Carrier's liability limited by reference to weight of physically damaged goods


Published: 12 June 2008

The carrier’s right to limit has always been an important part of the Hague and Hague-Visby Rules, but there is still room for debate and disagreement over the correct understanding of how the limitation should be calculated.

In a recent judgment from the London Commercial Court, the carrier and cargo owners argued over the correct understanding of the Hague-Visby Rules Article IV Rule 5(a).

Put briefly, the dispute centred on whether the carrier could limit his liability by reference to cargo which was lost or damaged (i.e. physically lost/damaged) or (as alleged by cargo owners) whether “loss or damage” included economic loss in the sense that the limit should be applicable by reference to the whole cargo.

Article IV Rule 5(a) of the Hague-Visby Rules provides

“Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the B/L, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.77 SDR per package or unit or 2 SDR per kilogram of gross weight of the goods lost or damaged, whichever is the higher.”

The facts of the dispute

The vessel “LIMNOS” carried a cargo of corn from the US to Aqaba in Jordan and on arrival a very small amount of wetting damage was discovered in the holds apparently caused by leakages through the hatch covers. The very small amount of wet damaged cargo (approx. 12 MT) was segregated and disposed of, but a further quantity of cargo (approx. 250 MT) suffered an increased number of broken kernels because it had to be discharged by bulldozers. The total amount of cargo which therefore suffered physical damage came to approx. 262 MT and as the carrier accepted that this cargo was physically damaged, it was referred to as “the conceded tonnage”.

The Aqaba authorities imposed a condition, in order to allow discharge, that the whole of the cargo should be fumigated, chemically treated and transferred to prefumigated and disinfected silos. This meant that in order to carry out this treatment the cargo had to be moved within the silos, and this added to the damage in increasing further the number of broken kernels in the cargo. This further damage caused a depreciation in value, and it was acknowledge by both parties that the whole of the cargo acquired a “reputation in the market as distressed cargo”. With this reputation the sound arrived market value for the entire cargo was depressed by USD 13 per MT.

For the entire cargo this led to a loss of approx. USD 570,000, and obviously the cargo owners also incurred further costs and expenses in relation to the fumigation and treatment of the cargo.

In connection with other claims in litigation between the parties, the cargo owners raised a claim against the carrier and claimed the market value at the date of delivery of the 12 MT which was in fact wet damaged and the other losses and expenses for treatment of the cargo which totalled no less than approx. USD 1.55 million.

The issue and dispute was therefore the extent to which the carrier was entitled to limit liability for damage to cargo carried on board the LIMNOS.

The carrier argued that the words “goods lost or damaged” in Rule 5(a) meant exactly that namely goods that were physically lost or physically damaged. In other words, the carrier argued that he was entitled to limit his liability by reference to the gross weight of only the “conceded tonnage” which was physically damaged.

The cargo owners, on the other hand, argued that the words “loss or damage” in the first part of the rule included economic loss and that, consequently, the words “goods lost or damaged” in the later part of the rule also should include economic loss.

In the cargo owners’ view, the rule 5(a) limit was therefore applicable by reference to the whole of the cargo which had suffered a decrease in value.

Given that the cargo which was actually damaged represented only approximately 0.6 per cent. of the total cargo, this was a valuable question to decide.

A somewhat significant number of arguments were exchanged and discussed in this particular judgment (including the original preparatory papers for the Hague and Hague-Visby Rules), but the conclusion of the Court was that the carrier was successful.

The words “goods lost or damaged” meant more or less exactly that namely that these words referred to two categories of goods: goods that were lost(vanished, disappeared, destroyed etc.) and goods that were damaged (not necessarily lost but surviving in damaged form). The carrier could therefore limit his liability to the gross weight of the “conceded tonnage” i.e. by reference to the weight of the small fraction out of the entire cargo which was actually damaged.

[2008] 1 Lloyds Rep.50 (the “LIMNOS”)