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Clauses paramount

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Chapter 13


Clauses paramount


Professor Yvonne Baatz*


13.1 Introduction


A clause paramount may be inserted in both a charterparty and in any bill of lading issued under that charterparty. The original purpose of a clause paramount was to make sure that the Hague Rules,1 which were intended to apply to certain bills of lading, did indeed apply to bills of lading. Although the Rules do not apply to charterparties, many charterparties also contain a clause paramount requiring any bill of lading issued under the charterparty to contain such a clause and applying the clause to the charterparty as well, so that the obligations under the charterparty and the bill of lading are therefore back-to-back. The clause paramount was relatively straightforward when the only international convention was the Hague Rules which had been widely adopted by maritime nations. However, the clause paramount has become much more complex owing to the proliferation of potential rules that could be mandatorily applicable to the bill of lading, such as the Hague-Visby2 or Hamburg Rules.3


After discussing the current lack of international harmony around the world as to which rules may apply to the bill of lading, and when the Hague-Visby Rules apply mandatorily under English law to a bill of lading,4 we will turn to the charterparty, and consider whether the clause paramount in the charterparty is effective to incorporate a set of rules and, if so, which rules. It will be argued that in order to determine which rules apply to the charterparty, it is nowadays necessary to determine first which rules apply to the bill of lading and then to apply those rules to the charterparty. The application of the rules to a charterparty is a matter of major significance in international trade both in terms of the impact of those rules on the obligations under the charterparty, the exceptions, the amount which may be recovered and the time bar. This chapter will focus on the impact on the obligation of seaworthiness, the exceptions and the time bar.


13.2 The international conventions which may apply mandatorily to bills of lading


The development of the Hague, Hague-Visby, Hamburg and Rotterdam Rules5 will be outlined here. In the nineteenth century, shipowners included wide exclusions of liability in their contracts. This was perceived as unacceptable for bills of lading where the third party consignee or indorsee of the bill of lading, who was not an original party to the bill of lading and had not had an opportunity to negotiate its terms, might find that it had paid for a cargo but had no rights against the shipowner for damage to or loss of that cargo because of those exclusions. Following the lead of the US Harter Act 1893, a considerable part of the international community agreed to the Hague Rules in 1924. Those Rules impose certain minimum obligations on carriers which they cannot contract out of,6 such as the duty to exercise due diligence to make the ship seaworthy before and at the beginning of the voyage7 and to care for the cargo.8 In return, the shipowner has certain exemptions or immunities, such as the right to rely on the list of exceptions in Article IV rule 2, provided that it has complied with its seaworthiness obligation; to limit its liability for cargo loss or damage9 and to be discharged from liability one year after discharge of the goods.10


Once the Hague Rules had been in force for some four decades it became apparent that there were some criticisms of the rules, not least that the package limits had become very low. Therefore in 1968 the Visby Protocol was agreed.11 In the United Kingdom the Carriage of Goods by Sea Act 1971 gives the force of law to the Hague-Visby Rules12 which are set out in the schedule to that Act and repealed the Carriage of Goods by Sea Act 1924,13 which had previously given effect to the Hague Rules. The Hague-Visby Rules follow the format of the Hague Rules but made amendments principally to the limits of liability which were increased in some cases. The limits in the Hague-Visby Rules are not always higher as is illustrated by Yemgas FZCO v Superior Pescadores SA Panama (The Superior Pescadores)14 and Vinnlustodin HF v Sea Tank Shipping AS (The Aqasia).15 Other changes include when the rules apply;16 the method of calculation of the limit17 and the loss of the right to limit in certain cirumstances;18 an extended time limit for indemnity claims;19 extending the defences and limits of liability to tort claims20 and to servants and agents of the carrier.21


In 1978, the Hamburg Rules22 were agreed, which seek to give greater protection to cargo interests. Major differences from the Hague-Visby Rules include different rules on when they apply;23 a different regime of liability and no exception for negligent navigation;24 higher limits25 (but they can be broken26 and the defences and limits of liability of the carrier are extended to claims in tort27 and to the servant or agent of the carrier);28 a two-year time bar29 and jurisdiction30 and arbitration31 provisions. They are not in force in the United Kingdom.


There is no international harmony on which rules apply compulsorily to bills of lading. Some States still give effect to the Hague Rules (most notably the USA by its US Carriage of Goods by Sea Act 1936, but this Act applies the Rules to both inward and outward shipments).32 Other States give effect to the Hague-Visby Rules (including most EU Member States)33 and yet other States give effect to the Hamburg Rules.34 National legislation which gives effect to a set of Rules may provide for some local variation or a combination of more than one set of Rules.


