Does the Hague Rules Article IV Rule 5 'package or unit' limitation apply to bulk cargoes?
In this case Clyde & Co ( Jai Sharma and Ian Woods) represented the successful cargo interests to set a precedent in English law that has clarified a 92 year old debate as to whether the Hague Rules unit element of 'package or unit' limitation can apply to bulk cargoes.
The 1924 Hague Rules no longer have the force of law in England since they were succeeded by the Hague-Visby Rules (the Hague Rules Amended by the Brussels Protocol of 1968). Nonetheless, the Hague Rules are still regularly applied as a result of their incorporation into sea waybills, charterparties and bills of lading issued in and relating to cargoes loaded in non-Hague Visby contracting states. In Vinnlustodin hf and another v. Sea Tank Shipping AS the Court was asked to consider whether the word "unit" in Article IV r.5 of the Hague Rules, could be read to refer to a unit of measurement, such as a metric ton or kilogramme, so as to extend the application of the limit to cargoes carried in bulk.
This question has generated a number of articles from eminent academics and practitioners and features in all leading texts on the carriage of goods. However, in the 92-year history of the Hague Rules, the question has never been answered determinatively under English law until now.
The claim arose out of damage to a cargo of fish oil during carriage on board the motor tanker "AQASIA", which at the material time was under charter from the Defendant to the First Claimant by a charterparty evidenced by a 'Fixing Note' dated 23rd August 2013 ("the Charterparty"). The Defendant agreed to carry a cargo described as "2,000 tons cargo of fish oil in bulk, 5% mol chopt" from ports in Iceland to ports in Norway for freight of "NOK 817,500, - lump sum".
The Fixing Note provided that the Charterparty was to be on the "London Form". The London Form Charterparty provides:
"26. – The Owners in all matters arising under this Contract shall also be entitled to the like privileges and rights and immunities as are contained in Sections 2 and 5 of the Carriage of Goods by Sea Act 1924 and in Article IV of the Schedule thereto ..."
The Schedule to the Carriage of Goods by Sea Act 1924 ("COGSA") contains the Hague Rules. Article IV Rule 5 of the Hague Rules provides:
"Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding 100l. per package or unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading."
The vessel loaded a cargo that was described in the bill of lading as 2,056,926 kgs of fish oil in bulk, of which about 550,000 kgs was loaded into tanks 1P, 2P and 5S ("the Subject Cargo"). After loading the cargo, the vessel sailed to Lovund in Norway and there loaded a further cargo of fish oil. Part of this further cargo was loaded in tanks 1P, 2P and 5S, causing it to become co-mingled with the Subject Cargo. On arrival at the discharge port(s), 547,309 kgs of the Subject Cargo was found to have suffered damage. The First Claimant claimed for the loss and/or damage to the cargo in the sum of US$367,836.
The Defendant accepted in principle that it was liable for the damage to the Subject Cargo under the terms of the Charterparty. However, the Defendant argued that it was entitled to limit its liability in the sum of £54,730.90 (i.e. to £100 per metric tonne of cargo damaged) pursuant to Article IV r. 5 of the Hague Rules.
The Claimants argued that the Defendant was not entitled to limit its liability because Article IV r. 5 of the Hague Rules has no application to shipments of bulk cargoes on the basis that there is no relevant "package or unit" such that the Rule cannot apply.
The parties agreed to deal with this question by way of a preliminary issue of law before the High Court in London.
The Defendant's primary position was that the limit would apply on a proper construction of Article IV of the Hague Rules against the contractual matrix of the Charterparty. It was argued that Article IV was clearly intended by the parties to apply to a bulk cargo on the basis that there was no other type of cargo in prospect. In rejecting this argument the Judge referred to the incorporation wording that stated that the Defendant was entitled to "the like privileges and rights and immunities as are contained in...and in Article IV". The result is that the Defendant can only be entitled to rely on the package or unit limitation in the same circumstances as it would be entitled to do, if there had been a full incorporation of the Hague Rules.
On the basis that it was accepted that the word "package" could not apply to bulk cargoes, the determinative issue was whether or not the word "unit" can do so based on the ordinary principles of statutory construction and the construction of International Conventions.
