Jindal Iron & Steel Co. Ltd and others v. Islamic Solidarity Shipping Co. Jordan: Case Comment

Introduction:

The commercial value of the shipping industry today is so immense that it has been called as the backbone of international trade and global economy. The industry thrives on the transport of goods through water in ships which accounts for nearly 80% of the world trade movement currently and the volume if expected to triple in number by the year 2050 as per the 2021 UNCTAD maritime transport report[1]. International Maritime conventions and treaties have been enacted with a goal to establish a level uniformity to facilitate trade between nations and their differing maritime laws and regulations. The Jindal Iron & Steel Co. Ltd and others v. Islamic Solidarity Shipping Co. Jordan case[2] was regarding a conflict in the interpretation of one of the provisions of one such international maritime treaty: the Hague-Visby Rules[3].

Facts:

The respondents Islamic Solidarity Shipping Co. Jordan chartered a ship named ‘Jordan II’ (hence, this case is also known as the Jordan II case) to the TCI Trans Commodities A.G (the second claimants) for a voyage which was to be from India to Spain through a charterparty dated 4th December 1997. Relevant clauses of the charterparty- provisions 3 and 17 included:

  • Freight was to be paid FIOST (free in and out stowed and trimmed) and
  • Shippers/charterers/receivers were to put the cargo on board, trim and discharge cargo free of expense to the vessel

Jindal Iron and Steel (first claimant) who were the shippers, sold 435 steel coils to Hiansa S.A., (third claimant) the consignee. To this regard, two bills of lading were issued on behalf of the shipper which enumerated the terms of contract for the carriage of goods from India to Spain. The relevant provisions of the bills of lading provided that:

a) Freight was to be paid according to the agreement in the charterparty

b) All agreements and liabilities were applicable as per decided by the charterparty

c) The Hague-Visby rules were applicable

 Upon arrival of the cargo in Spain, it was realized that the goods had been damaged due to improper loading, handling and inadequate stowing. The ship owners, relying on the above mentioned provisions of the charterparty and bills of lading, claimed that handling of the cargo was not their task and therefore, they did not attract any liability for damage to the cargo as the responsibility had been transferred to the charterers/shippers.   

Issues:

  1. At first instance, the very validity of the existence of a shift of responsibility regarding loading, stowing and discharging of cargo was challenged before the court.
  2. The other main and primary issue was whether the transfer of responsibility to the charterers was a violation of Article III, Rule 2[4] and/or the terms of the contract were invalidated by article III rule 8[5] of the Hague-Visby rules, a set of international rules that applies to the carriage of goods by sea.

While the first issue was satisfactorily determined by the court of first instance, the second issue went on to be appeal in the House of Lords.

Submissions:

  1. The counsel for claimants argued that the FIOST clause under provision 3 of the charterparty which was also incorporated in the bills of lading did not shift the responsibility of performing the tasks of a carrier envisaged under article III rule 2 of the Hague-Visby rules but it only put the burden of financing the activities on the cargo owners.

The defendants countered by arguing that provisions 3 and 17 of the charterparty read together clearly absolves the carrier from any such responsibility.

  1. The claimants argued that under common law, it is an accepted position that carrier has the responsibility to “properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”[6] which makes it a non-derogable provision unless there exists a defense for the same under article IV rule 2[7]. The transfer of such responsibility of the carrier to take care of the goods in the charterparty through an agreement, envisaged under provisions 3 and 17 is therefore null and void as per article III rule 8 of the Hague-Visby rules.

The defendants on the other hand also agreed on the applicability of the Hague-Visby rules but cited the precedents such as the Renton case[8] and the Pyrene case[9] and argued that when mutually agreed between the parties, then it is possible to derogate from article III rule 2 and such derogation does not amount to it being null and void as provided under article II rule 8. It was submitted that when properly construed, the rules did not invalidate such contractual agreements.

The claimants urged the House of Lords to depart from the law as decided under the above mentioned cases and declare that they were wrongly decided.  

Holding and reasoning of the court:

  1. Regarding the 1st issue:

The court of first instance held that while the wordings of clause 3 alone could not prove the shift of responsibility from the carrier to the cargo owners. However, read along with clause 17, there was undeniably an effective transfer of responsibility to the cargo owners and the claimants.

