C V Sheepvaartonderneming Ankergracht v Stemcor

THE ANKERGRACHT CARGO 155 Officers on the Ankergracht had a practice, during discharge and loading, of shutting the hatches if it began to rain, but that process took between 15-20 minutes to complete. Over the five days of loading at Yokohama in November 2001 there were periods of rain, as was common there in the winter months. A number of items of cargo was loaded wet. Some of the items had become wet on the wharf, others in the barges from which they were taken. Some of the cargo included covered steel, the covers of which were capable of collecting water in their folds if they were exposed to rain. Other cargo included steel plate in timber crates resting on the ground which was wet with pools of water or had wet covers. Some covers appeared to be capable of absorbing water. And, as is usual practice, the crew of the Ankergracht used dunnage during the loading. Dunnage consists of timber which is used to separate items of cargo in the hold of a vessel. The timber could have absorbed water when it rained before being placed in the hold. 156 The Ankergracht sailed from Yokohama on 13 November and arrived in Brisbane on 26 November and in Sydney on 29 November 2001. In Sydney the coils for ACC were transferred to that company's premises and shortly after, when unpacked, they were seen to have suffered the corrosion damage described above.

THE ARCHANGELGRACHT CARGO 157 The Archangelgracht loaded at Yokohama between 16 and 18 January 2002. Its cargo consisted of a variety of steel, including steel pipe, plate, angle, bar, wire and sheet in addition to the coils in question here. Some cargo loaded on the Archangelgracht in Yokohama was recorded as being wet but there was no evidence that the ACC coils were wet when loaded. There were periods of rain on 16 and 17 January 2002 and loading stopped at that time. His Honour found that other cargo loaded at Yokohama was wet with rain and that there was some sweat inside pipes forming part of the cargo. Cargo loaded subsequently at Kobe also had partly wet covers consisting of loose wrapped fabric similar to plastic coated tarpaulin material. The judge found that that cargo was wire rod and the manner of wrapping it made it likely to be capable of retaining a significant amount of free water in the folds of the wrapping. Dunnage was also used on the Archangelgracht. 158 The Archangelgracht sailed from Yokohama on 18 January and arrived at Kobe on 20 January. She left Kobe on 22 January and arrived in Brisbane on 9 February and in Sydney on 13 February 2002. Again, when the second cargo of coils was transferred to ACC's Sydney premises, a number was found to be damaged by corrosion.

CARGO SWEAT 159 Condensation from moist air can form on steel coils in the hold of a ship if the surface temperature of the coils is below the dew point of the temperature of the air surrounding the coils or the velocity of the air moving in the hold across the coils is low enough to permit the air to cool. The dew point temperature is the temperature at which air becomes saturated or has 100% relative humidity. As his Honour explained, based on the expert evidence of Dr Bellstedt, the exact chemical composition of air can vary significantly at different temperatures. One gas that can be found in air is water vapour. Normally, ambient air is not at the upper limit of water vapour which it can hold at the relevant temperature. The degree of saturation of ambient air is expressed in practical terms as relative humidity. Air at 50% relative humidity contains 50% of the moisture that would be contained in saturated air at the same temperature. The saturation limit of air is related directly to the air temperature and so cooling or heating air will change the relative humidity of the air, heating decreasing the relative humidity (that is increasing the amount of water that the same volume of air can hold before becoming saturated) whilst cooling increases the relative humidity. 160 If the air containing moisture is cooled until the relative humidity of that air is 100%, it becomes saturated. This is the air's dew point temperature. Any further cooling below that temperature results in moisture being deposited, in the form of condensation, on the surface that is cooling the air. The dew point temperature of air depends on its moisture content. The higher the temperature, the more water vapour the same amount of dry air is able to hold. 161 Direct measurement of dew point temperature is difficult and generally not practicable, particularly in the hold of a ship at sea. One practical way, used by each ship's crew while the Ankergracht and the Archangelgracht were at sea, is to use a wet bulb thermometer to measure what is known as wet bulb temperature. It is not necessary to go into the mechanics of that process. When air containing moisture comes into contact with a cold surface, the cold surface will cool it. Moisture will condense on the surface unless the velocity of the air is sufficiently high that there is not enough time for the air in contact with the cold surface to be cooled by it. If it does cool, the relative humidity of the air near the cold surface increases. And, if the temperature of the surface is lower than the dew point of that air, then the air in immediate contact with the cold surface will release moisture to the cold surface causing condensation to form on the surface. As his Honour explained, on a clear, still night, dew forms, but not so on a windy night. 162 The primary judge found that the corrosion damage to the coils was caused only by condensation which occurred after each sea voyage had commenced. This finding was not challenged in argument on the appeal.

DURING THE VOYAGES 163 During a voyage from Japan in the winter conditions of the northern hemisphere, to the Australian summer, the condition of the air within the hold and the temperature of the steel coils is likely to change. Even though each hold is sealed, air can leak into it from the outside or the crew can intentionally ventilate it. The outside air would be at different temperatures and contain different levels of moisture compared to the air in the hold. There would also be a change of the temperatures of the air and the coils within the hold caused by heat transmission through the ship's structure. Heat would enter the hold from the warmer, ambient air or sea outside, through the hull and hold layers. The amount of heat flow depends on the characteristics of the ship's design as well as the outside temperatures compared to the temperature inside the hold. If air with a higher moisture content enters the hold from outside, the likelihood of subsequent condensation in the hold will increase. 164 His Honour found that it was possible for condensation to have occurred during the voyage if moist air had entered into the hold but at the time insufficient heat had entered the hold to increase the steel temperature to match the then higher dew point temperature of the air within the hold. The data of ambient dry bulb and sea water temperatures and barometric pressures within the lower deck and tween deck areas recorded on the Ankergracht and Archangelgracht were examined by Dr Bellstedt. His Honour, accepting this evidence, concluded that the dew point levels in the holds exceeded the coil temperatures for most of each voyage so that condensation on the coils would almost certainly have then occurred. Thus, his Honour found that it was more likely than not that condensation did occur during the course of each voyage and led to corrosion on at least some of the damaged coils on the Ankergracht and all of the damaged coils on the Archangelgracht. 165 A number of the coils on the Ankergracht had mate's receipts claused 'partly wet by rain in barge'. His Honour found that a barge laden with some of Stemcor's coils for loading on the Ankergracht had been exposed and the coils were wet in the barge. He found that on the balance of probabilities it was more likely than not that they were not wetted subsequently in the course of loading onto the vessel, because the crew had given evidence that the hatches were closed and there was no loading during the period in which it was raining. But his Honour found that it was more likely than not that, even if the coils were wet in the barge, water did not infiltrate the external and inner wrappers prior to loading the coils onto the Ankergracht. He accepted that it was a possibility that liquid water present from the rain while the coils were in the barge infiltrated the packaging. Nonetheless he found that the nature and distribution of the corrosion observed on the steel coils was consistent with condensation. 166 Additionally, there were differences in the timing and periods of ventilation between the Ankergracht and Archangelgracht which explained the differences in the damage observed after discharge. The judge noted that in only one case, in the Ankergracht cargo, was there evidence of water actually passing beneath the core edge protector's outer paper wrap and entering one coil itself, and that the rest of the cargo did not exhibit any sign consistent with extensive external wetting being the source of the damage.

HOW THE VESSELS' CREWS DEALT WITH MOISTURE IN THE HOLDS 167 The master of the Ankergracht, Capt Koenen, said that during the course of a voyage it was the normal practice of the chief officer to instruct able seamen on the vessel to wipe condensation, if any, from the cargo, '… in particular, the coils and steel plate, where access to the cargo is possible and the sea conditions permit doing so with safety. The seaman simply uses rags to wipe off the condensation from the cargo'. He said that, based on his experience of visiting the port of Yokohama in the 16 years prior to 2002, winter time there was mostly cloudy and overcast with rain or even, at times, snow. He said that when it was cloudy and overcast it was very difficult, if not impossible, to foresee rain showers and that the first one knew of it was when it started to rain. He estimated that it would take about 20 minutes for the crew to close all three hatches, if they were open, once the order to close them was given. 168 Capt Koenen had no specific recollection of how the actual cargo was loaded in Yokohama on the November 2001 voyage of the Ankergracht. But, he said that it was very often the position that some of the cargo would be wetted with rain at the time of loading. He knew from experience that at Yokohama cargo was often stored in the open, some of it consisting of machinery and other parts consisting of timber pallets, racks or timber crates. He said that if it rained prior to loading, those cargoes, including the timber pallets, racks or crates, would also get wet. 169 Capt Koenen then observed that if such cargo was loaded wet, his usual practice at the time was to instruct the crew: '… to try to dry that cargo as best they can before the vessel sails. They would try to do so using clean dry rags. However, such drying can only be done when and where it is safe to do so' (emphasis added). I have emphasised in this passage and the next the imprecision of the practice of which Capt Koenen spoke. He continued: 'If cargo operations are continuing in the area near the cargo which has been loaded wet, then I would not allow the crew to go into that area to try to dry the wet cargo whilst cargo operations are continuing, as it would be unsafe for them to do so. Also, wet cargo can be very slippery and this is another reason why I instruct the crew to try and dry it. Once the cargo operations have ceased completely, if some of the cargo is still wet, I would usually ventilate to try and remove the remaining moisture if the conditions are appropriate.' (emphasis added) 170 Capt Koenen's evidence showed that the practice at Yokohama was to load wet cargo and not to dry it thoroughly before the vessel sailed. Attempts would be made to dry the cargo. But as the chief officer on the Ankergracht, Mr Remminga, said in his evidence, if a lot of cargo had been wetted with rain, it was not possible for the crew to dry all of it manually. Some cargo is not capable of being dried thoroughly in any event. He gave as an example machinery, which Capt Koenen had said was frequently loaded wet because it was stored in the open. Chief Officer Remminga also said that if cargo had been loaded wet and it was over-stowed with other cargo, it may not be possible to get to the wet cargo to dry it with rags. He said that a good example was steel coils which usually would be stowed in rows two tiers high so that 'it is physically not possible to reach all of the coils'. Each officer said that he would not reject cargo such as machinery or coils, wrapped with an outer casing, which was presented wet at the time of loading. 171 Chief Officer Remminga also said that if water entered the hold and was apparent on the vessel's tank top or tween deck, then his usual practice at the time of the Ankergracht's November 2001 voyage was to instruct the crew to mop it up 'as best they can'. He said that the crew would use squeeze type mops to do so but that: 'I will only instruct them to mop up such water as long as I think it is safe for them to enter that particular space. If [sic] would not be safe for them to do so if for instance cargo is being worked near that area and if that was the case, I would not instruct them to enter into that space. It is not possible to mop up all the rain water that may have entered the hold. Some of the water may run under cargo or into spaces which are not accessible to the crew.' (emphasis added) 172 Capt Woolthuis was the master of the Archangelgracht on the voyage from Yokohama in January 2002. Like Capt Koenen, he said that the normal practice of the chief officer was to instruct the vessel's able seamen to wipe condensation, if any, from the cargo, and in particular the coils and steel plate, 'where access to the cargo is possible and the sea conditions permit doing so with safety'. The seamen simply used rags to wipe off any condensation from the cargo. 173 The chief officer of the Archangelgracht, Mr Van Wijk, recalled sweating of the vessel's cargo, particularly the coils and steel plate, during the voyage in question. He recalled giving an instruction to the able seamen to wipe the condensation from the cargo and that one of them injured his foot whilst climbing over coils in wiping them down. Of course, that activity occurred after it is likely that corrosion had damaged coils on the voyage. The condensation on the outer surfaces of the coils evidenced the presence of moisture not just there, but within the folds of the coils, where the real damage complained of occurred. 174 This evidence demonstrated that whatever may have been the practice of mopping or wiping the cargo and other areas to remove moisture, each ship's master knew that this still left sufficient loose water to require ventilation during the voyage, if that were possible. And even then, that may not have been effective to remove all moisture from the holds. 175 The masters also knew that the loading of each vessel at the time of year in Yokohama was likely to result in the admission of free water by a number of means, including on wetted cargo, through rain entering the holds while they were open and on dunnage, which would not be removed completely by the wiping and mopping operations. Moreover, each ship's officers emphasised that they would not direct mopping or wiping when the cargo was being worked (as would have been the case whenever the hatches could be opened) or when it was not safe to do so. The same applied when the vessels put to sea. In addition they were aware of the presence of moisture in air both within the holds and incoming during ventilation. 176 It follows that there was no certainty that if water entered the holds in any of the ways described, it would be removed prior to the commencement of the voyage or at any time during the voyage. Indeed, there was every reason to think that water would remain in the holds whatever attempts were made to remove it. 177 In this connection, Dr Sharp, a consultant research scientist called by the carriers, said that given the nature of the cargo carried there could have been liquid water present in the holds which was not obvious. He prepared a report which said that when the Ankergracht sailed from Yokohama on 14 November 2001, the total quantity of moisture present in the air within the hold was 213 kilograms. He estimated that the Archangelgracht sailed from Kobe on 22 January 2002 with a total quantity of moisture in the air within the hold of 81 kilograms. Dr Sharp also estimated that there was between 1,000 and 2,000 litres of 'available moisture' in the dunnage within the hold of each vessel at the time of sailing. He said moisture would be released by the timber dunnage as air circulated in the hold by fan or natural convection. 178 Dr Bellstedt had estimated that only 68 litres of open water needed to be present in the hold of the Archangelgracht to saturate the air at the time the hold was closed. And Capt Pyett said that cargo sweat was almost inevitable on the voyages.

