Edible Oil Case

[2000] Vol.
I LLOYD'S LAW REPORTS 563

Pak. Ct.] The "Nitsa" and "Sinoda" PART 9
PAKISTAN HIGH COURT OF SIND
KARACHI
Feb. 26, 1999
TRADING CORPORATION OF PAKISTAN
V.
INTER-CONTINENTAL OCEANIC
ENTERPRISES CORPORATION
AND OTHERS (THE "NITSA")
NATIONAL INSURANCE CORPORATION
v.
MIS MARITIME AGENCIES LTD. AND
OTHERS (THE "SINODA")
Before Mr. Justice M. SHAIQ UsMANI
Bill of lading -Short delivery- Liability- Cargoes
of oils carried to Karachi - Plaintiffs alleged cargo
shortlanded - Identity of carrier of consignment -
Whether consignment shortlanded - Whether car-
rier liable- Liability of ship's agents.
Suit No. 386 of 1982.
The vessel Nitsa brought a consignment of edible oil
to Karachi on Oct. 5, 1981. The consignment was
consigned to the plaintiffs. The vessel was entered into
the port of Karachi by the second defendants who were
the local agents of the first defendants, the owners of
the vessel.
The plaintiffs alleged that the cargo was shortlanded
and claimed the value of the cargo shortlanded.
The defendants denied any shortlanding and sub-
mitted that the cargo had been excess landed and that
the shortage, if any, had occurred after the cargo had
been discharged and they were not liable for such
shortage.
Suit No. 781 of 1985
The vessel Sinoda brought two consignments of
kerosene oil and HSD oil to Karachi on Oct. 26. 1984
which was consigned to Kuwait Petroleum Co. Liaison
Office (Pakistan) for and on account of the Ministry of
Petroleum and Natural Resources, Karachi. The ship-
per's were the second defendants and the vessel was
entered into the port of Karachi by the first defendants,
the local agents of the second defendants. The second
defendants were the charterers of Sinoda and the
plaintiffs alleged that the third defendants were the
owners of the vessel.
The plaintiffs were an insurance company with
which the consignment was insured and they filed a suit
in their capacity as alleged subrogees. The plaintiffs
alleged that consignments were short delivered and
claimed damages.
The defendants claimed that the third defendants
were not the owners of the vessel and the suit was bad
for non-joinder of the the owners. The first defendant
denied that they were agents of the second defendants.
The defendants denied that the consignment was
short landed.
The suits were consolidated and the issues for
decision were:
(I) Who was the carrier of the consignment?
(2) Whether the suit as framed was maintainable.
(3) What were the loaded, arrived on board quantities
of cargo and as to what quantities were discharged into
shore tanks?
(4) Whether any part of the consignment was short-
landed and if so whether the carrier was liable for such
shortlanding.
(5) What was the extent and amount of loss suffered
by the consignees?
(6) Whether the plaintiffs had paid the consignees
claim and whether they had any right to sue.
(7) Whether the plaintiffs were entitled to a decree
and if so against which of the defendants.
---Held, by Pak. Ct. (M. SHAIQ USMANI, J.),
that ( I ) once a vessel reached the port with the cargo
and delivery order was issued by the ship agent the
actual identity of the canier was irrelevant in so far as
the consignee/subrogee was concerned; in the final
analysis it was not the shipowners or charterers who
contested the claim but the P and I clubs; since the
canier was the principal of the ship's agent who entered
the vessel in the port, it would be sufficient if the
consignee/subrogee while suing the carrier merely
mentioned as primary defendant "the Carrier carrying
the consignments on board M. V. - to be served on the
ship agent", and the ship's agent as the second defen-
dant so that service on the local agent would constitute
service on the carrier (see p. 569, col. 2);
(2) the loaded, arrived on board quantities of oil and
quantities discharged into shore tanks as stated were
assessed jointly by the surveyors representing cargo
interests as well as the carriers'/owners' interest (see
p. 570, col. I);
(3) the quantity of cargo discovered at the time of
arrival of the vessel was in fact in excess of the quantity
loaded; but the quantities actually discharged into the
shore tank were less than the arrived quantity; it was
clear that there was considerable difficulty in ascertain-
ing the true quantity of cargoes loaded in the ship
because of many variable factors, (see p. 571, col. I);
(4) delivery would occur once oil cargo left the
ship's manifold; once the cargo left the ship's manifold
it was in the custody of the shore tank terminal
operators and the rights and liabilities with regard to the
oil cargoes would be governed by the terms and
condition of the agreement between shore terminal tank
operator and the consignees/receivers; the shore tank
operator thus being the agents of the consignees, the
cargo could be considered to be in the constructive
custody of the consignees/receivers themselves but it
obviously could not be considered to be in the custody
of the carriers (see p. 572, col. 2; p. 573, col. 2);
(5) in the two cases the anived quantities were found
to be in excess of the figures mentioned in the bill of
lading and "dry tank certificates" were issued indicat-
ing that the entire cargo had been discharged from the
vessel; no evidence had been brought to show that such
was not the case and there was no shortlanding of cargo
in both cases (see p. 576, col. I);
564 LLOYD'S LAW REPORTS [2000] Vol. 1
M. SHAIQ USMANI, J.] The "Nitsa" and "Sinoda" [Pak. Ct.
(6) the necessary proofs had been provided for the
payments to be made to the consignee by the plaintiffs
(see p. 576, cols. I and 2);
(7) the earner was not liable for the short receipt of
the consignment by the consignee; if the ship's agents
were required to discharge the cargo claims they would
do so on behalf of their principals and their liability to
do so would be essentially secondary liability; it was
only when the consignee was unable to recover from
the earner either because of his refusal or avoidance or
unavailability within the boundaries of Pakistan that the
consignees/underwriters might proceed to recover from
the ship's agent; the Courts should refrain from passing
joint and several decrees in a cargo claim against the
earner and ship's agents; in fact the interest of the
consignees/underwriters would be sufficiently pro-
tected if the decree was sought and granted primarily
against the earners and in the alternative against the
ship's agents (see p. 576, col. 2; p. 578, col. 2);
(8) the earners had no liability for the short receipt of
the cargo by the consignees in both suits and the
liability of the ship's agents was secondary; none of the
defendants had any liability in both suits and both suits
would be dismissed (see p. 578, col. 2).
These were actions by the plaintiffs Trading
Corporation of Pakistan in suit 386 of 1982 and by
the plaintiff National Insurance Corporation in suit
781 of 1985 claiming against the defendants Inter-
continental Oceanic Enterprises Corporation M/s
Eastern Shipping Ltd and Karachi Port Trust in suit
386, and the defendants M/s Maritime Agencies
Ltd., M/s Kuwait National Petroleum Co. and M/s
Hongkong Manda Shipping Co. Ltd. in suit 781 in
respect of short delivery of cargoes of edible oil,
Kerosene and HSD oil in the vessels Nitsa and
Sinoda.
Mr. Nasarullah Awan for Trading Corporation of
Pakistan; Mr. Mohammed Naeem for M/s Eastern
Shipping Co. Ltd. and Mr. Javed Farooqi for
Karachi Port Trust.
Mr. Shoib Ali Khan for National Insurance
Corporation; Mr. Bashir Shaikh for M/s Maritime
Agencies Ltd. and M/s Kuwait National Petroleum
Co., and Mr. Mohammed Naeem for M/s Hong-
kong Manda Shipping Co. Ltd.
The further facts are stated in the judgment of
Mr. Justice M. Shaiq Usmani.
JUDGMENT
Mr. Justice M. SHAIQ USMANI: By a com-
mon judgment I propose to dispose of Suit No. 386
of 1982 and Suit No. 781 of 1985 as the law
involved in these suits is identical. However, as far
as the facts are concerned, I will describe them
separately for each suit because even though in
substance they are similar there are nevertheless
certain variations, which need to be highlighted.
Briefly the facts of this case are that a vessel
Nitsa brought a consignment of edible oil to Kar-
achi on Oct. 5, 1981. The consignment was con-
signed to plaintiff. The vessel was entered into the
port of Karachi by defendant No. 2 who were the
local agents of defendant No. I, the owners of the
vessel. The plaintiffs claimed that the consignment
upon arrival at Karachi was short landed by
228.092 tonnes valued at U.S. $1,24,722.99 equiv-
alent to Rs. 15,25,362.29. The plaintiff through this
suit claim the value of the cargo shortlanded. The
defendants on the other hand, while admitting the
bill of lading quantity, state that in fact there was
excess shipment of 16.851 tonnes as according to
them the quantity found in ship's tank determined
upon taking ullages at the port of loading was
25,862.605 tonnes. The defendants contend that
upon vessel's arrival at Karachi there was a joint on
board survey conducted according to which the
consignment was in fact excess landed by 61.265
tonnes. The entire quantity found on board, accord-
ing to the defendants, was discharged into the shore
tanks. A tank dry certificate was issued indicating
that the entire cargo had been discharged from the
vessel's tanks and that nothing remained on board.
The defendants therefore deny any shortlanding of
the cargo and in fact aver that the cargo has been
excess landed. The shortage, if any, according to
them has occurred after the cargo had been dis-
charged and thus they are not liable for such
shortage. Based on the pleading of the parties,
following issues were settled:
I. Whether the plaintiffs have right to sue in
respect of the consignment?
2. Whether the defendant No. 2 have no privity
of contract with consignee/plaintiffs and if so what
is its effect?
