lawful holders of the Bills of Lading, they cannot be held liable under the Bills of Lading.
As regards the possibility that the buyers may become liable as Bill of Lading holders for loss or damage caused to ships by the dangerous cargoes, the drafters of the UK COGSA 1992 had made in their Joint Report5 the following comments:
"3.22 It was also suggested to us that special provision should be made so that the consignee or indorsee should never be liable in respect of loss or damage caused by the shipper`s breach of warranty in respect of the shipment of dangerous cargo. This is said to be a particularly unfair example of a retrospective liability in respect of something for which the consignee/indorsee is not responsible. However, we have decided against such a special provision. We do not think that liability in respect of dangerous goods is necessarily more unfair than liability in respect of a range of other matters over which the holder of the bill of lading has no control and for which he is not responsible, as for instance liability for loadport demurrage and deadfreight. Also, it may be unfair to exempt the indorsee from dangerous goods` liability in those cases where he may have been the prime mover behind the shipment. Furthermore, it is unfair that the carrier should be denied redress against the indorsee of the bill of lading who seeks to take the benefit of the contract of carriage without the corresponding burdens."
The practical importance of the English law provisions stating the conditions for the imposition of liabilities upon the Bill of Lading holders is that it give the carriers the possibility to recover from the Bill of Lading holders when it is not possible to start a legal action directly against the shippers.
Since the adoption of the UK Carriage of Goods by Sea Act in 1992, there have been several cases involving claims for liability under the Bill of Lading contract of carriage for the shipment of dangerous goods: two for damage to ships, The "Baltic Flame"6 and The "Berge Sisar"7, one for loss of a ship, The "Ythan"8. The common feature of these cases was that the shipowners sought to recover the losses incurred primarily from the commodity buyers due to the impossibility to bring legal actions against the shippers.
The carrier can either claim damages based on the common law obligation of the shippers not to ship a dangerous cargo or alternatively, an indemnity based on the art. IV Rule 6 of the Hague-Visby Rules.
In case of a claim for indemnity based on the art. IV Rule 6 of the Hague-Visby Rules the carrier has to prove that the provisions of art. IV Rule 6 are applicable in that case. In the English law case Mediterranean Freight Services Ltd. v. BP Oil International Ltd. (The "Fiona")9, Judge Diamond held that:
"What the carrier has to prove is: a) that the shipper shipped goods of an "inflammable, explosive or dangerous nature"; b) that neither the carrier, the master nor any agent of the carrier consented to the shipment of such goods with knowledge of their nature and character and c) that the carrier suffered damages or expenses "directly or indirectly arising out of or resulting from such shipment (i.e. from the shipment of the goods of the described class)"."
Judge Diamond held that the carrier`s right to an indemnity does not depend on whether the shipper knew of the dangerous nature and character of the goods or was at fault in permitting their shipment or not warning the carrier of their dangerous nature. Lord Lloyd of Berwick gave a similar opinion in Effort Shipping Company Ltd. v. Linden Management S.A. and Others (The "Giannis N.K.")10:
"[T]he liability of a shipper for shipping dangerous goods at common law, when it arises, does not depend on his knowledge or means of knowledge that the goods are dangerous."
What matters is whether the shipment of dangerous goods was a contributory cause of the loss.
The shippers and lawful holders of Bills of Lading can become liable for the ship`s damage or loss caused by the shipment of dangerous goods if the cargo that caused the damage to or loss of the ship had unusual characteristics/hazards and/or if the cargo that caused the damage to or loss of the ship was misdescribed and/or misdeclared in the shipping documents and/or charter party.
Liability For The Ship`s Damage Caused By The Cargo`s Unusual Characteristics/Hazards
The fact that many commodity cargoes possess potential hazards that may cause damage to or loss of the carrying ships does not mean that the carriers can always invoke the dangerous goods` liability of the shippers and/or consignees. The provisions of art. IV Rule 6 of the Hague-Visby Rules cannot be invoked by the carrier if the shipper proves that the carrier has received the cargo on board "with knowledge of their dangerous character"11.
In The "Athanasia Comninos"12 Mustill J. held that by contracting to carry goods of a specific description, the carrier consents to the presence in his ship of goods possessing the attributes of the goods so described and bears the risk of loss even if those attributes include the capacity to create dangers which the accepted methods of carriage are not always sufficient to overcome13.
In The "Athanasia Comninos" Mustill J. held that by issuing the Bills of Lading for the coal cargo the carrier accepted the risks known to be associated with the carriage of that type of coal. Those risks included the hazard that the methane emitted from the coal would combine with the air to create an explosive mixture14. Accordingly, the explosion which occurred in the ship`s hold was within the area of risk assumed by the carrier.
