Carriage of Goods by Sea and Provisions

ABSTRACT

The Rotterdam Rules are officially called, ‘The United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea’. Over the past decades, carriage of goods by sea has been regulated by many varying pieces of laws including The Hague Rules, Hague-Visby Rules and Hamburg Rules and other national variations in some countries (McLaughlin, 2009). These laws increasingly led to excessive fragmentation of the law on carriage of goods by sea. in addition, the current legislations have failed to embrace the global nature of the modern international trading environment (Asariotis, 2002). In view if this fact, leading nations in maritime carriage sought to make laws that would deal will these shortcomings and which will be applicable to all the states that carry out carriage of goods by the sea. After a decade of preparation, the Rotterdam Laws came into being and the UN General Council adopted them in 2008. The convention requires the support of twenty one nations that make up 25% of all maritime goods carriage by volume to be fully ratified. The laws govern the rights and obligations of shippers, carriers and consignees in international sea transport (Allsop, 2007). As Goldby notes, “by attaining clarity regarding the responsibilities of all actors in maritime transport, The Rotterdam Rules will give world trade a boost considering that 80% of world trade is conducted by sea” (2009). The laws are therefore an important component of world trade and their proper understanding and interpretation is vital.

INTRODUCTION

This paper is aimed at clarifying the legal issues that surround the Rotterdam Rules and their implications. This will be achieved by analyzing the provisions of the rules and various other publications in concern with the subject of carriage of goods by sea. Of special help to this paper are various publications by The United Nations Commission on International Law- UNCITRAL. This paper will start by analyzing various objectives of the Rules then proceed to look at the provisions put in place to achieve these aims. This paper puts into focus that there are might be varied types interpretations of the laws and hence put special emphasis on the need to reduce ambiguity and maintaining uniformity in application of the law.

OVERVIEW OF THE ROTTERDAM RULES

If it successfully comes into application, ship owners and maritime carriers will have significantly increased liability in respect to carriage of cargo under the convention. In addition to regulating international maritime carriage of goods, it will also legislate for international multimodal carriage of goods (Rhidian, 2009). Due to this fact, UNCITRAL describes the convention as a “maritime plus” instrument which for instance eliminates the ‘nautical fault exception where there exception of error in the navigation or management of a vessel (2009). One notable fact is that under the Rotterdam Rules, the obligation to exercise due diligence in relation to the seaworthiness of a vessel is not restricted to before and as the commencement of a voyage and has been extended to the entire duration of the voyage (Berlingieri, 2009). It takes a stricter stance than Hague Rules and most of the preceding legislations. It also significantly increases the limits of liability per package or unit of weight beyond all the previous laws and provisions. It is therefore apparent that wide adoption of these Laws will lead to increased financial impact to seafarers due to increased liability.

Analysts are of the opinion that ship owners, their investment partners and insurers will be subjected to increased costs of cargo claims. Despite this concerns, the

Convention has many positive features. It retains many of the beneficial aspects of existing legislations. For instance, it retains the existing aspect of network liability. Network liability implies that “liability and the applicable limits of liability for loss of and damage to the goods occurring before or after the sea-leg will be determined by any uni-modal international instrument compulsorily applicable to the relevant mode of transport where the loss or damage occurs” (UNCITRAL, 2009). The importance of this provision is pegged on the fact that the liability for loss and damage applies regardless of whether it occurred in the sea or in the land leg. The concept of ‘fault based liability has also been maintained allowing greater freedom of contract in linear trade to parties.

Just like in the existing conventions, the Rotterdam Rules apply transport documents like the bills of lading and the sea waybills, issued both in liner and in non-liner trades (SITPRO, 2010). It differs from Hague-Visby Rules due to the fact that it does not apply to charter parties whether used in liner or non-liner transportation. While asserting that it does not criticize the use of “through transport” documents, it also does not include an express provision that permits their continuing use. This implies that individual states’ national legislation will continue governing through transport carriage and documentation. Provisions on jurisdiction and arbitration are based on the approach of the Hamburg Rules which are overly restrictive. They give freedom to cargo owners to choose from a number of jurisdictions the court where they can sue the carrier (Rhidian, 2010). It however has the “opt-in” provision which for instance, the European Union would most likely not go for.

AIMS OF THE ROTTREDERM RULES

The general objective of putting up this legislation was to create a harmonized and modern body of rules that would effectively regulate the sea trading environment of the 21st century. This overall objective can be broken down into the following sections:

Legal certainty

Currently there are three legislations that regulate the carriage of goods by sea; the Hague Rule, the Hague-Visby Rule and the Hamburg Rule. Their application is not uniform across different states; while some states have not even ratified them yet, where they are in application they are often interpreted differently from country to country. This difference in application and practice creates legal uncertainty which has far reaching effect on international trade through the transport of goods by sea. The Rotterdam Rules therefore seek to amalgamate these rules and achieve uniformity in their application (Gonzalez, 2002)

Clarification of obligations and liabilities of each contracting party

More clarity is needed in the issues of rights of the controlling party, transfer of rights, rights of suit and delivery of goods (Debattista, 2009). There is need to create a framework that incorporates the obligations and liabilities of ‘maritime performing parties. This will ensure that transfer of rights, rights of suit and delivery of goods will not be covered as it has a happened in the past under the preceding rules.

