Last week – some, one suspects, will ruefully have noted that it was Friday 13 – P&I clubs got some unwelcome news. An old limitation conundrum arising under the Hague-Visby Rules which they had previously assumed fell to be answered in their favour was dealt with by Sir Nigel Teare, who ruled firmly and decisively against them.
The issue concerned the interpretation of the last few words of Hague-Visby Art.IV, Rule 5(a): “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.” Now, did “the goods lost or damaged” mean “those goods irretrievably lost or physically affected”, or “any goods in respect of which a claim arose”?
The point matters because a breach of contract by the carrier will not necessarily damage the goods or cause them to disappear forever in Davy Jones’s locker: it may leave them in impeccable physical condition and entirely accessible, but nevertheless have the effect of depreciating them in the hands of the shipper or consignee. This was exactly what happened in Trafigura v TKK Shipping [2023] EWHC 26 (Comm). A vessel grounded owing to a breach by the carrier of its obligations while carrying a cargo of zinc calcine (since you asked, an impure form of zinc oxide with uses in the ceramic industry). She had to be expensively rescued, refloated and unloaded. Less than ten percent of the cargo was actually lost or even damaged: but in order to get any of the rest the owner had to sub up several million dollars for salvage, onshipment and various odds and sods.
In the ensuing claim, the question of limitation arose. The carriers sought to limit on the basis of SDR 2,000 per tonne of the fairly small amount of cargo lost or damaged. The cargo owners argued that the limitation figure should encompass the whole cargo, since its losses embraced even the undamaged portion, a position that would enable them to recover all their loss rather than a smallish percentage of it.
Sir Nigel Teare gave a very careful judgment dissecting all the authorities and also giving an informative account of the diplomatic argy-bargy making up the travaux préparatoires behind the 1968 Visby amendments. At the end of the day, however, he had no doubt that the cargo owners were right. The limitation figure applied to all the cargo in respect of which a claim was brought, whether or not it had suffered physical lesion. The Limnos [2008] 2 Lloyd’s Rep. 166, a decision on admittedly slightly different facts (it concerned depreciation of a whole cargo consequential on damage to part of it) that for some fifteen years had been taken to settle the position in favour of the P&I clubs’ position, he politely declined to follow.
It seems not unlikely that this will go on appeal. It’s certainly worth a punt, since there is something like $7 million at stake. For what it is worth, however, we think the decision is right. There seems no good reason to have what is in effect two different two different package limitation regimes according to whether we are talking physical or economic loss. Whether cargo is physically damaged in a casualty or not can be pretty arbitrary. Suppose, for instance, delay due to unseaworthiness depreciates one owner’s cargo of meat but slightly taints another’s. It seems odd that the first owner recovers in full but the second faces a limitation defence. Again, had the defendants been right in the Trafigura case, then as pointed out by both Sir Nigel and our own Professor Baughen (see [2008] LCMLQ 439) there would be a perverse incentive in cargo owners not to try to mitigate damage where it does occur, since the more cargo he can show to have been physically damaged the higher the limitation figure will be.
In short, however much law professors might enjoy arguing over what amounts to physical damage, and what counts as economic damage or consequential losses, this case is welcome in sparing insurers and P&I clubs the trouble of doing so. It simplifies the settlement of cargo claims, avoiding hair-splitting dissensions; for that reason alone we should welcome it.
Thank you for the interesting case note. Having acted for the claimant, I can confirm that permission to appeal has been refused, and as this was an arbitration claim, there is no right to apply to the Court of Appeal for permission to appeal. So the judgment is now unappealable.
Thanks very much for this. Always good to hear from those even closer to events than we are!