3. Whether the suit is bad for non-joinder of
parties?
4. Whether the defendants are liable for alleged
shortlanding of 228.092 tonncs of Soya Bean oil in
bulk and if so what was their condition quality,
quantity and value?
5. What quantity of Soya Bean oil in bulk was
found in ship's tanks according to the ullages on
completion of loading?
6. What quantity of Soya Bean oil in bulk was
found in ship's tanks according to the ullages
before discharge at the Port of Karachi?
7. Whether the defendant No. I had discharged
61.265 metric tonnes of Soya Bean oil in bulk in
excess of the Bills of Lading quantity and if so what
is its effect?
8. Whether the surveyors issued their dry tank
certificate in respect of ship's tanks after discharge
[2000] Vol. 1 LLOYD'S LAW REPORTS 565
Pak. Ct.] The "Nitsa" and "Sinoda" [M. SHAIQ USMANI, J.
of Soya Bean oil in bulk at Karachi and if so what
is its effect?
9. What is the quantum of alleged loss suffered
by the plaintiffs?
10. To what reliefs, if any, are plaintiffs
entitled?
The plaintiffs examined a representative of their
company as well as a representative of their sur-
veyors as their witnesses while defendants exam-
ined one of their directors and a representative of
their surveyor.
The facts of this case are that a vessel Sinoda
brought two consignments of kerosene oil and HSD
oil to Karachi on Oct. 28, 1984 which was con-
signed to Kuwait Petroleum Co. Liaison Office
(Pakistan) for and on account of Ministry of Petro-
leum and Natural Resources, Karachi. The shippers
of this cargo were the defendant No. 2. The vessel
was entered into port of Karachi by defendant No.
1 who were local agents of defendant No. 2. who in
turn were charterers of the said vessel Sinoda. The
plaintiffs maintain that the defendant No. J were
the owners of the said vessel. The plaintiffs them-
selves are an insurance company with which the
consignment was insured and they have filed a suit
in the capacity of alleged subrogees. The plaintiffs
claim that the consignments were short delivered by
881 tonnes of kerosene oil and 160 I tonnes of HSD
oil. After allowing transportation losses allowance
of 5 per cent., the shortage amounts to 636.16
kerosene oil and 807.69 of HSD oil. The plaintiffs
claim the invoice value of the consignment short-
landed to he Rs. 308,353.00 for kerosene oil and
Rs. 378,425.00 for HSD oil totalling Rs.
686.678.00. On the other hand the defendants,
according to their written statement, claim that
defendant No. 3 are not the owners of the vessel
and in fact the owners are another company and
thus the suit is bad for non-joinder of the owners.
According to them the vessel Sinoda was time
chartered to Tradex Ocean Transportation S.A. who
in turn had voyage chartered the said vessel to
defendant No. 2 thus it is the defendant No. 2 who
were the carriers of the consignment and thus the
owners have no liability in the matter whatsoever.
Indeed, defendant No. I also have denied that they
are the agents of defendant No. 2. The defendants
admit the bill of lading quantities described in the
plaint but state that these were issued by defendant
No. 2 as the agents of time charterers. They have
denied that the consignment was shortlanded. They
state that upon vessel's arrival an on board joint
survey was conducted on behalf of all the interested
parties and survey report showed that in fact the
consignments were in fact excess landed by 12.58
tonnes of kerosene oil and 68.26 of HSD oil. They
claim that since this on board quantity was fully
discharged into shore tanks they have no further
liability in the matter as the responsibility of the
vessel ended when the consignment left the ship's
manifold. The shortages if any, are based on figures
derived from shore tank on the basis of which
KPT' s outturn report was prepared and the defen-
dants/carriers have no concern with that. Conse-
quently they deny their liability for the plaintiffs'
claim. Based on the pleadings of the parties, the
following issues were framed:
I. Whether the suit as framed is maintainable?
2. Whether the suit is bad for non-joinder of the
proper party?
3. Whether the defendant No. 3 or the defendant
No. 1 are carriers of the suit consignments?
4. What were the arrived on board quantities of
kerosene oil and high-speed diesel oil?
5. Whether any part of the consignments was
shortlanded?
6. What is the extent and value of the loss, if any,
suffered by the consignee?
7. Whether the plaintiffs have paid the consign-
ee's claim and have they any right to sue?
8. Whether the plaintiff is entitled to a decree, if
so, against which of the defendants?
The plaintiffs examined as a witness an official
of their company and a surveyor who had surveyed
the consignment. Whereas the defendants examined
general manager of their company only. Both par-
ties filed the usual documents, namely, the bills of
Jading, invoices, survey reports and letters of sub-
rogation etc. The evidence of the plaintiffs was, if I
may say so, exceedingly slip shod and in fact the
plaintiffs' witness PW-1 had very little knowledge
of the manner in which the consignment was
discharged. He could not possibly have much
knowledge of this in as much as this is a 13 year-old
case and all evidence that was brought on record
was based on office records of the plaintiffs and not
on the personal knowledge of the plaintiffs' wit-
ness. Similar was the case with the defendants'
witness. However, it was rather unusual (since it
almost never happens) to have a surveyors' witness
who had himself carried out the survey. In shipping
cases it often happens that by the time the cases
come to trial most first hand witnesses are not
available and the acts brought out through evidence
by the witnesses are much the same as described in
the pleadings. Indeed, I am of the view that oral
evidence in shipping cases amounts to merely going
through the motion of recording evidence and
rarely does the evidence led by witnesses meet the
stringent requirement of the Qanun-e-Shahadat
(Evidence Act). Most evidence consists of produc-
tion of shipping documents which are standard
566
LLOYD'S LAW REPORTS [2000] Vol. I
M. SHAIQ UsMANI, J.] The "Nitsa" and "Sinoda" [Pak. Ct.
documents and hardly ever vary. In all cargo cases
the standard documents that are produced are as
fol1ows:
(i) Copy of non-negotiation Bill of Lading.
(ii) Invoice.
(iii) Preliminary/final outturn report of KPT.
(iv) Survey Reports/Inspection Report of sealed
containers.
(v) Shortlanding Report of KPT.
(vi) Defective cargo list of KPT, if relevant.
(vii) Excess landing report of KPT, if relevant.
(viii) Charter-parties, if relevant.
(ix) Insurance policy.
(x) Letter of subrogation along with proof of
payment by the Insurance company to consignee.
(xi) Customs general bond given by ship agents
under s. 55 of the Customs Act, 1969.
Considering that none of the witnesses normally
have personal knowledge about any of these docu-
ments and shipping cases as a rule are decided on
the basis of above standard documents, oral evi-
dence would be of little value. Considerable time of
the Courts would thus be saved if copies of the
aforesaid documents are filed along with the plead-
ings and the original thereof are filed in Court after
settlement of issues and are exhibited at the time of
trial through one witness and thus reduce oral
evidence to barest minimum. This is not to say that
the oral evidence in shipping matters is to be
completely dispensed with but to say that it can
be safely avoided and that oral evidence must only
be recorded if so required by the Court or by any of
the parties to prove a particular point vital to their
case which happens to be somewhat unusual or out
of the ordinary. In my view, such need could arise
for example, in respect of survey reports or labo-
ratory reports when the surveyors or laboratory
personnel could be examined.
Having heard the arguments of the learned Coun-
sel for the parties and having perused the evidence
brought on record by them, I found that the cases of
the plaintiffs were going by default. It appears that
the plaintiffs were not conscious of the gravity of
the legal issues involved and the facts that needed
to be proved for their claim to succeed. The
defendants' approach too, appeared to be somewhat
lackadaisical and they relied complaisantly mainly
on the well known principle in the shipping field of
carrier's responsibility for the cargo extending to
"ships rail". This was so because it is perhaps the
first case of its nature which deals with adjudication
of cargo claim relating to oil cargo (in bulk) that has
come before a superior Court. The importance of
this case is apparent from the fact that I am
informed that the entire shipping industry in Paki-
stan and also those concerned with shipment of
edible cargo to Pakistan are awaiting judgment in
this case. 1 do hope the parties are not nonplussed
by the results of the discussion herein particularly.
because judging from the arguments advanced I
find that the parties are attempting to view the legal
and factual issues involved in this case in the same
way as in the carriage of "dry" cargo.
There is no cavil with the proposition that once a
cargo, be it "dry" or "bulk" cargo is loaded on
board a ship and a bill of lading describing the
quantities so loaded is issued then the shipowner/
carrier is bound to deliver the same quantity at port
of discharge. However, there are considerable dif-
ferences when the nature of cargo is "liquid" as
opposed to being "dry". This is so because in case
of "dry" cargo it is easy to ascertain the quantities
of cargo loaded on board and hence a priori, it is
just as simple to determine as to what quantities
have been discharged but when the cargo, such as
edible oil or other oil is loaded in "bulk" it
becomes very difficult to determine the exact quan-
tities loaded and hence the quantities discharged.
