Economic loss and limitation under Hague-Visby Rules. The Limnos not followed.

Trafigura Pte Ltd v TKK Shipping Pte Ltd (Rev1) [2023] EWHC 26 (Comm) (13 January 2023) involved a point of law relating to what is meant by  Article IV(5)(a) of the Hague-Visby Rules which limits the carrier’s liability to a sum based upon the weight of the “goods lost or damaged”. The ‘Thorco Lineage’ carried cargo from the US to Australia under a bill of lading issued in Switzerland. Following an engine failure, the salvors re-floated the vessel, and obtained a lien on the cargo in respect of the cargo interests’ liability for salvage remuneration. A small part of the cargo was also physically damaged in the re-floating efforts. The claimants incurred four heads of loss which they claimed were the result of the carrier’s breach of contract.

i) Liability to pay the Salvors US$7,355,000.

ii) Physical loss and/or damage to the cargo US$278,658.31.

iii) On-shipment costs in respect of the cargo (some of which was physically damaged and some of which was not) US$723,831.85.

iv) Costs incurred in arranging for the salvage sale and/or disposal of some of the physically damaged cargo US$58,934.74.

The dispute was whether the words “goods lost or damaged” refer and refer only to physically lost or damaged goods. In this case there were two such expenses, salvage payable pursuant to LOF and the cost of on-shipping goods from a place of safety to the port of discharge, resulting in a diminished value for the merchant at the port of discharge to the extent of the additional expense which he has incurred. The goods were clearly economically “damaged”. Teare J departed from the previous first instance decision of Burton J in The Limnos [2008] 2 Lloyd’s Rep 166 in finding that “goods lost or damaged” means “goods lost or which survived in damaged form”. Teare J held that “goods lost or damaged” includes goods which are economically damaged. The travaux préparatoires were of no assistance as there was no discussion of the meaning of the words “goods lost or damaged”. Under Article IV r.5 (a) the liability of the Defendant in respect of the Claimant’s liability to the Salvors was limited to 2 SDRs per kilogramme of the whole cargo. Likewise the liability of the Defendant in respect of the on-shipment costs incurred by the Claimant was limited to 2 SDRs per kilogramme of the whole cargo.

Teare J then considered the position based on the assumption that Burton J’s decision in The Limnos was correct. First, the cargo in this case was physically damaged in that it was subject to the salvor’s maritime lien and so the Claimant’s proprietary or possessory title to the cargo was damaged and therefore the liability of the defendant in respect of the claimant’s liability to the salvors would be limited to 2 SDRs per kilogramme of the whole cargo. However, the maritime lien did not extend to the on-shipment costs incurred by the Claimant. Teare J accepted the submission of Counsel for the Defendants that if there is economic loss or damage in connection with the goods which were the subject of the contract of carriage then, if there is also physical loss or damage to such goods, the carrier’s liability for the economic loss or damage is limited by reference to the weight of the physically lost or damaged goods and if there is no such physical loss or damage then the carrier’s liability for the economic loss lor damage is unlimited. The limit of the Defendant’s liability in respect of the on-shipment costs would be based upon 2 SDRs per kilogramme of the physically lost or damaged cargo.

Limitation — life gets simpler

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.

What’s coming in 2023?

Nearly two weeks into the New Year and the IISTL’s version of ‘Old Moore’s Almanack’ looks ahead to what 2023 is going to have in store us.

Brexit. EU Retained EU Law (Revocation and Reform) Bill will kick in at end of the year. It will be a major surprise if the two Conflicts Regulations, Rome I and Rome 2 aren’t retained, but not the Port Services Regulation.

Ebury Partners Belgium SA/NV v Technical Touch BV, Jan Berthels [2022] EWHC 2927 (Comm) is another recent decision in which an ASI has been granted to restrain proceedings in an EU Member State (Belgium) in respect of a contract subject to English jurisdiction.

Electronic bills of lading. Electronic Trade Documents Bill. Likely to become law in 2023 and to come into effect two months after getting Royal Assent. The Law Commission will publish a consultation paper “Digital assets: which law, which court?” dealing with conflicts of law issues in the second half of 2023.

Autonomous vessels. The Department for Transport consultation on MASS and possible amendments to the Merchant Shipping Act 1995 closed in November 2021. Maybe some results in 2023?

Supreme Court cases

Okpabi v Royal Dutch Shell. The case may well go to trial in 2023, although in May 2022 the High Court EWHC 989 (TCC), held it was premature to grant a  Group Litigation Order and directed that each individual claimant should specify additional details to formulate a proper cause of action for the defendants to respond to.

