UK: When Is A Package Not A Package? The Shipowner

Last Updated: 4 March 1998
As almost anyone involved in the shipping industry knows, in 1924 the Hague Rules, in the form of the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading was signed at Brussels. Those Rules, in substantially the same form, were given statutory force in the United Kingdom as the Carriage of Goods by Sea Act 1924. That Act, of course, has been superseded by the Act of 1971, enacting the Hague Visby Rules, being the Hague Rules of 1924 as amended by a Protocol signed in 1968. Many countries, notably the United States, did not enact the revised rules and, accordingly, in those jurisdictions the 1924 Rules continue to have the force of law.

The Convention was a result of the increasing need, in the early years of the 20th century, for standardisation of Bills of Lading, given the increasing volume of international trade, by then largely conducted on the basis of negotiated bills, and the increasing ingenuity of shipowners to afford protection to themselves and their insurers against liability for cargo loss and damage sustained during the ocean voyage. One of the fundamental principles introduced by the Rules was the concept of limited liability. Article IV, Rule 5 limited the shipowners' liability in most case to £100 "per package or unit". By Article III, Rule 8, any clause agreeing a lower limit of liability is void.

Given the huge volume of English settled case law concerned with shipping disputes, and given the prominence of the Hague Rules in the 70 years since the Convention was signed, it is very surprising that until July 1997 there existed no English law authority as to what constitutes a "package" for the purposes of calculating the shipowners'' limit of liability where the goods the subject of the claim are stowed in a container.

In the case of the "RIVER GURARA", in July 1997, the English Court of Appeal had to consider the meaning of a "package or unit" under Article IV, Rule 5 of the Hague Rules in the circumstances of a total loss of cargo. The Bills of Lading described the cargo said by the shippers to be within the containers as a given number of "bales", "parcels", "bags", "bundles", "crates", "cartons", or "pallets". The case fell to be considered under the terms of the 1924 Convention because the law applicable at the port of shipment incorporated the Hague Rules in their unamended form.

The Court was therefore required to consider not only whether the container was properly treated as the "package or unit" for the purposes of the Rules but, if the answer to that question was no, whether the package or unit was the number of, say, crates or pallets stowed in the container, or any smaller category of goods or packing units described on the Bill of Lading.

The Court of Appeal analysed at some length the large body of US case law on this issue. The US decisions are concerned with construing what is written on the face of the Bill of Lading, treating that document as representing an agreement between the parties. The Court clearly felt uncomfortable with that approach. Lord Justice Phillips, in a careful analysis of the law, established that it is far from invariably the case that statements contained in the Bill of Lading describing the cargo loaded amount to a binding agreement between the parties as to the identity and quantity of the cargo. In many cases, particularly where the cargo is stuffed in containers, the Bill of Lading is no more than prima facie evidence of the quantity loaded. The Court also found that it would be wrong to give precedence over the natural meaning of the Rules themselves to any agreement between the parties (whether in the Bill of Lading or elsewhere) as to what constituted a "package". The Court felt that to allow shipowners to reach agreement in those terms, particularly in the Bill of Lading, would effectively negate the scheme of liabilities contained in the Hague Rules. This approach was, therefore, rejected because to adopt it would allow the parties (particularly the shipowner) to avoid one of the fundamental purposes of the Rules by carefully selecting the meaning of the word "package".

The Court found, however, that the limit of the shipowner's liability should be calculated by reference to the number of units recorded in the Bill of Lading as stowed within the containers loaded. Where the Bill indicates that more than one unit of packing has been used (for example, bundles on pallets) then it is the smallest category of packaging unit which forms the basis for the calculation of the limit of the shipowners' liability. Consistent with this approach, Lord Justice Phillips found that if the cargo claim is proved or disproved by reference to material extrinsic to the Bill of Lading, then the limit of liability must be calculated by reference to that extrinsic evidence. He suggested that if on such a calculation the shipowners' liability is greater than according to the calculation performed by reference to the goods as described in the Bill of Lading, it is likely that the shipowner would have a claim for breach of warranty against the shipper.

Thus, the Court of Appeal found that the basis for the calculation of the limit of liability is the number of cartons, bundles or other small units contained in the Bill of Lading where their existence and number is established either by the prima facie evidence created by the Bill of Lading itself, or by other extrinsic information. Lord Justice Phillips accepted the somewhat unsatisfactory nature of any calculation performed by reference to extrinsic evidence but pointed out that in the vast majority of cases both parties are prepared to accept the evidential status of the Bill of Lading for the purposes of calculating the limit of liability. As a result of the very detailed analysis of the effect and status of the description of the goods as contained in the Bill of Lading, the Court also considered the effect of the commonly used qualification statements "weight, number and quantity unknown" and "said to contain". The effect of the first phrase, in the case of goods stowed in a container, is to negate any evidential status of the Bill of Lading so that the claimant must prove by other evidence the shipment of goods of which loss or damage is claimed, including the number of packages. The Court did not, however, make the same finding in relation to the phrase "said to contain". It held that this indicates an acceptance on behalf of the shipowner of the details provided to him by the shipper and as anticipated by the Hague Rules, Article III, Rule 3, which requires the issue of a Bill of Lading showing "the number of packages or furnished in writing by the shipper".

That the Court had to consider this question at all in 1997 is to a degree surprising, given that one of the reasons for the modification of the 1924 Rules by the 1968 Protocol was to reflect the increasing trend towards containerised shipments. Accordingly, the 1971 Act contains, at Article III, Rule 5(c), specific wording making it clear that a container is treated as a "package or unit" for the purposes of limitation of liability only where the Bill of Lading does not show the number of packages or units within the container. Nevertheless, the 1924 Rules in their unamended form continue to have legislative force in many countries.

The Court of Appeal's decision makes it clear that the precise provisions of the Rules continue to have relevance today. In practical terms, moreover, there is a clear lesson for shipowners. In shipments where the 1924 Rules apply and where a shipowner has no reasonable means of checking the shipper's information as to the contents of a container and where there may be some reason for doubt or uncertainty as to those contents, it is prudent for the Bill of Lading to be endorsed "weight, number and quantity unknown". That endorsement shifts to the shipper the burden of proving what was shipped both for the purposes of the claim and for the calculation of the limit of liability. In the absence of such evidence, the shipowner will be entitled to limit his liability by reference to the number of containers. It is now clear, however, that use of the phrase "said to contain" has a much lesser effect. Shipowners should, therefore, be aware that Bills of Lading claused in this way will result in their limit of l ability being calculated by reference to the number of packages revealed by the Bill of Lading to be stowed within the container and not the number of containers carried.

This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

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