Legal effect of Hague Visby Rules

When statutory force was given to the original Hague Rules, it was provided by s 1 of the Carriage of Goods by Sea Act 1924 that the Rules ‘shall have effect in relation to and in connection with “certain types of contract for the carriage of goods by sea”’. The phrase ‘shall have effect’ appears to have been interpreted by the courts as, in practice, conferring little more than contractual force on the Rules. This view is to some extent reinforced by the fact that s 3 of the Act required bills of lading issued in pursuance of such contracts to contain ‘an express statement that it is to have effect subject to the provisions of the said Rules as applied by this Act’. Thus the Privy Council in the case of Vita Food Products v Unus Shipping Co held that bills of lading issued in Newfoundland, which did not contain a paramount clause and which otherwise would have been subject to the Hague Rules by virtue of local legislation cor- responding to the English COGSA, were taken outside the ambit of the Rules by the simple expedient of including an English choice of law clause. A similar approach is also reflected in earlier decisions which suggest that a fundamental breach of contract by the carrier as, for example, deviation from the agreed course, or stowage of the cargo on deck without the shipper’s consent, will debar him from invoking the Hague Rules exceptions or limitation of liability provisions. A radically different approach was adopted by the legislature in implementing the provisions of the Hague/Visby Rules. The 1971 Carriage of Goods by Sea Act drops the requirement for the inclusion in every bill of lading of a paramount clause expressly incorporating the Rules but provides that they shall have ‘the force of law’. An opportunity for the House of Lords to consider the legal effect to be attributed to this phrase was provided in The Morviken. In this case a substantial piece of machinery had been shipped aboard a Dutch vessel at Leith for carriage to the Dutch Antilles under a bill of lading which included a Dutch choice of law clause and provided that the Court of Amsterdam should have exclusive jurisdiction over any dispute arising under the bill. The machinery was subsequently transhipped at a Dutch port but on arrival at the Dutch Antilles was severely damaged during the discharge operations. When the shippers commenced proceedings in rem in the Admiralty Court claiming negligence on the part of the carrier’s servants, the carrier sought a stay of action based on the exclusive jurisdiction clause in the bill of lading. The material point at issue concerned the respective limitation of liability provisions in the two jurisdictions. Under Dutch law, where the Hague Rules were still in operation at the time of the relevant litigation, the carrier’s liability based on the package or unit formula would have been limited to approximately £250. On the other hand, under the Hague/Visby Rules operative in the United Kingdom, the shipper would have been entitled to a higher sum calculated on the gross weight of the damaged cargo which would have amounted to some £11,000. The House of Lords was unanimous in refusing to apply the Vita Food Products approach by granting primacy to the intention of the parties as demonstrated by the choice of law clause. In the opinion of Lord Diplock, the draftsmen of the 1971 Act had deliberately aban- doned the ‘clause paramount’ technique of 1924 by giving the Hague/Visby Rules the force of law, with the result that they must now ‘be treated as if they were part of directly enacted statute law’. The Hague/Visby Rules were clearly applicable to the bill of lading in question since it fell within both paragraphs (a) and (b) of Art X, having been issued in a contracting state and also covering a shipment from a port in a contracting state. To give effect to the choice of law clause in these circumstances would, in Lord Diplock’s view, clearly contravene Art III rule 8 which renders void any attempt to lessen the carrier’s liability as enshrined in the Hague/Visby Rules. Accordingly, the House of Lords refused to grant a stay of action. To reach any other conclusion ‘would leave it open to any shipowner to evade the provisions of Art III rule 8 by the simple device of inserting in his bills of lading issued in, or for carriage from a port in, any contracting state a clause in standard form providing as the exclusive forum for resolution of disputes what might aptly be described as a court of convenience, viz. one situated in a country which did not apply the Hague/Visby Rules’. The decision in The Morviken has attracted considerable criticism from legal commentators, many of whom adopt a different interpretation of the phrase ‘force of law’ and argue that effect should be given to the intentions of the parties as expressed in the choice of law clause. The reasoning of their Lordships has, however, been cited with approval and followed in subsequent cases, in one of which the trial judge recalled ‘the