In similar proceedings in the Netherlands in which the Court of Appeal in the Hague gave judgment in January 2021 relating to multiple oil pipeline leaks in the Niger Delta, it was announced just before Christmas 2022 that Shell will pay 15 million euros ($15.9 million) to the affected communities in Nigeria in full and final settlement on a basis of no admission of liability.

The Eternal Bliss appeal to the Supreme Court is likely to be heard in 2023, with possibility of judgment given in 2023.

But there must be a question mark over London Steam-ship Owners’ Mutual Insurance Association Ltd (Respondent) v Kingdom of Spain (Appellant), Case ID: Case ID 2022/0062 where it is stated “This appeal has been adjourned by request of the parties.”

Climate Change

IMO  Two measures aimed at reducing shipping’s contribution to GHG emissions,   EEXI and Cii, both came into force as from 1 January 2023 and will be in the forefront of the minds of those negotiating new time charters.

EU. Shipping is likely to come into the ETS system with the amendments to the 2003 ETS Directive with phasing in from 1 January 2024. Here and here.

BIMCO has produced time charter clauses to deal with all three of these measures.

Ewan McGaughey et al v. Universities Superannuation Scheme Limited is a case involving whether the investments in fossil fuels by a large pension fund in the UK breach the directors’ fiduciary duties and duties towards contributors of the pension fund. On 24 May 2022, the High Court refused permission to bring a derivative action against USSL, but the Court of Appeal gave permission to appeal in October 2022, so a hearing in 2023 is “on the cards”.

European Union

On 15 July 2022, the EU Taxonomy Complementary Climate Delegated Act covering certain nuclear and gas activities came into force on 4 August 2022 and has applied from 1 January 2023. A legal challenge against the Commission before the CJEU by various NGOs and two member states, Austria and/or Luxembourg has been threatened in connection for the inclusion of nuclear energy and natural gas in the Delegated Act. Climate mitigation and adaptation criteria for maritime shipping, were included in the EU Taxonomy Climate Delegated Act adopted in April 2021.

Previous requests from other NGOs asking the Commission to carry out an internal review of the inclusion of certain forestry and bioenergy activities in the EU green taxonomy had already been rejected by the Commission in 2022.

The Corporate sustainability reporting directive came into effect on 16 Dec, 2022

For EU companies already required to prepare a non-financial information statement, the CSRD is effective for periods commencing on or after 1 January 2024. Large UK and other non-EU companies listed on an EU regulated market (i.e. those meeting two of the three following criteria: more than €20 million total assets, more than €40 million net turnover and more than 250 employees) will be subject to the CSRD requirements for periods commencing on or after 1 January 2025. 

UK and other non-EU companies that are not listed in the EU but which have substantial activity in the EU will be subject to the CSRD for periods commencing on or after 1 January 2028.

Finally, a very happy 2023 to all our readers.

What is the contract of carriage of goods by sea? Booking note or sea waybill?

Poralu Marine Australia Pty Ltd v MV Dijksgracht – [2022] FCA 1038 is an interesting case from the Federal Court of Australia on identifying what constitutes the contract of carriage of goods by sea,and what terms are applicable to that contract. It will not necessarily be the transport document that is issued on loading, in this case a sea waybill.

Between 6 and 11 December 2019, 23 pontoons and 11 pallets were loaded on board the motor vessel Dijksgracht at the port of Cork, Ireland, as breakbulk cargo. The cargo  of 23 pontoons and 11 pallets was loaded at Cork on The Dijksgracht and was consigned to Poralu Marine Australia Pty Ltd, for installation at the Royal Geelong Yacht Club. The cargo was discharged on or about 13 February 2020 at Geelong and it was alleged that three pontoons were discharged damaged having been loaded in sound condition. Poralu brought actions in bailment and negligence against the shipowner, RT, in rem and against ST as carrier, in personam

The carriage agreement began with a series of emails between Poralu and ST, between 7 and 9 November 2019, culminating in an unsigned booking note issued by ST which Poralu accepted on 20 November 2019.  The booking note, which provided that it was to “prevail over any previous arrangements”, was accepted by Poralu on 20 November 2019. After loading ST issued a sea waybill was issued acknowledging receipt of the cargo in good order and condition. The sea waybill contained a “Himalaya Clause” under which RD as owner was entitled to the benefit of:

Poralu alleged that the cargo was loaded on board the vessel in sound condition and that three pontoons were found to have been damaged when the cargo was discharged. Poralu commenced two actions for damages arising from the alleged damage to the cargo, both in bailment and the tort of negligence. The first action was in rem against the vessel and its owner, said to be Dijksgracht CV (DCV), a Netherlands company. The second was an action in personam against Spliethoff Transport (ST) as carrier and Rederij Dijksgracht (RD), said to be the shipowner.

