In a recent judgment (The THORCO LINEAGE)1 the English High Court has considered how limitation should be calculated in respect of cargo claims under the Hague Visby Rules.
Limitation under the Hague-Visby Rules
Article IV r.5(a) of the Hague-Visby Rules provides as follows:
“Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding the equivalent of 667.67 units of account per package or 2 units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher.”
The issue
The issue was whether the words “goods lost or damaged” refer only to physically lost or damaged goods or whether this also could refer to cargo subject to economic damage.
Previous judgment on the issue
In a previous case – The LIMNOS2 – not more than 250 MT of cargo was physically damaged but the entire cargo was distressed. It was held that the words “goods lost or damaged” refers to two categories of goods, namely: (1) goods that are lost in the sense of being missing or destroyed and (2) goods that are damaged in the sense of not being lost, but surviving in damaged form. This did not refer to economic damage. Limitation under Article IV r.5(a) of the Hague-Visby Rules was thus calculated only by reference to the small quantity of damaged cargo despite the fact that the value of the entire cargo was affected.
In the course of that case reference was made to the anomaly that if there was no cargo at all that was physically lost or damaged then the limitation provisions did not apply and the carrier’s exposure was in those circumstances unlimited.
Facts in the THORCO LINEAGE
The claimant was at all material times the owner of a bulk cargo of zinc calcine with a gross weight of 10,287.07 WMT which was loaded on board the vessel THORCO LINEAGE for carriage from Baltimore, USA to Hobart, Australia. On 21 June 2018, whilst on passage across the Pacific Ocean, the vessel lost power as a result of an engine failure. On 23 June 2018 she grounded on Raroia Atoll in French Polynesia. As a result of the grounding she suffered extensive damage with ballast tanks being punctured, the rudder lost and the propeller damaged beyond repair.
The vessel was the subject of salvage operations and eventually towed to South Korea for repairs. The cargo was discharged and some forwarded to destination.
It was understood that of the total cargo only 764.07 WMT were lost or physically damaged with the remaining 9,523 WMT undamaged.
The costs arising out of the grounding included (a) salvage and (b) cost of onward shipment of sound cargo. Such cost did not relate merely to the cargo that was lost or damaged.
Was limitation to be calculated only by reference to the 764 WMT physically lost or damage or the entire cargo?
Held
The THORCO LINEAGE did not follow the earlier decision in the Limnos. It was held that the meaning of “lost or damaged goods” in Article IV r.5(a) of the Hague Visby Rules could include goods which have been economically damaged.
In the judgment it was stated:
“The merchant will expect to have his goods delivered to him at the discharge port pursuant to the contract of carriage contained in or evidenced by the bill of lading in the same good order and condition as they were in when shipped on board. If they are not so delivered they will be regarded as damaged. There is, I think, no dispute as to that. But… casualties can occur at sea which imperil both ship and cargo as a result of which the goods can only be delivered at the discharge port in sound condition as a result of additional and unexpected expense being incurred by the merchant. This case is an example of two … expenses, salvage payable pursuant to LOF and the cost of on-shipping goods from a place of safety to the port of discharge. In such cases the goods, though in sound condition, will have for the merchant a diminished value at the port of discharge to the extent of the additional expense which he has incurred. In such cases it can fairly be said, and I have no doubt would be said by the merchant, that the goods have suffered economic damage as a result of the casualty at sea. The cargo is as much the victim of the casualty as it is where physical damage is caused.… I therefore think that when one has regard to the context of the carriage of goods by sea there is a cogent argument that the ordinary meaning of “lost or damaged goods” in Article IV r.5(a) of the Hague Visby Rules can include goods which have been economically damaged.”
It was observed in passing that Article IV r.5(a) could not have been intended to prevent there being a limitation by requiring the presence of physical damage to the goods.
The court also upheld an alternative argument that the cargo in this case was physically damaged in that it was subject to the salvor’s maritime lien and so the claimant’s proprietary or possessory title to the cargo was damaged.
In conclusion it was held the limit of the defendant’s liability in respect of the claimant’s liability to pay salvage and the on-shipment costs was based upon 2 SDRs per kilogramme of the entire cargo.
1 Trafigura PTE Ltd v TKK Shipping Ltd (“The Thorco Lineage”) [2023] EWHC 26 (Comm)
2 Serena Navigation v Dera Commercial Establishment (“The Limnos”)[2008] 2 Lloyd’s Reports 166
0 Comments