Stemcor (A/sia) Pty Ltd v C.V. Scheepvaartonderneming Ankergracht

THE ISSUES 8 It is common ground that the steel coils were damaged as a result of corrosion resulting from contact with water before or during the course of the voyages. The steel coils in question were particularly prone to corrosion from contact with water. There is a dispute as to the mechanism whereby water entered the packaging around the coils. The essential question, however, is whether the Carriers were entitled to assume that the packaging of the steel coils was such that water in any form could not penetrate the packaging, or whether Tsuda and Stemcor were entitled to assume that there would not be sufficient water in any form, either as liquid or vapour, in the holds of the vessels for condensation to occur on the coils. That, in turn, raises questions as to whether Tsuda adopted a method of packaging the steel coils that was usual in the industry and as to the usual practice of carriers of steel coils of the nature of the coils in question. 9 There are several juridical bases upon which Stemcor claims damages from the Carriers, namely, contract, bailment and negligence. However, it is common ground that the substantive factual and legal content of each basis is the same. It is common ground that the relationship between the parties was governed by the provisions of the amended Hague Rules, as defined in s 7 of the Carriage of Goods by Sea Act 1991 (Cth) ('the amended Hague Rules'). Stemcor relies on breach by the Carriers of the amended Hague Rules. The Carriers, in turn, rely on exempting provisions of the amended Hague Rules. 10 Article 1 of the amended Hague Rules defines 'carrier' as including the owner who enters into a contract of carriage with a shipper. Article 3 rule 1 relevantly provides that a carrier is bound, before and at the beginning of the voyage, to exercise due diligence to: (a) make the ship seaworthy; (b) properly man, equip and supply the ship; (c) make the holds of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. Article 3 rule 2 provides that, subject to the provisions of Article 4, the carrier must properly and carefully, load, handle, stow, carry, keep, care for and discharge the goods carried. 11 Article 4 rule 2 of the amended Hague Rules relevantly provides that neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from: '(i) act or omission of the shipper or owner of the goods, his agent or representative. … (m) …any … loss or damage arising from inherent defect, quality or vice of the goods. (n) insufficiency of packing. …' 12 Article 4 rule 5(b) of the amended Hague Rules provides that the total amount recoverable is to be calculated by reference to the value of the goods at the place and time at which the goods are discharged from the ship in accordance with the contract. The value of the goods is to be fixed according to the commodity exchange price, or, if there be no such price, according to the current market price, or if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality.

WITNESSES 13 There was no dispute as to the primary facts relevant for the resolution of the proceedings. The issues are rather as to inferences to be drawn from those primary facts. The disputed inferences concern the circumstances in which the coils came into contact with water, either in the form of a liquid or a vapour. 14 Professor Robert Jones is Adjunct Professor in the Department of Chemistry Materials and Forensic Science within the Faculty of Science of the University of Technology, Sydney. He has had in excess of thirty years experience in investigating the many facets of metallic corrosion processes. In particular, he has investigated and reported on in excess of sixty examples of corrosion of metal products in marine transit to Australia, including coated steel coil of the type in question in these proceedings. Professor Jones has also had twelve months experience working in a steel mill in Sandvik, which produces steel coils. He has been involved in consulting work for the world's largest manufacturer of specialist packaging paper. Professor Jones has been involved in the investigation of marine insurance claims, including claims of corroded steel coils, and has seen many hundreds of wrapped coils, as well as seeing coils being unwrapped. He has observed the wrapping method of approximately a dozen different suppliers and has carried out many physical and chemical examinations on paper used in the wrapping of steel coils, including determining the existence of inhibiters and moisture. 15 Dr Michael Bellstedt holds a bachelors degree in mechanical engineering, a masters degree in refrigeration and air conditioning and a doctorate in engineering, specialising in heat transfer. He is a member of several professional associations in the general field of engineering and in the specific field of refrigeration. Dr Bellstedt maintains an active strategy of professional development in his field. He has published several papers in Australian and German journals and trade magazines, and has presented papers at conferences, seminars and industry meetings in Australia and overseas. He has also spent over ten years in industrial refrigeration contracting as a design, contracts and projects engineer. He has had academic and practical experience in general mechanical engineering and has expertise in thermal and process engineering, including the disciplines of heat transfer, fluid mechanics, thermodynamics, refrigeration and air conditioning. 16 Captain Iain Frost is a surveyor and has carried out many marine hull and cargo casualty surveys on behalf of underwriters world wide. He has had extensive marine and survey experience over more than forty years. His survey experience extends to all cargoes insured under marine policies including commodities, materials (including steel), produce, machinery and electronic equipment, transported by sea, air, road and rail. 17 Captain David Pyett, a master mariner and marine surveyor, has been engaged in maritime consulting and surveying, including survey of damaged cargo on board vessels for many years and has conducted countless marine surveys including cargo surveys. He specialises in the survey of vessels carrying general cargoes, machinery and steel products including steel coils of all types. 18 I have no doubt that all witnesses gave evidence truthfully and no witness consciously sought to mislead the court. To the extent that there was any conflict, I have endeavoured to resolve the conflict by reference to the cogency of the reasoning of the witnesses.

THE CONSIGNMENTS IN QUESTION 19 The Ankergracht and the Archangelgracht are sister ships. Each is an 'A' type vessel of 7,949 GRT and 129.6 metres LOA. Each vessel has a single hold with a tween deck. The hold is served by three hatches with end folding type hatch covers. The two vessels are part of the fleet operated by BV Spliethoff's Bevrachtingskantoor ('Spliethoff'). Stemcor had begun to use Spliethoff's vessels in 2001 and entered into an affreightment contract for one year. That contract required Stemcor to use Spliethoff's vessels to ship steel unless there was no vessel available at the time. 20 Mr David Mahoney, the shipping manager of Stemcor responsible for the selection of the shipping line used to carry the cargoes in question, was familiar with the vessels. He knew them as vessels that were operated as general cargo ships carrying a wide variety of steel cargo. Mr Mahoney was aware that the vessels were carrying steel cargoes from other shippers for other consignees. He was also aware that the cargoes included plate steel, hot rolled steel, cold rolled steel, machinery and motor vehicles. He was also aware of the nature of the holds of the vessels. 21 The relevant shipments were amongst the first shipments to Australia, of coils of the type in question, during the Northern Hemisphere winter. The coils were produced at Tsuda's Taiyo Steel Mill in Fumabashi, Sakae Canal, Japan. They were imported by Stemcor for the purpose of resale to Australian Colour Coaters Operations Pty Limited ('ACC'). 22 ACC's business includes manufacturing steel coil into pre-painted steel products. ACC produces two basic types of metallic coated painted products. One is zinc coated, which is referred to as galvanised, and the other is zinc aluminium coated, which is referred to as aluzinc coated. Some of the coils in question were galvanised and some were aluzinc coated. ACC required the coils ordered from Stemcor to be unchromated but oiled. A chromate coating, depending upon the coating used and the coating weight, can be detrimental to paint adhesion as some chromate coating becomes insoluble and cannot be cleaned off before painting by conventional treatment methods. Hence ACC's specification for oiling only and no chromate coating. 23 If the surface of freshly galvanised or aluzinc coated steel is allowed to come into contact with water, either as a result of direct wetting or by condensation of vapour, corrosion in the form of white rust will occur. If the water evaporates quickly, the corrosion will generally not be severe. However, if the water remains in contact with the surface at high humidities and under poorly ventilated conditions, sever corrosion may occur. Such corrosion occurs rapidly and can be observed within a few hours of the wetting taking place. 24 Such coils cease to be highly susceptible to corrosion from contact with water when a protective layer of basic zinc carbonate forms on the steel. That layer forms when the zinc coating reacts with the oxygen in dry air to form zinc oxide. The oxide that forms is porous and is formed away from the surface of the steel. The oxide then reacts with moisture and carbon dioxide in the air to form a layer of basic zinc carbonate. Once that layer has formed it acts as a sacrificial coating and the steel is resistant to corrosion. 25 Before that sacrificial coating forms, coils of the type in question may be temporarily protected from corrosion in two ways. One way is to apply a light oil coating. Another way is to apply a chromate coating to the steel. Chromate coating entails immersion of the metal in a solution of potassium dichromate, or some other suitable chemical. That process is known as passivation: passivators are inhibitors of corrosion. Natural passivation is where the oxide film referred to above becomes sufficiently developed to stifle further activity of the electrochemical process associated with corrosion. 26 The coils in question were lightly oiled but had no chromate coating. However, the descriptions of the coils in the bills of lading, mates' receipts and shipping orders do not indicate that they were being shipped unchromated and un-passivated. There was no evidence that the Carriers or Spliethoff were informed of ACC's requirement that the coils be unchromated. The Carriers' knowledge of such matters may be relevant to the question of whether they had exercised due diligence in the performance of their obligations under the contracts of carriage. For example, at the time of booking the consignments for shipping, no request was made for a vessel that had either a dehumidifier or a heater fitted in the hold. 27 The process of galvanising or aluzinc coating takes about one hour. It is the practice at the Taiyo mill to complete the wrapping of such coils within one hour after the coils leave the processing line. Accordingly, each of the coils in question was wrapped on the same day that it was produced. The area where the coils were stored is under cover and approximately 8 metres back from an opening in the wall. The conditions at the Taiyo mill are such that the coils were likely to have been kept dry while stored in that location. 28 The practice is for coils to be transported by barge from the Taiyo mill to the loading wharf. Coils are loaded on the barge as soon as the barge arrives at the Taiyo mill and loading takes approximately four hours. The coils are unloaded from the barge at the wharf by stevedores. The coils are covered during their transfer from the Taiyo mill to the wharf and, accordingly, are well protected from rain at that stage. The barge contractor takes instructions from the stevedores regarding the uncovering of the barges for the purposes of loading. 29 As a general rule, cold rolled steel coils, including coils of the nature of the coils in question, are packaged with an inner soft wrapping, which is usually paper, and an outer metal wrapping, including end caps and corner protectors and is then steel strapped. The steel is coiled around a hollow core. The coil is first wrapped in a single sheet of Kraft paper, lined with an adhering film of plastic, the overlaps of which are not usually sealed. Kraft paper is strong, smooth brown paper made from unbleached soda pulp or wood pulp. After the coil is wrapped in Kraft paper, it is then fitted with an outer metal wrapper composed of waste steel sheets. Thereafter, flat metal strapping bands are applied around the circumference of the coil and transversely through the centre core. 30 In some cases, a metal disk is fitted on the end, with protected rings in the form of angle irons surrounding the inner and outer circumference edges. The purpose of that arrangement is twofold. The first is to offer protection to the edges of the coil. The other is to fit a plain disk on the end, not specifically manufactured to fit one size of coil. Any shortage of diameter in the end of disk is taken care of by the overlap of the protective rings. Alternatively, the end disk is fabricated to fit the end of a specific size of coil and cannot be used for any coil of another diameter. 31 The coils in question were packaged in a manner that is consistent with the standard practice for the packaging of steel of the nature of the coils in question, as described above. The standard method of wrapping is shown in the diagrams set out in Schedule 1 to these reasons, which are taken from A Sparks, Steel Carriage by Sea, LLP Professional Publishing, London, 2003. The packaging of the coils included a standard symbol and note requiring that they be kept dry and that they be handled with care, as shown in Schedule 2 to these reasons. The photographs in Schedule 2 also demonstrate that the packaging of the coils was in accordance with the practice described above.