An issue arose as to the applicable limitation figure in respect of the three damaged pontoons. Poralu asserted that the contract of carriage was concluded in the recap in the emails, so that there was a binding arrangement in advance of the acceptance of the booking note. On that basis the contract was subject to and incorporated the Australian Hague Rules and that it was a term of the contract of carriage that a bill of lading would be issued to Poralu in respect of the cargo either immediately or on request. Under the Australian Hague Rules the limitation figure would be that in the 1979 SDR Protocol to the Hague-Visby Rules.

The two defendants denied negligence and claimed that the contract of carriage was subject to the terms and conditions of ST’s booking note which applied the law of the Netherlands and incorporated the terms of Articles I-VIII of the Hague Rules 1924 and therefore excluded the operation of the Australian Hague Rules under  the Carriage of Goods by Sea Amendment Act 1997 (Cth) and the Carriage of Goods by Sea Regulations 1998 (Cth). The booking note stated specifically that liability was limited to £100 lawful money of the UK per package or unit. ST and RD argued that the Hague Rules had been incorporated and that such incorporation excluded the application of the Australian Hague Rules.

 Stewart J held that the liability of ST was limited to £100 UK money per package, and that applied to the claims in bailment and negligence. The court’s starting point was that the Australian conflict of laws rule for determining the question whether a contract was concluded is the law of the forum (in contrast to the English conflict rule which applies the law of the putative contract). A binding contract had not been concluded at the end of the initial email exchanges but came into being with the acceptance of ST’s booking note which contained all of the terms previously agreed in the recap and filled in the gaps, so that it constituted an offer capable of acceptance, and it was immaterial that it was unsigned. The booking note anticipated the issue of a bill of lading or a sea waybill, and provided that the booking note would prevail over the terms of such a document. The sea waybill that was issued made no change in the contractual relationship. The sea waybill was not a contractual document at all but a receipt only, as was the case with the bill of lading received by the fob charterer in The Dunelmia. The overriding clause in the booking note meant that the terms of the booking note prevailed over the sea waybill. Further, the booking note, which had been found by the court to be a contractual document, preceded the shipment of the cargo, whereas the sea waybill was only agreed and issued long after the cargo had been shipped

Applying Dutch law, to which the booking note was subject, the Hague-Visby Rules were not applicable. The Dutch law experts disagreed regarding the application of the Hague-Visby Rules where the carrier and the shipowner did not agree, when concluding the contract, whether or not a bill of lading or sea waybill will eventually be issued. They disagreed about whether the mere existence of the unexercised right of the shipper to demand a bill of lading (pursuant to Art 3(3) of the Rules or Art 8:399 of the DCC) was sufficient for the material application of the Rules or whether the shipper had actually to exercise its right to demand a bill of lading. The experts agreed that that question was undecided by the Dutch courts. However, assuming that the shipper’s right to demand a bill triggered the issue of the Hague-Visby Rules, the Hague-Visby Rules could not operate on the facts of this case. Ireland was not a contracting state so such a possible bill of lading would not have been issued in a contracting state nor would there be carriage was from a contracting state. As regards Article X(c) whereby the Rules apply to a bill of lading relating to the carriage of goods between ports in two different states if “the contract contained in or evidenced by the bill of lading provides that the rules of this Convention or legislation of any State giving effect to them are to govern the contract” Poralu relied on the standard bill of lading terms that ST would have used had a bill of lading been issued. That would have contained the following clause paramount:

1    Except in case of US Trade, the Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels, 25th August 1924, as enacted in the country of shipment, shall apply to this Bill of Lading.

2    If no such enactment is in force in the country of shipment, the articles I-VIII inclusive of the said Convention shall apply.

3    In trades where the International Brussels Convention 1924 as amended by the Protocols signed at Brussels on 23 February 1968 and 21 December 1979 (the Hague-Visby Rules) apply compulsorily, the provisions of the Hague-Visby Rules shall be considered incorporated in this Bill of Lading.

….

5    If the Hague Rules are applicable otherwise than by national law, in determining the liability of the Carrier, the liability shall in no event exceed £100 (GBP) sterling lawful money of the United Kingdom per package or unit.

