Law Of The Carriage Of Goods By Sea (PART 14)

Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series, the basis and elements of the Law Of The Carriage Of Goods By Sea will be explored.

Hague-Visby Rules I –Contracts To Which The Rules Apply

1. Contract Of Carriage ‘Covered By A Bill Of Lading’

   The great case of Pyrene v Scindia raised the question of the scope of the Rules in acute form. A fire tender sold FOB (‘free on board’) was being loaded by the ship’s tackle on to the ship nominated by the buyers, but it was dropped and damaged before it had crossed the ship’s rail. No bill of lading was issued.
   The carriers sought to limit their liability under the 1924 Hague Rules, the relevant provisions being the same as in the Hague-Visby Rules. The correctness of Devlin J’s decision as follows has never been doubted:

   1. The Rules did not require the issue of a bill of lading.
   2. The contract was ‘covered by’ a bill of lading if, when making the contract of carriage, the parties intended that a bill of lading would be issued in due course. (Whether ‘covered by’ is an accurate translation of the French text – the only authentic text of the 1924 Hague Rules – need not concern us.)

   It is not clear what documents might fall under the description of ‘similar’ documents of title. In Kum v Wah Tat Bank, the Privy Council held that mates’ receipts that were used in the local trade as equivalent to bills of lading were not documents of title because they were marked ‘not negotiable’.

   However, the House of Lords has now held, in The Rafaela S, that straight bills of lading do fall within the Rules. In the light of this decision it would seem that a document which must be produced in order to obtain delivery, even if not a bill of lading, is at any rate a similar document of title. The fact that it is not negotiable in the way that an order bill is should not affect this conclusion.

   The decisions in The Rafaela S and Pyrene v Scindia also make clear that, in order for the Rules to apply, the bill of lading or a similar document of title need not be actually issued. Mere contemplation of issuance of a bill of lading or a similar document of title in relation to shipment of a cargo is sufficient to trigger application. See also the Court of Appeal decision in Kyokuyo Co Ltd v AP Moller-Maersk.

   Pursuant to section 1(6)(b) of COGSA 71, the Rules can also apply to a consignment note mandatorily if the note expressly provides that ‘the Rules are to govern the contract as if the receipt were a bill of lading and if the consignment is marked as “non-negotiable”’ (see The European Enterprise).

   Application of the Hamburg Rules is not made conditional upon issuance, or contemplation of issuance, of a transport document (see Art. 1(6) of the Hamburg Rules). This principle is also adopted by the Rotterdam Rules (see Art. 1(1) of the Rotterdam Rules).

   In all these sets of rules (namely the Hague, Hague-Visby, Hamburg and Rotterdam Rules), charter parties are expressly excluded from the scope of application. The Rotterdam Rules also introduce what is called ‘the volume contract exception’, whereby carriers in a volume contract can effectively contract out of their liabilities in the Rotterdam Rules to a permitted degree provided that they observe a number of formal requirements spelled out in Art. 80 of those rules. Under the same article, it is also provided that carriers are not allowed to derogate from ‘super-mandatory’ provisions in the Rotterdam Rules.

   Next, we turn to Art. X, which provides that the carriage must be between ports in different states (but COGSA 71, section 1(3) makes the Rules applicable to British coastal shipping if the contract is covered by a bill of lading), and requires either that the bill of lading is issued in a contracting state (Art. X(a)) or that the carriage is from a port in a contracting state (Art. X(b)) or that the contract provides ‘that these Rules or legislation of any State giving effect to them are to govern the contract’ (Art. X(c)).

   It was held in The Komninos S that a clause stating that all disputes were ‘to be referred to the British Courts’ was not sufficient to satisfy Art. X(c).
   The geographical scope of application of the Hamburg Rules is provided in Art. 2(1) of the rules. Unlike the Hague-Visby Rules, the Hamburg Rules also apply:

   1. where the port of discharge as provided for in the contract of carriage by sea is located in a contracting state; or
   2. where one of the optional ports of discharge provided for in the contract of carriage by sea is the actual port of discharge and such port is located in a contracting state.

   Unlike the Hague, Hague-Visby and Hamburg Rules, application of the Rotterdam Rules is not confined to contracts of carriage of goods exclusively by sea. The rules apply to contracts that may, in addition to sea carriage, provide for other modes of transport. For the geographical scope of application of the Rotterdam Rules, see Art. 5(1) of the rules.

