The owners accepted liability for the damaged cargo but argued that they were entitled to limit their liability to GBP 54,730.90 by relying on the limitation amount per package or unit under Article IV(5), namely to GBP 100 per tonne. The owners claimed that the parties had clearly intended Article IV(5) to apply to a bulk cargo, having incorporated it into a charterparty where bulk cargo was the only type of cargo contemplated.

The matter was referred to the court. For the purposes of Article IV(5), it was agreed that the definition of a ‘package’ could not apply to bulk cargoes, so the question for the court was whether the definition of a ‘unit’ could apply.

Decision

At first instance, Sir Jeremy Cooke held that the owners could not limit their liability, as Article IV(5) does not apply to bulk or liquid cargoes as they are neither packaged nor unitised. He held that a ‘unit’ meant a physical unit for shipment and not a unit of measurement, such as a metric tonne. In any event, he added that even if the latter interpretation was wrong, ‘unit’ must then refer to ‘freight unit’. As the charterparty provided for lumpsum freight (i.e. freight is paid irrespective of the cargo quantity), the limit could not apply to bulk cargoes. The owners appealed.

The main issue considered by the Court of Appeal was whether a ‘unit’ in Article IV(5) of the Hague Rules refers to:

• a physical item of cargo or shipping unit; or
• a unit of measurement used to denominate or quantify cargo in the contract of carriage.

In rejecting the owners’ appeal, the Court of Appeal upheld the first-instance decision and found that the word ‘unit’ in Article IV(5) of the Hague Rules meant a physical item of cargo, not a unit of measurement for the following reasons:

• The word ‘package’ clearly refers to a physical item and the use of the words ‘package’ and ‘unit’ together suggests that both words concern physical items rather than units of measurements.
• This is also evident from Article III(3)(b) of the Hague Rules, which refers specifically to both the weight or quantity of cargo: “After receiving the goods into his charge the carrier or master shall issue a bill of lading showing… either the number of packages or pieces, or the quantity, or weight, as the case may be”.
• Giving the word ‘unit’ different meanings for different types of cargoes (ie. physical items and units of measurements) also creates an obvious problem. The example used was unpackaged items such as cars, where bills of lading not only specified the number of units in the sense of the number of cars, but also their weight. Which of the two was to be taken to be the ‘unit’ for limitation purposes was unclear.

Comment

In light of the court’s interpretation of Article IV, it did not matter what the parties intended when they incorporated it into the charterparty. In order to limit liability for bulk or liquid cargoes in these circumstances, the owners should have:

• included a deeming provision in a charterparty giving Article IV(5) and ‘unit’ a different meaning; or
• incorporated the Hague-Visby Rules package limitation, which include a weight factor.

This case confirms that Article IV(5) of the Hague Rules does not apply to bulk and liquid cargoes and therefore a carrier cannot limit liability for such cargoes under said rules – an issue which has been lacking direct authority for over 90 years.