Since the Hague Rules were not enacted in Ireland, the first sentence of the paramount clause had no application, and the second sentence applied. Since the paramount clause in the present case here referred separately and deliberately to the Hague Rules and the Hague-Visby Rules, the conclusion in The Superior Pescadores was inapplicable

Neither did the Hague-Visby Rules apply by virtue of the Australian legislation under which the booking note would be regarded as a charterparty (in this case a “space” or “slot” charter) over which the Rules would apply only where a sea carriage document was issued for the carriage. The booking note here was a charterparty, but the sea waybill was not a sea carriage document in that it was a mere receipt and was not negotiable. Accordingly the parties’ agreement on limitation remained applicable. Stewart J rejected Poralu’s argument that as they had a contractual right to demand a bill of lading then the contract of carriage was a contract covered by, relevantly, “a sea carriage document”. It was doubtful whether a contract of carriage is “covered by” a sea carriage document when the document in question, whether actually issued or merely the subject of a right of demand to be issued, did not or would not contain or evidence the contract.

Finally, RD were entitled to rely on the £100 package limitation in the booking note by virtue of its Himalaya clause. The clause satisfied all four of Lord Reid’s conditions set out in Midland Silicones v Scruttons  and Stewart J rejected Poralu’s argument that the clause did not satisfy the third element, in that the carrier had not had authority from the third party to contract as agent. The evidence showed that RD and ST were parties to a pooling agreement under which ST had to use all reasonable endeavours to protect and promote the interests of pool members. The pooling agreement conferred the necessary authority.

The Gencon 2022 Charterparty: Striking A Balance

Clause 2 of Gencon 1994 first saw light of day in the 1922 charter and is the product of the thinking of an era that predates the Hague Rules when freedom of contract reigned supreme and carriers were able to include in contracts of carriage clauses that exempted them from liability for practically anything. Consequently, many people and certainly most charterers, now consider the clause to be completely out of touch with modern industry practices and current legislation. By way of contrast, and perhaps not surprisingly, many owners continue to value the wide protection that they believe it affords against liability. However, the reality is that the clause does not really meet the needs of either party and can give rise to some unforeseen and highly unwelcome surprises. Consequently, it is not really satisfactory for either the charterers or the shipowners.

It does not meet the charterers’ needs since it provides the shipowners with a very wide defence for cargo claims. In a nutshell, the Owners are not liable unless there is personal negligence on the part of the higher management of the company [1]. Equally, it does not satisfy the shipowners because protection is limited to claims for physical loss or damage to the goods or for delay in delivering the goods, and the clause provides no defence for other claims relating to purely financial loss, such as a failure to load a full cargo or for delay in arriving at the loadport [2].

These deficiencies have been recognised for many years and the industry has tended to adopt a rough and ready solution by simply replacing Clause 2 with a Paramount Clause that is perceived to introduce greater balance in the form of the Hague or Hague-Visby Rules. However, the weakness of this “broad brush” solution has been repeatedly recognised by the English courts. For example, it has been said that:

The courts have not found it easy to make sense of the Hague Rules in the context of a charter-party since clearly these rules were not designed to be incorporated in such a contract.[3]

and

 “[A] very slapdash way of doing things.”[4]

Consequently, the BIMCO sub-committee concluded that the insertion of a Paramount Clause was really no more than a “sticking plaster” solution in that it papered over some of the fault but failed to provide a satisfactory balanced solution.

A Paramount Clause clearly improves the charterers’ chances of making a recovery from the shipowners but makes the shipowners’ duty to exercise due diligence to make the ship seaworthy a continuing one that could potentially extend to all time “before” the commencement of the voyage[5], and which could, therefore, cover a very substantial time before the arrival of the ship at the loadport. It is also unclear whether the Rules provide the owners with protection in all jurisdictions against purely financial loss such as delay either in arriving at the loadport or in performing the laden voyage.

Therefore, the more balanced remedy favoured by the sub-committee was for the new clause 2 of Gencon 2022 to mirror the general approach of the Hague-Visby Rules and

(1)       firstly, place on the shipowners duties that are the equivalent of the non-delegable ones that apply under the Hague-Visby Rules to exercise due diligence to provide a seaworthy ship and to properly and carefully care for the cargo, but to restrict the applicability of the seaworthiness obligation to the two points in time that matter for the charterers, namely, the loading of the cargo and the commencement of the laden voyage; and

(2)       secondly, enable the shipowners to rely on all those rights, defences, immunities, time bars and limitations of liability that are available to a “Carrier” under the Hague-Visby Rules and to make such protection applicable to claims for loss, damage, delay or failure in performance of whatsoever nature. As is the case under the Hague-Visby Rules, these various rights, defences, immunities, time bars and limitations of liability fall into two categories: those that are applicable in any event regardless of breach, such as the time limit for claims under Art III Rule 6, and those that are available only if the shipowner has satisfied his obligations as to seaworthiness, such as those listed under Art IV Rule 2.