Modernization

The existing legislations fail to give legitimacy and the functional equivalence of paper-based documentation to electronic transport documents (Marrella, 2005). They also fail to recognize the prevalence of containerization for the international movement of goods. The Rotterdam Rules are aimed at addressing these issue and others through various provisions as will be discussed in the sections that follow.

KEY PROVISIONS OF THE ROTTERDAM RULES

Rotterdam Rules are significantly extensive than any of these Conventions that precede them with 96 Articles. This paper considers the following key provision which are the most notable

Scope of application

“The Rotterdam Rules apply between the carrier and the consignee, controlling party or holder to international contracts of carriage which include an international sea leg” (Marrella, 2005). It therefore holds if in respect to the carriage contract, the place of receipt, the port of loading, the place of delivery, or the port of discharge is locate in the contracting state (United Nations, 2008). There is exception on applicability for charter parties and other contracts for the use of a vessel. UNCITRAL assert that the application of the Convention does not take into regard the nationality of the vessel, the carrier, the performing parties, the shipper, the consignee or nay other interested parties (2009).

Period of application, ‘maritime plus’

The Convention introduces the concept of the ‘door-to-door’ approach which implies that it applies to the entire period that there is carriage of goods from the instance of delivery to the end of discharge in the receiving port. This effectively ensures that the career cannot easily take advantage of network liability where there exist different bases of liability determined by the stage at which damage occurs. Simply put, it creates a single regime liability where the carrier is bound to exercise due diligence in the whole course of the carriage last they be held liable for damages. Rhidian describes the convention as ‘maritime plus’ since it requires a sea leg for it to apply (2009). This in contrast to a perfectly multimodal system

Extension of carrier’s obligations, liabilities, defenses and limitations to ‘maritime

Performing parties’

This is another concept that has been introduced by the Rotterdam Rules. It defines a maritime performing party as any person other than the carrier that performs any of the carrier’s obligations directly or indirectly at the carrier’s request or under the carrier’s supervision or control” (United Nations, 2008). This implies that side parties at the port such as terminal operators, stevedores are subject to the liabilities and obligations applicable to the carrier under this convention since it covers events between the period of arrival of the goods at the port and their departure from the port. They are also entitled to the same defenses and limits of liability under certain circumstances (Rhidian, 2009). It also classifies inland carriers as ‘maritime performing parties’ who are not subject to the provisions of the Convention.

Volume contracts

There is a provision that gives freedom to derogate from the Rotterdam Rules in respect of ‘volume contracts’ for a series of shipments of specified quantities of goods during an agreed period of time (Debattista, 2009). Despite this provision, regulations on seaworthiness, crewing and ship equipping cannot be omitted in any case. Also, under Articles 29 and 32, it stipulates that there can be no omissions or amendments on the provision of information dangerous goods the limits of liability and the loss of the right to limit liability

Seaworthiness

In regards to the obligations of the carrier, The Rotterdam Rules the carrier to exercise due diligence in ensuring the ship and all its holds are seaworthy not just from the beginning of the voyage in the entire period that the goods are under the care of the carrier (Debattista, 2009). This means that the duty to duty to maintain seaworthiness begins from the instance of loading to the end of discharge in the receiving port. In the previous regulations, lack of such a provision created different bases of liability determined by the stage at which damage occurs which made it easy for the carrier to take advantage of network liability.

Obligations of the shipper

The obligations and liability of the shipper are contained in Article 27 and 29. They are follows; “… the shipper shall deliver the goods in such condition that they will withstand the intended carriage, including their loading, handling, stowing, lashing and securing, and unloading, and that they will not cause harm to persons or property (United Nations, 2008). “..The shipper shall provide to the carrier… such information, instructions and documents relating to the goods that are not otherwise reasonably available to the carrier”. This will allow the carrier to: comply with applicable laws and regulations; compile the contract document; and arrange for the proper handling and carriage of the goods (United Nations, 2008). These regulations are much stricter than the pervious regime of laws which raises concerns that they will lead to increased costs due to increased liability. It should however be noted that they are a positive step forward since they require that all participants exercise their duties carefully hence effectively reducing many conflicts and offering clarity in arbitration where conflicts have already occurred.

Limits of liability

The Rotterdam Rules extend the limits of liability from those included in previous Conventions. There is liability for delay which is covered which was previously covered under the Hamburg Rules but which was absent in Hague-Visby rules. The carrier’s liability is limited to 875 SDR5 (5 Special Drawing Units) per package or 3 SDR units per kilogram of gross weight, whichever is higher (UNCITRAL, 2009). It also states that the liability for economic loss due to delay must be no greater than the limits stated, it should be two and one half times the freight payable on the goods delivered.

