Defence Guides Clause paramount in a nutshell Introduction: Delivering the vessel to satisfied. The duty would only be what is a clause paramount? charterers at the beginning satisfied if due diligence is shown by of the charterparty: how does every person to whom any part of the A clause paramount incorporates the work has been entrusted, whether United States Carriage of Goods by the incorporation of a clause paramount affect owners’ rights employees, agents or independent Sea Act or the Hague/Hague Visby contractors (see The Muncaster Castle and obligations? Rules (“the HV Rules”) into a contract. [1961] 1 Lloyd’s Rep 57). Although the HV Rules were designed a. The condition of the vessel: an The replacement of the absolute to regulate the legal relationship absolute obligation vs due diligence between carriers and shippers, and the warranty of seaworthiness by same would usually be found in the Under English common law, the an obligation to exercise due reverse sides of bills of lading, the HV obligation on ship owners is to diligence relieves ship owners from Rules can also be incorporated into provide a seaworthy ship. This is responsibility for latent defects in the charterparties. unconditional and, on delivery of ship. For example, ship owners will be the vessel to charterers, owners will protected against defects which could For instance, a clause paramount can usually be liable, irrespective of fault, not be discovered by the ship owner or be found in the NYPE time charter for any breach of the undertaking. by competent experts exercising due form. As for voyage charterparties, diligence. (See The Muncaster Castle However, when a clause paramount such clauses are in the Asbatankvoy, [1961] 1 Lloyd’s Rep 57). Under most incorporates the HV Rules into a Baltimore 1976, Amwelsh 1993 and charterparty forms, a ship has to be charterparty, ship owners are only in Norgrain 1989 forms. delivered, ready to receive cargo with breach of their duty if they fail, for clean swept holds which are “tight, Provided that the charterparty (either example, to exercise due diligence to staunch, strong, and in every way voyage or time charterparty) makes make the ship seaworthy before and at fitted for the service”. This is a strict it clear that the parties intended to the beginning of the voyage. (see The obligation. Thus, the ship owner is in incorporate a clause paramount into Fjord Wind [2000] 2 Lloyd’s Rep 191). the charterparty, the English courts breach if the vessel is not “in every will give effect to that intention, even b. Under a clause paramount, way fitted for service”, regardless of though this may involve manipulating how strict is owners’ obligation any fault on his part. of due diligence? the wording of the clause paramount However, as mentioned above, with the and even though it may mean that The notion of exercising due diligence incorporation of the clause paramount, some of the terms referred to in the entails two basic requirements. the absolute duty is converted to one clause paramount have to be ignored Firstly, ship owners must carry of merely exercising due diligence to (see The Saxon Star [1959] AC 133). out any inspections, repairs or make the ship seaworthy for loading other preparations which, in the and the cargo-carrying voyage. circumstances, a skilled and prudent For example, if the vessel’s cranes ship owner would reasonably carry out break down on delivery and the to ensure that the ship is seaworthy. charter does not include a clause Secondly, any work in fact carried out paramount, the owner will be in must be done with reasonable skill, breach, regardless of fault. If the care and competence (see Union of charter contains a clause paramount, India v Reederij Amsterdam [1963] the owner may be able to defend a 2 Lloyd’s Rep 223). claim from the charterers if he can Engaging competent contractors to demonstrate that he exercised due perform the necessary work does diligence to comply with his obligation not mean that ship owners’ duty to make the vessel “in every way fitted to exercise due diligence has been for service”. Defence Guides c. Under a clause paramount, do owners d. Does the clause paramount vary During the charterparty: how have to exercise due diligence at the the ship owner’s obligations when does the incorporation of a beginning of each voyage or just at tendering an NOR? clause paramount affect owners’ the beginning of the charter? Ship owners should note that the rights and obligations? Under time charters with consecutive presence of a clause paramount in a. Obligation to maintain the ship voyages, there is no obligation of a charterparty does not affect the seaworthiness at the beginning of requirements for