Monarch Steamship Co Ltd v Karlshamns Oljefabriker A/B

A carrier’s breach of its obligation to provide a seaworthy vessel may remain an effective cause of loss where the resulting delay exposes the voyage to a foreseeable intervening event, including wartime restraint. The event does not necessarily break the chain of causation or permit reliance on a contractual exception.

Damages may include the reasonable cost of forwarding cargo to the contractual destination. Such expenditure arises naturally from the failure to deliver and restores the injured party to the position which performance would have produced. It is not special or remote merely because the carrier did not know the cargo’s intended commercial use.

The appellants contracted to carry a cargo of soya beans from Rashin to a nominated European port. Karlshamn was nominated. The vessel was unseaworthy when she sailed, and boiler defects caused substantial delay and diversions for repairs.

War began while the delayed vessel was still en route. Acting under Admiralty orders and a war risks clause, the vessel discharged at Glasgow. The respondents, as endorsees of the bills of lading, incurred reasonable expense forwarding the cargo to Karlshamn.

The Lord Ordinary awarded the forwarding costs as damages. The First Division of the Court of Session affirmed that decision. The central questions were whether the unseaworthiness legally caused the diversion, whether the war clause, frustration or illegality protected the owners, and whether the forwarding costs were recoverable rather than too remote.

1. Appeal dismissed unanimously. Lord Porter, Lord Wright, Lord Uthwatt, Lord du Parcq and Lord Morton of Henryton concluded that the respondents could recover the reasonable cost of forwarding the cargo from Glasgow to Karlshamn.

2. Per Lord Porter, with Lord Uthwatt, Lord du Parcq and Lord Morton agreeing in substance, the delay caused by initial unseaworthiness was legally attributable to the owners. In the European circumstances prevailing when the contract was made, a reasonable shipowner should have foreseen war and the corresponding danger that delay would bring the voyage within an embargo or diversion order. The Malcolm Baxter was distinguishable because the governmental prohibition there was not reasonably foreseeable.

3. Per Lord Wright, causation does not depend upon temporal proximity. Unseaworthiness must be an effective cause of the loss, but it may operate with an immediate peril or human act. The defective boilers caused the delay which exposed the vessel to the Admiralty order. The unseaworthiness could therefore be identified as the dominant cause, notwithstanding the later restraint.

4. Per Lord Wright, the owners could not rely on the war risks exception, frustration or supervening illegality where their own breach caused the circumstances which brought those matters into operation. Frustration assumes an event arising without fault; self-induced frustration affords no defence.

5. Per Lord Wright and Lord du Parcq, the forwarding expense arose naturally and directly from the failure to deliver at the agreed destination. The ordinary compensatory principle required a sum placing the injured party in the position which contractual performance would have produced. The expense was general damage within the first limb of Hadley v Baxendale, rather than special loss requiring communication of the respondents’ intended use.

6. Per Lord Porter and Lord Wright, the shipper was entitled to insist upon delivery at the stipulated destination and was not bound to accept an unwanted sale at Glasgow merely because a comparable price was obtainable there. The rights transferred with the bills of lading included rights arising from breaches committed during the voyage. There was no rule of law excluding damages resulting from delay in sea carriage.

1. House of Lords: Dismissed the shipowners’ appeal and affirmed the award of £21,634 7s 4d as damages.
2. First Division of the Court of Session: On 6 December 1946 affirmed the Lord Ordinary’s interlocutors.
3. Lord Ordinary: By interlocutors dated 6 and 14 May 1946, found the vessel unseaworthy and awarded the respondents £21,634 7s 4d for breach of the contracts contained in the bills of lading.