English Court confirms that package limitation under the Hague Rules excludes a bulk cargo

by Reed Smith
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A recent decision provides authority for the broadly accepted understanding that a “unit”, for the purposes of limitation under Article IV Rule 5 of the Hague Rules, cannot apply to a bulk cargo – it can only mean a physical unit for shipment and not a unit of measurement or a customary freight unit (the unit of measurement used to calculate freight).

The cargo in question was 2,000 tonnes of fish oil, loaded into the ship’s tanks. The (disponent) owner contended that each tonne was a “unit” for these purposes and thus it had a right to limit its liability for damage to the cargo. The Commercial Court disagreed.

Had the Court found otherwise, presumably more bulk cargoes would be nominated by lesser units in future (e.g. kilogrammes).

This was one of those peculiarly academic arguments that amuse shipping lawyers, at least.

Although there was no Clause Paramount (or variant), the charterparty permitted the owner to rely upon the package or unit limitation in the same circumstances as it would have been entitled to do so, had the Hague Rules been incorporated in full. Therefore the decision has broad application. Albeit, not if the Hague-Visby Rules apply, as Rule 5(a) therein provides for an alternative weight-based limitation that is apt to include a bulk cargo, in any event.

The issue, for the Court at least, was whether the word “unit”, as used in Article IV Rule 5, was apt to include a bulk cargo. If the use of the word could not mean a unit of measurement in that context, then the owner’s case, and the argument that bulk cargoes were included, had to fail.

The Court found it compelling that the word “unit” (which can be understood to be a physical item or a means of measurement) was in this context accompanied by the word “package”, which could only refer to a physical item. Particularly given that, elsewhere, the Rules specifically refer to a “quantity” or “weight” when units of measurement are intended.

A detailed trawl through the travaux preparatoires and history of the Hague Rules, earlier decisions of the English and other common law jurisdictions (including that of the Australian Federal Court in El Greco), practitioner textbooks and commentaries convinced the Court that the intention behind including the word “unit” in Rule 5 (in addition to the word “package”) was to cover unpackaged items (and to avoid debate about the extent and nature of the packaging). This position, in part, reflects that the bulk cargoes of the time (when the Hague Rules were negotiated) would have been unlikely to hold sufficient value to merit such attention.

It is anticipated that the decision will not be appealed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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