In its judgment in The Aqasia, handed down today, the Commercial Court has held that Article IV Rule 5 of the Hague Rules does not apply to bulk cargoes. Resolving a question that has been open for more than 90 years, Sir Jeremy Cooke held that there is no limit of liability in bulk cargo cases, because there is no relevant ‘package’ or ‘unit’ to which such limit can apply.  Lionel Persey QC and Benjamin Coffer appeared for the successful cargo interests.

Article IV Rule 5 of the Hague Rules limits the carrier’s liability to “£100 per package or unit”. In the United States, the US Carriage of Goods by Sea Act expressly provides that where cargo is not carried in the form of a package the carrier is entitled to limit its liability by reference to the number of ‘customary freight units’.  US COGSA is therefore capable of applying equally to bulk cargoes. However, in commonwealth jurisdictions such as Canada, Australia and New Zealand, the courts have held that the word ‘unit’ is only capable of applying to a physical item or collection of items bundled together for shipment.  Which approach would the English courts follow?

Prior to The Aqasia, a number of English cases had touched on the issue indirectly. For example, in Studebaker Distributors Ltd v Charlton Steam Shipping Co Ltd [1938] 1 KB 459, Goddard J had held (obiter) that the words “package or unit” in the Hague Rules covered “any individual piece of cargo” and therefore (by implication) did not refer to a unit of measurement. In The Aramis [1987] 2 Lloyd’s Rep 58, Evans J had declined to decide whether the limit was applicable to bulk cargoes because on the facts before him there was no basis for finding that there was any applicable freight unit. But until The Aqasia, the application of Article IV Rule 5 to bulk cargoes had not been resolved authoritatively by the English courts.

With no English authority directly on point, there has long been discussion in academic commentary as to whether the word ‘unit’ in the English version of the Rules is capable of referring to a unit of measurement such as a freight unit, or whether a ‘unit’ can only be a physical item or collection of items bundled together for shipment.  In his decision, Sir Jeremy Cooke (sitting as a Judge in the Commercial Court) has resolved this long-standing uncertainty by holding that a “unit” refers only to a physical item or composite of items and not to a unit of measurement.

In reaching his conclusion that a ‘unit’ was a physical item or composite of items, the Judge was influenced by the juxtaposition of the words ‘package’ and ‘unit’ in Article IV Rule 5, applying the noscitur a sociis principle of construction which holds that one can know the meaning of a word from the other words found in proximity to it.  The Judge also considered the practical difficulties which would arise if, as the Defendant shipowners had argued, the word ‘unit’ was capable of referring both to a physical item and to a unit of measurement. Not only would the word potentially have a different meaning for different types of cargo, but the Defendant’s construction would have presented difficulties whenever a bill of lading specified both the number of physical ‘units’ and the weight of the cargo: in that event would limitation be calculated by reference to the number of physical items, or to the number of weight units specified in the bill of lading?

The Judge also referred to and relied on authorities from other commonwealth jurisdictions (including in particular the judgment of Allsop J in the Federal Court of Australia in El Greco v Mediterranean Shipping [2004] 2 Lloyd’s Rep 537, and the decision of the Supreme Court of Canada in Falconbridge Nickel Mines v Chimo Shipping[1973] 2 Lloyd’s Rep 269), and the travaux préparatoires for the Hague Rules. Recourse can be had to the travaux where they score a ‘bull’s eye’, i.e. where they “clearly and indisputably point to a definite legal intention” - Fothergill v Monarch Airlines Ltd., per Lord Wilberforce, at p. 202 col. 1; p.278C.  

In this case, there was a ‘bulls-eye’ in the travaux.  The travaux showed that the words ‘or unit’ had been added as a drafting amendment by the Rt Hon Sir Henry Duke, the then President of the PDA division (later Lord Merrivale) and the chairman of the conference. The amendment, made overnight before the adoption of the Rules by the International Law Association on 2 September 1921, was intended to deal with unpackaged physical items. The delegates at the ILA conference did not intend Article IV Rule 5 to apply to bulk cargoes, primarily because the value of £100 in 1924 was such that it was intended that the limit would only apply to small packages of unusually high value. Given the respective values of £100 and the units used to measure bulk cargoes in 1924, in practice bulk cargoes would not have been caught by the limitation provisions. The Judge said this:

“Bulk cargo was simply not in mind because, at that time, the limitation provision could not be relevant to it, given the value of such cargoes.  The value would not approach anything like £100 (gold) per unit of measurement, whether expressed in kilogrammes, tons, barrels, hundredweight, bushels or quarters.”

Although The Aqasia was a Hague Rules case, the decision will also be relevant in Hague-Visby Rules cases. The equivalent provision of the Hague-Visby Rules provides two alternative limits: a limit based on the number of packages or units, and a limit based on the weight of the cargo. Although the Judge considered that the terms of the Hague-Visby Rules could not affect the construction of the Hague Rules, he expressed the view that the word ‘unit’ in the Hague-Visby Rules is intended to refer to a physical item, and it is therefore now also clear from the judgment that in the case of bulk cargoes carried on Hague-Visby terms, it is only the weight limit which is capable of applying.

Click for full judgement