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Hague / Hague Visby Rules - Can limitation be denied?

Author: M.Jagannath
Date: May 15, 2017

The focus of the article is to consider the limitation entitlements available to Carriers under The Hague and The Hague Visby Rules and whether this could be denied by Cargo Interests / Underlying Carriers.

  1. The Hague Rules represent the first global attempt by nations to establish a workable and uniform set of rules governing the carriage of goods by sea and deals with the rights and responsibilities of Carriers and Owners of cargo.  The Rules were published in 1924 following an international convention and were subsequently given the force of law in many maritime countries. Subsequently, in 1968, the Visby amendments to the Hague Rules increased the limitation amounts including a specific provision for containers together with the scope of application. Although many nations have adopted The Hague Visby Rules, there are some nations who are still following The Hague Rules. Additionally, all of the Bills of Lading and most of the Charter parties (to which the rules do not automatically apply) incorporate a Clause Paramount providing for  The Hague Rules to govern the contract (in case of Bills of Lading, the Clause Paramount would provide for the application of The Hague Rules subject to there being no mandatory laws to govern the contract of carriage). This article will touch on the limitation clause of both The Hague and The Hague Visby Rules, highlighting the differences and consider whether it could be broken?

  2. Limitation Clause:

    1. The Hague Rules: Article IV Rule 5 deals with limitation of liability and states:

      Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connexion with goods in an amount exceeding 100 pounds sterling per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

      This declaration if embodied in the bill of lading shall be prima facie evidence, but shall not be binding or conclusive on the carrier. By agreement between the carrier, master or agent of the carrier and the shipper another maximum amount than that mentioned in this paragraph may be fixed, provided that such maximum shall not be less than the figure above named.

      Neither the carrier nor the ship shall be responsible in any event for loss or damage to, or in connexion with, goods if the nature or value thereof has been knowingly misstated by the shipper in the bill of lading.

       N.B. In our earlier article "Is limitation under the Hague Rules more generous than the Hague/Visby Rules”, the value of £100 would be considered by reference to the quantity of gold equivalent to  £100 in 1924 (in this case, it was equivalent to £6,630) as decided in The Rosa S, .

    2. The Hague Visby Rules: Article IV Rule 5 (a-e) deals with limitation of liability and which is as follows:

      (a) Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher.

      (b) The total amount recoverable shall be calculated by reference to the value of such goods at the place and time at which the goods are discharged from the ship in accordance with the contract or should have been so discharged.

      The value of the goods shall be fixed according to the commodity exchange price, or, if there be no such price, according to the current market price, or, if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality.

      (c) Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as these packages or units are concerned. Except as aforesaid such article of transport shall be considered the package or unit.

      (d) The unit of account mentioned in this Article is the Special Drawing Right as defined by the International Monetary Fund. The amounts mentioned in sub-paragraph (a) of this paragraph shall be converted into national currency on the basis of the value of that currency on the date to be determined by the law of the Court seized of the case. The value of the national currency, in terms of the Special Drawing Right, of a State which is a member of the International Monetary Fund, shall be calculated in accordance with the method of valuation applied by the International Monetary Fund in effect at the date in question for its operations and transactions. The value of the national currency, in terms of the Special Drawing Right, of a State which is not a member of the International Monetary Fund, shall be calculated in a manner determined by that State. Nevertheless, a State which is not a member of the International Monetary Fund and whose law does not permit the application of the provisions of the preceding sentences may, at the time of ratification of the Protocol of 1979 or accession thereto or at any time thereafter, declare that the limits of liability provided for in this Convention to be applied in its territory shall be fixed as follows:

      (i) in respect of the amount of 666.67 units of account mentioned in sub-paragraph (a) of paragraph 5 of this Article, 10,000 monetary units;

      (ii) in respect of the amount of 2 units of account mentioned in sub-paragraph (a) of paragraph 5 of this Article, 30 monetary units.

      The monetary unit referred to in the preceding sentence corresponds to 65.5 milligrammes of gold of millesimal fineness 900. The conversion of the amounts specified in that sentence into the national currency shall be made according to the law of the State concerned. The calculation and the conversion mentioned in the preceding sentences shall be made in such a manner as to express in the national currency of that State as far as possible the same real value for the amounts in sub-paragraph (a) of paragraph 5 of this Article as is expressed there in units of account.

      States shall communicate to the depositary the manner of calculation or the result of the conversion as the case may be, when depositing an instrument of ratification of the Protocol of 1979 or of accession thereto and whenever there is a change in either.

       (e) Neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result.

