The case of Poralu Marine Australia Pty Ltd v MV Dijksgracht [2022] FCA 1038: Regimes Governing the International Carriage of Goods by Sea

In brief:

If ever a case could be held up as showing the disuniformity and the international chaos in the regulation of international shipping in the carriage of goods by sea, the case of Poralu Marine Australia Pty Ltd v MV Dijksgracht [2022] FCA 1038 is it. It exemplifies the unnecessary expense that the parties to cargo litigation are being put through because of the lack of uniformity in the area of cargo litigation. It involves, as did "The Superior Pescadores" [2016] 1 Lloyds Rep. 561, the interpretation of a Clause Paramount, which lacked clarity as to the cargo liability regime which the parties intended to apply to their contract of carriage. 

Recent Judgments

The Full Court of the Federal Court of Australia has partially allowed the Appeal from the first instance decision of Stewart J. The leading judgment on Appeal is a joint judgment given by Steven Rares and Sarah Derrington JJ., of some 162 paragraphs. Their honours early in their judgment noted:

"…the somewhat surprising feature of the appeal that in 2023 there remains uncertainty as to whether the almost 100 year old Hague Rules apply to a contract of carriage negotiated in late 2019 by a French ship and chartering broker with a Dutch carrier. The contract involved a shipment from Ireland, a country that has not ratified the Hague Visby Rules (but has enacted them by domestic statute), to Australia which has enacted a version of the Hague Visby Rules modified by domestic statute (despite having denounced the Hague Rules) and to which the consignee asserts English law applies."

At first instance Stewart J. described the case as giving rise to, inter alia, the following issues:

"(i) Was a Booking Note the contract of carriage in circumstances in which no formal charter party was entered into; if so was it a charter party for the purposes of determining whether an international Treaty applied to it;
(ii) What was the meaning and effect of the Clause Paramount;
(iii) What was the status of a sea waybill that was issued;
(iv) What was the law that applied to the contract;
(v) Was the Hague Visby Rules compulsorily applicable under Dutch law;
(vi) Was Ireland a contracting State to the Hague Visby Rules;
(vii) Did the Himalaya clause protect the owner;
(ix) Did Article 9 of the Hague Rules (the Gold clause) apply;
(x) When a bill of lading or sea waybill is issued electronically where is it in fact issued."

In his first instance judgment at paragraphs 16 to 22, his Honour identified the four different liability regimes which were relevant to the case, and for completeness also referred to others, as follows:

1. The International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, opened for signature 25 August 1924, entered into force 2 June 1931, under which regime a carrier's entitlement to limit its liability was "100 pounds sterling per package or unit" and Article 9 which provided that those monetary units are taken to be gold value, (known as the Hague Rules).

2. The Protocol to amend the International Convention for Unification of Certain Rules of Law Relating to Bills of Lading signed at Brussels on 25 August 1924 (open for signature 23 February 1968), entered into force 23 June 1977 (known as the Visby Protocol which affected amendments to the Hague Rules), pursuant to which the limitation of a carrier's liability was amended to be defined as the equivalent of 10,000 francs per package or unit or 30 francs per kilo of the gross weight of the goods lost or damaged (whichever is the higher) and known as the Hague-Visby Rules. 

3. The Protocol amending the International Convention for Unification of Certain Rules of Law Relating to Bills of Lading, 25 August 1924 as amended by the Protocol of 23 February 1968, opened for signature 21 December 1979, entered into force 14 February 1984, pursuant to which the limitation of liability of the carrier was amended to 666.67 units of account per package or unit or two units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher and the "units of account" being the Special Drawing Rights of the International Monetary Fund, known as the SDR Protocol. 

4. The Amended Hague Rules as enacted by the Australian government which gives effect to a version of the Hague-Visby Rules, specific to Australia, and which is set out in Schedule 1A to the Carriage of Goods by Sea Act 1991 (COGSA) legislation. It adopts the same limitations as in the SDR Protocol and is known as the Amended Hague Rules.

5. The United Nations Convention on the Carriage of Goods by Sea 1978, opened for signature 31 March 1978, entered into force 1 November 1978, known as the Hamburg Rules. 

6. The United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, open for signature 11 December 2008 (not yet in force), known as the Rotterdam Rules. 

7. Last but not least are other hybrids such as the Chinese Code, known as the Hybrids.

The facts in this case 

Between 6 and 11 December 2019, 23 pontoons (described as "breakwater units") and 11 pallets were loaded on board the vessel "Dijksgracht" at the Port of Cork, Ireland as breakbulk cargo consigned to Poralu Marine Australia Pty Ltd the plaintiff in these proceedings for installation at the Royal Geelong Yacht Club. The cargo was discharged on or about 13 February 2020 and three of the pontoons were found to be damaged. 

