Know your (package) limitations

The High Court of England & Wales has considered the application of the Hague-Visby Rules limits of liability to containerised cargo and whether they apply where the shipper was entitled to bills of lading but (by agreement) sea waybills were in fact issued

Summary

Mr Justice Baker (co-author of "Time Charters") held that:

• Where the shipper is entitled to a bill of lading under the contract of carriage (and that bill of lading would be subject to the Hague Visby Rules ("HVR")), the HVR apply even when a sea waybill is issued instead of a bill of lading. 

• Under the Hague Rules and the HVR, a "unit" is an identifiably separate item and there is no requirement that it must be suitable for shipping without further packaging had it not been stuffed inside a container. 

• For there to be sufficient "enumeration" of the package / unit for the purposes of the HVR, it is only required that the bill of lading state accurately the number of units or packages inside the container.  It is not necessary to further describe the cargo "as packed", or packed in separate packages.

• The package / unit limitation applies to each individual package or unit separately, and not in aggregate.

Background

A cargo of frozen tuna loins and bagged frozen tuna parts was shipped in reefer containers from Spain to Japan.  A draft bill of lading was prepared but eventually (at the consignee's request) only sea waybills were issued. 

Among the 12 reefer containers shipped, cargo in three containers was damaged as a result of malfunctioning containers and (in one case) rough handling during re-stuffing in a replacement container.  

The Claimant consignee brought a claim against the Defendant carrier, who argued that, as sea waybills had been issued, the claim was limited to £100 sterling per package or unit under the Hague Rules, as incorporated by their standard terms and conditions.

The following four preliminary issues were before the Court:

 (i)  Is liability limited pursuant to Article IV rule 5 of the Hague Rules or Article IV rule 5 of the HVR?

 (ii)  Should limitation be calculated by reference to the cargo in all three containers collectively, or by separate treatment of the cargo in each container individually?

 (iii)  If liability is limited pursuant to Article IV rule 5 of the Hague Rules, are the relevant packages or units the containers or the individual pieces of tuna?

 (iv)  If liability is limited pursuant to Article IV rule 5 of the HVR, are the containers deemed to be the relevant package or unit, for the purposes of Article IV rule 5(a), or are the individual pieces of tuna the relevant packages or units?  In particular, were all or any of the individual pieces of tuna, packages or units enumerated in the relevant document as packed in each container for the purposes of Article IV rule 5(c)?

Judgment

Issue (i) – Hague or HVR?

Section 1(2) of the English Carriage of Goods by Sea Act 1971 ("COGSA") gives the HVR the force of law.  They are thus compulsorily applicable where they apply on their own terms.  Article I(b) provides that the HVR apply to “contracts of carriage covered by a bill of lading or any similar document of title” where the carriage is from a port in a contracting state. 

The Court held that, although no bill of lading was in fact issued, the contract of carriage was nevertheless "covered by" a bill of lading since the shipper was entitled to demand one be issued.  This was sufficient to trigger the mandatory application of the HVR under COGSA as the cargo was carried from Spain (a contracting state to the HVR).

Issue (ii) – Limitation per unit, or in aggregate?

The Judge held that the limitation per package or unit was a separate limit for each package or unit, and not an aggregate limit calculated by reference to the total number of packages or units of damaged cargo.

Issue (iii) – Is the container the "unit" under the Hague Rules?

Since it had already been held that the HVR applied, the Judge's comments on this issue were strictly obiter. 

The Judge rejected the carrier's argument that each container was a "unit" and held that it suffices that the “units” are "identifiably separate items of unpackaged cargo, as shipped".  It was irrelevant that they could be shipped without further packaging only by being placed in a container.  On the other hand, bundling or consolidating goods would make them "packages" within the meaning of the rules. 

On the facts of this case, each frozen tuna loin was therefore a “unit" and each bag of frozen tuna parts was a “package”.

Issue (iv) – Is the container the "unit" under the HVR?

The Judge held that the meaning of "package or unit" is the same under Article IV rule 5(c) of both the Hague and HVR, and therefore repeated his findings set out under issue (iii) above.

Article IV rule 5(c) of the HVR provides:

"… the number of packages or units enumerated in the bill of lading as packed in [the container] shall be deemed the number of packages or units…"

The Judge held that stating the number of units or packages accurately would constitute sufficient "enumeration", and it is not necessary under Article IV rule 5(c) of the HVR to enumerate the goods "as packed" (i.e. the items being packaged together).  In so deciding, the Judge declined to follow the persuasive precedent set by the Federal Court of Australia in El Greco v Mediterranean Shipping, which held that merely stating the number of "pieces" of goods in the container was not sufficient enumeration, as the bill of lading failed to indicate the number of goods "as packed". 

On the facts, stating "[number] pieces of frozen blue fin tuna loin" was held to be sufficient enumeration for each frozen tuna loin to count as a separate unit. 

It is worth noting that the Judge commented that, in absence of sufficient enumeration on the bill of lading, the container would be the relevant “package or unit”.

Comments

The Court's examination of the package / unit limitation as applied to containerised cargo (both under the Hague Rules and the HVR) is a welcome clarification of the law. 

By setting out clear guidelines as to what is required to bring an item of cargo within the definition of a "package or unit" under the applicable Rules, the Court has not only provided much-needed certainty, but also reflected the commercial reality that cargo packed into containers is in practice almost invariably made up of many smaller items. 

Similarly, the Judgment makes it clear that the package limitation applies to each individual package separately.  It is therefore not permissible to carry over any unused package limitation from less damaged packages to offset damage to other, more damaged, packages.

This Judgment is also a useful reminder of that a contract of carriage will remain "covered by a bill of lading" for the purposes of the HVR, even if one is not issued.


With contribution from Ingrid Chen (Trainee Solicitor)