WERE THE SHIPS SEAWORTHY? 179 The first question posed by Art 3 r 1(a) of the amended Hague Rules is an objective one, namely: was the ship seaworthy? If not, the next question is whether the carriers exercised due diligence in the provision of the ship so as to fulfil their obligations under Art 3 r 1(a). Like his Honour, I will approach each of these in turn. 180 The operation of the amended Hague Rules was discussed in Great China Metal Industries Co Limited v Malaysian International Shipping Corporation Berhad (1998) 196 CLR 161. The detailed content of the obligation to exercise due diligence to make the ship seaworthy was not the subject of consideration by Gaudron, Gummow and Hayne JJ, or Kirby J or Callinan J (see 196 CLR at 175 [33], 216 [143], 241-243 [221]-[226]). Rather, their Honours looked at the question of whether, when the ship put to sea, she was seaworthy in order to be able to meet the perils of the sea. That case involved consideration of the kinds of conditions that the vessel might encounter in the sense that, first, she would arrive safely at her destination and, secondly, she would carry her cargo safely to that destination, so as to be found to be seaworthy (196 CLR at 175 [33] per Gaudron, Gummow and Hayne JJ). 181 The question of seaworthiness has to be judged at the time the vessel sailed. This involves considering how she was loaded and stowed (196 CLR at 174 [29]). Gaudron, Gummow and Hayne JJ pointed out that the standard of fitness is not unchanging and can and does rise with improved knowledge of ship building and navigation (196 CLR at 174 [30]). They said that some of those additional matters to which they had referred found direct expression in the amended Hague rules and in particular in Art 3 rr 1(b) and (c). They also said: 'Fitness for the voyage may also encompass other considerations as, for example, the fitness of the vessel to carry the particular kind of goods or the fitness of crew, equipment and the like. The question of seaworthiness, then, may require consideration of many and varied matters.' (196 CLR at 175 [31])

182 McHugh J said that the term 'seaworthiness' in Art 3 r 1 should be given its common law meaning, a meaning which depended upon the voyage to be undertaken (196 CLR at 193-194 [86]). He emphasised that Art 3 rr 1 and 2 have different operations. If unseaworthiness is relied on, the cargo owner must prove that the loss or damage resulted from the unseaworthiness proved to be a breach of the carrier's obligations under Art 3 r 1. If such unseaworthiness is established, the carrier then has an obligation to prove that it had exercised due diligence to make the ship seaworthy. On the other hand, if the cargo owner alleged a breach of Art 3 r 1(b) or (c), his Honour said that the cargo owner must prove both a lack of due diligence in respect of that matter and that the loss or damage resulted from that breach (196 CLR at 194 [87]). McHugh J continued (196 CLR at 194 [88]): '[88] Article III, r 1 therefore effectively imposes an obligation on the carrier to carry the goods in a ship which is adequate in terms of its structure, manning, equipment and facilities having regard to the voyage and the nature of the cargo. If the carrier breaches that obligation and, as a result, the goods of the owner are lost, it is not to the point that a concurrent cause of the loss was a peril of the sea or one of the other matters enumerated in pars (a)-(q) of Art IV, r 2. Of course, it is possible that one of the matters referred to in those paragraphs may be the sole cause of the loss or damage even though the ship is unseaworthy. In that event, the cargo owner's claim will fail - not because the carrier comes within the immunities identified in Art IV, r 2 but because the owner has failed to prove that the loss or damage has resulted from unseaworthiness.' 183 And, in Huddart Parker Ltd v Cotter (1942) 66 CLR 624 at 663-664 Williams J said that if a defect is sufficient to render the ship unfit for the due and safe carrying of goods or the crew and it is not a defect which can be readily cured on the voyage, it would constitute unseaworthiness. 184 Before us there was some debate as to whether seaworthiness included the notion of 'cargoworthiness'. Long ago, Lord Esher MR said in Owners of Cargo on Ship 'Maori King' v Hughes [1895] 2 QB 550 at 556 that although 'seaworthy' in this context was not strictly an accurate term, it meant that, for example, machinery on a vessel had to be, at the time of shipment, fit as machinery to carry the cargo to the destination under the ordinary conditions of an ordinary voyage (see too at [1895] 2 QB at 559 per Kay LJ, 561 per AL Smith LJ). Scrutton LJ also showed that seaworthiness included cargoworthiness, as indeed Art 3 r 1(c) recognises, when he explained in AE Reed & Co Ltd v Page Son & East Limited [1927] 1 KB 743 at 754 that the common law warranty included '… fitness of the ship to receive the contemplated cargo as a carrying receptacle. A ship may be unfit to carry the contemplated cargo, because, for instance, she has not sufficient means of ventilation, yet be quite fit to make the contemplated voyage, as a ship.' And, the very example chosen by Scrutton LJ is the issue on this part of the present case. In Treitel G and Reynolds FMB, Carver on Bills of Lading (Sweet & Maxwell, 2001) at [9-016], the learned authors say that the ship must be suitable for carrying cargo of the type contemplated on the voyage contemplated and that for this aspect of seaworthiness the word 'cargoworthiness' is sometimes used. They concluded that it is clear that the term 'seaworthiness' is nowadays to be taken as covering both concepts. Indeed, Hill J held that the concept of seaworthiness covered cargoworthiness in BHP Trading Asia Ltd v Oceaname Shipping Ltd (1996) 67 FCR 211 at 229C-D. 185 The question of seaworthiness is concerned with the state of the vessel, rather than whether the carriers acted prudently or with due diligence: Eridania S.p.A. v Rudolf A Oetkeer (The 'Fjord Wind') [2000] 2 Lloyd's Rep 191 at 199 [24] per Clarke LJ. In Great China Metal 196 CLR at 174 [27], 194 [86], Gaudron, Gummow and Hayne JJ and McHugh J said that 'seaworthiness' was to be ascertained by reference to the voyage to be undertaken, applying what Williams J had said with the concurrence of Rich J (as the majority) in Cotter 66 CLR at 663. There, Williams J applied the following passage taken from Carver on Carriage by Sea (which was adopted by Channell J in McFadden v Blue Star Lines Ltd [1905] 1 KB 697 at 706 and by Scrutton LJ in FC Bradley & Sons Ltd v Federal Steam Navigation Co Ltd (1926) 24 Ll. L. Rep 446 at 454): 'The ship must have that degree of fitness which an ordinary careful owner would require his vessel to have at the commencement of her voyage having regard to all the probable circumstances of it. Would a prudent owner have required that it should be made good before sending his ship to sea, had he known of it?' 186 Clarke LJ said that the only relevance of the standard of the reasonably prudent owner '… is to ask whether, if he had known of the defect [his Lordship's emphasis], he would have taken steps to rectify it' (The 'Fjord Wind' [2000] 2 Lloyd's Rep at 199 [24]). 187 Scrutton LJ held that the vessel has to be 'reasonably fit' (FC Bradley 24 Ll. L. Rep at 454). He also held that it was well established that a ship was not unseaworthy, at the beginning of the voyage, because of a defect which could easily be rectified on the voyage in the ordinary course of management, giving the well known example of an open porthole used in Steel v State Line Steamship Co (1877) 3 App Cas 72 (see too Gilroy Sons & Co v WR Price & Co [1893] AC 56 at 64, 66, 67). Scrutton LJ said that, if an open porthole could be at once discovered and closed, the fact that it was open was not unseaworthiness, whereas if it were in such a position that it could not reasonably be discovered or reached on the voyage so as to close it, the vessel was unseaworthy (24 Ll. L. Rep at 455). His Lordship continued (24 Ll. L. Rep at 455): 'But there are other cases where the facts, if known, would not be considered by a prudent owner, in the existing state of knowledge, dangerous; and also where, if the danger were known, the existing appliances on the ship could be used to remedy it, even if more suitable appliances were, after the danger was known, inserted. In such a case the ship would be seaworthy, though subsequent knowledge would have required different use of the existing appliances and even of more suitable appliances.' 188 In the House of Lords (FC Bradley & Sons Ltd v Federal Steam Navigation Co Ltd (1927) 27 Ll. L. Rep 395), Viscount Sumner (with whose speech Lords Carson, Atkinson, Wrenbury and Blanesburgh agreed), said in dealing with a case of alleged inadequate ventilation of a cargo of Tasmanian apples (27 Ll. L. Rep at 397): 'Nor could the ship be said to have been sent to sea in an unseaworthy condition, on the ground that the stoppage of ventilation could not be undone in case of need - if, for example, damage was found to be extending in the cargo - for, if ventilation was required, the ship had very ready means of admitting air when necessary, by opening hatches and so forth; and to the extent to which, according to the knowledge of the time, this might be requisite, the officers were free and able to do so. They were not sent to sea fettered by inviolable orders never to alter the ventilation system at all, but they were instructed in what was believed to be the better system, and in general they kept the holds sealed.' 189 The test of seaworthiness expressed in the passage from Carver is of course but one way of putting the matter (see Boyd SC and Burrows AS, Scrutton on Charterparties and Bills of Lading (20th ed, Sweet & Maxwell, 1996) at 97; The Arianna [1987] 2 Lloyd's Rep 376 at 386 per Webster J citing Kerr LJ in The Derby [1985] 2 Lloyd's Rep 325 at 332). Importantly, Viscount Sumner said (27 Ll. L. Rep at 396): 'In the law of carriage by sea neither seaworthiness nor due diligence is absolute. Both are relative, among other things, to the state of knowledge and the standards prevailing at the material time. The words "properly equipped" in the [Sea Carriage of Goods Act 1904 (Cth)] also, in my opinion, import no absolute propriety, whatever that may be, but must be read as being relative only. For seaworthiness, the material time is the date of sailing; for due care, the period of the voyage.' 190 That statement was approved by the Supreme Court of Canada in Western Canada Steamship Co Ltd v Canadian Commercial Corporation [1960] SCR 632 at 643; [1960] 2 Lloyd's Rep 313 at 319 per Ritchie J (with whom Locke, Cartwright, Martland and Judson JJ concurred). McNair J applied the test in MDC Ltd v NV Zeevaart Maatschappij 'Beursstraat' [1962] 1 Lloyd's Rep 180 at 186, saying: 'It seems to me that, using that test, the shipowner who knows that in the ordinary way cargoes of this kind will inevitably suffer some minor damage by way of condensation staining or wasting of a few bags would not hesitate to send this ship to sea even though he knew that, if the ship had a bit of bad luck, she might run into some weather which involved rather longer periods of closing the hatches than would have been involved on another voyage.' 191 Article 3 r 1 is not in the absolute terms which the previous common law warranty of seaworthiness imported into a contract of carriage of goods by sea. The common law warranty of seaworthiness required the ship owner to have '… the ship reasonably fit for the carriage of the goods': Tattersall v National Steamship Company Limited (1884) 12 QBD 297 at 301 per AL Smith J; applied in Atlantic Shipping and Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250; see too Steel 3 App Cas 72 at 76-77 per Lord Cairns LC. Lord Blackburn said (in Steel 3 App Cas at 86) that in every contract to carry goods in a ship, unless there be something stipulated which should prevent it, the carrier promises that the ship shall be fit for its purpose. He continued: 'That is generally expressed by saying that it shall be seaworthy; and I think also in marine contracts, contracts for sea carriage, that is what is properly called a "warranty", not merely that they should do their best to make the ship fit, but that the ship should really be fit.' 192 That rigour of obligation was reduced by the obligation created in the Hague Rules and the amended Hague Rules that the carrier was bound to exercise only due diligence to make the ship seaworthy and to make the holds, relevantly, fit and safe for the reception, carriage and preservation of the goods that were to be carried (see also s 17 of the Carriage of Goods by Sea Act 1991 (Cth) which negates for Australian contracts of carriage of goods by sea any absolute warranty of seaworthiness). Williams J in Cotter 66 CLR at 663 (Rich J agreeing) referred with approval to Channell J's statement in McFadden [1905] 1 KB at 706 that the absolute warranty of seaworthiness meant that ignorance of the shipowner of any defect in the vessel was no excuse. 193 And, as Auld LJ pointed out in Northern Shipping Co v Deutsche Seereederei G.m.b.H. (The 'Kapitan Sakharov') [2000] 2 Lloyd's Rep 255 at 271, 'unseaworthiness is a physical state'. Thus loading a cargo in a sealed container, which contained dangerous goods that were not declared to the carrier, was held to make a vessel unseaworthy because, its physical state, with that cargo, endangered her. But, the English Court of Appeal was not prepared in those circumstances to extend the reach of Art 3 r 1 to impose the liability which the common law warranty of seaworthiness entailed. Auld LJ explained that the inescapable personal obligation of a carrier to exercise due diligence, as applied in Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807 at 871: '… did not extend it to a responsibility for the conduct of manufacturers or exporters, or of shippers in their stuffing of containers and description of their contents; see also Maxine Footwear Co. Ltd. v. Canadian Government Merchant Marine Ltd ([1959] AC 589), per Lord Somervell at ... 602. In my view, there is no warrant in the facts of those cases or the rationes of them for extending a carrier's duty of due diligence as to the structure and stowage of its ship to a physical verification of the declared contents of containers or other packaging in which cargo is shipped, unless put on notice to do so. As Mr. Macdonald observed, in the case of shipper-packed containers - the norm nowadays - the containers are, in any event, closed with a customs seal and not capable of internal examination by the carrier or his agents.' ([2002] 2 Lloyd's Rep at 272; Brooke and Hale JJ agreed.) 194 Auld LJ said that neither at common law nor under the amended Hague Rules was the carrier responsible for unseaworthiness of its vessel '… resulting from a shipper's misconduct of which it, the carrier, has not been put on notice' ([2000] 2 Lloyd's Rep at 273). He equated this to a latent defect in cargo which a carrier could not with the exercise of reasonable skill and care have detected in the cargo. That is not apposite to a case like this.