In a final bid for international unity, the United Nations Commission on International Trade Law produced a further convention on the carriage of goods which was signed in Rotterdam in September 2009. Those Rules are therefore referred to as the Rotterdam Rules.35 They differ significantly from the Hague-Visby Rules as to when they apply; they have a different regime of liability; higher limits36 (but the limits can be broken);37 a two- year time limit which applies to all claims for breach of obligations under the convention whether by the carrier or the shipper;38 and jurisdiction39 and arbitration40 provisions, which latter provisions will only apply if a State has specifically opted in to them.41 The Rotterdam Rules are not yet in force but they could be incorporated voluntarily in either a bill of lading or a charterparty.


13.3 Application of the Hague Rules to bills of lading and the clause paramount


Article X of the Hague Rules provides that ‘the provisions of this convention shall apply to all bills of lading issued in any of the contracting States’. However, this article was not in the version of the Convention given effect to by the Carriage of Goods by Sea Act 1924. Section 1 of that Act gave effect to the Hague Rules ‘in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in Great Britain or Northern Ireland to any other port whether in or outside Great Britain or Northern Ireland’. Section 3 of that Act went on to provide:



Every bill of lading or similar document of title issued in Great Britain or Northern Ireland which contains or is evidence of any contract to which the Rules apply shall contain an express statement that it is to have effect subject to the provisions of the said Rules as applied by this Act.


Such an express statement is a clause paramount.42 Other States enacted similar legislation including Newfoundland. The limitations of this mechanism were realised in Vita Food Products Inc v Unus Shipping Co Ltd.43 There an old form of bill of lading had been used which did not contain any such statement and provided for English law. Although the bill of lading was for carriage from a Hague Rules Contracting State, Newfoundland, to New York and the law of Newfoundland would have applied the Hague Rules, as the bill of lading was governed by English law the Hague Rules did not apply as the Carriage of Goods by Sea Act 1924 only applied the Hague Rules to bills of lading issued in Great Britain or Northern Ireland.


The Hague Rules only apply to certain types of bill of lading, as defined in Article 1(b) (discussed below).


13.4 Application of the Hague-Visby Rules to bills of lading and the clause paramount


The application of the Hague-Visby Rules is wider than that of the Hague Rules. Article X of the Hague-Visby Rules provides that they –



shall apply to every bill of lading relating to the carriage of goods between ports in two different states if:



  1. a) the bill of lading is issued in a contracting State, or
  2. b) the carriage is from a port in a contracting State, or
  3. c) the contract contained in or evidenced by the bill of lading provides that these Rules or legislation of any State giving effect to them, are to govern the contract.

It is likely that a clause paramount will be used in the bill of lading to satisfy the condition in Article X(c).


Section 1(2) of the Carriage of Goods by Sea Act 1971 provides that the Rules shall have the force of law. The Rules are therefore treated as if they were part of directly enacted statute law.44 However, the Hague and Hague-Visby Rules apply mandatorily only to certain types of bill of lading. Article 1(b) of both Rules defines ‘contract of carriage’ as applying ‘only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea…’. This is reinforced by s 1(4) of the Carriage of Goods by Sea Act 1971 which provides that ‘Subject to subsection (6) below, nothing in this section shall be taken as applying anything in the Rules to any contract for the carriage of goods by sea, unless the contract expressly or by implication provides for the issue of a bill of lading or any similar document of title.’ The reason for these provisions is that as the bill of lading is capable of being transferred to a third party, it was considered that the third party transferee needed protection. Thus, for example, the bank that holds the bill of lading as security knows that the carrier cannot contract out of all its obligations but owes certain minimum obligations to the bill of lading holder.


Section 1(6) of the Carriage of Goods by Sea Act 1971 extends the application of the Rules and gives them the force of law in relation to –



  1. a) any bill of lading if the contract contained in or evidenced by it expressly provides that the Rules shall govern the contract, and
  2. b) any receipt which is a non negotiable document marked as such if the contract contained in or evidenced by it is a contract for the carriage of goods by sea which expressly provides that the Rules are to govern the contract as if the receipt were a bill of lading.45

Again a clause paramount will usually be used to fulfil the conditions set out in s 1(6)(a) and (b). Where, however a seaway bill or other non‑negotiable document is used which does not satisfy these provisions this is not a document of title and the Hague or Hague-Visby Rules will not apply.


