Inherent vice, insufficiency of packaging and the extent of the indemnity recoverable by a cargo owner

In brief - Federal Court refuses recovery of some items of expenditure claimed by cargo owner

In the case Alstom Limited v Liberty Mutual Insurance Company (No. 2) Pty Ltd [2013] FCA 116, the cargo owner, Alstom, sought to recover in excess of $3 million for damage sustained to the shipment of two transformers from Mumbai to Fremantle.

What was the proximate cause of damage?

The issues for Siopis J in the Federal Court of Australia were:

whether the proximate cause of damage sustained was inherent vice or the insufficiency or unsuitability of packing - in particular, whether the internal bracing to be applied to the component parts of the transformers during the voyage was "packing" or "preparation" whether the insured gained the benefit of a deeming provision in the policy described as the "unsuitability of packaging clause" the amount of the indemnity to be paid by the insurers in the event that the cargo owner succeeded Exclusion provisions in marine cargo insurance policy

The cargo insurance included the Institute Cargo Clauses (A). Clause 4.3 provided that the insurance did not cover:

4.3 Loss damage or expense caused by insufficiency or unsuitability of packaging or preparation of the subject-matter insured (for the purpose of this Clause 4.3 "packing" shall be deemed to include stowage in a container or liftvan but only when such stowage is carried out prior to attachment of this insurance or by the Assured or their servants).

4.4 Loss damage or expense caused by inherent vice or nature of the subject-matter insured.

Unsuitability of Packaging Clause in insurance policy

There was an additional clause which provided as follows:

Unsuitability of Packaging Clause

Any packaging or external preparation of the interest insured is deemed to be sufficiently packed and prepared if:

(a)the packing and external preparation is in accordance with usual custom or trade or the Insured's custom, or

(b) any insufficiency or unsuitability of packing or external preparation has not arisen through fault of or with the knowledge and consent of the Insured.

There was also a "survey warranty", according to which insurers had an opportunity to "approve and/or attend all packing, loading, stowage ... arrangements and operations", but were not obliged to do so.

Detailed requirements concerning core and coil of transformers

The technical specification for the transformers which Alstom Limited had contracted to acquire from Crompton Greaves Limited of Mumbai...