THE ANKERGRACHT CONSIGNMENT 32 The consignment shipped on the Ankergracht consisted of 153 coils which were produced as follows:

• 19 October 2001 - 6 coils;
• 21 October 2001 - 6 coils;
• 23 October 2001 - 76 coils;
• 28 October 2001 - 2 coils;
• 6 November 2001 - 56 coils;
• 7 November 2001 - 7 coils. 33 The Ankergracht arrived at Yokohama on 9 November 2001. Loading took place on 9, 10, 12 and 13 November 2001. The cargo loaded at Yokohama included a variety of steel cargoes, including steel pipe, plate, angle, bar and sheet, in addition to the steel coils in question. 34 The coils in question were loaded onto the barge at the Taiyo mill on 10 November 2001. They were loaded on board the Ankergracht on 12 November 2001. On 13 November 2001, Ankergracht issued three bills of lading as follows:
• YS-017-310 in respect of 36 prime galvanised steel sheet coils;
• YS-017-311 in respect of 63 prime zinc alloy coated steel sheet coils;
• YS-017-312 in respect of 54 prime zinc alloy coated steel sheet coils. 35 On each of 9, 10 and 12 November 2001, loading at Yokohama was stopped because of periods of rain. The officers on the Ankergracht had a practice of shutting the hatches if it began to rain. That process may take between 15 and 20 minutes to complete. In any event, as a consequence of rain, a number of items of cargo were loaded wet at Yokohama during the period 9 to 13 November 2001. A number of those items were loaded from the wharf, rather from a covered barge. Other cargoes, loaded from barges, were wet with rain in the barges. 36 Such cargoes included covered steel, whose covers were capable of collecting water in the folds if they were exposed to rain. Other cargoes were wet with rain on the wharf. Such cargoes consisted of steel plate in timber crates, resting on the ground which was wet with pools of water. Other cargoes consisting of steel sheets on wooden crates had covers that were wet. Another cargo consisted of coils that were wet with rain in the barge. The covers of those coils appeared to be non-metallic and capable of absorbing water. In the case of another cargo, the steel angle was wet with rain on the wharf and water would be capable of tracking into the spaces between the lengths of steel. In addition, Ankergracht used dunnage during loading, as is usual practice. Dunnage consists of timber, which is used to separate items of cargo in the hold of the vessel. 37 The Ankergracht sailed from Yokohama on 13 November 2001. It arrived in Brisbane on 26 November 2001 and in Sydney on 29 November 2001. The coils in question were then transferred from the Ankergracht to the premises of ACC. Shortly after their arrival at ACC's premises, several coils were identified as having suffered corrosion damage.

THE ARCHANGELGRACHT CONSIGNMENT 38 The consignment shipped on the Archangelgracht consisted of 124 coils, which were produced as follows:

• 28 December 2001 - 33 coils;
• 9 January 2002 - 6 coils;
• 10 January 2002 - 45 coils; and
• 11 January 2002 - 40 coils. 39 The Archangelgracht arrived at Yokohama on 16 January 2002 and loading took place from 16 to 18 January 2002. The cargo loaded at Yokohama consisted of a variety of steel, including steel pipe, plate, angle, bar, wire and sheet, in addition to the steel coils in question. After leaving Yokohama on 18 January 2002, the Archangelgracht sailed to Kobe to load additional cargo before sailing for Brisbane. 40 The coils in question were loaded onto barges at the Taiyo mill on 15 January 2002 and loaded on board the Archangelgracht on 17 and 18 January 2002. On 18 January 2002, Archangelgracht issued bills of lading as follows:
• YS-02B-304 in respect of 14 coils of prime zinc alloy coated steel sheet in coil; and
• YS-02B-305 in respect of 110 prime zinc alloy coated steel sheet coils. 41 Other cargo loaded on the Archangelgracht was recorded as being wet. There was rain on 16 and 17 January 2002 and loading stopped during rain periods. There was no evidence that the coils in question were loaded wet on the Archangelgracht. 42 Other cargo loaded at Yokohama was wet with rain, as well as being sweated inside pipes forming part of the cargo. In addition, cargo loaded at Kobe had partly wet covers. The covers consisted of loose wrapped fabric, similar to a plastic coated tarpaulin material. The cargo was wire rod, and the manner of wrapping 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. 43 The Archangelgracht sailed from Yokohama on 18 January 2002 and arrived at Kobe on 20 January 2002. It sailed from Kobe on 22 January 2002 and arrived in Brisbane on 9 February 2002. It arrived in Sydney on 13 February 2002. 44 After the coils in question were unloaded at Sydney, they were transferred to ACC's premises, where a number of coils were discovered to be damaged by corrosion of the same nature as those shipped on the Ankergracht.

THE MECHANISM OF THE DAMAGE 45 Stemcor contends that the corrosion on the coils occurred solely as a result of condensation in the course of the voyages. It cannot seriously be disputed that some condensation occurred during the course of the voyages: as will become clear, the conditions for condensation did not exist until after the vessels left Yokohama. It is desirable, first, to say something about the physical mechanism involved in the formation of condensate. Evidence on that question was given, substantially without objection, by Dr Bellstedt.

CONDENSATION 46 Ambient air is a mixture of several gases, predominantly nitrogen (79 per cent), oxygen (18 per cent) and argon (1 per cent), with the remaining proportion made up of a variety of other gases, including water vapour. The exact composition of air can vary significantly and gases such as oxygen, nitrogen and carbon dioxide can be removed from and added to the air by various means. There are no upper or lower limits to the range within which these gas concentrations can be changed at the normal range of ambient temperatures, namely, from minus 50şC to plus 50şC. 47 However, there are limits to the range of concentrations of water vapour in air. Concentration of water in the air is governed by Dalton's law and the relationship between water temperature and vapour pressure. Thus, the moisture content of air varies within the following constraints at all times:

