Court of Appeal Judgment on “AQASIA”

Introduction

This was an appeal from an English High Court judgment declaring that the appellant (“Carrier”) was not entitled to limit its liability to the respondent (“Cargo Interests”) for damage to cargo. The Court of Appeal (“CA”) was asked to rule on the meaning of “unit” in Article IV rule 5 of the Hague Rules and, specifically, whether “unit” refers to a physical item of cargo or shipping unit as pleaded by Cargo Interests or is a reference to a unit of measurement as used by the parties to denominate or quantify the cargo in the contract of carriage and is thus capable of applying to bulk or liquid cargo, as contended by the Carrier.

The facts

Our earlier bulletin (Click here) summarises the facts. In short, the dispute arises out of damage to a cargo of fish oil in bulk carried on board the tanker AQASIA pursuant to a charterparty between the Carrier as owner and Cargo Interests as charterers.

The charterparty incorporated Article IV of the Schedule to the 1924 Act which contains the Hague Rules. Article IV rule 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 £100 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 vessel loaded a cargo of 2,056,926 kg of fish oil in bulk at two Icelandic ports. The Master signed a Congen bill of lading acknowledging shipment of the cargo in apparent good order and condition. On arrival at the discharge port(s), 547.309 metric tons of cargo was found to have suffered contamination damage. Cargo Interests claimed damages in the sum of US $367,836. The Carrier accepted liability in principle for the damage but contended that it was entitled to limit its liability to £54,730.90 (i.e. £100 per “unit”, this being a metric ton of cargo damaged) under article IV rule 5 of the Hague Rules. This was contested by the Cargo Interests who pleaded that the word “unit” was intended to mean a physical unpackaged item of cargo and not a unit of measurement so that limitation could not apply to a bulk cargo.

The Appeal

Having lost before the first instance Court (whose judge ruled that there was no entitlement to limit liability for a bulk cargo), the Carrier appealed on two grounds

(1) that the High Court judgment failed to give effect to the clearly expressed intention of the parties to the charterparty that the appellant should be entitled to limit its liability in respect of this bulk cargo pursuant to Article IV rule 5; and

(2) that the Judge erred in concluding that the limitation of liability in Article IV rule 5 of the Hague Rules did not apply to bulk cargo in a number of respects.

The CA was not persuaded by any of the Carrier’s arguments and, on its judgment delivered on 22 February 2018, held that the clear meaning of “unit” is a physical unpacked item of cargo or shipping unit and not a unit of measurement or a freight unit, hence, Article IV rule 5 does not apply to bulk cargo. In arriving at this conclusion the following was considered:

  • The term “package” in the Hague Rules refers to a packaged physical item and the terms “package” and “unit” are used together and in the same context suggesting both terms are concerned with physical items, instead of units of measurement.
  • Article III Rule 3(b) of the Hague Rules refers to “packages or pieces” as opposed to “quantity” or “weight”. The CA held that “unit” was another term for “piece”. These terms referred to physical items of cargo that were incapable of being packaged or were simply not packaged.
  • The CA did not consider that the wide definition of “goods” in Article I of the Hague Rules assists with the interpretation of the term “unit”. The Carrier argued that the wide definition of “goods” indicated that Article IV Rule 5 in turn applied to bulk cargo. The CA did not agree, as there are other provisions in the Hague Rules that do not apply to bulk cargo.
  • If a dual meaning of “unit” is accepted, there is no guidance in the Hague Rules to assist with how it should be applied, for example if the cargo is described in the contract of carriage with reference to both the number of physical items and weight. In this dispute, for example, the cargo was described with reference to metric tons in the charterparty and kilogrammes in the bill of lading. The difficulties in adopting this approach were held to favour the interpretation of “unit” as a physical item of cargo only.

Conclusion

The CA judgment as expected confirms the widely accepted view of the industry that a carrier of bulk cargoes (who can also be the disponent owner of the vessel) cannot limit his liability under the Hague Rules.

Click here to access the full judgment.

Download Court of Appeal Judgment on "AQASIA"