Australia: Ship operators successfully limit their liability to £100 per package

In a recent judgment handed down by the Federal Court of Australia, it was held that the owners and operator of the M.V. "Dijksgracht", could rely on a limitation of liability clause in their standard terms and conditions and limit their liability to £100 per package. The implication of this decision is that, if the owners and operators are ultimately liable for the alleged damage, they will be able to limit their liability to £300 (for three packages), rather than approximately EUR1.2 million, being the full amount of the claim.

The facts

This case concerned a shipment of pontoons (or "breakwater units") from Cork, Ireland to Geelong, Australia where they were to be installed at the Royal Geelong Yacht Club. The consignee, Poralu Marine Australia, alleged that the cargo was loaded on board the vessel in sound condition and that three pontoons were found to be damaged when the cargo was discharged.

The Booking Note and Seaway Bill purported to incorporate Articles I-VIII of the Hague Rules (but not extending to Article IV, which increases the stated liability limits by reference to the value of gold) and limited liability to £100 per package.

Key findings

This was a complex case involving arguments as to the formation and terms of the contract, the applicability of the Hague-Visby Rules (HVR) under the law of the contract, and the applicability of the Australian Hague-Visby Rules as encompassed in the Carriage of Goods by Sea Act 1991 (Cth) (AHVR).

The key findings can be summarised as follows:

• the AHVR will apply to a contract of carriage to Australia under a bill of lading or similar document of title in circumstances where no other international liability regime applies, including by agreement or force of law. This is to prevent carriers from excluding or lessening their liability beyond that allowed by one or other of the international conventions which Australia has recognised as being acceptable under broad international consensus
• under the law of the contract (which was found to be Dutch law, pursuant to the choice of law clause in the Booking Note), if the country of shipment is a 'contracting state' to one of the international conventions, Dutch law will apply the convention to the contract of carriage. However, in this case, Ireland, the country of shipment, was not a 'contracting state' for the purposes of HVR. Despite Ireland taking some steps to become a party to the HVR and giving effect to the HVR in domestic legislation, Ireland had not taken all of the formal steps necessary to become a 'contracting state' under the Vienna Convention and HVR themselves. As such, the HVR did not mandatorily apply to the contract of carriage under Dutch law, to the exclusion of the AHVR
• the incorporation of only part of one of the conventions, in this case only Articles I-VIII (and not Article IX) of the Hague Rules, will not be sufficient to overcome the applicability of the AHVR. Only a minor or insignificant modification by contract of a convention that is otherwise incorporated is permitted in order for that contractually incorporated convention to apply, to the exclusion of the AHVR. Any more substantive modification will result in the finding that the convention is not properly incorporated by agreement, as required under Australian law. As such, the purported incorporation of only Articles I-VIII of the Hague Rules under the Booking Note was not effective to incorporate the Hague Rules by agreement, to the exclusion of the AHVR
• the AHVR do not apply to the carriage of goods by sea under a charterparty unless a 'negotiable' sea carriage document is issued for the carriage. The contract, in this case, was held to be comprised of the Booking Note, which was itself held to be a charterparty arrangement, rather than a contract of carriage under a bill of lading or similar document of title. Although a Sea Waybill was issued, it was non-negotiable and acted only as a receipt for the cargo
• as such, neither the law of the contract (Dutch law) nor Australian law mandatorily applied any of the international conventions to the carriage. This meant that the operators were able to rely on their standard limitation of liability clause and limit their liability to £100 per package. The owners of the vessel were also able to rely on this limitation of liability by virtue of the Himalaya clause contained in the Booking Note, which was found to be validly and properly incorporated.

Implications of judgment

The effect of this judgment is that the AHVR will apply to most shipments to Australia, except in limited circumstances. Further, that in order to apply the liability regime applicable under another convention, that convention must be incorporated into the contract in full or with only minor or insignificant amendments.

One of the main exceptions to the applicability of the AHVR is if the contract of carriage is a charterparty, under which parties are free to agree to whatever terms they wish to govern their arrangement, unless they subsequently issue a 'negotiable' sea carriage document.

Our Shipping, Transport & Logistics team acted in this case for the successful owners and operators. An appeal has been filed by cargo claimants. The full judgment can be read here.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.