Australia: Meaning Of ´Goods Lost Or Damaged´

Last Updated: 19 August 2008
Article by Gemma Stabler

The decision in England in Serena Navigation Ltd v Dera Commercial Establishment [2008] EWHC 1036 (Comm) considered the interpretation of Article IV Rule 5(a) of the Hague-Visby Rules. Article IV Rule 5(a) limits carriers' liability for damage to goods carried. This decision is important as the interpretation of Article IV Rule 5(a) has a significant influence on the amount that may be recovered against a carrier for goods damaged during carriage by sea.

Article IV Rule 5(a) provides that:

'Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 [Special Drawing Rights] per package or unit or 2 [Special Drawing Rights] per kilogram of gross weight of the goods lost or damaged, whichever is the higher.'

Through the Carriage of Goods by Sea Act 1991 (Cth) (COGSA), Australia has adopted an amended version of the Hague-Visby Rules. However, other than the substitution of the words 'sea carriage document' for 'bill of lading', Article IV Rule 5(a) is unmodified by COGSA.


Dera Commercial Establishment was the cargo owner under a bill of lading for a shipment of corn. Serena Navigation Ltd was the owner/carrier. The shipment was from Louisiana, USA to Aqaba, a coastal town in southern Jordan. The bill of lading incorporated the Hague-Visby Rules.

During the voyage some wetting damage to the corn occurred. This occurred primarily in holds 2 and 3 but also to a limited in extent in holds 5 and 8. The quantity of wet cargo was said to be 7 or 12 tonnes and this cargo was separated from the rest of the cargo and disposed of. It was also alleged that in addition to the loss sustained by the segregation and disposal of the wet corn, some wet kernels were not separated and were discharged along with apparently sound cargo. In addition, it was alleged that up to 250 tonnes of corn in holds 2 and 3 had to be discharged by bulldozers, increasing the number of broken kernels.

It was a condition of discharge in Aqaba that the whole of the cargo in holds 2 and 3 was fumigated, treated with chemicals and transferred to pre-fumigated and disinfected silos. To carry out the fumigation and treatment, the cargo had to be moved which also increased the number of broken kernels. This caused the cargo to acquire a reputation in the market as distressed, depressing its market value.

The cargo owner claimed against the carrier US$1,742.20 being the market value of the cargo disposed of (12 tonnes) plus US$1.55million for the losses and expenses it incurred for the fumigation, segregation and silo storage of the remaining corn.

Opposing arguments on the interpretation of Article IV Rule 5(a)

The carrier argued that the limit of its liability under Article IV Rule 5(a) was to be calculated by reference to the gross weight of the goods actually damaged. The carrier's argument was that 'goods lost or damaged' means those goods physically lost or damaged.

The carrier argued that Article IV Rule 5(a) should be interpreted so that the limit on liability is established by reference to the gross weight of the goods lost or damaged as at the delivery date. The carrier also argued that although liability for subsequent economic loss may continue following delivery, the carrier's liability for that economic loss will be subject to the limit already established by reference to the gross weight of the goods lost or damaged as at the delivery date.

As the weight of the goods actually damaged was either 7 tonnes or 12 tonnes (with the cargo owner arguing for an additional 250 tonnes) the carrier's argument was that its liability was limited to either 14,000 SDR (2 SDR x 7 tonnes); 24,000 SDR (2 SDR x 12 tonnes) or 52,400 SDR (2 SDR x 12 tonnes + 250 tonnes).

The cargo owner argued that the limit provided for by Article IV Rule 5(a) was to be calculated on the whole cargo (43,999.86 tonnes). That basis of calculation gave a limit which more than covered the cargo owner's claim.

In support of its argument the cargo owner argued that 'lost or damaged' should be interpreted under the presumption of consistency with other parts of the Hague-Visby Rules. The cargo owner pointed to the words 'loss or damage' that appear in Articles III Rules 6 and 8 and Article IV Rule 1, all of which include economic loss and damage. The cargo owner also argued that the words 'lost or damaged' must be construed consistently within Article IV Rule 5(a), which includes reference to 'any loss or damage to or in connection with the goods'.

The cargo owner argued that it flouted business common sense to prescribe a limit by reference to what may in some circumstances be a small amount of physical damage, but which led to a large economic loss.

The Court's decision

Justice Burton of the Commercial Court of the Queen's Bench Division of the High Court of Justice, reviewed a number of decisions and other International Conventions looking for assistance in interpreting Article IV Rule 5(a). His Honour noted that there was no previous decision on point and ultimately considered that the contents of other Rules and Conventions were of no materiality to the question before him.

Ultimately the Court decided that it was not persuaded by the cargo owner's argument that the words 'lost or damaged goods' should be construed the same way as 'loss or damage'. The Court considered that the words 'lost or damaged goods' means two categories of goods, those that are lost in the sense of gone or destroyed, and goods that are damaged in the sense of not being lost but surviving in damaged form.

The Court preferred the carrier's argument that the test for when and whether goods are damaged is at the time of discharge/delivery of the goods. His Honour commented that he did not consider that the fact the value of the undamaged cargo had been depressed meant that those goods had been 'economically damaged'. On that basis he rejected the cargo owner's argument that its claim for consequential loss was a claim for 'economically damaged' goods.

Justice Burton found that all of the loss and damage that was incurred after discharge was 'loss or damage in connection with the goods' within the meaning of the first part of Article IV Rule 5(a). However, His Honour said that the 'goods' in question were those goods that were damaged while in the carrier's custody and that in those circumstances, the reference to 'goods lost or damaged' in the last part of Article IV Rule 5(a) is a reference to those same goods.

On this basis Justice Burton held that what is permitted by Article IV Rule 5(a) is a claim for lost or damaged goods and a claim for loss or damage in connection with those lost or damaged goods, but that the weight of those lost or damaged goods is taken as the limit of liability.

Although Justice Burton conceded that there are anomalies arising from the construction and effect given, he did not consider that these were such as to flout business common sense. A justification for this reasoning appeared to be his view that claims for economic loss without physical loss would be infrequent. His Honour did not agree with the cargo owner that it was contrary to commercial good sense to have an entitlement to claim for economic loss that is limited by reference to the weight of the physical damage caused while the goods were in the custody of the carrier.


While this decision brings certainty to the interpretation of Article IV Rule 5(a), the certainty it brings is likely be cold comfort to cargo owners. Although it may be the case that claims for economic loss without physical loss will be infrequent, this decision does not bode well for cargo owners facing a similar situation.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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