Know your limits

In a recent cargo damage dispute – Vinnlustodin HF and another v. Sea Tank Shipping AS (Aqasia) [2016] EWHC 2514 (Comm) – the Commercial Court considered whether package limitation under the Hague Rules applies to bulk cargoes and held that it did not.

The decision is noteworthy because there is no previous English case-law providing a conclusive answer to this question.

The claim arose out of the carriage of fishoil in bulk on board the vessel. The charter party between the disponent owner and the charterer incorporated the Hague Rules pursuant to the following wording:

“The Owners in all matters arising under this Contract shall also be entitled to the like privileges and rights and immunities as are contained in Sections 2 and 5 of the Carriage of Goods by Sea Act 1924 and in Article IV of the Schedule thereto…”

The Schedule referred to contains the Hague Rules.

When the vessel arrived at the port of discharge, approximately a quarter of the cargo was found to have suffered damage. The charterer sought to claim its losses from the owner under the charterparty.

The owner accepted liability in principle but sought to limit its liability under Article IV Rule 5 of the Hague Rules, which provides as follows:

“Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding 100l. per package or unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.”

The charterer contended that the owner was not entitled to limit its liability under Article IV Rule 5 because that provision does not apply to bulk cargoes. A bulk cargo could not form a “unit” or “package” pursuant to Article IV Rule 5. It was common ground that “package” could not apply to bulk cargoes but it was unclear whether “unit” could do so. 

The Court was asked to rule on the limitation question as a preliminary issue.

What is unit?

The owner argued that, on its true construction, the charter party demonstrated a clear intention of the parties to apply limitation under the Hague Rules to bulk cargoes because that was the only type of cargo contemplated by the document. 

The Court disagreed. The effect of the incorporation clause in the charter party was to allow the owner the “like privileges, rights and immunities” as are contained in Article IV, where they apply. While the charterparty was expressly for the carriage of a bulk cargo of fishoil in a tanker, the owner could only rely on limitation under Article IV if “unit”, as used in Article IV, applied to bulk cargoes as a matter of construction of the Hague Rules.

The Court then considered what “unit” meant in the context of limitation under the Hague Rules. In doing so, it referred to a number of relevant authorities, commentaries, textbooks and materials relating to the Hague Rules, the Hague-Visby Rules (HVR) and the United States Carriage of Goods by Sea Act (US COGSA).

The Court concluded that a “unit” in this context meant a physical unit for shipment and not a unit of measurement. Among other factors that the Court took into consideration was that “package” and “unit” were used together and in the same context in Article IV Rule 5, suggesting that they both meant physical item or items rather than unit of measurement.

Furthermore, while the wording of the HVR – “goods in an amount exceeding 666.67 units of account per package or unit or two units of account per kilogramme of gross weight …” – differed somewhat from, and could not determine the construction of the Hague Rules, the Court noted that “unit” in the HVR must mean a physical item rather than a freight unit. Otherwise, it would make no sense to refer to the number of packages or units listed in the bill of lading.

The wording of US COGSA – “per package or customary freight unit” – which can apply to bulk cargoes, differed from the Hague Rules and so case law construing that wording was of no assistance in this case.

Having also considered the preparatory notes relating to the drafting and enactment of the Hague Rules, the Court noted that the value of £100 in 1924 was such that it could only have been intended to apply the limitation to small packages of exceptionally high value. The value of a bulk cargo at that time would not have approached anything like the limitation figure.

Importance of limitation

A decision that clarifies a previously uncertain point of law is always welcome. In practical terms, however, this decision may not have a significant impact because the lower value of bulk cargoes generally means that limitation under the Hague Rules would not in any event be relevant.

Ted Graham is a partner at Ince & Co with more than 20 years of experience dealing with shipping and trade disputes as well as general commercial litigation. He can be contacted on +44 (0)20 7481 0010 or ted.graham@incelaw.com. Adam Swierczewski is a commercial dispute resolution associate at Ince & Co, specialising in shipping and international trade. He can be contacted on +44 (0)20 7481 0010 or adam.swierczewski@incelaw.com.