Category: Carriage of Goods

Hague-Visby time limit applies to claims for misdelivery after discharge.

Yesterday in The “GIANT ACE”, FIMBank PLC v KCH Shipping Co Ltd, [2023] EWCA Civ 569 (24 May 2023), the Court of Appeal upheld the judgment of Sir William Blair J last autumn that the one year time limit under the Hague-Visby Rules applies to claims for misdelivery where the cargo is delivered outside the tackle to tackle ambit of the Hague Visby Rules, after discharge has been completed.

Three issues arose for decision, with Males LJ giving the principal judgment of the Court of Appeal, with whom Popplewell LJ and Nugee LJ agreed.

(1) Does Article III, rule 6 of the Hague Visby Rules apply to a claim for misdelivery occurring after discharge of the cargo has been completed?

The Court of Appeal considered that the Rules do not apply to misdelivery of cargo stored on land after discharge, whether or not such misdelivery is a breach of the contract evidenced by the bill of lading, at least where the misdelivery is not related to the discharge operation. However, the natural meaning of Article III, rule 6 of the Hague Rules is that if suit is not brought in time, the carrier will be discharged from all liability of any kind arising during the Hague Rules period of responsibility.

Article  III (6) of the Hague-Visby Rules  in paragraph 3 provides “Subject to paragraph 6bis the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods unless suit is brought within one year of their delivery or of the date when they should have been delivered. (emphasis added).” This contains a change from the phrase in the Hague Rules “all liability in respect of loss or damage” to “all liability whatsoever in respect of the goods” which weakened or even removed the nexus with loss or damage to the cargo which was previously required. If, the natural meaning of Article III, rule 6 of the Hague Rules was that the carrier will be discharged from all liability of any kind arising during the Hague Rules period of responsibility, it was a reasonable inference that the new rule was intended to apply even in cases outside the sphere of application of the Rules.

Reference to the travaux préparatoires in accordance with Article 32 of the Vienna Convention confirmed that Article III, rule 6 of the Hague Visby Rules was intended to apply to misdelivery claims. It was put before a plenary session of the CMI on June 14, 1963, with the explanation (p. 500) that: ‘The object of the aforesaid amendment is to give the text a bearing as wide as possible, so as to embody within the scope of application of the one year period, even the claims grounded on the delivery of the goods to a person not entitled to them, i.e. even in the case of what we call a wrong delivery.’ This constituted an interpretative ‘bulls-eye’. Although misdelivery can occur during the voyage or simultaneously with discharge, misdelivery after discharge is the paradigm case which would have been understood by the drafters of the Visby amendments to the Hague Rules. Had they intended to limit the new Article III, rule 6 to cases of misdelivery occurring during the carriage by sea (including the discharge operation itself), they could have been expected to say so. However, there was no indication in the travaux that they intended to limit the new rule in this way. Although two decisions from Hong Kong (Cheong Yuk Fai v China International Freight Forwarders (H.K.) Co Ltd [2005] 4 HKLRD 749 and Perfect Best Asset Management Inc v ASL Express Ltd [2021] HKCFI 2310) have held that Article III, rule 6 of the Hague Visby Rules does not apply to a claim for misdelivery occurring after discharge, two cases from one jurisdiction were not capable of amounting to an international consensus on the interpretation of the provision. Further, the two judgments in those cases did not consider either the significance of the language used in the Visby amendment to Article III, rule 6 or the impact of the Visby travaux préparatoires.

(2) If not, was there an implied term in the bills of lading to the effect that the Hague Visby Rules including Article III, rule 6 would apply to govern the parties’ relationship after discharge of the cargo (referred to in argument as “the Carver implied term”)? This derives from the following passage in the fifth edition of Carver on bills of lading at para 9-135 -“It is submitted therefore that as a matter of the English law of contract it may well be appropriate to state the position as being that the Rules may apply as implied terms after receipt of the goods but before loading, and after discharge but during the period before delivery or up to the time of the operation of any separate warehousing arrangements, except insofar as this result has been excluded or modified by the parties.”

Given the decision on the first issue, it was not necessary to reach a final conclusion on this issue. Males LJ had considerable doubt whether a term to the effect suggested could be implied. If such a term rested on an implication in fact, there were no factual findings in the award on which such an implication could be founded. To the extent that it was an implication in law, it seemed difficult to imply a term that the Rules should apply if, on their own terms, they do not.

(3) If the answer to either of these questions is “yes”, does clause 2(c) of the Congenbill form have the effect of disapplying the time bar in Article III, rule 6?

