This article outlines a recent UK decision on “package or unit” and then briefly compares the US position, with interesting differences highlighted.

United Kingdom

By defining a “unit” under the Hague Rules, an English Court of Appeal judgment now means that, unless clear and purposive words are used, there is no such limitation for bulk or liquid cargoes.

These are routinely described in Bills of Lading as for example x tons, kilos, tonnes, litres or barrels, and one way or another many liftings are still subject to the Hague Rules. The “AQASIA” ([2018] EWCA Civ 276) means that carriers cannot ordinarily limit cargo loss and damage claims according to such measures.

Owners loaded about 2,000 tons of bulk fish oil under a carriage contract that incorporated the Hague Rules. They did not contest liability for damage on outturn, but cited Article IV rule 5, which limits liability for loss or damage to £100:

“… per package or unit … unless the nature and value of [the] goods have been declared …. and inserted in the bill of lading ….”.

Contrast Article IV rule 5(a) of the Hague-Visby Rules, which (with an identical exception) limits such liability to:

“ … 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher”.

So the Hague-Visby Rules offer an alternative, according to weight, but the Hague Rules do not.

The court had to decide what “unit” meant, as both sides accepted that “per package” did not apply to bulk or liquid. Cargo interests said that “unit” was a physical item of cargo, or a shipping unit. Shipowners argued that it could mean a unit of measurement, as commonly used to quantify goods in a carriage contract. So it could apply to bulk or liquid cargoes, with limitation according to the stated number of kilos, litres or barrels, for example.

The Court of Appeal upheld the first instance judge in saying that “unit” meant a physical item of cargo or a shipping unit. Cargo interests prevailed. The search was for “the identifiably separate items of cargo, as in fact shipped”, not a unit of measurement, and standard Hague Rules limitation did not apply to bulk or liquid.

Under English law, the parties can still make the Hague Rules limitation apply to such cargoes by using suitable wording – they might, for instance, agree what “unit” means – but just incorporating the Hague Rules is not enough.

United States

Under US law, COGSA 1936 covers ocean carriage to and from US ports and limits a carrier’s liability for cargo loss or damage to US$500:

“ … per package … or in case of goods not shipped in packages, per customary freight unit”.

(A provision similar to the Hague/Hague-Visby exception operates slightly differently, overriding the $500 limit, in circumstances where the shipper has not been given sufficient notice to opt for higher value at increased freight.)

US COGSA straightforwardly distinguishes between goods shipped in packages and other goods.

One leading US definition of a COGSA “package” is “a class of cargo, irrespective of size, shape or weight, to which some packaging preparation for transportation has been made which facilitates handling, but which does not necessarily conceal or completely enclose the goods”. Thus, while US analysis differs in approach to that of the UK – a key notion is at least some form of attachment or encirclement – there is no detectable scope for its application to bulk or liquid cargoes.

By contrast, for these and also perhaps unenclosed cargoes – for “goods not shipped in packages” – the US approach maps many of the “AQASIA” issues, but it comes to a very different landing.

In the twin meaning of “freight”, the term “customary freight unit” offers a tantalising contest between what is carried and what is charged. The tussle has indeed been between description and quantification – the actual shipping unit of the goods themselves versus the calculation or basis of payment.

The latter has prevailed, and “customary freight unit” is the unit used with respect to calculating the freight charged. Note that what matters is the “unit used to describe the freight, looking at the bill of lading and tariff, regardless of how the ultimate freight may have been calculated.” (Our italics.)

As such, the US courts will consider the unit by which freight was calculated as the applicable freight unit, no matter the actual working or result of the calculation. This will commonly mean arithmetic involving volume or weight, but care is needed if for example the Bill of Lading freight is on a lump sum basis. If so, that may be taken as the “customary freight unit”, regardless whether the numerical summation is based on actual tonnes carried. In some cases that has limited an entire cargo claim to $500.

Conclusion

In the UK there can be a Hague-Visby limit based on weight, but there is no Hague limitation for bulk or liquid cargoes. There can be under US COGSA, but parties should take care with the freight description or a lower than intended limit may apply.

If you would like to discuss anything arising from this commentary please contact Ed Floyd at ed.floyd@floydzad.com and +1 (917) 999 6914 or Luke Zadkovich at luke.zadkovich@floydzad.com and +1 (917) 868 1245 / +44 (20) 8068 6844.  This article is to be considered general commentary only and not to be relied upon as legal advice for any particular circumstances.

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