Because this new approach is substantially different from that which has been adopted in prior versions of Gencon, the sub-committee thought it prudent to circulate its proposals to the shipping industry before proceeding to a conclusion and received a more or less unanimous approval of its proposals. It is also noteworthy that the International Group of P&I Clubs has confirmed that the new clause 2 should not prejudice Club cover.

Finally, since one of the criticisms of Gencon 1994 is that, unlike many other charters, it does not include an exception clause that protects the rights of charterers, the sub-committee recommended that the new charter should include such a clause. There was some discussion as to whether the charter should include the new BIMCO Force Majeure Clause 2022. However, the sub-committee concluded that such clause was more suited to a time charter than a voyage charter and the industry consultation process supported that view. Consequently, it was decided to include a General Exception Clause of the type that is commonly seen in other voyage charters, and such a clause is now found in Clause 18 of Gencon 2022 thereby ensuring that it is a more balanced charter party.


[1] See, for example, the “Brabant” (1965) 2 Lloyd’s Rep. 546

[2] See, for example, the “Dominator” (1959) 1 Lloyd’s Rep 125 and the discussion in para 11.68 of Voyage Charters (3rd ed)

[3] Per Saville J in the “Standard Ardour” (1988) 2 Lloyd’s Rep 159

[4] Per Devlin J in the “Saxon Star” (1957) 2 Lloyd’s Rep 271

[5] See Art III Rule of the Hague/Hague-Visby Rules

Representing the Institute of International Shipping and Trade Law, Professor Richard Williams was a member of the BIMCO Sub-committee that has produced the new Gencon 2022.

Misdelivery by the carrier after discharge and the Article III Rule 6 time bar: the ‘Alhani gap’ is filled

FIMBank p.l.c. v KCH Shipping Co., Ltd [2022] EWHC 2400 (Comm)

The Commercial Court (Sir William Blair) has recently handed down judgment in FIMBank p.l.c. v KCH Shipping Co., Ltd, an appeal under section 69 of the Arbitration Act 1996, holding that the time bar in Article III rule 6 of the Hague-Visby Rules can apply to claims in relation to misdelivery after discharge. The Court’s decision resolves an important question which had not previously been decided by the English courts, and which has divided leading academic commentators as well as judges in other common law jurisdictions.

Background

The appeal relates to a claim brought by FIMBank p.l.c. (“FIMBank”), as the holder of bills of lading, for the alleged misdelivery of cargo by the contractual carrier, KCH Shipping Co., Ltd (“KCH”). The bills were concluded on the Congenbill form, and were subject to the Hague-Visby Rules, including the time bar in Article III r 6 of one year after delivery which applies to claims against carriers.

FIMBank served a Notice of Arbitration on KCH after that time bar expired. Its position was that its claim was nevertheless not caught by the time bar, contending that: (a) on the facts, delivery took place after discharge; and (b) as a matter of law, the time bar did not apply to claims for misdelivery occurring after discharge. In its submission, this was so given that the Hague-Visby Rules do not regulate a carrier’s obligation to deliver cargo (as opposed to the carriage of goods by sea), and only relate to a ‘period of responsibility’ which ends with the discharge of cargo. FIMBank further argued that the parties had, in any event, contractually disapplied the Rules in respect of the period after discharge, insofar as Clause 2(c) of the Congenbill form provided: “The Carrier shall in no case be responsible for loss and damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel …”.

In an Award on preliminary issues, the arbitral tribunal determined that FIMBank’s claim was time-barred irrespective of whether delivery post-dated discharge on the facts (which remained a matter in dispute). This was because: (i) the Hague[1]Visby Rules time bar can apply to claims relating to misdelivery occurring after discharge; and (ii) Clause 2(c) of the Congenbill form does not disapply the Rules in respect of the period after discharge.

The Court’s reasoning

The Court upheld the tribunal’s decision on both questions, and accordingly dismissed the appeal.

On the first question, it concluded that, on its true construction, Article III r 6 of the Hague-Visby Rules applies to claims for misdelivery of cargo after discharge. The Court noted that this conclusion avoided the need for fine distinctions as to the point at which discharge ended, and accorded with the objective of the rule which was intended to achieve finality and to enable the shipowner to clear its books. It further observed that, although certain common law authorities and commentaries might be said to support the construction of Article III r 6 for which FIMBank contended (including Carver on Charterparties and Voyage Charters), there was no international judicial or academic consensus to that effect.