tendering a valid As noted in 2) a) and c) above, the each voyage under the charter. The notice of readiness (“NOR”) (For more incorporation of a clause paramount obligation of seaworthiness only exists on NOR, please refer to our Notice into a time charter converts owners’ at the beginning of the charter when of readiness in a nutshell defence absolute obligation of seaworthiness the ship is delivered. However, if the guide. Therefore, even if due diligence when the ship is delivered to an clause paramount is incorporated in is exercised by ship owners but the obligation of due diligence at the the time charterparty, the ship owner vessel’s holds are nonetheless unclean beginning of each voyage under is bound to exercise due diligence at and not ready to receive cargo, the the charter. the beginning of every voyage. tendering of the NOR would not be This fresh obligation of due diligence effective to commence the running Notwithstanding the above, the courts is in addition to owners’ pre-existing of laytime nor would charterers have have yet to fully accept the above obligation under clause 1 of the to accept delivery of the vessel. proposition that due diligence must NYPE form to maintain the ship’s be exercised at the outset of every hull, machinery and equipment voyage in the event the HV Rules are throughout the entire charter period. incorporated into a charterparty (The As such, members should note that the Hermosa [1980] 1 Lloyd’s Rep 638). continuing duty to maintain the ship Consequently, ship owners should be would still exist under the NYPE form cautious and ensure that due diligence notwithstanding the clause paramount. is exercised at the beginning of every voyage if a clause paramount exists in the charterparty. Defence Guides b. Can ship owners use the exclusions Notwithstanding the above, members for financial losses due to delays in of liability contained in the HV Rules should note that the above cases loading the cargo, as well as expenses to avoid liability? are confined to their own facts and for extra tank cleaning and pumping members should not assume a similar of the cargo which were held to be i) Article IV rule 2 of the HV Rules: outcome would be found in a case losses and damages related to goods the HV Rules contain a list of with different facts. and therefore time barred due to the exclusions of liability under Article IV incorporation of the HV Rules into rule 2. One of the most important of ii) Deviation: certain standard form the charterparty (See The Ot Sonja these states: “Neither the carrier nor charter parties such as the NYPE only [1993] 2 Lloyd’s Rep 435 and The Stolt the ship shall be responsible for loss state that the vessel has the liberty Sydness [1997] 1 Lloyd’s Rep 273). or damage arising or resulting from... to deviate in order to save life and (a) act, neglect, or default of the property but does not specify that Moreover, claims in respect of master, mariner, pilot or the servants the ship owners’ liability resulting damaged or lost property belonging of the carrier in the navigation or in from such deviation is excluded. to charterers which are kept on board the management of the ship…”. the vessel may be caught by the one- The HV Rules on the other hand year time bar if they are regarded as Ship owners are entitled to rely on all specifically state that ship owners “goods” which are due to be delivered further exceptions provided by the HV would not be liable for any losses or at a later date. However, a claim for Rules so long as they are able to prove damages resulting from reasonable loss of charterers’ bunkers on board that they fall within such exceptions. deviation. As such, a clause paramount the vessel would not be caught by the which incorporates the HV Rules may An interesting use of this exception is one-year time bar as such bunkers be a useful means excluding liability illustrated in a case where charterers were meant to be consumed and not for reasonable deviation. had ordered the master to load as delivered (See The Seki Rolette [1998] much cargo as possible so as to have iii) Limitation of liability (financial limit): 2 Lloyd’s Rep 638). Equally, a claim sufficient draught to enable her to ship owners may also benefit from the by charterers for damages arising out go through the Panama Canal. Upon limitation regime afforded by the HV of owners’ delay in issuing bills of arrival, the ship was refused entry Rules. However, this is only confined lading will not be time-barred after into the Panama Canal because to ship owners’ liability in respect of one year due to the incorporation of she had exceeded her permitted loss of or damage to goods carried the HV Rules into the charterparty (see draught.