  3. Difference in the wordings: From the above, we note that the Hague Rules wordings are more beneficial to the Carrier i.e. they (Carriers) are entitled to the benefits of limitation in any event (there is no clause denying their entitlements to the limitation provisions as found in The Hague Visby Rules - Art IV (5)(e)). Prior to the English Court of Appeal Decision of The Kapitan Petko Voivoda in 2003, the Carrier’s entitlement to limit liability could be denied on the basis of “Fundamental Breach” (See The Chanda where Mr Justice Hirst stated "Clauses which were intended to protect the ship-owner provided he honoured his obligation to stow goods under deck did not apply if he was in breach of that obligation; the package limitation fell within this category since it could hardly have been intended to protect the ship-owner who as a result of the breach exposed the cargo in question to such risk of damage; the package limitation clause being repugnant to and inconsistent with the obligation to stow below deck was inapplicable." In The Kapitan Petko Voivoda, the Court of Appeal rejected the argument of “Fundamental Breach” as they were bound by the House of Lords decision of Photo Production Ltd v Securior Transport in which they (HOL) rejected the doctrine of Fundamental Breach and opted instead for a “rule of construction approach”. The HOL also mentioned that earlier common law construction was no longer relevant given that the Unfair Contract Terms Act 1977 regulated the terms of the contract.


  4. The US courts, on the other hand, have considered unauthorised deck cargo as quasi deviation denying Carriers the entitlement to the package limitation provisions available under the US COGSA 1936 (see Encyclopaedia Britannica, Inc. v S.S. Hong Kong Producer). It must however be mentioned that the US COGSA Wordings has some additional qualifications for Deviation (below in Bold for emphasis).

    § 1304 (4) Deviations : Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to be an infringement or breach of this chapter or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom: Provided, however, That if the deviation is for the purpose of loading or unloading cargo or passengers it shall, prima facie, be regarded as unreasonable.

  5. Carriage Contracts - “Sui Generis” contracts?

    The Law dictionary defines “Sui Generis” as “of its own kind or class; i.e., the only one of its own kind; peculiar”.
    (The English Supreme Court in Res Cogitans (OW Bunker test case in May 2016) ruled that a bunker sale contract was not a normal agreement such that s.2(1) SOGA 79 would not apply to transfer the property in bunkers. It was instead a “sui generis” or unique type of agreement to permit consumption of the bunkers prior to payment and to transfer the property in any remaining bunkers at the end of the credit period).

    Given the fact that the Carrier’s duty for care of cargo is a continuing duty (as provided in both The Hague and The Hague Visby Rules Art III(2)), should the breach of this duty (say for instance – unauthorised deck carriage) not result in damages commensurate to the breach? While this may not be an issue in The Hague Visby Rules (given that the entitlement to limit liability could be denied based on Art IV(5)(e)), The Hague Rules contains no such provisions. Based on the English Court of Appeal decision in the The Kapitan Petko Voivoda, it does appear that Carriers would be entitled to limitation irrespective of them being in breach of their duties under the contract of carriage. While the Court of Appeal followed the House of Lords decision of Photo Production Ltd v Securior Transport, Lord Wilberforce had in this case suggested to consider the law of marine deviation as a body of authority sui generis with special rules derived from historical and commercial reasons. Unless the law develops to bring such contracts as "Sui Generis", it is submitted that presently under English Law, such breaches by Carriers, even though they may be serious, will not result in them being denied their right to limitation as available under The Hague Rules.

  6. Possible Solutions:

    1. Insurance: Cargo interests and Underlying Carriers (who would be in similar positions) should be aware of the gaps in the carriage contracts and should consider insuring their cargo / liability such that they would be entitled to seek recovery from their insurers for any losses or damage to the cargoes / liabilities arising from the actual / performing Carrier’s breach.

    2. Incorporation of The Hague Visby Rules: Art 3 Rule 8* of both the Hague and the Hague Visby Rules are similar such that while they do not permit the Carrier to impose any terms which reduce the liabilities provided in the Rules, they allow the Carrier to voluntarily increase the limits. In this regard, Cargo Interests  and underlying Carriers with sufficient bargaining power, should seek the incorporation of The Hague Visby Rules to govern the contract of carriage instead of The Hague Rules.

  7. Conclusion: Cargo interests / Underlying Carriers

    1. may find it difficult, under English Law, to deny the Carrier’s entitlement to limit liability under The Hague Rules but may be able to deny the same under The Hague Visby Rules provided they are able to prove that the Carrier was reckless.

    2. should consider initiating action in jurisdictions which may disentitle the Carrier to limit liability (where Deviation or Fundamental Breach may be a defence to the entitlement for limitation).

    3. seek incorporation of The Hague Visby Rules instead of The Hague Rules to govern the contract of carriage.

 

* “Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with goods arising from negligence, fault or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect

 

 

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