Especially in the container and breakbulk trades, bill of lading terms can simultaneously incorporate the Hague or Hague/Visby Rules, and contain provisions that are inconsistent with those Rules. Those provisions are typically directed at matters like time limits, claim notifications, the duration of the carrier’s responsibility for cargo, and limits of liability.
What happens when those provisions collide with the incorporated Rules?
This was the battleground for the dispute between the carrier and cargo interests in the recently delivered judgment of the Commercial Court in England in The Alion. The Court considered whether bill of lading terms that had the effect of shortening the usual one-year time bar in Art 3 r 6 of the Hague/Visby Rules were enforceable. It held that they were not.
Key takeaways
Carriers must recognise the risk that contractual terms that are more favourable to them than the Hague or Hague/Visby Rules would not be upheld even if those Rules are only incorporated by agreement.
- Where the Hague or Hague/Visby Rules do not apply compulsorily by statute, incorporating those rules into a contract of carriage by way of a paramount clause reflects a contractual intention that the Hague or Hague/Visby Rules would prevail over other inconsistent terms.
- In such cases, the anti-repugnancy provision in Art 3 r 8 of the Hague or Hague/Visby Rules would operate to nullify any other term in the contract of carriage that relieves or lessens the carrier’s liability compared to what is provided in the incorporated Rules.
- To achieve a different result, there must be clear words conferring a higher priority to other terms, or limiting the effect of Art 3 r 8.
Background
In September 2021, the claimants’ cargo was shipped in containers on board the vessel, ALION, for carriage by sea from India, the UAE and Saudi Arabia to Mombasa, Kenya. The defendant was the time charterer of the vessel and the contractual carrier, having issued the bills of lading in relation to the cargo.
The terms on the reverse of the bills of lading, which were governed by English law, contained a paramount clause that incorporated Arts 1 to 8 of the Hague/Visby Rules (HVR).
Additionally, cl 18 of the reverse terms included two provisions:
- that ‘any claim other than for loss or damage to [the cargo]’ would be ‘time-barred’ if the claim was not submitted with full documentation within 20 days from the day when the cargo was or should have been delivered (20-day notice provision); and
- that ‘[s]uit shall not be considered to have been brought within time specified unless process shall have been actually served’ (service provision).
The vessel suffered a main engine failure during the voyage, and received salvage assistance rendered on LOF terms. Once salvage was completed, general average was declared.
The following events then ensued:
- 6 Dec 2021 – Vessel finally discharged at Mombasa.
- The cargo was released to the claimants in exchange for salvage security and general average security.
- Jul 2022 – Claimants settled the salvors’ claim in relation to the cargo.
- 3 Nov 2022 – Claimants notified the carrier of their claim for indemnity in relation to the salvage claim settlement and other costs relating to the cargo’s safe release to cargo receivers at Mombasa.
- The carrier granted the claimants extensions of time to bring any action in relation to the claim. The last extension was until 20 Jun 2023. These extensions were granted with the proviso that the claims were not already time barred.
- 16 Jun 2023 – The claimants commenced an action on the claim in the English court.
- 5 Jul 2024 – The originating process was served on the carrier.
Arguments
The carrier contended that the action was time-barred for two reasons.
First, the claim had not been submitted along with full documentation within 20 days of delivery. The claim was notified to the carrier only in November 2022, well after the period stipulated by the 20-day notice provision.
Secondly, the originating process was not served by 20 June 2023 (the last date to which the carrier had granted a time extension), and therefore, by operation of the service provision, the claim was time-barred.
The carrier argued that cl 18 prevailed over the terms of the HVR incorporated by the paramount clause.
In response, the claimants sought to strike down those two provisions of cl 18 for being more favourable to the carrier than the one-year time bar provision in Art 3 r 6 of the HVR, and therefore, unenforceable by operation of the anti-repugnancy provision in Art 3 r 8.
Relevantly, Art 3 r 6 provides: ‘… the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered.’
Decision
The proper approach was one of contractual interpretation.