SEAWORTHINESS, DUE DILIGENCE AND ARTICLE 4 RULE 2 195 The carriers here were aware that this cargo was susceptible to corrosion. The carriers argued that the insufficiency of packing exception in Art 4 r 2(n) evinced an intention in the amended Hague Rules to allocate risk between carrier and shipper interests. They said that the judge had subverted the scheme of risk allocation which the amended Hague Rules effected by imposing an absolute obligation on the carriers not to permit the entry of water vapour into the hold. 196 The carriers' argument eschews the factual context. They had accepted the cargo as being in apparent good order and condition for the carriage on the voyage. The carriers knew of the sensitivity of the cargo to the effects of water vapour, and, in particular, to cargo sweat. The cargo bore its own, visible, warning sign that it should be kept dry. Under the settled interpretation of the amended Hague Rules, Art 3 r 1 operates to impose an obligation on the shipowner at a time before, and independently of, the operation of Art 3 r 2 and Art 4. The carriers had to conform to their obligations under Art 3 r 1 to exercise due diligence to make the vessels both seaworthy and cargoworthy in the senses explained above. There was nothing unusual about the cargo which the shipper (Tsuda) or Stemcor needed to reveal to the carriers, for the evidence showed its relevant characteristics were well known, unlike the characteristics of the fish in Albacora S.R.L. v Westcott and Laurance Line Ltd [1966] 2 Lloyd's Rep 53. And the evidence justified the judge's finding that the packaging was usual. 197 In that context, the obligation to exercise due diligence under Art 3 r 1 must relate to the known characteristics of the vessels on a voyage at the time of year between Yokohama to Sydney to experience condensation or cargo sweat. The exercise of due diligence had to have regard to the likelihood that either free water or water vapour would be present in the holds. And due diligence required preparation of the holds for the real possibility that it may not have been possible to ventilate them or, if it were, that water vapour could then enter the holds, because the temperature measurement methodologies available on the vessels were not sufficiently precise to ensure that condensation or cargo sweat would not occur. These issues are considered in more detail later in these reasons. Suffice to say that, in striking a practical balance for the exercise of due diligence under Art 3 r 1, his Honour was correct to avoid using Art 4 r 2(n) to confine or reduce the due diligence the carriers had to undertake to prepare the vessels for the voyage, on which known conditions, harmful to the cargo, were well understood but not the subject of reasonable efforts to eliminate them (see too Associated Metals & Minerals Corp v M/V Olympic Mentor 1997 AMC 1140 at 1155 (USDC S.D. NY)).

SEAWORTHINESS AND DUE DILIGENCE - OTHER ISSUES 198 The judge noted that water had entered the holds on and within other items of cargo that were loaded, including timber packaging and dunnage. The amount of water in the holds meant that condensation during the voyages was virtually inevitable unless a proper method of removing the moisture were in place. The holds were more than 84 metres long and more than 15 metres wide. The amount of water that was required in the hold of either vessel for condensation to occur was 68 litres. 199 His Honour found that there was no evidence that the hatches of either vessel were defective in any way so as to render them unseaworthy or not fit and safe for the reception and carriage of the coils. And there was no evidence of any leakage of moist air into the hold of either vessel through the hatch covers. He found that the parallel increases in temperature inside and outside the holds could be explained by the conduction of heat through the structure of the vessels as well as inevitable breathing through holds that were not defective, and that, as the temperature of the outside air and water rises, one would normally expect the temperature of a vessel and its holds to follow that rise. The primary judge found that the evidence did not establish that the use of heaters in vessels was a common place, and that there was no evidence that enabled any finding of unseaworthiness to be made because of absence of any heaters in the holds.

SEAWORTHINESS AND DUE DILIGENCE - DEHUMIDIFIERS 200 The primary judge, however, held that the Ankergracht and the Archangelgracht were unseaworthy at the commencement of their respective voyages because of the absence of dehumidifiers to remove water from the holds. 201 The judge found that there was no evidence that general cargo carrying vessels such as the Ankergracht and the Archangelgracht were regarded as unseaworthy merely because they did not have dehumidifiers fitted. And he said that there was no evidence that the absence of a dehumidifier on a general cargo carrying vessel meant that the hold was not regarded as fit and safe for the carriage and preservation of steel coils 'of the nature in question' (i.e. with the sensitivity of unchromated and unpassivated cold rolled steel). His Honour found that there was no evidence of any industry practice, standard or custom for coils of this nature to be carried only on vessels with dehumidifiers. He also said there was no evidence of any industry practice or custom as to the temporary installation and use of dehumidifiers or of any example of such use either generally or for the carriage of steel coils of this particular kind. 202 Nonetheless, his Honour reasoned that due diligence required that at least temporary dehumidifiers should have been installed in each vessel for the two voyages. He noted, based on the evidence of Capt Frost, an expert marine surveyor called by Tsuda and Stemcor, that dehumidification systems had been used on vessels carrying moisture sensitive cargoes for many years prior to the voyages in question. He said that, since 2003, vessels operated by PAS which were fitted with dehumidifiers had been carrying similar coils with no incidents of corrosion, although there was no evidence as to whether dehumidifiers were operated during the voyages. 203 In his written evidence in chief, Capt Frost said that it was well accepted in the shipping industry, and had been since well before the two voyages in question, 'that … some steel cargoes are particularly susceptible to corrosion damage.' Indeed, the carriers' expert witness, Capt Pyett, had said: 'You're - you weren't suggesting by that answer that the cold rolled aluzinc or galvanised coils, lightly oiled and not chromated, is something new to you? --- No, that's quite a normal product.' 204 Capt Pyett said that a master of a vessel accepting a cargo of steel like those the subject of the proceedings, would be required to inform himself at the time of loading as to the type of cargo and its susceptibility to damage, such as that from corrosion. He continued: '--- Yes, provided it's nothing special about the cargo, yes. There's nothing special about this particular cargo. Cold rolled steel has been shipped on board vessels of this nature for many years, correct? ---That's true. But in the event that somebody booked this type of cargo on board a ship, you would expect a master to appreciate that it was a cargo with a particular susceptibility and to take whatever steps are necessary to protect that cargo, correct? --- Yes. … The susceptibility of cold rolled steel has been known to those involved in the shipping of that steel for many years; would you agree to that?--- Susceptibility to what? To corrosion damage? --- Yes, that's reasonable to say. In the event that a carrier was to carry coils of this nature, having regard to that susceptibility a reasonably prudent master would take steps to ensure that moisture was not brought into contact with the cargo during the course of the voyage; correct? --- Yes.'

205 This approach accorded with the evidence given by Capt Frost. He said it was the duty of a master employed on a vessel engaged in the carriage of cargo to have a knowledge of the cargo that the vessel carried and its management. He explained that this would include the stowage and securing requirements and 'the properties and sensitivities of the particular product and the means by which that cargo may be safely carried'. 206 Capt Pyett gave evidence that when shipping steel coils from cool to warm climates '… it is inevitable in my opinion that there will be some cargo or ship sweat'. He said that, subject to weather conditions, it was often appropriate to ventilate the holds in the earlier stages of the voyage to remove moist air. 207 The carriers asserted that there was no evidence to support the judge's finding that standard practice in the shipment of steel from cold to warmer climates is not to ventilate the hold. But, his Honour clearly accepted the expert evidence of Capt Frost who said that the practice with non-hygroscopic cargoes, such as steel, was never to ventilate. However, he also said that where water or fine moisture got into a ship's cargo space, it was necessary to remove the moisture from the hold. One way to do so, advocated by Capt Frost, was to use a dehumidifier. He was then asked: 'But if you don't have a dehumidifier on board your vessel, that obviously can't be employed? --- It presents you a problem, yes. Another way which it can be done is ventilating the whole space, correct? --- If - it can be done if the conditions for ventilation are available to you. They may not.'

208 I am of opinion that his Honour was not only entitled, but was correct, to make his findings concerning: · the knowledge which a carrier in the position of the owners of the Ankergracht and the Archangelgracht had or ought to have had about the sensitivity to corrosion which the steel coils the subject of the proceedings may have had to corrosion, including from cargo sweat; · the state of knowledge of the vessels' masters and owners; · the precautions that needed to be taken to prepare, with due diligence, each vessel and its hold to receive, and then, with due diligence, to care properly for this particular type of cargo on a voyage in the conditions in which the two vessels sailed from Yokohama to Sydney.