 Clause 2 (c) provides:

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

The issue was rather artificial as if the clause did exclude liability, something which was not in issue, the issue of time bar would not arise. cl.2 On the other hand, if the carrier remains liable for misdelivery after discharge despite clause 2(c),  there was no reason why the one-year time limit for such a claim should not apply.

The Appeal was therefore dismissed.

Life after novation. Indorsee’s consent to discharge of cargo without production of bill of lading.

The Sienna, Unicredit Bank AG v Euronav NV [2023] EWCA Civ 471 involved a claim by a financing bank against shipowners for delivery of cargo without production of a bill of lading. The cargo had been carried under a charter with BP who were the initial holder of the bill of lading as shipper. The charter was novated, and subsequently BP indorsed the bill of lading to the bank who received it after the cargo had been discharged against an indemnity in the charter, without production of the bill of lading.

Moulder J found that the bank could not sue the owners under the bill of lading because the bill of lading lost its potential contractual status when there was a novation of the charter with BP. She also found that if there had been a contract with the indorsee as the lawful holder of the bill of lading, there would have been no breach. The indorsement and transfer of the bill of lading to the Bank was being held up largely due to the effect of the first Covid lockdown in the UK in March 2020. She found that had the shipowner refused to deliver the cargo without production of the bill of lading it would have sought instructions from BP who would have referred to the Bank as the intended indorsee and the Bank would have agreed that the cargo be discharged without production of the bill of lading.

On appeal the Court of Appeal overturned the first basis of the decision, but upheld the second.

On the first ground, it was clear that where a shipper is also the charterer, the bill of lading is generally not a contract of carriage but a mere receipt, but when indorsed to a third party, it attains contractual status upon indorsement on the basis that “a new contract appears to spring up between the ship and the consignee on the terms of the bill of lading” (Tate & Lyle Ltd. v Hain Steamship Co. (1936) 55 Lloyd’s Rep 159, 174). However, Moulder J had found that this was not the case as regards the indorsee when the bill of lading had remained in the hands of the charterer after the charterer ceased to be a party to the charterparty. Popplewell LJ giving the judgment of the Court of Appeal, characterised the ‘mere receipt’ rule as follows. In issuing a bill of lading, the carrier usually contracts with the holder on those terms save only for so long as the holder is a charterer, and save to the extent thereafter (if at all) that the contractual relationship with the carrier for performance of the carriage remains governed by the charterparty (as it was for pre Novation Agreement conduct in the present case). The bill of lading will not otherwise be a mere receipt but will contain or evidence a contract of carriage. This reflects the presumed intention of the parties. Popplewell LJ found that the bill of lading was not a mere receipt in BP’s hands at the time of discharge as it had become a document containing or evidencing a contract with BP from the date of the Novation Agreement, and remained so at the date of discharge.

Furthermore, dealing with an argument not raised before Moulder J, he found that the indorsee is put in the same position as if he had been a party to a contract on the terms of the bill from the date of its issue: Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196, 218. The language of s. 2(1) makes clear that it operates retrospectively. The position is no different for an indorsee from a charterer from that which applies to an indorsee from a non-chartering shipper. The position would be the same where indorsement takes place after discharge than it is where indorsement takes place before provided the indorsee takes pursuant to pre-existing contractual arrangements,  as required by s2 (2) of COGSA 1992, which is what the Bank did in this case.

Turning to the second ground of Moulder J’s decision, although the indorsee would not be affected by any agreement between the owners and the charterer that the cargo could be delivered against a letter of indemnity in the absence of a bill of lading, the indorsee itself could consent to this. The bill of lading in this case was on its way to the bank and was held up due to administrative reasons largely connected with the initial COVID lockdown in the UK, rather than commercial ones. Had Owners initially complied with the obligation not to discharge without production of the Bill, they would have sought and obtained express consent to do so from both the holder and the bank as intended indorsee. Delivery without production of the bill of lading would no longer have been a breach of the contract and so the initial breach would have caused no loss.

Accordingly, the Court of Appeal upheld Moulder J’s findings on causation and owner’s appeal was dismissed.

Coming soon to the UK Supreme Court, and not coming.

UKSC 2022/0009 Herculito Maritime Ltd and others (Respondents) v Gunvor International BV and others (Appellants) “The Polar”      

What is the proper interpretation of a charter agreement and bills of landing (sic) for a vessel, in respect of losses arising out the seizure of the vessel by pirates.