Often, when an external set of terms is generally incorporated into a contract, the specific terms of the contract would prevail over the incorporated terms. That, however, is not invariably the case, and the true position is revealed by carefully examining the contract as a whole.
Undertaking that examination, it was ‘highly significant’ that the incorporation clause was entitled ‘clause paramount’. That well-known description elevates the clause such that it ‘overrides any express exemption or condition that is inconsistent with it.’ The Court observed that there was no other provision within the terms that expressly purported to prevail over the paramount clause.
The Court also observed that the paramount clause did not effect a wholesale incorporation of the HVR, but instead a deliberate (albeit substantial) selection of those rules, including Art 3 r 6 and Art 3 r 8, the latter of which protected the former from terms repugnant to it.
The paramount clause specified circumstances which would prevail over the anti-repugnancy provision in Art 3 r 8 (which were not relevant to the time bar question), and there was otherwise no clear provision to the effect that it would be relegated beneath other terms. Clear words would have been necessary to exclude or limit the rights afforded to the claimants by Art 3 r 6 read together with Art 3 r 8, but there were none.
In the circumstances, Art 3 r 8 had the effect of preserving the one-year time bar in Art 3 r 6, notwithstanding that the 20-day notice provision and the service provision provided to the contrary in cl 18.
On the salvage indemnity claim
There was a separate argument about the proper characterisation of the salvage indemnity claim, and whether the 20-day notice provision in fact applied.
The provision applied only to claims ‘other than for loss or damage to [the cargo]’. The carrier contended that the part of the claim for salvage indemnity was a claim for economic damage, not one related to the loss of or damage to the cargo, and that the provision therefore would apply.
The point was moot because the Court had found that even if the provision applied, it would be rendered unenforceable. Nevertheless, the Court made some observations about the matter.
Bright J was unconvinced that there was a clear distinction between economic damage on the one hand, and physical loss of or damage to the goods on the other. In any event, his Honour held that the reasoning in The Thorco Lineage[1] applied, at least by analogy, such that the salvage indemnity claim was a claim for damage to the cargo.
In reaching that view, the Court also endorsed the analysis by Derrington J, in the Federal Court decision of The Ikan Jahan,[2] that the salvor’s lien over the cargo (in exchange for which the claimants had provided salvage security) represented a form of property damage.
Final observations – the Australian context
Where goods are shipped out of, or from, Australia, the Australian version of the HVR would usually apply by force of law. In those cases, Art 3 r 8[3] would strike down any term of the contract of carriage that lessens the carrier’s liability from that otherwise provided by those rules.
However, in place of the Australian HVR, the Australian COGSA allows the application of the Hague or Hague/Visby Rules to inbound carriage of goods where those rules are incorporated by agreement.
There is high authority for the principle that where the rules apply by agreement, rather than compulsorily by statute, they may be amended by the parties.[4]
In such a case, it is not abundantly clear the extent to which any contractual modifications to those rules would be enforceable under Australian law. In The Dijksgracht, Stewart J of the Federal Court was prepared to accept that ‘a minor or insignificant modification’ would be permissible, ‘particularly where the modification does not lessen the liability of the carrier from what it would be under the unmodified Convention in question.’[5]
Whether or not the principle in The Dijksgracht is firmly established, the decision in The Alion provides a persuasive basis to restrict the carrier’s ability to rely on more favourable terms in the relevant contract of carriage than what is provided by the HVR.
Carriers will need to recognise the clear risk that such terms would be unenforceable.
| For more information, please contact: Ashwin Nair Director E ashwin.nair@nairlegal.com M +61 411 786 671 W www.nairlegal.com |
[1] [2023] EWHC 26.
[2] Tritton Resources Pty Ltd v Ever Rock Navigation SA [2019] FCA 276; [2019] Ll Rep 235.
[3] Which is no different from Art 3 r 8 of the Hague/Visby Rules.
[4] The Tasman Discoverer [2004] UKPC 22, [16] – on appeal from the New Zealand Court of Appeal.
[5] [2022] FCA 1038, [209], partly overturned on appeal, but the appeal judgment did not need to consider this issue.