Sarawak Shell v South Sumatra Richfield Marine - The Red Gold

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Malaysia

Sarawak Shell Berhad v South Sumatra Richfield Marine Pte Ltd (The “Red Gold”)

Malaysian Court of Appeal: Sulaiman Bin Daud JCA, Syed Ahmad Helmy Bin Syed Ahmad JCA and Anantham Kasinather JCA: 19 March 2012

ADMIRALTY: COLLISION BETWEEN OFFSHORE SUPPLY VESSEL AND FIXED OFFSHORE OIL PLATFORM: RIGHT OF VESSEL OWNERS TO LIMIT LIABILITY: WHETHER COLLISION CAUSED BY NEGLIGENCE OF OWNERS IN THE NAVIGATION OR MANAGEMENT OF VESSEL: WHETHER VESSEL OWNERS ENTITLED TO LIMIT LIABILITY DUE TO ABSENCE OF ACTUAL FAULT OR PRIVITY: MERCHANT SHIPPING ORDINANCE 1952 SECTION 360 VIZ. LIMITATION OF LIABILITY CONVENTION 1957

Mr Liew Teck Huat and Ms Lim Qi Si (of Tetuan T H Liew & Partners) for the Claimant/Respondent Platform Ms Sitpah Selvaratnam and Ms Rahayu Mumazaini (of Tetuan Tommy Thomas) for the Defendant/Appellant Owners

Summary

The Malaysian Court of Appeal overturned the High Court of Malaya’s decision in which it had rejected the defendant Owners’ claim to limit liability under the Merchant Shipping Ordinance 1952 (which gives effect to the 1957 Limitation of Liability Convention) on the grounds that they had failed to prove that the loss/damage caused by the negligent navigation/management of the ship took place without their “actual fault or privity”.

Case note contributed by Jack Hatcher, Trainee Solicitor/Mariner at Hill Dickinson LLP, Singapore.

Background

The facts were as follows:

On 4 February 2002, the offshore supply vessel “Red Gold”, owned by South Sumatra Richfield Marine Pte Ltd (“Owners”), collided with the offshore oil platform “D35-QA”, owned by Sarawak Shell Berhad (“SSB”). At the time of the collision, “Red Gold” was under time-charter to SSB for the purpose of taking cargo to SSB’s oil field platforms.

During the charter term, on 17 January 2002, “Red Gold” underwent repairs to the main engine shaft and bow thruster unit. The bow thruster was repaired by its manufacturer, Rolls-Royce, and then inspected and tested to confirm it was in good working order. This process was completed on 2 February 2002. “Red Gold” resumed chartered service the same day, carrying out a supply run to a number of offshore installations and other locations.

On 4 February 2002, “Red Gold” delivered cargo to two platforms before proceeding to deliver cargo to “D35-QA”. The discharge of cargo at “D35-QA” by the snatch lift method (fn.1), used at the other platforms, commenced at 4.20 pm. At 4.25 pm “Red Gold” drifted in a southerly direction resulting in her starboard side closing in on “D35-QA”. The Master of “Red Gold” was unable to correct this drift as there was a problem with the pitching control of the bow thruster, which was stuck at 30 degrees to starboard. Attempts to push the bow thruster emergency cut off button to turn off the bow thruster engine were not successful and the wheelhouse of “Red Gold” collided with the north-west corner of “D35-QA” at 4.30 pm. The Master was only able to steer “Red Gold” away at about 4.40 pm. The Chief Engineer testified that, when he opened the sealed box containing the power card which controlled the movement of “Red Gold”, he discovered that the power card in respect of the pitching of the bow thruster was out of its slot. He also testified that the bow thruster pitching problem ceased immediately after he inserted the card back into its slot.

As a result of the damage caused to “D35-QA”, SSB commenced an action for damages under Malaysian jurisdiction against “Red Gold” interests. The case went before a Trial Judge at the High Court of Malaya who ruled that Owners (a) were liable in negligence for causing the collision; and additionally, (b) had failed to prove that the loss/damage caused by the negligent navigation/management of the ship took place without their “actual fault or privity”, as required by the Merchant Shipping Ordinance 1952 (which gave effect to the 1957 Limitation of Liability Convention). Owners’ claim to limit liability was accordingly rejected. Owners appealed to the Malaysian Court of Appeal.

The Appeal Judgment

The Court of Appeal affirmed the Trial Judge’s ruling that Owners of “Red Gold” were liable in negligence for causing the collision. The Court of Appeal did not, however, agree with the Trial Judge’s decision to reject Owners’ claim to limit liability. Its reasons for this, on the facts, were as follows:

(a) It was acknowledged that there was no provision within the ship’s ISM manual for checking the electrics of the bow thruster unit. There was good cause for this, however: to do so required specialist engineering expertise, something that might only be readily available at reputable shoreside facilities, such as those sought from the bow thruster manufacturer, Rolls-Royce, during repairs in January 2002.

The Trial Judge had therefore placed an unreasonable expectation on Owners to ensure there was a safety management system in place to check that the power card was correctly inserted into its slot. Expert evidence revealed that the dislodgment of the card had never happened before and was not likely to happen again. By definition, therefore, Owners’ actions, or lack of them, were what were expected of the “ordinary reasonable shipowner” – the well-known burden as espoused by Sellers LJ in The “Lady Gwendolen” (fn.2).

