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In brief - Parties disagree over package limitation under Hague and Hague-Visby Rules

The recent decision in the English High Court in Kyokuyo v AP Moller Maersk [2017] EWHC 654 (Comm.) concerned the proper construction of the Hague-Visby Rules in the context of the per package and unit limitation provisions contained in Article IV. It also considered (and rejected) aspects of the 2004 decision of the Full Court of the Federal Court of Australia in El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] FCAFC 202

Sea waybills issued for containers loaded with frozen tuna, including replacement container, following delay

The claimant, Kyokuyo, was the receiver of three container loads of frozen tuna that were shipped from Cartagena in Spain by sea carriage by Maersk to Japan. The cargo consisted of frozen Bluefin tuna loins, each weighing between 25kg and 75kg, as well as bags of frozen Bluefin tuna parts, each bag weighing about 20kg. 

Containers A, B and C, as they were described in the decision, were received by Maersk Line at Cartagena pursuant to contracts of carriage incorporating Maersk's terms and conditions, and containing an implied term entitling the shippers to demand that a bill or bills of lading be issued by Maersk Line. The contract was for carriage to and discharge at Yokohama and the booking was for the carriage of 12 "Super Freezer" 40 foot containers at minus 60 degrees Centigrade from Cartagena Terminal to Maersk Yokohama Terminal via Valencia and Singapore. 

Containers A, B and C were transhipped at Valencia onto Maersk Eindhoven. Due to an alarm triggering on Container C, it was discharged from Maersk Eindhoven at Barcelona and its contents were restuffed into the replacement container.

No bills of lading for Containers A, B, C or the Replacement Container were ever issued. To avoid further delay in delivery, the claimant and Maersk agreed to the issue of sea waybills rather than bills of lading.

Bluefin tuna loins, packed as individual items, allegedly suffer temperature damage in replacement container 

The frozen loins had been stuffed into the containers as individual items of cargo without wrapping, packaging or consolidation. The bags of tuna parts were stuffed into the containers as individual bags without any additional wrapping or packaging and without consolidation. 

Container A was stuffed with 206 loins and 460 bags of tuna meat. Container B was stuffed with 520 loins and Container C and its replacement container were stuffed with 500 frozen loins. 

It was alleged by the claimant that the tuna suffered temperature damage during carriage and/or rough handling when the contents of container C, due to the malfunction with the container at Valencia, had to be repacked into a replacement container. The amount of the damage was said to be £858,000 (about AU$1.5 million at current rates). 

The carriage was governed by Maersk's standard terms and conditions of carriage and either the Hague Rules or the Hague-Visby Rules. 

The parties requested the Court to determine a number of preliminary issues.

English High Court determines four issues

  1. Was liability limited pursuant to Article IV Rule 5 of the Hague Rules or Article IV Rule 5 of the Hague-Visby Rules?
  2. Were the individual tuna loins "units" for the purpose of limitation under the Hague and Hague-Visby Rules?
  3. Were the pieces of tuna, packages or units enumerated in the relevant document as packed in each container for the purpose of Article IV rule 5?
  4. Is the limitation of liability to be calculated by reference to the cargo in all three containers collectively or should it be calculated by reference to each unit or package damaged? 

Article IV Rule 5 of Hague or Hague-Visby Rules?

The Hague-Visby Rules are expressed to apply only where there is a contract of carriage covered by a bill of lading. Article II of the Hague-Visby Rules provided that the carrier is entitled to the rights and immunities, set out in the Rules "under every contract of carriage of goods by sea".

Article I(b) provides that:
"Contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar document of title…
The contracts of carriage provided for the issue of a bill of lading on demand but no bills of lading had ever been issued for containers A, B and C or the replacement container. Instead, sea waybills were issued by agreement.

The issue before the Court was essentially whether these facts could be said to involve a contract of carriage covered by a bill of lading, such that the Hague-Visby Rules applied. The Court held that it did.
 
The Court concluded that:
  1. The requirement under the Hague-Visby Rules that there be a contract of carriage covered by a bill of lading for the rules to apply will be satisfied where the terms of the contract of carriage require a bill of lading to be issued but no bill of lading is in fact issued. 
  2. It is immaterial if a right to a bill of lading is not insisted upon.

Were tuna loins "units" for limitation under the Hague-Visby Rules?

One of the key issues in dispute between the parties was whether for the purpose of the package limitation the relevant packages or units were, as argued by Maersk, the containers themselves or, as argued by the claimant, the individual tuna loins or bags.

Article IV Rule 5(a) of the Hague-Visby Rules provides:
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 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher.
The bags of frozen tuna parts were items that were naturally to be described as packaged goods. It seems there was no dispute that each of the bags of frozen tuna parts constituted a package for the purpose of the Hague-Visby Rules. 

The principal dispute related to the tuna loins and how they were to be treated for the purpose of the package or unit limitation under the Hague-Visby Rules. There were over 1200 frozen tuna loins in the aggregate across all containers and this was, understandably, a point of contention between the parties. 

The frozen tuna loins were unwrapped and stuffed into the containers without packaging or consolidation. 

Did a "unit" (in the context of Article IV of the Hague-Visby Rules) describe an item that could be transported without packaging and that could simply be shipped "as is", if not containerised (as argued by Maersk) or was it simply one physical unit irrespective of whether it needed to be packed in order to be shipped (as argued by the claimant). 