The Rules may apply even if a bill of lading has not been issued.46


The Rules never apply mandatorily to a charterparty47 as the Charterer is in no need of protection; therefore there is freedom of contract between the shipowner and the Charterer. However, as we shall see below, many charterparties incorporate the Rules voluntarily,48 often by means of a clause paramount. Furthermore where a bill of lading has been issued under a charterparty and the bill of lading is in the hands of the Charterer so that the bill of lading is not the contract of carriage or evidence thereof, but the charterparty is the contract of carriage between the carrier and the shipper or bill of lading holder, then the Hague or Hague-Visby Rules will not apply.49 It is again for this reason that the charterparty may well contain a clause paramount so that the Rules will apply, albeit voluntarily, to the charterparty.


Thus the Hague and Hague-Visby Rules only apply to some documents. Furthermore the Rules do not apply to some voyages, cargoes,50 or before or after loading.51 As we shall see, even if there is a clause paramount, the Rules may still not apply to certain documents, voyages, cargoes or periods of time and therefore these will now be discussed.


13.4.1 ‘Bill of lading or any similar document of title’


A bill of lading which is transferable, that is can be transferred to third parties either by indorsement and delivery in the case of a bill of lading made out to a consignee or order, or merely by delivery in the case of a bearer bill of lading, is a document of title within the definition in Article 1(b) of the Rules. In Parsons Corporation v CV Scheepvaartonderneming ‘Happy Ranger’ (The Happy Ranger)52 the Court of Appeal held that the bill of lading issued was a document of title within Article 1(b) of the Rules as, although only a named consignee appeared in the consignee box, the printed words on the front of the bill referred to delivery of the goods to the ‘consignee or to his or their assigns.’ Read together this made the bill of lading transferable and not a straight bill of lading.


In JI MacWilliam Co Inc v Mediterranean Shipping Co SA (The Rafaela S)53 the House of Lords considered a straight bill of lading which was entitled ‘Original BILL OF LADING’ and had an assigned bill of lading number. In box 2 were the printed words ‘Consignee: (B/L not negotiable unless ‘ORDER OF’)’. In this box the buyer’s name and address were inserted. The words ‘order of’ or their equivalent were not added. It was this omission which made it a straight bill of lading. The number of bills of lading was specified as three. The form also provided as follows:



IN WITNESS whereof the number of Original Bills of Lading stated above [viz three] all of this tenor and date, has been signed, one of which being accomplished, the others to stand void. One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order.


The House of Lords held that this bill of lading requiring production of the bill of lading to obtain delivery was a document of title and therefore the Rules applied to it. Although the straight bill of lading can only be transferred to the named consignee by the shipper but not by the consignee to any other third party, the named consignee is in need of third party protection as it is not an original party to the bill of lading.


The bill of lading was a document of title in the sense that the consignee must present the original bill of lading to the carrier in order to obtain delivery of the goods covered by the bill from the carrier. This distinguishes such a straight bill of lading from the seaway bill where the carrier is obliged to deliver to the named consignee without presentation of any documentation (indeed this is why seaway bills are popular on short haul contracts as the documentation would not arrive at the port of discharge before the goods).


However, even if the straight bill of lading did not contain any wording requiring its presentation Rix LJ in the Court of Appeal went further and said obiter, that he thought it would be a document of title.54 The House of Lords agreed with Rix LJ. Lord Bingham stated:



I would accordingly give an expansive interpretation to the expression ‘bill of lading or any similar document of title’, which seems to me apt to cover the document issued in this case. I have no difficulty in regarding it as a document of title, given that on its express terms it must be presented to obtain delivery of the goods. But like Rix LJ in para [145] of his judgment, at p 752, I would, if it were necessary to do so, hold that production of the bill is a necessary precondition of requiring delivery even where there is no express provision to that effect.55


Lord Steyn also stated:



The attestation clause expressly provides that ‘One of the bills of lading must be surrendered duly endorsed in exchange for the goods or delivery order.’ The carrier argued that the words ‘duly endorsed’ signify that this provision is inapplicable to a straight bill of lading. I would reject this argument. The words ‘duly endorsed’ merely indicate that the bill of lading must be endorsed if appropriate or as may be necessary to perform the right of the presenting party to claim delivery. In any event, the issue of a set of three bills of lading, with the provision ‘one of which being accomplished, the others to stand void’ necessarily implies that delivery will only be made against presentation of the bill of lading. In my view the decision of the Court of Appeal of Singapore in Voss v APL Co Pte Ltd … that presentation of a straight bill of lading is a requirement for the delivery of the cargo is right.56


In Peer Voss v APL Co Pte Ltd 57 the straight bill of lading for a convertible Mercedes Benz car provided:



A set of three originals of this bill of lading is hereby issued by the carrier. Upon surrender to the carrier of any one negotiable bill of lading, properly endorsed, all others shall stand void.


The Singapore Court of Appeal held that a shipowner should only deliver cargo against the presentation of a straight bill of lading for reasons which did not depend on the inclusion of the above wording.


