Gold Clause

Under the Hague rules and therefore the 1924 Act, the limitation of liability was £100 per package or unit. Inflation overtook this small level of compensation to such an extent that the British Maritime Law Association produced a voluntary agreement in 1950 called the ‘Gold Clause Agreement’ which doubled the limit of compensation to £200. (This agreement naturally ceased to exist when UK Ratified the Hague-Visby Rules). Under Hague-Visby, the aim was to protect the limitation from inflation by relating it to a ‘manufactured’ currency called the Gold (or Poincare) franc and the rules stipulated the exact weight and degree of fineness of the gold. The new rate was 10,000 of these gold francs. Subsequently (started in 1981 but not internationally accepted until 1984) a protocol was agreed to replace the gold francs with what it calls ‘units of account’ but which are more familiarly known as Special Drawing Rights (SDR’s) which are another ‘manufactured’ currency by the International Monetary Fund and for which a rate of exchange is published each day in the financial press. Therefore, if we look specifically at how these special drawing rights affect the Hague-Visby Rules the alteration can be explained as follows: For the equivalent of 10,000 Poincare Francs substitute “666.67 units of account”. For the words, “30 Poincare Francs per kilo” substitute “2 units of account per kilo”. The Merchant Shipping Act, 1981 which gave effect to this change, specifies for the purposes of the schedule to the Carriage of Goods by Sea Act, 1971, as amended the value, on a particular day, of one “special drawing right” shall be treated as equal to such a sum in Sterling as the International Monetary Fund have fixed as being the equivalent for that particular day. The limitation of liability provisions have been added to by the introduction of an alternative limit to the package of unit using weight per kilo as a basis for limitation. It must be pointed out that the basis of limitation giving the higher result shall be adopted for application to claims.