• The actual moisture content of air in vapour form can vary from nearly dry to an upper limit, when the air is referred to as saturated.
• Air can also be super-saturated. That is to say, it can contain more moisture than at saturation point, but the additional moisture must be in liquid or solid form. Super-saturated conditions occur in the form of fog (containing small water droplets) or clouds (containing small water droplets or ice particles).
• The amount of moisture that can be contained in vapour form in a given amount of air is a strong function of the air temperature: the amount of moisture is generally expressed as a mass ratio. For example, saturated air at plus 5şC contains 0.0056 kg of water per kilogram of dry air, whilst saturated air at plus 30şC contains 0.0275 kg of water per kilogram of dry air, nearly five times as much. 48 Normally, ambient air is not saturated and contains less moisture than it possibly could at the current air temperature. The degree of saturation of ambient air is expressed in practical terms as a percentage, by a measure referred to as relative humidity. Thus, air at 50 per cent relevant humidity, contains 50 per cent of the moisture that would be contained in saturated air at the same temperature. As a consequence of the phenomenon that the saturation limit is a strong function of the air temperature, cooling or heating air will change the relative humidity of that air. Heating decreases the relative humidity, whilst cooling increases the relative humidity. 49 If air containing moisture is cooled until the relative humidity is 100 per cent, namely, when the air is saturated, the air reaches dew point temperature. Any further cooling below that temperature will result in moisture being deposited, in the form of condensation, on the surface that is cooling the air. Thus, the dew point temperature of air depends on the moisture content of the air: the higher the moisture content, the higher will be the dew point temperature of the air. 50 Direct measurement of dew point temperature is difficult and generally not practical. A more practical approach is to measure wet bulb temperature. Under that approach, temperature is measured with a thermometer that is set up such that the bulb of the thermometer is kept wet. A form of wick around the bulb is connected to a water reservoir so that the wick is kept wet at all times. The water within the wick evaporates and the temperature, after a short time reaches an equilibrated temperature, which depends on the air temperature and the amount of moisture in the air. Humid air will have a wet bulb temperature close to the normally measured temperature (or dry bulb temperature). On the other hand, with very dry air, the wet bulb temperature can be substantially lower than the dry bulb temperature. Saturated air will have a wet bulb temperature equal to the dry bulb temperature. 51 Once the wet bulb temperature is known, relatively elaborate calculations are required to determine the dew point temperature of the air. Empirical equations are used to relate the measured wet bulb temperature to the vapour pressure of the air. Once the vapour pressure is known, the corresponding saturation temperature of air can be calculated, since there is a fixed relationship between vapour pressure and saturation temperature. The saturation temperature corresponds to the dew point of the air. 52 If air containing moisture comes into contact with a cold surface, the air in contact with the cold surface cools, unless air velocities are sufficiently high. If air velocities are sufficiently high, no condensation will form because the air in contact with the cold surface does not have enough time to cool. If the air does cool, the relative humidity of the air near the cold surface will be increased. If the temperature of the cold surface is lower than the dew point of the air, then the air in immediate contact with the cold surface will release moisture to the cold surface, causing condensation onto it. Thus, on a clear wind-still night, dew forms but not so on a windy night. 53 It follows from the above that condensation from moist air could form on steel coils in the hold of a ship if the following conditions are met:
• the coil surface temperature is below the dew point temperature of the air surrounding the coils;
• the velocity of air moving in the hold across the coils is low enough to permit the air to cool. Ordinarily, one would expect that the air in the hold of a ship would be nearly stagnant, such that, if the coil surface temperature is below the air dew point temperature, conditions would be ideal for the formation of condensate on the coils.

TIMING OF CONDENSATION 54 It is common ground that at least some of the corrosion damage to the coils in question was the result of condensation during the voyage. However, the Carriers contend that there were in fact three sources of wetting that caused damage as follows:

• external wetting, which was able to infiltrate the wrapping surrounding the coils;
• condensation on the external packaging, which was able to infiltrate the wrapping;
• condensation that occurred within the packaging when water vapour was released from air that penetrated the wrapping and came into contact with the surface of the coil. External wetting is relied on only in relation to the coils shipped on the Ankergracht, since there is no evidence that the coils shipped on the Archangelgracht were wet when loaded. 55 It is necessary to say something about the time at which condensation might have occurred in the course of the voyages of the Ankergracht and the Archangelgracht. There are three stages at which condensation might have occurred on the coils in question:
• prior to loading;
• immediately after loading;
• during the voyage. Dr Bellstedt examined each stage separately.

Prior To Loading 56 The coils were processed whilst warm, such that, on completion of processing, the temperature of the steel was high and well above the ambient air temperature. On completion of the processing, the coils were stored in ambient air until they were loaded onto barges and transported to the wharf for loading. During that period, the coils would steadily cool from the high temperature to close to the current ambient temperature. The coil surface temperature would be well above the air dew point temperature and, therefore, no condensation could occur. 57 After several days or longer, the coil temperature will begin to approach the air temperature and at constant ambient temperatures, eventually equilibrate with the air temperature. Under those conditions, the coil surface temperature will remain well above the air dew point temperature. If, after equilibration of the coil temperature, a significant increase in the ambient temperature and humidity should occur, due to a sudden weather change, the surface temperature of the coils could be below the changed air dew point temperature. Condensation could then occur until the coil temperature has equilibrated to the new ambient temperature. 58 Dr Bellstedt concluded that conditions were not conducive to the formation of condensation onto the coils prior to loading on board the vessel and it is more probable than not that any condensation occurred after loading of the coils.

Immediately After Loading 59 During the loading process, the hold conditions would become essentially equivalent to the ambient conditions, such that condensate formation during loading would not be likely. If the hold is sealed, but sources of moisture, such as open water, exist within the hold, the hold air is likely to absorb moisture from the water so that the dew point of the hold air would rise steadily. Under those conditions, the dew point would be likely to rise to a level above the surface temperature of the coils. Condensation could therefore occur within days of closing the hold. 60 If the hold is sealed but there are sources of heat within the hold, the air temperature within the hold will rise, but with no change to moisture levels. There would therefore be no change to the dew point temperature of the air. Accordingly, no condensate would be likely to develop on the coils in those conditions. 61 Dr Bellstedt concluded, therefore, that it was unlikely that condensation on the coils could have taken place immediately after loading before commencement of the sea voyage.

During The Voyage 62 During the subsequent trip from Japan to Australia, the condition of the air within the hold and the temperature of the steel coils would be likely to change. The reason for the change would be, first, ingress of air into the hold from the outside, either through intentional ventilation or leakage. That air could be at different temperatures and contain different levels of moisture from the air in the hold. Secondly, there could be a change by reason of heat transmission into the hold through the ship's structure. Heat could enter the hold from the outside warmer ambient air or sea through the separating hull and hold layers. Such heat flow would depend on the characteristics of the ship's design as well as the temperature outside the hold as compared with the temperature inside the hold. 63 Air entering the hold from outside would mix with the air in the hold and change its temperature and moisture content. As indicated above, air ingress into a sealed hold could potentially occur by way of the natural ventilation system, if it were opened either intentionally or accidentally. Natural ventilation could take place with or without the assistance of a fan. Alternatively, air ingress could occur through leakage of air into the hold by way of defective seals or open manhole covers. 64 Ingress of air with a higher moisture content than the hold air will increase the likelihood of condensation in the hold. Ingress of air with a lower moisture content than the hold air will decrease the likelihood of condensation. Ingress of heat into the hold will decrease the likelihood of condensation. Dr Bellstedt concluded that it is possible for condensation to occur during the voyage if ingress of moist air into the hold took place and insufficient heat entered the hold to increase the steel temperature to match the higher hold air dew point temperature. 65 Data recorded on the Ankergracht included comprehensive ambient dry bulb and seawater temperatures and barometric pressures at four hourly intervals throughout the voyage. In addition, measured and calculated data for ambient conditions and conditions within the lower hold and tween deck of the vessel are available. Dr Bellstedt concluded that the measured hold dew point levels exceeded the coil temperatures for most of the voyage, indicating that condensation on the steel coils would almost certainly have occurred. 66 The data kept in respect of the Archangelgracht included comprehensive ambient dry bulb and seawater temperatures and barometric pressures at four hourly intervals throughout the voyage. The same measured and calculated data for ambient conditions and conditions within the lower deck and tween deck were also available. Dr Bellstedt concluded that, in the case of the Archangelgracht, measured hold dew point levels exceeded the coil temperatures for most of the voyage. In those circumstances, he concluded that condensation would almost certainly have occurred. 67 In the light of Dr Bellstedt's evidence, I consider that it is more likely than not, that condensation occurred during the course of both voyages. That condensation led to corrosion on at least some of the damaged coils on the Ankergracht and all of the damaged coils on the Archangelgracht.

EXTERNAL WETTING 68 The Carriers say, however, that at least some, if not all, of the coils loaded onto the Ankergracht were wet prior to loading on board. They say that the water was able to find its way into the coils through the wrapping. The Carriers point to the difference in the extent of the damage to the two consignments and say that that difference gives rise to an inference that greater damage was caused to the coils on the Ankergracht than on the Archanglegracht because the former coils were loaded wet, whereas there was no evidence that coils on the Archangelgracht were loaded wet. 69 In the mates' receipts/shipping orders for the Ankergracht, coils were recorded as having been 'partly wet by rain in barge'. That endorsement related to each of the three bills of lading. A survey report of Scandinavian Underwriters Far East Agency Co Ltd dated 16 November 2001 ('the Survey Report') recorded the following in relation to each of the three bills of lading: 'Steel bands and core edge protector partly rusty, and partly wet with rain.' In addition, photographs show a barge of coils exposed and wet. While there was evidence that a tarpaulin cover on the barges was designed to prevent wetting by rain, the photographic evidence suggests they may have been wet in the barge. 70 The coils in question were received and loaded on 12 November 2001. Loading operations were halted between 1000 and 1415 hours on that day. Loading continued from 1415 hours to 1730 hours and there was no further rain on 12 November after 1415 hours or on 13 November 2001 while the Ankergracht was at Yokohama. Even if the coils were loaded prior to the stoppage at 1000 hours on 12 November 2001, there is no evidence one way or the other to indicate that loading continued while it was raining. The relevant records indicate that loading operations were stopped due to the rain between 1000 and 1415 hours on that day. That is consistent with the evidence of the master and chief officer of the Ankergracht as to their usual practice not to load during rain. Accordingly, on the balance of probabilities, it is more likely than not that the coils were not wetted in the course of loading. 71 The Carriers contend that, since corrosion could occur very rapidly and within hours of being in contact with water, it is reasonable to conclude that some damage occurred by reason of exposure to water on the barge prior to loading. That conclusion entails that rain water was able to infiltrate the external and inner wrappers in which the coils had been shipped. The Carriers say that water entered the wrapping and was trapped within the inner wrapping of the coil and up against the coil surface. 72 Professor Jones considered that the nature and distribution of the corrosion observable on the steel coils on the Archangelgracht is highly consistent with the corrosion having occurred as a result of condensation of moisture within the coils at some point, subsequent to wrapping of the coils for transit, and not as a result of external wetting. The white rust present in the core of coils and the runoff down the ends of the coils, are typical of condensation damage. It is unlikely that the white rusting was due to wetting from external sources that led to entry of water behind the end caps into the wrapped coil by percolation though the unsealed longitudinal edge of the wrapping paper. Corrosion present on the outer turns of the coils, within the core and down the end faces of the coils, as was observed, is not consistent with water entry along a single longitudinal path. 73 Every exposed surface of the coils, including the inside of the core, was wrapped in paper. Further, the wrapped inside of the coils was also protected by another sheet of galvanised steel. During transit, the coils were loaded on the vessels in a horizontal orientation, in that the axis of the coils was parallel to the deck. Professor Jones considered that that would make water ingress into the coils difficult. If extensive external wetting of a coil occurred, water uptake into the wrapped product could occur only if the unsealed longitudinal edge of the paper was lying directly along the deck. He thought that the chances of that occurring in approximately 57 per cent of the Ankergracht consignment, was remote. 74 If horizontally carried coils were exposed to extensive external wetting, that water could run down the end caps, pass beneath the core edge protectors, pass beneath the outer paper wrap and enter the coil itself. However, that is 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. 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. That pattern was present in only one case in the Ankergracht. Because the core of the coil is wrapped and taped, even if some small amount of water managed to percolate behind the core edge protector, the water would not enter the coil itself. 75 I consider that it is more likely than not that, even if the coils were wetted in the barge, no water infiltrated the external and inner wrappers prior to the loading of the coils on to the Ankergracht. While that is a possibility, there is no evidence to suggest that it is more likely than not that liquid water, present from rain while the coils were in the barge, infiltrated the packaging. The nature and distribution of the corrosion observed on the steel coils is consistent with condensation and there are other explanations as to the differences in the extent of damage in the Ankergracht and the extent of damage in the Archangelgracht. For example, the differences in timing and periods of ventilation could explain for differences in the ingress of moisture into the holds during the course of the two voyages.