13.4.2 Types of voyage


Article X only applies where the carriage of goods is between ports in two different States. Those States do not have to be Contracting States, provided that the other requirements of Article X are satisfied. Section 1(3) of the Carriage of Goods by Sea Act 1971 extends the application of the Rules to coastal trade within the United Kingdom. Section 1(6) of the Carriage of Goods by Sea Act 1971 extends the application of the Rules to any voyage, provided that the other requirements of that section are satisfied.


13.4.3 Cargoes excluded


The Hague-Visby Rules do not apply to certain types of cargo because they represent a much higher risk and therefore the parties are free to contract on such terms as they think fit. These cargoes are live animals which have a propensity to die at sea and ‘cargo which by the contract of carriage is stated as being carried on deck and is so carried’.58


The Hague-Visby Rules will apply if there is merely a liberty to stow on deck but the bill of lading does not state whether the liberty has been exercised or not.59 In that event it would not be clear to a third party e.g. a bank holding the bill of lading as security whether or not the goods were stowed on deck and the Rules would still apply. If, on the other hand, it is clear from a statement on the bill of lading that the goods are stowed on deck and they are so stowed, then the third party knows that the Rules do not apply to the goods. In Sideridraulic Systems SpA v BBC Chartering & Logistic GmbH & Co KG (The BBC Greenland)60 Hamblen J construed a bill of lading which stated on its face,



Master’s Remarks


All cargo loaded from open storage area


All Cargo carried on deck at shipper’s/Charterer’s/receiver’s risk as to perils inherent in such carriage, any warranty of seaworthiness of the vessel expressly waived by the shipper/Charterer/receiver.


And in all other respects subject to provisions of the United States Carriage of Goods by Sea Act 1936.


as containing a statement that the goods were stowed on deck. Therefore the tanks loaded on deck were not ‘goods’ within the meaning of the Hague-Visby Rules and those Rules did not apply compulsorily.


Where the carrier loads the goods on deck without the shipper’s consent it is in fundamental breach of contract and the issue arises as to whether the carrier will still be able to rely on the exceptions, limits of liability61 and time bar62 provided in the Hague and Hague-Visby Rules.


If the Hague-Visby Rules do not apply to a contract for carriage of deck cargo the carrier is free to exclude its liability, but clear words must be used to exclude liability for negligence and unseaworthiness.63


13.4.4 Period of coverage of the rules


Article 1(b) defines a ‘contract of carriage’ as ‘in so far as it relates to the carriage of goods by sea’. Furthermore Article 1(e) defines ‘carriage of goods’ as covering ‘the period from the time when the goods are loaded64 on to the time when they are discharged from the ship’. Thus the Rules do not apply to the period before the goods are loaded on to the ship and the period after they are discharged from the ship.


This gives rise to what is known as the ‘before and after’ problem.65 The parties are free to contract on their own terms if the contract covers the period before loading and after discharge.66


The parties are free to agree the scope of their obligations under the bill of lading. If the carrier undertakes to carry out the loading operation, then it must do so in accordance with the Hague-Visby Rules. However, the parties may agree that the loading operation will be carried out by e.g. the shipper.67 In Volcafe Ltd v Compañía Sud Americana de Vapores SA68 the Court of Appeal upheld David Donaldson QC and held that the terms in the bills of lading that the carrier assumed responsibility for the dressing and stuffing of the containers into which bags of coffee were loaded caused these services to form part of the operation of ‘loading’ to which the Hague Rules applied.69


If transhipment occurs it is a question of construction of the terms of the bill of lading whether it constitutes one through bill of lading or whether there are two separate contracts of carriage,70 in which case the Rules will not apply after discharging at the transhipment port and before loading onto the second vessel at the transhipment port.


13.4.5 Construction of the clause paramount


The clause paramount may satisfy the requirements under English law in Article X(c) of the Hague-Visby Rules or of s 1(6)(a) or (b) of the Carriage of Goods by Sea Act 1971. Under Article X(c) the bill of lading must provide that the Hague-Visby Rules or legislation of any State giving effect to them are to govern the contract. The fact that the contract is governed by English law either expressly71 or by implication72 does not of itself satisfy Article X(c) as this is too general. English law does not of itself apply the Hague-Visby Rules. It only does so if the conditions for application have been fulfilled.


The general principles of construction of contract were recently set out by Lord Neuberger delivering the majority judgment73 of the Supreme Court in Arnold v Britton,74 a case concerning the amount of the service charges in a lease. Lord Neuberger stated:



When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions. In this connection, see Prenn; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen); Bank of Credit and Commerce International SA v Ali; and the survey of more recent authorities in Rainy Sky.75


13.4.5.1 Evolution of the clause paramount from Hague to Hague-Visby Rules


From a clause intended to apply the Hague Rules to the bill of lading, the clause paramount has had to evolve to take account of the further Rules adopted around the world. That evolution will now be considered.


