Damage limitation

THE approach of many Nigerian courts, and of some practitioners in maritime law, to the issues relating to limitation of damages by carriers has been one of circumspection. Although attempts were always made to keep traditions of pacta sunt servanda ("agreements must be observed"), in some instances decisions were made that often defeated the very contract of the parties.

It is important to note that in Nigeria the legal regime relating to carriage of goods by sea disputes is governed broadly by the contract of the parties and the Carriage of Goods by Sea Act. It is specifically provided in the Act at Section 2, "The Rules shall have effect in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in Nigeria to any other port whether in or outside Nigeria."

On the international scene, the appellate courts in Nigeria have frequently applied this provision in holding that the Act applies only to outward voyages from Nigeria. The Act is enacted with the modified Hague Rules as its schedule, giving it force of law in Nigeria. There are, therefore, two limitations to situations where the courts in Nigeria will apply COGSA - outward voyages and only to the extent as contained in the wording of rules as enacted in COGSA.

Recently, the Supreme Court in Nigeria (June 2002) in Caroline Maersk v Nokoy Investment Limited had reason to consider an appeal on the following simplified facts. A carrier had been sued for damage to cargo of frozen Atlantic gold shrimps (1,202 cartons) shipped to Algeciras, Spain, from Lagos, Nigeria. On arrival, port health in Spain declared the cargo unfit. Naturally, the buyer refused delivery and the shipper sued the carrier and its agent for invoice value of $71,516.

There was some dispute about when the deterioration of the cargo occurred, but this is of generally little significance. The high court and the court of appeal decided for the shipper in the invoice value. Apart from disputing liability, the carrier attempted to rely on its limitation clause in a combined bill of lading of £100 per package "unless the nature or value of such goods have been declared by the shipper before shipment and inserted on the reverse side of this bill and extra freight paid" (the 'unless clause'). The carrier argued correctly that this had not been done.

In awarding $71,516.50, the trial court believed that the unless clause did not apply and awarded the invoice value, basing its decision on the Hague Rules incorporated in the bill and not on Article IV Rule 5 of the local COGSA. Article IV Rule 5 of COGSA called for a consideration of the gold clause limitation in Article X. Naturally, the carrier argued its preference for this clause being that, on the face of it, it afforded a much lower limit of N200 (SUZ - the equivalent $1.00) per package.

After much consideration, the question for determination required a rather momentous decision - whether the Supreme Court could hold that the private contract between the parties, as evidenced by the bill of lading in its Clause 6(2) (the unless clause), or Article IV (5) of COGSA, a local statute of Nigeria, should be applied to the dispute.

The court immediately below, the Court of Appeal, had already declared that there was no doubt that COGSA gave legal effect to the Hague Rules, "which Nigeria acceded to in 1930 and that the Hague Rules have become the autonomous law in Nigeria which is elevated above local legislation". Many commentators had felt that this broad-brush declaration was not in consonance with notions of statutory efficacy, parliamentary supremacy and public policy. What did the Supreme Court think?

The court found that COGSA does give effect to the Hague Rules but in the form of those sets of rules as modified in COGSA in the schedule to the Act following from Section 4:

"every bill of lading or similar document of title issued in Nigeria, 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"

The court stated that the COGSA rules were superior to the rules incorporated by the bill and that it could not be reasonable to view any reference to the rules as being a reference to the rules containing the unless clause. And that the rules incorporated by the bill of lading could not override the rules in COGSA "if the rules in the schedule to the Act are those inappropriately referred to as the Hague Rules in the bill then the provisions of Clause 6(2) are bad for internal inconsistency because if the rules apply it would apply with the limitation of liability fixed … (lower)"

The court then set aside both lower courts decisions awarding the invoice value and ordered that the lower amount of N200 (Nigerian currency) per package be computed in accordance with the limitation in Article IV (5) and X of COGSA. The intention of the Supreme Court from the judgment was to uphold "party autonomy" in contract. It does seem that the court navigated a curious route to arrive at this conclusion.

The analysis of the case reveals that the lower courts had attempted to keep the contract solemn and maintain party autonomy but arrived at a higher award of damages in spite of the fact that the parties dictated a lower limitation at the time of contracting. The approach of the Supreme Court in achieving the intention of the parties, by a lower limitation, was arrived at by overriding the contractual provisions with local statute.

The Supreme Court may have been mindful of a provision of the Nigerian constitution 1999 that provides that, "No treaty between the Federation and any other country shall have the force of law except to the extent to which any such treaty has been enacted into law by the National Assembly". This may have informed the view that only the Hague Rules as enacted in COGSA is applicable in Nigeria. Though this provision was not argued before the court, it may, at some time, be closely considered as in maritime law as it relates to the applicability of the Hague Rules in Nigeria.