Unauthorised Deck Carriage - Hague Rules - Package Limitation

September 2002

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This article first appeared in Lloyd's List on 21 August 2002:

Important Clarification Over The Carriage Of Goods At Sea

THE Commercial Court in London has now confirmed that carriers who (in breach of contract) ship goods on deck nevertheless remain entitled to rely upon the package limitation provisions under Article IV, rule 5 of the Hague Rules where unauthorised deck carriage has caused or contributed to the loss of or damage to goods.

The decision is of significant importance to shipowners, charterers and cargo interests.

In a recent case involving the Kapitan Petko Voivoda, (unreported Judgment [2002] EWHC 1306 COMM) Mr Justice Langley was asked to consider the issue of package limitation in the following circumstances.

The claimants were cargo interests who shipped a consignment of 34 new excavators on board the vessel for carriage from Inchon, South Korea to Istanbul, Turkey in September to November 2000. First defendants were the charterers and the second defendants were the owners of the vessel.

The cargo was carried pursuant to contracts of carriage containing general clause paramounts on usual Conline terms, the effect of which was that the Hague Rules as enacted in Turkey were incorporated.

The cargo was shipped aboard the vessel at Inchon, South Korea in apparent good order and condition, and stowed under deck for carriage to Istanbul. The vessel then sailed from Inchon, bound for Istanbul via intermediate ports.

On arrival at Xingang in China, unforeseen circumstances arose such that 26 of the excavators had to be discharged from the vessel and re-stowed on deck without the knowledge or agreement of the shippers.

The vessel then sailed from Xingang and was in the Yellow Sea bound for Zhangiang when it encountered heavy weather. As a result of the heavy weather conditions, eight of the excavators on deck broke free of their lashings and were lost overboard. In addition, some of the other excavators suffered minor damage including rusting/wetting damage. The total claim for loss and damage amounted to approximately $785,000 plus interest.

Shipowners and charterers defended the claim on the basis that the loss was caused by perils of the sea pursuant to Article IV rule 2 of the Hague Rules or alternatively sought to limit their liability in relation to the eight lost excavators to a maximum of eight times £100 ($156) or its equivalent in the relevant Turkish legislation by relying upon Article IV, rule 5 of the Hague Rules.

The exact cause of the loss and damage was not agreed between the parties, various potential criticisms having been aired in relation to the lashings which failed and as to the sufficiency or otherwise of the packing and waterproofing arrangements. In these circumstances in order to avoid a costly trial on the contested issues of fact the court ordered that the following points should be tried as preliminary issues:

1. Whether deck stowage was a breach of the terms of the charterparty and the bills of lading.

2. If so, assuming that the loss or damage was caused by deck carriage and one or more of the following exceptions under Article IV, rule 2:

(i) inadequate lashing

(ii) perils of the sea or

(iii) insufficiency of packing

were the defendants prevented (by the unauthorised deck carriage) from relying on:

(a) the limitation provisions under Article IV, rule 5;

(b) the other defences provided by Article IV, rule 2 of the Hague Rules.

The preliminary issue hearing proceeded on the basis that the Hague Rules as enacted in Turkey (the version of the rules incorporated into the relevant contracts of carriage) are identical in all material respects to the standard international form, the relevant provisions of which are as follows:

'Article III

2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried. ...

Article IV

2. Neither the carrier nor the ship shall be responsible for loss or damage arising from: ...

(c) Perils, dangers and accidents of the sea ...

(n) Insufficiency of packing

5. 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 £100 per package or unit or the equivalent of that sum in other currency ...'

Prior to the hearing the shipowners and the charterers jointly conceded that carriage of the excavators on deck was a breach of the contracts of carriage in question. Accordingly, the first preliminary issue was not contested.