Sometimes the parties simply provide in their charterparty that a clause paramount is to apply without specifying the terms of the clause paramount. Initially the English courts considered that ‘Paramount Clause’ referred to the Hague Rules. Thus in Nea Agrex SA v Baltic Shipping Co Ltd (The Agios Lazaros)76 the charterparty stated, ‘Paramount Clause are deemed to be incorporated in this charterparty.’ The Court of Appeal held that the Hague Rules applied. At the date of the charterparty the Hague-Visby Rules had not been adopted in any country. Lord Denning stated:



It seems to me that when the ‘Paramount Clause’ is incorporated, without any words of qualification, it means that all the Hague Rules are incorporated. If the parties intend only to incorporate part of the Rules…or only so far as compulsorily applicable, they say so. In the absence of any such qualification, it seems to me that a ‘clause paramount’ is a clause which incorporates all the Hague Rules. I mean, of course, the accepted Hague Rules, not the Hague-Visby Rules, which are of later date.77


This decision was given before the Hague-Visby Rules came into force in the United Kingdom.78


In Seabridge Shipping AB v AC Orssleff’s Eftf’s A/S (The Fjellvang)79 Thomas J considered a charterparty in the Gencon form expressly governed by English law which provided, ‘Paramount Clause are deemed to be incorporated into this Charterparty.’ By the date of the charterparty the Hague-Visby Rules were in force in about 26 States including Sweden and Denmark, the States in which the Owners and Charterers were resident; and the country of shipment, Poland, gave effect to the Hague-Visby Rules, as did the governing law of the charterparty. Thomas J thought that the correct approach was to ask what shipping men would have had in mind when referring to a clause paramount. On appeal from the arbitration award it was not open to the Charterers to adduce evidence as to what shipping men thought. Although Owners’ Counsel ‘did not contend the decision in The Agios Lazaros was necessarily binding as to the meaning of the words ‘clause paramount’ for all time’, Thomas J accepted his submission that there was nothing before the court which justified ‘taking the view that shipping men in general, or these Owners and Charterers in particular, had intended a different view to that current at the time of The Agios Lazaros’.


He continued:



The shipping trade commonly uses terms – ‘clause paramount’, ‘general clause paramount’, ‘Canadian Clause paramount’, ‘US clause paramount’. For over 20 years the meaning of ‘clause paramount’ has been certain. Persons in the shipping trade have been free to use the phrase ‘general clause paramount’ if they wished to incorporate the Hague-Visby Rules into trades where those rules are compulsorily applicable. Thus, on the evidence before me I see no warrant for departing from the views of shipping men which the court ascertained and gave effect to in The Agios Lazaros.80


In the light of this decision, if the parties wished the Hague-Visby Rules to be applicable,81 it would be better to insert a detailed clause paramount stating so in the charterparty, rather than just refer to a ‘clause paramount’. Alternatively they could include a reference to the ‘general clause paramount’. In Lauritzen Reefers v Ocean Reef Transport Ltd SA (The Bukhta Russkaya)82 Thomas J had to consider the meaning of a provision in a 1995 charterparty on the Baltime form which was governed by English law, provided for arbitration in London and stated:



in trades involving neither US nor Canadian ports, the general paramount clause to apply in lieu of the USA clause paramount.


Thomas J held that on the evidence it was clear that there was a clause in standard form that was known as ‘the general paramount clause’. Such clause had the following essential terms: (a) if the Hague Rules were enacted in the country of shipment then they applied as enacted; (b) if the Hague Rules were not enacted in the country of shipment, the corresponding legislation of the country of destination applied or, if there was no such legislation the terms of the Convention containing the Hague Rules applied; and (c) if the Hague-Visby Rules were compulsorily applicable to the trade in question, then the legislation enacting these rules applied. On the facts of that case, the Hague Rules applied rather than the Hague-Visby Rules as the voyage was from Mauritania to Japan, neither of which countries had enacted the Hague-Visby Rules by the date of the charterparty. The Charterers’ claim for an indemnity for their liability for cargo damage on the voyage in question was therefore time-barred as there is no indemnity provision in the Hague Rules.


The use of the word ‘general’ means that the clause paramount contains a reference to the Hague-Visby Rules but in effect, other than to warn the parties that the Hague Visby Rules may apply compulsorily, that reference does not add anything as it only makes the Hague-Visby rules apply where they would do so anyway because they apply compulsorily. This is discussed in the next section.


