Package Limitation vis-à-vis Bulk Cargoes

7 July 2017   |   Cargo Claims

The Commercial Court of England and Wales rendered an important judgment wherein it considered whether package limitation under the Hague Rules applies to bulk cargoes. The Court held that it did not. 

 

The facts

The dispute arose out of damage to a cargo of fishoil that was carried on board the tanker "AQASIA" pursuant to a charterparty. The relevant charterparty between the tanker’s owner and the charterer provided that:

"… 26. – 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 …"

By clause 26, the Charterparty thus 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. 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 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 limitation issue gave rise to one principal question: "Is Article IV rule 5 of the Hague Rules capable in principle of applying to bulk cargo?"  

 

The Commercial Court decision

Article IV

The owner argued that, when read as a whole as a contractual term in the charterparty, Article IV was clearly intended by the parties to apply to a bulk cargo because there was no other type of cargo in prospect. The effect of the owner’s submission was that all of Article IV had to apply to the cargo carried under the charterparty in order to give meaning to the parties’ agreement that the defendant had the privileges, rights and immunities afforded by Article IV.

But the Court rejected the owner’s submission. The Court admitted that the charterparty was expressly a charter for the carriage of a bulk cargo of fishoil in a tanker. Hence, the owner was entitled to rely on limitation under Article IV only if the word "unit", as used in Article IV, also applied to bulk cargoes as a matter of construction of the Rules. But the word "unit" could not change its meaning just because of the nature of the contract of carriage (charterparty).

“Unit” in the context of the Rules

The Court also considered the meaning of the word “unit” within the context of the Rules’ limitation of liability. The Court therefore looked into the relevant English and commonwealth authorities, travaux préparatoires of the Rules, the textbooks and commentaries. 

The Court concluded that the word "unit" in Article IV Rule 5 of the Hague Rules was not apt to apply to bulk cargoes and that even if it could apply, the only legitimate application would be by way of interpreting the word "unit" as a "freight unit".

But since, on the true construction, the word "unit" in the Hague Rules could only mean a physical unit for shipment and could not mean a unit of measurement or customary freight unit (as is the case in the United States), Court held in favour of the claimant (charterer)

The Court also held that the terms of the Hague-Visby Rules could not affect the construction of the Hague Rules and the use of the word “unit” in Article IV Rule 5 of the latter. And Article IV rule 5(c) also strongly suggested that the draftsmen of the Hague-Visby Rules considered that a "unit" constituted a physical item rather than a freight unit.

"… 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 …"

The word "unit" in the phrase "packages or units" must signify a physical item of cargo: otherwise, it would be meaningless to speak of the "the number of packages or units enumerated in the bill of lading as packed in such article of transport".

 

Comment 

This is the first English court’s decision on this question. And, considering the judge’s clear and unequivocal decision, it is extremely unlikely that the carriers will try to use Article IV Rule 5 again in order to limit their liability for bulk cargoes.

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