Considering that the parties to the suit were unable
to bring the required evidence or to advance plau-
sible arguments in support of their contentions, as
stated earlier, I found that such an important case
was going by default. I therefore decided to act on
my own and appoint three amicus curiae, namely,
(i) Mr. Imtiaz Lari, Advocate, (ii) Mr. Jamil Ahmed
Khan, Advocate and Mr. Ghulammohammed Ebra-
him, Advocat. I, in particular chose these gentle-
men because of their experience in the field of oil
cargo claims and also because they mostly repre-
sent either the cargo-owners or their underwriters in
such cargo claim cases. Finding that the evidence
on record was insufficient for me to arrive at correct
conclusion 1 chose to examine some experienced
individuals in the concerned field as Court wit-
nesses. In this connection I examined (i) deputy
traffic manager, Karachi Port Trust, Rahim Bux
Brohi, who primarily deals with oil cargo; (ii) a
representative of Shore Tank Terminals Mr.
Mohammed Iqbal; (iii) chief executive of M/s
Oceanic Surveyor, Captain, Khalilur Rehman who
is experienced in the field of oil cargo surveying. I
even permitted the cross-examination of these wit-
nesses by the parties, even though as a rule Court
witnesses ought not to be cross-examined.
From the evidence that was brought on record by
the parties and through these Court witnesses and
the information that was derived from the argu-
ments of the amicus curiae and through taking
judicial notice myself the picture that emerges
regarding methodology of the loading and discharg-
ing of oil cargo is as follows:
The basic difference between the loading of oil
cargo and the dry cargo at the port of shipment is
that where the dry cargo is mostly kept in the
shippers' /freight forwarders' yards and is then
transported by usual means such as by rail or motor
vehicles to wharves for eventually loading on board
a ship, in case of oil cargoes the cargo is initially
stored in a shore tank often situated at considerable
distance from wharves and is transported through
pipelines to the ship's manifold leading to the
ship's tanks. To continue the comparison, while the
quantities of dry cargo being transported for load-
ing from the yard is physically measured or counted
and thereafter such description is reflected in the
bill of lading issued by the carrier, the quantities of
oil cargo in the shore tank are measured by taking
dips of the shore tank to measure the depth of the
oil in the tank. Thereafter the specific gravity of the
oil and temperature is ascertained and then with the
help of calibration chart of the tank the actual
quantity of oil in the tank is calculated. Once this
entire quantity is discharged through pipes into the
carrying vessel it is presumed that the oil cargo
loaded on board the vessel would be the same as
was determined to be in the shore tank. The bill of
lading issued by the carrier, or on his behalf by the
agent, reflects the quantity as determined in the
shore tank. However, the vessel too. conducts an on
board survey to determine the actual quantities in
the vessel's tanks at the time of loading. This is
done by taking ullages of ship's tank and taking
into consideration the temperature trim and list of
the vessel and then calculating the actual quantity
on board with the help of calibration chart of the
vessel prepared by its builders. I might explain in
layman's terms that ullages are the measurement of
the space above the level of the oil in the tank,
whereas trim indicates whether the vessel is down
in water by the head or by the stern and the list
indicates whether vessel is tilted to one side or the
other.
Once the vessel sails, from load port to the port
of destination then during the voyage often the need
arises to shift oil from one tank to the other for the
purposes of stability of the ship. Each of these tanks
have also valves which are used to shift or pump
out the oil and leakage can occur from these valves.
The tanks themselves can leak depending on the
strength of hull of the tanks which in tum depends
upon the age of the vessel. When the vessel arrives
at the port of discharge, invariably an on board
survey is carried out by various interests in cargo,
namely, shipowner, shipper/consignee etc. The pur-
pose of this on board survey on arrival is to
determine the arrived quantity of oil cargo. This
too, is calculated by taking ullages and considering
specific gravity and temperature of cargo and the
trim and list of the vessel. As a rule, this arrived
quantity of oil should be the same as on board
quantity at the port of loading. However, occasion-
ally, this is not the case and the reasons for this
could be numerous. For example, the cargo could
be found to be short, as mentioned earlier, due to
leakages from valves of the tanks or tanks them-
selves or even oil spill but also because of the
difference in trim and list and the human errors
during the taking of ullages. On the other hand it
could also be in excess because of the variable
factors that are used for calculation of quantity and
the difficulty in ascertaining exact trim and list
particularly if the sea is rough. After on board
survey, upon arrival of the vessel, the cargo is
pumped out from ship's manifolds into shore tanks
which are situated at times at considerable distance
from the oil piers/jetties through pipelines which
could be on surface or sub-surface. Once the cargo
is discharged into the shore tanks the depth of the
tanks is taken by a process known as "Dip", which
entails measuring the depth of oil in the tanks, and
then after ascertaining specific gravity and tem-
perature etc. exact quantity in the shore tank is
calculated using the calibration chart of the shore
tank. Usually, universally (not including Pakistan)
it has been found that there is very little difference
between the arrived quantity of cargo and the
quantity pumped out in shore tanks. The difference,
if any, does not exceed 0.5 per cent., of the total
quantity found on board on arrival due to reasons
that will be discussed later in this judgment. This is
so because every effort is made by the "Carrier" to
discharge every drop of the oil on board the vessel.
In fact after the entire cargo is discharged from the
vessel the ship's tanks are physically examined by
the surveyors or the concerned parties to see
whether any oil still remains on board. To ensure
that no oil remains, oil squeezing gangs are
employed for squeezing every remaining drop as
fast as possible from the various crevices of the
tank. Very rarely have shortages beyond 0.5 per
cent. been discovered except when voyage of vessel
has not been uneventful inasmuch as the vessel may
have met some accident or leakage or spills had
occurred.
However, unfortunately, in Karachi, it is now
usual for shortage beyond this figure of 0.5 per cent.
to occur. Occasionally shortages much beyond this
figure also occur which appear to be unexplained
and hence it would be necessary to investigate the
circumstances leading to such shortage. Here the
evidence of the Court witnesses has come in very
handy. It appears that in so far as the ports in
Karachi are concerned, that is to say the port of
Karachi and Port Qasim, the shore tanks are often
situated at considerable distance from the oil pier
which could be even a mile away. The pipelines
leading to these tanks themselves are above surface
as well as sub-surface and have various joints in
them. These pipes, at least the larger portion
beyond the KPT area are laid by shore tank terminal
568 LLOYD'S LAW REPORTS [2000] Vol. I
M. SHAIQ UsMANI, J.] The."Nitsa" and "Sinoda" [Pak. Ct.
operators who are also responsible for their security
and maintenance. The pipes run through an area
that is not constantly under surveillance, conse-
quently are liable to he tampered with leading to
purloining of the oil from the pipes through drilling
of holes in them by adventurers. Indeed such thefts
are fairly frequent and have been widely reported in
the press.
Presently the practice, at least in the Karachi
port, is that the vessel arrives and berths at oil pier
and an on board survey is carried out by the
surveyors representing the shipowner's P&l club
and shipper/consignee/receiver and any other inter-
ested party and the arrived quantities on board are
determined. It has also been brought on record that
as per Central Board of Revenue Notification dated
Mar. 3, 1992 the Customs compare this arrived on
board figure with the bill of lading figure when
calculating Custom penalty for shortlanding of
cargo under s. 55, Customs Act, 1969 and allow for
an allowance of 0.25 per cent. for leakage and other
loss of cargo. Thereafter the cargo is discharged
from the ship manifolds into the shore tanks
through pipes. It has also been brought on record
through Court witnesses as well as the witnesses of
the plaintiffs themselves that the shore tanks are in
fact arranged by consignee through entering into an
independent agreement with the shore tank opera-
tors. It is an admitted position generally that the
shipowners have no contractual relationship what-
soever with the tank operators. Once the entire
cargo is discharged from the vessel the surveyors
inspect the tanks physically and then issue what is
known as a "dry tank certificate" which means that
there is no cargo left on board and by implication
that the cargo that was determined to be the arrived
quantity through a joint survey has been discharged
in full. Thereafter cargo discharged into the shore
tank is jointly surveyed by all aforesaid surveyors
and dips and temperature are taken and by help of
calibration chart the exact quantity of cargo in the
shore tank is determined and this information is
then conveyed to the Karachi Port Trust (KPT).
Here there is a complete departure from the usual
practice followed by KPT in respect of discharge of
dry cargo on plinths. In case of dry cargo KPT
themselves tally the cargo being discharged and
hence arrive at an independent assessment of the
quantities of cargo discharged which they reflect in
a "Preliminary outturn report" thereafter based on
it a final outturn report is issued and then in case of
any shortages shortlanding certificate is issued by
KPT. However, in case of oil cargo, KPT accepts
the quantity determined by joint survey of shore
tank to be the quantities discharged from the vessel
and based entirely on that, issues an outturn report
and thereafter no further reports are issued by KPT.
If the cargo received in the shore tank from the
vessel is short, such shortage would be reflected in
the KPT outturn report without the KPT arriving at
any independent assessment of their own. It follows
that the same shortage would be reflected in the
quantities received by various receivers/consignees
since the delivery is given to them from the shore
tanks based on the quantity of oil received therein.
It is thus obvious and it has been so stated by KPT
witness summoned by the Court, that while dry
cargo is received in the custody of KPT prior to
delivery to the consignees, the oil cargo is never
received in the custody of KPT and stays through-
out in the custody of shore tank operators, who as
we already know act as agents of the consignees.
Nevertheless it has been brought on record that
KPT' s only interest in the consignment is the
collection of wharfage on the cargo landed and
once the wharfage is paid and the custom docu-
ments are in order KPT issues a release order and
then the consignees take delivery of their cargo
from shore tank terminal operators directly without
any intercession from KPT or the shipowner/carrier
except that the ship agent issues the delivery order
based on bill of lading quantities. The delivery
itself is taken by the consignee piecemeal and not
on one occasion. All this while the cargo stays in
the custody of shore tank operators, who as has
already been stated, act as agent of the receiver/
consignee under a separate and independent
agreement.
