UK: Package Or Unit Limitation Under The Hague-Visby Rules

Last Updated: 19 April 2018
Article by Simon Culhane

Most Read Contributor in UK, November 2018

In the "Maersk Tangier" [2018] EWCA Civ 778, the Court of Appeal has issued a leading judgment (upholding the decision of the Commercial Court) determining for the first time under English law what constitutes a 'unit' for the purposes of limitation under Article IV Rule 5 of the Hague Rules and the Hague-Visby Rules. The decision also provides important guidance on whether the Hague-Visby Rules can be compulsorily applicable even though the carrier issued a sea waybill rather than a bill of lading. Clyde & Co represented the successful Respondents in the case.

Facts

The Appellant agreed to carry the Respondent's cargo of deep frozen tuna, comprising 1,226 unpackaged pieces of tuna loin weighing between about 20kg and 75kg each, stuffed into 3 of the Appellant's 'super freezer' containers. The tuna pieces were not wrapped or individually packed before being loaded onto the containers.

It was common ground that the three containers were received by the Appellant pursuant to a contract or contracts of carriage containing an implied term that the shippers were entitled to demand that a bill or bills of lading be issued by the Appellant.

As a result of errors in transhipment, delivery of the 3 containers was delayed and although it was initially envisaged that a bill of lading would be issued, instead, in order to avoid any further delay the parties subsequently agreed to the issue of 3 sea waybills, one for each of the 3 containers and each of which identified the Respondent as consignee. The cargo was described in the same way in each sea waybill, for example, as follows:

1 Container Said to Contain 206 PCS

FROZEN BLUEFIN TUNA LOINS – 18740.000KGS

Upon delivery, the cargo in all 3 subject containers was found to have suffered damage allegedly due to reefer machinery failure.

Issues

A hearing took place before the Commercial Court in 2017 to determine agreed preliminary issues and from that judgment three issues came to be considered by the Court of Appeal as follows:

  • Issue 1: Is the carrier's liability limited pursuant to the Hague Rules or the Hague-Visby Rules?
  • Issue 2: If the Hague Rules apply are the relevant packages or units for the purposes of Article IV, Rule 5, the containers or each individual piece of tuna?
  • Issue 3: If the Hague-Visby Rules apply are the containers deemed to be the relevant package or unit, or are the individual pieces of tuna packages or units "enumerated" in the relevant transport document "as packed" in each container, for the purposes of Article IV, Rule 5(c)?

Issue 1: Is the carrier's liability limited pursuant to the Hague Rules or the Hague-Visby Rules?

The Appellant argued that because sea waybills had been issued instead of bills of lading, the Hague Rules applied contractually. The Respondent argued that the Hague-Visby Rules applied by force of law pursuant to the Carriage of Goods by Sea Act 1971 ('the Act') because shipment was from Spain, a contracting state and, although no bill of lading was ever issued, the contract of carriage was nevertheless 'covered by a bill of lading' for the purposes of the Act and the Hague-Visby Rules Article 1(b). This was because when the contract was made the parties contemplated that a bill of lading would be issued and the Respondent was entitled to demand the issue of a bill of lading (see Pyrene v Scindia [1954] 2 QB 402 as approved by the Court of Appeal in The 'Happy Ranger' [2002] 2 Lloyd's rep 357, both cases in which cargo was damaged during the loading operation and no bill of lading was issued).

At first instance the judge followed Pyrene and found that so long as the terms of the contract require a bill of lading to be issued or the Respondent is entitled to demand one, it is immaterial whether a bill of lading is ever issued, or even whether a waybill is issued instead, and decided that the Hague-Visby Rules applied by force of law.

Delivering the judgment of the Court of Appeal, Flaux LJ upheld the decision of the Commercial Court, noting as follows:

"In my judgment, in circumstances where the appellant expressly eschews any case of variation or waiver or estoppel, the fact that sea waybills were issued can make no difference to the correct analysis. Because the contract of carriage entitled the respondent to ask for the issue of a bill of lading on demand, the contract of carriage was from its inception one which was "covered by a bill of lading" within the meaning of Article I(b) of the Hague-Visby Rules and a contract which "by implication provides for the issue of the bill of lading" within the meaning of section 1(4) of the 1971 Act."

Given its conclusion that the Hague-Visby Rules were compulsorily applicable, the Court of Appeal felt it appropriate to turn next to Issue 3.

Issue 3: If the Hague-Visby Rules apply are the containers deemed to be the relevant package or unit, or are the individual pieces of tuna "packages or units" enumerated in the relevant transport document as packed in each container, in each case for the purposes of Article IV, Rule 5(c)?