A prudent carrier must anticipate that a cargo declared as possessing hazards may become physically dangerous during the voyage. Since the IMO Codes describe the attributes which a commodity normally possesses, a prudent carrier ought to have the knowledge of such attributes15 and take the precautions necessary for safe carriage.
In seeking to determine the nature and characteristics of a hazardous cargo, the English Courts take into account the hazard history of the cargo and the relevant IMO Code provisions which ought to be known by a prudent carrier16.
If the cargo`s characteristics are not different from those listed in the IMO Codes, then the cargo would not be considered dangerous by the English Courts. If a physically dangerous cargo is properly described by the shipper and an accident occurs due to a known property of the cargo, then the carrier bears the risk of loss even if he had taken the precautions necessary for the carriage of cargo.
If, however, the cargo possesses hazardous characteristics of a different kind from what the carrier would anticipate from such cargo, then the cargo has unusual characteristics17. In The "Athanasia Comninos"18 Mustill J. established the rule that the carriers must prove that the unusual characteristics of the cargo in question created risks of a different kind from those which the carriers could expect to encounter. Mustill J. said that:
"the risks must be of a totally different kind (whether in nature or degree) from those attached to the carriage of the described cargo, before shipment of the particular cargo can be regarded as a breach of duty19."
In the claims for ship`s damage or loss caused by the cargo`s unusual characteristics, the English Courts try to determine whether the shipper`s description of cargo in the Bills of Lading along with the cargo information provided in the declaration submitted before shipment constituted proper notice about the cargo`s potential hazards. If the carrier proves that the unusual hazard was a cause of the loss or that the cargo created risks which he did not contract to bear, he can succeed in a legal action against the shipper under the Bill of Lading contract of carriage and possibly even against the consignee.
If a commodity shipment has unusual characteristics/hazards, this is something which the shippers should know20. In case of coal, the mining companies should know the coal dangerous characteristics and warn the port operators and carriers. There is a similar obligation in case of all hazardous bulk cargoes.
An example of case where the ship`s damage was caused by the cargo`s unusual characteristics was Mediterranean Freight Services Ltd. v. BP Oil International Ltd. (The "Fiona")21.
In that case, BP had shipped on board the vessel "Fiona" a cargo of fuel oil for the carriage to New York. BP had discovered before the shipment that a change in refinery methods was producing a fuel oil which could give off substantial quantities of explosive gas. It had not however given the shipowner this information before loading the cargo.
The fuel oil cargo shipped on board the vessel "Fiona" was a blend of two types of residual fuel oils that had the greatest propensity to produce hydrocarbon gases in amounts exceeding the lower explosive limit at temperatures below the flashpoint of the cargo. At discharge port the fuel oil cargo exploded causing damage to the ship.
The shipowner blamed the shipper BP for the ship`s damage and started a legal action to recover the loss from BP. The shipowner`s claim was based on the following allegations:
-that the ship carried previously fuel oil cargoes with no problem;
-that the fuel oil cargo shipped by BP was dangerous on the grounds that it had a propensity known to BP but not to the shipowner or to other shipowners to produce light hydrocarbon vapours which could and did give rise to an explosive atmosphere in the vessel`s tanks;
-that the shipowner did not consent to the shipment of the cargo with knowledge of its nature and character and that the explosion and the loss resulting from it arose from such shipment.
Based on the evidence provided by the experts` reports, Judge Diamond, Q.C., held that the fuel oil cargo had dangerous characteristics which were wholly different from those commonly associated with fuel oil cargoes by the fact that no special precautions would have been considered necessary by a prudent owner provided that the flashpoint of the cargo was over 60 degrees Celsius and it was not carried within 10 degrees Celsius of that flashpoint.
The shipment by BP of fuel oil in circumstances where the shipowner did not know of its flammability hazard and could not reasonably be expected to become aware of it, had the result that precautions have not been taken to guard against that hazard which might have been taken had the nature of the problem been made known to the shipowner before or at the time of shipment.
Cases of claims for ship`s damage caused by the cargo`s unusual characteristics were also reported in LPG trade.
In April and May 1986 a series of consecutive shipments of propane made by Kuwait Petroleum Corporation from Mina Al-Ahmadi terminal in Kuwait turned out to be off-specification upon arrival at discharge ports because of contamination with sulphur compounds.
The history repeated in October and November 1993 with a number of propane cargoes shipped by Saudi Aramco from Yanbu terminal in Saudi Arabia.