The result of the case at first instance

The questions posed for the court's determination included whether or not the carrier was entitled to limit its liability to £100 per package and his Honour found it was so entitled. He did not believe that that amount was limited to the present value of 100 pounds of gold in 1924, nor did he find that it was limited to 666.67 units of account per package or 2 units of account per kilogram of gross weight of the goods and he also found that the limitation applied equally to the plaintiff's claims in bailment and negligence against the vessel's owner, the second respondent, by reason of the Himalaya clause. 

The result of the case on Appeal

The appeal was allowed in part: the carrier was not permitted to limit liability to 100 Pounds per package.

The Full Court agreed with Stewart J that the carrier was not permitted to limit liability to the present value of 100 Pounds of gold in 1924 per package. 

The Full Court also found that the carrier was entitled to limit its liability to 666.67 units of account per package or 2 units of account per kilogram of the gross weight of the goods, whichever is the higher, unless article 4(5)(e) of the Hague Visby Rules as set out in the third schedule of the Merchant Shipping (Liability of shipowners and others) Act 1996 (Ireland) is found to apply (that being the breaking limit provision in those rules.) 

Reasons of Stewart J at first instance

At first instance, it was held that the contract of carriage was to be found in the Booking Note, entered into by the shipper (which was also the consignee) and the ship owner's commercial agent (Spliethoff Transport, the first Respondent), and not the sea waybill which was issued subsequently. One of the terms of the Booking Note was:

"General Paramount Clause
(a) Except in case of US Trade, articles 1-8 inclusive of the Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading dated Brussels, 25 August 1924, shall apply to this Booking Note….In determining the liability of the Carrier, the liability shall in no event exceed Pounds 100 (GBP) sterling lawful money of the United Kingdom per package or unit."  

It is to be noted that what is generally referred to as "the Gold Clause" (Article 9 of the Hague Rules) was not incorporated. As Stewart J suggested in his Judgment such a sum (calculated with reference to its gold value) would be approximately Pounds 38,167 today (or about AUD70,000) per package or unit. 

Where insureds enter into contracts of carriage by way of a Booking Note confirming the terms of the arrangement between the shipper and the carrier, a court may find that any subsequently issued Bill of Lading or Sea Waybill will be merely treated as a receipt (as opposed to the contract of carriage). That could therefore take the arrangement out of the range of an international convention governing the liability of the carrier, which excludes charterparties. Accordingly, provisions which lessen the limitation amount from the amount which would have applied had a more generous international cargo liability regime been applicable, cannot be said to be null and void under Article 3 rule 8 of the Hague Rules 1924, which provides that a provision which has the effect of "lessening" the carrier's liability under the Rules "shall be null and void and of no effect." Article 3 was therefore given no effect because Article 9 was not itself expressly incorporated in the Booking Note. It is surprising that the Court did not appear to have been invited to find that the limitation relied upon by the carrier (100 Pounds) did lessen the carrier's liability under the Convention and therefore should not apply at all. This is particularly surprising when the Court found that Article 3 rule 8 was relied upon in the context of an argument (which was rejected), that the Australian Amended Hague Rules applied. 

Stewart J was able to discount the provisions of Article 10 in the Australian Amended COGSA which seeks to make that hybrid version of the Hague/Hague Visby/Hamburg Rules applicable where certain Conventions are not incorporated in a particular contract of carriage because none of the provisions in Article 10 was held to be applicable in the circumstances of this case. Those provisions refer to: 

(a) the Brussels Convention; 
(b) the Brussels Convention as amended by either the Visby Protocol or the SDR Protocol or both; and
(c) the Hamburg Convention. 

The Judgments in the Full Court of the Federal Court in the Appeal

The Full Court differed principally from Stewart J in the manner in which they found the contract of carriage had been entered into. The Court found that a "second recap email" contained the terms of the contract, not the Booking Note. It applied English law to it. In addition, by its application of the standard form of Spliethoff's bill of lading, it also incorporated another form of Paramount Clause, that is one which applied "the Hague Rules as enacted in the country of shipment", to the contract, which was then to be interpreted in accordance with English law.

Their honours found that the Hague Visby Rules as enacted in Ireland in the Merchant Shipping Act 1996 applied in reliance on: 

 (i) the reasoning in Kyokuyo Co Ltd v AP Moller-Maersk (The Maersk Tangier) [2018] 2 Lloyds Rep 59 by which the second recap email as the contract of carriage was covered by a bill of lading within the meaning of Article 1(b) and the chapeau to Article 10 of the Hague Visby Rules;
(ii) the Carriage of Goods by Sea Act 1971 (UK) by section 1(2) gave the force of law to the Hague Visby Rules and in consequence clause 3 (a) of the bill of lading that would be issued pursuant to the second recap email fell within Article 10(c) of those Rules; and 
(iii) the Australian Rules did not apply because of Article 10(2) of those Rules.