guidance of Lord Diplock in The Morviken that, in their interpretation, the words should be given a purposive rather than a narrow legalistic construction, particularly whenever the adoption of a literalistic construction would enable the stated purpose of the International Convention, viz. the unification of domestic laws of the contracting states relating to bills of lading, to be evaded by the use of colourable devices that, not being expressly referred to in the rules, are not specifically prohibited’. There is considerable force in this argument and it is pertinent to note that the legislature in Australia achieved an identical result more directly by incorporating an express provision in the Australian Sea-Carriage of Goods Act 1924 rendering void any attempt to evade the application of the Hague Rules by the use of an exclusive jurisdiction or choice of law clause. On the other hand, the decision in The Morviken will only be relevant in a situation where the application of the Hague/Visby Rules is mandatory. In circumstances where the Rules are not otherwise applicable, the courts are not prepared to interpret a choice of English law as indicating an intention to incorporate the Rules into the contract of carriage within the meaning of Art X. Thus, in The Komninos S, a cargo of steel coils was shipped from Thessaloniki to Ravenna under bills of lading which provided that any disputes arising under the contract of carriage were ‘to be referred to British courts’. In the view of the Court of Appeal, this express choice of forum also involved an implied choice of law. In response to a claim for cargo damage, the shipowner sought to rely on exclusion clauses in the contract which would be rendered null and void by the Hague/Visby Rules, if the latter were applicable. As Greece was not a contracting state, the Rules were not mandatorily applicable since shipment was not from a port in a contracting state, nor had the bill of lading been issued in a contracting state. Accordingly, the Rules would only be relevant if it was the intention of the parties that they should be incorporated into the contract of carriage within the meaning of Art X(c). The Court of Appeal refused to infer such an intention merely from the inclusion in the contract of a choice of forum clause. The shipowner was therefore able to invoke the protection of the contractual exceptions. Finally, it must be remembered that the parties are free expressly to incorporate the Hague/ Visby Rules into a bill of lading or non-negotiable receipt in situations where the Rules would not otherwise be applicable. Formerly, when similar action was taken with respect to the Hague Rules, the incorporation was treated purely as a matter of contract and, in the event of any conflict between the provisions of the Rules and the remaining terms of the contract, the courts attempted to resolve the issue as a matter of construction. Now s 1(6) of COGSA 1971 provides that in the event of any conflict, the provisions of the Rules will override express terms of the contract which are inconsistent with them. The object of the subsection is ‘to confer on a voluntary contractual tie a statutory binding character’. This result will follow, however, only where the non-negotiable receipt purports to incorporate the Hague/Visby Rules in their entirety. Thus, in The European Enterprise a consignment of meat, packed in a refrigerated tractor trailer unit, was shipped from Dover to Calais under a non-negotiable consignment note. The note expressly incorporated the Hague/Visby Rules subject to a number of provisos, including a limitation of liability provision ‘substantially less generous’ than that contained in Art IV rule 5 of the Rules. When the goods were damaged in transit, the cargo owner argued that the lower contractual limit was rendered null and void by s 1(6)(b) of the Carriage of Goods by Sea Act 1971 which gave to the Rules the force of law. In rejecting this argument, the trial judge pointed out that as the Rules were not mandatorily applicable to non-negotiable receipts, the parties had freedom to negotiate their own terms and to decide whether or not to incorporate the Rules, in whole or in part, into their contract. In his opinion, ‘it would be curious if a voluntary paramount clause, which reflected only a partial incorporation of the Rules, had a result that a statutory binding character was given to all the rules, even where there was no primary contractual bond’.
Perhaps more debatable is the further conclusion drawn by Steyn J in this case that, before the Rules will acquire the force of law on incorporation into a non-negotiable receipt, it is necessary literally to comply with two formal requirements contained in s 1(6)(b). First, the receipt must specifically state that it is non-negotiable and, secondly, it must expressly provide that the Rules are to govern the contract ‘as if the receipt were a bill of lading’. Failure to incorporate the latter phrase will result in the Rules being denied statutory force.