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Paramount clauses - what does "the Hague Rules as enacted in the country of shipment" mean and why does it matter?

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Yemgas FZCO & others v. Superior Pescadores S.A. (Superior Pescadores) [2016] EWCA Civ 101

The Court of Appeal has recently held that the expression in a clause paramount, “the Hague Rules as enacted in the country of shipment”, means the Hague-Visby Rules. This overturned the decision at first instance and, more importantly, the first instance decision and the obiter comments of the Court of Appeal in a 2001 case, the Happy Ranger.   

The background facts

The underlying dispute related to a shipment of LNG machinery and equipment from Belgium to Yemen in January 2008. Six bills of lading were issued and each contained a clause paramount which provided that “the Hague Rules … as enacted in the country of shipment shall apply to this contract.” Importantly, and contrary to many other forms of clause paramount, this clause did not make any reference to the Hague-Visby Rules (“HVR”). The governing law was that of the carrier’s principal place of business.

The cargo suffered damage during the voyage, resulting in a loss of US$3.6 million. The Owners’ P & I Club issued a letter of undertaking and agreed that English law would apply. The fact that a bill of lading is governed by English law does not mean that the HVR apply automatically but, as the shipment was from Belgium, and Belgium (like the UK) is a contracting state, the HVR did apply with force of law. 

Although the HVR applied with force of law, the cargo interests argued that contractually the Hague Rules and, more particularly, the Hague Rules package limit of £100 applied. This, they argued, allowed them to use the Hague Rules limit where this was higher than the HVR limit, on the basis that nothing in the HVR prevents the carrier from agreeing a higher limit. 

The Owners objected to this approach. They admitted liability to pay the amount of the HVR package limit, equivalent to just over US$400,000, but rejected the balance of the claim which was for another US$200,000.

The Court of Appeal decision

The Court of Appeal reached the same decision as the Commercial Court, but by a different route. It held that the wording of the paramount clause in this case contractually incorporated the HVR, not the Hague Rules. The Court’s thinking involved, in part, a meticulous consideration of what exactly the HVR are and how they came into being. Those dealing regularly with cargo claims may find it interesting to note that, according to Lord Justice Tomlinson, “Strictly speaking there are no such Rules”. As the Hague Rules, as amended by the HVR, had never in fact been promulgated as a single autonomous instrument, the phrase “the Hague Rules as enacted in the country of shipment” could mean the HVR.

Lord Justice Longmore felt unconstrained by precedent on this point and, at the start of his judgment, he posed the question, “Can it really be the case that a Paramount Clause in a contract made over 30 years later [i.e. from 1977 – when the Hague-Visby Rules came into force] in 2008 is still to be taken as incorporating the 1924 rather than the 1968 Rules?” 

In the light of the above, the Court of Appeal did not strictly need to decide whether the clause paramount amounted to an agreement allowing the parties to fix a higher limitation figure than that provided for by the HVR. However, doubt was cast on the idea, not least because when the bills of lading were issued, it was by no means obvious that the parties would agree, four years later, that English law would apply.

It was also not necessary to express a view as to the date for converting the gold value under the Hague Rules. However, the Court of Appeal indicated it would agree with the Commercial Court that this should be the date of delivery of the goods (or when they should have been delivered) rather than the date of judgment.

Comment

Package limitation can be very important in cargo claims, so often it is crucial to know at the outset of a cargo claim whether the Hague Rules or HVR apply. There are also other potentially important differences between the Rules, such as in relation to the time limit for passing on claims.

The undersigned’s view is that, in shipping, the Hague Rules and HVR are seen as related and yet very much separate regimes. When ship-owners and cargo interests use the phrase “Hague Rules”, they normally mean what they say and the fact that the Hague Rules are approaching their centenary is irrelevant. If the parties wanted to say the HVR, they would and often do use that expression. This line of argument was, however, dismissed by the Court of Appeal.

How important this decision is in practice will depend on the particular wording of the specific clause paramount. Contrary to what was said in both the judgments, the wording in the bill of lading was in fact very different to that found in the Congen bills (1978, 1994, 2007 and 2016). Where a clause paramount, as in the Congen bill, refers to the “Hague Rules as enacted” and also the HVR, it appears that the Hague Rules will still mean the Hague Rules, and not the HVR.

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