Until the decision of the Commercial Court, there had been no English case law authority on the meaning of Article IV, Rule 5(c) and the only guidance has been from the Full Federal Court of Australia's majority judgment in the El Greco case from 2004. In that case the Australian Court held that the expression 'as packed' as used in Article IV Rule 5(c) of the Hague-Visby Rules meant that individual items 'enumerated in the bill of lading' will only constitute the relevant 'units' under Rule 5(a) (rather than the container itself as a single unit) if it is clear from the bill of lading description how those items are actually packed in the container.

At first instance the judge disagreed with the finding in El Greco and decided that Article IV, Rule 5(c) merely requires that the number of units in a container is correctly stated on the bill of lading. As the sea waybills correctly stated that the containers were loaded with a number of pieces of tuna, the waybills therefore 'enumerated' the number of units for the purposes of Article IV, Rule 5(c).

In the Court of Appeal Flaux LJ approved of the approach taken in the Commercial Court, which he noted was strongly supported by the French text of Article IV rule 5(c) which refers to enumeration of the number of packages or units being 'included' in the container, whereas the English wording is 'as packed'.

Flaux LJ agreed that to impose any additional, technical, linguistic requirement to describe how the items of cargo are packed inside the container, would not only give rise to uncertainty and anomalous results, but is also unrealistic and uncommercial.

Flaux LJ noted that the majority decision in the El Greco had been criticised by academic commentators and in a number of leading texts and concluded as follows:

"In my judgment, these criticisms of the majority judgment in El Greco are justified and like the judge, I consider that the English courts should not follow the approach of the majority in that case. It seems to me that that approach places an impermissible gloss on Article IV rule 5(c) which is simply not justified by the wording of the provision. Accordingly, I consider that the judge was correct in the conclusion he reached that there was sufficient enumeration of the frozen tuna loins in the waybills that each loin was a separate "unit" for the purposes of limitation under Article IV rule 5(c). It follows that the appeal must be dismissed in relation to Issue 3."

Issue 2: If the Hague Rules apply are the relevant packages or units for the purposes of Article IV, Rule 5 of the Hague Rules, the containers or each individual piece of tuna?

Given the finding that the Hague-Visby Rules applied compulsorily, the question of what is a unit under the Hague Rules, did not apply. However, as in the Commercial Court, the Court of Appeal also decided to consider the issue and once again upheld the first instance decision by confirming that the Hague Rules do not require any consideration of how the cargo could have been shipped if not containerised.

Flaux LJ decided that there is nothing in the wording of Article IV, Rule 5 of the Hague Rules which justifies the appellant's argument that where the cargo is stuffed in containers the cargo claimant must be able to show that the cargo could have been shipped "as is" break bulk without additional packaging.

He objected to this argument on the basis that it was an attempt to revive the now discredited 'functional economics' test, once used by the US Courts to place the burden on the cargo claimant to show why the container should not be treated as the 'package' in cases in which the individual items inside were not 'functional' or capable of shipment as they were. The US Courts abandoned the 'functional economics' test and their approach was endorsed by Phillips LJ in the English Court of Appeal in The River Gurara (1998).

Since the decision at first instance, Flaux LJ had considered this issue in a different context in the recent Court of Appeal decision in The Aqasia. Although that case did not involve containerised cargo, Flaux LJ considered that his own analysis in that case of what constitutes a 'unit' under Article IV rule 5 was inconsistent with the Appellant's argument. As he noted in The Aqasia:

"I consider that, in the context of the Rules, a "unit" can be regarded as synonymous with a "piece", they are both descriptive of a physical item of cargo which is not a "package", because, for example, it is incapable of being packaged or is not in fact packaged."

Flaux LJ recognised that the definition adopted by him in The Aqasia was 'clearly wide enough' to encompass the frozen tuna loins stuffed in the containers without further packaging. As he put it, 'there is simply no warrant for concluding that each cannot be a 'unit' within that definition unless hypothetically they could also have been carried break bulk without being packaged in some way.'

The decision confirms that the definition of 'unit' in the Hague Rules and Hague-Visby Rules is the same and the large pieces of tuna in this case were "units" for the purpose of both.

Summary

The decision of the Court of Appeal is a landmark decision that upholds the judgment of the Commercial Court and confirms that for the first time in English law we now have clear authority for the following:-

  • The Hague-Visby Rules will compulsorily apply when the contract of carriage requires the issue of a bill of lading and/or entitles cargo interests to demand the issue of a bill of lading, even if (in the absence of any variation, waiver or estoppel) a sea waybill is in fact issued.

  • The definition of 'unit' in the Hague Rules and Hague-Visby Rules is the same and the large pieces of tuna in this case were "units" for the purpose of both.

  • To qualify as a 'package or unit enumerated in the bill of lading as packed in [a container]' (Article IV, Rule 5(c) of the Hague-Visby Rules), it is sufficient that the physical items of cargo are accurately stated in the bill of lading and there is no additional requirement that the physical items must be described 'as packed'.

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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