The Court of Appeal in Vinnlustodin Hf and Another v Sea Tank Shipping AS (The Aqasia) recently upheld the decision of the Commercial Court on the applicability of the limitation in Article IV rule 5 of the Hague Rules to bulk cargoes.
The dispute arose out of damage to a cargo of fish oil in bulk carried on board the “Aqasia” pursuant to a Charterparty that incorporated into its terms the Hague Rules. That the cargo had been damaged was not in dispute. The contested issue was the right to limitation under Article IV rule 5 of the Hague Rules.
Article IV rule 5 provides that:
“Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connexion with goods in an amount exceeding 100 pounds sterling per package or unit,…”
Charterers’ claim was based on 547,309 kg of cargo amounting to a claim for losses of US$367,836, plus interest and costs. Owners argued that the claim should be subject to the limitation provisions of Article IV rule 5 and that the word “unit” could applied to the measurement used to quantify the cargo in the contract of carriage. Freight had been paid as a lump sum. However, the cargo had been described in the Charterparty as “2,000 tons cargo of fish oil in bulk, 5% mol chopt”. Therefore, Owners argued that the limitation of £100 pounds should be applied with the relevant “unit” being a metric ton. If Owners were correct, the claim would be limited to approximately £54,700.
The parties agreed to submit the point to the Commercial Court as a preliminary issue. The Commercial Court determined that the phrase “package or unit” referred to physical items rather than units of measurement for the purposes of freight. The Court found in favour of Charterers concluding that the Hague Rules limitation was not intended to apply to bulk cargoes. The term “unit” was meant to apply to unpacked physical items and not units of measurement.
Grounds of Appeal
Owners appealed the decision to the Court of Appeal on two points:
- The judgment failed to give effect to the intention of the parties; Owners should be entitled to limit its liability in respect of bulk cargo pursuant to Article IV rule 5; and
- The judge had erred in concluding that the limitation of liability in Article IV rule 5 of the Hague Rules did not apply to bulk cargo in a number of respects.
It was common ground between the parties that in ordinary language the word “unit” was capable of being a physical item of cargo, a shipping unit and a unit of measurement such as weight or volume. Despite Owners’ submissions, the Court of Appeal were of the firm conclusion that in the context of the Hague Rules “unit” meant a physical item of cargo and not a unit of measurement. The Court considered that:
- The use of the words “package” or “unit” together in rule 5 pointed to both words being concerned with physical items.
- This was borne out by Article III rule 3(b) of the Hague Rules which refers to bills of lading being issued with “either the number of packages or pieces, or the quantity or weight …”. Whilst the phrase used was “packages or pieces” rather than “package or unit”. It was clear that the reference was to individual physical pieces. In the context of the Rules, a “piece” was synonymous with “unit”.
- The wide definition of “goods” in Article I of the Rules did not provide any particular assistance in interpreting Article IV rule 5. It did not follow that every provision in the Hague Rules applied to every type of “goods” set out in Article I.
- If the word “unit” was taken as meaning unpackaged physical items for shipment and also a unit of measurement for all purposes this could create different meanings for different types of cargo. The example used by the Court was that of cars, a bill of lading would specify the number of cars but also their weight. Which would be taken to be the “unit” for limitation purposes?
The Court of Appeal acknowledged the issue raised before the Commercial Court that the relative low value of bulk cargoes in the 1920s compared to the package limitation explained why it was not considered necessary at that time to insert any express provisions for limitation dealing with bulk cargoes. If on the true construction of Article IV rule 5 it did not apply to bulk cargo it should not be permissible to strain the language to make it apply, even if it was desirable in a modern context of higher bulk commodity prices.
The Court of Appeal looked to the travaux preparatories for the Hague Rules, setting out the preparatory work of the treaty and the circumstances of its conclusion. The Court took note that references to a limitation by volume or freight were removed from an earlier draft of the Rules. The addition of “unit” occurred later but was not intended as a reintroduction of the weight limit that had been abandoned.
Having also been directed to the position under US COGSA, which Owners had drawn attention to as a comparison, the Court considered the additional words “per customary freight unit” in US COGSA as an amendment to the position of the Hague Rules. Therefore, citing the approach under US COGSA did not assist Owners’ position.
The Court of Appeal was clear in favouring an interpretation of “unit” as an unpacked item of cargo, not a unit of measurement. Accordingly, the word “unit” in Article IV rule 5 should not be considered as extending to a bulk cargo. Therefore, as the Hague Rules were incorporated into the charter by general words of incorporation, and the meaning of “unit” was such that it does not apply to bulk cargoes, Owners did not have the protection of a limit of liability under Article IV rule 5.
The Court of Appeal’s judgment confirmed what had been widely considered by the industry to be the position under the Hague Rules, however, the point had not until this matter been put to the test before the English Courts. It, of course, remains open to the parties to a charterparty to agree bespoke provisions if they wish to incorporate the limitation provisions of the Hague Rules and for these to have effect by reference to a specific measurement or freight unit.