Law of Carriage of Goods

Advantages Of Rotterdam Rules Over The Hague-Visby Rules.

Preliminary

This memorandum of advice has been prepared at the request of the Attorney-General who is aware of developments in the law relating to the carriage of goods by sea, in particular the formulation and opening for signature of the Rotterdam Rules. It addresses legal issues that arise in relation to whether or not Australia should adopt the Rotterdam Rules in preference to the Hague-Visby Rules.

Executive Summary

The Hague Rules were amended in 1968 and became known as the Hague-Visby Rules In 2008, about 24 countries including Australia adopted the Hague-Visby Rules.

Australia is a party to the Hague-Visby Rules, and the Carriage of Goods by Sea Act 1991 (Cth) incorporates arts 1-10 of the Hague-Visby Rules. While the Hague-Visby Rules were intended to redress the unfairness to the shipper in the Hague Rules it now appears that the Hague-Visby Rules and the Hamburg Rules will be superseded by the Rotterdam Rules.

In September of 2009, sixteen countries have officially expressed their support for the new UN Convention during the official Signing Ceremony in Rotterdam, the Netherlands. These States signed the Convention known as the ‘Rotterdam Rules’, which describes the rights and obligations involved in the maritime carriage of goods. Important seafaring nations such as the United States, Norway, Denmark, Greece, France and the Netherlands are among the signatories.

The Rotterdam Rules bring more clarity regarding who is responsible and liable for what, when, where and to what extent when it comes to transport by sea.

The Rotterdam Rules will give world trade a boost considering that 80% of world trade is conducted by sea. If the same law applies all over the world, this will facilitate international trade by making its underlying contracts and documentation more efficient and clearer.

The Rotterdam Rules provides for volume contracts that allow the parties to enter into mutually negotiated agreements through which they can derogate from the Rules, subject to certain safeguards, regardless of whether such derogation increases or decreases the carrier’s obligations.

Having said this, the Rotterdam Rules are hugely ambitious in scope. As well as carrier liability, jurisdiction and arbitration, they deal with direct claims against sub-contractors (such as port operators), dangerous goods, deck carriage, the carrier’s identity, deviation, modifying the contract of carriage, what information is required in “transport documents”, “prepaid freight” endorsements, and the disposal of uncollected goods, to name but a few areas.

Background

The carriage of goods by sea is presently regulated by both international conventions and domestic laws. The prevailing regimes for the carriage of goods by sea are “one-way mandatory,” which means that contracts must not derogate from the convention to the shipper’s detriment, but derogation that increases the carrier’s obligations is allowed. The United Nations Commission on International Trade Law (UNCITRAL) has spearheaded the creation of a new international regime for the carriage of goods by sea, the ultimate objective of which is to replace the present fragmentation in this area of maritime law. This state of affairs manifested in the coexistence of three sets of international convention rules, namely the Hague Rules, the Hague-Visby Rules and the Hamburg Rules and the proliferation of national “hybrid” regimes. The situation is worsened by these hybrid regimes often applying inwards and outwards, thus creating a nightmare for legal practitioners and their clients in terms of conflict of laws issues. In view of the urgency of the situation, two international bodies, the CMI and UNCITRAL joined forces to promote reform in the law of international carriage of goods by sea.

Signatories as at 2nd October 2009, include Armenia, Cameroon, Congo, Denmark, France, Gabon, Ghana, Greece, Guinea, Madagascar, The Netherlands, Nigeria, Norway, Poland, Senegal, Spain, Switzerland, Togo and the United States of America. The Rules will apply to contracts of carriage between States if: the place of receipt; the port of loading; the place of delivery; or the port of discharge is in a contracting State.

The New Rules

In bringing a balance between the interests of shippers and carriers, the Convention will have a far broader application and, if the criteria are met, will also apply to stevedoring services and terminal storage services. This overcomes present difficulties faced by cargo interests and freight forwarders in bringing direct claims against terminal operators and feeder service providers. When loss occurs during the period of the carrier’s responsibility before loading or after discharge from a ship, the Convention will not apply over those of another international convention that cannot be departed from by contract either at all or to the detriment of the shipper under that instrument.

This may cause problems in practice as a frequent problem with multimodal carriage is identifying when and where the goods were damaged. If the damage or loss occurred at several different stages of the carriage or was progressive, then the parties are bound to end up arguing over which convention applies. However, there is no international convention governing the liability of terminal operators.

The Convention will apply to contracts of carriage where the place of receipt and delivery are in different countries and the port of loading and discharge are in different countries if any one of either the place of receipt, port of loading, port of discharge or place of delivery is located in a contracting state. It will therefore not only apply to the sea legs of door-to-door container movements to or from a contracting state but also to carriage by other modes provided that no competing international convention applies.

This therefore provides a single liability regime and removes the ability of carriers to take advantage of a system of network liability, providing for a different basis of liability depending upon the stage during which the loss or damage occurred and that shifts the liability away from the carrier in the case of a claim. The Convention is not generally applicable to “non-liner transportation” (as defined) although there are some exceptions to this.

The days of terminals relying on their own standard conditions (further to the doctrine of “bailment on terms”) or excluding liability altogether (further to the carrier’s Himalaya clause) are probably numbered. Whether terminal operators will be able to negotiate indemnities from carriers to compensate for any liability in excess of their current terms and conditions remains to be seen.

The jurisdiction provisions in the Convention are particularly cargo friendly and allow the shipper to commence actions against a maritime performing party in a competent court with the jurisdiction of the domicile of the maritime performing party, the port where the goods are received by the maritime performing party, the port where the goods are delivered by the maritime performing party or the port in which the maritime performing party performs its activities with respect to the goods. However, the adoption of the jurisdiction provisions by contracting states is optional.