The Court held that, even if its conclusion above was wrong, the tribunal’s decision was in any event justified by its finding that the bills of lading contained an implied term providing that the Hague-Visby Rules obligations and immunities are to continue after actual discharge and until delivery takes place, in line with the reasoning of the Court of Appeal in The MSC Amsterdam [2007] EWCA Civ 794.

On the second question, the Court held that, on a proper construction, Clause 2(c) did not disapply the Hague-Visby Rules to the period after discharge. Although FIMBank relied in this regard on The MSC Amsterdam, in which the express terms of the bill of lading concerned were held to have disapplied the Hague Rules after discharge, the Judge held that that decision did not warrant a different result, insofar as it featured a bill of lading with materially distinguishable terms.

Simon Rainey K.C. of Quadrant Chambers and Matthew Chan of Twenty Essex acted for KCH, instructed by Kyri Evagora and Thor Maalouf of Reed Smith LLP














Closing the gap.  Hague Rules time bars and misdelivery claims.

In The Alhani [2018] 2 Lloyd’s Rep 563 the Hague Rules one year time limit was held to apply to a misdelivery claim, where delivery was made on discharge within the ‘tackle to tackle period’. This left an open question as to whether the one year time limit would apply when delivery was made after discharge from the vessel. This question has now been answered by Sir William Blair (Sitting as a High Court Judge) in FIMBank PLC v KCH Shipping Co., Ltd [2022] EWHC 2400 (Comm). The case arose out of a misdelivery after discharge under a bill of lading on Congenbill form. The Tribunal, comprising three leading maritime arbitrators,  Julia Dias QC, Sir Bernard Eder and Timothy Young QC, found that: (i) the Hague-Visby Rules time bar can in principle apply to claims relating to misdelivery occurring after discharge; and (ii) Clause 2(c) of the Congenbill form did not disapply the Hague-Visby Rules time bar to the period after discharge. On a s.69 appeal, two questions were posed.

i) Whether Art.III, r.6 of the Hague-Visby Rules applies to claims for misdelivery of cargo after discharge (the “first question”);

ii) Whether clause 2(c) of the Congenbill form disapplies the Hague-Visby Rules to the period after discharge (the “second question”).

The clause reads. “The Carrier shall in no case be responsible for loss and damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel of [which must mean “or”] while the cargo is the charge of another Carrier, nor in respect of deck cargo or live animals.”

Sir William Blair upheld the finding of the tribunal, giving a positive answer to the first question, and a negative answer to the second.

On the question of the applicability of the timebar to claims for misdelivery of cargo after discharge, he found the tribunal had correctly decided that on its true construction Art.III, r.6 of the Hague-Visby Rules, which includes the time bar but is concerned with delivery in a broader context, applies to claims for misdelivery of cargo after discharge.  This conclusion avoids the necessity for fine distinctions as to the point at which discharge ends. It is also consistent with the authoritative statement of the objective of the article by Bingham LJ in The Captain Gregos ([1990] 1 Lloyd’s Rep. 310 at p.315 (col 2)) that it is, “like any time bar, intended to achieve finality and, in this case, enable the ship owner to clear his books”. In addition there no consensus to be shown among the courts of other jurisdictions, nor in the commentary.

Additionally, the application of the time limit to a misdelivery after discharge could be supported by the implication of a term as argued by Carver on Bills of Lading, Sir Guenter Treitel and Professor Francis Reynolds, 4th ed (2017) at [9-130] which states that the Rules may appear on their face to cease operation on discharge, but that consignees will normally collect them after some period of storage. The carriage contract arguably continues, and that under English law the carrier still holds the goods under the contract of carriage and under the Rules, unless it alters its responsibility for this stage by a term in the contract of carriage.

On the second question, the effect of cl.2(c) of the CONGENBILL, Sir William Blair upheld the tribunal’s conclusion that the clause did not disapply the Hague-Visby Rules to the period after discharge. The clause made no reference to any Hague-Visby Rules period. By contrast, the clause in The MSC Amsterdam [2007] EWCA Civ 794, [2007] 2 Lloyd’s Rep 622 was materially different in that its reference to loss “after the end of the Hague Rules period” showed that there was to be a period when the Hague Rules did not apply but would be be a time when the Owners may still have the obligations of a bailee in respect of the goods, and can agree that the terms of that bailment are not to be those of the Hague Rules.

Coming soon? Legal Equivalence for Electronic Trade Documents in England and Wales. 

