UK: The Rotterdam Rules - An Overview

Last Updated: 21 September 2010
Article by Caroline Brader-Smith

A short history of the evolution of international sea carriage conventions leading up to the advent of the Rotterdam Rules. An explanation of what the new rules will mean for both carriers and cargo interests.

"After the sharpest decline in more than 70 years, world trade is set to rebound in 2010 by growing at 9.5%" according to WTO economists1. This is clearly happy news for a market which has borne recent witness to a global economic crisis which caused the largest contraction in the volume of global trade since World War II.

A recovery at this rate would mean that worldwide levels of trade will soon overtake the heady peaks of 2008. Even during the global recession and correlative slowing of international trade, over eight billion tons of cargo is being transported worldwide annually by sea. 

Transpose the existing volume of shipments and anticipated market growth onto the backdrop of a despondent freight market and an ageing global fleet, and some might say that, in the current climate, the incidence of cargo claims can only increase. 

International Cargo Conventions - Background

Historically, trading counterparties negotiated all commercial terms in bills of lading or equivalent documents and it was left to traders' commercial nous and experience to determine who suffered the loss when a cargo claim arose. However, in the early 20th Century, the growing bargaining strength of cargo carriers meant that bills of lading contained increasing numbers of exclusions of liability, creating a trading environment which was disproportionately biased to the carrier.

To redress this balance, in 1924 the first International Cargo Convention was enacted in the form of the Hague Rules. The Rules set down in clear terms the rights and liabilities of cargo owners and shipowners in relation to the international carriage of goods by sea. Some 50 countries signed up to the Hague Rules, including the USA and UK.

In 1968, the Visby Protocol to the Hague Rules was enacted, to further develop the international cargo liability regime. These "Hague-Visby" Rules remain in force in countries representing two thirds of world trade. Many developed countries became signatories to the Hague-Visby Rules and some of the world's major trading nations incorporated the Rules fully or partly into their national legislation, including China and Canada. 

Yet more amendments were made to the international regime by the introduction of the Hamburg Rules in 1978, an entirely new Convention, drafted by UNCITRAL2, the object of which was to further redress and equalise the balance of rights and obligations between the carrier and cargo owner. However, the Hamburg Rules did not come into force until 1992 and then only 34 countries ratified the Rules. 

There were, then, by 1978, three international cargo regimes, entered into by a large number of the world's biggest trading nations. In addition, a number of other countries had enacted various parts of one or other regime into their national legislation. The resulting patchwork of cargo conventions not only gave rise to inconsistent and overlapping regimes, but also caused a deeply unsatisfactory lack of certainty which strikes at the very heart of commercial contracts. 

Rotterdam - A New Era?

Since 1978, huge changes have taken place in the international shipping and trading arenas, for example the increased volume of containerised cargoes, advancements in information technology and the advent of electronic transactions.

In a dynamic industry which strives for clarity, there was clear need for reform and, in September last year, the 'Rotterdam Rules'3 were opened for signature. The Rules are designed to respond to the needs of the modern industry and to achieve worldwide uniformity in this area of law. But what significance does this latest regime hold for the international grain, feed and general produce trade? 

Impact

If brought into force, the Rules will significantly increase the liability of carriers and will arguably herald a dawn of increased protection for cargo interests. The Rules regulate a larger period of activity than the earlier conventions, from the point the carrier receives the goods to the point of delivery, to include multimodal carriage. Accordingly, the Rules apply 'door-to-door' and have been described as a 'maritime plus' instrument. 

If brought into force, the Rules will increase limits of liability, extend the carriers' obligation to provide a seaworthy vessel to the entire voyage and potentially render carriers liable for the actions of so-called 'maritime performing parties', including sub-carriers, stevedores and terminals. Further, carriers will no longer be able to defend a claim arising from the negligent navigation of the ship, and cargo owners may have a choice of jurisdictions in which to bring a claim. 

The potential increase in liability for carriers will arguably result in more claims being brought against them and higher premiums for P&I cover. This is obviously important news for any trader involved in the international shipment of cargo.   

What Next?

The Rules will enter into force 12 months after ratification4 by at least 20 states. At latest count, 21 countries have signed up to the Rules. The UK Government remains undecided as to whether to sign the Rules and will enter into a full consultation exercise this year. The USA has signed up to the Rules and other major trading nations are considering their positions. 

In the ongoing struggle to balance the interests of cargo owners against the liability of carriers, it remains to be seen whether the Rules will achieve sufficiently widespread acceptance to displace the existing regimes and achieve uniformity of the law. However, the indisputable positive is that the Rules represent a real opportunity to establish a clear, harmonised global regime suitable for the modern maritime transport industry.

This article was first published in GAFTA World in June 2010

Footnotes

1. WTO Press Release/598 dd 26 March 2010

2. United Nations Commission on International Trade Law

3. The UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea

4. NB: ratification, not signature

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.

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