SIGNIFICANCE OF THE CAPE DARBY AND the CHANGE OF PAPER 76 In December 2002, the M.V. Palmgracht carried 173 steel coils from Yokohama to Sydney. In December 2003 and January 2004, the M.V. Cape Darby carried 82 steel coils from Yokohama to Sydney. The Cape Darby is one of a fleet of vessels operated by the Project Asia Service ('PAS'). Since 2003, PAS vessels have been carrying coils of the nature in question with no incidence of corrosion. 77 The PAS vessels were fitted with humidifiers, although there is no evidence one way or the other as to whether the humidifiers were operated during the voyages. There is also evidence that the Kraft paper used for the internal wrapping of the coils on the voyages of the Ankergracht and the Archangelgracht was different from that used for the coils that were carried on the Cape Darby. Mr Paul Whitehead, the managing director of Stemcor, gave evidence concerning the circumstances of the change in wrapping paper. 78 Until June 2003, steel coils purchased by Stemcor from Tsuda that had been produced at the Taiyo mill were wrapped with a diamond shaped threaded laminated paper. Steel coils produced at the Nippon mill in Japan used a different wrapping paper. In May 2003, Mr Whitehead requested that Tsuda change the paper used at the Taiyo mill and to use the same paper as was being used at the mill operated by Nippon. From June 2003, the Taiyo mill began wrapping the coils in a polyethylene crossed paper. 79 On 30 May 2003, Mr Whitehead prepared a report dealing with the 'Coil corrosion problem'. The report relevantly 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 sets out photographs of coils from both source and continues: '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 inclduing [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.' 80 There is no evidence as to the addressee of the report. The report is equivocal, in that it simply draws attention to the fact that the problem of corrosion was believed to be the result of condensation and that one paper may or may not have been more effective to protect the ingress of water vapour. 81 There was no evidence of any testing of either of the papers in question to demonstrate the differences in specification or characteristics attaching to the papers or to determine their capacity to prevent the ingress of water. The fact that there was no corrosion on the coils carried by the Cape Darby is equally explicable as resulting from the use of dehumidifiers. In the circumstances, I am not persuaded that the evidence as to the Cape Darby or the change of paper assists in the resolution of the issues raised in the proceedings.

RESPONSIBILITY FOR THE DAMAGE TO THE COILS 82 Stemcor contends that each of the Carriers was in breach of its obligations under the amended Hague Rules. Stemcor says that the damage to the coils was the result of breach of rule 1 of Article 3 or rule 2 of Article 3. The Carriers, however, rely on paragraphs (i), (m) and (n) of rule 2 of Article 4 of the amended Hague Rules. That is to say, Stemcor claims that the Carriers did not exercise due diligence to make their vessels seaworthy and their holds fit for carriage of the coils or, alternatively, did not carefully and properly care for the coils during the voyages. The Carriers, for their part, say that Tsuda did not pack the coils sufficiently to prevent the ingress of water, whether in liquid or vapour form. 83 Packing capable of preventing even the most minor damage is not practical and is not expected for most commodities. By the same token, 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. There must be a balancing exercise undertaken by the Court in dealing with the question of insufficiency of packaging. Such an exercise involves finding some middle ground or rule of reason between a degree of packaging that will eliminate all possible damage on the one hand and a degree of care on the part of the carrier that will eliminate all possibility of minor damage on the other. The law will involve a compromise of the conflict between the interests of the shipper and the carrier. Neither is required to accept total responsibility.

DEFAULT OF THE CARRIERS 84 In essence, Stemcor's complaint is that the Carriers permitted water to enter the holds of the vessels and failed to have in place adequate means for either removing the water or ensuring that water vapour did not condense on the coils. Stemcor says that the Carriers should have taken steps to ensure that water could not enter the holds during loading, or during the course of the voyages. Stemcor says that water may have entered in the form of rain during loading, or on cargo that was wet prior to loading, or through inadequately sealed hatches and manhole covers, or through ventilating during the course of the voyages. Stemcor also says that, in circumstances where water could not be prevented from entering the holds, it was incumbent upon the Carriers to have installed on the vessels dehumidifying systems for removal of water, or heaters to ensure that condensation on the coils would not occur. 85 The obligation of the Carriers was to exercise due diligence to make their respective ships seaworthy and to make the holds fit and safe for the carriage of the coils. Stemcor contends that the Carriers failed in that obligation by failing to take adequate steps to ensure that condensation would not occur during the course of the voyages. That, it says, involved active measures to remove water from the holds to prevent condensation. 86 Condensation would occur during the voyages unless:

• no water entered the hold before sailing and no moist air leaked into the hold during carriage; or
• a method for removing water, such as a dehumidification system or a heater, was installed in the hold. However, there was water within the holds of both vessels prior to commencement of their respective voyages and the only methods available to remove water on both voyages were mopping the floors, wiping the cargo and operating the ventilators. Stemcor says that the vessels were unseaworthy at the time of commencement of the voyages because wet cargo and dunnaging was loaded into the holds and there was no dehumidification system or heater installed in the holds. 87 Water 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. The holds are more than 85 metres long and more than 15 metres wide. The amount of water that was required in either of the holds for condensation to occur was 68 litres.

Seaworthiness 88 Article 3 rule 1 imposes an obligation on a carrier to provide a ship fit to carry the particular cargo on the particular voyage to the particular destination (Mitsui & Co Ltd v Novorossiysk Shipping Co [1991] 1 Lloyd's Rep 456 at 472). However, the obligation imposed by Article 3 rule 1 is not an absolute one. The absolute duty at common law to provide a seaworthy ship is displaced by Article 3 rule 1, which requires the carrier to exercise due diligence to provide a seaworthy ship (Papera Traders Co. Ltd. and Others v. Hyundai Merchant Marine Co. Ltd. and Another [2002] 1 Lloyd's Rep 719 at 124 (The Eurasian Dream)). In cases where damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence is on the carrier. 89 Seaworthiness is to be assessed according to the voyage under consideration and there is no single standard of fitness that a vessel must meet. Seaworthiness is to be judged in the light of the conditions the vessel will encounter (Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad [1998] HCA 65 at 27). Seaworthiness is relative to the nature of the ship, to the particular voyage and even to the particular stage of the voyage at which the ship is engaged. Seaworthiness must 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 at 126, 127). The vessel must be in a suitable condition and must be in a fit state, as to equipment and in all other respects, to encounter the ordinary perils of the voyage in question (Ibid at 128). 90 The voyages in question were to commence in Yokohama in winter, when it is regularly cold and rain is expected. Rain occurred during loading operations of both vessels. It took about 20 minutes to close down the hatches when rain commenced. It is reasonably likely, therefore, that some rain entered the holds during loading operations. While it would have been possible for loading operations to be deferred until after the risk of rain had passed, it may have been difficult to do so because rain was expected at the time of the year when loading occurred. Having regard to that expectation and the possibility of cargo being loaded from the wharf where it would be exposed to rain during loading, Stemcor contends that some active means should have been adopted by the Carriers to remove water before sailing, beyond merely wiping cargo where it was accessible. 91 The ambient relative humidity in Yokohama remains high during the winter months. In order to travel to Australia, the vessels had to cross the equator where they would encounter warm moist air. Accordingly, there was a high probability that conditions for condensation would be created in the hold during the course of the voyages if free water was not eliminated or if moist air was introduced into the hold in the course of the voyages. 92 Stemcor says that, in order to be capable of carrying the coils in question on the particular voyages at the particular time of year, the vessels ought to have been equipped with a dehumidification system to remove water from the holds before condensation could occur. Alternatively, it would have been possible to install heaters in the hold to increase the temperature of the cargo, on the assumption that no free water was introduced into the holds during loading operations and humid air did not leak into the holds during the course of the voyages. A vessel for use in the voyages in question at the particular time of year for the particular cargo that did not have either a dehumidification system or heaters installed was unseaworthy with regard to that voyage carrying that cargo.