  1. Regarding the 2nd issue:
Under common law, there exists a prima facie duty of the carrier or shipowners to load, discharge and stow the cargo however, in the case of Pyrene v Scindia Navigation[10], it was held that derogation from this norm is indeed possible when mutually decided. The Hague-Visby rules did not put a restriction on the freedom of the parties to contract and reallocate and transfer such responsibility according to their interests. In this case also the issue was regarding the applicability of article III rule 2. Lord Devlin, while interpreting the meaning and nature of article III rule 2 was of the opinion that the carrier only has the liability of the cargo regarding loading, discharging stowing etc. only up to the extent decided by the parties and not all of the cargo. He denied a strict application and interpretation of article III rule 2 and affirmed that the freedom to contract could not be taken away and either parties should be free to limit their liabilities under the rule. However these observations made by Lord Devlin were in the form of obiter dictum and could not necessarily be considered as a binding precedent.
Then later this point of transferability of responsibility to either party depending of their interests came up again in the case of GH Renton and Co Ltd v Palmyra Trading Corporation of Panama[11]. It was held in the court that the clauses allowing deviation from the norm should not be regarded as giving liberty to deviate but rather as providing an agreed substituted method of performance. Therefore, there was no violation of Article III rule 2 and the terms of contract were also not invalidated by Article III rule 8.

In thepresent case, Lord Steyn was of the opinion that the intention and object of the international rules was the unification of the various domestic rules, customs and practices regarding the carriage of goods by sea. The result of this was to provide for a baseline or minimum standard which was to be followed uniformly regarding certain topics, for example the obligation of the shipowner to provide a vessel that is seaworthy under article III rule1, which is more fundamental in nature. He concluded that ability to contract and come to agreement on the responsibility of loading, stowing and discharging were not necessarily one of those fundamental topics and hence article III rule 2 would not be undermined by such freedom. Therefore, a strict application of article III rule 2 was rejected and it was established that they were merely directory in nature. The counsel for the shipowners placed also reliance on the Travaux préparatoire to supplement their claim of non-transferability of liability, the court rejected this argument as well. It held that while the travaux supported the view of the shipowners, it did not explicitly reject the idea of transferring responsibility to the cargo owner by means of agreement between them.

On the point of deviation from the ratio decidendi of the Renton case, Lord Steyn noted that the ratio in that case has never been challenged and has been used as an important precedent for many years that it has become almost as a fixed position of law. He also noted that revisions of the rules had been done since then but no such change was made to this regard. Owing to all these reasons, it was decided that the claimants had not shown satisfactory reasons to depart from the Renton judgement and disturb the status quo. It was also pointed out that no textbook writers criticized the decision of the Renton case. While the cargo owners tried to convince the court to consider decisions from other jurisdictions which favoured their position, it was held that since those cases did not discuss the Renton case, it cannot be considered as a sufficient ground to reconsider the Renton judgement.

Analysis:

FIOST clause stands for free in and out stowed and trimmed which essentially means that the loading, discharging, stowing and trimming of the cargo goods will not be done at the cost of the shipowner. Normally the vessel owners are responsible for such costs. Including a FIOST clause only transfers the financial responsibility to the cargo owners and not the responsibility of actually being responsible for carrying out the cargo loadings etc. process, as was discussed above in the present Jordan II case. Therefore, a clear indication of the responsibilities and liabilities that the parties intent to allocate to each other should be mentioned in the contract.  Even though the freedom to enter into contractual agreement has been established as a well settled English position, there is no agreement of the same across other jurisdictions. Therefore, the claim and intention of the international convention to harmonize domestic laws remains questionable. For example, in France and South Africa, this transferability concept is rejected absolutely, tipping the boat in favour of cargo owners[12]. In the United states, the exists conflicting views regarding the same, where in some cases[13], it has been held that shipowners contract out of their liability where there is no role played by the shipowner on the damage caused but in other cases[14] the court has held that responsibility of the shipowner in loading, stowing and discharging is a non-derogable responsibility. While in other commonwealth countries such as India, Pakistan, Australia, New Zealand etc. the English position has been adopted[15]. Therefore, there exists no dominant international view on this matter.

The absence of uniformity even after adopting international treaty standards defeats the purpose of its establishment and leads to many discrepancies which pose as inconvenience to international trade. There are several reasons why the unification process poses problems. International politics plays a big role in the non-uniform application of a treaty.

I assert that even if there exists no agreement between different jurisdictions, the English approach is a fairly convincing and balanced way of balancing the interests of the carriers and the cargo owners. The terms of a contract are a result of mutually agreed upon interest and a contract is essentially a ‘meeting of minds’ therefore, they are on equal footing. The inclusion of FIO clause and shifting of responsibilities from the shipowner to the cargo owners can be shifted back to the shipowners through slight changes in the wordings of the contract agreement. An example of this is the inclusion of the words ‘under the supervision of the master’ and ‘under the responsibility of the master’. The master of a ship even though is appointed by the cargo owners but when in charge of the ship, acts in favour of all things necessary for the ship and therefore is categorized to be an agent of the shipowner. With the inclusion of the previously mentioned phrases, the English courts in several instances have ruled that even when responsibility has been shifted to the cargo owners, if there is some susbstantial intervention of the shipowner resulting in the damage, then held liable. The phrase ‘responsibility of the master’ has greater significance than ‘under the supervision of the master’ because while the former doesn’t shift the responsibility of loadings, stowing and discharging back to the shipowner, the latter does[16].