Since that decision, what is termed the ‘General Paramount Clause’ in well known bill of lading standard forms has undergone further development and provides primarily for the Hague-Visby Rules to apply and for the Hague Rules to apply only where the those Rules as enacted in the country of shipment or in the country of destination apply compulsorily. Both the Congenbill 2007 and Congenbill 2016 provide as follows:



(2) General Paramount Clause


The International Convention for the Unification of Certain Rules of Law relating to Bills of Lading signed at Brussels on 25 August 1924 (‘the Hague Rules’) as amended by the Protocol signed at Brussels on 23 February 1968 (‘the Hague-Visby Rules’) and as enacted in the country of shipment shall apply to this Contract. When the Hague-Visby Rules are not enacted in the country of shipment, the corresponding legislation of the country of destination shall apply, irrespective of whether such legislation may only regulate outbound shipments.


When there is no enactment of the Hague-Visby Rules in either the country of shipment or in the country of destination, the Hague-Visby Rules shall apply to this Contract save where the Hague Rules as enacted in the country of shipment or if no such enactment is in place, the Hague Rules as enacted in the country of destination apply compulsorily to this Contract.


The Protocol signed at Brussels on 21 December 1979 (‘the SDR Protocol 1979’) shall apply where the Hague-Visby Rules apply, whether mandatorily or by this Contract.


The Carrier shall in no case be responsible for loss of or damage to cargo arising prior to loading, after discharging, or while the cargo is in the charge of another carrier, or with respect to deck cargo and live animals.


13.4.5.2 ‘Apply compulsorily’


It is common for a clause paramount to provide that the Hague Rules apply but if the Hague-Visby Rules ‘apply compulsorily’ they will apply to the bill of lading.83 This wording simply serves to put the parties on notice that the Hague-Visby Rules may apply mandatorily. It does not, however, of itself make the Hague-Visby Rules apply compulsorily. So, if the Hague-Visby Rules would not apply mandatorily, for example, because those Rules would not apply to the document or to deck cargo, this wording has no effect.


In Parsons Corporation v CV Scheepvaartonderneming ‘Happy Ranger’ (The Happy Ranger)84 the second paragraph of a clause paramount provided:



3. GENERAL PARAMOUNT CLAUSE



Trades where Hague-Visby Rules apply


In trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on 23 February 1968 – the Hague-Visby Rules – apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of Lading….


The cargo interests argued that clause 3 applied the Hague or Hague-Visby Rules applicable in the country of shipment and because this was a shipment from Italy, it was a trade to which the Hague-Visby Rules applied. They further argued that it was not necessary to consider whether Article 1(b) was satisfied as the parties had made their intention clear in clause 3 and, if necessary, the contract should be manipulated to reflect this intention as in The Saxon Star.85 Lastly it was argued that the parties could not have intended the wholly uncommercial result that only the default provisions of clause 3 applied where the country of shipment (Italy); the country whose law was the proper law of the contract (England) and the country whose law would apply in the absence of another choice (the Netherlands) were all parties to the Hague-Visby Rules. Tuckey LJ, with whom Aldous LJ agreed, Rix LJ dissenting, stated:



I do not accept these submissions. To see what the parties intended one must look at the words they used. The heading of the second paragraph of cl. 3 must be read with the body of the paragraph and that refers to ‘Trades where the…Hague-Visby Rules… apply compulsorily’. The rules do not define or even refer to trades but I am prepared to accept that they include voyages or carriage of cargoes within the scope of art. X. This article applies ‘to every bill of lading relating to the carriage of goods’ so to this extent it is compulsory but while the issue of a bill of lading is a necessary condition of the application of the rules, it is not in itself sufficient. The scope of art. X must be subject to art.1(b) so if this contract is not one which is covered by a bill of lading or similar document of title the rules, including art. X do not apply. If they do not apply they are obviously not compulsory. I do not think it is permissible to manipulate the wording of cl. 3 to delete the words ‘apply compulsorily’. It cannot be said that to do so would reflect the intention of the parties because those are the words which they used. If that is what they have agreed the fact that it is arguably uncommercial is of little consequence. This conclusion does of course mean that the second paragraph of cl. 3 is surplusage because the rules would apply compulsorily with or without it, but no real significance can be attached to this in a document of this kind.86


It appears that this construction of the words ‘compulsorily applicable’ is entirely in accord with the principles of construction set out by the Supreme Court in Arnold v Britton87 and with the first factor which Lord Neuberger emphasised in that case as follows:



First, the reliance placed in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.88


The construction has been followed in subsequent cases. Thus in Trafigura Beheer BV v Mediterranean Shipping Co SA (The MSC Amsterdam),89 360 tonnes of copper cathodes were shipped from South Africa to China. The bill of lading was expressly governed by English law and the clause paramount provided:



