View source for Sea Tank Shipping v Vinnlustodin HF & Or - the Aqasia

DMC/SandT/21/10

'''England'''

'''Sea Tank Shipping AS v (1) Vinnlustodin HF & (2) Vatryggingafelag Islands FH [2018] EWCA Civ 276 – the “Aqasia”'''

'''England and Wales Court of Appeal (Civil Division), on appeal from the Queen’s Bench Division, Commercial Court: Lady Justice Gloster, David Richards and Flaux LJJ: [2018] EWCA Civ 276'''

Mr Charles Debattista, instructed by Winter Scott LLP, for the Appellant 

Mr Lionel Persey QC & Mr Benjamin Coffer, instructed by Clyde & Co LLP, for the Respondents 

'''CARRIAGE OF GOODS BY SEA: PACKAGE LIMITATION: 1924 HAGUE RULES ARTICLE IV RULE 5: MEANING OF UNIT: WHETHER PACKAGE LIMITATION APPLIES TO BULK CARGO'''

'''Summary'''

This was an appeal against the decision of the Commercial Court dated 3 November 2016, declaring that the appellant, Sea Tank Shipping, was not entitled to limit its liability to the Respondents for damage to cargo carried on its vessel to the sum of £54,730.90. The appeal raised for decision the long-standing question as to the meaning of “unit” in Article IV rule 5 of the Hague Rules; specifically, whether “unit” referred to a physical item of cargo or to a unit of measurement as used by the parties to quantify the cargo in the contract of carriage and hence capable of applying to bulk or liquid cargo. The Court of Appeal upheld the High Court’s findings on the meaning of “unit” in Article IV rule 5 of the Hague Rules, namely that it did not apply to bulk cargoes. 

Case Note contributed by Sri Azali BB (Human Resource Management & Business Law), Paralegal at Penningtons Manches Cooper LLP Singapore

'''Background'''

The dispute arose out of damage to a cargo of fish oil in bulk carried on board the tanker “AQASIA”, pursuant to a charterparty between Sea Tank Shipping (“Sea Tank”), the appellant, as disponent owners, and the first respondent (“Vinnlustodin”) as charterers. The charterparty provided for the carriage of 2,000 tons of fish oil in bulk from Iceland to Norway for a lumpsum freight of NOK817,500. The Charterparty incorporated the Hague Rules, including Article IV rule 5. 

On 6 September 2013 at the Icelandic loading ports, the vessel loaded a cargo of some 2,056mt of Vinnlustodin’s fish oil in bulk. About 550mt of the cargo (the “subject cargo”) was loaded in tanks 1P, 2P and 5S. The Bill of Lading was signed by the Master or his agent acknowledging that the cargo was shipped in apparent good order and condition. Vinnlustodin was named as the shipper of the cargo in the Bill of Lading. Sea Tank, being the disponent owners of the vessel, were not a party to the contract of carriage evidenced by the Bill of Lading. However, in the present proceedings, the charterparty evidenced the contract of carriage between the parties. 

The vessel left Iceland and proceeded to Norway to load another cargo of fish oil, some of which was loaded in tanks 1P, 2P and 5S - hence mixed in with the subject cargo. On arrival at the discharge port, some 547mt of the subject cargo was found to be damaged. For the loss it had suffered as owner of the subject cargo, Vinnlustodin claimed damages in the sum of USD367,836 from Sea Tank. The second respondent who was the insurer of the cargo, joined the proceedings. Sea Tank accepted liability in principle for the damage to the subject cargo but contended that it was entitled to limit its liability to £54,730.90 (that is, £100 per metric ton of cargo damaged) under Article IV rule 5 of the Hague Rules. The parties agreed that, notwithstanding the arbitration clause in the charterparty, the Commercial Court should have jurisdiction to determine the preliminary issue as to whether Sea Tank was entitled to limit its liability to that figure. 