Hatches 93 There is no evidence that the hatches of either vessel were defective in any way so as to render them unseaworthy or their holds not fit and safe for the reception and carriage of the coils. Nor was there evidence of any leakage of moist air into the hold of either vessel through the hatch covers. Survey reports of both vessels prior to loading recorded that the hatch covers were found to be in good condition. Survey reports at the time of discharge also recorded the hatches to be in good condition. The only basis upon which it was suggested that there was any defect in the hatch covers was the inference drawn from records showing parallel increases in temperature inside the hold and outside. 94 However, I am not persuaded on the material before me that an increase in temperature in the hold is dependent upon the ingress of air from outside. Heat passes by conduction as well as convection. One would expect that, as the vessel moves from a colder temperature to a warmer temperature, heat could pass into the hold by conduction through the structure of the vessel, as well as inevitable breathing through holds that are not defective. As the temperature of the air and water outside the vessel rises, one would ordinarily expect the temperature of the vessel and its holds to follow that rise. I am not persuaded on the balance of probabilities that any of the hatches was defective.

Heaters 95 The evidence does not establish that the use of heaters in vessels is commonplace either generally, in vessels carrying steel cargoes or in vessels carrying coils of the nature in question. There was no evidence adduced by Stemcor of any vessel in which such heaters exist or are used. Nor was there evidence identifying the availability of such heaters in the shipping industry, either temporarily or otherwise. The absence of heaters was not, of itself, a basis for concluding that the vessels were unseaworthy and the holds were unfit or that the Carriers had not used due diligence to make the vessels seaworthy and the holds fit.

Dehumidifiers 96 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 unseaworthiness, the greater the effort that should be made to make the vessel seaworthy. 97 Dehumidification systems had been used on vessels carrying moisture sensitive cargoes for many years prior to the voyages in question. Since 2003, vessels operated by PAS have been carrying similar coils with no incidence of corrosion. As I have indicated, the Cape Darby has dehumidifiers installed. Dehumidification units are commonly installed on ships and such units were available for installation on the vessels at Yokohama at the time of the voyages in question. Neither the Ankergracht nor the Archangelgracht had any dehumidification system installed. However, the installation of dehumidification systems on either a temporary basis or a permanent basis was reasonably practicable in the circumstances for each of the Ankergracht and the Archangelgracht. 98 A number of matters would need to be attended to in arranging for the installation of dehumidifiers on the vessels as follows:

• The electrical supply, specifications for the dehumidifiers must comply with those of the vessel.
• Modifications would be required to the vessel, including structural modifications.
• It would be necessary to ensure that any such modifications were structurally sound and watertight.
• Classification society approval of the installation would be required.
• Additional equipment such as alternators, generators and condensate storage tanks may be required.
• There would be a lead time required for preparatory work and modifications. Even if temporary; the time for installation would be two to three weeks for delivery of components, three to four days for installation and commissioning and one day for survey and testing; that time is to be contrasted with the usually short duration time in port for loading and unloading and the relatively short time between production of coils and their shipment. 99 There are at least three manufacturers of dehumidifiers that would have been capable of installation in the vessels as follows:
• Munters HCD 4500;
• Seibu Giken RZ-101R; and
• Seibu Giken RZ-102. The units in question would cost approximately $200,000 to purchase or $22,000 per month to hire. 100 An appropriate method of fitting of dehumidifiers would be to mount them on the tween deck pontoons, with two units fitted forward in the cargo hold and two fitted aft. The weight of each unit, of approximately 400 kg, would make them suitable for such installation. Each of the above humidifiers has a similar size envelope and electrical power requirements although the Munters HCD 4500 humidifier is approximately 100 kg heavier than the other units. That difference would not affect the installation. The differences in the power requirements of the dehumidifiers is not significant; the difference in fuel consumption of approximately 577 litres of diesel for the voyage from Yokohama to Sydney would also not be significant. 101 With four units per hold, the power requirement would be 184 kw, which could be supplied either from the vessels' systems or from a separate generator temporarily fitted on deck. Units could have been provided with a power supply compatible with the vessels' systems. Each of the vessels in question is fitted with three diesel driven generators and one shaft generator. All four generators have an output of 320 kw and there would therefore be sufficient electrical power available for the dehumidification units. The power to run the dehumidification units could be taken from the power distribution to the cranes fitted on the vessels. Cables could be run from the number 1 crane and the number 2 crane through deck penetrations to the dehumidification units. During operation of the dehumidifiers, the cranes would have to be isolated. However, that would not interfere with ship's operation, as the dehumidifiers would not be in operation when the ship was working cargo: the cargo hatch lids would be open in those circumstances. 102 The vessels had ventilation fans for the cargo both forward and aft. There were also ventilation openings in the hatch covers. Air supply for the dehumidifiers could therefore be taken from the ventilation fans and moist air exhausted through the ventilation openings in the hatch cover ends. If there was a problem forward due to sea spray, the air supply and moist air exhaust could be reversed. Air supply could be arranged by the use of a flexible trunking fed from the cargo hold ventilation system. That trunking would cover the air inlet from the ships' vents, so as to minimise the supply of non-dehumidified air. 103 Moist air exhaust could also be connected to the ship's ventilation system utilising flexible trunking. If the length of exhaust trunking was not excessive, there would be no need for a condensate drain to deal with the discharge of condensate. If the trunking had to be particularly long, a drain trap could be fitted with the condensate being led away to the hold bilge well. In any event, moist air exhaust trunkings could be kept short enough in the vessels so that condensate drains were not needed. 104 The classification society for the vessels would need to survey the arrangement with regard to any matters that might affect the class of the vessel. The classification society would also have to survey the method of isolating the cranes. Lloyds Register and all major classification societies are well represented in Japan, where surveyors would be available, when required, to carry out the survey work, which would take less than one day. There was no evidence to suggest that any approval needed from a classification society would not have been forthcoming. 105 Employment of dehumidifiers could have an impact on cargo carrying capacity. Further, there may be costs involved in the return of units installed temporarily. However, the Carriers did not adduce any evidence as to loss of opportunity, costs or the cost of returning hired equipment to the port of loading. On the other hand, there was evidence that the vessels in question regularly travelled between Japan and Australia. 106 The cost of carrying out the installation, either in Japan or Australia, would have been somewhere between $A67,400 and $A115,406. Whether expenditure of up to $A115,406 for the installation of dehumidifiers could be regarded as reasonable must be gauged in the light of several factors. 107 One factor is the freight to be earned by the carriage of the coils. The total freight payable in respect of the Ankergracht was $US75,909.70 and in respect of the Archangelgracht was $US57,164.24. On the other hand, the arrangements between Stemcor and Spliethoff provided for a year long affreightment contract, requiring Stemcor to use Spliethoff's vessels to ship steel unless there was no vessel available at the time. 108 Another factor is the value of the cargo to be protected. The total price payable by Stemcor to Tsuda for the coils was JPY58,617,756 for the Ankergracht and JPY46,342,052 for the Archangelgracht, although there was no evidence that the Carriers had any knowledge of the value of the coils. Their value was not disclosed on the bills of lading or any other documents provided to the Carriers. 109 From the Carriers' commercial point of view, the cost of installing dehumidifiers may have been one that they did not want to incur. That, however, was a decision that should be made at the time of offering the vessels. Unless the cost was prohibitive or it was otherwise an unreasonable cost to incur, due diligence would require that it be incurred. The Carriers could have factored the cost of installation and operation of dehumidifiers into the freight charge for the particular voyage or for the period of the affreightment contract. That is a decision that should have been made prior to offering the vessels for loading. 110 There was no evidence that general cargo carrying vessels, such as the Ankergracht and the Archangelgracht, are regarded as unseaworthy merely because they did not have dehumidifiers fitted. Nor was there any evidence that the absence of a dehumidifier on a general cargo carrying vessel means that the hold is not regarded as fit and safe for the carriage and preservation of steel coils of the nature in question. There was no evidence of any industry practice, standard or custom for coils of the nature in question to be carried only on vessels with dehumidifiers. More specifically, there was no evidence of any industry practice or custom as to the temporary installation and use of dehumidifiers. There was no evidence of any example of the use of temporary dehumidifiers, either generally or for the carriage of coils of the kind in question. While there was some evidence that vessels have had temporary dehumidifiers installed, the extent of such a practice was not explored. 111 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.