  1. (a) For all trades,…, this B/L shall be subject to the 1924 Hague Rules with the express exclusion of Article IX, or, if compulsorily applicable, subject to the 1968 Protocol (Hague-Visby) or any compulsory legislation based on the Hague Rules and/or the said Protocols.…

South Africa was not a Contracting State to the Hague-Visby Rules although its legislation, the South African Carriage of Goods by Sea Act 1986, did apply the Hague-Visby Rules to any shipment from a South African port. The Court of Appeal held that the Hague Rules and not the Hague-Visby Rules were applicable. In order to determine whether the Rules are compulsorily applicable one had to look to the proper law of the contract and not the law of the country of shipment or of destination. The law of the forum might also have to be considered,90 but in this case it was also English law. The Court of Appeal held that Aikens J had correctly held that English statute law did not make the Hague-Visby Rules applicable and therefore neither the proper law nor the law of the forum made the Hague-Visby Rules compulsorily applicable and they did not therefore apply to the bill of lading. Longmore LJ stated:



I, therefore, agree with Mr Parsons that the scheme of the bill of lading in the present case is that the Owners, as a matter of contract, accept Hague Rules (1924) obligations but only accept HVR obligations if they are forced to do so. They can only be forced to do so if the proper law of the contract compels it (or, if the place where the cargo-owners choose to sue them, compels it). Neither law compels it on the facts of the present case and they are not contractually obliged further than the law compels. Whether that is an attractive way for a shipowner to do business 40 years after the Hague-Visby Protocol was internationally agreed is a different matter and cannot be of any relevance to the construction of this contract of carriage.91


In Sideridraulic Systems SpA v BBC Chartering & Logistic GmbH & Co KG (The BBC Greenland )92 the bill of lading contained a clause paramount which provided for the Hague Rules to apply but continued:



In trades where [the Hague-Visby Rules] apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of Lading. …Unless otherwise provided herein, the Carrier shall in no case be responsible for loss of or damage to deck cargo….


There was a London arbitration and English law clause. However, the bill of lading further provided that:



In the event that US COGSA applies, then the Carrier may at the Carrier’s election, commence suit in a court of proper jurisdiction in the United States in which case this court shall have exclusive jurisdiction.


Hamblen J held that the Hague-Visby Rules did not apply compulsorily as the cargo was deck cargo.93 Therefore there was US jurisdiction.


13.4.5.3 The Hague Rules ‘as enacted’


Some nine years after Longmore LJ queried whether it was an attractive way for a shipowner to do business some four decades after the Hague-Visby Rules had come into force only to apply those Rules if it was compelled to, he had another opportunity to consider the application of the Hague-Visby Rules under a common Conlinebill form, which has different wording. In Yemgas FZCO v Superior Pescadores SA Panama (The Superior Pescadores)94 the issue was whether the limits in the Hague or Hague-Visby Rules applied. In that case the application of the Hague Rules resulted in a higher limit of liability in some cases than the Hague-Visby Rules. The bills of lading were for a shipment of equipment from Antwerp, Belgium to Balhaf in Yemen in early January 2008. As Belgium became a contracting state of the Hague-Visby Rules in 1978 those Rules applied mandatorily. Some four-and-a-half years after the shipment in October 2012 the shipowner’s P&I club gave a letter of undertaking and agreed English law and jurisdiction on behalf of the owner. The question was what Rules applied contractually as if the Hague Rules did, and they provided for higher limits in some situations, the issue was whether there was an agreement for a higher limit pursuant to Article IV rule 5(g) of the Hague-Visby Rules. The clause paramount stated:



2. Paramount Clause


The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.


At first instance Males J reluctantly concluded that on its true construction the paramount clause incorporated the Hague Rules as the reference to the Hague Rules in the first sentence did not include the Hague-Visby Rules. However, where the Hague Rules limit was higher than the Hague-Visby Rules which applied mandatorily under English law as the shipment was from a Contracting State, it did not operate as an agreement for a higher limit within Article IV rule 5(g) of the Hague-Visby Rules. The cargo owners could only therefore recover the Hague-Visby Rules limit.


