Wednesday, March 16, 2005

The question of what constitutes a package or unit for the purposes of limitation of liability under the Hague-Visby Rules has troubled merchants, shipowners and insurers alike for many years.
Most major maritime States incorporate the Hague/Hague-Visby Rules into their local carriage of goods by sea legislation and South Africa is no different.  As every shipowner will know, Article IV, rule 5(a) permits the carrier to limit its liability for loss or damage to cargo to 666.67 SDR (roughly R5 950,00) per package or unit, or 2 SDR per kilogram of gross weight of the goods (whichever is the higher). 
It follows that the greater the number of packages lost or damaged, the more owners/ underwriters may have to pay to the cargo claimant in the event of a successful claim (assuming that the tonnage of the cargo is not in issue). 
The difficulty arises in determining what constitutes a package.  This is particularly relevant in the break bulk and container trades where large numbers of individual cargoes are packaged and bundled together in a variety of ways.
The starting point is the definition given to a package or unit in the Hague-Visby Rules (Art IV, rule 5(c)). This provides that where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport (eg pallet/container) is deemed to be the number of packages or units. If not enumerated, the article of transport is considered the package or unit.
In the case of El Greco (Australia) (Pty) Ltd v Mediterranean Shipping Co., which came before the Australian Federal Court last year, the shipper contracted with MSC for the carriage of containerised cargo from Australia to Greece.  The face of the bill of lading indicated that the container was “said to contain 200,945 pieces, posters and prints”.  The posters and prints were placed in approximately 2000 packages, which in turn were placed within a single container.  When the vessel reached her destination, it was discovered that the container in question had a large hole and consequently the posters of prints were damaged by sea water during the voyage.  In the ensuing claim for damages by the cargo owners, the shipowners sought to limit their liability to one package, being the container. 
It was common ground between the parties that although the pieces were placed into approximately 2000 packages for shipment, there was no reference to those 2000 packages in the bill of lading. 
On appeal, the Federal Court found that, despite the reference in the bill of lading to 200,945 pieces, the cargo was nevertheless to be regarded as one package for limitation purposes.  The Court’s reasoning can be summarised as follows:
1.      The purpose of the definition of a package in Art IV, rule 5(c) was to make the enumeration in the bill of lading effective. In other words, in order to determine whether or not there had been an enumeration, one looks at the numbers (in words or figures) written on the bill of lading.
2.      Although the enumeration would not bind the carrier as far as a representation of the number or quantity of cargo actually carried, it would apply for limitation purposes in order that questions of freight and insurance could be based on it.
3.      The Court placed great emphasis on the following words in the definition: “… number of packages or units enumerated in the bill of lading as packed …” The words “as packed”, so the Court reasoned, meant that one needed to be able to identify on the bill of lading how many packages were packed into the container. 
4.      In this case, the bill of lading merely stated that the container was said to contain 200,945 pieces of posters and prints.  From that description, one could not tell how the cargo was made up for transporting packages or units for packing.  The Court held therefore that there was no relevant enumeration and, in the absence of a proper enumeration of the number of packages packed, the container, as the article of transport, was to be considered to be the package or unit.  In the circumstances, the MSC was entitled to limit its liability to the weight limitation figure of A$ 38 250,00.
A number of important points emerge from this and other decisions (particularly English Court of Appeal decision in the River Gurara [1997]) which may serve as useful guidelines:

The question of what constitutes a package is essentially a question of fact.  In general, Courts will consider each case on its own merits and it is difficult to lay down hard and fast rules.
In the first place, one ought to look at the way in which the number of goods carried has been described in the bill of lading.  Where goods are carried in a container, the court’s approach is that the limit of liability should be calculated on the basis of the number of packages carried in the container rather than the number of containers, unless the description in the bill of lading requires a contrary approach.
However, in order for the enumeration to be effective, the bill of lading should indicate how the cargo was made up for transport into packages or units for packing. If this is not apparent from the bill of lading, the court (per the El Greco case) may decide that the container does constitute a package or unit.
If available, the cargo claimant should be permitted to rely on evidence other than the bill of lading (extrinsic evidence) to prove the number of packages carried.
In each case, onus is on the cargo claimant to prove his loss.
The shipowner’s right to limit is a key aspect of most cargo claims and the financial implication of the degree to which a shipowner may limit his liability in any given case can be significant. It is therefore important to be aware of the effect of the wording used to describe cargo on the face of a bill of lading when it is drawn up, and how to construe the wording in the event of a claim for loss or damage.