Sun was the buyer of a quantity of Zarzatine crude oil. It entered into a voyage charterparty with the disponent owner of the motor tanker Carlisle for the carriage of the oil from La Skirrah, Tunisia to Marcus Hook, Pennsylvania. The oil was loaded on board the vessel; and the shipowner issued a bill of lading in respect of it. To whom this bill of lading was first issued does not appear from the report: but Sun became the holder of it. After the vessel had finished the discharge of the oil in Marcus Hook, Sun alleged that a small proportion of it was missing. Sun sued the disponent owner for breach of the charterparty and the shipowner for breach of the contract contained in or evidenced by the bill of lading. In their defences the disponent owner and the shipowner contended for terms implied by custom into their contracts with Sun that they should not be liable in respect of a discrepancy of 0.5% or less between the quantities of cargo loaded and discharged where the reason for it was unknown.

After a hearing of evidence the District Court found in favour of the custom and entered summary judgment against Sun on a substantial part of its claims. Sun appealed. The Court of Appeals for the Third Circuit was not concerned with the suit against the disponent owner nor with the factual basis for the custom.

The Court of Appeals rejected the implied term nonetheless, albeit by a majority decision. It held that the implication of such a term was contrary to sub-section 3(8) of the Carriage of Goods by Sea Act 1936 in that it tended to relieve the shipowner from the burden of proving a defence under section 4 of the Act. No doubt it would also have relieved the shipowner of its liability for unexplained losses!

The Court of Appeals considered three potential causes of unexplained loss in the cargo: (1) breach of contract; (2) natural wastage; and (3) inaccuracies of measurement in the ports. The shipowner was apparently contending that its implied term would protect it whichever of these was the true cause of loss; and hence had obtained its summary judgment. Thus, the substance of the shipowner’s case was that the implied term operated either (1) to relieve it of its contractual obligations with respect to the carriage of the cargo; or (2) to relieve it of the burden of proving loss by inherent vice under sub-section 4(2)(m) of the Act; or (3) to relieve it from a non-existent liability in respect of cargo which had not been shipped. Seen in this light, the decision of the Court of Appeals cannot be faulted.

From a commercial point of view the decision of the Court of Appeals in favour of the cargo owner cannot come as a surprise, but the reasoning by which it reached its conclusion may be more remarkable. For some time there was no doubt about the existence of a common practice among cargo owners not to sue shipowners in respect of small discrepancies between the quantities of oil loaded and discharged. The rise in the price of oil brought about a change in this practice. There followed several lawsuits and arbitrations (particularly in the United States of America) where shipowners contended that they were not legally responsible for such small