Legal Update: Article IV r.5 of the Hague Rules is not applicable to bulk cargoe

In Vinnlustodin HFVatryggingaffelag Islands HF vs Sea Tank Shipping AS [2016], the English Commercial Court was required to determine a preliminary “Limitation Issue” as to whether a disponent owner was entitled to limit its liability for damage to a bulk cargo pursuant to Article IV r.5 of the Hague Rules.  

Surprisingly, there has been no English authority directly on this point and the Court was therefore referred to the travaux preparatoires  for the Hague and the Hague Visby Rules, previous English law decisions and decisions of the Commonwealth Courts, text books and commentaries discussing the issue.

The facts, in brief, are that a cargo described as “2,000 tons of fishoil in bulk, 5% more or less in Charterers’ option…” was damaged onboard the tanker Aqasia.  The disponent owner (“the Owner”) sought to rely on the limitation provision in Article IV r.5 to limit his liability to £54,730.90 (i.e. £100 per mt of cargo damaged). This was against an unlimited liability of USD 367,836.

Article IV r.5 provides as follows:-

"… 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 Owner argued that each tonne of the cargo of fish oil was a “unit” entitling it to limit its liability because the parties had clearly intended Article IV to apply to a bulk cargo having incorporated it into a charter party where bulk cargo was the only type of cargo contemplated. The Court rejected this argument holding that the Owner would only be entitled to rely on no more than what was provided by the limitation in Article IV, so if the word ‘unit’ as used in Article IV was found not to apply to bulk cargoes as a matter of construction of the Rules, Article IV could not change its meaning simply because the contract of carriage was for a bulk cargo. 

The Owner also referred to other Articles in the Hague Rules and inferred from them that the Rules were clearly intended to include, rather than exclude, bulk goods. The Court clarified however that the real issue was not so much whether the terms of the Rules were apt to exclude bulk cargo but whether the word ‘unit’ in Article IV r.5 was apt to include it. If unit was construed not to mean a unit of measurement, then there was no basis upon which bulk cargo could be subject to limitation. 

The Court found the Shipper’s argument that the use of the words ”unit” and “packages” together and in the same context in Article IV r.5 suggested that both terms were concerned with physical items rather than abstract units of measurement to be compelling. The Court added that there was nothing in the words of Article IV r.5 to suggest that units of measurements, or of freight, were intended. 

In conclusion, the Court decided that the word “unit” in Article IV r.5 of the Hague Rules was not apt to apply to bulk cargoes. The Court noted that the construction of the word “unit” arrived at in this case was also the one favoured by the majority of the decisions, commentaries and text books on this point.

If Members require more information, or have any further questions on this case, please contact Jacqueline Tan (jacqueline.tan@thomasmiller.com). 

A significant proportion of the expertise in the Managers’ offices around the world consists of lawyers who can advise Members on general P&I related legal, contractual and documentary issues. These lawyers participate in a virtual team, writing on topical and relevant legal issues under the leadership of our Legal Director, Chao Wu. 

Jacqueline Tan

Date28/10/2016

Source Legal Services Manager