PRACTICALITY OF USING OR INSTALLING DEHUMIDIFICATION SYSTEMS 209 Stemcor and Tsuda argued that his Honour was entitled to proceed on the basis of accepting the expert evidence of Capt Frost. Capt Frost had studied at the University of Southampton and obtained a Masters Certificate in 1977. His experience at sea had been with the United Kingdom Ministry of Defence where he obtained the rank of Second Officer Cadet Training. Since 1977, however, he had been exclusively employed in the business of marine surveying. He had only had experience of steel coil losses in respect of the present proceedings. He had never been involved in installing portable dehumidifiers on a bulk vessel and had never surveyed a vessel in Sydney which had had a portable dehumidifier on board carrying steel cargo. 210 Capt Frost said he was aware of ships that had permanent dehumidification systems, such as the Cape Darby, which had been built in 2001. He was aware, however, of ships built in the 1980s that had permanent dehumidifiers and carried bulk steel cargoes. He had served on general cargo vessels with multiple hatches, upper, lower and tween decks and which were fitted with installed dehumidification systems. Those ships sailed on the Europe-Japan route. 211 There was evidence, which his Honour accepted, that dehumidification units were commonly installed on ships and that such units were available for installation on the vessels at Yokohama at the time of the voyages in question. He found that installation of dehumidification systems on either a temporary or permanent basis was reasonably practicable in the circumstances for each of the Ankergracht and the Archangelgracht. 212 In practical terms the primary judge found that a number of matters needed to be arranged for the installation of dehumidifiers prior to each vessel sailing on the voyage to Sydney. First, electrical supplies and specifications for the dehumidifiers would have to comply with those of the vessel. Next, modifications would be required to each vessel including to their structures. It would be necessary to ensure that those modifications were structurally sound and watertight. Classification society approval of the installations would be required and there may have been a need for additional equipment such as alternators, generators and condensate storage tanks. A lead time would be required for the preparatory work and modifications, even if temporary. His Honour found that the time for installation would be 2-3 weeks for delivery of components, 3-4 days for the installation and commissioning, and 1 day for survey and testing. He said that that time had to be contrasted with the usually short duration of a vessel's stay in port for unloading and loading and the relatively short time between production of the coils and their shipment. 213 There were 3 different types of dehumidifier which might have been installed, costing about AUD200,000 each or AUD22,000 per month to hire. His Honour found that an appropriate method of fitting the dehumidifiers would have been to mount them on the tween deck pontoons, with 2 units fitted forward in the cargo hold and 2 fitted aft. Each unit weighed between 400 and 500 kilos but that difference would not affect the installation. The 3 different types of units had similar performance characteristics. When operating they would have consumed about 577 litres of diesel for the voyage from Yokohama to Sydney. The vessel's inbuilt power system or separate generators temporarily fitted on deck would have been able to generate the power of 184 kilowatts required to ensure the operation of the units. His Honour found that the 3 diesel driven generators and 1 shaft generator fitted on the vessel had an output of 320 kilowatts and would therefore have had sufficient electrical power to run the dehumidification units. 214 The cranes on the vessel would have to be isolated when the dehumidifiers were operating and cables could be run from the No 1 and No 2 cranes through deck penetrations to the dehumidification units. Air supply for the dehumidifiers could be taken from the ventilation fans by use of flexible trunking fed from the cargo hold ventilation systems. 215 His Honour found that the employment of dehumidifiers could have an impact on the cargo carrying capacity of the vessels and there may be costs involved in the return of any units which had been installed temporarily. He said that the carriers did not adduce any evidence as to the loss of opportunity cost or the costs of returning hire equipment to the port of loading. He did note that the vessels in question travelled regularly on the Japan-Australia route. The cost of carrying out installation either in Japan or Australia would have been between AUD67,400 and AUD115,406. The judge said that the question of whether expenditure of up to AUD115,406 for the installation of the dehumidifiers could be regarded as reasonable had to be gauged in light of the following factors: · The freight earned by the carriage of coils in respect of the Ankergracht was USD75,909.70, and in respect of the Archangelgracht, USD57,164.24. · Stemcor and Spliethoff had entered into a year long affreightment contract which required the use of Spliethoff's vessels to ship any steel for Stemcor unless no Spliethoff vessel was available at the time. · There was no evidence that the carriers had any knowledge of the value of the coils. There was no disclosure of value on the bills of lading or other documents provided to the carriers. 216 The carriers complained that his Honour was in error in having regard to the year long contract between a third party, Spliethoff, and Stemcor. The primary judge referred to the possibility that the cost of installing dehumidifiers may not have been one the carriers wanted to incur. He was mindful that this was a commercial matter of some significance. He said the cost could have been factored into the freight for the particular voyage or for the period of the affreightment contract. While his Honour said the affreightment contract was a factor to be considered in the incurring of expense by the carrier in installing dehumidifiers, he did not use the existence of that contract in an impermissible way. What his Honour said was that the recovery of the expenditure could have been achieved by the carriers or Spliethoff in one of a number of ways, including through the affreightment contract. That method was a commercial matter open for the carriers to consider in response to their complaint concerning the financial burden which a finding of unseaworthiness would impose on carriers. The judge did not say that it was unreasonable for the carriers to recover the cost as part of the freight for voyages in question. I do not consider that his Honour erred in this part of his reasoning. 217 In my opinion, the carriers had to install dehumidifiers in the present circumstances if they were to exercise due diligence, regardless of the affreightment contract. This consequence of the obligation of a carrier under Art 3 r 1 flows from the carriers' decision to offer each vessel to carry the particular cargo. A reasonable carrier can have regard to the longer term benefit accruing to it (including the ability to fulfil contractual obligations of related parties such as Spliethoff under the affreightment contract) in weighing up whether to accept a cargo and improving the vessel, eg by installing dehumidifiers, so as to comply with Art 3 r 1. Due diligence to make the vessel seaworthy for carrying particular cargo may be very expensive. In the present case the expenditure could be for temporary or permanent appreciation of the carrier's asset, namely the vessel. A prudent owner, in deciding to carry a particular cargo, would be able to, and ordinarily would, weigh in making its decision the cost of improving its vessel to make her cargoworthy for that cargo. One factor is that the improvement could enable the carrier to earn the freight not just for that cargo, but in the future, for similar ones. 218 The judge said that the decision to offer the vessels for loading should only have been made after the exercise of due diligence in arranging for the installation of dehumidifiers. He concluded: 'However, in circumstances where the coils in question were known to be sensitive to moisture and it was known or ought to have been foreseen by the Carriers that water would be admitted into the holds on other cargo and on dunnage and possibly because of rain, the vessels were not seaworthy for the purpose of carrying the coils in question on the voyages in question at the relevant time of year. In the light of those circumstances, it was reasonable for the Carriers to take steps to ensure that water could not be admitted into the holds or, if that was not practicable, to install a dehumidification system to remove excess water from the holds and ensure that the dew point temperature of air in the holds would not fall below the surface temperature of the coils. The failure to do so was a failure to use due diligence to make the vessels seaworthy or, putting it another way, to make the holds fit and safe for the carriage and preservation of the coils.' 219 The carriers contend that his Honour's reasoning on the question of seaworthiness has significant implications for cargo carriers engaged in north-south trade. His Honour commenced the discussion of the carrier's obligation of due diligence for the purposes of Art 3 r 1 by saying: 'A carrier must demonstrate that it has exercised all reasonable skill and care to ensure that the vessel is seaworthy at the commencement of the voyage. The test to be applied is an objective one. The carrier must act in accordance with international standards and the standards of a reasonable carrier in the particular circumstances of the problem at hand. The more serious the consequences of seaworthiness, the greater the effort that should be made to make the vessel seaworthy.' (emphasis added) That statement of the test accords with what Auld LJ said in The 'Kapitan Sakharov' [2000] 2 Lloyd's Rep at 266. 220 There was no evidence that the vessels were not fit to carry cold rolled steel cargoes which were either chromated or passivated. Nor was there any suggestion that other steel cargo had suffered corrosion from the effects of cargo sweat on either voyage. Moreover, as his Honour found, a very small amount of water, 68 litres, in the considerable size of the 16,000m3 holds of the two vessels, was all that had to be present to cause damage of the kind suffered. As the judge found, and Capt Frost's and Capt Pyett's evidence showed, the carriers ought to have been aware that these cargoes had particular susceptibility to corrosion. Even so, the carriers argued that they were not informed by Tsuda, as shipper, or by Stemcor, of this susceptibility or the exact nature of these cold rolled steel coils as being unpassivated and unchromated. The presentation of the steel coils was in packaging which made it physically indistinguishable from other kinds of steel. Each coil had the open umbrella symbol with 'keep dry' on it to indicate what common sense would suggest with steel cargo, that it should be kept dry. 221 There was no evidence or finding that other steel cargoes required the installation of dehumidifiers on the two vessels for them to be safely carried from Yokohama to Sydney. Indeed, Mr Whitehead's May 2003 memorandum was evidence that other steel, which was chromated and packaged in the same way, was carried at the same times, and discharged at Sydney in a sound condition. 222 The primary judge was correct to have found on the evidence that each vessel was unseaworthy and the holds were not fit and safe for the reception, carriage and preservation of the coils. The evidence demonstrated that, as the judge found, this type of cargo required special treatment to avoid the risk of corrosion. The carriers knew or ought to have known of that risk because the cargo was not unusual. The coils would be exposed to damage by reason of: · the weather conditions prevalent in Yokohama in the winter; · the actual weather conditions at the time of loading at Yokohama; · the loading of wet cargo and dunnage; · the inability of the crew to dry all wetted cargo, or even to mop up all moisture because of the way cargo was stowed and cargo operations; · the likelihood of conditions in the holds which would give rise to cargo sweat. 223 There was ample evidence to support his Honour's finding that the amount of water in the holds at the time the vessels loaded meant that condensation during the voyages was virtually inevitable. I agree with that finding. The risk of corrosion could have been avoided if the carriers had chosen to fit dehumidifiers at Yokohama when the Ankergracht and the Archangelgracht accepted the cargoes for loading.

DUE DILIGENCE - PRINCIPLES 224 The carriers argued that Art 3 r 1(c) omits the definite article before the words 'goods are carried' in contradistinction to Art 3 r 2. This, they said, suggested that the due diligence required to make the ship seaworthy or cargoworthy related generally to the carriage of goods, as opposed to the carriage of the particular goods presented. No authority was cited by either side as to this question of construction. But, at common law, the ship had to be fit to carry the particular goods presented for her to be seaworthy. Under the amended Hague Rules the objective test of seaworthiness, including cargoworthiness, requires that the ship be fit as a receptacle to carry the shipper's cargo as presented. The carrier's obligation under the amended Hague Rules is not now an absolute warranty. It is measured by asking whether the carrier has exercised due diligence in preparing the vessel and its holds to receive and carry safely the cargo, presented as it was. Lord Devlin once said that lack of due diligence under Art 3 r 1 was negligence, and that where an error of judgment occurred in what was to be done to prepare a vessel, the question was whether the error amounted to professional negligence (Union of India v NV Reederij Amsterdam ('The Amstelslot') [1963] 2 Lloyd's Rep 223 at 235 (HL)). 225 In order to be able to exercise due diligence to prepare the vessel for the reception of goods on the next voyage, the carrier must have some knowledge of what it is that will be carried. Williams J explained that the obligation under a provision such as Art 3 r 1 was not that of an insurer but one that due care would be used, so that a plaintiff must prove not only that the defective condition of the vessel made her unseaworthy, but also that the failure to discover the defect before the voyage began was due to negligence (Cotter 66 CLR at 665). 226 The questions of seaworthiness and whether due diligence has been exercised are, of course, questions of fact (see Paterson Steamships Ltd v Canadian Co-operative Wheat Producers Ltd [1934] AC 538 at 543 per Lord Wright). Lord Wright said that all this required was that all necessary and reasonable precautions should be taken. He referred to the distinction between bad stowage and '… that type of unseaworthiness which does not endanger the ship, but involves damage to the cargo in her'. Practice in the industry also bears on the answer to this factual question (FC Bradley 27 Ll. L. R. at 396 per Viscount Summer; Paterson Steamships [1934] AC at 542-543; Great China Metal 196 CLR at 194 [86], [88], [89] 216-217 [143] ). 227 Where unseaworthiness and a failure to comply with the obligation of due diligence imposed by Art 3 r 1 is a cause of the loss, the fact that some other excepted cause under Art 4 r 2 may have operated concurrently will not relieve the carrier (Paterson Steamships [1934] AC at 550-551). And in Riverstone Meat [1961] AC at 839 Viscount Simonds cited with approval Brown J's explanation in the Colima 82 Fed. Rep 665 (1897) at 678 of the statutory qualification of due diligence on the common law absolute warranty of seaworthiness. Judge Brown had said that the difference: '… is of great importance, as it avoids responsibility for latent and undiscoverable defects. But the warranty of diligence remains: and this requires the application of the usual rule, that the acts and negligences of the agent are deemed those of the principal.' 228 Lord Radcliffe described the manner in which the carrier's obligation had to be examined as follows: 'It is to ask the question, when there has been damage to cargo and that damage is traceable to unseaworthiness of a vessel, whether that unseaworthiness is due to any lack of diligence in those who have been implicated by the carriers in the work of keeping or making the vessel seaworthy.' (Riverstone Meat [1961] AC at 862) He explained that the policy behind treating the obligation in Art 3 r 1 to exercise due diligence to make the ship seaworthy was not equivalent to 'due diligence to see that the ship is made seaworthy'. He said this offered protection to the cargo owner who could not have any control over the vessel or what had been done to it in order to prepare it for the voyage. In contrast, the carrier had some form of ownership or control over the vessel and thus it was appropriate to impose a measure of responsibility for seeing that it was fit and in proper condition for the carriage undertaken (Riverstone Meat [1961] AC at 863). 229 As Lord Reid said in Albacora [1966] 2 Lloyd's Rep 53 at 58 in relation to the obligation under Art 3 r 2 to properly and carefully carry the goods: 'In my opinion, the obligation is to adopt a system which is sound in light of all the knowledge which the carrier has or ought to have about the nature of the goods.' (Lords Guest and Upjohn agreed at 60, 63; see too Shipping Corporation of India Ltd v Gamlen Chemical Co (A/Asia) Pty Limited (1980) 147 CLR 142 at 163, 167 per Mason and Wilson JJ (with whom Gibbs J and Aickin J agreed at 149, 168).) But, in Albacora [1966] 2 Lloyd's Rep 53, the cargo was unusual for such a voyage. It was not proved or argued that the carrier ought to have been aware that the wet salted ling fillets that were carried required refrigeration. The only instructions given by the consignor were that the cases containing the cargo should be kept away from engines and boilers (Albacora [1966] 2 Lloyd's Rep at 57). And Lord Pearce quoted with approval from what Viscount Sumner had said in FC Bradley 27 Ll. L. Rep at 399, namely: 'The carrier has at least some means of controlling his crew and has full opportunity of making his ship seaworthy, but of the cargo he knows little or nothing and, as the shipper has the advantage over him in this respect, he must bear the risks belonging to the cargo.' 230 The word 'properly' in Art 3 r 2 of the amended Rules was held by the House of Lords in Albacora [1966] 2 Lloyd's Rep at 53, following GH Renton & Co Ltd v Palmyra Trading Corporation of Panama [1957] AC 149, to add something to the word 'carefully' in Art 3 r 2. Their Lordships construed 'properly' to mean 'in accordance with a sound system'. Lord Pearce, in Albacora ([1966] 2 Lloyd's Rep at 62) said that a sound system did not mean a system suited to all the weaknesses and idiosyncrasies of a particular cargo, but a sound system under all the circumstances in relation to the general practice of carriage of goods by sea. He said that it was tantamount to efficiency.