In all those propane contamination cases the sulphur compounds caused corrosion to ship`s tanks and the shipowners incurred time and expense to remove the rust scale and clean the ship`s tanks in order to be fit to receive the next cargoes.
The investigations made in 1993 by SGS surveyors and CWA`s chemical experts revealed that the ship`s cargo tank walls were contaminated with elemental sulphur and that the contamination occurred due to the unusual characteristics of the cargo and the various reaction possibilities of the sulphur compounds.
The sulphur compounds are normally eliminated by the desulphurisation processes during the LPG production provided that these processes are functioning well.
The experts found that this was not the case at Saudi Aramco`s Yanbu refinery in 1993.
In the opinion of Mr. David Robert Jones, one of the chemical experts that investigated the propane contamination on board the ship "Baltic Flame" at the origin of contamination was a defect in the production cycle, the most probable in the Merox/dehydration units of the refinery which are located last on the propane stream before the propane is liquefied and refrigerated for storage and transportation. The experts were of the opinion that this defect allowed the carry-over of hydrogen sulphide from the production process to the vessel and the formation and carry-over of polysulphides.
In the article "Copper Corrosion Contamination in LPG Transportation" submitted at Gastech 1996, SGS surveyors Gerrit Vermeiren and D. Beernaert explained that:
"the molecular structure [of Polysulphides] either may grow or decompose to respectively heavier or lighter Polysulphides with the absorption or release of Elemental Sulphur […] Propane containing Polysulphides can meet the required specifications for Copper Corrosion [at time of shipment]. However, once the Polysulphides decompose in lower Polysulphides and Elemental Sulphur, this Elemental Sulphur will turn the Propane off-specification for Copper Corrosion. […] Besides the contamination of the Propane cargo by the decomposition of the Polysulphides, the low solubility of the Elemental Sulphur in Propane and the tendency of this Elemental Sulphur to migrate to the cargo tank material will cause a serious contamination of the cargo tank surface of the gas carrier."
The experts investigation reports revealed that Yanbu terminal procedures for the verification of the condition of cargo were inadequate and insufficient to determine the presence of sulphur compounds. In the opinion of CWA`s experts, "the presence of these "contaminants" was not noted during loading because the load port analysis, which is performed unilaterally by the shippers, is inadequate to properly describe the sulphur compounds which are present."
The shipowners blamed the charterers and shipper Saudi Aramco for the damage caused by the propane cargoes to their vessels. In The "Baltic Flame"22 and The "Berge Sisar"23 cases, the shipowners brought claims also against the intended receivers. The shipowners` claims were based on the allegations that apart from the voyages with propane cargoes shipped by Saudi Aramco their vessels had regularly carried propane without any problem or complaint and that the propane cargoes shipped by Saudi Aramco had damaged the carrying vessels` tanks due to their unknown propensity to corrode, reason for which those propane cargoes could be considered dangerous.
In The "Berge Sisar"24 case the claim failed due to the fact that the intended receivers Borealis AB did not actually exercise the right of control over the cargo by presenting the Bills of Lading and nominating the port of discharge and/or by requesting delivery of the cargo. The Bills of Lading stated the destination as “one or more safe ports Netherlands”, but they were issued in paper form and it took more time for the sellers and buyers in the chain to transfer the Bills of Lading from one to another than for the vessel to sail from Yanbu terminal, in Saudi Arabia to Stenungsund terminal, in Sweden so that Stenungsund terminal was nominated by the voyage charterers. Upon the ship`s arrival at Stenungsund terminal, the intended receivers rejected the cargo and re-sold it to Dow Europe in Holland on CIF Terneuzen terms, at a discount price. Following the rejection of cargo by Borealis, the charterers gave instructions to the vessel to carry on the cargo from Stenungsund terminal, in Sweden, to Terneuzen terminal, in Holland and discharge there the cargo against the charterers` letter of indemnity. The cargo was discharged at Terneuzen terminal between 17th and 24th November 1993. The Bills of Lading were endorsed and forwarded to Borealis on 18th January 1994 and then by Borealis to Dow Europe on 20th January 1994, that is, long after delivery of the cargo. The company Borealis AB was just an intermediate holder of the Bills of Lading who endorsed over the Bills of Lading to the next buyers in the chain, Dow Europe. After the endorsement of the Bills of Lading to Dow Europe on 20th January 1994, it was no longer be subject to the liabilities under the contracts of carriage. The only company which would have become liable under the provisions of section 3(1)(c) of COGSA 1992 was Dow Europe which took delivery of the cargo and then became the lawful holders of the Bills of Lading.