Having thus been armed with the evidence,
which is truly impartial, regarding the methodology
of loading and discharging of oil cargoes, I am now
in a position to examine the issues involved in these
suits. Even though the consignment in these suits
are of different kind of oil cargoes, in so far as the
question of rights and liabilities of the parties are
concerned, these are similar. I have therefore, recast
the issues and have consolidated them so that both
suits can be decided together. The consolidated
issues are as follows:
1. Who is the carrier of the consignments?
2. Whether the suit as framed is maintainable?
3. What were the loaded, arrived on board
quantities of cargo and as to what quantities were
discharged into shore tanks?
4. Whether any part of the consignment was
shortlanded? And if so, whether the carrier is
responsible for such shortlanding?
5. What is the extent and amount of loss suffered
by the consignees?
6. Whether the plaintiffs have paid the consign-
ees' claim and whether they have any right to
sue?
[2000) Vol. I LLOYD'S LAW REPORTS 569
7. Whether the plaintiffs are entitled to a decree,
if so against which of the defendants?
I shall now proceed to deal with these issues
individually.
The question, as to who is the carrier of the
consignment is not free of ambiguity, more so
because the consignee usually is not in a position to
ascertain as to who is in fact the carrier. Under the
Hague Rules, which is applicable to consignment in
both the suits before me, the "carrier" as per art.
1 (a) thereof includes the owner or the charterer who
enters into a contract of carriage with a shipper. The
responsibilities of carrier as per art. 2 are as
follows:
ARTICLE 2: Subject to the prov1s1ons of
Article 6, under every contract of carriage of
goods by sea the carrier, in relation to the
loading, handling, stowage, carriage, custody,
care and discharge of such goods, shall be
subject to the responsibilities and liabilities, and
entitled to the rights and immunities hereinafter
set forth.
The above definitions would clearly show that
the carrier of the consignment does not have to be
the owner of the vessel and it is the carrier who is
responsible for any Joss or damage to the consign-
ment since he is responsible for the cargo from time
of loading till discharging of the cargo. When a
vessel arrives at Karachi and the consignee man-
ages to retire the bill of lading from the bank, it is
only then that the consignee has the opportunity to
learn the identity of the carrier i.e. the one who
issues bill of lading. Occasionally the name of the
carrier is mentioned in the letterhead of the bill of
lading, but more often than not it bears the name of
either the charterer or the managing agents of the
owners or charterers. If the consignment is short-
landed or is damaged then obviously the consignee
has a claim against the carrier, hut when he or his
underwriter chooses to initiate legal proceedings
against carrier, the only person he knows definitely
to be connected with the carrier/vessel is the ship-
ping agent who enters the vessel in port of Karachi
and who issues the delivery order for the consign-
ments. If the bill of lading indicates the name of a
party in the letterhead then he invariably impleads
him as a defendant in the proceedings and then by
way of abundant caution and also in view of the
provisions of s. 55 of Customs Act, 1969, he
impleads the local shipping agents as well. In their
anxiety not to leave out the person who would be
liable for the claim, often the consignees of their
subrogees decipher names of some party or the
other from the shipping documents whom they
regard to be the owner and thus implead them as
well. It is obvious that this leads to proliferation of
defendants and yet consignee is not sure as to who
is truly responsible for the alleged loss. If the
assumptions of the consignee in this regard are
wrong, it gives an opportunity to the parties so
impleaded to deny their liability. All this unneces-
sarily burdens the Court because notices have to be
served on parties who are unconcerned with the
carriage and usually operate from tax havens and
have no fixed address and thus initial service is
delayed unnecessarily. Seemingly this is an exer-
cise in futility because the fact remains that it is the
shipping agent who enters vessel in the port and
then comes forward to defend the vessel, as
instructed by his principal, who is the person
actually responsible for the consignments. I there-
fore, feel that once a vessel reaches the port with
the cargo and delivery order is issued by the ship
agent the actual identity of the carrier becomes
irrelevant in so far as the consignment/subrogee is
concerned. In the final analysis it is not the ship-
owners/charterers who contest the claim. It is in
fact the protection and indemnity clubs popularly
known as P&I clubs, who are akin to, but not quite,
an insurance company, and insure the third party
liability of shipowner/carrier, that contest the claim
behind the scenes on behalf of the shipowners/
charterers. Thus true identity of the carrier is of no
concern to the consignee for his claim is against the
carrier, whosoever it might be. Since invariably the
carrier is the principal of the ship agent who enters
the vessel in the port I hold that it would be
sufficient if the consignee/subrogees while suing
the carriers merely mentions as primary defendant
"The Carrier carrying the consignments on Board
MY .... to be served through the ship agent (who
enters the vessel in port)" and the ship agent
himself as the second defendant and thus service on
the local agent would constitute service on the
carrier also. Later the ship agent can be asked to
disclose the identity of his principal/carrier as per
law and then his name can be included in the title to
the plant. In view of these findings of mine as
above, I feel there is no need to consider various
objections raised in the written statements in two
suits regarding the liability or otherwise of various
defendants that have been named in the plaints in
the two suits. Need it to be said, the parties during
the course of arguments never dwelt upon this
issue.
Issue No. 3:
The loaded, arrived on board quantities of oil and
quantities discharged into shore tanks in the two
suits are tabulated below:
570
LLOYD'S LAW REPORTS [2000] Vol. 1
M. SHAIQ UsMANI, J.] The "Nitsa" and "Sinoda" [Pak. Ct.
SUIT NO. 386/1982
As per Bill of Lading 25801.749 MT
As per loading ullages 25862.600 MT
As per arrival ullages 25863.014 MT
Quantity received in Shore
Tanks 25557.657 MT
Shortage as compared to Bill of
Lading quantity 244.092 MT
SUIT NO. 78111985
As per Bill of Lading
As per loading ullages
As per arrival ullages
Quantity received in
shore tanks
Shortage as compared
to Bill of Lading quantity
Kerosine
Oil
6,311.000
6,359.700
6,323.580
6,181.02
129.98
DSDOil
21,047.000 MT
21,297.839 MT
21,276.345 MT
20,826.24 MT
220.76 MT
Keeping in view the evidence of the surveyors
and others that I have already touched upon it is
clear that the quantities as above are determined as
per methodology that I have explained above and
are assessed jointly by surveyors representing cargo
interest as well as the carriers'/owners' interests.
Issue No. 4:
This is by far the most crucial issue. Before I
proceed further to discuss this issue, it would be
better if I first touch upon the question of liability of
the carrier before determining whether any short
landing had occurred or not. In order to do this it
would be advantageous to quote certain relevant
provisions of the Hague Rules:
ARTICLE 3.2
Subject to the provisiOns of Article 4, the
carrier shall properly and carefully load, handle,
stow, carry, keep, care for, and discharge the
goods carried.
ARTICLE 3.4
Such a bill of lading shall be prima facie
evidence of the receipt by the carrier of the goods
as therein described in accordance with para-
graph 3(a), (b) and (c).
ARTICLE 4.2(m)
Neither the Carrier nor the ship shall be
responsible for loss or damage arising or result-
ing from: . . . . .. Wastage in bulk or weight or
any other loss or damage arising from inherent
defect, quality or vice of the goods.
An examination of the above provisions of law
and their interpretation that has been well settled by
now, would show that once the carrier loads con-
signments on board the vessel and issues a bill of
lading, which is not claused in any way, then he is
deemed to have certified that the goods that he has
received are as described in the bill of lading and he
undertakes to take care of the goods and also
discharge the same at the port of discharge. This bill
of lading, therefore, is a prima facie evidence of the
goods as described in the bill of lading. In other
words an estoppel is set up against the carrier. This
is of course a rebuttable presumption inasmuch as it
is for the carrier to show that the goods were in fact
not as described in the bill of lading. If carrier is not
able to rebut the presumption and if he is not able to
deliver the consignments as described in the bill of
lading he is liable for any shortage or any damage
to the cargoes. This principle equally applies to dry
cargo as well as oil cargo and no distinction can be
drawn between the liability of a carrier for one
cargo or the other. The only latitude that a carrier
has is that he can show that the cargo was not
loaded in the same quantity or condition as
described in the bill of lading. However, if he can
show at the discharging point that the shortage or
damage to the cargoes occurred while the goods
were not in carrier's custody then he can escape
liability. He can also escape liability if he can show
that loss or damage falls within one or more
exceptions described in art. 4 of Hague Rules. If the
carrier takes these pleas then the consignee whose
consignment has been lost or damaged can show
that the vessel was not seaworthy or cargo worthy
"before and at the beginning of the voyage". If this
happens, then the carrier can assert that he exer-
cised due diligence to make the ship seaworthy. The
burden of proof thus keeps shifting between carrier
and the consignee/shipper.
