July 20, 2016

The Paramount Clause: Hague or Hague-Visby Rules

In the recent case of The Superior Pescadores SYEMGAS FZCO AND OTHERS V SUPERIOR PESCADORES SA [2016] EWCA Civ 101, Court of Appeal (Civil Division) the Court considered whether on the true construction of the Paramount Clause if the bills of lading incorporated the Hague Rules or the Hague-Visby Rules. The Court’s analysis of the wording of the Paramount Clause in question and a decision as to which Rules applied would determine the limits of liability to be applied to the parties’ cargo damage claim.

The Main Facts

This case arose out of a cargo damage claim for the carriage of machinery and equipment intended for use in the construction of a liquid natural gas facility in Yemen.  The cargo was loaded on the vessel “SUPERIOR PESCADORES” at the port of Antwerp in Belgium. After loading the shipowners issued six bills of lading in the Congenbill form and the bills of lading incorporated into the Paramount Clause which stated “the Hague Rules as enacted in the country of shipment”. The bills of lading acknowledged shipment of the cargo in apparent good order and condition for carriage from Antwerp to Balhaf in Yemen.

While on route crossing the Bay of Biscay, the cargo encountered shifting. In hold number 1 the cargo shifted, causing significant damage. The claimants’ total losses resulting from this incident (ignoring package limitation) were in excess of USD $3.6 million.

The shipowners’ P&I Club provided a Letter of Undertaking to the cargo-owners to pay such sum as might be agreed or adjudged in respect of the claim and further agreed on the shipowners’ behalf that the claim would be subject to English law and jurisdiction. As such, the Hague-Visby Rules as incorporated by the Carriage of Goods by Sea Act 1971 were applicable, as the carriage of the goods was from a contracting state (Belgium).

The Paramount Clause incorporated into the bills of lading issued stated:

The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.”

In response to the cargo damage claim, the defence served by the shipowners admitted liability in respect of the cargo damage claim and to pay the amount of the Hague-Visby package limit, equivalent to just over USD $400,000. They further contended that “it is not open to the Claimants to pick and choose between the Hague-Visby package limit and the Hague package limit, depending on which gives them more“. The application of The Hague Rules propositions a higher limitation figure. The Claimants contend that they were entitled to an additional USD $200,000 in damages at current values as they argued they were entitled to rely on The Hague Rules (package limit of £100) rather than the Hague-Visby Rules.

Judgement

The Court of Appeal held that the wording of the Paramount Clause in this instance contractually incorporated the Hague-Visby Rules, not the Hague Rules. As a result, the Court of Appeal dismissed the cargo owner’s appeal and agreed with the Commercial Court’s decision, interestingly however, via a different reasoning. The Court of Appeal stated that the Commercial Court came to the correct overall conclusion, albeit for the wrong reason. In essence, the Court of Appeal overturned the decision at first instance, providing its judgement on the issues presented.

In reaching their decision, the Court of Appeal had to decide whether on the true construction of the Paramount Clause, whether the clause operates as an agreement between the cargo owner and the shipowner and thus whether the Hague Rules or  the Hague-Visby Rules apply. The Court reviewed in detail the evolution of The Hague Rules dated 25th August 1924 and the “Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (“Visby Rules”)” which were signed on 23 February 1968. Lord Justice Tomlinson stated that:

I am not sure what is the provenance of the expression “the Hague-Visby Rules”. Strictly speaking, there are no such Rules…

“The Visby Rules (the Brussels Protocol of February 23, 1968) should not be considered as a separate convention. The Visby Rules are amendments to the Brussels Convention 1924 and art. 6 of the Protocol stipulates:

“As between the Parties to this Protocol the Convention and the Protocol shall be read and interpreted together as one single instrument”.

Therefore, the judgment asserts that the Hague Rules, as amended by The Visby Rules, was not created as a separate instrument but a protocol update. Consequently, in cases where a bill of lading is issued incorporating “the Hague Rules as enacted in the country of shipment” and the country of shipment (in this case Belgium) has enacted the Hague-Visby Rules, in such an instance the Hague-Visby Rules rather than the Hague Rules will apply.

On the other two points of the judgement:

1. Whether there had been an agreement fixing a higher limitation than the Hague-Visby Rules, the Court found it was not necessary to consider this;
2. Secondly, the date of conversion from gold value into national currency was not considered necessary to be decided. However, Longmore LJ indicated (in agreement with Males J) that the relevant date was the date of delivery or when the cargo should have been delivered.

Comment

Generally, the Paramount Clause will be used by parties to incorporate the terms and conditions of The Hague or Hague-Visby Rules into the contract of carriage of goods by sea, usually into the bills of lading or the charterparty. The Paramount Clause also incorporate particular legislation, such as the Carriage of Goods by Sea Act of a specific state which may have already incorporated The Hague or Hague-Visby Rules into its domestic law. To avoid doubt and clarify specifically whether The Hague or Hague-Visby Rules apply The Paramount Clause can be used to achieve this.

Limits of Liability provided by The Hague and Hague-Visby Rules create an invaluable shield for shipowners, especially in cargo damage claims. When the Paramount Clause is used to incorporate the Rules it must be clear which Rules are being incorporated. Whether The Hague or Hague-Visby Rules apply plays an important role when limits of liability are being calculated for cargo damage claims. Clearly, from this case the differences can be significant; without limits of liability, the claims would be in excess of USD $3.6 million, with The Hague Rules it would be about USD $600,000 and in this instance with The Hague-Visby Rules the lesser of USD $400,000. Thus, knowing which Rules apply would reduce uncertainty with respect to the limits of liability for cargo damage claims. This case established that the expression in a Paramount Clause, “the Hague Rules as enacted in the country of shipment”, will in the eyes of the Courts mean the Hague-Visby Rules.  Thus it is important that the clause is drafted in such a way to avoid ambiguity or uncertainty when incorporating the Paramount Clause into the bills of lading.

Leif Ollivierre

Legal Consultant

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