Spain got one in 2014[1], Singapore in 2020[2], and now it seems England and Wales are going to get one in the next year  – a law on the functional legal equivalence of electronic bills of lading, and other trade documents, to their paper counterparts.

On 16 March 2022 the Law Commission of England and Wales issued its report on Electronic Trade Documents, LC 405, which proposed a draft, six clause, bill, the Electronic Trade Documents bill creating functional equivalence for electronic trade documents with their paper equivalents.  In May 2022 the government included the Electronic Trade Documents Bill in the Queen’s Speech in May 2022 setting out its legislative programme for 2022-23 session of Parliament and there is a good prospect of it becoming law in the next year.

The bill operates as follows.

Clause 1 defines the relevant paper documents as “…any paper document used in trade to which possession is relevant (as a matter of law or commercial practice) for a person to claim performance of an obligation, regardless of its precise legal nature.” The bill then lists examples of specific paper documents, including the bill of lading, that would constitute paper trade documents.  

Amenability to exclusive control is a necessary criterion for an electronic equivalent to these paper trade document so as to qualify as an electronic trade document and the transfer of an electronic trade document must necessarily entail a transfer both of the document and of the ability to control the document. This is set out in the next clause.

Clause 2 provides that Electronic equivalents of those documents would be ‘qualifying electronic documents’ and would become “electronic trade documents” if

“ a reliable system is used to—

(a) identify the document so that it can be distinguished from any copies,

(b) protect the document against unauthorised alteration,

 (c) secure that it is not possible for more than one person to exercise control of the document at any one time,

(d) allow any person who is able to exercise control of the document to demonstrate that the person is able to do so, and

(e) secure that a transfer of the document has effect to deprive any person who was able to exercise control of the document immediately before the transfer of the ability to do so (except to the extent that the person is able to exercise control by virtue of being a transferee).”

Clause 3 provides for full legal equivalence between electronic trade documents and paper trade documents, as follows:

(1) A person may possess, indorse and part with possession of an electronic trade document.

(2) An electronic trade document has the same effect as the equivalent paper trade document.

(3) Anything done in relation to an electronic trade document that corresponds to anything that could be done in relation to the equivalent paper trade document has the same effect in relation to the electronic trade document as it would have in relation to the paper trade document.

Legal equivalence will mean that the electronic bill of lading can operate as a document of title, and will constitute a bill of lading for the purposes of COGSA 1992 and COGSA 1971.

Clause 4 provides for change of form from paper document to electronic document, and vice versa.

Clause 5 provides for a list of excluded documents, currently (a) a bearer bond; (b) an uncertificated unit of a security that is transferable by means of a relevant system in accordance with the Uncertificated Securities Regulations 2001 (S.I. 2001/3755). The Secretary of State is empowered to add to, remove, or amend the list by statutory instrument.

Clause 6 provides for consequential amendments with the repeal of Sections 1(5) and 1(6) of COGSA 1992 and the insertion of “or to a bill or note that is an electronic trade document for the purposes of the Electronic Trade Documents Act 2022 (see section 2 of that Act)” at the end of section 89B(2) of the Bills of Exchange Act 1882 (instruments to which section 89A applies).

The Act extends to England and Wales only, comes into force at the end of the period of two months beginning with the day on which it is passed and does not apply to a document issued before the day on which the Act comes into force.

The bill is likely to prove uncontroversial, but will come up against 57 other legislative items fighting for space in the 22-23 session of Parliament. One hopes it makes it through.


[1] Under arts 262-266 of the Maritime Navigation Act 14/2014

[2] Under the Electronic Transactions (Amendment) Act setting out a legislative framework for Electronic Transferable Records (ETRs) based on the Model Law on Electronic Transferable Records (MLETR).]

Breaking limitation under the CMR?

The owner of two extremely valuable cars, a Mercedes Benz CLK GTR 97 and a 1948 Talbot-Lago T26 GS Franay Cabriolet claimed damages from the carrier, CARS, after they were damaged while in its possession. The carrier CARS was engaged through Peter Auto, a French events management company, to transport the two cars from the premises of their owner, Mr Knapfield, in Beaconsfield to the Chantilly Arts & Elegance Richard Mille Concours d’Etat (“Chantilly”), north of Paris, and back again after the event. During the return journey both cars were damaged when the Talbot – which had been stowed forward of the CLK 97 –  slipped backwards into the CLK 97, due to the front wheel straps attached to the Talbot becoming free, as a result of inadequate securing of its front wheel straps.

