Geographical deviation. Can carrier rely on Hague Rules time-bar?


In Dera Commercial Estate v Derya Inc ( The Sur) [2018] EWHC 1673 (Comm) we have the first decision on geographical deviation since Hain Steamship Company Ltd v Tate & Lyle Ltd [1936] 41 Com Cas, 350, eighty two years ago. The vessel carried a cargo from Vizag to Aqaba but was not allowed to discharge the cargo because of “broken percentage, foreign matters, impurities, damaged kernels…and apparent fungus”. After hanging around Aqaba for two months, the owners decided to leave for Mersin, Turkey, without the consent of the bill of lading holder and the Jordanian customs authorities. They there discharged the cargo and obtained an order for its sale by the Turkish court. Dera, the bill of lading holders commenced arbitration within the one year Hague Rule time limit but no formal procedural steps were taken by either side in the arbitration for a further three and a half years, when owners served particulars of claim seeking a declaration of non-liability for the cargo claim. In 2017 the Tribunal made an award on two preliminary issues deciding first that the claim was not extinguished by virtue of the orders made by the Turkish court, and secondly that Dera’s claim should be struck out for want of prosecution under s.41(3) of the Arbitration Act 1996.

The Tribunal concluded that the applicable limitation period for the cargo claim should be “the yardstick of inordinate delay” and that (pursuant to Article III Rule 6) the applicable limitation period was one year. The Tribunal held that the one year limitation period applied even in cases pleaded in tort or where there has been a serious breach of contract such as a geographic deviation, basing its finding on the decision in The Kapitan Petko Voivoda [2003] 2 Lloyd’s Rep 1 at [16] to [17] in which it was held that the words “in any event” suggest that the limitation provision applies even in cases where the breach is of the obligation to stow cargo below deck. Comparing the delay of three years nine months from the time at which Dera was first able to particularise its claim to the time at which it particularised it in the arbitration with the one year contractual time limit, it was clear that there had been inordinate delay.

On appeal to the High Court, Dera challenged the Tribunal’s finding that the one year Hague Rule limit could be relied on by the carrier following a geographic deviation. Mrs Justice Carr held that as a matter of construction Article III Rule 6 did cover such a claim, but the special rule on geographical deviation set out by the House of Lords in Hain still applied and had not been abrogated by the subsequent rejection of the doctrine of fundamental breach in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. It is clear from the speech of Lord Wilberforce in Photo Productions (at p. 845D-H) that the geographical deviation cases were not swept up under the auspices of the general law of contract, but might be considered a separate body of authority with “special rules derived from historical and commercial reasons”.

Following the ratio of Hain, a geographic deviation did preclude a carrier from relying on the one-year Hague Rules time bar created by Article III Rule 6 if the other party to the contract of carriage elected to terminate. Mrs Justice Carr noted that there had been no finding in the case on the question of election or on the question of whether there was a deviation.  Accordingly, the Tribunal  had erred in law in concluding that, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation does not preclude a carrier from relying on the one year time bar created by Article III Rule 6.

In The Kapitan Petko Voivoda Longmore LJ stated “It has not yet been conclusively decided whether what I may call the deviation cases and the warehouse cases must be regarded as dead and buried along with the doctrine of fundamental breach….”

It has now.