The above proposition is easy to adhere to in case
of general dry cargo but difficulty arises when the
mode of carriage is unusual, particularly if it is
containerized cargo or if the cargo is of a different
kind such as oil cargo. In case of containerized
cargo, the carrier often resorts to clausing the bill of
lading, that is endorsing it with some qualifying
remarks regarding the cargo because the containers
are received by the carrier in sealed condition and
are discharged in the same condition and the carrier
never becomes aware of its contents. The remarks
that the carrier normally endorses on container bill
of lading are "said to contain", "Shipper load stow
and count" or "CY to CFS" etc describing that the
container has moved directly from container freight
station (CFS) or container yard (CY) to a station or
yard at the discharging port. In view of such
clausing of the bill of lading, the carrier maintains
that the bill of lading is not even a prima facie
Pak. Ct.] The "Nitsa" and "Sinoda" [M. SHAle..> UsMANI, J.
evidence of the goods as described in the bill of
lading and thus the carriers have no liability for any
loss or damage to contents of container as long as
the container is delivered in a sealed condition. This
seems very simple but it is not, because the basic
question involved here is one of estoppel, that is to
say whether an estoppel is set up against the carrier
or not. There is a plethora of case law on this
subject but the case on which the foundation of the
entire structure of law on this point rests is the
Canadian Sugar case i.e. Canada and Dominion
Sugar Co. Ltd. v. Canadian National (West Indies)
Steamship Ltd., [ 1947] A. C. 46. In that case it was
held:
... That if a statement relating to the apparent
good order and condition of the goods is qual-
ified by endorsement of remarks in Bill of Lading
then the estoppel fails.
Based on this case it is now universally accepted
that if a container is loaded in a sealed condition
and is discharged in the same condition and the bill
of Jading is claused as stated above then the carrier
is not liable for Joss or damage to the cargo. This
proposition is now sanctified even in Pakistan by
the case reported in P.L.D. 1992 S.C. 291.
I have indulged in brief digression about the
containerized cargo only to bring the point home
that as per the law developed in the last 30 years
while determining the liability of the carrier under a
contract of carriage, it has become important to
ascertain whether the carrier was in fact aware or in
the knowledge of what was loaded in the receptacle
or in case of oil cargo in the tanks and also whether
the cargo so loaded was discharged directly into the
custody of consignee/receiver or after the discharge
there was yet another intermediary custodian. Hav-
ing dealt with the part relating to lack of knowledge
of the carrier relating to the contents of receptacle,
the question that comes to fore now is whether the
carrier will be liable for any loss or damage to the
cargo once it has left the custody/control of the
carrier. This question attains particular importance
in case of carriage of oil cargo. This I shall deal
with later in this discussion on this issue.
Presently it needs to be considered whether any
shortlanding did occur in these cases or not. The
table, that I have given under issue No. 3 would
show that the quantity of cargo discovered at the
time of arrival of the vessel was in fact in excess of
the quantity loaded and yet it is found that quan-
tities actually discharged into shore tanks are lesser
than the arrived quantity. What could be the expla-
nation of this? From the description of method-
ology of loading and discharging of oil cargo
above, it is clear that there is considerable difficulty
in ascertaining the true quantities of cargo loaded in
the ship because of the presence of many variable
factors. The bill of lading issued for the oil cargo,
therefore, usual1y conforms to the quantities calcu-
lated from the dip taken in shore tanks at the port of
loading. However, when a ship carrying the con-
signments reaches the port of discharge and the
quantities calculated after taking ullages of ship's
tanks are found to be lesser than the quantity
described in the bill of lading for whatever reasons,
then there is no doubt that the burden will be on the
carrier to explain the shortage. If on the other hand
the arrived quantity is the same as the bill of lading
quantity or is in excess (which can be explained as
an outcome of the difference in the variable factors
fed into the calculation) then the presumption
would be that there was no shortage. To say this is
to simplify the problem involved but it is obviously
not as simple as that. The evidence brought on
record clearly shows that it is not possible for the
oil cargo to be discharged directly to the consignee.
Perforce, the cargo has to be discharged into the
shore tanks which are often situated at great dis-
tance from the oil pier and the pipelines leading to
shore tank pass through an area which is not under
continuous surveillance. This state of affairs pre-
vails in most countries but in spite of this usually
there is very little difference between the quantities
that are found to be on board and the quantities that
are eventually found to be in the shore tanks. The
difference between the two quantities is minimal
and rarely exceeds 0.5 per cent. which occurs due to
what may be called "transportation losses". So
much so that this figure of 0.5 per cent. has by now
become internationally accepted. Even the plain-
tiffs in suit No. 781/1985 have, of their own
volition, made an allowance of 0.5 per cent. while
calculating shortage in the cargo received. When-
ever shortages have occurred in most developed
countries these are normally attributable to either
theft by the ship's staff or spills and leakages.
However, unfortunately the conditions that prevail
here are somewhat different. Here evidence has
been brought through independent witnesses that
there are widespread incidents of theft by organized
gangs whereby they drill holes in the pipeline and
siphon away great quantities of oil. Evidence has
also been brought on record to the effect that thefts
occur from the shore tanks as well and that shore
tanks themselves are erected on land based on soft
sand and hence the bottoms of tanks tend to cave in
leading to errors in calculation. Hence it cannot be
said with any degree of certainty that if the cargo is
found to be short after discharge into shore tanks,
such shortage is attributable to the carrier.
Nevertheless the fact remains that there is no
alternative to discharging of oil cargo into shore
tanks. The ideal would have been to give direct
delivery from the ship's manifold into some con-
tainers of the consignee but that is not feasible.
572
LLOYD'S LAW REPORTS [2000] Vol. I
Considering that the oil cargo must be discharged
into shore tanks the question that comes to fore is at
what stage is the delivery made to consignee
because as emphasized by one of the amicus curiae
Mr. Ghulammohammad Ebrahim, merely discharg-
ing the consignment is not sufficient, the cargo
ought to be also delivered to the consignees by the
carriers. There is no doubt that art. 3.2 of the Hague
Rules only enjoins the carrier to discharge the
goods and not to deliver these to the consignee.
Discharge means merely the act of letting some-
thing go or in other words get rid of something.
Would that mean that the carrier would fulfil his
responsibility under the law by merely depositing
the cargo on any quay or barge upon reaching the
port of discharge? Apparently not; because it is the
contract of carriage which must be considered and
not period of time. To this extent Mr. Ghulammo-
hammad Ebrahim is right and the contrary argu-
ment has been rejected in a passage from the case of
Pvrene Co. Ltd. v. Scindia Navigation Co. Ltd.
[ i 945] 2 Q.B. 402 which has been approvingly
cited by the Hon'ble Supreme Court in the case of
East & West Steamship Co. v. Hussain Brothers and
Others, (P.L.D. 1968 S.C. 15) as under:
In my judgment this argument is fallacious,
the cause of the fallacy perhaps lying the suppo-
sition inherent in it that the rights and liabilities
under the rules attach to a period of time. I think
that they attach to a contract or part of a
contract.
It would thus appear that in carriage of goods by
sea the law cannot be viewed in isolation with
contract of carriage and to that extent "discharge"
and "delivery" would be concomitant to each other.
However, in case of oil cargo, the question arises,
whether the delivery is made when the last drop of
oil cargo exits from the ship's manifold or is it
made when it reaches the shore tank or is it made
when the consignee takes delivery from the shore
tank. Along with the question of delivery the
question that attains prominence in order to deter-
mine liability is, in whose custody can the oil cargo
be considered to be at these various stages? What
then is the definition of delivery in case of oil
cargo? The word "delivery" means "handing over"
"giving to some other person". In other words it
connotes the act of physical parting with something
into the custody of another. The two co-ordinates of
this phenomenon are (I) the act of proffering or
discharge and (2) the incidence of passing into
another's custody, whosoever it might be. To show
as to how this happens in case of oil cargo, I would
quote the following passage from American juris-
diction reported in 1972 American Maritime Cases
p. 373 Centerchem Products, Inc. v. AIS Rederiet
Odjjell And Skibs A/S Hasee/ And AIS Specialbank
(1972 A.M.C. 373):
It has been established that proper delivery
occurs when a carrier (I) separates goods from
the general bulk of the cargo; (2) designates
them; and (3) gives due notice to the consignee
of the time and place of their deposit, and a
reasonable time for their removal. Titanio, 131
Fed. 229 (2 Cir., 1904); Calcot, Ltd. vs.
lsbrandten Co., 1963 A.M.C. 1993 318 F. (2d)
669 (I Cir., 1963 ). When the glyoxal entered
the flexible hose supplied by Norfolk Oil
Transit it was thereby separated from the other
cargo, it had been designated to the particular
consignee and proper notice had already been
given. It is, therefore, the opinion of this Court
that the defendant-carrier had effected proper
delivery once the chemical had left the ships
pipes and entered the flexible hose. Since the
was unable to show an)' loss of glyoxal
prior to this delivery, there can be no judgment
against the carrier.
From another American jurisdiction case of
Northeast Petroleum Corporation v. S.S. Prairie
Grove, ( 1977 A.M.C. 2139), where the same point
was considered, I will quote the following passage
to bring the point home:
The Court does not agree with plaintiff that the
amount of cargo represented by the shore figures
taken at the Massashusetts ports constitutes the
amount of cargo "delivered". Here, as provided
by the charter party, delivery occurred upon
passage of the cargo from the vessel's permanent
hose connections to connections provided for by
plaintiff. Although the best evidence of the
amount of cargo so delivered, i.e., passing
through the permanent hose connections of the
vessel, would be the actual total of the count of
each barrel as it passed from the vessel's connec-
tions to plaintiffs coupled with the "Dry Tank
Certificates", absent this total, the Court finds
that the next best evidence of the amount of
cargo delivered to be those calculations taken by
the Captain and the Saybolt representative based
on the joint ullage reading of the vessel's tanks
upon arrival at each destination point. Thus,
comparison of the shore tank figures (at load
port) recited in the bill of lading issued at Corpus
Christi with either the figures calculated by the
Captain or the Saybolt representative in Massa-
chusetts establishes that the vessel arrived with
substantially all of the cargo which was loaded at
Corpus Christi.