The Judge accepted the Claimants contention that the language of International Conventions should be construed "on broad principles of acceptation" and should be given a purposive construction rather than a narrow literalistic one, because of the international dimension involved. To support their competing interpretations, both parties relied on:
a.The wording and language of the HR as a whole;
b.The Hague-Visby Rules;
c. The Travaux Préparatoires to the Hague Rules
d.The 1936 United States Carriage of Goods by Sea Act ("US COGSA");
e.Authorities from other jurisdictions; and
f.Commentaries and textbooks.
The judgment considers each source separately and evaluates what support is given in each to the interpretation of the word "unit".
The language of the Hague Rules
The Defendant pointed to a number of other provisions in the Hague Rules and that pointed to the inclusion of bulk cargoes which envisaged the application of Article IV r.5 to bulk cargoes. However, the Judge obtained little assistance from the other provisions to determine the true meaning of the word "unit" in Article IV r.5, which was the question the Court was concerned with.
The Judge acknowledged that the word "package" related to a physical item and that the words "unit" and "package" together and in the same context suggested that both terms were concerned with a physical item (or composite items) rather than to a unit of measurement. The Defendant's argument was that "unit" was apt to cover unpackaged physical items or a unit of measurement in the case of bulk cargoes. However, this interpretation would create a problem in the case of a packaged or an unpackaged item where a weight or volume also appears in the Bill of Lading. Which measurement is to be taken in the absence of any guidance in the Rules themselves? These were considered powerful points against the argument that "unit" can mean both a physical unpacked object and a unit of measurement.
b. The Hague-Visby Rules
The weight limitation multiplier was introduced in the Visby Protocol of 1968. Article IV r.5(a) of the Hague-Visby Rules read as follows:
"Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods los or damaged, whichever is the higher." [Emphasis added]
It was argued that if the weight limitation had been introduced in order to include bulk goods within the limitation regime because the Hague Rules had excluded them as the Claimants submitted, then the last sentence above would have stopped at the words "lost or damaged".
The Judge held that the terms of the Hague-Visby Rules cannot affect the construction of the Hague Rules. That said, it was pointed out that Article IV r.5 c strongly suggests that the draftsmen of the Hague-Visby Rules considered that a "unit" constitutes a physical item rather than a freight unit, otherwise it would be meaningless to speak of the "number of packages or units enumerated in the bill of lading as packed in such article of transport".
c. The Travaux Préparatoires to the Hague Rules
The parties were agreed that the right approach for the Court was to be found in the words of Lord Steyn in The Giannis NK  1 Lloyd's Rep 337 at 437-8, where he said:
"Following Fothergill v Monarch Airlines Ltd.,  2 Lloyd's Rep 295;  AC 251, I would be quite prepared, in an appropriate case involving truly feasible alternative interpretations of a convention, to allow the evidence contained in the travaux preparatoires to be determinative of the question of construction. But that is only possible where the Court is satisfied that the travaux preparatoires clearly and indisputably point to a definitive legal intention: see Fothergill v Monarch Airlines Ltd. Per Lord Wilberforce at p.202 col. 1; p.278C. Only a bull's eye counts. Nothing less will do."
The Claimants submitted that they could score a bull's eye from the Travaux Préparatoires and the Defendant submitted that there was nothing in them which excluded the application of the Rules to bulk cargo. The Judge relied on the analysis of Allsop J in the Federal Court of Australia in El Greco v Mediterranean Shipping  2 Lloyd's Rep 537.
The Judge's review of the Travaux Préparatoires led him to the conclusion that whilst concepts of weight and volume were discussed initially, they were abandoned and were never resurrected, whether by the introduction of the word "unit" or otherwise. The Judge was also persuaded by the fact that in light of the economics in 1921-1924, the £100 limit would never have applied to bulk cargoes dues to their low value.
d. The 1936 United States Carriage of Goods by Sea Act
The Hague Rules wording was amended for the purposes of US COGSA so that the corresponding provision to Article IV r.5 referred to "per package or customary freight unit". This has the effect that the limitation provisions of US COGSA apply to bulk cargoes. Professor Tetley's work, Marine Cargo Claims (4th edition) at page 2175, in a footnote makes reference to the US Department of State Memorandum of June 5th 1937 describing the differences in wording between US COGSA and the Hague Rules. There it was stated that differences from the Hague Rules were intended to clarify the provisions in the Convention which may be of uncertain meaning. The Defendant relied on this as evidence that US COGSA was intended to clarify the meaning of "unit" used in the Hague Rules and not to change the meaning. However, in Falconbridge Nickel Mines v Chimo Shipping  2 Lloyd's Rep 269, the Canadian Supreme Court concluded that the US COGSA constituted a change from the Hague Rules and therefore did not offer any guidance in considering the meaning of the words "per package or unit". This was also the preferred view of the Judge in this case.