As to the second preliminary issue, Mr Justice Langley has decided the point in favour of the ship interests, confirming that owners and charterers are not liable for any losses in excess of the Hague Rule limits, notwithstanding that the lost cargo had been carried on deck without authorisation. Cargo interests had pointed to the decision of Mr Justice Hirst in the Chanda [1989] 2 Lloyd's Rep 494 which on similar facts had decided the point in favour of cargo interests. Mr Justice Hirst said in that case:

"Clauses which were intended to protect the shipowner provided he honoured his obligation to stow goods underdeck did not apply if he was in breach of that obligation; the package limitation fell within this category since it could hardly have been intended to protect the shipowner who as a result of the breach exposed the cargo in question to such risk of damage; the package limitation clause being repugnant to and inconsistent with the obligation to stow below deck was inapplicable."

Charterers and owners submitted to the court that the Chanda should not be followed for two reasons. First that it can be distinguished as being a decision on the particular wording of the German Commercial Code which is/was not in identical terms to the Hague Rules in their standard international form. Secondly, and to the extent that the Chanda is said to be authority for a broader proposition under the Hague Rules generally, that the case was wrongly decided.

The charterers and owners submitted that the Chanda was implicitly based upon the discredited English law doctrine of fundamental breach of contract and further that the decision in the Chanda runs contrary to the underlying purposes and scheme of the Hague Rules. Further, charterers and owners submitted that the decision runs contrary to the specific wording of the Hague Rules as correctly construed.

The charterers and owners accepted in argument that cargo carried on deck is usually exposed to a greater risk of loss or damage than cargo carried below deck because of the obviously enhanced risks of wetting and/or loss overboard. For these reasons in the absence of express authorisation carriage on deck is ordinarily, of itself, a breach of the contract of carriage.

But in the context of package limitation the fact of stowage of cargo on deck may or may not be a more "serious" or "fundamental" breach of the contract of carriage than a breach of another express or implied obligation which exposes the cargo to enhanced risk. For example, there may be specific instructions for the care of the cargo, such as to keep the cargo at or below a particular temperature. There is nothing to suggest that the right to rely on package limitation is lost by owners/charterers in such cases. Indeed, even in cases where there is breach of the overriding obligation of seaworthiness there is no authority to suggest that shipowners/charterers would be unable to rely on package limitation in those cases, even in relation to a very gross and serious breach of such an obligation.

The illogical situation produced by the Chanda would be that shipowners and/or charterers would be able to rely on package limitation had the crew been completely careless such as to allow the excavators to fall overboard during re-loading whereas they would not be entitled to limit in circumstances where the excavators had been carefully and properly lashed to the deck but they were subsequently washed overboard during heavy weather.

In reaching his conclusion in favour of charterers and owners Mr Justice Langley commented in relation to the Chanda decision that

" . . .the discredited doctrine of fundamental breach was a long time dying and even after burial the underlying justice which it was thought to reflect encouraged resurrection in different disguises from time to time. Some disguises are to be found in the language of 'presumption' others in 'rules' of construction which are expressed in sufficiently absolute terms or used to such effect that they resemble the outlawed rules of law."

In relation to the construction of the wording of the Hague Rules themselves Mr Justice Langley rejected cargo interests' argument that unauthorised deck stowage was such a serious breach of a 'key term' of the contract that the limitation provisions should not apply.

In doing so, he cited and applied the recent Court of Appeal decision in the Happy Ranger (CA 17 May 2002 Case No A3/2201/1695) where Lord Justice Tuckey held that the words "in any event" appearing in Article IV rule 5 of the Hague-Visby rules mean what they say and are "unlimited in scope".

In the Happy Ranger case it was held by the Court of Appeal that, even in a case where there was breach of the 'overriding' obligation of seaworthiness in Article III rule 1 of the Hague-Visby Rules, the owners could still rely upon the package limitation provisions set out in Article IV, rule 5.

The decision by Mr Justice Langley in the Kapitan Petko Voivoda case represents an important clarification of the law in England in relation to carriage of goods by sea; a welcome one for shipowners and charterers, perhaps less so for cargo interests.

Cargo interests have been given leave to appeal.

Graeme Baird is a partner and Cindy Szeto a solicitor with Hill Taylor Dickinson who represented charterers in this case.

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