The respondents contended that the word “unit” referred to a physical item of cargo or shipping unit (a combination of items bundled together for shipment) whereas Sea Tank argued that “unit” could mean the unit used to quantify the cargo (for example, kilograms, bushels, tons).

At first instance, the Judge held that the wording “package or unit” under Article IV rule 5 of the Hague Rules did not apply to bulk cargoes, nor did it refer to an abstract unit of measurement. The Judge found that it could not have been in the contemplation of those who drafted the Hague Rules in 1924 that “unit” should apply to bulk cargo as, during that period of time, the gold value of £100 per unit measure was far greater than the value of most bulk cargo, irrespective of which “unit” of weight or measure applied. 

'''Grounds of appeal'''

Sea Tank were granted leave to appeal on two grounds: 

1.	the judgment failed to give effect to the clearly expressed intention of the parties to the charterparty, that owners should be entitled to limit their liability in respect of this bulk cargo pursuant to Article IV rule 5; 

2.	the Judge made a mistake in concluding that the limitation of liability in Article 
IV rule 5 of the Hague Rules did not apply to bulk cargo. 

'''Decision of the Court of Appeal'''

The appeal was dismissed on both grounds. The Court of Appeal found that the meaning of the word “unit” in the Hague Rules could only refer to a physical unit for shipment and not to a unit of measurement or customary freight unit – as confirmed by the travaux préparatoires, Commonwealth authorities and academic commentaries. The issue had also arisen before Mr Justice Andrew Baker in the recent case of the “Maersk Tangier” [2017] 1 Lloyd’s Rep 580, where he decided that English law considers units under the Hague Rules to be “identifiably separate items of cargo, as in fact shipped”. 

In addressing the issue, the Court of Appeal gave four reasons for agreeing with the judgment of the High Court.

Firstly, the word “package” in the rule clearly referred to a physical item and the word “unit” - which was used in the same context - was a strong indication that both words were concerned with physical items.

Secondly, under Article III rule 3(b) of the Hague Rules, there was a clear distinction between “package or pieces” (“unit” being synonymous with “piece”) and weight or quantity.

Thirdly, as opposed to Sea Tank’s submission, the definition of “goods” in Article I was not of assistance in construing Article IV rule 5. Merely because it was a wide definition of goods, it did not follow that every provision in the Rules applied to every type of goods. Some provisions were clearly inapposite to particular types of goods such as bulk cargoes.

Fourthly, Sea Tank’s acceptance of the construction of “unit” potentially having both meanings (either a unit of measurement or unpackaged physical items for shipment) was a powerful point against their argument. It would pose a huge problem, especially in cases where a cargo was described as both a number of units in the charterparty and by total weight in the bill of lading.

Furthermore, the Court of Appeal concluded that even if Sea Tank had a valid argument that the word “unit” should be construed as a unit of measurement, its attempt to limit liability under Article IV rule 5 would fail on the facts of the case. The fixture note only described the intended cargo as 2,000 tons of fish oil in bulk and the bill of lading - which was the only document issued in respect of the cargo which was actually shipped - described the cargo as weighing 2,056,926 kg. On the facts, Sea Tank would be unable to limit its liability as it was not a party to the Bill of Lading contract; moreover, the limitation by reference to kilograms of cargo shipped would produce a sum higher than the amount claimed. 

'''Comment'''

The judgment confirms that in cases where there is no specific provision incorporated in the charterparty to give “unit” a different and clearly defined meaning in limiting liability under the Hague Rules, the word “unit” refers to a physical item of cargo for shipment and not to a unit of measurement of the cargo,

The Hague Rules 1924

Article I

(c) “Goods” includes goods, wares, merchandise and articles of every kind whatsoever except live animals and cargo which by the contract of carriage in stated as being carried on deck and is so carried.

Article III

3(b) Either the number of packages or pieces, or the quantity, or weight, as the case may be, as furnished in writing by the shipper.

Article IV 

5. Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connexion with goods in an amount exceeding 100 pounds sterling per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.