The central issue in Knapfield v CARS Holdings Ltd Company (No. 05481676) & Ors [2022] EWHC 1437 (Comm) (13 June 2022). was whether the owner’s damages were limited by the Carriage of Goods by Road Act 1965 which incorporates the CMR Convention (“CMR”).  The Convention’s provisions have the force of law “so far as they relate to the rights and liabilities of persons concerned in the carriage of goods by road under a contract to which the Convention applies” (s1) and a person concerned in the carriage of goods by road includes a consignee (s14(2)(b)). Under CMR the carrier’s liability would be limited to SDR 23,490.60, about $20,000, considerably lower than the diminution in value claimed by the owner of the two cars.

The CMR applied because there was a contract for the carriage of goods for the vehicles by road in the Transporter for reward, and because CARS took over the vehicles in France for carriage to the United Kingdom. The owner of the cars was not a party to that contract, but CMR applied because he was the consignee.  The failure of CARS to issue a consignment note did not affect the applicability of CMR due to article 4 which provides “The contract of carriage shall be confirmed by the making out of a consignment note. The absence, irregularity or loss of the consignment note shall not affect the existence or the validity of the contract of carriage which shall remain subject to the provisions of this Convention.” There was nothing in CMR which expressly placed the burden of issuing the consignment note on the carrier so that a claim for breach of contract could be made against the carrier for failure so to do.

The owner’s case was that the liability of CARS was not limited by CMR, due to three exceptions, all of which were rejected by Charles Hollander QC, acting as a Deputy Judge of the High Court:

a. Where the sender declares in the consignment note a value for the goods (Article 24 CMR).

The owner was not a party to the contract of carriage and was not the sender, who was the party that needed to make such declaration. Any discussion between the owner and the sender about the value of the vehicles, which was disputed, was oral and was not declared in the consignment note, as there was no consignment note. Any declaration of value needed to have been made with the agreement of CARS as the carrier and be evidenced in writing. There was no such agreement here.

b. Where the sender fixes the amount of a special interest in delivery in the consignment note (Article 26 CMR).

This argument failed for the same reasons as the Article 24 argument, with the additional reason being that “special interest” must provide for loss or damage which is not provided for in Articles 23, 24 and 25, such as consequential loss.

c. Where the damage was caused by the wilful misconduct of the carrier or its servants or agents (Article 29 CMR).

To establish wilful misconduct on the part of the carrier or its servants and agents, the Claimant needed to prove that:

a. There must have been misconduct.

b. The carrier, employee or agent either (a) must have committed the misconduct deliberately knowing that the conduct was wrongful, regardless of the consequences, or (b) must have committed the misconduct deliberately with reckless indifference as to whether what he or she was doing was right or wrong, where such misconduct was unreasonable in all the circumstances.

c. There must have been an increased real and substantial risk of damage to the goods resulting from such misconduct and the carrier, employee or agent must have been aware of that additional risk.

Such misconduct was not made good by negligence or even gross negligence. The case of wilful misconduct was based on the combination of an unjustified failure by CARS’ driver, Mr Constantinou, to follow instructions given by the owner to him and the use of an unsafe method of securing the Vehicles in circumstances. Responsibility and expertise in carrying the Vehicles lay with CARS rather than the owner and whilst a failure to do what the owner had proposed or advised might be evidence of deliberate or reckless conduct, it would not be a breach of any obligation to fail to follow the owner’s instructions,

The cause of the damage was the failure of Mr Constantinou properly to secure the front over-the-wheel straps on the Talbot on the return journey, so that in the course of that journey they worked loose. Although that failure could readily be described as negligent, perhaps even grossly negligent, there was no reason to think it was reckless, still less deliberate. Although Mr Constantinou had failed to follow company policy to use chocks were possible, there was a legitimate explanation for this – he did not do so because the Transporter had forward wheel wells sunk into the deck, and the Talbot was driven into the wells, which had already acted as chocks. Significantly, that method for transportation was the same as been used for the carriage to Chantilly without incident, which went against any suggestion that the method of carriage was reckless.

The owner also claimed by way of damages for misrepresentation under s2(1) of the Misrepresentation Act 1967, and by way of an alleged contract with CARS  whereby it agreed to reimburse him for the damage which had occurred in full, that contract being separate to CMR. The Misrepresentation claim could not succeed as this claim could not succeed because the misrepresentation would have been made to someone who was neither a contracting party or their agent. The claim based on the reimbursement contract could not succeed as there was no consideration for CARS’ promise, and if there were to be an enforceable promise to surrender the right to rely on the statutory limit of liability under CMR, there would have to have been express reference to the right to limit. Without such a reference, the promise would not be clear and unequivocal, which is a requirement for a contractual surrender of such rights of limitation.