   1. Excluded Cases
      The application of the Rules is excluded in certain cases by the operation of Art. I(c), which provides that ‘goods’ do not include live animals and ‘cargo which by the contract of carriage is stated as being carried on deck and is so carried’. Deck cargo must be described as such in the bill of lading: a liberty to carry on deck is not sufficient, since a transferee would not know from the bill of lading itself whether the Rules applied or not (Svenska Traktor v Maritime Agencies). See also the decision in Sideridraulic Systems SpA and Anor v BBC Chartering & Logistics, where the clause that read ‘All cargo [is] carried on deck at shipper’s/charterer’s/receiver’s risk as to perils inherent in such carriage’ was not interpreted as a liberty to deviate clause.
      Unauthorised deck carriage is a serious breach by the carrier, but it can no longer be argued that it is so fundamental that the carrier loses the protection of the time limit on claims and the financial limitation on liability.
      Pursuant to section 1(7) of COGSA 71, if a bill of lading is issued for goods that come under Art. I(c), such a bill of lading will be governed by the Hague-Visby Rules mandatorily if it expressly provides that the Rules shall govern the contract.
      Carriage of live animals is not excluded from the scope of application of the Rotterdam Rules, although contractual exclusion of liability for such carriage is permitted by the rules (see Art. 81) provided that such exclusion does not offend ‘the super-mandatory’ provisions spelled out in Art. 80 of the rules.
      Under Art. 81, there are also further qualifications to the carrier’s liberty to exclude its liability in the case of carriage of live animals.
      The carrier’s liability for carriage of live animals is also not left outside the scope of the Hamburg Rules. However, these rules provide that, in relation to carriage of live animals, the carriers are not liable for loss, damage or delay that result from any special risks inherent in that kind of carriage (see Art. 5.5). Deck carriage is not excluded from the scope of the Hamburg Rules and the Rotterdam Rules (see Art. 9 of the Hamburg Rules and Art. 25 of the Rotterdam Rules).

2. Problem Of Contracting Out

   When the Rules apply to a contract by the operation of Art. I and Art. X, any term of the agreement that removes or lessens the carrier’s liability more than the Rules allow is void (Art. III, r.8). Thus, in The Hollandia, a choice of forum clause (in favour of Dutch courts) was held to be ineffective. The reasoning of the court was that upholding the forum selection clause would result in carriers being subject to a lower amount of limitation than that provided under the Hague-Visby Rules. Hence, the court refused to stay the action on the grounds that the Netherlands was a Hague State and that the Dutch courts would give cargo interests a significantly lower amount for damages than English courts.
   Where the courts of a European Union member state are designated in a forum selection clause contained in a bill of lading, the decision in The Hollandia does not apply. The enforcement of such a forum selection clause is decided by reference to Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast). However, the decision is in any case based on the proposition that Art. X of the Hague-Visby Rules (scheduled to COGSA 71) applies irrespective of the governing law of the bill of lading.
   Article III, r.8 was also applied in The Starsin to prevent the owners from obtaining greater protection under a Himalaya clause than they would have enjoyed under the Rules directly.
   Article III, r.8 does not, however, answer the question of principle:
   can a carrier avoid the application of the Rules by not issuing bills of lading? If the transaction is one in which a bill of lading has no sensible commercial role, the answer is surely yes (Harland & Wolff v Burns & Laird). What is the position if the transaction could have been covered by a bill of lading, but the shipper chose not to use a bill of lading? (The European Enterprise, and s.1(4) of COGSA 71).Art. VI permits the parties to contract out of the Rules, except in the case of ‘ordinary commercial shipments in the ordinary course of trade’, provided a non-negotiable receipt is used instead of a bill of lading and the circumstances of the shipment reasonably justify a special agreement.
   Although the implication is that contracting out is not possible for ‘ordinary’ commercial shipments, the problem remains that even an ordinary commercial shipment that is not covered by a bill of lading or similar document of title does not satisfy Art. I(b) and falls outside the Rules completely.
   Both the Rotterdam Rules and the Hamburg Rules contain a non-derogation clause similar to Art. III(8) of the Hague-Visby Rules (see Art.23 of the Hamburg Rules and Art. 79 of the Rotterdam Rules). The non-derogation provision in the Rotterdam Rules (Art. 79) brings novelty in that it affords minimum and mandatory protection in favour of both carriers and shippers.