Maersk argued that the tuna loins could not have been shipped without containerisation, therefore could not be shipped "as is". Maersk relied upon a passage from the Australian case of El Greco to support this argument, the majority view of which was that a "unit" referred to an item that could be transported without packaging. 

The Court rejected Maersk's argument and held that units should be identified by reference to the characteristics of the cargo as stuffed into the container. Each one of the tuna loins was held to be a unit for the purpose of the limitations under the Hague-Visby Rules. 

Enumeration of packages and units on bill of lading

Article IV Rule 5(c) provides:
Where a container…is used to consolidate goods, the number of packages or units enumerated in the Bill of Lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as these packages or units are concerned. Except as aforesaid such article of transport shall be considered the package or unit.

The effect of Article IV rule 5(c) of the Hague-Visby Rules is that the container itself will be the package or unit for the purpose of calculating the total amount recoverable from the carrier, unless the number of packages or units as packed in the container is enumerated on the bill of lading

The waybill for container A made no mention of bags of tuna or the number of tuna loins. Therefore, the package or unit for the purpose of the carrier's liability was held to be the container itself - with liability for the loss of the bags of tuna in container A limited to 666.67 units of account in total. 

The analysis was less straightforward in relation to the tuna loins. The waybills for the containers stated:
 
1 Container Said to Contain [No.] PCS FROZEN BLUEFIN TUNA LOINS. 

The number of pieces noted for containers A, B and C was 206, 520 and 500 respectively. It was argued by the claimant that by specifying the number of loins on the waybill, that was sufficient to displace the default position that the container itself is the package or unit for the purpose of calculating the limitation of liability.
 
Maersk in turn (relying upon the majority decision in the Australian El Greco case) argued that the notation was not sufficient because in effect the words used did not specify that the tuna loins were packed as to be packages or units. 

English High Court rejects El Greco on "as packed" requirement under Article IV Rule 5(c)

At the time of the hearing in the UK case, the El Greco case was the only authority regarding the meaning of the word "enumerated" in the context of Article IV Rule 5(c) of the Hague-Visby Rules. 

The cargo that was the subject of the El Greco case was a cargo of posters and prints that was carried from Sydney to Piraeus. The container carrying the cargo was described on the bill of lading as one container, said to contain:
200945 pieces
posters and prints

 
The cargo was in fact bundled into 2,000 packages. No reference was made on the bill of lading to the 2,000 bundles. 

In El Greco, the Full Court of the Australian Federal Court found that the expression "as packed" in Article IV Rule 5(c) meant that individual items enumerated on a bill of lading would be "units" for the purpose of calculating the limitation of liability only if it was made clear from the terms of the bill of lading that those items had been packed into the container directly as opposed to being packaged up separately in cartons or bundles. It had to be made clear on the bill of lading how many items were in a container, as well as whether those items were packaged together. 

Because the bill of lading in El Greco stated that the container was said to contain 200,945 pieces, the Court determined that the cargo had not been described "as packed" such as to bring it within the requirements of Article IV Rule 5(c). Accordingly, as only one container was noted on the bill there was a single package limitation. 

The English High Court in Kyokuyo declined to follow the Full Court's decision in El Greco and held that all that was required was a statement identifying and putting a number of the items that did in fact comprise the cargo "as packed". 

There was, however, no requirement for the words "as packed" to be included on a bill of lading to displace the default position that the container is the unit or package for the purpose of limitation. 

Calculating limitation of liability

The claimant had argued that Article IV Rule 5 created a single limit of liability that was calculated by reference to the total number of packages or units which had been damaged. In this way, any unused balance in respect of one unit of package could in effect be carried over to another unit or package.

The Court rejected the claimant's argument that the limit was based upon the aggregate limit in respect of all units and found that under the Hague-Visby Rules, each frozen loin had a separate limit of 666.67 units of account, rather than there being a limitation based upon an aggregate of the limits for each of the frozen loins. 

Summary of English High Court's findings

By way of summary, the Court held that:
  1. The Hague-Visby Rules will apply when the contract of carriage provides for the issue of bills of lading on demand, even if that demand is not made and the parties agree for the issue of sea waybills instead.
  2. When determining what is a unit for the purpose of Article IV Rule 5, this should be done based upon a consideration of what was stuffed into the container. There should not be a focus upon how (if at all) the cargo could have been shipped if not containerised.
  3. For cargo to constitute a "package or unit enumerated in the bill of lading as packed" it is sufficient for the physical items of cargo to be accurately stated in the bill of lading. There is no additional requirement that the physical items must be described "as packed".
  4. The package or unit limitation in the Hague Rules and the Hague-Visby Rules should be calculated by reference to each individual package that has suffered damage.
Permission to appeal to the Court of Appeal has been granted recently in this matter.

Contract of carriage under Hague-Visby Rules in Australia

Under Australian law, the issue of whether the Hague-Visby Rules applied compulsorily to the carriage may not have arisen, as under the modified Hague-Visby Rules in place in Australia, a contract of carriage is not confined to bills of lading or similar documents of title but extends to sea carriage documents, arguably catching sea waybills. 

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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