The Full Court judgments contain a detailed analysis of the law relating to contract formation, including the Australian High Court decision in Masters v Cameron [1954] 91 CLR 353 and the decision of McLelland J in Baulkham Hills Private Hospital P/L v GR Securities P/L [1986] 40 NSWLR 622; Toll (FGCT) P/L v Alphapharm P/L [2004] 219 CLR 165, and the English decisions in RTS Flexible Systems Ltd v Molkerei Alois Miller GmbH and Co KG (UK Productions) [2010] 1 WLR and Pagnan SpA v Feed Products Ltd [1987]) 2 Lloyds Rep. 601; "The Starsin" [2004] 1 AC 744; and Papas Olio JSC v Grains Fourrages SA [2010] 2 Lloyds Rep. 152. 

Their honours also considered the earlier English Court of Appeal decision of the "Superior Pescadores" [2016] 1 Lloyds Rep. 561 which they considered stated the law as it applied currently in the UK as to the meaning to be given to the incorporation of "the Hague Rules" in a Clause Paramount, which the Court of Appeal had decided should be treated as applying to the Visby amendments as well.
The Full Court also decided that it was unnecessary to determine whether the contract amounted to a Charter Party as it incorporated the terms of the bill of lading which it was held resulted in the Hague Rules as enacted in Ireland being compulsorily applicable under English law.

The Full Court also found that it was unnecessary to determine 

"the interesting question about the interaction between Articles 10(6) and 10(7) of the Australian (Amended) Rules in the context of sea carriage documents issued under charter parties. Nor is it necessary to explore what appears to be the anomalous position that the avowedly cargo friendly Australian (Amended) Rules may provide cargo interests with rather less protection when goods are shipped pursuant to sea carriage documents when issued under a charter party than the protection offered under the Hague Visby Rules. That is because of the requirement (in Article 1(i)(g)) that any such sea carriage document must be negotiable, thereby excluding the possibility of the Australian Rules applying to straight bills of lading." 

Comments

As mentioned earlier the multiplicity of alternative carriage of goods liability regimes which are in force around the world is causing a huge hindrance to the efficient operation of cargo claims handling which greater uniformity would otherwise supply. The complexity in having a multiplicity of different carriage regimes which are legislated for around the world and the variety of Paramount Clauses incorporated into Charter Parties or Bills of Lading cause claimants, their insurers and lawyers and shipowners/carriers, their insurers and lawyers litigating recovery claims to face the prospect of incurring ever greater legal expenses in cargo claims litigation in identifying the relevant liability regime which applies to a particular cargo claim. 

There is much to recommend the international acceptance of the UNCITRAL drafted Rotterdam Rules Convention of 2008 at the earliest opportunity, provided states that ratify those Rules also repeal any national legislation dealing with cargo liabilities and renounce any previous Convention or Protocol which they have ratified once the Rotterdam Rules enter into force with 20 Ratifications. 

The effect of the first instance decision highlights only one aspect (of many) as to why the nearly one hundred year old Hague Regime is anachronistic in modern shipping. The fact that any bill of lading could have contemplated that a limitation sum of 100 pounds is still appropriate (when the states that approved the Rotterdam Rules at UNCITRAL in 2008 agreed limitation sums of 875 SDRs per package or shipping unit or 3 SDRs per kilogram of the gross weight of the goods (Article 59)) shows that intervention by states in the form of ratification of a fit for purpose modern regime such as the Rotterdam Rules or domestic legislation giving effect to those Rules is urgently needed to improve the efficiency of supply chains, to properly enable E-Commerce, and to improve safety of the sea.
The writer is the Chair of the Standing Committee of the Comite Maritime International charged with seeking to encourage states to ratify the Rotterdam Rules Convention, which it drafted and passed to UNCITRAL to enable a new Convention to be drafted in 2001. It is the view of the Comitė Maritime International that States need to ratify the Rotterdam Rules and denounce all previous regimes that they have ratified and/or amend their national legislation in order to embrace the Rotterdam Rules in their entirety. 

It is extraordinary that there are only 5 ratifications at the present time after the CMI spent 13 years developing a draft instrument which it hoped would enable uniformity to be re-established, a further six years of debate took place at UNCITRAL, and there has been inactivity (except from the five states who have ratified the Rotterdam Rules) for some 14 years since then. At the time when the Rotterdam Rules were concluded at UNCITRAL there was unanimity of views in favour of early ratification of the Rotterdam Rules by all sectors of industry, from shipowners (and carriers) and their representative organisations, to insurers and their representative organisations and, most importantly, cargo owners whether as shippers or consignees who saw the necessity to replace the Hague Rules and make it more fit for purpose in the 21st Century.