DUE DILIGENCE - CONSIDERATION 231 The trial judge found that in order to satisfy the obligation of due diligence under Art 3 r 1 of the amended Hague Rules, the carriers had to install dehumidifying equipment, either on a temporary or permanent basis, once they agreed to carry the cargo on each vessel. 232 Here, it was not inevitable that all cold rolled steel in coils would suffer damage from cargo sweat in the ordinary incidents of the voyage from Yokohama to Sydney. That must be so because a considerable number of the coils on both voyages arrived without damage from cargo sweat. So, there was no inevitability of damage being sustained to every one of the coils in the ordinary incidents of the voyage. But, there was, on the evidence, a real and significant risk that cargo sweat would occur - indeed Capt Pyett had said it was inevitable. And if cargo sweat occurred, there was a real risk that ventilation would not be able to be used effectively or at all to remove moisture or the risk of corrosion. 233 Of course, the fact that a considerable number of coils was carried safely is not, of itself, determinative of the issue of seaworthiness. In Burges v Wickham (1863) 3 B & S 669 at 690-691 Blackburn J pointed out that, as a matter of fact, a vessel, though far from seaworthy, may, and often does, successfully perform a voyage, and so proves in one sense capable of performing it, while a seaworthy vessel may, and often does, perish without any extraordinary accident. Thus, he pointed out that there must be some other criterion by reference to which one should determine seaworthiness. He held that because the standard of seaworthiness can be raised by improvements in technology and knowledge, no fixed degree of capacity to encounter the perils of the voyage is necessary to constitute seaworthiness. As he said (Burges 3 B & S at 693-694) of the warranty of seaworthiness in a policy of marine insurance: 'A merchant in old times about to send out a vessel, if he did his utmost to fit her for what was then a perilous voyage, fulfilled his duty to his co-adventurers who risked their goods, and the crew who risked their lives, on board the vessel; if he did so to the extent which was then usual and of course in the transaction, he could not be expected to do more than was then practicable; but a modern ship owner, who was to send a ship on the same voyage no better fitted than the ancient vessel, would not fulfil his duty to either one or the other, for the very reason … that the standard of seaworthiness had been raised.' 234 Blackburn J said that the vessel should be put into that state of fitness into which a prudent owner, uninsured, would, as of course, put his vessel and that that state would increase with the increased power to put her in a fit state. Seaworthiness was therefore to be seen as being relative to the kind of adventure (see also Great China Metal 196 CLR at 174 [27], [30] per Gaudron, Gummow and Hayne JJ; 194 [86] per McHugh J; Cotter 66 CLR at 663). 235 Carriage of goods by sea inherently involves certain risks on each voyage. The amended Hague Rules seek to distribute responsibility for those risks between the carrier and the cargo owner. In both Gamlen Chemical (147 CLR 142 at 166) and Great China Metal (196 CLR 161 at 176-181 [38]-[51]) the High Court held that sea and weather conditions which may reasonably be foreseen and guarded against could nonetheless constitute a peril of the sea for the purposes of the exception of the carrier from liability under Art 4 r 2(c). But, the carrier cannot bring itself within the exception for any loss or damage to cargo by the action of the sea which, as Mason and Wilson JJ explained (in Gamlen Chemical 147 CLR at 166), '… could be avoided by reasonable care on the part of the carrier'. This is important because the obligation under Art 3 r 2 properly and carefully to carry, keep and care for the goods carried is subject to the exception in Art 4 r 2(c), which can apply even where the master knows that the vessel may sail into very rough weather but continues the voyage in circumstances where he or she is acting with skill and prudence (147 CLR at 166). And, of course, carriers know that there will be a risk of encountering such conditions as are comprehended in the expression 'perils of the sea' when they prepare the vessel to sail. 236 Due diligence in Art 3 r 1 does not require the carrier to prepare the ship to encounter every foreseeable incident of the proposed voyage. The emphasis on due diligence in Art 3 r 1 is on the carrier acting as a prudent owner, preparing the vessel and its holds for the voyage and cargo. McHugh J in Great China Metal 196 CLR at 194 [88] described the obligation of the carrier under Art 3 r 1 as being to carry the goods in a ship which is adequate in terms of its structure, manning, equipment and facilities having regard to the voyage (including anticipated weather conditions - see 196 CLR at 194 [86]) and the nature of the cargo. 237 Nonetheless, the carriers argued that it is a large thing to require a shipowner to undertake substantial structural work, even on a temporary basis, to alter its vessel in circumstances like the present where this cold rolled steel had a particular susceptibility to damage from cargo sweat. They argued that the practice to wipe or mop up moisture on cargo and the vessel together with proper ventilation of the vessel during the voyage could have avoided the incidents of cargo sweat entirely. Thus, they contended, no breach of Art 3 r 1 could be found because the vessels were seaworthy, since they could carry the coils safely and they were following appropriate practices to remove moisture by the methods they adopted. 238 The common law warranty of seaworthiness required of carriers 'not merely that they should do their best to make the ship fit, but that the ship should really be fit': Steel 3 App Cas at 86 per Lord Blackburn. Thus, a ship will be unseaworthy if she is not equipped with the latest, most up-to-date, charts for use on the intended voyage. The corollary of this is that the carrier will not have exercised due diligence for the purposes of Art 3 r 1 of the amended Hague Rules simply by appointing a competent master and leaving all questions of safe navigation entirely to that master, including the obtaining, at their expense, of all necessary charts and other nautical publications: Grand Champion Tankers Ltd v Norpipe A/S (The Marion) [1984] 1 AC 563 at 572 D-E per Lord Brandon of Oakbrook; Sanko Steamship Co Ltd v Sumitomo Australia Ltd (No 2) (1995) 63 FCR 227 at 274G per Sheppard J. Those cases involved the somewhat different considerations which arise under Art 3 r 1(b), which commences by using the word 'properly' to qualify the obligation to man, equip and supply the ship. Nonetheless, they illustrate that the obligation of the carrier to exercise due diligence under Art 3 r 1 is not insulated from improvements or changes which are capable of affecting the safety of the vessel or the cargo which the carrier agrees to take on board. 239 And these cases show that the obligation of the carrier to exercise due diligence to make a vessel seaworthy or cargoworthy before or at the beginning of the voyage requires attention to the actual nature of the voyage and the cargo to be carried. The obligation to ensure that charts are up to date does not impose on a carrier a requirement to update every possible chart which might be used on every possible voyage, at the beginning of each voyage. Rather the obligation is to ensure that the charts are up to date for the actual voyage which is to be undertaken. 240 Likewise, when a carrier accepts cargo known to be particularly susceptible to corrosion caused by moisture, such as the coils in this case, Art 3 r 1 imposes on it an obligation to exercise due diligence to make the vessel cargoworthy for that cargo, including all its known susceptibilities. Tenterden's Law of Merchant Ships (11th ed, Shaw & Sons, 1867, edited by Shee J) at p 305 adopted Lord Ellenborough CJ's description of the carrier's obligation at common law to provide a seaworthy vessel. He said it required the vessel to be 'tight, and fit for the purpose or employment for which he offers and holds it forth to the public. It is the very foundation and immediate substratum of the contract that it is so': Lyon v Mells (1804) 5 East 428 at 436. 241 Here, the relevant purpose was to carry coils known to have the characteristic of being particularly sensitive to corrosion. Each vessel had to be 'fit for the purpose' if it were to be seaworthy. And each carrier, before and at the beginning of the voyage from Yokohama, had to exercise due diligence to make the vessel seaworthy for the purpose of carrying those very coils. 242 The carriers relied on the absence of evidence of any practice of installing dehumidifiers in vessels, or of the use only of vessels fitted with them, to carry coils of the kind in question. They argued that the Court should not set a standard which was not reflected in the practice of those experienced in the maritime industry. 243 The concept of the role of practice as being relevant to seaworthiness may introduce a confusion into the discussion. Seaworthiness is not an absolute concept but is related to the purpose for which the vessel is engaged at the time of assessment: FC Bradley 27 Ll. L. R. at 396 per Viscount Sumner; see too Papera Traders Co Ltd v Hyundai Merchant Marine Co Ltd (The 'Eurasian Dream') [2002] 1 Lloyd's Rep 692 at 736 [126] per Cresswell J. But the vessel is either fit for the purpose of the particular voyage or it is not (Great China 196 CLR at 174 [28], 194 [86]; Cotter 66 CLR at 663). And, Cresswell J said that seaworthiness is to be judged by the standards and practices of the industry at the relevant time, 'at least so long as those standards and practices are reasonable' (The 'Eurasian Dream' [2002] 1 Lloyd's Rep at 736 [127]). That question of reasonableness is one of law. And the rigour of the requirement is regulated by the qualification in Art 3 r 1 that the carrier must use 'due diligence' to make the ship seaworthy. 244 The senior officers in the crew of each vessel knew of the ambient conditions at the time of loading and of the inadequacy of the methods of wiping and mopping to remove all moisture from the cargo and holds. They also were aware of rain during the loading operations and of wet cargo and dunnage being loaded. This demonstrates that unless it were possible to remove the moisture during the voyage before condensation could occur, the vessels were unseaworthy at the commencement of their voyages from Yokohama, as his Honour found. 245 The argument that there was no practice for dehumidifiers to be present on vessels carrying such coils is, in this situation, unpersuasive. Indeed, as Capt Koenen said: 'If I was to have rejected all cargo to be loaded at Japanese ports such as Yokohama because the cargo had been wetted prior to loading but not otherwise damaged, I would not have carried very much cargo from Japan during that country's winter months.' 246 That was a frank recognition that the carriers' systems for loading cargo during the Japanese winter accepted the risk that it would be wet together with dunnage, and not all the moisture would be able to be removed from vessels' holds. When the carriers loaded coils that were particularly sensitive to moisture, such as those the subject of these proceedings, their failure to have on board the vessels at the time each voyage commenced a dehumidification system meant that the holds and vessels were uncargoworthy for that cargo. There was, moreover, the added risk that if the vessels were to stop at another Japanese port prior to sailing south, more moisture would enter into the holds which could not, with certainty, be removed before any condensation could form. Far from indicating that the crew were mopping the cargo to remove moisture before condensation formed, Chief Officer Van Wijk's evidence showed that the mopping activity occurred after that particular horse had bolted. 247 In Morris v West Hartlepool Steam Navigation Co Limited [1956] AC 552 at 574, Lord Reid said that if a practice had been generally followed for a long time in similar circumstances and there had been no mishap, a reasonable and prudent man might well be influenced by those matters and it might be difficult to say that the practice was so obviously wrong that to rely on it was folly. In Podmore v Aquatours Pty Limited [1984] 1 NSWLR 111 at 116C-D Glass JA (with whom Samuels JA agreed) said that a finding of want of due care could properly be made even though the defendant had obeyed all statutory requirements and followed a common, or even universal, practice. Here, the phenomenon of condensation or cargo sweat was well known. And when the two vessels were being prepared for their voyages, dehumidifiers were a ready means of avoiding the damage which condensation might occasion to coils of the kind in question. 248 Ultimately, it is a matter for the Court to determine whether or not a vessel was seaworthy and whether or not the carriers exercised due diligence to make them so. Evidence, or lack of evidence, about the practices of carriers may be of assistance in reaching such a conclusion. However, it is the responsibility of the Court to determine the question of law on the evidence by the application of a legal standard to the facts. This was emphasised in Rogers v Whitaker (1992) 175 CLR 479 at 487 where Mason CJ, Brennan, Dawson, Toohey and McHugh JJ said that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill. But, they cautioned, 'that standard is not determined solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant profession or trade'. Rather, they held, that was a question for the Court to determine after giving appropriate weight to any professional practice or opinion. 249 So, in Waterwell Shipping Inc v HIH Casualty & General Insurance Ltd (1997) Aust Torts Reports s81-444 Giles CJ in Comm D said that practice is not conclusive as to the appropriate way in which the Court would apply the standard of reasonableness to the conduct of a chief engineer of a vessel in closing or not closing a suction valve (an appeal was dismissed on other grounds: HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601). 250 A similar approach has been applied in the United States: see Wabash Railway Co v McDaniels 107 US 454 (1882) at 460-461 per Harlan J giving the opinion of the Court. In The TJ Hooper v Northern Barge Corporation 60 F2d 737 at 740 (CA2: 1932) (cert. denied 287 US 662) Judge Learned Hand, writing for the Second Circuit Court of Appeals, upheld a finding that tugs were unseaworthy because they had not been equipped with radio receiving sets. He said: 'Is it then a final answer that the business had not yet generally adopted receiving sets? There are yet, no doubt, cases where courts seem to make the general practice of the calling the standard of proper diligence; we have indeed given some currency to the notion ourselves. Ketterer v. Armour & Co. (C. C. A.) 247 F. 921, 931, L. R. A. 1918D, 798; Spang Chalfant & Co. v. Dimon, etc., Corp. (C. C. A.) 57 F.(2d) 965, 967. Indeed in most cases reasonable prudence is in fact common prudence; but strictly it is never its measure; a whole calling may have unduly lagged in the adoption of new and available devices. It never may set its own tests, however persuasive be its usages. Courts must in the end say what is required; there are precautions so imperative that even their universal disregard will not excuse their omission. Wabash R. Co. v. McDaniels, 107 U. S. 454, 459-461, 2 S. Ct. 932, 27 L. Ed. 605; Texas & P. R. Co. v. Behymer, 189 U. S. 468, 470, 23 S. Ct. 622, 47 L. Ed. 905; Shandrew v. Chicago, etc., R. Co., 142 F. 320, 324, 325 (C. C. A. 8); Maynard v. Buck, 100 Mass. 40. But here there was no custom at all as to receiving sets; some had them, some did not; the most that can be urged is that they had not yet become general. Certainly in such a case we need not pause; when some have thought a device necessary, at least we may say that they were right, and the others too slack.' That approach was cited with approval by Brennan J, giving the opinion of the Court, in Salem v United States Lines Co 370 US 31 (1962) at 37, and described as a 'classic opinion' recently in Surles v Greyhound Lines Inc 474 F3d 288 (CA6: 2007) at 301. (See too Tug Ocean Prince, Inc. v United States 584 F2d 1151 (CA2: 1978) at 1156-1157 and Marshall v Ove Skou Rederi A/S 378 F2d 193 (CA5: 1967) at 201-202.) 251 Here, water was in the holds and it could not be readily removed on the voyages with the vessels in their then state. It follows that the carriers had not exercised due diligence at or before the commencement of the voyages to make them seaworthy: Cotter 66 CLR at 663-664. 252 However, the carriers knew or ought to have known that there were real risks that weather conditions would not permit such ventilation to occur and because of the moisture (including in the air) admitted into the holds during loading which had not been removed that cargo sweat could cause corrosion. Weather conditions which might be experienced in an ordinary voyage from Yokohama to Sydney at the time of year at which each of these voyages occurred may make ventilation difficult or impossible. Because of this characteristic of the incidents of the voyage, which were known to the carrier, the primary judge determined that each vessel was unseaworthy at the commencement of each voyage because the exercise of due diligence should have prepared her to encounter the known perils of moisture in the holds (as water and vapour), an inability to ventilate and cargo sweat. That is why he said that, unless the cost was prohibitive or it was otherwise unreasonable to incur it, due diligence would require that the cost of installing the dehumidifiers had to be borne by the carriers prior to offering the vessels for loading. 253 I am of opinion that the primary judge was correct in that finding. The test applicable to due diligence is not one which requires a carrier to take every precaution which might guard against any possibilities of damage to the cargo. But each vessel was unseaworthy at the beginning of its voyage and there were means reasonably available to make her seaworthy. Here, in a practical sense, damage from cargo sweat was a known risk and the ventilation capacities of each vessel when the voyages commenced were insufficient to protect the coils properly from their known susceptibility to corrosion. I am of opinion that, applying the tests in the authorities to which I have referred, an ordinary prudent owner would not have been able to put to sea with the vessels in the state in which they actually were having regard to all probable consequences of what might occur during the course of the voyage. Due diligence to make the vessels seaworthy required, in the circumstances, the installation of dehumidifiers.

