Hague-Visby Rules in Charterparties

Hague-Visby Rules do not apply mandatorily to charterparties, many standard form charters incorporate them on a voluntary basis. This result is achieved either by specific reference to the legislation enacting the Rules in the coun-try of shipment, by specific reference to the Rules themselves, or by a clause incorporating the substance of Arts III and IV.

Such incorporation is usually effected by the inclusion in the charterparty of a so-called Clause Paramount as, for example, clause 24 of the New York Produce Exchange 1946 form which specifically incorporates the provisions of the US Carriage of Goods by Sea Act 1936. Frequently, however, the charterparty refers simply to a Paramount Clause without any words of qualification. In such circumstances shipowners have argued that, with so many possible interpretations available, the phrase is ambiguous and should be ignored. This approach was rejected by Denning LJ in The Agios Lazarus as a counsel of despair, taking the view that the court should try to give effect to this incorporation, rather than render it meaningless.

The Court of Appeal accordingly held that the intention of the parties in using the phrase was to incorporate the entire Hague Rules in their original form. Action of this type inevitably results in conflicts arising between provisions of the incorporated Rules and the existing terms of the charterparty. In many cases the relevant paramount clause will provide that in cases of conflict the provisions of the Hague Rules are to take precedence. Where such an indication is absent, the courts tend to regard incorporation as a contractual issue and to approach such conflicts as matters of construction.

As the Hague-Visby Rules are not mandatorily applicable in this context, the objective of the courts appears to be a desire to avoid technicalities and to give effect to the intentions of the parties. Thus in Adamastos Shipping Co v Anglo-Saxon Petroleum the parties had written the US paramount clause verbatim into an oil tanker charter without noticing that the clause expressly provided for the incorporation of the Hague Rules into ‘this bill of lading’. The House of Lords had little hesitation in holding that the intention of the parties was to incorporate the Hague-Visby Rules into this charterparty. Again, in The Satya Kailash a vessel had been time chartered to lighten a second vessel which, being too heavily laden, was unable to enter port. During the lightening operation the two vessels collided as the result of negligent navigation by the chartered vessel. In holding that the Paramount Clause in the charter, which incorporated the US Carriage of Goods by Sea Act 1936, entitled the shipowner to invoke the protection of the Hague Rules exception covering negligent navigation, the Court of Appeal decided that the provisions of the Act were applicable even though the charter involved no cargo-carrying voyage and no voyage to or from a US port was envisaged. Presumably, the courts would adopt a similar attitude in interpreting clauses seeking to incorporate into charterparties the provisions of the Hague-Visby Rules, since the requirement that the latter Rules should have the force of law is apparently only applicable where they are expressly incorporated into a bill of lading or non-negotiable receipt.

Effect of incorporation 

The incorporation of the Hague or Hague/Visby Rules will affect many of the basic obligations arising under a charterparty

1- The seaworthiness obligation The strict obligation at common law to provide a seaworthy ship will be replaced by the duty to exercise due diligence to make the ship seaworthy ‘before and at the beginning of the voyage’. Some difficulty may be encountered in interpreting the latter phrase in the context of a charterparty. Does the duty to exercise due diligence arise at the beginning of the initial voyage under the charterparty or at the beginning of each and every voyage? Little difficulty may arise in the cases of a voyage charter or a trip charter where the relevant contracts envisage only a single voyage. What is the position, however, with respect to a charter which involves a series of voyages? A majority of the House of Lords in Adamastos Shipping Co v Anglo-Saxon Petroleum held that the duty applied to all voyages under a charterparty, irrespective of whether the vessel had cargo aboard or was in ballast. The charterparty involved in the case was a consecutive voyage charter, but Scrutton is of the view that the obligation is equally applicable to each voyage under a time charter ‘where the charter requires the master to sign bills of lading for each voyage which themselves incorporate the Hague/Visby Rules’. He adds the rider, however, that ‘the question must also turn on the construction of the charter as a whole’. The House of Lords in the Adamastos case also held that the provisions in Art IV rules 1 and 2 relating to the recovery of compensation for ‘damage or loss’ resulting from breach of the seaworthiness obligation were not limited in their operation to physical damage or loss of the goods. Consequently, they allowed recovery of damages for the loss of freight resulting from the unseaworthy vessel completing fewer voyages than expected within the period of the charter. Recovery in such circumstances was, however, dependent on the damage or loss arising within the general context of the activities envisaged in Art II of the Rules.

