The Thorco Lineage

The Thorco Lineage: Limitation under Article IV rule 5(a) of the Hague Visby Rules for both physical damage claims and pure economic loss claims

Trafigura PTE Ltd v TKK Shipping Ltd ("The Thorco Lineage") [2023] EWHC 26 (Comm)

Background

In June 2018, the “THORCO LINEAGE”, carrying a cargo of about 10,300 MT of zinc calcine from the USA to Australia, ran aground on an atoll in French Polynesia due to main engine failure. Salvors were engaged to re-float her and to tow her to South Korea for permanent repairs.

The salvors had a maritime lien over the property salved and the cargo owners (the Claimant) provided them with security in the sum of US$ 8 million.

Only a small part of the cargo was lost or physically damaged as a result of the casualty. The Claimant asserted that the shipowner (the Defendant) failed to exercise due diligence to make the vessel seaworthy and claimed nearly US$ 8.5 million for (i) the Claimant’s liability to salvors, (ii) physical loss and damage to the cargo, (iii) on-shipment costs, and (iv) cargo disposal costs.
The Defendant rejected the claim, arguing that they were liable for the physically damaged cargo only and their liability was therefore to be limited by reference to the weight of those “goods lost or damaged” under Article IV rule 5(a) of the Hague-Visby Rules. If correct, they would only be liable for a fraction of the claimed amount.

Article IV rule 5(a) reads as follows: (a) 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 kilogram of gross weight of the goods lost or damaged, whichever is the higher. [Our emphasis]

The parties agreed for the following point of law to be referred to the Commercial Court under section 45 of the Arbitration Act 1996: “Whether on the agreed and assumed facts, the Defendant is entitled to limit its liability, and if so, in what amount in respect of each head of loss?”

The decision of the Commercial Court (Sir Nigel Teare)

The dispute between the parties was whether the words “goods lost or damaged” in Article IV rule 5(a) refer and refer only to physically lost or damaged goods. The Claimant argued that unless the words “goods lost or damaged” are read to mean “goods lost or damaged physically or economically”, there would otherwise be no limit for liability for economic losses in respect of the goods where there was no physical damage to the goods.

The Defendant however objected to the interpretation of Article IV rule 5(a) with the words “physically or economically” added as the words are not used in the Article. The Defendant cited Burton J. in The Limnos, Serena Navigation v Dera Commercial Establishment [2008] 2 Lloyd’s Reports 166, where Burton J. concluded that “damaged” did not mean economically damaged.

The Commercial Court did not follow the decision in The Limnos [2008] where it was decided that the words “goods lost or damaged” referred to cargo that had been physically damaged only. Instead, the Court held that both physical and economic damage had to be taken into account when construing the Rule in the present context; otherwise it would not properly reflect the intention of the Rules to limit a carrier’s liability in respect of “loss or damage or in connection with” the goods.

Although the Court was not asked to determine the point, the Court took the view that the whole cargo was “damaged” as the Claimant had lost the proprietary and possessory interests in the whole cargo due to the salvors’ maritime lien. Accordingly, the Defendant’s liabilities for the following heads of claim, (i) Claimant’s liability to salvors and (iii) on-shipment costs, were limited by reference to the whole cargo at 2 SDRs per kg, and not just to that part of the cargo that had been physically damaged.

Comments

While the cargo Claimant was the apparent victor in The Thorco Lineage because the weight of the entire cargo was such that the limitation figure exceeded the sum claimed, this decision is also welcomed by carriers as a whole.  

The Thorco Lineage has now clarified that a carrier can avail itself of the limitation in Article IV rule 5(a) of the Hague Visby Rules for both physical and economic losses claims. Economic losses claims would include claims arising from a diminution in the market value of cargo because of delay, a liability to salvors, transshipment and on-shipment costs. Previously, if there was no physical damage to the cargo, the carrier would not have been able to benefit from limitation at all in respect of such pure economic losses claims.

The Defendant was not granted leave to appeal and so we are left with two inconsistent first instance judgments. However, the Judge had carried out a detailed analysis of Article IV rule 5(a) from the travaux préparatoires, legal authorities and textbook commentaries and provided very clear and highly persuasive reasonings for departing from the decision reached in the Limnos. It would not therefore be surprising if The Thorco Lineage would be the preferred decision to be followed in future cases. 

If Members have any questions relating to the above case summary, please do not hesitate to reach out to your usual contact at the Club who would be pleased to assist you.