ARTICLE 3 RULE 2 254 Next his Honour considered the question whether the carriers did not properly and carefully load, handle, stow, carry, keep, care for and discharge the coils within the meaning of Art 3 r 2. Stemcor and Tsuda contended that the carriers were in breach of this obligation because they: · loaded each vessel in circumstances where free water was able to enter the hold either on wetted cargo or as rain; and · failed to manage the cargo by ventilating only in accordance with accepted proper practice; · additionally or alternatively permitted further water to enter the hold in some other manner during the course of the voyage to enable the dew point to rise (either through ventilating or failing to seal the hatches properly). 255 The judge held that there was no evidence that the system which each vessel employed for closing the hatches when it rained in Yokohama during loading was other than a proper system, and there was no reason to believe that the system was not implemented in relation to each of the voyages in question. He held that there was no express evidence of any ingress of water occurring into the holds of either vessel by way of the hatches at any stage during the respective voyages and that such a possibility was inconsistent with the evidence as to the good condition of the hatch covers and the seals recorded in the surveys taken at the time of loading and discharge. Nonetheless, there was a possibility of water entering the holds while loading was taking place and before the hatch covers could be closed after it commenced to rain. His Honour held that a carrier would not normally be in breach of Art 3 r 2 merely by reason of having loaded damp or moist cargo or dunnage so long as it exercised due diligence, with a proper system, to remove moisture admitted into the holds. It was not possible for the carrier to dry cargo before it was loaded, especially if it was on barges or on the wharf. The coils were on barges when it rained and were not then in the possession of the carrier. 256 His Honour identified the real question as being whether the carriers properly and carefully carried, kept and cared for the coils. He said that, if there were water in the holds, the ventilators would need to be operated in a way that would remove the moisture. And, if the ventilators were operated in a fashion that permitted the ingress of further moisture, he held that would be a failure to comply with the obligation under Art 3 r 2. 257 His Honour found that it was common practice to ventilate the holds of the vessel so as to allow the ingress of air from the atmosphere which would have the characteristics of the ambient temperature and humidity of the local air at the time of ventilation. If the outside air were more humid than that in the holds, humidity in holds could be increased through ventilation. Conversely, if the outside air was drier than that inside the hold, the level of humidity in the hold could be reduced. Similarly, where there was a difference in temperature between the air inside and outside the hold, the temperature within the hold could be affected. In light of the relationship between air temperature and humidity, ventilation is capable of causing condensation on colder items within the hold. 258 His Honour found that it was normal to find a ventilation system in holds carrying general cargo. Proper practice was that ventilation should occur only where the dew point of the air outside the hold is lower than the dew point of the air inside. Each of the Ankergracht and Archangelgracht was ventilated on a number of occasions during the voyage from Yokohama to Sydney. His Honour held that it was not practical to make holds completely airtight and that there would always be some flow of air. He found that all the elements of the system of ventilation of each vessel were consistent with both usual practice and good practice and that each vessel was ventilated only when it was considered appropriate to do so based on the readings taken each day in accordance with application of the dew point rule. 259 One of the effects of ventilation is that where cargo has been loaded wet, or moisture has entered the hold in other circumstances, the moisture can be removed. His Honour found that the ventilation records for each vessel confirmed that on all occasions but one the crew only ventilated the holds when the dew point of the outside air was less than that of the air inside the hold, consistent with the dew point rule. He found that it was impracticable to measure the actual temperature of cargo, particularly in vessels such as the Ankergracht and the Archangelgracht which had only one long hold with many different items of cargo of different natures loaded at different ports at different times. The use of the dew point rule, accordingly, is only an approximation. Therefore, that rule is not necessarily decisive on the question of whether the carriers properly and carefully handled, stowed, carried, kept and cared for the coils in question. 260 The judge found that because of the imprecision of the criteria for determining when to ventilate and when not to ventilate, the question of installation of a dehumidification system was critical. This, of course, referred to the carriers' failure, before the commencement of the voyage, to exercise due diligence to make the vessels seaworthy under Art 3 r 1. 261 The judge found that the temperatures of particular cargoes could vary between themselves and could be different from the temperature of the air in the hold. The temperature of the air within the hold could be higher than the temperature of any particular item of cargo. Some cargoes which have a large surface area and a relatively low mass rise in temperature more quickly than cargoes with relatively high mass and a relatively small surface area exposed to the air. His Honour found that cargoes of high mass were slow to stabilise with the ambient temperature when a vessel moves fairly rapidly on a southerly course from a cool climate to a warmer climate. In those circumstances, the hold air space temperature may not reflect the actual temperature of the cargo within the hold. 262 His Honour found, accepting Capt Frost's evidence, that non-hygroscopic cargoes passing from cold to warm climates should not be ventilated. (A hygroscopic cargo is one that absorbs or attracts moisture.) He found that it was standard practice in the shipment of steel from cold to warmer climates not to ventilate the hold. 263 The cargoes here included some which had timber and other non-metal packaging and some cargo had some water on or in it. Likewise, the wood used as dunnage was hygroscopic. There was no finding whether use of wooden dunnage affected the practice of not ventilating steel cargoes. 264 His Honour found that it was more likely than not that water in the form of vapour was introduced into the hold of each vessel in the course of the ventilation which occurred during the voyages. The judge found that because the coils 'were known to be sensitive to moisture' and there was no dehumidification system installed in the holds, the admission of water into the holds during the course of the voyages was a failure to comply with the obligation of Art 3 r 2 to carry, keep and care for the coils properly and carefully. 265 The carriers contended that there was a real issue as to whether the particular kind of sensitivity to water which resulted in the damage to the coils was made known to the carriers, as opposed to the general sensitivity of steel cargoes. His Honour found that for the carriage of steel cargo it was normally essential that airflow be maintained at a level in which the environment within the hold was not affected by the moisture content of weather systems through which the vessel passed. He held that an objective of carrying 'steel of the nature of the coils in question' should be to maintain the dew point of the hold below the temperature of the cargo. 266 If the vessels were seaworthy when each voyage began, the absence of a dehumidification system is irrelevant to the question of whether a breach of Art 3 r 2 occurred. If the carrier has both a proper system in place for the care of the goods and has not been shown to have failed to take care, then no breach of Art 3 r 2 will be established (Gamlen Chemical 147 CLR at 163; Albacora [1966] 2 Lloyd's Rep at 63-64). 267 Because there was no dehumidification system installed, the carriers had to do the best they could with the vessels as they were. His Honour did not find any substantive failure of the carriers to follow proper practice in the ventilation they undertook. Rather, the judge found, as the evidence clearly established, that during the ventilation which occurred, moisture entered the holds when ordinarily the cargo should not have been ventilated. Ventilation was required because there was already moisture in the holds from the time of loading at Yokohama and, in the case of the Archangelgracht, Kobe. 268 The imprecision of the carriers' systems to measure when to and not to ventilate allowed the introduction of moisture into the holds during ventilation. This justified his Honour's finding of a breach by the carriers of Art 3 r 2. They did not 'properly' ventilate because they did not do so 'in accordance with a sound system' (GH Renton [1957] AC at 166; Albacora [1966] 2 Lloyd's Rep at 58). The inability to measure with certainty when all of the steel coils were at dew point temperature made the decision to introduce ventilation of the holds problematic with the known sensitivity to moisture of these steel coils.