Proper And Careful Handling And Care 112 Stemcor also contends that, in breach of Article 3 rule 2, the Carriers did not properly and carefully load, handle, stow, carry, keep, care for and discharge the coils in so far as they:

• loaded the vessels in circumstances where free water was able to enter the holds either on wetted cargo or as rain; and
• failed to manage the cargo by ventilating only in accordance with accepted proper practice. Alternatively, if no water was introduced during loading, water must have entered the hold in some other manner during the course of the voyage to enable the dew point to rise. Either it was introduced by ventilating, or by failing to seal the hatches properly. 113 As indicated above, there was rain during the loading of both vessels at Yokohama. The survey reports record that loading was stopped during rain and there is no direct evidence of rainwater entering the holds during loading. The vessels had in place a system or practice for closing the hatches in the event of rain, although the evidence indicated that that may take some time. There was no evidence that the system for closing the hatches was other than a proper system, and there is no reason to believe that the system was not implemented in relation to the voyages in question. 114 There was no express evidence of there being any ingress of water into the holds of either vessel by way of the hatches at any stage during their respective voyages. Such a possibility is inconsistent with the evidence as to the good condition of the hatch covers and the seals, as recorded by the surveys referred to above. Nevertheless, it is possible that rain entered whilst loading was taking place and before hatch covers could be closed. 115 A carrier would not normally be in breach of Article 3 rule 2 merely by reason of having loaded damp or moist cargo or dunnage, so long as the carrier exercises due diligence, with a proper system, to remove the moisture admitted into the holds. It is not possible for the carrier to dry caro before it is loaded. That is especially so of cargo still on barges, such as the coils in question, or cargo on the wharf. Such cargo is not at that time in the possession of the carrier. 116 Thus, the real question is whether the Carriers properly and carefully carried, kept and cared for the coils. If there was water in the holds, ventilators would need to be operated in a way that would remove that moisture. If the ventilators were operated in a fashion that permitted the ingress of further moisture, there was a failure to carry, keep and care for the coils properly and carefully. 117 It is common practice to ventilate the holds of vessels. That ventilation involves the opening of vents to allow the ingress of air from the atmosphere. That air will have the characteristics of the ambient temperature and humidity of the atmosphere at the time and place of ventilation. Thus, where the air outside the holds is more humid than the air in the hold, the humidity in the hold could be increased. Conversely, if the air outside the hold is drier than that inside the hold, the level of humidity may be reduced. Further, where the air outside the hold is warmer than that outside the hold, the temperature of the air in the hold may be increased by ventilation and, conversely, where the temperature of the air outside the hold is colder than that inside, the temperature of the air in the hold may be reduced by ventilation. Having regard to the relationship between air temperature and humidity, ventilation is capable of causing condensation on colder items within the hold. 118 The Ankergracht ventilated its holds as follows:
• morning and afternoon on 14 and 15 November 2001;
• morning and afternoon on 22 to 27 November 2001;
• morning on 28 November 2001. 119 The Archangelgracht ventilated its holds as follows:
• morning, afternoon and night on 19 and 20 January 2002;
• morning, afternoon and night on 23 and 24 January 2002;
• morning, afternoon and night on 30 January to 4 February 2002;
• morning from 8.30 am to 9.30 am and afternoon from 1.30 pm to 2.30 pm on 5 February 2002;
• morning, afternoon and night on 6 and 7 February 2002;
• morning and night on 8 February 2002. 120 Stemcor contends that the vessels should not have been ventilated when they were, and that it was unnecessary and contrary to proper practice to do so. By ventilating when they did, the Carriers raised the dew point of the air in and around the coils in the holds to the point where condensation occurred. If there was no free water allowed to enter the holds at the time of loading, and the hatches were adequately sealed, ventilation was the only source of moisture, assuming that there was no water inside the packaging of the coils at the time of loading. 121 It is normal to find a ventilation system in holds carrying general cargo. Ventilation may be by way of:
• atmosphere control,
• humidity control, or
• natural ventilation. Atmosphere control entails control of temperature and carbon dioxide, as in the case of refrigeration. Humidity control involves installation of a dehumidifier system. Natural ventilation involves introducing air from the atmosphere into the cargo spaces. 122 Natural ventilation requires an intake and an outtake, provided by ventilators at the fore and aft ends of the hold. The ventilator may be in the form of a mushroom or goose neck pipe and is usually fitted on both port and starboard sides of the vessel as well as fore and aft. 123 In the simplest arrangement, the ventilator may be simply opened or closed. In the case of a gooseneck ventilator, the ventilator is directed into the wind or away from the wind, as is required. If the vents are opened, the vent to windward will take air from the atmosphere, which will then enter the hold under a positive air pressure. The leeward vent would then be at a negative air pressure and the air will flow through the hold and exit through the leeward vent. Such venting can be enhanced where the ventilators are directional, as in the case of gooseneck ventilators, which can be pointed into the weather, or by means of a mechanical fan. In some ships, such fans may be reversible to allow intake and exhaust. 124 Ventilation occurs only where the dew point of the air outside the hold is lower than the dew point of the air inside. The corollary is that there is no ventilation where the dew point of the air outside the hold is higher than the dew point of the air inside the hold. That principle is referred to as 'the dew point rule'. 125 It is not practical to make holds completely airtight and there will always be some flow of air. However, for the carriage of steel cargo, it is normally essential that air flow be maintained at a level so that the environment within the hold is not affected by the moisture content of the weather systems through which the vessel passes. An objective in 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. That is done by comparison of the temperature of the air space in the hold with external temperature. 126 The vessels in question adopted systems which involved the taking of temperatures regularly each day, twice or three times a day. Those temperatures were recorded and from those recordings, the relative humidity and dew point were calculated. They were all recorded in a log on the vessel, in both ventilation records and in the vessel's log book. They were reported to the master and chief officer of each vessel so that a decision could be made as to whether to ventilate or not. All the elements of the system were consistent with both usual practice and good practice. Each vessel ventilated only when it was considered appropriate to do so, based on the readings taken each day in accordance with the application of the dew point rule. 127 Ventilation was also used where cargo was loaded wet or moisture had entered the hold in some other circumstances. If there was still moisture after the crew's efforts to dry the cargo and mop up any moisture or water in the hold, the hold would be ventilated to try to remove the remaining moisture if the dew point rule was satisfied. The ventilation records for both vessels confirm 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. 128 It is impracticable to measure the actual temperature of cargo, particularly in vessels such as the vessels in question, having one long hold with many different lots of cargo of different nature and loaded at different ports and at different times. The use of the dew point rule is only an approximation. Because it is an approximation, it is not necessarily decisive of the question of whether the Carriers properly and carefully handled, stowed, carried, kept and cared for the coils in question. Because of the imprecision of the criteria for determining when to ventilate and when not to ventilate, the question of installation of a system of dehumidification is critical. 129 The temperatures of particular cargoes may vary among themselves and may be different from the temperature of the air in the hold. Hold air space may be at a higher temperature than any particular item of cargo. Some cargoes, which have a large surface area and relatively low mass, will rise in temperature more quickly than cargoes with a relatively high mass and relatively small surface area that is exposed to the air. Thus, cargoes of high mass are slow to stabilise with the ambient atmosphere 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. Accordingly, non-hygroscopic cargoes passing from cold to warm climates should not be ventilated. A hygroscopic cargo is one that absorbs or attracts moisture. It is standard practice in the shipment of steel from cold to warmer climates not to ventilate the hold. 130 It is more likely than not that water in the form of vapour was introduced into the hold in course of ventilation during the course of the voyages. In circumstances where the coils in question were known to be sensitive to moisture and there was no dehumidification system installed in the holds, the admission of water into the hold during the course of the voyages was a failure to carry, keep and care for the coils properly and carefully.

DEFAULT OF THE SHIPPER 131 In their defences, the Carriers provide the same particulars in respect of their contention that the damage to the coils arose or resulted from act or omission of Tsuda, insufficiency of packaging or inherent defect, quality or vice. The particulars are as follows: 'i. The design of the coil wrapping system was such that moisture (sweat, condensation or wetting) could enter beneath the coil core and outer edge protectors. The coils were found to be wrapped with mesh reinforced, plastic clad paper sheeting. The way this had been applied involved the external wrap overlapping the coil wrap. This arrangement permitted moisture penetration beneath the core edge protectors to pass beneath the outer wrap and enter the coil itself. The coil wrapping system was inadequate in that it failed to keep the said moisture out of the coil interior. ii. The metal end caps of the coils were not large enough in diameter to ensure that moisture on the outside of the metal cap did not get onto the inner wrapper underneath the outer whirl. The design of the bore wrapper and bore collar were such as to permit any moisture in the bore to get underneath the metal bore wrapper and collar and run down inside the end cap. iii. The bore paper wrapper and the wrapper folded over the end faces of the coils was not joined properly allowing moisture accumulating in the bore to get under the metal wrappers and then through the inner paper wrapper at the bore to end face joins. iv. The inner wrapper was unable to withstand moisture if it was folded or worked in any way in that the plastic membrane of the inner wrapper would separate from its brown backing paper allowing moisture to penetrate. v. The coils should have been wrapped so as to provide a water proof vapour barrier. The inner wrapping of the coils failed in its function of excluding moisture.' 132 The last particular is in effect a summary of what goes before. That is to say, the Carriers claimed that the coils should have been wrapped so as to be impervious to the ingress of water vapour. Particulars (i) to (iv) are particulars of that assertion. The essence of the Carriers' case, in so far as it was based on insufficiency of packaging, is that the coils should have been wrapped in a manner that would have completely prevented the ingress of water either in the form of liquid or vapour. 133 In their written submissions, the Carriers say that the packaging of the coils was insufficient in a number of respects as follows:

• It allowed moisture on the outside of the wrapping to enter underneath the wrapping and accumulate within the wrapping against the surface of coils.
• The packaging provided no barrier to the entry of water vapour sufficient to prevent moisture in the air from entering the wrapper and condensing when it came into contact with the surface of coils.
• Even if the inner wrapping was capable of providing protection from light external wetting, it provided no protection against condensation developing within the coil.
• The inner wrapper trapped condensation that formed on the coil within the wrapping, so that moisture accumulated on the surface of the coil and was also drawn down into the winds of the coil. 134 So far as the Ankergracht is concerned, if the relevant coils were wet before loading, such that water had infiltrated the external and inner wrappers, there would be a finding that the packaging was insufficient and that there was inherent vice. The reliance upon insufficiency of wrapping as an act of the shipper does not take the matter beyond reliance upon rule 2(n). Thus, reliance on rule 2(m) and 2(i) does not go beyond reliance upon rule 2(n). If the coils were insufficiently packaged, the Carriers have a defence and it is irrelevant whether the defence arises under rule 2(i), rule 2(m) or rule 2(n).