How Are The Rotterdam Rules Different From The Hague- Visby Regime?

There is currently fierce debate between various sectors of the shipping industry about the Rotterdam Rules. The Rules are intended to replace the Hague, Hague-Visby Rules and the Hamburg Rules.

Following original drafting work undertaken by the Committee Maritime International (CMI), in 2009 a working group set up by the United Nations Commission on International Trade Law (UNCITRAL) finalised the terms of a new international convention formally known as the United Nations Convention on Contracts for the International Carriage of Goods, wholly or partly by Sea. The new Convention is now known as the Rotterdam Rules.

The Differences

The Rules use descriptions such as “volume contract” and “maritime performing party” which will need clarification.

Volume Contract

A “volume contract” is defined as a contract of carriage providing for carriage of a specified quality of goods in a series of shipments during an agreed period of time. A volume contract gives the carrier and the shipper almost complete freedom of contract in relation to negotiating the contract of carriage, subject to certain protections for shippers. The terms of any volume contract which derogate from the Convention would apply not only between the carrier and the shipper but would extend to maritime performing parties and others provided that they received information stating that the volume contract derogated from the Convention and expressly gave their consent to be bound by such.

Maritime Performing Party

A “maritime performing party” is defined by the Convention as a person other than the carrier that performs any of the carrier’s obligations under a contract of carriage, directly or indirectly at the carrier’s request or under the carrier’s supervision or control during the period between the arrival of the goods at the port of loading (gate in or discharge from inland water carriage) and their departure from the port of discharge (gate out or loading to inland water carriage). Terminal operators therefore fulfil the criteria of a maritime performing party.

The Convention allows the carrier to increase its limits of liability in favour of shippers although a maritime performing party would not be bound by these higher limits, or other obligations assumed by the carrier in addition to those considered in the Convention, unless it had expressly agreed to accept such. Although a maritime performing party may assume liability under the Convention, the carrier remains liable also and their liability is joint and several, although only up to the limits provided under the Convention.

Liability

The Rules seek to establish lines of liability for carriage from door to door. The emphasis in the Hague-Visby Rules was from port to port from the point of loading to the point of discharge. The Rotterdam Rules seek to push responsibility for a wider carriage onto the carrier who would be responsible for the goods from the point of “receipt” until the point of “delivery”. It is not clear whether this would have an impact on other conventions like CMR which seek to deal with the land based side of the transportation regime. In addition, the number of defences available to a carrier from door to door is intended to be reduced. A carrier’s ability to rely upon the negligent act of an employee due to a navigation error will be cut down.

Limits of liability are increased to the higher of 875 special drawing rights (SDRs) per package or other shipping unit or 3 SDRs per kilo of the gross weight of the goods affected. The Hamburg Rules attempted to increase those levels. Under the new convention, the carrier’s liability is now limited to three SDR’s per kilo and/or 875 SDR’s per package. The time limit for initiating legal proceedings for claim has been extended from one to two years.

There is a rather curious set of clauses within the Rotterdam Rules which basically says that where there are “volume contracts” parties are actually free to contract out of most of the liability regime detailed above as long as the contract provides a “prominent statement that it delegates from this convention”. Carriers are not allowed to contract out of their obligations to exercise due diligence to make and keep the ship seaworthy or look after the crew and equip the ship accordingly. The ambit/extent of the “contracting out” is unclear.

It is interesting to see how the various interests within the community are reacting to the advancement of the Rotterdam Rules. To a greater or lesser extent the impact of the Rules will be felt as market conditions determine. At the moment, the European Freight Forwarders have stepped up their criticism on the Rules describing the proposals in the convention as “a very extended grey area of uncertainty” that will actually add to supply chain confusion. On the other hand, organisations such as the ICC and the World Shipping Council (WSC) has called for the Rules to be adopted.

The United Nations presented the new legal framework on the basis that they were to take into account technological and commercial developments that have occurred in the maritime transport industry over the last few decades. Shippers are clearly concerned that the “get out clauses” in relation to volume contracts will provide owners with an opportunity to contract out of the new rules. For their part, owners and operators are aware that the contractual obligations provided by the new convention goes wider than the current regimes but that there is an opportunity to narrow their effect. It has been suggested that certain nations are in favour of adopting the new regime, such as the US and Japan.

Conclusion

Will Australia adopt the Rotterdam Rules? National legislation is still required to give effect to the Convention and it may be that after signing the Convention some States back away from formal ratification.

At this stage, neither Australia nor New Zealand have signed the Convention and have shown a generally negative response to it. However, with support from a number of Australia’s major trading partners (including most significantly the United States of America) there will be considerable pressure to reconsider the stance adopted to this point.

Although the Convention is generally far more complex than previous carrier liability regimes, there are some provisions that are more favourable to trading nations such as ours and some provisions that are less favourable. Time will tell if a decision is made to ‘take the good with the bad’ for the sake of wider international uniformity in relation to carrier liability. The outcome will also depend on the future decisions made by States such as the United Kingdom, Germany, India and China, each of whom have not yet signed the Convention. One would think that if these States come on board, the case for support from Australia might become hard to resist. Even if Australia does not adopt the Convention, the Rules are likely to have an increasingly significant effect as they will apply to shipments into Australia from the States who have adopted the Convention. It is accordingly suggested that all companies involved in the international transport of goods, be they importers, exporters, carriers or insurers, will need to be aware of the Rules and should begin to prepare for their operation and effect.

In view of the outlined advantages it would be in Australia’s interests to stand beside the important seafaring nations such as the United States, Norway, Denmark, Greece, France and the Netherlands in supporting the Rotterdam Rules.