EXCEPTIONS RELIED ON BY THE CARRIERS 269 Each carrier relied on the packaging of the coils as the foundation of a claim to the benefit of the exceptions under Art 4 r 2(i), (n) and (q). Additionally, the Ankergracht also relied on the exception of inherent defect, quality or vice of the coils under Art 4 r 2(m) on the basis that if the coils were wet before loading, the water from that external wetting was able to infiltrate the external and inner wrappers and was therefore present on, and possibly within, the coils at the time they were delivered to her. 270 It is well established that in order for a carrier to rely on the exceptions contained in Art 4 r 2, it must not be negligent or at fault, that is to say in breach of Art 3 r 1 or Art 3 r 2: Gamlen Chemical 147 CLR at 152, 154, per Stephen J, 164-165 per Mason and Wilson JJ; Great China 196 CLR at 193 [85], 195-196 [91]-[95], 216-219 [143]-[146], 243 [228]; see too at 181 [50].

INSUFFICIENCY OF PACKAGING 271 The focus of the carriers' arguments centred on the insufficiency of packaging. The carriers asserted that, as a matter of commonsense, the packaging of the coils was insufficient. In this respect they relied on a number of matters in their pleaded defences. In substance their particulars alleged that the design of the coil wrapping system permitted moisture through sweat, condensation or wetting to enter beneath the coil core and outer edge protectors and thus failed to keep moisture out of the coil interior. In effect, the carriers' particulars asserted that the coils were not wrapped in a watertight fashion and that the inner wrapper, or kraft paper, was unable to withstand moisture if it was folded or worked in a way that the plastic membrane of the inner wrapper could then separate from its brown backing paper, allowing moisture to penetrate. 272 The judge analysed the packaging question by identifying the real issue as being the question of whether, having regard to the nature of the steel, the packaging had to be able to prevent water vapour entering into the interior of the packaging, or whether the packaging was sufficient if it was adequate to prevent the entry of loose water from external wetting. He said that the burden was imposed on the carrier to ensure in the latter case that the condition in which the goods were carried was such that water vapour in the air which might infiltrate the outer and inner packaging would not condense on the steel coils. In other words, his Honour said, the question was whether the shipper was entitled to rely on the carrier to ensure that the conditions in which the goods were carried would preclude condensation of water vapour in the air, or whether the carrier was entitled to assume that the packaging would be such as would preclude the entry of water vapour through the packaging. 273 The judge found that it was apparent that the method of packaging employed by Tsuda, while in accordance with usual practice, was not such as would prevent the entry of water vapour in the air. He also found that there was no evidence that the kraft paper of the quality actually used by Tsuda was typical of that form of paper ordinarily used for the shipment of unchromated galvanised or aluzinc coated coils. And, there was also no evidence as to whether such coils had been shipped with this particular inner wrapping paper without damage. 274 The carriers accepted at the trial that the method of packing employed was typical for the shipment of coils of steel generally and had been described in a text book, Sparks A, Steel Carriage by Sea (LLP Professional Publishing, 2003). His Honour annexed to his reasons an illustration from that book that had been tendered in evidence before him. As he pointed out, the mere fact that the method of packaging was typical did not in itself mean that the actual packaging employed was sufficient. 275 The carriers criticised this reasoning, asserting that it was inconsistent for the judge to find that the packaging used was typical but that there was no evidence about the actual characteristics and quality of the paper Tsuda used on these coils or of Tsuda having made earlier successful shipments using this paper or packaging. I am unable to see any flaw in his Honour's analysis or reasoning. The packaging appeared to be typical but there was no evidence that the paper Tsuda used, or that its actual, rather than apparent, packaging worked as typical packaging should work. 276 The carriers pointed to his Honour's finding that they had '… not established any insufficiency of the packaging other than the fact that the ingress of moisture was permitted'. They argued that this establishes proof of the exception under Art 4 r 2(n). The carriers said the primary judge was wrong to identify the issue in different terms. He said the question was 'whether packaging which permitted the ingress of moisture was insufficient' and concluded that it was not. In doing so the primary judge preferred Prof Jones' evidence to Capt Pyett's. 277 The carriers argued, before the primary judge, that packaging that did not protect the coils against exposure to water vapour in the air was insufficient for the purposes of Art 4 r 2(n). Before his Honour and before us, the carriers argued that sufficient packaging required the adoption of a method that would not trap resulting moisture against the surface of the coils but would allow condensation to evaporate or otherwise run off the coils. As his Honour correctly pointed out, there was no method identified by the carriers that would achieve that end. It is difficult to conceive a method of packaging that would result in it. The judge said that the suggestion accepted that it would not be possible to devise a method of packaging that prevented all ingress of moisture. In essence, the carriers' argument amounted to an assertion that water should not be permitted to enter the coils, but, if it did, that the packaging should permit its evaporation or evacuation from them, presumably before any corrosion could occur. The absence of any evidence to support the carriers' case, the onus being on them under Art 4 r 2(n), is fatal to the contention. His Honour was correct to dismiss it. 278 Prof Jones said that the packaging would provide no protection should condensation occur within the coils, rather it was designed to prevent external wetting of the coils. The risk which the carriers knew had to be guarded against on the voyage was cargo sweat from moisture within the air contained in the hold. The packaging provided for the coils appeared to be typical. The purpose of the packaging was to prevent external wetting of the coils. No expert evidence was called to show that there was packaging available which would prevent internal wetting of the coils as a result of cargo sweat. His Honour was correct to conclude that the carriers had not established that the packaging was insufficient so as to cause the damage to arise or result from that insufficiency within the meaning of Art 4 r 2(n). 279 Rather, the carriers did not comply with their obligation under Art 3 r 2 properly and carefully to carry, keep and care for the cargo so that cargo sweat did not occur on these coils known to have a sensitivity to corrosion. This occurred in circumstances where if there were no dehumidifiers, cargo sweat was a known incidence of the voyage. 280 In Silver v Ocean Steamship Co Ltd [1930] 1 KB 416 the English Court of Appeal held that a ship owner, by issuing clean bills of lading stating that the goods had been shipped on board 'in apparent good order and condition', was precluded from asserting that they were insufficiently packed. If the insufficiency of the packing is obvious, the cargo cannot be described as being received 'in apparent good order and condition'. But, if a ship owner issues a bill of lading so describing the condition of the goods on receipt by it, it is estopped from contending that the packaging is insufficient: Silver [1930] 1 KB at 426-427 per Scrutton LJ; at 434 per Greer LJ and at 441 per Slesser LJ. 281 As Greer LJ pointed out (Silver [1930] 1 KB at 434), the apparent order and condition of the goods is what could have been ascertained by a reasonable examination when they were delivered for shipment. Slesser LJ said that the capacity of the goods safely to travel was part of their order and condition (Silver [1930] 1 KB at 441). Here that order and condition included the placement of the symbol of the umbrella together with the words 'keep dry' on the exterior of each coil. The presence of the symbol and the words 'keep dry' on the exterior of the packaging suggests to an ordinary reasonable person looking at it that the condition of the goods when received by the carrier was not such that they could be kept in circumstances where water could enter the packaging. The symbol and the words 'keep dry' suggested that the packaging may have afforded some protection against water, but that, whatever the degree of protection it afforded, was not absolute so as to make the contents encased in the outer wrapping of the coil proof against moisture penetration. And, if the packaging was not enough to prevent it being apparently susceptible to damage from water, its condition and the symbol and words were suggestive to an ordinary reasonable person that the goods were at least just as susceptible to damage from water vapour condensing on them. 282 In Silver [1930] 1 KB 416, the peculiar features of the packaging were obvious to the shipowner when issuing the clean bills of lading claused with an acknowledgement of receipt of the goods in apparent good order and condition. I am of opinion that the judge correctly identified what the real issue was having regard to the well established principles upon which adequacy of packaging and the issue of a clean bill of lading recording receipt of goods in good order and condition are based. Moreover, the presence of the symbol and words 'keep dry' were hardly calculated to induce the carriers to believe that the cargo could withstand exposure to water vapour. As his Honour had found, and as the facts referred to above justify, the carriers knew, or ought to have been aware, of the particular sensitivity of these coils to moisture. By accepting the goods packed in what was apparently the usual way, the carriers cannot now complain, having said they were in apparent good order and condition for carriage by sea (by issuing clean bills of lading), that the packaging was insufficient to ensure that they arrived at their destination undamaged from the corrosion which they in fact suffered. 283 The carriers also rely on the fact that water had been shown to have penetrated the packaging. They say that, when his Honour found that the packaging of the coils was not capable of preventing the ingress of water in the form of vapour, he should have found it was defective or inadequate. They argued that it was self-evident that the packaging was insufficient because, in effect, it did permit entry of water vapour. 284 There was no representation on the packaging itself that it was proof against any form of water penetration. To the contrary, the packaging on its face conveyed the express warning that the goods had to be kept dry. And, the carriers then issued clean bills of lading recording that the goods had been received in apparent good order and condition. That being so, for the reasons given in Silver [1930] 1 KB 416, the carriers' position cannot be accepted. As Scrutton LJ said, a shipowner is not allowed to reduce his liability by proving or suggesting, contrary to his statement in the bill of lading, that the goods in respect of matters externally reasonably visible were not in good condition when shipped ([1930] 1 KB at 427). 285 Moreover, what was being described by the carriers in the bills of lading was the order and condition of goods known in the shipping industry to be sensitive to corrosion. As his Honour said, there was no evidence of an industry practice of wrapping these coils in a way that ensured that there was no possible ingress of water in the form of vapour or otherwise. Coupled with the symbol of the open umbrella and the words 'keep dry', that fact suggests that a shipowner would not assume that the packaging was proof against any form of water in liquid or vapour form entering into the internal part of the package.

