The Effect of Exclusive Jurisdiction Clauses on Package Limitation

August 2000

(Sea Venture Volume 19)

Most liner bills of lading provide that disputes thereunder are to be referred to a specified jurisdiction and are to be governed by a specified law. For example:-

'JURISDICTION. The contract evidenced by this bill of lading shall be governed by the law of the place where the carrier has his principal place of business and disputes determined at that place according to that law and to the exclusion of the jurisdiction of the court of any other country.''

At first sight, and leaving aside questions as to the identity of the carrier, determination of the governing law and jurisdiction is a straightforward matter of identifying the principal place of business of the carrier. However, notwithstanding a desire to hold parties to their bargain, the English Court may nonetheless accept and retain jurisdiction for disputes under a bill of lading that provides for the jurisdiction of a foreign court. There are various grounds on which the English Court may exercise its discretion in this respect. This article looks at one of these grounds with particular reference to the problem created by the difference between the Hague and Hague-Visby package limitation, as well as how the carrier can avoid an attempt, in breach of the bill of lading jurisdiction clause, to force English jurisdiction for the dispute.

The approach of the English Court to foreign jurisdiction clauses was summarised by Lord Goff in ''The Pioneer Container''¹:

''... the court has a discretion whether to grant a stay of proceedings brought in breach of an agreement to refer disputes to a foreign court; but the discretion should be exercised by granting a stay, unless strong cause for not doing so is shown''.

The burden of proving ''strong cause'' is on the party seeking to establish the jurisdiction of the English Court. In exercising its discretion, the Court will take into account a number of guidelines², put briefly the party seeking to establish the jurisdiction of the English Court must have acted reasonably³ in starting proceedings in breach of the foreign jurisdiction clause. Whether that party can satisfy this burden will turn on the differences between the respective approaches of the English and foreign court to the claim under the bill of lading, and, in this light, the conduct of that party.

As a matter of law, the English courts will apply the Hague-Visby Rules to disputes under a bill of lading⁴, whereas a significant number of countries still apply the Hague Rules⁵. For the purpose of this article, the material difference between the Hague and Hague-Visby Rules is the package limitation provisions. The limit under Article IV Rule 5 of the Hague-Visby Rules is 2 SDR⁶ (US$ 2.60) per kilo of gross weight or 666.7 SDR (US$800) per package. In contrast, the limit under the Hague Rules is substantially lower; £100 (US$150) per package. Therefore, a claimant seeking to protect time under a bill of lading that refers disputes to a foreign court applying the Hague Rules package limits is faced with two choices:

(i) start proceedings in the Hague Rules jurisdiction, with consequent lower package limitation, or

(ii) in breach of contract, sue in a jurisdiction (England) that applies the higher Hague-Visby package limits and risk the claim in the foreign jurisdiction becoming time barred.

The most sensible course of action would be to issue protective proceedings in both jurisdictions, but as a matter of English law⁷ this may not be necessary. If proceedings were started in both England and the foreign jurisdiction, the English Court would be confronted by a choice between allowing the English proceedings to continue, or staying those proceedings in favour of the jurisdiction of the foreign court. However, to allow the carrier to take advantage of lower limits of liability than would be available in the English proceedings would be contrary to Article III rule 8⁸ of the Hague-Visby Rules which the English Courts must apply:

''If the dispute is about duties and obligations of the carrier or ship and it is established as a fact (either by evidence or …by the common agreement of the parties) that the foreign court chosen as the exclusive forum would apply a domestic substantive law which would result in limiting the carrier's liability to a sum lower than that to which he would be entitled if Article IV, paragraph 5 of the Hague-Visby Rules applies, then the English Court is in my view commanded by the Act of 1971⁹ [the Carriage of Goods by Sea Act 1971] to treat the choice of forum clause of no effect'¹⁰'

Therefore, if the Hague Rules package limits are applied in the bill of lading jurisdiction, the jurisdiction clause in that bill of lading is prima facie unenforceable in the English Courts, and the English Courts are required to treat that jurisdiction clause as ''void and of no effect'' . Accordingly, there is no need for the claimant under the bill of lading to protect time in the foreign jurisdiction.

