17/04/2018

Judgment: Kyokuyo Co Ltd v A P Møller-Maersk A/S trading as "Maersk Line" ("The Maersk Tangier")

Today, 17 April 2018, the Court of Appeal (Gloster and Flaux LJJ) handed down judgment in this important carriage of goods case concerned with limitation of liability. In a decision of great significance to the container trade and the wider shipping industry, the Court dealt with issues concerning which transport documents may attract the compulsory application of the Hague-Visby Rules pursuant to the Carriage of Goods by Sea Act 1971 (“COGSA 1971”), and limitation of liability under both the Hague and Hague-Visby Rules in the context of containerised transport.

The appeal was from a decision of Baker J in respect of a number of agreed preliminary issues, and arose out of a claim by a consignee in respect of alleged cargo damage to unpackaged tuna loins and bagged tuna stuffed into three containers carried by Maersk Line from Spain to Japan. The shipper had a right to demand the issue of a bill of lading, but no bill was ever issued, and the consignee eventually chose to accept the issue of sea waybills instead of a bill of lading.

Flaux LJ’s judgment (with which Gloster LJ agreed) first considers whether the Hague-Visby Rules applied compulsorily. This issue primarily turned on whether the contracts of carriage were “covered” by a bill of lading under Art I(b) of the Hague-Visby Rules. The Court of Appeal recognised that it had never before arisen for decision whether, when a shipper accepts a sea waybill instead of a bill of lading, the carriage is nevertheless “covered” by a bill of lading. It upheld Baker J’s decision that the issue of sea waybills was irrelevant; a contract of carriage will be “covered” by a bill of lading whenever the shipper has a right to demand a bill of lading, and the actual document used to cover the transport will make no difference. This is a significant further legal development since the well known decision of the House of Lords in The Rafaela S [2005] 2 AC 423, that a straight bill is a bill of lading for the purposes of the Hague-Visby Rules and COGSA 1971, making clear that it will not matter whether the carriage document is any species of bill of lading (straight or negotiable), providing there is a right to demand one. This results in the UK position in fact being much closer than may previously have been thought to that in other jurisdictions, such as Australia, in which the Hague-Visby Rules have been enacted with modifications so as to expressly apply to non-negotiable documents other than bills of lading, despite the absence of such express language in the UK statute.

The next issue addressed by the Court of Appeal was the applicable limit of liability under the Hague-Visby Rules. There was a controversy as to whether the tuna loins had been sufficiently enumerated in the sea waybills for the purposes of Article IV r 5(c), the material words of that article being, “… the number of packages or units enumerated in the bill of lading as packed in [the container] shall be deemed the number of packages or units …”. The relevant description in each waybill was: “[number] PCS FROZEN BLUEFIN TUNA LOINS”. The key issue was whether the Australian decision in El Greco (Australia) Pty Ltd v Mediterranean Shipping Co SA [2004] 2 Lloyd’s Rep 537 should be followed, in which the majority had held that the inclusion of the words “as packed” required the description in the bill to not only state the number of packages or units, but also how they had been packed, whether as separate items or consolidated into packages. Whilst it had generally been thought prior to this case that the English courts would follow El Greco (despite a mixed academic reception), the Court of Appeal (like Baker J) declined to do so. It held that the words “as packed” were merely descriptive, and it is only necessary for the bill to state the actual number of packages or units (whichever were applicable). Flaux LJ regarded this conclusion as strongly supported by firstly, the French text of the article, the sense of which was only to refer to the number of units or packages as “being included” in the container, and secondly by statements of Diplock LJ in the travaux préparatoires. Although Art IV r 5(c) refers only to an enumeration in a “bill of lading”, Flaux LJ considered that a purposive construction should be adopted, relying by analogy on the landmark House of Lords decision in Adamastos Shipping v Anglo-Saxon Petroleum [1959] AC 133, so that Art IV r 5(c) was to be read with a degree of verbal manipulation as encompassing any document which contained the enumeration which would have been in the bill of lading if such a bill had been issued. Therefore, enumeration in the sea waybills sufficed in the instant case. It is also notable that Flaux LJ would have been prepared to look at an enumeration in a draft bill of lading for the purposes of Art IV r 5(c), even if never issued.

The final matter determined by the Court of Appeal (albeit not strictly arising in view of the holding that the Hague-Visby Rules applied compulsorily), was the question whether goods only constituted a ‘unit’ within the meaning of the “per package or unit” limit in Art IV r 5 of the Hague Rules if they could have been shipped ‘as is’ without further consolidation or packaging if they had not been placed in a container. The Court had regard to its own very recent decision in The Aqasia [2018] EWCA Civ 276 rejecting a contention that ‘unit’ could refer to a unit of measurement so as to render the limit of liability applicable to a bulk cargo. Interestingly, and contrary to some academic commentary, Flaux LJ in The Aqasia also regarded the word ‘unit’ as synonymous with a ‘piece’, as used for instance in Art III r 3 of the Hague Rules (which refers to bills of lading showing the number of “packages or pieces”). The Court determined in The Aqasia that ‘unit’ meant a shipping unit or separate physical item of cargo, and considered its analysis in that case also meant the definition of ‘unit’ should not be glossed by reference to whether cargo could have been shipped ‘as is’ break bulk if not placed in a container. It also regarded Maersk Line’s case as an attempt to revive the ‘functional economics test’ deprecated by Phillips LJ in The River Gurara [1998] QB 610, and in the US and Australia. It therefore upheld Baker J’s decision that each tuna loin was a ‘unit’ (as a separate physical item), and each bag of tuna was a separate ‘package’, for the purposes of limitation of liability under the Hague Rules.

Sara Masters QC and Daniel Bovensiepen acted for the Appellant, Maersk Line.