2- Exceptions Under a charterparty the shipowner is normally required to perform a wider range of activities than those involved in a bill of lading contract or envisaged by the exceptions listed in Art IV rule 2 of the Hague-Visby Rules. The question then arises as to whether, in a situation where the charter incorporates the Rules, the shipowner is entitled to invoke the immunities in Art IV to cover this wider range of activities. The Court of Appeal in the case of The Satya Kailash answered this question in the affirmative. The shipowner’s vessel had been chartered to lighten another ship which was too heavily laden to enter port. During the lightening operation the two vessels collided as the result of the shipowner’s negligent navigation. Despite the fact that a lightening operation did not normally form part of a bill of lading contract, the shipowner was allowed to invoke in his defence the navigation exception contained in the US Carriage of Goods by Sea Act 1936, which had been incorporated into the charter. In the words of Goff LJ, ‘general words of incorporation can be effective to give an owner the pro- tection of the statutory immunities in respect not only of those matters specified in s 2, but also of other contractual activities performed by him under the charter’.

3- Time bar The incorporation of the Hague/Visby Rules into a charterparty will enable a shipowner to take advantage of the 12-month time bar in Art III rule 6. This provision will normally take precedence over any clause in the charterparty providing for a shorter period of limitation, even where that clause provides for the reference of disputes to arbitration.
As with exceptions, there is a problem as to the extent to which a shipowner can rely on the time bar as a protection against claims for breach of any of the many obligations arising under a charterparty which are not of a type to be encountered in a bill of lading contract. Two factors are of importance in this context. In the case from which this quotation is taken, a vessel (The Marinor) had been chartered for a period of ten years for the carriage of sulphuric acid from the charterers’ plant in Quebec to East Coast ports in the United States. The charter included a paramount clause incorporating the Canadian Water Carriage of Goods Act. During the course of the charter, cargo was discharged in a contaminated condition on four consecutive voyages, allegedly due to the unseaworthy condition of the vessel. At this point the charterers decided that the next cargo of acid destined for Savannah should be delivered by an alternative vessel but, in order to give The Marinor a final chance, they decided to use the vessel to ship a cargo of acid for Tampa where the acid could be used in the fertilizer industry even if it were discharged in a contaminated condition. When this shipment was also found to be contaminated on discharge, the charterers commenced arbitration proceedings claiming damages on three counts for breach of the time charter. First, the difference between the actual price received for the cargo in Tampa and the market price they would have received if the cargo had been delivered uncontaminated in Savannah; secondly, for the extra costs of the longer voyage to Tampa, and finally for the additional port costs in Tampa. Colman J upheld the shipowners’ contention that all three claims were caught by the time bar in Art III rule 6 since all were ‘sufficiently connected with the goods shipped’.

On the other hand, the time bar was not applicable to a claim for the cost of the substituted vessel since this was not a claim ‘in respect of ’ any particular cargo. Again, in The Seki Rolette Mance J was of the opinion that ‘it would be wrong to restrict the application of Art III rule 6 to goods being carried under a specific contract of carriage as distinct from goods “exposed to risk by reason of the charterers’ involvement in the contractual adventure”’. In this case, as the result of a collision involving the chartered vessel, the charterer had personally lost property including, interalia, a fork-lift truck, lashing equipment and a Mercedes Benz truck. Mance J held that the charterers’ claims in respect of these items were caught by the time bar even though they did not form the subject-matter of the contract of carriage.

The second factor to be taken into consideration is that the 12-month period runs from the time at which the goods are delivered or should have been delivered. For the time bar to operate, the claim must therefore relate to breach of an obligation which involves some form of delivery. This requirement was satisfied in The Seki Rolette, since the charterers’ property, on board for purposes of the charter, would presumably have been returned to them on its termination.

On the other hand, the time bar would not operate in respect of the charterers’ alternative claim for lost bunkers because the bunkers were not due for delivery or redelivery, but were intended to be consumed on the voyage. Clearly, much will depend on the courts’ interpretation of the term ‘delivery’. In the more recent case of The Sonia, a vessel had been chartered to carry a cargo of jet oil to Lagos under a charterparty which incorporated specific articles of the Hague Rules, including Art III rule 6. On arrival at Lagos the cargo was rejected as off-specification, whereupon the vessel was despatched to Abidjan to await orders. Eventually, the vessel was ordered to a Greek port, where the cargo was discharged some eight weeks later.

In reply to the owners’ contention that the charterers’ claim for breach of charterparty was time-barred, the Court of Appeal held that the 12-month period ran from the time that the cargo was actually discharged in Greece rather than from the time it should have been delivered in Lagos.