This definition of delivery brought out in the
above case would clearly show that the delivery I
would occur once oil cargo leaves ship's manifold,
which is akin to the well understood expression
"ship's rail" used in case of dry cargo. This point of
view is further supported by the evidence brought
on record, according to which the shore tanks are
arranged by the consignees/receivers under an
agreement whereby the shore tanks accept liability
for any shortages. Besides, the shore tanks terminal
representative has also brought on record that the
pipes that lead from the ship's manifold, partic-
ularly the portion that lies outside the Karachi Port
Trust area right up to the shore tanks is laid by the
shore tank terminal operators and its security is also
their responsibility. The following extract from one
of the clauses of the agreement between consignees
and shore tank terminal operator would show that
the shore tanks do accept responsibility for any
shortage in the oil stored by them or any theft or
pilferage of the said cargo.
(vi) The Contractors (Terminal operators) shall
indemnify the Hirers (Consignees) for any loss
caused to them due to non-performance of the
terms of this agreement by the Contractors and
due to any loss of oil by theft, pilferage or any
other reason. The Contractors further undertake
to compensate the Hirers for any such loss by
making payment of the value of the lost oil and
for any other expenses on demand by the
Hirers.
13. The Contractors shall be responsible for
any shortage in the quantity of oil stored in their
land tanks and they shall have no lien or right of
retainer-ship on such oil.
Moreover, it has come on record that in case of
oil cargo there is almost negligible involvement of
KPT in the process of preparation of outturn report
or the final delivery to the consignees in complete
contradistinction to the process followed in case of
dry cargoes. KPT's interest in all oil cargo, as
brought out by the evidence of deputy traffic
manager KPT, is only to the extent of collection of
wharfage charges and assisting customs to com-
plete their formalities. The outturn report prepared
by KPT in case of oil cargo is also not a document
that is prepared by any involvement on their side
but is entirely based on the shore tank figures
provided to them by the surveyors who measure the
quantities in the shore tanks after completion of
discharge of the cargo. Further, the final delivery to
the consignee is also not on one occasion but
piecemeal; that is to say that the delivery to the
consignees/receivers could extend over a period of
a month or even longer. The question thus arises, in
whose custody does the cargo lie all this while after
it is discharged from the ship's manifold. It is
obvious that unlike the dry cargo, it is not in the
custody of the KPT nor can it be said that it is in the
custody of the ship inasmuch as once the cargo
leaves ship's manifold it is a matter of fact that
shipowner/carrier has no further control over it as
they have nothing to do with shore tanks terminal
operators. Indeed even if the shipowner/carrier
wanted to keep any control over the passage of oi I
after it leaves the ship's manifold it would be
impossible for him to do so. Here I may quote a
passage from a case cited earlier i.e. ( 1977 A.M.C.
2139):
In accord with Genterchem Products, supra,
this Court finds that as a practical matter this is
the only conclusion which could be reached. "To
require the carrier to inspect a maze of piping and
storage tanks over which it had no control or
expertise would be burdensome if not
impossible".
However, it was argued before me by one of the
amicus curiae, Mr. I.A. Lari that cargo could be
considered to be in the custody of the carrier even
after its discharge from the vessel and for this he
relied on P.L.D. 1968 S.C. 15 where since the cargo
was discharged into barrages by the ship it was held
that the cargo continued to be in the custody of the
vessel owner even when it was stored in the
barrages. But in that case, the barrages were
arranged by the shipowner. On the contrary in case
of oil cargo it is an admitted position that shore
tanks are arranged by consignees/receivers and not
by the shipowner under a separate and independent
agreement. Obviously, therefore, once the cargo
leaves ship's manifold it is in the custody of shore
tank terminal operators and the rights and liabilities
with regard to the oil cargo would be governed by
the terms and condition of the agreement between
shore terminal tanks operator and the consignees/
receivers. The shore tank terminal operator thus
being agents of the consignee, the cargo could even
be considered to be in the constructive custody of
the consignees/receivers themselves but it obvi-
ously cannot be considered to be in the custody of
carriers.
In this connection one of the amicus curiae, Mr.
Mohammad Jamil Khan referred to the case of
Amoco Oil Co. v. Parpada Shipping Co. Ltd.,
[ 1989] 1 Lloyd's Rep. 369). In this case the
question before the Court was whether the ship's
figures upon arrival were to be preferred over shore
tanks figures or vice versa. The learned Judge Mr.
Justice Staughton came to the conclusion that ship's
figures were to be preferred to the shore figures but
this judgment was reversed by the Court of Appeal,
which though approving the general principle of
carrier's custody of oil cargo lasting only till the
ship's manifold, held that Mr. Justice Staughton had
arrived at the wrong conclusion on a point of fact,
that is even though he had found the evidence of the
chief officer of the ship regarding the defective
ship's automatic ullage gauge to be suspect, he had
nevertheless held that the ship's figures were to be
preferred. Consequently the Court of Appeal felt
that in that particular case, the shore tanks figures
were to be preferred. Here it is necessary to
consider that in this case discharge of oil took place
574 LLOYD'S LAW REPORTS [2000] Vol. I
in England where the incidences of differences
between arrived quantity of oil and shore tank
figures are very rare and incidence of pilferage from
pipelines or the shore tank have hardly ever been
reported. Moreover. the shore tanks in England are
usually part of the port complex and, unlike in
Pakistan, there is no evidence of there existing any
contractual relationship between the receivers/con-
signees and shore tanks terminal operators. Conse-
quently, it would appear that this case turns on facts
and has little relevance to the situation at Karachi
port where the entire question regarding delivery,
custody and also loss attributable to theft etc. have
to be considered. Nevertheless in this case too as a
matter of rule the learned Judges did agree that the
shipowner had no further responsibility with regard
to the oil cargo once it left the ship's manifold. A
relevant passage from the judgment in which Lord
Donaldson in his speech approvingly paraphrases a
portion of Mr. Justice Staughton, judgment, is
quoted below:
(i) The responsibility of the shipowners begins
when the oil passes into the ship on loading and
ends when it leaves the ship upon discharge at
the port of destination. Measurements of quan-
tities of oil at any other points are merely means
of determining quantities at those crucial points
to which, for clarity rather than absolute accu-
racy, I can refer as "ship's rail".
And again a quotation from Mr. Justice Staughton
as approved by Lord Donaldson:
(ii) Secondly, the defendants are responsible
for loss only if it occurred between the time when
the oil came on board the ship and the time when
it left the ship. As there may be a considerable
distance of pipeline between the shore tanks and
the ship, both at loading and discharge ports. It is
important to remember that losses which may
occur between a shore tank or meter and the ship
are not the shipowner's responsibility.
Having thus dealt with the questions as to when
the delivery takes place. and as to when the custody
of ship in case of carriage of oil cargo ends, we are
now in a position to examine the kind of losses that
occur in the carriage of oil cargoes and how the
liability for such losses is to be determined and
apportioned and as to on whom the burden of proof
lies. In order to answer these questions one has to
~ x m i n e various different situations that occur in
the discharging of oil from ships.
First is the occasion when the arrived quantities
of cargo are found to be the same as in bill of lading
or are found to be in excess. The quantities in
excess ought to be ignored as the consignees can
not be asked to take into account the excess
quantity of the cargo as there is no agreement or
contract of carriage with regard to this additional
cargo between the carriers and the consignees.
The second situation would be when the arrived
quantities are found to be short as compared to the
bill of lading quantities. In such an event it is
obvious that the carrier would be liable for such
shortages and then the burden would shift on the
carrier to show that the shortage was covered under
the exception laid down in art. 4.2 of the Hague
Rules. He could also show that the quantities were
short shipped at the port of loading. For this
purpose the master of the ship can rely on the
mate's receipt and if he is bound to sign for the
amounts in excess of the amount actually loaded,
for instance because of certain binding term of
charter-party, then he could lodge a note of protest
at the port of loading before sailing and if time does
not permit him to do so, he could lodge such note of
protest immediately upon arrival at the first port
that the vessel touches. Such note of protest may be
accepted in evidence to show that the quantities
actually loaded on board were not the same as
shown in the bill of lading.
Now coming to the first situation i.e. the arrived
quantity is either the same or in excess of the
quantity mentioned in the bill of lading. If, after
discharge of the consignment from the ship and
after issuance of "dry tank certificate" shortage is
discovered when the measurements are taken in the
shore tanks into which cargo is discharged, then the
burden will be on the consignee to show that either
the arrived quantities were incorrect or that the
cargo was lost due to the fault or negligence of the
carrier between the ship's manifold and the shore
tanks. This could occur if there was an oil spillage
exactly at the point of exit of the cargo from the
ship's manifold or if the carrier had for some reason
or the other expressly accepted the responsibility
for the oil even after it had left ship's manifold. If
the consignee is able to show the arrived quantities
to be incorrect the burden will shift to the carriers to
prove affirmatively that not only the information
fed for calculation such as trim, list of the ship etc.
was correct but also to show that the voyage was
uneventful, that is to say that there were no leak-
ages or spills during the voyage. This could be
shown among other things by bringing on record
the ship's log book abstracts relating to the period
of vessel's passage between port of loading and
port of discharge. It is trite law that in a claim for
short delivery the burden of proof shifts to and fro
between the consignee and the carrier, though it is
undeniable that legal burden lies on the claimants.