In The "Baltic Flame"25 case Petroleo Brasiliero S.A. brought two legal actions as lawful holders of the Bills of Lading against the shipowner Mellitus Shipping Inc. for the cargo contamination. The shipowner counterclaimed based on the experts` investigation report for the ship`s tanks cleaning costs arguing that the propane cargoes were contaminated before shipment and by making claims under the contracts of carriage as lawful holder of the Bills of Lading, Petroleo Brasiliero S.A., became liable under the contracts of carriage contained therein for the loading of a dangerous cargo. Although the case was ultimately settled by mediation out of Court, it remained a good example of how the shippers` fault can give rise to dangerous goods` liability to the commodity buyers.
Liability For The Ship`s Damage Or Loss Caused By Misdescription And Misdeclaration Of Cargoes
The casualties` and incidents` investigation reports revealed that the hazardous bulk cargoes are often misdescribed and misdeclared in the shipping documents and charter parties.
The shippers and consignees can become liable in case of ship`s damage or loss caused by wrongly described cargoes or by the shippers` failure to give proper warning about the hazards which the carrier cannot reasonably foresee.
If the carrier is able to gather evidence that the cargo that caused the ship`s damage or loss was not what the shipper described in the Bill of Lading or declared before shipment, he can recover the loss through a claim against the shipper and possibly even against the consignee.
In case of a claim for damages or losses caused by a dangerous cargo, the carrier has to prove that the misleading description of cargo or incorrect declaration was a contributory cause of the damage/loss, since it denied the carrier`s opportunity to take the precautions necessary for the safe carriage.
An example of such case was the foundering of the ship "Thor Emilie" in February 2000. The vessel "Thor Emilie" chartered to carry a cargo of "Oxyde Zinc Ore" was instead loaded with "Zinc Skimmings". The shipper declared before loading that the cargo was not dangerous.
The casualty investigators concluded in their report that the false description of the cargo of Zinc Skimmings as "Oxyde Zinc Ore" in charter party has been a "decisive contributory cause". Based on that description, the Master could not anticipate that during the voyage the cargo would generate so much hydrogen in the cargo hold that led to explosion.
The ship "Thor Emilie" had been fully seaworthy if the cargo had been harmless. However, the ship did not meet the necessary requirements for the carriage of "Zinc Skimmings", neither in construction nor in equipment26.
Another example is the English law case, Micada Compania Naviera S.A. v. Texim27.
In that case a vessel chartered to carry "iron ore" was instead loaded with a cargo of "iron ore concentrate" that had a moisture content higher than that declared by the shippers and higher than the transportable moisture limit. A couple of days after the ship departed from the loading port, the cargo liquefied and the ship had to deviate to a port of refuge. The shipowners sought to recover the costs incurred to discharge, treat and reload the cargo and costs for the time lost thereby.
The English Court held that the misdeclaration of moisture content created a danger for the vessel that the Master could not have foreseen and therefore, the cargo was dangerous.
Shipping casualties and incidents attributed to misdeclaration and misdescription of ores and mineral concentrates continue to be reported to this day. The commodities involved were Zinc Concentrate, Iron Ore Concentrate, Iron Ore Fines, Coal and Nickel Ore. Common to all these commodities is their propensity to liquefy if shipped with a moisture content in excess of their transportable moisture limit.
The casualties` and incidents` investigation reports revealed that there had been cases when no information regarding the characteristics of the cargo had been provided by the shippers to Masters28 or the shippers provided inaccurate information29.
Of the above-mentioned commodities, for "iron ore fines" there were no specific guidelines in the IMSBC Code at the time when the shipping casualties and incidents were reported30.
Nonetheless, the sub-section 7.2.4 of the 2004 Edition of BC Code applicable at the time provided that:
"Cargoes, which contain a certain proportion of small particles and a certain amount of moisture may liquefy31."
In other words, cargoes containing a large quantity of fine particles and a high moisture content are prone to liquefaction and therefore, they should be tested by the shippers as advised in the Appendix 1 of the IMSBC Code.
The IMSBC Code requirement for the provision of certificates of moisture content and transportable moisture limit by the shippers is intended to be applicable to all commodities which may liquefy regardless of whether they are specifically identified or not in the IMSBC Code as posing a liquefaction risk.
It is thought that the Indian and Indonesian shippers misdescribed the iron ore fines cargoes as "iron ore" in order to avoid the IMSBC Code requirement for the provision of certificates of moisture content and transportable moisture limit.