Inherent Vice 135 Ankergracht says that any loss or damage arose or resulted from inherent defect, quality or vice of the coils in the consignment on the Ankergracht, in that the coils in question had been wetted before they were loaded on board and 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 the Ankergracht. Ankergracht says that the existence of that water within the inner wrapping of the coils was inherent vice, since corrosion would occur very rapidly and within hours of being in contact with that water. I have already concluded, on the balance of probabilities, that there was no internal wetting of the coils. Accordingly, Article 4 rule 2(m) does not afford an answer to Stemcor's claims.

Act Of Shipper 136 Ankergracht also relies on the exposure of the coils to external wetting prior to loading as an act or omission of the shipper under Article 4 rule 2(i). I have already concluded, on the balance of probabilities, that there was no internal wetting of the coils. Accordingly, Article 4 rule 2(i) does not afford an answer to Stemcor's claims.

Insufficiency Of Packaging 137 Insufficiency of package is the inadequate preparation of goods to withstand the foreseeable risks of carriage on the voyage contemplated. Packing will be sufficient if it is normal or customary in the trade. To be sufficient, packing must permit the relevant goods to withstand the normal hazards likely to be encountered on the specific voyage contemplated, and to prevent all but the most minor damage under normal conditions of care and carriage. Ordinarily, where goods have been packed in a manner that is normal or customary in the relevant trade, such that goods so packaged do not ordinarily suffer damage, it can be concluded that any damage to such goods was the fault of the carrier in failing to exercise proper care. 138 The insufficiency of the packing defence is very much a question of fact, highly dependent on the circumstances of each case. The Court must strive to pursue a middle ground between requiring ideal protection of stowage, on the one hand, and tolerating flagrant disregard for the safety of the cargo on the other. Looking at it from the other side, it involves pursuing a middle ground between ideal protection of packaging, on the one hand, and flagrant disregard for the safety of the cargo by the packer, on the other. 139 Captain Pyett described the inadequacy of the packaging of the coils in the following way:

• The inner wrapping of the packaging was made of one layer of plastic coated brown paper, which was thin and easily damaged, thereby allowing moisture to come into contact with the surface of the steel coil.
• The material lacked sealing tape in critical places.
• Moisture entered through tears and cuts to the inner wrapping. The tears and cuts probably occurred when the steel coils were handled and placed down horizontally on the ground or in barges or in the vessel. That damage occurred because the end cap outer cover edge protector drain holes, which were made from a stiff hard-edged, crimped steel material and run around the outside rim of the steel coil, could easily pierce the inner wrapping when the coil is sat down, because of compression due to the weight of the coil.
• Moisture that might collect inside the bore of the coils would sit inside the bore and eventually run down inside the bore collar and inside the end caps. Any moisture that collected inside the bore of the steel coils, would then run down to the edge of the bore, due to gravity or the motion of a barge or vessel or when the steel coils were handled. 140 Captain Pyett referred to a practice of another shipper of steel coils, which employs a different method of packaging. That practice included an additional sealed plastic wrapper over the top of the inner plastic coated paper wrapper, which completely sealed the contents against any moisture ingress. It is applied before the final steel outer wrapper is fitted. The outer circumference wrappers are fitted first, followed by the inner bore and the outer edge protectors and lastly the end caps, securing the whole steel coil by radial and circumference straps. Captain Pyett said that that manner of application of the outer steel wrappers prevents any moisture from running down inside the end caps. 141 Captain Pyett also expressed the opinion that the wrapping material used should also be properly sealed either by the use of sealing tape applied to all joins, or by an additional sealed plastic wrapper. That would prevent any moisture that may pool in the bore from leaking and coming into contact with the steel coils on the inside of the bore or running down the inside of the end caps. He considered that if such packaging methods were applied, any moisture pooling would remain on the outside surface of the inner wrapping, and not come into contact with the surface of the steel. The material used should be of a quality and strength to withstand any pressure caused by the metal end caps outer cover edge protector drain holes. 142 Captain Pyett also expressed the view that the nature of the corrosion on the coils and the pattern in the corrosion indicated that moisture had penetrated the outer metal wrappers and also the inner plasticised paper wrappers. In most of the coils that he observed, the metal end caps were not large enough in diameter to ensure that moisture on the outside of the metal cap did not get into the inner wrapper underneath the outer metal whirls. 143 Captain Pyett also expressed the opinion that moisture had penetrated underneath the outer metal covers and entered the inner paper wrappers. He considered that there was mechanical holing of the inner wrappers underneath the outer metal whirls, where the coils were landed at the bottom. He considered that the action of landing the coils, or putting them down on the ground or deck appeared to have caused the drain holes cut into the metal whirl to stamp into the inner wrappers, resulting in holes or damage to the inner wrappers. Water could then enter into the coil through those damaged sections which were at the bottom of the end face at each end of the coil. He also observed that the bore paper wrapper and the wrapper folded over the end faces were not joined or sealed in that the two joins were not taped together. Hence, water accumulating in the bore that could get under the metal wrappers could then get through the paper inner wrapper at the bore to end face joins. 144 Captain Pyett was of the opinion that the pattern of the corrosion on the coil indicated that water had come through the inner wrapper in a diagonal pattern identical to the reinforcing strings under the plastic coating of the paper. He also observed instances where the plastic had come off the brown paper backing and the brown paper underneath was wet. 145 The Carriers contend that the inner wrapping used in the packaging of the coils was insufficient because it was not adequate to protect the coils against the foreseeable risks associated with the intended storage and carriage of the coils and the ordinary rigours of the conditions to which the coils would be exposed during both pre-shipment storage and the carriage from Japan to Australia. They say the packaging was unable to withstand such handling as it was likely to undergo, and such hazards and conditions as it was likely to encounter, in the course of the intended storage and carriage. 146 It is 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. The real issue in relation to the question of adequacy of packaging is whether, having regard to the nature of the steel, the packaging was required to be such that water vapour could not enter through it, or whether the packaging was sufficient if it was adequate to prevent the entry of loose water from external wetting, the burden being imposed upon the carrier to ensure that the conditions of carriage were such that water vapour in the air, which might infiltrate the outer and inner packaging, would not condense on the steel coils. Putting it another way, the question is whether the shipper was entitled to rely on the carrier to ensure that the conditions under which carriage was to occur would preclude condensation of water vapour in the air, or whether the carrier was entitled to assume that the packaging was such as to preclude the ingress of water vapour through the packaging. 147 The Carriers accept that the method of packaging employed was typical for the shipment of coils of steel generally, without limitation to uncromated galvanised coils. That method of packing was typical in that it used the same elements described in Sparks, as shown in the appendix to these reasons, including the use of an external and inner wrapping. Of course, the mere fact that the method of packaging was typical does not of itself mean that the actual packaging employed was sufficient. For example, if typical packaging were defectively applied or materials were used that were defective or insufficient, such as an inner wrapping that permitted the ingress of loose water, the packaging may be insufficient. 148 There was no evidence as to whether unchromated galvanised or aluzinc coated coils of rolled steel of the nature of those in question had been shipped with the particular inner wrapping paper without damage. The Carriers say, therefore, that the evidence does not support the conclusion that the packaging employed for the coils in question was typical. While the method of packaging was accepted as being typical, there was no evidence that Kraft paper of the quality actually used by Tsuda was typical of Kraft paper ordinarily used for the shipment of unchromated galvanised or aluzinc coated coils. 149 The Carriers point to the change in the packaging practice adopted by Tsuda and Stemcor following the consignments in question. The change in the paper used for the inner wrapping coincided with Stemcor's change of shipping lines. There was evidence that subsequent shipments of similar coils exhibited no evidence of corrosion. There are, however, other explanations. The vessels on which the subsequent consignments were carried were fitted with dehumidifiers although there was no evidence as to the operation of the dehumidifiers on any subsequent voyages. 150 As indicated above, the shipments in question were amongst the first shipments of steel coils of the type in question by Stemcor to Australia and the first shipments from Japan in winter months. There was no evidence of successful earlier shipments of such coils using the same method of wrapping and in particular the same wrapping paper. 151 The Carriers contend that they have adduced prima facie proof of insufficiency of the packaging such that the burden is imposed upon Stemcor to show that the packaging was sufficient and normal and conformed to the custom of the trade but Stemcor had not discharged that burden. However, the Carriers have not established any insufficiency of the packaging other than the fact that the ingress of moisture was permitted. That, however, is the question in issue, namely, whether packaging which permitted the ingress of moisture was insufficient. 152 It is common ground that the coils in question had been recently galvanised or aluzinc coated and the coating was still in a reactive stage. The coils were unchromated and un-passivated, but for a light coating of oil. Further, it was common ground that if moisture is allowed to remain in contact with zinc or aluzinc coating at high humidities and with poor ventilation, corrosion is a significant risk. The application of oil to the surface of the coils had only a very limited short term effectiveness and was not as effective as chromating. 153 Stemcor was aware that the coils were to be shipped along with a wide variety of other steel cargoes on general cargo vessels and no request was made for dehumidification or any other system to ensure that condensation of water vapour on the coils in the course of the voyage would not occur. As I have said, that is really the question in issue. That is to say, the question is whether Stemcor should have ensured that the coils were impervious to water vapour or alternatively should have informed the Carriers of the need to ensure that the coils remained at a temperature above the dew point temperature in the holds, such that condensation could occur. 154 Condensation is known to be an incident of transporting cargo from northern hemisphere winter through the tropics to the southern hemisphere. The coils in question were highly susceptible to corrosion damage from exposure to moisture and there was a foreseeable risk of such exposure occurring during the course of carriage from Japan to Australia. The Carriers say that, in those circumstances, packaging that does not protect the coils against exposure to water vapour in the air is insufficient. They say that sufficient packaging requires the adoption of a method that will not trap resulting moisture against the surface of the coils but would allow condensation to evaporate or otherwise run off the coils. However, the Carriers do not point to any method that would achieve that end. Indeed, it is difficult to conceive a method of packaging that would achieve such an object. The suggestion itself rather accepts that it would not be possible to devise a method of packaging that prevented all ingress of moisture. 155 Captain Pyett's opinions concerning corrosion and adequacy of packaging was inconsistent with those of Professor Jones. I prefer Professor Jones's evidence on the effectiveness of the wrapping and on the cause of rusting. I am not persuaded that the packaging of the coils was insufficient within the meaning of Article 4 rule 2(n).