e. Authorities from other jurisdictions
The court acknowledged that there was no English judicial authority on this point in the context of the Hague Rules. However, the court did note the decision of Studebaker Distributors Ltd v Charlton Steam Shipping Co Ltd  1 KB 459 and The Aramis  2 Lloyd's Rep 58. These judge considered that these were of limited assistance as they did not address the question directly. In the latter case Evans J was conscious of the longstanding debate between the competing interpretations of "unit" but he did not need to decide the point as he found on the facts that the limitation argument could not succeed regardless.
The Judge did recognise that there were authoritative decisions directly on this question in other jurisdictions. The Court specifically highlighted the decision of the Canada Supreme Court in Falconbridge (referred to above), where the court needed to decide whether a tractor and generator set constituted "units" for the purpose of limitation under Article IV r. 5 of the schedule to the Canadian Water Carriage of Goods Act 1936. The Court held that the word "unit" in Article IV r.5 applied to a physical unit of goods and not a unit of measurement. It was considered that the word "unit" within the phrase "package or unit" had been added to cover instances where a cargo had been packed up or made up for portability in a way that may not strictly fall within the scope of the term "package" but this addition was not intended to extend the scope of the Rule to bulk cargoes.
f. Commentaries and textbooks
The Claimants referred the Court to a number of textbooks and articles on the point at issue. Counsel for the Defendants relied upon an article by Michael Mustill QC, as he then was, where the author considered it logical to assume that the word "unit" referred to a unit of weight stated in the contract of carriage. However, the Judge doubted the logicality of this assertion, given the often unsatisfactory results which would arise as the amount of the limit was greatly affected by the way the weight was stated by the shipper on the bill of lading. The Judge also highlighted that, at the time the article was written, it was still impermissible to have regard to the Travaux Préparatoires which would have contradicted such assertions and which the Judge now considered persuasive.
The Court also considered an article by Mr Anthony Diamond QC on the Hague Rules, where the author decided that the word "unit" in the Hague-Visby Rules was to be construed referring to an individual article or piece of goods which was not a package. He deemed in respect of bulk cargo that the concepts of "package" or "unit" were irrelevant and that in such instances the limitation should be based upon weight.
Referring to Carver on Bills of Lading (3rd Edition", the Court noted that the authors stated that the view that a unit meant a freight unit was never accepted in England and had been expressly rejected in Canada. The result of this was that, in those jurisdictions, the "unit" referred to in Article IV r.5 was an identifiable article or piece of goods that could not be called a package.
Additional reference was made to two articles of Professor F.M.B Reynolds, one of the authors of Carver on Bills of Lading, where he expressed that there was no package or unit limitation applicable to bulk cargoes under the Hague Rules. He also highlighted the judgment of Allsop J in the El Greco and his view that 'unit' was to be "taken to cover unpackaged objects".
Further, the Court considered the view expressed by the editors of Aikens on Bills of Lading (2nd edition, 2015) that it is reasonable to assume that "package" and "unit" must have the same meaning in the Hague and Hague-Visby Rules wherever they appear in those rules. It was noted that whilst the word "unit" was said to be unclear in its meaning, the concept of it as a "freight unit" had been discarded and that the prevailing view was that it meant a shipping unit, "being an item that was ready to be shipped with no further packing or consolidation." The Court highlighted that the authors referred to The Aramis in the footnote but clarify that the better view is that there is no limit under the Hague Rules for bulk cargo.
The Judge made specific reference to International Maritime Convention Volume 1 (1st edition, 2014) by Professor Francesco Berlingieri and to Professor Tetley in Marine Cargo Claims (4th edition, 2008) in which he found the arguments that the term "unit" was used as a complement to "package" in the Hague Rules compelling.
Upon review of the textbooks and commentaries, together with the English and commonwealth authorities and the Travaux Préparatoires, the Judge held there to be no doubt that the word "unit" in the Hague Rules meant a physical unit for shipment and not a unit of measurement.
The consequence is that it is now settled, after 92 years of uncertainty, that under English law shipowners will not be able to limit liability under the Hague Rules for loss and/or damage to bulk cargo.
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