There had also been cases when it was found that the shippers declared an inaccurate moisture content and cases when the shippers declared an inaccurate transportable moisture limit. In the former cases the cargoes that liquefied during the sea carriage were shipped from open stock piles that did not have protection against rain. The rain fallen between the time of cargo sampling and loading increased significantly the moisture content of cargo, so that the analysis of cargo samples had as result an inaccurate moisture content. In those cases the Masters could not determine how much rain had fallen at the loading terminal between the time of cargo sampling and loading and what effect the rain fallen would have on the cargoes` moisture content.
Shipping casualties and incidents attributed to the incorrect declaration of cargo were also reported in the sea carriage of coal.
There is a wide range of coal products that are shipped on board by the vessels for carriage by sea.
The shippers of coal describe their cargoes in the Bills of Lading in function of the commercial use of the coal product in question.
The coal described as "steam coal" or "steam non-coking coal" is used in boilers in electric generating plants to produce steam for electricity generation.
The coal described as "metallurgical coal" is used as a feedstock in the production of coke which is then used in steel production as a fuel and reducing agent to smelt iron ore in a blast furnace.
However, the trade names of coal products do not have any relevant meaning for the carriers, since such descriptions do not say anything about the characteristics and potential hazards of coal cargoes32.
In the English law case The "Athanasia Comninos"33 the cargo was described in the Bills of Lading as “DEVCO 2XO Steam Coal”. The Court held that if the coal so described had any special characteristics, this was not common knowledge and the carrier did not consent to take any additional risks created by these characteristics, simply by including that description in the contract of carriage.
Each coal product has its own characteristics.
The coal cargoes containing a large quantity of fines may liquefy. The IMSBC Code stipulates that coal cargoes containing 75% particles less than 5 mm should be declared as Group A cargo.
There are also coals, particularly lower rank coals, which may emit methane and coals that may self-heat spontaneously.
Due to coals` range of properties which the mining companies should be aware of, the shippers have the obligation to provide before loading a cargo declaration in which to mention the cargo`s characteristics so that the ship`s Master to take the precautions necessary for the safe carriage of cargo34.
In case of ship`s damage caused by the shippers` failure to adequately warn the carrier, the shippers and possibly even the consignees can be held liable for the carrier`s financial loss.
An example of such case is the US law case Boykin v. Bergesen DY A/S35.
In that case US Steel sold a cargo of coking coal to China Steel basis FOB Hampton Roads, Norfolk terms. The cargo was shipped on board the vessel "Berge Charlotte" chartered by the buyers China Steel from the shipowners Bergesen.
The shipper declared that the coal cargo was a type of coal that did not pose problems with methane emission. Because for the sea carriage of that coal type there was no requirement in the BC Code for ventilation, the ship`s Master did not ventilate the cargo holds continuously.
In fact, the coal cargo in question was a type of coal that emitted methane gas for a long period of time after being mined. In the absence of continuous ventilation of cargo holds, the methane emitted by the coal cargo accumulated in the ship`s holds exploded causing damage to the ship and the death of Master and four crew members.
The shipowners found evidence that the shippers knew that their coal could emit dangerous levels of methane for a long period of time after being mined and they knew that the coal cargoes could emit methane after being loaded in the ship`s holds. An internal memo within the shippers` organisation contained the recommendation that the coal must be continuously ventilated during the carriage on board the ships.
The US Court held that the internal memo created a duty on the part of the shippers to make known the special propensities of the coal cargo to shipowners and their masters. The shippers` failure to warn the shipowner about the cargo`s special characteristics was the proximate cause of the cargo explosion on board and the damage to the vessel.
Shipping casualties and incidents attributed to cargo misdeclaration and misdescription were also reported in the sea carriage of DRI Fines (Direct Reduced Iron Fines) and HBI Fines (Hot Briquetted Iron Fines).
DRI Fines are produced during the Direct Reduced Iron production process, while HBI Fines are produced during the Hot Briquetted Iron production process.
DRI Fines and HBI Fines are commodities in high demand in the international trade due to their commercial value for steel making. These commodities are sold to international buyers under various trade names: "Direct Reduced Iron Briquettes, Hot-moulded, Fines (from HBI Production and handling process)", "DRI Fines 1", "Direct Reduced Iron, hot-moulded, fines", "Venezuelan Iron Concentrate Material Unsifted", "HBI Fines", "Metallized Fines", "Hot Briquetted Iron Fines", "Metallic (HBI) Fine", "HBI Metallized Fines"36. The cargoes of DRI Fines and HBI Fines are also described in the shipping documents as "Settling Pond Fines", "Sedimentation Fines", "Quench Tank Fines", "HBI Process Fines", "HBI Fines & Chips", "Fines & Chips", "HBI Chips", to indicate how the fines were generated during the production process. For instance, the dust particles that precipitate from the process gas through the Classifier and Settling Pond are referred to as "Settling Pond Fines", the fines and chips generated after the briquettes are mechanically screened are referred to as "HBI Fines & Chips" or as “Fines & Chips"37.