3. Incorporation Of The Hague-Visby Rules Into Other Documents

   COGSA 71, section1(6)(b) gives the force of law to the Hague-Visby Rules in relation to a non-negotiable receipt, marked as such, if the contract contained in or evidenced by the receipt ‘expressly provides that the Rules shall govern the contract as if the receipt were a bill of lading’.
   Interpretation of this requirement gave rise to an interesting and instructive divergence of views in The Vechscroon and The European Enterprise (the views of Steyn J in The European Enterprise are usually preferred).
   It is implicit in Art. I(b) and Art. X that the Rules do not apply to charter parties. Article V states this expressly. (The Rules do apply to bills of lading issued under charter parties: Art. I(b) and Art. V.)It is nevertheless extremely common for the Rules, or the 1924 Hague Rules, to be incorporated – as a matter of contract – into charter parties (e.g. NYPE 93, clause 31(a) ‘clause paramount’). When incorporated into a charter party the Rules (especially Art. III(8)) do not have an overriding effect: all the provisions therein are treated just as any other contract provision. Hence, the question of whether an express charter party provision can prevail over an inconsistent provision in the incorporated Hague-Visby Rules will be decided by contract construction. Following the same line of thinking, Rix J in The Stolt Sydness held that a paramount clause seeking to incorporate the US Carriage of Goods by Sea Act 1936 into a charter party does not make the US law the governing law of that charter party. He held that the charter party was governed by English law, as the charter party expressly provided for London arbitration and English law. Hence, the provisions in the US Carriage of Goods by Sea Act 1936 were considered to be just as any other contract provisions, and were interpreted pursuant to English law.
   The need for flexibility in interpreting the incorporated provisions is well illustrated by Adamastos v Anglo-Saxon Petroleum, where restrictions on the operation of the incorporated US statute were not carried over into the charter party: the parties intended to incorporate the same standard of obligation, liability, right and immunity as under the Rules, not the precise words. However, different considerations arise on the interpretation of Art. I(c) of the Hague-Visby Rules (the deck carriage exception) in the context of charter parties. In The Socol 3, the vessel was time-chartered on a NYPE form. The charter party incorporated the Hague-Visby Rules and provided an exclusion of liability clause in the case of deck carriage. When a cargo that was carried on deck was damaged, the question arose as to whether the
   Hague-Visby Rules applied to such carriage, and if so whether the exclusion of liability clause was struck down by Art. III(8) of the Rules.The cargo was covered by a bill of lading that contained an ‘on-deck statement’. The Court held that the Rules did not apply to the carriage of the deck cargo. When written out in the charter party Art. 1(c) required the bills of lading rather than the charter party to contain the on-deck statement.
   Where a time charter that incorporates the Rules puts responsibility for loading, stowing and trimming the cargo on the charterer (as in NYPE 93, clause 8(a)), this will be effective as between the charterer and owner even if the cargo is stowed in a manner that renders the ship unseaworthy, notwithstanding Art. III, r.1 and Art. III, r.8 (Compania Sud American Vapores v MS ER Hamburg Schiffahrtsgesellschaft mbH &Co KG, which followed the decision in The Imvros).However, Lord Steyn in The Jordan II took the opposite view, when his Lordship said:
   It is obvious that the obligation to make the ship seaworthy under Art. III(1) is a fundamental obligation which the owner cannot transfer to another.
   In The Valle Di Cordoba, the voyage charter party incorporated the exceptions under the Hague-Visby Rules. In the charter party, there was also an ‘in-transit loss clause’, which provided that:

   In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.5% and Charterers shall have the right to claim an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port.

   While en route to Lagos, armed pirates took control of the vessel and transferred some of the cargo from the vessel to an unknown lightering vessel. The charterers brought a claim against the owners under the ‘in-transit loss clause’. The charterers’ claim failed on the grounds that the clause was held to cover only losses that were incidental to the carriage of cargo and that the Hague-Visby Rules would in any case exempt the owners from liability for loss of cargo as a result of piracy.

   In a recent decision in The Aqasia, Cooke J considered the effect of Art.IV, r.5 of the Hague Rules incorporated into a voyage charter party.

   Article IV, r.5 of the Hague Rules provides that ‘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 pounds sterling per package or unit…’ (emphasis added). This wording is different from that contained in Art. IV, r.5 of the Hague-Visby Rules, which alternatively provides for a limitation unit based on the weight of the cargo lost or damaged. In this case, the cargo shipped was a bulk cargo.

   Consequently, Cooke J refused to hold that the word ‘unit’ under Art. IV, r.5 of the Hague Rules was capable of applying to bulk cargoes on the ground that the rule only referred to a physical unit for shipment.

   In order to calculate the carrier’s limited liability in the case of a containerised cargo, the Hague-Visby Rules Art.IV r.5(c) provides that:

   ‘Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as these packages or units are concerned. Except as aforesaid such article of transport shall be considered the package or unit’. In Kyokuyo Co Ltd v AP Moller-Maersk, the Court of Appeal held that there is no need for bills of lading to specify how the packages and units had been packed in the container and that ‘enumeration’ meant no more than specification in words or figures the number of packages or units.

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This article is written by our Principal Associate, Chakaravarthi