QCR Spring 2017: The Commercial Court clarifies that the package limitation in the Hague Rules does not apply to bulk cargoes
The "Aqasia"  EWHC 2514 (Comm)
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 owners ("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 is against an unlimited liability of USD 367,836.
The Owners 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 cannot change its meaning simply because the contract of carriage was for bulk cargo.
The Court then went on to find that the word "unit" in the Hague Rules can only mean a physical unit for shipment (i.e. a box or package) and cannot mean a unit of measurement (kilogramme or tonne) or customary freight unit.
The weight limitation was introduced by the Visby Protocol. Article IV rule 5(a) of the Hague-Visby 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 the goods in an amount exceeding 666.67 units of account per package or unit or units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher".
The Commercial Court held that the word "unit" in the Hague Rules can only mean a physical unit for shipment (i.e. a box or package) and cannot mean a unit of measurement (kilogramme or tonne) or a customary freight unit. The package limitation under the Hague Rules regime does not apply to bulk cargo.
If bulk cargo is carried from a Hague Rules' State (as opposed to a Hague Visby Rules state) ship owners should be aware that they will not be entitled to rely on the package limitation. Ship owners are entitled to limit liability under the Tonnage Convention (IMO Convention on Limitation of Liability for Maritime Claims (1976)) or ensure that the Hague-Visby rules are incorporated into the bill of lading as a matter of contract. Adding provisions on the face of bill of lading stating how many metric tons of cargo constitutes a unit in accordance with Article IV Rule V of the Hague Rules will not have the desired effect. Under English law it is not enough to look to the bill of lading description. For the Hague Rules package limitation to apply the cargo needs to be divided or packed into actual packages or units.
Although rare in practice, the shipper may avoid package limitation by declaring the nature and value of the goods and ensuring that this is inserted in the bill of lading (Article IV rule 5(a)) but the value declared should be the actual value of the cargo. Under sub-rule (h) the carrier is under no liability in respect of goods, if the value of the goods is knowingly mis-declared. This applies equally to wilful overvaluations and wilful under valuations.
In most cases the Visby Protocol will provide for a higher limit, but at the same time extend the carrier's defences and limits of liability to tort claims, and to servants and agents of the carrier. It remains to be seen whether to avoid the consequences of The Aqasia, carriers will now insist on incorporating the Hague Visby Rules into the bills of lading by express provisions on the face of the bill of lading.