Lord Steyn’s justification for not deviating from the judgement of the Renton case however is problematic. Just because a precedence has stood for many years and many judgements have since been passed based on that judgment for many years does not mean that the judgement cannot be invalidated and continue to keep it as a fixed point of law. Law cannot be static and has to keep evolving as society evolves.

Rigidity of treaty provisions might result in carriers facing the brunt of liabilities without any fault of theirs in instances when an agreement to the contrary already exists between the parties. I believe that the English jurisprudence regarding the permissibility of the parties getting into contractual agreements according to their interests even though at odds with the treaty convention is a sound position. This is not to say that the treaty provisions are without any effect. They still carry purposive force with them. Still, there exists other uncertainties which tie in with the concept of the responsibility of the carrier under article III rule 2 which make the picture even more muddled. This is discussed below.

Subsequent developments:

After the Jordan II judgement, the Eems Solar judgement[17] is the most recent decision on the topic of the freedom to enter into contractual terms. In this judgment, the court further expanded on the Jordan II ratio and held that in case of such shift of responsibility as agreed between the parties, the shipowner will not be liable even if acts of the cargo owners render the vessel unseaworthy unless there is a case of significant intervention of the shipowner which leads to such damage. However, such an interpretation absolves the shipowner from another important duty of making sure the vessel is seaworthy for the voyage. Therein again arises the problem of inability of striking a balance between the interests of both the parties.

The newest addition to the international body of rules with regards to carriage of goods by sea is the draft Rotterdam Rules[18]. This treaty statutorily legalizes the ability to shift responsibility of certain cargo obligations to the charterer/shipper/consignee by recognizing contractual freedom of the parties to do so[19]. This sort of validates the English position as discussed above. The Rotterdam rules does not however, do away with the responsibility of the carrier to owe a duty of care regarding the goods. This might help in resolving the conflict regarding the shipowner’s duty of seaworthiness created after the Emes Solar judgement.

In conclusion, even in jurisdiction where free in and out clauses are permissible. They are strictly construed. Even attempt is made by the court to balance the interests of all the parties involved. The proposed Rotterdam rules gives legal legitimacy to the English position.


[1] ‘Review of Maritime Transport 2021’ (UNCTAD 18 Nov, 2021) https://unctad.org/webflyer/review-maritime-transport-2021 accessed 15 December 2021

[2] Jindal Iron & Steel Co. Ltd v Islamic Solidarity Shipping Co. Jordan [2005] 1 All ER 175

[3] International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (1924) Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1968

[4] Article III Rule 2 states that it is the responsibility of the carrier to take care of the cargo while loadings, discharging, stowing, handling and carrying, unless article IV is attracted.

[5] Article III Rule 8 states that contractual agreements which relieve the carrier out of the responsibilities towards the cargo regarding the rules as enumerated in article III, shall be considered null and void.

[6] International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (1924) (Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1968) art III rule 2

[7] International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (1924) (Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1968) art IV rule 2

[8] G.H Renton & Co. Ltd. v. Palmyra Trading Corporation [1956] 2 Lloyd’s Rep 379

[9] Pyrene Co Ltd v Scindia Steam Navigation Co Ltd [1954] 2 QB 402
[10] [1954] 2 QB 402

[11] [1956] 2 Lloyd’s Rep 379

[12] Ilian Djadjev, ‘The FIOS(T) clause’ In: The Obligations of the Carrier Regarding the Cargo (Springer, cham 2017)

[13] Sumitomo Corp. of America v. M/V Sie Kim, 632 F.Supp. 824 (1985), Atlas Assurance Co. v. Harper, Robinson Shipping Co., 508 F.2d 1381 (1975), Sigri Carbon Corp. v. Lykes Bros. Steamship Co., 655 F.Supp. 1435 (1987)

[14] Demsey & Associates, Inc. v. S/S Sea Star, 461 F.2d 1009 (1972), Nichimen Co. v. M/V Farland, 462 F.2d 319 (1972)

[15] Ilian Djadjev, ‘The FIOS(T) clause’ In: The Obligations of the Carrier Regarding the Cargo (Springer, cham 2017)

[16] Ibid.

[17] Yuzhny Zavod Metall Profil LLC v Eems Beheerder BV (The Eems Solar) [2013] 2 Lloyd’s Rep 487.

[18] United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea adopted in December 2008

[19] United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea Art 13.2

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