IISTL Professor’s UNCTAD Report on “Legal and Practical Implications of Covid-19” Is Out

“CONTRACTS FOR  THE CARRIAGE OF GOODS BY SEA AND MULTIMODAL  TRANSPORT KEY ISSUES ARISING FROM THE IMPACTS  OF THE COVID-19 PANDEMICA” is now available at https://www.google.com/url?q=https%3A%2F%2Functad.org%2Fsystem%2Ffiles%2Fofficial-document%2Fdtltlbinf2022d1_en.pdf&sa=D&sntz=1&usg=AFQjCNGYpOUVQNY4G-u7Vkox_kWvDs8Nkw

This is a report for the United Nations Conference on Trade and Development and was  prepared by  Professor  Simon  Baughen,  with contributions  by  Regina Asariotis  and  Anila  Premti,  Policy  and Legislation  Section,  Trade  Logistics  Branch,  Division  on  Technology  and  Logistics  of  UNCTAD. The report forms  part  of  the  ‘International commercial transport  and  trade  law’  component of the  UN Development Account project (UNDA  2023X)  project on “Transport and trade  connectivity  in the  age  of pandemics”.  

This report examines some  of  the  key legal issues  arising from  the  pandemic  as  they  affect  contracts  for the  carriage  of  goods  by  sea, multimodal  contracts  of  carriage  that  (may)  involve  carriage  by  sea,  as well as voyage  and time  charters. 

No set-off rule does not apply to freight forwarding contract.


More developments on the no-set off rule in The “Aries” [1977] 1 WLR 185 (HL), which bars set-off against freight claims. As noted in this blog,     https://iistl.blog/2017/11/22/in-the-air-with-the-aries-freight-no-set-off-rule-also-applies-to-air-carriage/     the rule was held to extend to carriage by air in Schenker Ltd v Negocios Europa Ltd [2018] 1 WLR 718.


In Globalink Transportation and Logistics Worldwide LLP v DHL Project & Chartering Ltd [2019] EWHC 225 (Comm) (19 February 2019), it was held that the rule does not apply to freight forwarding contracts under which the forwarder has contracted to arrange carriage rather than to act as the carrier.

Sinopec engaged DHL to arrange the carriage of large items of plant and machinery from China to Kazakhstan. DHL sub-contracted the arrangement of carriage from the Black Sea onwards to Globalink. One of the barges involved was delayed and it was then fount that its draught was too deep to enable it to complete the final leg of the voyage before the Ural-Caspian canal closed for the winter, resulting in the cargo having to be stored until the Spring when Globalink were engaged to arrange completion of the carriage.

DHL refused to pay the two last instalments due under its contract with Globalink arguing a set-off of its counter claims for breach of contract arising out of the delays with the second barge.

Nicholas Vineall QC held that:

“the rule in The Aries does not extend, and should not be extended, to cover the services provided by a freight forwarding agent, when those services are to arrange the carriage of goods. It is not suggested that parties to freight forwarding contracts invariably contract on the assumed basis that no set off is available, and I see no justification for extending the ambit of a rule which is, in Lord Simon’s phrase, a pre-Cambrian outcrop, beyond contracts of carriage and into a new – albeit adjacent – area. To do so would run counter to the general principle of the law which is that a cross claim can in principle operate as a defence by way of set off. I see no basis upon which it could properly be open to me to extend the rule in The Aries into a new area.” [61]

However, in Britannia Distribution v Factor Pace [1998] 2 Lloyds Rep 420, it was held that freight forwarders acting as agents had the benefit of the no set-off rule to the extent that they could show that the sum of which they sought payment was in respect of freight that they had paid to a carrier.

Accordingly, as regards US$113,000 of the US$1.65 million total claimed that could be shown to be freight payable by Globalink to a carrier, an order for payment should be made, conditional on proof of payment by Globalink


Rotterdam Rules in Cameroon’s hat-trick of international trade conventions.


Just over a year ago on 11 October 2017 Cameroon ratified or acceded to three UNCITRAL Conventions.

  1. Cameroon ratified the Rotterdam Rules. There are now four states that have ratified. Sixteen more to go before the Convention comes into force. At the current rate we’ll be there in 2058.
  2. Cameroon acceded to the he United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) which comes into force for Cameroon on 1 November 2018.
  3. Cameron acceded to the United Nations Convention on the Use of Electronic Communications in International Contracts (2005) which came into force for Cameroon on 1 May 2018.

Can an actual carrier rely on a circular indemnity clause in a multimodal bill of lading?


Yes, they can, in the US.