Mixtures of HBI and DRI by-products with iron ore fines or fines obtained from the steel manufacturing process (i.e. mill scale) are also shipped. These mixtures are sold to international buyers under various descriptions that do not include the terms "DRI", e.g. "re-oxidised iron fines", "iron fines (blend)", "iron ore pellet chips", "oxide fines", "pond fines", "sludge fines", "remets", "clarifier slush and dust", "spent iron fines" and "lodos". The investigation of ship casualties and incidents involving these cargoes revealed that they were misdescribed in charterparties and Bills of Lading as "iron ore" and "iron ore fines"38 and that the cargo blends had a higher proportion of DRI Fines than those declared by the shippers39.
An example of such case was the cargo shipped on board the vessel "Karteria" in August 1999 at Convent Louisiana, in US. The cargo was described in charter party as "iron ore in bulk" and in the Bill of Lading as "iron ore fines". During the sea carriage, explosions occurred in two of the cargo holds due to the accumulation of hydrogen generated by the cargo, which could not have been the case with a cargo of iron ore fines. The analysis of cargo samples taken during discharge by the surveyors investigating the incident revealed that only 40% of the cargo were "iron ore fines". The remaining 60% of the cargo were DRI Fines.
Similarly to DRI Fines, the cargoes of HBI Fines are capable of generating overnight great volumes of hydrogen, much greater than the Hot Briquetted Iron40. This unknown hazard caused a series of casualties and incidents on board the vessels that loaded cargoes of HBI Fines from Venezuela.
The cargo shipped on board the vessel "California" in August 2003 at Palua, Venezuela, exploded during the voyage causing damage to vessel and injuries to two crew members.
The cargo shipped on board the vessel "Swift Fair" in January 2004 at Palua, Venezuela, put the vessel in danger due to the excessive generation of hydrogen.
The cargo shipped on board the vessel "Ythan" in February 2004 at Palua, Venezuela, exploded during the voyage causing the sinking of vessel and the death of Master and five crew members.
The cargo shipped on board the vessel "California" was described in the Bills of Lading as "HBI Fine", the cargo shipped on board the vessel "Swift Fair" was described in the Bills of Lading as "Venezuelan Comsigua41 Metallized Fine (HBI) in Bulk" and the cargo shipped on board the vessel "Ythan" was described in the Bills of Lading as "Metallic HBI Fines Orinoco Iron "Remet", Material Unsifted". In The "Ythan" case, the investigation of the casualty revealed that the cargo was actually a mixture of Hot Briquetted Iron and Direct Reduced Iron Fines42.
The shipowners blamed the charterers Primetrade AG and the shippers Comsigua and Orinoco Iron for the damage/loss to the vessels caused by the cargoes. The shipowners contended that by describing the cargoes as "HBI Fines" the charterers and shippers induced the Masters in error as to the precautions necessary to be taken for carriage because the HBI Fines have properties closer to DRI rather than HBI and should have been carried under inert conditions rather than natural or mechanical ventilation as recommended by the shippers. For Hot Briquetted Iron, which pose a lesser hazard than Direct Reduced Iron, the carriage under inert gas blanket was not required in the BC Code (the previous edition of IMSBC Code).
At the time of the incidents there were no guidelines in the BC Code for the carriage of Hot Briquetted Iron and Direct Reduced Iron cargoes consisting of fines43 and small particles. The BC Code provided only that the cargoes of Hot Briquetted Iron and Direct Reduced Iron cargoes should not contain more than 5% of fines.
In case of cargoes not listed in the IMO Codes, the carriers and ships` Masters rely on the shippers for the provision of information about the cargo and proper instructions for carriage.
In The "Ythan" case the shipper`s instructions faxed to the Master stated specifically that:
"Orinoco Iron Remet Fines to be loaded on your vessel are safe to transport without the use of Inert Gas or other special precautions44."
Unscientific cargo description and wrong instructions for carriage were misleading for the Masters of the ships "California", "Swift Fair" and "Ythan". In the English law, if the shipper does not provide adequate instructions he will be liable in case of damages or losses caused by a cargo not listed in the IMO Codes. The fact that the shipper was unaware at the time of shipment of the potential dangers or peculiar characteristics is irrelevant45.