Although the Court of Appeal upheld the conclusion of Males J at first instance that the Hague-Visby limits applied, the Court of Appeal did not agree with his reasons. The Court of Appeal held that the Hague-Visby limits applied as any case in which a bill of lading was issued in 2008 incorporating the Hague Rules as enacted in the country of shipment and in which the country of shipment had enacted the Hague-Visby Rules should be regarded as a case which was subject to the Hague-Visby Rules rather than the Hague Rules. Longmore LJ, with whom Tomlinson and McCombe LJJ agreed, commented that the conclusion by the judge that the 1924 Hague Rules applied rather than the 1968 Rules in 2015 in respect of a contract made in 2008 was ‘odd’.95 He continued:



Most maritime nations have adopted the Hague-Visby Rules; the United Kingdom did so as early as 1971 in the Carriage of Goods by Sea Act of that date; it did not come into force until a certain number of other countries had signed up but that happened as long ago as 23rd June 1977. Can it really be the case that a Paramount Clause in a contract made over 30 years later in 2008 is still to be taken as incorporating the 1924 Rules rather than the 1968 Rules?


He stressed that the words of the clause paramount itself were important96 and reviewed the authorities. Where the clause paramount is the general clause paramount considered by Thomas J in The Bukhta Russkaya97 which refers expressly both to the Hague and the Hague-Visby Rules it is not surprising that in that case the judge concluded that the Hague Rules applied.98 After reviewing the authorities Longmore LJ concluded that there was nothing in the authorities which prevented the following construction:



On any ordinary and sensible view of English law, therefore, the Hague Rules ‘as enacted’ in England are the Hague Rules as enacted by the schedule to the 1971 Act, a schedule which in its title refers to the Hague Rules ‘as amended’. The position in Belgium must be taken to be the same.99


Furthermore this construction was supported by the American authorities.100 As a result of the decision that the Hague-Visby Rules applied it was not necessary to express a view as to whether there was an agreement for a higher Hague Rules limit within Article IV rule 5(g) of the Hague-Visby Rules.


The decision in Yemgas indicates a significant shift in favour of the Hague-Visby Rules and shows an approach which has moved with the times and developments on the international scene where the clause paramount refers to the Hague Rules as enacted in the country of shipment and does not draw any distinction between the Hague and Hague-Visby Rules. It is ironic that in that case the Hague-Visby Rules limits favoured the shipowner as they imposed a lower limit and that they were held to apply.


13.4.5.4 ‘Corresponding legislation’


As we have seen the general clause paramount provides for both the Hague and Hague-Visby Rules to apply in certain circumstances.101 One of the terms used in a general clause paramount provides that when the Hague Rules or Hague-Visby Rules are not enacted in the country of shipment, ‘the corresponding legislation of the country of destination shall apply’. This raises the question of what constitutes corresponding legislation. In the case of the Congenbill 2016 quoted above102 it seems clear that in the first paragraph if the Hague-Visby Rules are not enacted in the country of shipment, and the corresponding legislation in the country of destination is to apply, only legislation which corresponds to the Hague-Visby Rules is to apply and not the Hague Rules in light of the wording of the second paragraph which expressly provides for the application of the Hague Rules where they apply compulsorily.


‘Corresponding legislation’ should also not extend to legislation giving effect to a completely different set of Rules such as the Hamburg Rules. In Golden Endurance Shipping SA v RMA Watanya SA103 Burton J considered the construction of such wording. The cargo interests argued that where the country of destination was Morocco which imposed by legislation the Hamburg Rules, that is ‘corresponding legislation’, so that the Hamburg Rules would apply to the shipment from Gabon, where there is no enactment of the Hague Rules. It was not necessary to decide this point and therefore the judge did not do so. However, he expressed a provisional view that the contrary was ‘more likely to be correct.’104 The author agrees with this view. Indeed it would be strange if the clause itself distinguishes between the Hague and Hague-Visby Rules but a completely different set of rules were held to apply.


The parties can certainly refer to the Hamburg Rules expressly if they wish to, and in some cases do.105 For example, in Compañía Sud Americana De Vapores SA v Hin-Pro International Logistics Ltd,106 where the Court of Appeal had to construe an English jurisdiction clause107 and determine whether it was exclusive. It was relevant to take into account the commercial background which was that the bill of lading was the standard form of Compañía Sud Americana de Vapores, a Chilean international shipping corporation with a worldwide business, for use by many different shippers from and to many different ports around the world including those from countries, such as Chile, where the Hamburg Rules apply, and the clause paramount was as follows:



The bills of lading in the current action provided in clause 2 for a clause paramount and for the application of the Hague Rules, save in three situations. First, where as a matter of English law and the English Carriage of Goods by Sea Act 1971 the Hague-Visby Rules are compulsory applicable. In such circumstances, those Rules would fall to be applied. Secondly, where there are shipments to and from the United States of America, US COGSA is to apply. Thirdly, where the bill of lading was subject to legislation which makes the Hamburg Rules compulsorily applicable, then those rules would apply ‘Which shall nullify any stipulation derogating therefrom to the detriment of shipper or consignee.108

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