The Court of Appeal decision in December 2021 is noted here. https://iistl.blog/category/admiralty-law-2/general-average/

UKSC 2022/0064       R (on the application of Finch on behalf of the Weald Action Group) (Appellant) v Surrey County Council and others (Respondents)    

Under Directive 2011/92 EU of the European Parliament and of the Council and the Town and Country Planning (Environmental Impact Assessment) Regulations 2017, was it unlawful for the Council not to require the environmental impact assessment for a project of crude oil extraction for commercial purposes to include an assessment of the impacts of downstream greenhouse gas emissions resulting from the eventual use of the refined products of the extracted oil?

Hearing on 21 June 2023

The case raises similar issues on scope 3 emissions to that in Greenpeace Ltd v (1) Secretary of State for Business, Energy and Industrial Strategy and (2) the Oil and Gas Authority; and Uplift v (1) SSBEIS and (2) the OGA (North Sea oil and gas licensing)

On 26 April 2023 permission was granted to proceed with a Judicial Review of the Government’s decision to launch a new licensing oil and gas round, without taking into account the environmental effects of consuming the oil and gas to be extracted. In the new licensing round fossil fuel companies have submitted submitting more than 100 licences to explore for new oil and gas.

And not coming,

The hearing was fixed for 19/20 June but it was announced earlier this week that the case has now settled. https://www.quadrantchambers.com/news/settlement-reached-eternal-bliss

UKSC 2021/0231       Priminds Shipping (HK) Co Ltd (Respondent) v K Line PTE Ltd (Appellant) The Eternal Bliss    

Whether the Charterers are liable to compensate or indemnify the Owners for the cost of settling the cargo claim by way of (a) damages for the Charterers’ breach of contract in not completing discharge within the permitted laytime; and/or (b) an indemnity in respect of the consequences of complying with the Charterers’ orders to load, carry and discharge the cargo.

The answer given by the Court of Appeal was ‘no’. This is now definitive.

The next step in the reform of the Arbitration Act 1996

Recently, the Law Commission for England and Wales published the Second Consultation Paper on the Review of the Arbitration Act 1996 containing provisional law reform proposals to ensure that the arbitration law remains state of the art. Back in 2021, the Ministry of Justice asked the Law Commission to undertake a review of the Arbitration Act 1996. Following this, the Commission published its first public consultation paper unfolding provisional law reform proposals. The consultation period was open by December 2022. See the previous post about the first consultation paper here: Law Commission to review the Arbitration Act 1996

The consultation questions in the previous paper were around the shortlisted aspects of the arbitration, including confidentiality, independence of arbitrators and disclosure, discrimination, immunity of arbitrators, summary disposal of issues that lack merit, interim measures ordered by the court in support of arbitral proceedings (section 44 of the Act), jurisdictional challenges against arbitral awards (section 67), and appeals on a point of law (section 69). In addition, the Commission encouraged consultees to suggest and comment on any other topics which were not covered but might need reviewing.

It is worth reiterating the main points of my response to the first consultation paper:

  • As of the status quo based on the existing legislation and authorities, relitigation and reconsideration by the court following the challenges brought under Section 67 not only double the waste of time and expenses by the repetitive proceedings and potential parallel or inconsistent judgments but also go against the whole idea of arbitration and the fundamental principle “Kompetenz-kompetenz”.
  • The courts’ powers to grant interim injunctions derive from the two fundamental legal frameworks – Arbitration Act 1996, Section 44 and Senior Courts Act 1981, Section 37. The revision of the existing legal frameworks to reflect the interrelationship and boundaries of the instruments with regard to the court’s powers to make orders in support of arbitral proceedings would be in line with the objectives and general principles of the Arbitration Act 1996 to improve the law relating to arbitration, in general. Indeed, the revision would bring clarity about the application scope of the Act (see the Introductory Act to the Arbitration Act 1996) and contribute to the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.

Based on the suggestions made by the consultees involved in the first round of the reform project, in its second consultation paper, the Commission has made new proposals about the proper law of the arbitration agreement. Furthermore, the Commission considers the following two issues as the most controversial ones among the others and seeks the views of consultees on the revised proposals: (1) challenges to awards under section 67 on the basis that the tribunal lacked jurisdiction; and (2) discrimination in arbitral appointments.

The second consultation paper will be open by 23:59 hours on 22 May 2023. The responses of consultees to this second consultation paper will be taken along with responses to the first consultation to inform the final report and recommendations. All the details of the project and relevant consultation documents are available here: Review of the Arbitration Act 1996 – Law Commission

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?

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.