SUBSEQUENT CHANGE OF PAPER WRAPPER USED BY TSUDA IN SHIPMENTS 286 In mid 2003, Stemcor's managing director, Mr Whitehead, caused Tsuda to change from kraft paper for the internal wrapping of the coils to different paper another steel manufacturer, Nippon Steel, used. Earlier, in about September 2002, vessels operated by Project Asia Service began carrying some of Stemcor's imports of steel for on sale to ACC and by mid 2003 only PAS vessels were used. No incidence of corrosion involving PAS vessels was reported. The PAS vessels were fitted with humidifiers, although, as his Honour found, there was no evidence one way or the other as to whether the humidifiers operated during any relevant voyage. Mr Whitehead gave evidence concerning the circumstances of the change in wrapping paper. In late May 2003 he prepared a report dealing with the 'coil corrosion problem'. Relevantly the report said: 'We have been experiencing an ongoing problem with corrosion damage to [Tsuda] galvanised and aluzinc coils supplied to ACC Australia. The problem is most common during the peak Japanese winter months, which correspond with the peak Australian summer months. However we also see some corrosion damage to coils during the course of the year. The extent of damage on some shipments exceeds 30% of the cargo and at time [sic] up to 50% of the coils have had to be rejected as unusable by ACC. This is causing significant problems for our marine insurers who have come to believe that in some way the [Tsuda] packing is inadequate … The rusting damage caused to [Tsuda] supplied coils is a significant issue which must be addressed and resolved promptly in order for the business to be able to continue. It is also causing significant damage to [Tsuda's] reputation as quality supplier. In order to report specifically and in detail on this problem we inspected two coils one [Nippon], one [Tsuda] from a recently arrived shipment, MV Parkgracht, which loaded in Japan on 29/3/2003 and arrived in Sydney on 16/4/2003. The results of this inspection are typical of the problems seen with [Tsuda] coils which are not evident on the [Nippon] coils…' The report then set out photographs of coils from both source and continued: 'It would therefore seem that the problem with [Tsuda] coil does not relate to the outer metal wrapping. From the above photos, it does seem that the inner paper wrapping by [Tsuda] is not effective. The inner paper wrapping used by [Nippon] does appear to be effective and can stop water, or possibly water vapour, from transmitting through to the other side. However we have also shipped a lot of [Tsuda] coils with chromte [sic] protection on board the same vessels with the same inner paper coating without any rust claims. On these occasions the paper does an effective job it would seem. In conclusion there are a number of issues we would need to address in order to try to stop this continuing problem. 1. The coils are getting wet through condensation of moisture during the voyage. This is worse during the Japanese winter season as the vessel sails into the warm tropical region. We are intending to trial another shipping line who we believe will be able to provide greater ventilation of the hold and reduce the amount of condensation. 2. The paper being used as the inner wrapper is not effective at protecting oiled coils in this environment when some moisture can be expected to ingress through the outer metal wrapping. Initial [sic] we request that [Tsuda] investigate the [Nippon] paper and urgently make a change to that paper. Although we cannot be certain that these changes will resolve our problems we are hopeful that in combination they will almost eliminate rusting on [Tsuda] coils. Samples of [Nippon] and [Tsuda] inner paper have been sent to you with this report including [sic] [Nippon] paper with rusting on one side and [Tsuda] paper that has partially stuck to the coil. We look forward to your urgent comments on this issue.' 287 His Honour said that there was no evidence as to the addressee of the report. However, this was an error. The report was sent to Stemcor's Japanese representatives. In turn, they passed it to Tsuda's engineers who were to study it and prepare a report in response. While there was no evidence of such a report in response, in late July 2003 Tsuda applied the polyethelene crossed paper used by Nippon as wrapping paper for the coils it sent on the PAS vessel, Cape Darby. From then on, Tsuda's steel was wrapped in the Nippon papers. Thus, by July 2003 both the type of vessel and the type of paper used for the Tsuda steel importations had changed. The galvanised and aluzinc coils were now wrapped in the same paper as Nippon had used and were shipped in vessels fitted with dehumidifiers. 288 The primary judge held that Mr Whitehead's report was equivocal in that it simply drew attention to his belief that the problem of corrosion was the result of condensation and that the kraft paper may or may not have been effective to protect the coils against ingress of water vapour. The judge noted that there was no evidence of any testing of either of the types of papers to demonstrate differences in specification or characteristics attaching to them or to determine their capacity to prevent the ingress of water. And he said that the fact that no corrosion occurred on coils carried by the Cape Darby was equally explicable as resulting from the use of the dehumidifiers. He was not persuaded that the evidence about the Cape Darby shipment or the change of paper assisted in the resolution of the issues raised in the proceedings. 289 Before us there was a debate as to whether the carriers were entitled to rely upon the change of paper as demonstrating their defences under Art 4 r 2 of act or omission of the shipper, insufficiency of packaging, inherent vice or other fault not attributable to the carrier. The carriers' particulars of their defences did not assert that the paper used by Nippon to wrap equivalent products should have been used and was effective to prevent corrosion. Nor did they assert in their pleaded defences that Tsuda or Stemcor had failed to inform the carriers of the special susceptibility of the unchromated and unpassivated coils to corrosion. Instead, the defences pleaded, in substance, that the design of the coil wrapping was deficient and that there were tears in the kraft paper on damaged coils which allowed entry of moisture. 290 Lastly, the particulars asserted that the coils should have been wrapped so as to provide a waterproof barrier and that the inner wrapping failed in its function of excluding moisture. Tsuda and Stemcor argued before us that the carriers could not rely upon the failure to wrap in the Nippon paper because it was outside the particulars in the defences. But the carriers raised this argument in their final written submissions to the primary judge and Tsuda's and Stemcor's written submissions to him in reply, to which we were referred, did not raise such an objection. 291 Tsuda and Stemcor said that the carriers had conducted the case below on the basis that the paper used for wrapping should have been both watertight and vapour tight so as to prevent entirely the possibility of moisture entering below the wrapping. They argued that there was no evidence before his Honour that the Nippon paper was available in 2001 or that it would have solved the problem. They said that at the trial Capt Pyett, an expert called by the carriers, accepted that the method of packaging used in 2001 by Tsuda was typical for the cold rolled steel coils. However, Mr Whitehead's report said that chromated coils shipped on the same vessels in the past and wrapped in kraft paper arrived '… without any rust claims. On these occasions the paper does an effective job it would seem'. 292 His Honour found Mr Whitehead's report to be inconclusive. He did not have any technical qualifications for arriving at his conclusions, although he had obviously had considerable experience in the importation of steel cargoes of varying kinds. Mr Whitehead said it was quite fortuitous that two unchromated coils, one from Tsuda, the other from Nippon, had been discharged from the MV Parkgracht on the occasion on which he inspected them. He had no idea whether they had been carried in the same hold. 293 Because the out turns from the Ankergracht and the Archangelgracht showed that some coils were affected while others were not, the precise location in the hold is likely to have been a critical factor in whether condensation formed on any particular coil. There was no material in evidence which indicated whether it was the paper or the location in the hold, or a combination of those two factors, which made a difference to the incidence of corrosion on unchromated coils. 294 Mr Whitehead's report also stated: 'The above photos demonstrate the typical rust problem we have incurred with [Tsuda] material. Similarly all [Nippon] material arrives looking very bad due to the outer cold rolled coil wrapping however we have never had any problem with rusting of [Nippon]oiled coil.' (emphasis added) 295 Mr Whitehead's report suggested that the wrapping used by Tsuda was ineffective to exclude moisture since, at the time of the earlier shipments, both Tsuda and Nippon unchromated, unpassivated (ie oiled as opposed to chromated) coils were being carried on Spliethoff vessels, which did not have humidifiers, but only Tsuda's unchromated coils arrived with corrosion damage. However, Mr Whitehead said that the Nippon material had a very restricted specification range and Stemcor had imported only very little of this product from when it first started to do so in 2001 or 2002. 296 The carriers called no expert evidence to show that any difference in the characteristics of the paper used by Nippon, compared to that previously used by Tsuda, would have solved the problem of corrosion suffered on the voyages of the Ankergracht and the Archangelgracht. Mr Whitehead's evidence of the small quantities of Nippon imports in the period between 2001 and 2003, before the Tsuda paper changed, also weakens the drawing of an inference that the paper made a difference. The carriers had the onus of proving that the packaging brought them within one of the exceptions in Art 4 r 2 on which they relied. It would not have been difficult for the carriers to have led scientific evidence as to the respective qualities of the two papers or to call other, clearer, evidence as to the qualities or quantities of the Nippon product which was shipped so as to enable the drawing of more precise inferences. Mr Whitehead's report raised real questions about the adequacy of the wrapping. His Honour held that the carriers did not discharge their onus of proving that the change in paper made a difference to the likelihood of corrosion. Rather the carriers left this matter, which was fundamental to their defences under Art 4 r 2, to inference based on imprecise evidence. 297 One other cause of condensation was the presence in the coils of air within the wrapper (whatever paper it consisted of), when it reached its dew point. That was a source of water vapour which could cause condensation resulting from changes in temperature and a coil's position in the hold when the vessel travelled. 298 For these reasons, his Honour made no error in concluding that the evidence as to the Cape Darby or the change of paper did not assist in the resolution of the issues.

RESPONSIBILITY FOR THE DAMAGE TO THE COILS 299 The trial judge said that packing capable of preventing even the most minor damage was not practicable and could not be expected for most commodities. He also noted that the degree of care that would have to be exercised by a carrier in order to avoid all minor damage is also not always practical or expected. Thus he said, correctly, that the Court had to undertake a balancing exercise in dealing with the question of sufficiency of packaging which would involve a common-sense compromise between the interests of the shipper and the carrier. 300 It is common ground that his Honour failed to consider in express terms Art 4 r 2(q), namely that the damage was due to another cause arising without the actual fault or privity of the carrier or its servants and agents. However, the only suggested basis upon which this exception could arise was already the subject of the defences under Art 4 r 2(i), (m) and (n). It is difficult to see what his Honour needed to have done, apart from expressly mentioning Art 4 r 2(q) and dismissing the defence as unarguable in light of his previous findings. There was no need for his Honour to consider Art 4 r 2(q) because he had found that the carrier was in breach of its obligations under Art 3 rr 1 and 2 and, thus, at fault and a cause of the damage. 301 For these reasons, the carriers cannot succeed on the insufficiency of packing exception. Likewise, the exception of act or omission of the shipper or owner of the goods or his agent or representative under Art 4 r 2(i) must fail. The shipper put a clear warning on the external packaging that the goods had to be kept dry.

INHERENT VICE 302 The Ankergracht argued that the existence of water within the inner wrapping of the coils was sourced from the exposure of those coils to external wetting from rain while they were on the barge awaiting loading at Yokohama. It argued that this fact brought it within the exception of inherent vice of the goods. The Ankergracht said that the water from this external wetting was able to infiltrate the external and inner wrappers of the coils. When, on this theory, the water came to be inside the wrapping, it constituted inherent vice since corrosion would occur very rapidly, within hours of the coils' surfaces being in contact with the moisture or condensation, based on the unchallenged expert evidence as to the sensitivity of the cargo. 303 His Honour found that there had been no internal wetting of the coils, as noted above. He accepted Prof Jones' evidence that it was highly unlikely that external wetting would have led to internal wetting. This was because every exposed surface of the coils, including the inside of the core, had been wrapped in paper and the inside of the coils was also protected by another sheet of galvanised steel. In addition the coils were laid in a horizontal orientation so that their axis was parallel to the deck. Prof Jones considered that if external wetting of a coil occurred, the water would not be taken into the wrapped product unless the unsealed longitudinal edge of the paper were lying directly along the deck. He thought that the chances of that occurring in about 57% of the Ankergracht coils were remote. 304 As His Honour noted, again on the basis of Prof Jones' unchallenged evidence, if the horizontally carried coils were exposed to extensive external wetting, the water would run down the end caps, pass beneath the core edge protectors, then pass beneath the outer paper wrap and enter the coil itself. But that was unlikely, since the core of the coil was also wrapped with waterproof paper and the core edge protectors had a firm fit on the end of the coil. He found, accepting Prof Jones, that, if water had entered in that fashion, one would expect to see a circumferential band of white rust around the inner edge of the end caps. Only on one coil was such a band present. He found that, because the core of the coil was wrapped and taped, even if a small amount of water managed to percolate behind the core edge protector, the water would not enter the coil itself. 305 In coming to this conclusion his Honour rejected the evidence of Capt Pyett concerning corrosion and adequacy of packaging and preferred the evidence of Prof Jones. He found that it was more likely than not that even if the coils had been wetted before loading on the Ankergracht, no water infiltrated the external and internal wrappers prior to the loading of the coils on that vessel. He recognised that it was a possibility that that had happened but rejected it as the likely explanation. He said that the nature and distribution of the corrosion observed on the steel coils was consistent with condensation and that there were also other explanations of the differences in the extent of damage of the cargo carried on the two vessels, including differences in the timing and periods of ventilation during the respective voyages. 306 There does not appear to be any serious challenge to his Honour's finding on the failure of the inherent vice defence in the appeal. In any event, having considered the evidence before his Honour independently, I have come to the same conclusion as the primary judge. His Honour correctly rejected the inherent vice defence.

CAUSE OF THE LOSS 307 In light of the above findings, his Honour was correct to have concluded that Tsuda and Stemcor proved that the unseaworthy condition of each vessel was the cause or an effective cause of the damage to the coils. And the carriers failed to establish that they had exercised due diligence to make the vessels seaworthy at or before the beginning of the voyages. The inability to remove water and vapour from the air so as to ensure that no condensation would occur internally within the coils was the effective reason why, when the vessels were ventilated during the voyage, water was present and vapour entered the holds so that ultimately the coils were damaged by the effect of corrosion from cargo sweat. Each of the failures to remove the moisture present when the voyage began, and to prevent moisture entering the holds when ventilation did occur, was a failure to care for the coils contrary to the carriers' obligations under Art 3 r 2. 308 For these reasons the appeals must be dismissed with costs. I certify that the preceding one hundred and seventy-six (176) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares J.

Counsel for the Appellant: AW Street SC and JA Watson

Solicitor for the Appellant: Ebsworth & Ebsworth

Counsel for the Respondents: PH Greenwood SC and IG Roberts

Solicitor for the Respondents: O'Reilly Sever & Co