Monarch Steamship Co Ltd v Karlshamms Oljefabriker  AC 196
Unseaworthiness of vessel; outbreak of war; recoverability of damages
Karlshamms Oljiefabriker (KO) entered a contract in April 1939 with Monarch Steamship Co (MSC) to transport beans to a specific port. Delays occurred owing to the unseaworthiness of the vessel, and it did not reach the designated port prior to the outbreak of World War Two. The British Admiralty prohibited the ship from continuing, and KO claimed for breach of contract.
MSC contended they were only obliged to fulfil the contract if the British Government permitted it. The delivery was prevented under Admiralty orders which MSC were obliged to obey. The war risk clause within the contract absolved them of liability if war broke out. Unseaworthiness was not causative of the failed delivery because the Admiralty orders were an independent executive act preventing delivery, whether the vessel was seaworthy or not. KO contended there was a failure to deliver the cargo because of the unseaworthiness of the vessel, which was in breach of contract. KO argued MSC knew of the unseaworthiness and but for the delays to repair it, the vessel would have reached its destination before war broke out. The war clause could not assist MSC because the contractual breach occurred before the war broke out, causing the delay and necessitating the chartering of neutral ships to transport the cargo. The inclusion of the war clause proved war was in the contemplation of the parties.
KO’s claim was successful. The effective cause of the delay was the unseaworthiness of the vessel. In view of the international conditions at the material time, they should have foreseen that war may break out causing the loss or diversion of the ship. War had not broken the chain of causation, and KO could recover the costs of chartering the neutral ships.