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Would clausing the B/L “Container to be package for Limitation” be valid?

Jagan - November 15, 2014 - 0 comments

This article discusses on the effect of the clause “Container to be package for limitation” in a Bill of Lading contract with reference to The Hague / The Hague Visby Rules.

  1. Recently, we chanced upon a clause in one of the Bill of Ladings issued by a Container Operator (“CO”) stating that for “Calculation of Package Limitation (if applicable): 1 Container / 1 Package”. This B/L was a straight B/L and the purpose of this article is to consider whether this clause would be valid either in the case of a straight B/L or a negotiable B/L. While we had discussed on the possible effect of limitation in one of our earlier articles, Connecting Carrier Agreements – to sign or not to sign, we are now commenting on its effect in a normal Bill of Lading contract.
  2. A Straight B/L lists the name of the consignee (in the consignee column) and it is the duty of the carrier (in this case, the CO) to deliver the cargo to the named consignee on presentation of the B/L (see Voss Peer V APL decided by Singapore Court of Appeal.) By contrast, if a B/L states in the consignee column as being “To order”, then this B/L is negotiable and cargo would be delivered by the CO to the party who produces the original B/L well endorsed to them (CO). While there are differences between a straight and negotiable B/L, as the definition clause (Art 1(b)) of The Hague / Hague-Visby Rules state that it “apply to contracts of carriage covered by a bill of lading or a similar document of title”, it does not appear to make a material difference with respect to the application of The Hague / Hague-Visby Rules. In fact, in “The Rafaela S”, a case which went all the way to the English House of Lords, it was stated that if The Hague Rules were not meant to apply to straight B/L’s, special provisions would have been made to exclude them from the scope of the Rules. As this was not done, the Hague Rules would apply to straight B/L’s.
  3. Article III.8 (commonly known as the policeman of the rules) of both the Hague / Hague Visby Rules state 

    “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 connexion 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 this Convention, shall be null and void and of no effect…” 

    Hence, if there is clause which derogates from liability available under The Hague / Hague Visby Rules, then it would be void and of no effect.

  4. The question is now why does the CO wish to clause the B/L “Calculation of Package Limitation (if applicable): 1 Container / 1 Package”? If the clause is held valid, the CO would be entitled to limit liability basis 1 package and which should be beneficial to the CO. In this regard, the limitation amounts under:
    1. The Hague Rules is 100 GBP and sometimes by the application of the Gold Value, the limitation amount may be much much higher (in 1984, it was stated in The Rosa S that the amount would equate to GBP 6630 per package)
    2. The Hague Visby Rules is SDR 666.67 per package or SDR 2 per Kg (unless any of the signatories of the convention have varied this by providing for a fixed amount in their currency for eg Singapore) and which would equate to approx. USD 980 per package (conversion taken at the time of writing this article). The Kg limitation would only apply if it is above the package limitation.
  5. So what is a package? Considering both the Hague and the Hague Visby Rules separately below:
    1. The Hague Rules: In Nigerian National Shipping Line Ltd v Owners of Cargo lately on board ship “River Gurara [1997] WLR 1128, the English Court of Appeal held that under the Hague Rules, for the purpose of limitation, the description in the bill of lading was not decisive. Instead, ship owners limit of liability under the Hague Rules would be calculated on the number of packages that are proved to have been loaded within the containers and not upon the number of containers shown in the Bills of Lading. This means that even if the B/L only lists the container number, the cargo interests could provide evidence to substantiate the number of packages actually loaded in the container/s and this will be the packages which will be considered for limitation. This being the case, it appears to us that under The Hague Rules irrespective as to what is mentioned in the Bill of Lading, the packages will be determined on the basis of what has been loaded in the container (with the representation on the bills of lading certainly acting as strong evidence). In the circumstances, the clausing of B/L by the CO would be of no effect.
    2. The Hague Visby Rules: Article V(c) states “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…” This being the case, if the B/L clearly states the no of packages in the container, we believe that the clause incorporated by the CO would be of no effect. However, should the B/L not mention the packages or the weight of the cargo (The Hague Visby Rules provides for both package and weight limitation), then basis Article V(c) of the Hague Visby Rules and the clause incorporated by the CO, the container would be treated as a package.
  6. As an alternative argument, if the clausing of the B/L was prepared by the CO without prior notification and agreement of the Shippers, Shippers could argue that this was not the bargain which they had agreed to and therefore seek rectification of the contract (see The Ardennes [1951] 1 KB 55, a judgement of the English High Court which states that the contract was formed prior to the issue of the B/L and if the B/L lists extraneous clauses, the Shipper could seek rectification of the same). However, if the B/L is endorsed to a third party, then this would not be of assistance to the third party as they would not be aware of the discussions between the original parties to the contract.
  7. On the other hand, if the clausing of the B/L was done by the CO after seeking confirmation from the shipper by way of a separate agreement, then in some circumstances it may be given effect, particularly when this separate agreement is considered to be akin to a charterparty. In this instances, as The Hague and The Hague Visby Rules do not apply compulsorily to charterparty contracts, Article III.8 of the Hague / Hague Visby Rules may not apply to prevent the effect of the clause in the B/L.
  8. In conclusion, under both The Hague and the Hague Rules, if the clausing of the B/L was accomplished without prior agreement of the Shipper, the clause would be considered as null and void. However, should the clausing be accomplished by way of a separate agreement, in limited circumstances the clause may be given effect as mentioned in 7 above. In order to prevent issues arising post shipment, we would reccomend that Shippers (cargo interests / intermediaries) upon becoming aware of any new clauses in the B/L, should immediately ask the CO to to remove the same.

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