Time limit for claims

Under Article 62 the time limit for any claim is extended to two years. The two year period commences on the day on which goods have been delivered. In case there is no delivery, the two year period commences on the last day on which the goods should have been delivered (Goldby, 2009). It is anticipate that the increase on the time limit for claim will translate into more claims since aggrieved parties have more time to decide whether or not to bring a claim forward.

Burdens of proof

The Rotterdam Rules increases the carrier’s burden of proof with regard to the condition of the goods when they arrive at the port of loading and when they leave the port of discharge (Asariotis, 2002). To prove liability, Article 17(1) requires that the claimant must prove that the loss, damage or delay of the goods took place during the period of the carrier’s responsibility (UNCITRAL, 2009). It the cause of the loss, damage or delay is not attributable to the carrier, this liability may be mitigated in part or in full. Exceptions to be considered include if; the damage, loss or delay is an act of God, as a result of perils, dangers and accidents of the sea, quarantine restrictions, war, strikes, lockouts, stoppages, restraints of labor and other reasons out of the career’s control (Asariotis, 2002). The exceptions to liability are greatly extended than in the previous laws hence in this case, The Rotterdam Rules are inclines to favor the carrier.

Choice of jurisdiction and arbitration

The Articles with provisions on the choice of jurisdiction and arbitration are a totally new concept. States can freely decide whether or not to adopt the provisions on jurisdiction. The provisions jurisdiction can be seen to be more ‘cargo friendly’ since the claimant is allowed to bring actions against a maritime performing party in a competent court within a number of jurisdictions which include; the home country of the carrier, the place of receipt of goods, the place of delivery of goods, or the initial ports of loading or that of final destination for the goods (Debattista, 2009). However, the contract of the carriage may contain an exclusive jurisdiction clause that clearly designates a specific court or courts. In this case, the parties to the dispute are obligated to resolve it in the stated court or courts. A contracting state is obliged to comply with and enforce a decision made in another state by a court with jurisdiction under this convention (Goldby, 2009)

Jurisdiction – Volume Contracts

A volume contract may contain an exclusive jurisdiction clause which is enforceable only; if it clearly states the names and addresses of the parties, is negotiated individually and if it contains the statement the there is an agreement of an exclusive choice of court specifying the section of the contract that identifies the court (UNCITRAL, 2009). For a court to hear a case, the defendant must not contest its jurisdiction.

APPLICATION OF THE RULES

The Rotterdam Rules have faced certain challenges from the sea trading community due to certain controversial aspects. The major ones are discussed below.

Volume Contracts

This provision which has been discussed in the previous section was included at the instigation of the US and has attracted the greatest concern from various industry players. It gives legal backing to the freedom of contract for the category of transport contracts, often named ‘service contracts’ (Debattista, 2009). Since the Rotterdam Rules are mainly aimed at creating legal uniformity to contracts for the carriage of goods by sea, this exemption for the US, derogates the Convention and many have argued that it should not be allowed. Marrella argues that “the definition that has been adopted for such contracts is so wide that it could potentially include small contracts, in which equal bargaining power is unlikely to exist – even with the limitations provided for” (2009).

The impact of this provision could be significant. Currently about 90% of containerized cargo in the world moves under ‘service contracts’ which implies that under these laws a huge percentage of cargo will be moved under volume contracts. Such a scenario would introduce an unregulated fashion of shipping which was not the case prior to the introduction of the laws. So that they do not do more harm than good, the rule should be amended to achieve uniformity.

Multi-modal versus Uni-modal Conventions

Quoting Article 1 (1) of the Rotterdam Rules, the contract of carriage means “a contract in which a carrier, against the payment of freight, undertakes to carry goods from one place to another. The contract shall provide for carriage by sea and may provide for carriage by other modes of transport in addition to the sea carriage” (United Nations, 2008).

This means that in addition to the international carriage of goods by sea of a door-to-door movement of goods the laws will also apply to transportation by other modes preceding or following the maritime segment (Goldby, 2009). There are concerns that the Rules could conflict with other Conventions that are uni-modal in nature. Moore expresses doubt on whether the Convention would be applicable in the event of a dispute (2008). He argues that “the Rotterdam Rules could put some shippers in a less favorable position than prior to the introduction of the original Hague Rules” (Moore, 2010). UNCITRAL alleviates this concern by providing that, “Nothing in this Convention affects the application of any … international conventions [governing carriage of goods by air, by road, by rail, by inland waterway]… that regulate the liability of the carrier for loss of or damage to the goods” (UNCITRAL, 2009).

CONCLUSIONS

It is an inevitable fact that the Rotterdam Rules will increase ship owners’ liabilities to a great extent. Despite this, the new law will accomplish the important task of providing the much needed uniformity and precision for legislation on international carriage of goods by sea. It effectively counters the problem of legal uncertainties that has been a major challenge for the previous regime of laws. These rules also incorporate modern business practices including containerization, door-to-door multimodal contracts, electronic aspects and e-commerce. They will go a long way in improving the sea trade and transport business which is a vital component of the world economy.