He who alleges must prove. In this connection a
passage from an American case i.e. ( 1977 A.M.C.
2137) quoted earlier is very pertinent:
Evidence introduced by plaintiff as well as
defendant supports this conclusion, e.g., the
[2000] Vol. I LLOYD'S LAW REPORTS 575
"Dry Tank Certificate" issued at Corpus Christi
establishes that the defendant's vessel's Jog recit-
ing an uneventful voyage significantly reduces
the probability that any cargo was lost at sea; the
Captain's testimony explaining the oil spills
rebuts assertions that the vessel's tanks were
leaking; the fact that the seals on the tanks were
intact upon arrival establishes that there were no
unauthorized deliveries; and the "Dry Tank Cer-
tificate" issued after discharge at each port estab-
lishes that all of the cargo on board was
delivered. Taken as a whole, this evidence estab-
lishes that the defendant was free from fault in
the Joss, if any, of plaintiff's cargo. See Dow
Chemical Co. (U.K.). supra, 1970 AMC at 391,
297 F. Supp, at 708
Yet in another case of American jurisdiction a
similar point was considered i.e. Palmaco Inc and
Fireman s Fund Insurance Company v. American
Resident Lines Ltd & Others, ( 1978 A.M.C.
1715):
Defendant's primary defense is that there was
no actual shortage, only "paper" losses. By
comparing the bill of lading weights and the
shore tank gauging weights, I have determined
that there was a shortage. The only method
applicable to this case by which the defendant
can defeat the prima facie case is by showing that
it exercised due diligence in making the vessel
seaworthy.
Defendant has not presented sufficient evi-
dence to establish its due diligence for the full
amount of the Joss. Defendant has introduced
evidence tending to show clean and tight holds
on board the ships and has introduced the ship's
logs to negate any possible oil spills.
Before concluding discussion on this issue, it is
necessary to touch upon yet another aspect of the
Joss of oil cargo. Basically two kinds of losses can
occur when oil cargoes are carried. One may be
termed as "transpiration losses" and the other
"marine losses". The causes of transpiration losses
include clingage, sedimentation and evaporation.
To explain it a little further, losses due to clingage
occur because of the oil sticking to the side of the
oil tanks and in pipes, while losses due to sed-
imentation occur because of formation of sediments
in the oil which often happens in case of edible oil
cargoes. On the other hand, the "marine losses" are
caused by incidents such as collision, unseaworthi-
ness of the ship or cargo spaces or Jack of care of
the cargo.
Taking the "transpiration losses" first, it is now
universally accepted that certain percentage of oil
cargo is waste loss during transportation by sea and
such loss has been accepted to be upto 0.5 per cent.
of the total quantity loaded on board. This kind of
Joss has been amply explained in the following
passage from a case from American jurisdiction
( 1978 A.M.C. 1715) that has been cited earlier:
Although defendant cannot explain away the
full amount of the loss, it also contends that a
certain small percentage of a bulk shipment of oil
is always lost, despite the carrier's due diligence.
This amount, known as a "tare," is the result of
a film of oil left on the walls of the ship's holds,
plus normal retention in the pumping lines.
Defendant contends that the normal tare for bulk
oil is .5 per cent.
Plaintiff contends that there is legal basis for
deducting .5 per cent of the cargo unless pro-
vided for in the bill of lading. However, the
carrier is not an insurer of the cargo. COOSA
imposes liability only if the carrier fails to
exercise due diligence. 46 U.S. Code sec
I 304( 1). Defendant's proof of an expected and
normal loss of .5 per cent rebuts plaintiff's prima
facie case of unseaworthiness for that amount.
Defendant is not liable for any shortage of up
to .5 per cent per shipment. This completely
disposes of any claims for shipment 4, 5, and 6
and reduces the claims for the four other
shipments.
And again in the same case it has been held:
It is true that plaintiff has not suffered any
damages for the amount of the lost oil which was
actually moisture and impurities. However,
defendant's method of computing damages
results in presuming that the full amount of
moisture and impurities was in the lost oil.
Actually, moisture and impurities would be
evenly distributed throughout the bulk shipment.
The amount of the Joss consistituting moisture
and impurities would be .2 per cent (for the first
shipment) of the net shortage, not .2 per cent of
the full 1 ,500 ton shipment.
As is apparent from the passage quoted above
transpiration losses to the extent of 0.5 per cent.
relate to inflammable oil cargo only, where the
losses attributable to evaporation amount to about
0.2 per cent. to 0. 25 per cent., while the balance
0.25 per cent. losses are attributable to other factors
and these relate to all oil cargoes, including edible
oil cargo. In view of the overwhelming evidence of
universal acceptance of "transpiration losses" as
above, I hold that in case of inflammable oil cargo
the "transpiration losses" would not exceed 0.5 per
cent.. and in case of edible oil cargo this will not
exceed 0.25 per cent. Considering that it is permis-
sible for a carrier to claim exception for wastage in
bulk under art. 4.2(m), of the Hague Rules, I hold
that the carrier can press this exception into service
and thus if arrived quantity of cargo is Jess than the
bill of lading quantity the carrier will not be liable
576 LLOYD'S LAW REPORTS [2000] Vol. 1
for shortage upto 0.5 per cent. in case of inflamma-
ble oil cargo and 0.25 per cent. in case of edible oil
cargo. I am informed that Pakistan Custom also
allows upto 0.25 per cent. shortage while calculat-
ing Customs penalty on short landed quantity of
edible oil cargo based on arrived quantities. I find
this to be in accord with the universally accepted
figures.
In these two cases that are before me, the arrived
quantities were found to be in excess of the figures
mentioned in the bill of lading and "dry tank
certificates" were issued indicating that the entire
cargo had been discharged from the vessel. No
evidence has been brought on record to show that
such was not the case. In the light of the above
discussion therefore, this would mean that there
was no shortlanding of cargo in both the cases.
Issue No. 5:
Since I have already held under Issue No. 4 that
there was no shortlanding in both cases no finding
need be recorded on this issue.
Issue No. 6:
This issue finds a place virtually in every case
relating to cargo claim. This occurs because it is
generally the underwriter who sues after being
subrogated to the rights of the consignee, who, as is
well settled by now, acquires such right only upon
paying consignee's claim, as has been well settled
by now. Consequently, it is always the attempt of
the carriers to prove that the underwriters, as the
plaintiffs, are not entitled to sue by showing that
they have not paid the claim. This, in my view, is a
mere technicality which wastes considerable time
of the Court. It is inconceivable that a consignee
would sign a letter of subrogation presented by the
insurance company without having first received
the claim amount. This can occur only in cases
where a regular customer of the underwriter is
involved and there are many pending claims. A
consignee may then sign a letter of subrogation
without having actually received cargo claim on a
promise of its being paid in future. However, since
it is well settled that the subrogation rights arise
only after payment of the claim, actual payment
would be necessary. Consequently, if an under-
writer is able to produce a receipt for payment from
the consignee along with Jetter of subrogation and a
duly signed copy of loss voucher or even a copy of
a cheque made out in the name of the consignee,
then no further evidence with regard to rights of
subrogation would be necessary. I find in this case
necessary proofs have been provided for the pay-
ments made to the consignee by the plaintiff and
hence my findings with regard to this issue is in the
affirmative.
Issue No. 7
I have already recorded my findings to the effect I
that the carrier is not liable for the short receipt of
the consignment by the consignee. Now all that
remains to be considered is what, if any, is the
liability of the ship agent. In cargo claim cases as a
rule the plaintiffs seek a decree against all the
defendants jointly and severally and the list of
defendants invariably includes the ship agent who
enters the vessel in the port. While one can under-
stand the impleading of shipping agents as party to
such proceedings, no explanation is available as to
why a decree is sought against the agent jointly and
severally with carrier. As explained earlier in this
judgment, the agent's liability, if at all, arises from
a general bond signed by the agent with the
Customs under the provisions of s. 55(1 )(d) and (e)
of the Customs Act, 1969, which is akin to s. 64-D
of Customs Act, 1878, and is reproduced below for
ease of reference:
Section 55 - ( 1) Power to refuse port-clear-
ance to vessel or permission for departure to
other conveyance. - The appropriate Officer
may refuse to give port-clearance to vessel or
permission for departure to any other conveyance
until-
(a) .. .
(b) .. .
(c) .. .
(d) The agent. if any delivers to the appro-
priate Officer declaration in writing to the
effect that he will be liable for any penalty
imposed under clause 24 of the Table under
subsection (I) of section 156 and furnishes
security for the discharge of the same.
(e) the agent, if any delivers to the appropriate
Officer declaration in writing to the effect that
such agent is answerable for the discharge of
all claims for damage or short delivery which
may be established by the owner of any goods
comprised in the import cargo in respect of
such goods.
(2) An agent delivering a declaration under
clause (d) of subsection (I) shall be liable to all
penalties which might be imposed on the person
in charge of such conveyance under clause 24 of
the Table under subsection (I) of section 156,
and an agent delivering a declaration under
clause (e) of subsection (I) shall be bound to
discharge all claims referred to in such
declaration.
