The AQASIA – Hague Rules Package Limitation

 

E‐ Bulletin –November 2016

Re: THE AQASIA1 – English Courts confirm that the Hague Rules package limitation does not apply to bulk cargoes

 

Background

In a judgement handed down on 14 October 2016 the English Courts resolved a 92‐year long debate by deciding that the package limitation in Article IV Rule 5 of the Hague Rules does not apply to bulk cargoes. In other words, it is now settled English law that a carrier of bulk cargoes (who can also be the disponent owner of the vessel, as in this case) cannot limit his liability under the Hague Rules. The decision settled a longstanding debate as to whether the word “nit”in the English version of the Hague Rules is capable of referring to a unit of measurement such as a freight unit or whether a “nit”can only be a physical item or collection of items bundled together for shipment. Having regard to the authorities, the Hague (and Hague‐Visby) Rules travaux préaratoires2, the textbooks and commentaries, the Judge concluded that the word “unit” in the Hague Rules means a physical unit for shipment and not a unit of measurement or customary freight unit3.

Case Summary

The dispute arose out of a damage to cargo of 2,056,936 kgs of fish oil carried under a Congenbill pursuant to a charterparty in the London Form. The charterparty incorporated Article IV of the schedule to the Carriage of Goods by Sea Act 1924. The schedule to the 1924 Act contains the Hague Rules. Notably, the dispute was between the disponent owner, who was not a party to the bill of lading, and the shipper/ voyage charterer of the vessel (and their insurers). It was common ground that it was the charterparty which contains and/or evidences the contract of carriage between the shipper/voyage charterer and the disponent owner.

1 Vinnlustodin HF & another v Sea Tank Shipping AS [2016] EWHC 2514 (Comm) 2“travaux préparatoires” (French for preparatory works) are official documents recording thenegotiations, drafting, and discussions during the process of creating a treaty, statute or other instrument. 3According to US law cited in the Aqasia customary freight unit is defined as “the unit of cargo customarilyused as the basis for the calculation of the freight rate to be charged”

2 The cargo suffered damage due to commingling and on arrival at the disport about 547 metric tonnes of cargo were found to have suffered damage. The claimants claimed damages in the amount of US$ 367,836 which they argued they had suffered in their capacity as the owners of the cargo and/or the party at whose risk the cargo was at the time the damage occurred. The defendant disponent owners accepted in principle that they were liable for the damage to the cargo but argued that they were entitled to limit their liability to the sum of £54,730.90 (i.e. £100 per metric tonnes of cargo damaged) pursuant to Article IV rule 5 of the Hague Rules. The disponent owners contended that each tonne was a unit for the purpose of the Hague Rules.

The High Court decision

The main issue for the Court was whether Article IV rule 5 of the Hague Rules is capable in principle of applying to bulk cargo. Article IV rule 5 of the Hague Rules limits the carrier’s liability to £100 per package or unit. Perhaps surprisingly prior to the Aqasia there had been no English authority directly on the point as to the true meaning of the word “unit”. There were however authoritative decisions in Canada, Australia and New Zealand which had decided that the word “unit” applied to a physical unit of goods and not a unit of measurement. By contrast the US COGSA expressly provides that where cargo is not carried in the form of a package the carrier is entitled to limit liability by reference to the number of customary freight units. The Judge was influenced by the juxtaposition of the words “unit” and “package” in Article IV rule 54. Applying the principle of noscitur a sociis (the principle of construction which holds that the meaning of an unclear word may be known from accompanying words) the Judge thought it compelling that the word “package” could only be something akin to a package namely a shipment unit, a physical item and not a unit of measurement. The Judge was also influenced by the Hague Rules travaux préparatoires which suggested that the word “unit” was a last minute addition designed to apply to high value unpackaged items such as cars, boilers, silk and similar. Limitation for bulk cargoes was deemed unnecessary because of their low value in 1924 (when the Hague Rules were drafted). The Judge pointed out that the value of bulk cargoes at the time would not approach anything like £100 gold per unit of measurement, whether expressed in in kilograms, tons, barrels, hundredweights, bushels or quarters. Having considered in detail the English authorities, commonwealth authorities, textbooks and commentaries as well as travaux préparatoires, the Judge had no 4 Article IV r.5 provides: “… 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 ….”

3 hesitation in concluding that the word “unit” in the Hague Rules can only mean physical unit for shipment and cannot mean a unit of measurement or customary freight unit as in the United States. The Judge having decided that the word “unit” was not apt to apply to bulk cargo went on to say that even if it could apply, the only legitimate application would be by interpreting the word “unit” as a freight unit. In this particular case, this could not be done in a way which would give rise to a lower limitation figure than the claim because of the lump sum nature of the freight.

Comment

The Aqasia is a useful clarification of the English law on package limitation of the Hague Rules5 ‐ a clarification that resolved a debate of nearly a century. The decision is also relevant to the construction of the word “nit”in the Hague Visby Rules as it is now clear that only the weight limit in the Hague‐Visby Rules is applicable to bulk cargoes. The decision is also a reminder to charterers that even if they are not the contractual carrier under the bill of lading they may still be liable as disponent owners for a cargo claim under their voyage charter in certain circumstances, for example, when the cargo interests are also the voyage charterers and choose to bring their claim pursuant to the charterparty and not, as it is customary, the bill of lading. Assureds are invited to contact the claims department in London or Shanghai if theyhave any queries concerning this Bulletin.

 

5 By way of reminder, the Hague Rules will impact any charterparty and bill of lading that expressly incorporates them or includes a Clause Paramount that incorporates the 1924 Convention or where the Rules apply compulsorily at a material jurisdiction or a foreign version of the Hague Rules is compulsorily applicable.

92‐year long debate by deciding that the package limitation in Article IV Rule 5 of the Hague Rules does not apply to bulk cargoes. In other words, it is now settled English law that a carrier of bulk cargoes (who can also be the disponent owner of the vessel, as in this case) cannot limit his liability under the Hague Rules.

Read Simonie Dimitrellou’s bulletin: The Aqasia – Hague Rules Package Limitation (pdf)