(b) In her judgment, the Trial Judge had ruled that the power card had not been properly reinserted following the repairs carried out in January 2002. However, expert evidence revealed that “Red Gold” would not have been able to sail so close to “D35-QA” if the card were not inserted properly in the first place: the power card was either in or it was out. The Master of “Red Gold” had tested the propulsion system to ensure it worked properly before approaching within 500m of “D35-QA”, as was standard operating procedure for approaching all platforms. He needed to do no more.

(c) Simply on the basis that there was no other conceivable way of avoiding the incident, the Trial Judge rejected evidence that it was not necessary for Owners to maintain or inspect the power cards unless there is or was advance notice of a malfunction.

The Court of Appeal opined that this placed too great a burden on Owners, who had in place at the time of the collision a comprehensive system of safety management which complied with international standards. There was no evidence that other shipowners had conducted visual checks of power cards to ensure they were correctly inserted and thus it would be unreasonable to expect the crew of “Red Gold” to have done so in this instance. In other words, and as the Court of Appeal put it, “the burden on the Owners does not extend to satisfying the Court that a similar incident will never happen again”.

(d) Finally, the Trial Judge found that the ease in which the Chief Engineer discovered and remedied the dislodged power card demonstrated that the incident could have been avoided if a routine inspection system of power cards had been implemented by Owners.

The Court of Appeal disagreed with this analysis. The bow thruster was working when “Red Gold” was within 500m of the “D35-QA” but the power card subsequently became dislodged, an accidental event which was beyond Owners’ control. It was the undisputed evidence of the experts at trial that visual inspection of all power cards at all times was neither practical nor could it have prevented the collision on this occasion.

Having dismissed the Trial Judge’s analysis of the evidence, the Court of Appeal then went on to examine the relevant law as applied by the Trial Judge:

(a) Firstly, the Trial Judge had placed a heavy burden on the Owners which they could not be held to have discharged, unless they detected inherent defects in the vessel and ensured the rectification of the same. The Court of Appeal held this was incorrect: inherent defects (such as the one with the bow thruster unit) are generally regarded as falling within the expertise and responsibility of the manufacturers, as was the principle of law followed by the English law in The “Spider” (fn.3). Accordingly, the burden assigned to Owners by the Trial Judge was considerably higher than the one pronounced by Sellers LJ in The “Lady Gwendolen”. This explained the Trial Judge’s error in holding Owners to be in actual fault based on the mistaken premise that Owners were required in law to introduce a system to secure properly the power cards so as to prevent a recurrence of the collision, including detecting inherent defects and having them rectified.

(b) Secondly, the Court of Appeal held the Trial Judge had failed to appreciate that the standard maintenance and supervision (such as taking the vessel for repairs in January 2002) practices followed by Owners in the management of “Red Gold” was consistent with that prevailing in the industry at the material time. No evidence to suggest otherwise was put before the Trial Judge and thus the remarks made by Lord Brandon in The “Marion” (fn.4) held sway: “the practices of other reputable shipowners at or about the same time [are] clearly relevant, although unless the evidence of such practices is all one way, or nearly all one way, it cannot be decisive”.

(c) Thirdly, the Trial Judge’s belief that a safety device should have been used to prevent dislodgement of the power card amounted to the use of hindsight to determine what Owners ought to have done before the collision. Use of hindsight in this manner is not permitted in law: Simmons v Pennington & Son (fn.5).

(d) Fourthly, even if, which was not the case, Owners had failed to prove that the loss/damage caused by the negligent navigation/management of the ship took place without their “actual fault or privity”, they were still entitled to claim that any such fault did not contribute to the damage (per Lord Brandon in The “Marion”). The Court of Appeal found that Owners had discharged this burden since the earlier defect in the bow thruster unit had been rectified. Accordingly, this could not have been the cause of the collision.

(e) Finally, the Court of Appeal held that there was no justification for the Trial Judge to hold Owners to be personally responsible for the collision when they had both promptly and effectively dealt with the problems encountered by ”Red Gold” in January 2002. In other words, this was not a case of a shipowner “turning a blind eye”, to use the words of Lord Denning MR in The “Eurysthenes” (fn.6).

In light of the above, the Court of Appeal granted Owners a decree limiting their liability according to the formula stipulated in the Merchant Shipping Ordinance 1952.

Comment

While many major maritime jurisdictions now apply the higher limits within the 1976 Limitation of Liability Convention and the further increased limits under its 1996 Protocol, the present judgment provides a useful reminder and explanation of the leading English case law on its predecessor, the 1957 Convention (fn.7). The 1957 Convention still applies in some jurisdictions (fn.8).

Footnote 1: The snatch lift method allowed “Red Gold” to remain adrift while transferring cargo from her deck to the platform. This was necessary as the “D35-QA” did not have mooring facilities to enable “Red Gold” to tie up alongside her.

Footnote 2: [1965] 3 WLR 91.

Footnote 3: [1932] 43 Ll L Rep 217.

Footnote 4: [1984] AC 563.

Footnote 5: [1955] 1 All ER 240.

Footnote 6: [1976] 2 Lloyd’s Rep 171.

Footnote 7: The 1976 Convention was brought into force in Malaysia on 10 February 2009, subsequent to the commencement of this action. Therefore, the 1957 Convention regime enacted through the Merchant Shipping Ordinance 1952 remained applicable at the time.

Footnote 8: Such as (at the time of writing) the Dominican Republic, Fiji, Iran, Israel, Malta, Monaco, Nigeria, Portugal, Seychelles and St. Vincent & The Grenadines.