CONCLUSION AS TO RESPONSIBILITY 156 It is true that the packaging of the coils was not such as would prevent the ingress of water in the form of vapour. However, the coils were packaged in a way that is regarded as adequate in the industry, and in a manner consistent with the general practice in the industry. There was no evidence of any industry practice of wrapping coils in a way that ensures there is no possible ingress of water in the form of vapour or otherwise. The evidence does not support a finding that the internal wrapping was defective or inadequate in any way. 157 The coils were being transported from a cold northern hemisphere climate to a hot southern hemisphere climate, through the tropics. While the coils were particularly susceptible to damage from corrosion consequent upon contact with water and the Carriers were not specifically informed of any particular sensitivity of the coils, the sensitivity of steel to corrosion generally was well known in the industry. 158 I consider that it is more likely than not that the holds were closed in Yokohama with water trapped inside in the form of wet dunnage and liquid water on some cargoes that were wet with rain. Further, ventilation occurred during the course of the voyages, at times when the vessels were likely to have been in the tropics. Ventilation probably resulted in the ingress of air containing water vapour rather than the removal of water vapour from the holds. 159 I consider that, on the balance of probabilities, condensation occurred after the loading of the coils on each vessel and during the course of the respective voyages of the vessels. That condensation resulted in corrosion. The corrosion could not have occurred if moisture had not been admitted into the holds or if moisture, once admitted, had been removed by the operation of a dehumidification system installed in the vessels. Alternatively, condensation could have been prevented by the operation of a heating system installed on the vessels to ensure that the surface temperature of the coils did not fall below the dew point temperature of the air in the holds. 160 In the circumstances, I consider that the corrosion was caused by the failure on the part of the Carriers to carry, keep and care for the coils properly and carefully during the voyages in circumstances where the vessels had neither dehumidification systems nor heating systems installed. In the circumstances, having regard to the apparent difficulty in preventing the ingress of water into the holds in the ways that I have described, the vessels were not seaworthy for the carriage of the coils in question from Yokohama to Sydney on voyages commencing in December and February respectively. Since it was practicable to install dehumidifiers in the vessels, the Carriers failed to exercise due diligence to make the ships seaworthy and to make the holds fit and safe for the carriage and preservation of the coils. 161 It follows that the Carriers are responsible for the corrosion damage that was occasioned to the coils and Stemcor is entitled to be compensated for that damage.

MEASURE OF DAMAGES 162 Stemcor and Tsuda contend that the amount recoverable, if they succeed, is the wholesale price charged by Stemcor to ACC for the damaged coils. It is common ground that that amount is as follows:

• Ankergracht: $450,440.40
• Archangelgracht: $66,958.17 163 The Carriers, on the other hand, contend that the amount recoverable is the CIF value of the damaged goods. The total CIF values for the two consignments were as follows:
• Ankergracht: $1,084,736.36 · Archangelgracht: $895,325.94

The parties have agreed that the proportions of the values attributable to the damaged coils were as follows:

• Ankergracht: $375,979.05 · Archangelgracht: $55,676.88

Those figures are calculated as set out in Schedule 3 to these reasons. 164 Article 4 rule 5(b) of the amended Hague Rules provides the total amount recoverable is to be calculated by reference to the value of the damaged goods at the place and time at which the goods are discharged from the ship in accordance with the contract. The value of the goods is to be fixed according to the commodity exchange price, or if there be no such price, according to the current market price, or, if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality. Stemcor contends that rule 5(b) requires calculation by reference to the sale value of the goods to Stemcor in Sydney on the respective dates of unloading, being 28 November 2001 in the case of the Ankergracht, and 13 February 2002 in the case of the Archangelgracht. 165 Stemcor supplies 60 to 70 per cent of the Australian market for imported steel for continuous paint line applications, such as are used by ACC. There is no commodity exchange price for such steel. Stemcor contends, therefore, that current market price is the appropriate measure. Stemcor says that current market price is to be determined by what a willing buyer will pay and what a not unwilling seller will receive for the subject matter being valued. Such a proposition assumes that an efficient market exists (see Spencer v The Commonwealth (1907) 5 CLR 418). 166 Stemcor is a major supplier of aluzinc and galvanised steel coil in Australia and, specifically, in Sydney. It sells such goods to at least one willing buyer in Sydney, namely, ACC. Stemcor has done nothing to add value to the coils and says that the market price for the coils is the price at which the coils can be sold by Stemcor in Sydney. 167 However, that analysis assumes that current market price refers to the price at which the claimant can sell the goods in question rather than the current market price at which goods can be bought by the claimant. Such an analysis is erroneous. A claimant is entitled to be put in the position in which it would have been had the contract been performed. On the assumption that the Carriers were in breach of their obligations, and the damage to the coils was the result of some act or omission on the part of the Carriers, Stemcor would be entitled to be put in the position of having undamaged coils in Sydney. To put it in that position, it would need to buy more coils from Tsuda or elsewhere. If there were a supplier in Sydney, the measure of Stemcor's loss would be the price it had to pay to that supplier in Sydney to obtain undamaged coils. 168 Stemcor did not suggest that there was a current market for the supply of coils in Sydney. There was no evidence of any manufacture of such coils in Australia, let alone in Sydney. The only basis upon which Stemcor could replace the damaged coils was by further import from Tsuda. It was not suggested that, in order to replace the coils in Sydney, Stemcor would be required to pay more than the CIF price paid to Tsuda for the coils in question. 169 Stemcor concedes that, if there is no current market price for the coils in Australia or Sydney, the amount that it would be entitled to recover is the CIF value of the coils, which reflects the normal value of goods of the same kind and quality as the coils shipped on the Ankergracht and the Archangelgracht. 170 The position might be different if there was evidence that the sale of coils to ACC by Stemcor was lost permanently such that it lost the profit on the proposed sale of coils to ACC. In the absence of any such consequential loss, the appropriate measure of damage, consistent with general principle and the appropriate analysis of rule 5(b), is that Stemcor would be entitled to damages equal to the cost of replacing the damaged coils in Sydney. As I have said, it is common ground that that amount is as indicated above.

CONCLUSION 171 In the light of the conclusions that I have reached, there must be judgment for Stemcor and Tsuda in each of the proceedings. Stemcor is entitled to recover from Ankergracht the sum of $375,979.05, together with interest from the date of arrival of the Ankergracht in Sydney on 28 November 2001 to the date of judgment. There should be judgment against Archangelgracht in the sum of $55,676.88, together with interest from the date of arrival of the Archangelgracht in Sydney on 13 February 2002 to the date of judgment. The Carriers should pay the costs of Stemcor and Tsuda of the two proceedings. The two proceedings have been conducted as one and costs should be determined on that basis.

SCHEDULE 3 Ankergracht Salvage calc Actual Salvage return net of GST 144,185.64 Less Costs incurred in salvage (Auctioneer) 23,364.58 Less Net Line time costs 4,981.98 Less Cartage 4,327.04 Less Storage 9,513.34 Less Handling 401.10 Net Salvage return 101,597.60

Total Loss of damaged goods based on price Less Salvage Net Loss 552,038.00 101,597.60 450,440.40 CIF Value of Damaged goods 477,576.65 101,597.60 375,979.05

Archangelgracht Salvage calc Actual Salvage return net of GST 10,596.64 Less Costs incurred in salvage (Auctioneer) 940.96 Less Net Line time costs 46.22 Less Cartage 339.27 Less Storage 745.91 Less Handling 31.45 Net Salvage return 8,492.83

Total Loss of damaged goods based on price Less Salvage Net Loss 75,451 8,492.83 66,958.17 CIF Value of Damaged goods 64,169.71 8,492.93 55,676.88 I certify that the preceding one hundred and seventy-one (171) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett J.

Date of Hearing: 4, 5, 6, 7, 8, 11, 12 and 13 April, 29 and 30 June 2005