I say Package, you say Unit

I say Package, you say Unit

Mary Thomson, a partner at Kennedys in Hong Kong, looks at recent legal interpretations of the package limitation provisions in the Hague-Visby Rules

A FRIEND from an insurance institution recently remarked that whoever drafted the Hague or Hague-Visby Rules on package limitation deserves a hearty vote of thanks from maritime lawyers around the world for single-handedly keeping them in gainful employment for the last forty years. He was responding to yet another court decision on package limitation, this time the Federal Court of Australia in El Greco (Australia) Pty Ltd v Mediterranean Shipping Company SA (August 2004).

“Containers”, “cases”, “boxes”, “crates”, “pieces”, “bales”, “cartons”, “pallets” - all common descriptions to be found on the front of bills of ladings issued. Yet, calculating limitation of liability under the Hague (1924) or Hague-Visby Rules (1968) when goods have been lost or damaged continues to dog the shipping industry. What, then, constitutes a “package or unit” for limitation purposes under those rules? Is it the container, as the carrier would argue? Or is it the parcels or units contained within, as cargo interests would have it?

The facts of El Greco

The case concerned a claim for cargo damage. On the face of the bill, under the description of cargo, the container was said to contain “200,945 pieces of posters and prints”. The column entitled “No. of Pkgs”, however, stated one package. It was common ground that the 200,945 pieces were placed into “approximately” 2,000 packages, albeit such reference was absent from the face of the bill. There was a dispute as to the precise number of pieces shipped.

The decision at trial

The trial judge decided that an enumeration of the pieces of cargo satisfied the notion of a “unit” under the rules. As the bill enumerated 200,945 units of cargo, no benefit was gained in relying on the limitation under the rules

The decision on appeal

On appeal, the majority (Black C J and Allsop J) held that 200,945 pieces of posters was not an effective enumeration of the contents “as packed in such article of transport”. As such, the container was to be regarded as the package or unit for limitation purposes. Beaumont J dissented, holding that limitation should be determined to approximately 2,000 packages representing the units which were actually shipped.

Arguably, both judgments were consistent with the English Court of Appeal decision in River Guara (Cargo Owners) v Nigerian Shipping Line [1998] QB 610. The number of “bales” or “parcels” was specified in the bills. The Court of Appeal held that, where parcels of cargo were loaded into containers, it was the parcels and not the containers which constituted the relevant packages for limitation purposes under the Hague Rules. However, Beaumont’s dissenting judgment is perhaps closer in spirit to the reasoning in River Guara that the limit of liability fell to be calculated on the number of packages that were proved to have been loaded within the containers rather than by reference to the description in the bills.

The federal court placed a great deal of emphasis on the words “as packed”. The words “as packed” were said to direct attention to the packing or stuffing of the container, the container being viewed as an article of transport. The enumeration of packages or units as packed should be an enumeration of the packages or units as they are packed in the container. The Hague-Visby Rules do not refer to pieces or articles contained within the container and, therefore, the words “package” or “units” do not extend to mean any itemised individual articles of cargo said to be within the container.

The task in determining liability is, then, to see what the bill of lading enumerated by way of packages and units as packed in the container. The court provided some useful guidelines. If the bill identifies X packages each containing Y pieces or items of cargo then there will be X packages and not Y units enumerated. If the goods are made up into X packages each containing Y smaller packages each containing Z pieces, the better view may be that there are enumerated the sum of X multiplied by Y packages, even though, in a sense, these packages are within other packages. Where the container contains general merchandise or bulk cargo, there is no enumeration and the container is taken as the package or unit.

In Hong Kong, the position is similar. In Wily Products Co Ltd v Hecny Shipping Ltd (1995), the cargo in question consisted of 2,000 pieces of cassette recorders packed in 500 cartons and stuffed in one container. The Court of Appeal found that the number of packages or units in the bill was 500. Article IV Rule 5(c) removes all possibility of argument that it is the number of containers as stated in the bills which is relevant, and not the number of cartons.

The Hague Rules, however, do not contain a deeming provision similar to that of Article IV Rule 5(c). Liability under the Hague Rules, therefore, is still determined on the basis of what is meant by a package or unit. In Bewise Motors Co Ltd v Hoi Kong Container Services Ltd (1998), the majority of the Court of Final Appeal was far from satisfied that a car could be a package. The word ‘package’ has no legal or technical meaning. It relates generally to things “packed, encased etc or bundled up in some way as a unit for bailment or carriage”.

In light of recent developments, carriers and cargo owners would be well advised to clearly enumerate in the bill of lading whether the cargo is “packed” in the container, and whether it consists of pieces, packages, boxes, cartons or units, to avoid unnecessary disputes as to limitation amounts.