It is significant to note that such bond is not signed
by agent on every occasion that a vessel is entered
in the port by him. In fact signing of such a bond by
the agent is one of the prerequisites for obtaining a
license to act as a ship's agent from the Customs. A
Pak. Ct.] The "Nitsa" and "Sinoda" [M. SHAIQ USMANI. J.
plain reading of s. 55 would show that the bond is
given only to ensure the issuance of port clearance
by the Customs for the vessel for departure from the
port. It is given also to ensure that after departure of
the vessel someone remains available in Pakistan
from who Custom penalty can be recovered. Sec-
tion 55(1 )(d) therefore makes the agent liable for
Customs penalty. In complete contradistinction to
it, s. 55(l)(e), which deals with damage or short
delivery of cargo, does not make the agent liable
but only "answerable for discharge of all claims for
damage or short delivery". This distinction
between the liability or answerability of the Cus-
toms penalty and cargo claim respectively carries
over to s. 55(2) which makes the agent liable for
payments of all Custom penalties which may be
imposed on master of the ship by s. 156( I) of
Customs Act but merely binds the agent to dis-
charge all cargo claims. What then is the sig-
nificance of use of the word "liable" for custom
penalty and "answerable" and "discharge" for
cargo claim? There was nothing to prevent the law
makers from using the same words for both, but the
fact they chose to use different words for the two
clearly goes to show that they had intended the
responsibility for two types of claims to be differ-
ent. This point has been considered in the case of
Crescent Sugar Mills and Distillery Ltd. v. Amer-
ican Export lsbrandtsen Inc., (P.L.D. 1983 K.A.R.
29). The relevant passage from it is quoted
below:
The effect of these declarations has been
specified in section 55(2). The agent will be
liable to pay all the penalties specified above and
shall be also liable to satisfy the claims relating
to short-delivery and damage to import cargo as
specified in the declaration. Such satisfaction of
the claim is however subject to condition speci-
fied in section 55(1 )(e) that agent's liability will
arise only after the damage or short delivery is
established. The agent's liability is therefore not
independent of his principal. It is co-extensive
with the carrier and unless the claim is admitted,
before holding the agent liable the claimant
should establish his claim for damage or short
delivery against the carrier. In this regard refer-
ence can be made to Barjorjee Cowasjee v.
Habib Insurance Co (I) in which section 64(d) of
Sea Custom Act 1878, was under consideration
and it was held that a ship agent is not personally
liable on his declaration given under section
64(d) of the Sea Custom Act before the claim is
established against the carrier. Further reference
can be made to Haji Slzakoor Ghani Firm v. Firm
of Volart Bros. and another (3) AIR 1937 Sind II
Uudgment in appeal); British India Steam Nav-
igation Co Ltd and another v. M.A. Wadud & Co.
and another ( 4 ).
In this case the learned single Judge has in effect
held that the agent's liability is co-extensive with
that of the carrier and before agent can be made
liable for the cargo claim, the claimant should
establish his claim against the carrier. But the
learned Judge did not proceed further to examine as
to how is the cargo claim to be satisfied once the
liability is finally established after the end of all
proceedings including appeals, as appeals are
essentially continuation of suits. To determine this
it will be necessary to examine the distinction
between the words "liable" and "discharge" used
in s. 55(2) for "Customs penalty" and "cargo"
claims respectively. According to Blacks Law Dic-
tionary the word "liable" means the following:
Liable: Bound or obliged in law or equity;
responsible; chargeable; answerable; compella-
ble to make satisfaction, compensation, or resti-
tution. Obligated; accountable for or chargeable
with Condition of being bound to respond
because a wrong has occurred. Condition out of
which a legal liability might arise.
And the word "discharge" means the following:
Discharge: To release; liberate; annul; unbur-
den; disencumber; dismiss. To extinguish an
obligation.
A comparison of the meanings of the two words
would show that there is a subtle difference
between the two. But before highlighting the differ-
ence it may be appropriate to consider the back-
ground and nature of the two undertakings that are
given by the ship agent pursuant to s. 55( 1 )(d) and
(e) i.e. with regard to Custom penalty and cargo
claims. In so far as Customs penalty is concerned,
its origin lies in the distant past when masters
owned their own ships and often disposed of
cargoes surreptitiously even before entering the
port of call. Upon entering port they lodged cargo
manifest with Customs and blamed any shortage in
the manifested cargo to peril of sea etc. This
enabled the consignees to claim exemption from
payment of duty on the short landed cargo. Since
the vessel left the port soon thereafter it became
impossible for the Customs to make investigation
into the true cause of shortages that resulted in
depriving the state of the customs duty. It is in order
to ensure that someone was available within the
country to explain the shortage and upon liability
being established, to pay the custom penalty, that
this provision of s. 55(1 )(d) was introduced,
whereby agent was made personally liable. Pres-
ently the consignees pay the full duty on manifested
cargo but upon shortlanding occurring they claim
refund of duty paid on shortlanded cargo. After
departure of the vessel the Customs issue a letter of
call to the ship agent (not the Carrier) to explain the
shortage and if the agent is unable to explain,
578
LLOYD'S LAW REPORTS [2000] Vol. 1
Customs penalty as per Customs Act, 1969 is
imposed on the ship agent. The ship agent thus
becomes personally liable to the Customs for pay-
ment of Customs penalty. It may appear to be rather
a harsh measure as the ship agent has no contractual
relationship with the consignee whatsoever and has
no responsibility for the carriage of the goods, but
it is nevertheless necessary because otherwise
unscrupulous consignees in collusion with errant
shipowners can avoid customs duties on a large
scale. The mischief therefore that is sought to be
addressed by s. 55(1 )(d) is very much present and
needs to be suppressed since it involves govern-
ment revenues.
However, the situation is entirely different in so
far as cargo claims arising from shortlanding or
damage to a consignment is concerned. First of all
it appears extraordinary that such a provision i.e. s.
55(1 )(e) has found a place in the Customs Act,
because a cargo claim has no nexus with liabilities
under the Customs Act. The only explanation for
the presence of such a provision in the Customs Act
is that in the earlier days giving of port clearance
was the sole responsibility of Customs and hence
Customs wanted to ensure that before giving of port
clearance the interests of a consignee, who has
suffered losses due to fault of shipowners, are
protected. Need it be said that this is no more the
case. The port clearance is now given after "No
Objection" is recorded by many departments and
organizations including Customs but not including
consignee. This provision, therefore has now
become an anachronism because as already
explained P & I clubs now take over the responsi-
bility for shortage or damage to cargo on behalf of
the carriers but they do so not directly, only from
behind the scenes. Moreover, the consignee can
always protect themselves by obtaining security for
the claim by seeking arrest of the vessels under
Admiralty jurisdiction of this Court and in the
alternative accepting letters of undertaking from P
& I clubs, which are all reputable organizations.
Nevertheless the fact remains that this provision
still exists on the statute books and thus has to be
interpreted by giving natural meanings to the words
that it consists of. Now, therefore, reverting to the
meanings of "liable" and "discharge" used in the
context of customs penalty and cargo claim respect-
ively it is easy to see that since the word "liable"
connotes legal responsibility the use of it in the
context of Customs penalty appears to be in con-
sonance with the intention and anxiety of law
makers to prevent evasion of Customs duties by
consignees in collusion with shipowners. But the
use of the word "discharge" in the context of cargo
claims connotes nothing but an "act of paying off'
by the ship agent not on his own but on behalf of his
principals. But why should the ship agent pay off
the claim of the consignee when he has no con-
tractual relationship with the consignee whatsoever.
It would be understandable for this to happen if the
ship agents were the exclusive agents of their
principals, who would then deem to carry on their
business in Pakistan through the agent but not when
they are general ship agents, who offer their serv-
ices to all and sundry. It would therefore appear that
while law makers wanted to make the ship agent
co-extensively responsible with carrier for answer-
ing for cargo claim, they did not want the patent to
he personally liable for payment of the claim. All
they were contemplating was that once the liability
of the carrier was established the ship agent should
discharge the cargo claims on behalf of their
principals. I am therefore, inclined to hold that if
the ship agents are required to discharge the cargo
claims, they would do so on behalf of their princi-
pals and hence their liability to do so would be
essentially secondary liability, that is to say the
liability of a guarantor as contrasted with that of
strict surety. Consequently it is only when the
consignee is unable to recover from the carrier,
either because of his refusal or avoidance or una-
vailability within the boundaries of Pakistan, that
the consignees/underwriter may proceed to recover
from the ship agent. It would therefore seem that
the Courts should refrain from passing joint and
several decrees in cargo claim cases against the
carriers and ship agents. In fact the interest of the
consignees/underwriters will be sufficiently pro-
tected if the decree is sought and granted primarily
against the carriers and in the alternative against the
ship agents.
Since I have already held that the carriers have
no responsibility for the short receipt of the cargo
hy the consignees in both suits and the result of the
discussion under the above issue would show that
the liability of the ship agents is in any case
secondary, I find that none of the defendants have
any liability in both the suits. I accordingly dismiss
both suits with no orders as to costs. But before
parting with these cases I would like to record my
appreciation for the assistance provided to me by
the amicus curiae appointed by the Courts.

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[2000] Vol.

I LLOYD'S LAW REPORTS 563

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