Court of Appeal upholds Aqasia ruling

The Court of Appeal recently upheld the decision of the Commercial Court on the applicability of the limitation in Article IV rule 5 of the Hague Rules to bulk cargoes, writes Joanne Sharma, Syndicate Associate, Americas Syndicate, Steamship Mutual.

In the case of Vinnlustodin Hf and Another v Sea Tank Shipping AS (The Aqasia) a dispute arose out of damage to a cargo of fish oil in bulk carried on board the Aqasia, pursuant to a Charterparty that incorporated into its terms the Hague Rules.

That the cargo had been damaged was not in dispute. The contested issue was the right to limitation under Article IV rule 5 of the Hague Rules.

Charterers’ claim was based on 547,309 kg of cargo, amounting to a claim for losses of $367,836, plus interest and costs.

Owners argued that the claim should be subject to the limitation provisions of Article IV rule 5 and that the word “unit” could applied to the measurement used to quantify the cargo in the contract of carriage.

Freight had been paid as a lump sum. However, the cargo had been described in the Charterparty as “2,000 tons cargo of fish oil in bulk, 5% molchopt (more or less charterers’s option)”. Therefore, Owners argued that the limitation of £100 should be applied with the relevant “unit” being a metric ton. If Owners were correct, the claim would be limited to approximately £54,700.

The parties agreed to submit the point to the Commercial Court as a preliminary issue. The Commercial Court determined that the phrase “package or unit” referred to physical items rather than units of measurement for the purposes of freight. The Court found in favour of Charterers, concluding that the Hague Rules limitation was not intended to apply to bulk cargoes. The term “unit” was meant to apply to unpacked physical items and not units of measurement.

Owners appealed the decision to the Court of Appeal on two points:

1.     The judgment failed to give effect to the intention of the parties; Owners should be entitled to limit its liability in respect of bulk cargo pursuant to Article IV rule 5; and

2.     The judge had erred in concluding that the limitation of liability in Article IV rule 5 of the Hague Rules did not apply to bulk cargo in a number of respects.

It was common ground between the parties that in ordinary language the word “unit” was capable of being a physical item of cargo, a shipping unit and a unit of measurement such as weight or volume. Despite Owners’ submissions, the Court of Appeal were of the firm conclusion that in the context of the Hague Rules “unit” meant a physical item of cargo and not a unit of measurement.

The Court of Appeal acknowledged the issue raised before the Commercial Court that the relative low value of bulk cargoes in the 1920s compared to the package limitation explained why it was not considered necessary at that time to insert any express provisions for limitation dealing with bulk cargoes. If on the true construction of Article IV rule 5 it did not apply to bulk cargo it should not be permissible to strain the language to make it apply, even if it was desirable in a modern context of higher bulk commodity prices.

Sharma commented that the Court of Appeal’s judgment confirmed what had been widely considered by the industry to be the position under the Hague Rules. However, the point had not until this matter been put to the test before the English Courts.

Sharma noted that it remained open to the parties to a charterparty to agree bespoke provisions if they wished to incorporate the limitation provisions of the Hague Rules and for these to have effect by reference to a specific measurement or freight unit.