It is thought that the reason why the shippers and commodity traders misdeclared and misdescribed the cargoes of DRI fines as "iron ore" and "iron ore fines" and the cargoes of HBI fines as "HBI" was to avoid the higher freight costs imposed by the necessity to comply with the IMSBC Code requirements for the carriage of DRI products. The IMSBC Code requirements for the carriage of Direct Reduced Iron under an inert gas blanket made the carriage of DRI Fines and HBI Fines much more expensive than the carriage of iron ore, iron ore fines or hot briquetted iron.
In a Circular issued in December 2012, the International Group of P&I Clubs recommended that the cargo blends containing DRI Fines should be declared and described by the shippers using the Bulk Cargo Shipping Name of "DRI(C) By-product fines" and that such cargoes be carried under inert conditions in accordance with the IMSBC Code provisions46.
Following the ship "Ythan" casualty, the SOLAS Convention was amended to include the following provisions:
"In all documents relating to the carriage of dangerous goods in solid form in bulk by sea, the bulk cargo shipping name of the goods shall be used (trade names alone shall not be used)."
Similar provisions were included in the IMSBC Code in the Section 1 Chapter VII Regulation 7-2. Furthermore, in the Section 4 of the IMSBC Code were included the following provisions:
"4.1.1. Each solid bulk cargo in this Code has been assigned a Bulk Cargo Shipping Name (BCSN). When a solid bulk cargo is carried by sea it shall be identified in the transport documentation by the BCSN. The BCSN shall be supplemented with the United Nations (UN) number when the cargo is dangerous goods. […]
4.1.3. Correct identification of a solid bulk cargo facilitates identification of the conditions necessary to safely carry the cargo and the emergency procedures, if applicable."
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Coal Trade Review Edition No. 1.
Endnotes:
1. There are also Bill of Lading forms providing for the settlement of disputes in Singapore based on the Singapore law but since the Singapore Bills of Lading Act is based on English COGSA 1992 the issues are equally applicable whether English COGSA or Singapore Bills of Lading Act apply.
2. [1998] UKHL 1
3. See the paragraph 3.24 of the Joint Report of the Law Commission and the Scottish Law Commission, "Rights of Suit in respect of Carriage of Goods by Sea" (Law Com No. 196; Scot Law Com No. 130), HC 250, 1991.
4. See Borealis AB v. Stargas Ltd. & Ors, [1998] EWCA Civ. 1337, [1998] 4 All ER 821; See Borealis AB v. Stargas Limited and Others and Bergesen D.Y. A/S [2001] UKHL 17; [2001] 2 All ER 193; [2001] 1 Lloyd`s Rep. 663.
5. The Joint Report of the Law Commission and the Scottish Law Commission, "Rights of Suit in respect of Carriage of Goods by Sea" (Law Com No. 196; Scot Law Com No. 130), HC 250, 1991.
6. See Petroleo Brasiliero S.A. and Others v. Mellitus Shipping Inc. (The "Baltic Flame"), [2001] EWCA Civ 418; [2001] 2 Lloyd`s Rep. 203.
7. See Borealis AB v. Stargas Ltd. & Ors, [1998] EWCA Civ. 1337, [1998] 4 All ER 821; See Borealis AB v. Stargas Limited and Others and Bergesen D.Y. A/S [2001] UKHL 17; [2001] 2 All ER 193; [2001] 1 Lloyd`s Rep. 663.
8. [2005] EWHC 2399 (Comm); [2006] 1 Lloyd`s Rep. 457.
9. [1993] 1 Lloyd`s Rep. 257
10. [1998] UKHL 1
11. See The "Athanasia Comninos", [1990] 1 Lloyd`s Rep. 277
12. [1990] 1 Lloyd`s Rep. 277
13. For a similar opinion see General Feeds Inc. v. Burnham Shipping Corporation (The "Amphion"), [1991] 2 Lloyd`s Rep. 101. "If there is a known risk of danger to the ship, which cannot be altogether avoided by strict compliance with the rules of safe carriage, then by agreeing to carry goods of that description the shipowner may be held to have accepted that risk for himself."
14. This is not necessary the case with all coal cargoes. Not all coals emit methane during the carriage.
15. See the paragraph 152 of the English law case Compania Sud Americana De Vapores S.A. v. Sinochem Tianjin Import And Export Corporation (The "Aconcagua"), [2009] EWHC 1880 (Comm)
16. See the English law case Compania Sud Americana De Vapores S.A. v. Sinochem Tianjin Import And Export Corporation (The "Aconcagua"), [2009] EWHC 1880 (Comm)
17. See The "Athanasia Comninos", [1990] 1 Lloyd`s Rep. 277
18. See The "Athanasia Comninos", [1990] 1 Lloyd`s Rep. 277
19. In The "Athanasia Comninos", [1990] 1 Lloyd`s Rep. 277, the excessive gasiness of the coal cargoes in question was not deemed sufficient to create new hazards.