This is not to say an English Court will automatically ignore an exclusive jurisdiction clause when that foreign jurisdiction applies Hague Rule package limits. The carrier should be reasonably confident of a successful application to stay English proceedings provided that:

1. an undertaking is given not to seek to take advantage of the lower Hague Rule package limitation available in the bill of lading jurisdiction, or
2. the standard form bill of lading has been amended to provide that, where the voyage in respect of which the bill of lading has been issued is one to which the Hague-Visby Rules are compulsorily applicable, the provisions of those rules are to be applied as matter of contract.

With respect to (i), care should be taken to ensure that the undertaking is given prior to expiry of the Hague Rules time limit. If the undertaking is given subsequent to the expiry of this time limit and it is not possible to extend time for the claim in the foreign jurisdiction, the English Court will be reluctant to stay the English proceedings provided that the claimant did not act unreasonably in allowing time to expire in that jurisdiction¹¹. In addition, in both cases, the Court of the foreign jurisdiction must be allowed by its own law to apply Hague-Visby package limits otherwise the English Court is likely to refuse a stay application (see extract from the The ''Hollandia'' above).

As a final consideration, if a claimant seeks to avoid Hague Rule package limits by allowing time to expire in a foreign jurisdiction but starts proceedings in England, will those proceedings constitute the ''bringing of suit''¹² for the purpose of the proper (foreign) law and jurisdiction of the bill of lading. That is, does it necessarily follow that because an English Court exercises its discretion to retain jurisdiction that proceedings brought only in England can have the effect of interrupting the limitation period? In The ''Havhelt''¹³ Saville J thought the commencement of proceedings in breach of an exclusive jurisdiction clause was not effective to stop time running. This also seems to have been the view in The ''Finnrose'' and The ''Pioneer''¹⁴ , albeit that in both these cases it was observed that Article III rule 6 should be given a ''purposive'' construction, the purpose being to ensure the carrier was not surprised by stale claims.

It is arguable that claims brought in England in breach of a bill of lading exclusive jurisdiction clause are time barred if the carrier was unaware of the claim or of the decision to start proceedings in England alone, or if the claimant's decision not to protect time in the bill of lading jurisdiction was in the circumstances of the claim unreasonable. The decision to ignore the foreign jurisdiction clause of a bill of lading probably would be unreasonable if the carrier had, prior to the expiry of the Hague Rules time limit, undertaken not to rely on the lower Hague Rule package limits and that foreign court was not prevented by its own law from applying the Hague-Visby Rules package limits to the claim. Such an undertaking should be given at an early stage of a claim, or by amending the carrier's standard bill of lading form.

^{1(1994) 2 AC 324 at 347
2The "El Amria" (1991) 2 Lloyd's Rep 119
3The "Spiliada" (1997) 1 AC 460 at page 403
4The Carriage of Goods by Sea Act 1971
5See Sea Venture Vol 18, page 61
61SDR = 1.33 US$ (approx) as at 3.7.00. This rate has been used in calculating the US$ equivalent
7The "Hollandia" (1993) AC 563
8"Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage.......provided in this article or lessening such liability.......shall be null and void and of no effect." (emphasis added)
9By which the Hague-Visby Rules are incorporated into English law
10Per Lord Diplock in The "Hollandia" (1993) AC 563 at Page 574-5
11The "Sibi" [2000] 1 Lloyd's Rep 1
12Article III rule 6 of the Hague / Hague-Visby Rules
13(1993) 1 Lloyd's Rep 523
14(1994) 1 Lloyd's Rep 559 and (1995) 1 Lloyd's Rep 22 respectively}