UK: The Arrival Of The Rotterdam Rules

Last Updated: 25 January 2010
Article by Caroline Brader-Smith and Matthew Montgomery

Review of the Rotterdam Rules, the latest liability regime on the international carriage of cargo.

On 23 September 2009, the opening ceremony took place for the signing of the United Nations Convention on Contracts for the International Carriage of Goods by Sea. This Convention, more commonly known as the Rotterdam Rules, is the latest liability regime on the international carriage of cargo.

The Rules will become international law one year after ratification by the 20th UN member state. To date, 21 states - including the USA, Greece, Holland and Norway - have signed up to the Rules. The act of signing does not necessarily mean that these states will go on to ratify the Rules but it does signify an intention to do so. The UK Government remains undecided as to whether to sign the Rules or not, and will enter into a full consultation exercise to be published early next year.

This update will provide a brief overview of the Rules and the effect that they are likely to have on the maritime industry.

Why do we need another maritime convention?

The premise behind the new Rules is clear; it makes greater commercial sense for the industry to be governed by a single multi-modal convention than numerous uni-modal conventions and domestic legislation. The intention is that the Rotterdam Rules will supersede the existing international maritime liability conventions - Hague, Hague Visby and Hamburg - on the basis that these regimes are outdated and do not take modern transport practices into account. The UN, according to the preamble to the Convention, anticipates that the Rules will enhance legal certainty, improve efficiency and commercial predictability in the international carriage of goods. But questions remain as to whether the Rotterdam Rules will be able to live up to such lofty ambitions.

What changes will the Rules make?

The Rotterdam Rules will apply to all international contracts of carriage with an international sea leg where either the place of receipt, place of delivery, port of loading or port of discharge of the cargo is in a contracting state. There are no documentary triggers needed for application - the Rules will apply whether a bill of lading has been issued or not. Although the Rules specifically exclude charterparty agreements, they can be incorporated by way of a clause paramount.

In order to bring a claim under the Rules, the claimant must first prove that the loss, damage or delay took place during the period of the carrier's responsibility. The carrier is relieved of all or part of its liability if it proves that the cause, or one of the causes, of the loss is not attributable to its fault. Like the Hamburg Rules, proceedings must be issued within two years from the date of the relevant breach.

Whilst existing liability regimes are restricted to carriage from port to port, the Rules will apply from the time that the carrier receives the goods to the time of delivery. Furthermore, the carrier's obligation to provide a seaworthy ship and to receive, carry and preserve goods now extends to the whole voyage rather than simply the period prior to and from commencement of the voyage. Such extended liability will be of understandable concern to carriers.

The Rules provide for a smaller number of exemptions by which carriers can absolve themselves of liability. Whilst the Hague Rules and Hague-Visby Rules allowed carriers to exempt liability if fault could be attributed to the navigation or management of the ship, the new Rules abolish the negligent navigation defence. The rationale for doing so is that modern navigation techniques rely on improved technology, and the defence is no longer justifiable. The revision of the existing liability regimes is therefore likely to make it harder for carriers to defend claims.

The Rules also extend liability to any operator defined as a 'Maritime Operating Party'. This encapsulates all parties involved in the shipping of goods, extending potential liability to stevedoring companies and cargo terminal operators, entities whose conduct has never previously been governed by the international conventions.

Concerns about the Rules

One major cause for concern is the size of the Convention. For an industry that has become used to the 10 articles of the Hague-Visby Rules and 34 articles of the Hamburg Rules, the 96 articles of the Rotterdam Rules will be a daunting prospect. Understandably, some suspect that the Rules are likely to be too complex and long-winded to be effective.

Equally concerning is the prospect of Convention states interpreting the Rules in different ways and the liability regime becoming more, rather than less, complicated than it is at present.

An additional concern about the Rules is their inter-relationship with 'non-sea' conventions such as the CMR1 and CIM2. This is addressed by Article 26 which states that if loss, damage or delay occurs to cargo solely before or after the sea leg of any given voyage, the Rotterdam Rules will not apply. In many cases, identifying the time of loss or damage is likely to be a difficult task and so disputes could arise in deciding which convention applies.

The issue that has caused the most concern in the maritime industry is that of volume contracts; contracts of carriage that provide for the carriage of a specified quantity of goods in a series of shipments during an agreed period of time.

Article 80 allows carriers handling goods under a volume contract to derogate from the Convention on the condition that a prominent statement to this effect is made in the contract of carriage. The derogation would effectively mean that the Convention has no effect on the shipment. Strangely, the Convention in all its 96 articles, does not define what quantity of goods or frequency or duration of shipments would categorise a contract as a volume contract. It is estimated that around 90 per cent of the world's containerised cargo moves under 'service contracts' that are likely to meet the requirements of a volume contract under the Rotterdam Rules. Potentially, the volume contracts exclusion could allow carriers to exclude many of their shipments from the Convention. If the Rules are adopted, and this is the case, it may be that the Rotterdam Rules fail to have the desired far-reaching codifying effect.

Jurisdiction

Articles 66 to 78 of the Rotterdam Rules cover jurisdiction. Importantly, the provisions are optional so it will be for contracting states to choose whether to 'opt in' or not. Even if the parties to a contract of carriage have agreed a choice of jurisdiction, this will not apply unless it is contained in a volume contract and specifies the court of a contracting state.

Where there is no exclusive jurisdiction clause, the claimant will be entitled to commence proceedings in a competent court which has either the domicile of the carrier, the place of receipt, the place of delivery or the port where the goods are loaded or discharged within its jurisdiction.

For an exclusive jurisdiction clause to apply to parties who are not party to the original contract, the clause will also have to meet the requirements of Article 67(2). These requirements include a need to show that the court is in one of the places listed above and that the third party is given timely and adequate notice of the court where the action shall be brought.

The complicated nature of the jurisdiction provisions makes it all the more important for parties to ensure they know which jurisdiction will prevail under the contract of carriage should a dispute arise.

Final comments

It seems, in light of the above, that cargo owners are those most likely to benefit from the new Rules. Not only will the carrier's obligations to provide a seaworthy ship and to carry and care for goods be extended to include the period throughout the voyage, but cargo owners will now also have a choice of jurisdictions in deciding where to bring a claim.

Carriers can, however, contract out of the Rules if the 'volume contract' criterion is met and there is a possibility that some states will not make the declarations necessary to opt in to the jurisdiction provisions. Therefore, to a large extent, carriers may be able to exclude the application of the Rules.

In light of well publicised international reservations about the workability of the Rules, when the 20th ratification will occur is anybody's guess. However, with powerful trading nations such as the United States particularly supportive and with the 21 signatories representing over 25 per cent of current world trade volume, the indications are that the Rules will enter into force sooner rather than later.

Footnotes

1 CMR - Convention on the Contract for the International Carriage of Goods by Road 1956 (CMR is the French acronym)

2 CIM - Rules governing the International Carriage of Goods by Rail 1980 (CIM is the French acronym)

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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