20. See The "Athanasia Comninos", [1990] 1 Lloyd`s Rep. 277
21. (CA) [1994] 2 Lloyd`s Rep. 506
22. Petroleo Brasiliero S.A. and Others v. Mellitus Shipping Inc. (The "Baltic Flame"), [2001] EWCA Civ 418; [2001] 2 Lloyd`s Rep. 203.
23. Borealis AB v. Stargas Ltd. & Ors, [1998] EWCA Civ. 1337, [1998] 4 All ER 821; Borealis AB v. Stargas Limited and Others and Bergesen D.Y. A/S [2001] UKHL 17; [2001] 2 All ER 193; [2001] 1 Lloyd`s Rep. 663.
24. Borealis AB v. Stargas Ltd. & Ors, [1998] EWCA Civ. 1337, [1998] 4 All ER 821; Borealis AB v. Stargas Limited and Others and Bergesen D.Y. A/S [2001] UKHL 17; [2001] 2 All ER 193; [2001] 1 Lloyd`s Rep. 663.
25. Petroleo Brasiliero S.A. and Others v. Mellitus Shipping Inc. (The "Baltic Flame"), [2001] EWCA Civ 418; [2001] 2 Lloyd`s Rep. 203.
26. See IMO document DSC/Circ. 10/10 March 2003 – "Incidents Reports Involving Dangerous Cargoes – Zinc Skimmings".
27. [1968] 2 Lloyd`s Rep. 57
28. See MARS Report No. 200923/2009, MARS Report No. 200842/2008, MARS Report No. 94016/1994
29. See MARS Report No. 95001/1995
30. Between 2007 and 2010.
31. See Section 7 of IMSBC Code Regulation 7.2.1.
32. See the US law case Boykin v. Bergesen DY A/S, 835 F. Supp. 274 – District Court, ED Virginia 1993. "Pinnacle [coal] is only a brand name and the shipper must look to the type of coal, not simply the brand name it attaches to its particular product."
33. [1990] 1 Lloyd`s Rep. 277
34. See the US law case Ente Nazionale Per L`Energia Electrica v. Baliwag Navigation, Inc., 774 F.2d 648, 655 (4th Cir. 1985). Due to the dangerous nature of coal cargoes, the shippers of coal have the duty to ascertain the true nature and characteristics of their cargo and to warn the ship`s Master of the foreseeable hazards inherent in the cargo of which the ship`s Master cannot reasonably be expected to be aware.
35. 835 F. Supp. 274 – District Court, ED Virginia 1993
36. See the IMO document DSC 12/INF. 4 at www.imo.org
37. See the report "Hazards and risks associated with the carriage of Direct Reduced Iron (A) Briquettes, hot-moulded Fines" submitted by Venezuela at the 11th session of the Sub-Committee on Dangerous Goods, Solid Cargoes and Containers – IMO document DSC 11/4/3.
38. See the IMO document DSC 16/5/6 at www.imo.org
39. See the IMO document DSC 13/4/5 at www.imo.org
40. See the IMO document DSC 10/17 – par. 4.15 at www.imo.org
41. Comsigua and Orinoco Iron were the name of producers.
42. See "Ythan" casualty report in IMO document MSC 79/12/1 at www.imo.org. Due to the numerous incidents caused by the cargo blends containing DRI Fines, France proposed at IMO that the inclusion of DRI Fines in homogenous cargoes of briquettes or pellets should be prohibited. See IMO document DSC 11/6/6 – "Total loss of the bulk carrier "Adamandas"".
43. For HBI and DRI, “fines” are defined in the IMSBC Code as particles up to 6.35 mm in size.
44. See "Ythan" casualty report in IMO document MSC 79/12/1 at www.imo.org
45. See the English law case Effort Shipping Company Ltd. v. Linden Management S.A. and Others (The "Giannis N.K."), [1998] UKHL 1
46. Following the incidents involving cargoes of HBI Fines shipped from Venezuela, the commodity “DRI Fines" was individually classified in the IMSBC Code under the Bulk Cargo Shipping Name of Direct Reduced Iron (C) (By-product fines) with the requirement to be carried under inert conditions. The IMSBC Code carriage requirements for DRI Fines are equally applicable to the cargoes of HBI Fines.