In Royal Smit Transformers BV v Onego Shipping & Chartering, and others Case 17-30543, the US Court of Appeals for the Fifth Circuit  on 2nd August 2018 held that actual carriers could rely on a circular indemnity provision in a ‘Himalaya’ clause in a through bill of lading as a complete defence to a claim brought against them by the shipper under that bill. Royal Smit contracted with Central Oceans USA to ship its transformers from the Netherland to Louisiana. The arrangement was established by a multimodal through bill of lading between the parties. Central Oceans made separate contracts with actual carriers for the three legs of the journey; the sea voyage to New Orleans; rail carriage to St Gabriel; truck carriage to the final destination. The actual carriers were not involved in the multimodal bill of lading and Royal Smit were not involved in the contracts made by Central Oceans with the actual carriers.

The bill of lading contained a ‘Himalaya’ clause which provided:

  1. Defenses and limits for [Central Oceans], Servants, etc.

. . . .

(b) [Royal] undertakes that no claim shall be made against any servant, agent, or other persons whose services [Central Oceans] has used in order to perform the Multimodal Transport Contract and if any claim should nevertheless be made, to indemnify [Central Oceans] against all consequences thereof.

(c) However, the provisions of this Contract apply whenever claims relating to the performance of the Multimodal Transport Contract are made against any servant, agent or other person whose services [Central Oceans] has used in order to perform the Multimodal Transport Contract, whether such claims are founded in contract or in tort. In entering into this Contract, [Central Oceans] . . . does so not only on his own behalf but also as agent or trustee for such persons.

The transformers were delivered to the final destination in January 2016, where an inspection revealed that the transformers had been damaged by “excessive vibration” somewhere along the journey. When Royal Smit sued the three actual carriers they relied on cl.15(b), the ‘circular indemnity’ provision, by way of complete defence. The District Court agreed. . Relying on two Supreme Court opinions, Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004) and Kawasaki Kisen Kaisha, Ltd. v. Regal-Beloit Corp., 561 U.S. 89 (2010), the court concluded that “actual carriers who fall within the scope of Himalaya Clauses can rely on those clauses to limit their liability.” This was the case with the particular Himalaya provision relied on by the actual carriers in the present case. The position was not affected by the separate contracts negotiated by the actual carriers with Central Oceans, such as the non-negotiable bill of lading issued by the sea carrier, Onego.

The Fifth Circuit has now upheld this decision. The clause did not fall foul of s.3(8) of  COGSA 46 U.S.C. § 30701.  A Himalaya Clause that protects downstream carriers from suit by a cargo owner did not, in and of itself, limit the cargo owner’s ability to receive the recovery to which it is entitled. Royal had agreed with Central Oceans to a COGSA-authorized damages limitation and the mere fact that it must recover its remedy only from Central Oceans did not prevent it from receiving the full measure of that bargain. Nothing in the Himalaya Clause precluded Central Oceans from suing the defendants to recoup its losses from Royal.

The Court also rejected Royal’s arguments that it had never agreed to be bound by the Himalaya clause in the bill of lading. Royal had based its claim on the bill of lading and had therefore accepted the terms of the bill of lading including unnegotiated clauses (Mitsui & Co. (USA), Inc. v. Mira M/V, 111 F.3d 33, 36 (5th Cir. 1997)). Furthermore,  basic principles of maritime law governing the interpretation of contracts foreclosed Royal’s argument that the court should look to extrinsic evidence to discern an intent contrary to the plain text of the bill of lading. Only if the written language of the document was ambiguous, which was not the case here, could the court look beyond the written language to determine the parties’ intent.

The decision is good news for sub-contractors under multi-modal bills of lading involving carriage to the US. The position regarding such clauses under English law is somewhat different. First, the circular indemnity provision does not provide a defence to the actual carrier but provides a right to the carrier under the bill of lading to step in and prevent suit against its sub-carrier by the shipper/holder of the bill. Second, where an actual sea carrier is involved, art III(8) of the Hague Rules has been held to render null and void a ‘Himalaya’ clause giving the sub-contractor a complete exemption from liability (The Starsin  [2004] 1 AC 715 ) and the same is probably the case with a circular indemnity clause.


A small step on the road to Rotterdam?


Two bills are currently before the Parliament of the Netherlands concerning the Rotterdam Rules  2008. The first would give the four separate components of the Kingdom of the Netherlands –  the Netherlands, Aruba, Curacao and Sint Maarten – the power to ratify the Rotterdam Rules and denounce the version of the Hague-VisbyRules to which they are party. The second would remove the Hague-Visby provisions of the Civil Code and replace them with the Rotterdam Rules which would be incorporated into it by reference.

The bills are expected to pass soon but this will not lead to an immediate replacement of the Hague-Visby Rules with the Rotterdam Rules. The explanatory notes to both bills state that it will be for the government to decide on the date of ratification and entry into force and this may depend on ratification of the Rotterdam Rules by neighbouring countries, such as Germany and France and major trading parties such as China and the US-  no mention is made of the UK.