UK: Setting New Rules

Originally published in the November 2009 issue of Port Strategy

The Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, or the Rotterdam Rules as it is more commonly known (the "Convention"), promises not only to transform the legal environment for shippers and carriers but also to subject terminal operators to an onerous compulsory liability regime.

The signing ceremony which took place in Rotterdam on September 23, 2009 saw 16 United Nations Member States sign up to the Convention, which will enter into force twelve months after twenty states ratify it.

In bringing a balance between the interests of shippers and carriers, the Convention will have a far broader application and, if the criteria are met, will also apply to stevedoring services and terminal storage services. This overcomes present difficulties faced by cargo interests and freight forwarders in bringing direct claims against terminal operators and feeder service providers.

When loss occurs during the period of the carrier's responsibility before loading or after discharge from a ship, the Convention will not apply over those of another international convention that cannot be departed from by contract either at all or to the detriment of the shipper under that instrument.

This may cause problems in practice as a frequent problem with multimodal carriage is identifying when and where the goods were damaged. If the damage or loss occurred at several different stages of the carriage or was progressive, then the parties are bound to end up arguing over which convention applies. However, there is no international convention governing the liability of terminal operators.

The Convention will apply to contracts of carriage where the place of receipt and delivery are in different countries and the port of loading and discharge are in different countries if any one of either the place of receipt, port of loading, port of discharge or place of delivery is located in a contracting state. It will therefore not only apply to the sea legs of door-to-door container and roro movements from or to a contracting state but also to carriage by other modes provided that no competing international convention applies.

This therefore provides a single liability regime and removes the ability of carriers to take advantage of a system of network liability, providing for a different basis of liability depending upon the stage during which the loss or damage occurred and that shifts the liability away from the carrier in the case of a claim. The Convention is not generally applicable to "non-liner transportation" (as defined) although there are some exceptions to this.

The concept of "maritime performing party" is introduced by the Convention. This is a person other than the carrier that performs any of the carrier's obligations under a contract of carriage, directly or indirectly at the carrier's request or under the carrier's supervision or control during the period between the arrival of the goods at the port of loading (gate in or discharge from inland water carriage) and their departure from the port of discharge (gate out or loading to inland water carriage). Terminal operators therefore fulfil the criteria of a maritime performing party.

A maritime performing party shall be subject to the obligations and liabilities applied to the carrier under the Convention and is entitled to the same defences and limits of liability under certain circumstances. These are that the maritime performing party received the goods for carriage in a contracting state, delivered them in a contracting state or performed its activities with respect to the goods in a port in a contracting state and the event that caused the loss, damage or delay took place during the period between the arrival of the goods at the port of loading and their departure from the port of discharge; while in the custody of the maritime performing party or at any other time to the extent that it was participating in the performance of the activities contemplated by the contract of carriage.

The Convention allows the carrier to increase its limits of liability in favour of shippers although a maritime performing party would not be bound by these higher limits, or other obligations assumed by the carrier in addition to those considered in the Convention, unless it had expressly agreed to accept such. Although a maritime performing party may assume liability under the Convention, the carrier remains liable also and their liability is joint and several, although only up to the limits provided under the Convention.

The days of terminals relying on their own standard conditions (further to the doctrine of "bailment on terms") or excluding liability altogether (further to the carrier's Himalaya clause) are probably numbered. Whether terminal operators will be able to negotiate indemnities from carriers to compensate for any liability in excess of their current terms and conditions remains to be seen.

Thankfully, the Convention expressly retains any rights of retention which either the carrier or a performing party may have pursuant to the contract of carriage or applicable law to retain goods to secure payment of sums due. Therefore contractual liens are still permitted which extend common law liens to retain possession of assets pending payment of debts in relation to them to allow for possible rights to sell those assets.

The jurisdiction provisions in the Convention are particularly cargo friendly and allow the shipper to commence actions against a maritime performing party in a competent court with the jurisdiction of the domicile of the maritime performing party, the port where the goods are received by the maritime performing party, the port where the goods are delivered by the maritime performing party or the port in which the maritime performing party performs its activities with respect to the goods. However, the adoption of the jurisdiction provisions by contracting states is optional.

The Convention introduces a new concept of a "volume contract". This is defi ned as a contract of carriage providing for carriage of a specified quality (a minimum, a maximum or a certain range) of goods in a series of shipments during an agreed period of time. A volume contract gives the carrier and the shipper almost complete freedom of contract in relation to negotiating the contract of carriage, subject to certain protections for shippers. The terms of any volume contract which derogate from the Convention would apply not only between the carrier and the shipper but would extend to maritime performing parties and others provided that they received information stating that the volume contract derogated from the Convention and expressly gave their consent to be bound by such.

Terminal operators partially price their services by reference to the risks involved in providing their services; and many operators minimise risk by adopting terminal friendly liability regimes which protect claims' records and minimise liability insurance spend. For many terminals, the Convention will therefore mean accepting greater risk and the probability of higher insurance spend.

Terminal operators should start thinking about the impact that the Convention will have on their portfolio of contracts with carriers and cargo interests. Will their risk profile increase or are the majority of their services already customer friendly? They should also ask carrier customers for their own assessments of the impact that the Convention will have on cargo clams.

Terminal insurers need to think about the impact that the Convention might have on pricing risk and they should open early dialogues with brokers and assureds to identify value adding solutions (risk management, revised deductibles, etc.) to avoid deteriorating claims records and/or potential hikes in insurance spend.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.