Standard terms of carriage and exclusion of shore damage to cargo

MARITIME law is a specialised subject which, although regulated to a large extent by national legislation, is clearly shaped by international influences, in particular international conventions. Lawyers and judges who deal with maritime law consider themselves as specialists with an international background. Thus they often make heavy weather of allowing novel developments in civil law to influence the internationally tried-and-tested subject matter of maritime law.

This is particularly apparent with regard to clauses limiting and exempting liability for carriage by sea. These clauses have been widely upheld by courts all over the world for decades, for instance where they applied to damages which fell outside the mandatory liability regime of the Hague and Hague-Visby Rules. In Germany, however, this position changed when the Law on General Terms and Conditions of Business (AGB Act) came into force on April 1, 1977.

The tide may also change in other countries in the EU after the national implementation of EU Directive 93/13 of April 5, 1993, which deals with unfair clauses in consumer contracts.

Both the EU directive and the German AGB Act deal in the first instance only with consumer contracts. But Paragraph 24 of the AGB Act, which is also Paragraph 310 Section 1 of the German Civil Code (BGB), provides that a clause forming part of the general terms and conditions of business will be invalid in commercial dealings if it operates in an unreasonable manner against the requirements of good faith to the detriment of the contractual partner that introduced the clause. This is particularly the case where the clause in question is irreconcilable with the overriding objective of the statutory regime from which it deviates, or where the clause limits the rights and obligations flowing from the nature of the contract to such an extent that the purpose of the contract is jeopardised.

In practice in Germany today, the judiciary to a great extent applies the guiding principles of the provisions of the AGB Act to contracts between merchants. It has, however, taken some time for this development to reach the area of maritime law, for the reasons mentioned. Specialists in maritime law must now come to terms with the fact that internationally accepted and trusted limitation and exemption clauses are challenged or ruled to be invalid by courts invoking the mandatory provisions of the AGB Act. Presently, at least in Germany, two principles of the law of AGB have proved to be dangerous as well as decisive.

The first principle is that a clause exempting from or limiting liability for a breach of essential contractual obligations will be invalid. This rule in fact finds its origin in maritime law. The courts referred to essential contractual obligations, known as cardinal obligations, for the first time with regard to the obligation of the carrier of goods by sea to provide a seaworthy and cargoworthy vessel. Even before the AGB Act came into force, the insertion of a clause in the bill of lading exempting the carrier from this obligation was held to be invalid.

The second principle provides that a limitation or exemption clause which is broader than that permitted by statute will not apply in a reduced or limited scope that conforms with the law, but is invalid in its entirety. This principle, which prevents the narrowing-down of a clause in order to maintain its validity, necessitates precise drafting of general commercial terms and conditions, e.g., bills of lading terms, in such a manner that liability is limited or exempted only to the extent that is permitted by the law. The clause must be drafted so narrowly that it cannot be interpreted as extending beyond the scope permitted by law.

One of the best-known exemption clauses in maritime law is the so-called exclusion clause for shore damage to cargo in bills of lading. According to the Hague-Visby Rules, which have been incorporated in the German Commercial Code, the carrier is strictly liable for loss and/or damage of goods from loading to discharge. This leads to the result that nearly every bill of lading contains a clause excluding the carrier from liability for damage and loss of goods occurring prior to loading and after discharge. The validity of such a clause is a question for the national legislator.

As in almost every other country, the courts in Germany permitted clauses exempting the carrier from liability for shore damage up to 1977, when the AGB Act came into force. Thereafter it became questionable whether such clauses were in conformity with the AGB Act. In this respect it should be added in explanation that, under German AGB law, exemption from liability in cases of gross negligence between merchants is not allowed, whereas liability for ordinary negligence may be exempted. Applying the principle that an excessively broad exemption clause included in standard terms of business may not be narrowed to fit the maximum scope allowed by law, a clause exempting liability for shore damage which is not limited to ordinary negligence, but in fact exempts from all liability without distinction, would be invalid on the basis that, under German law, the exemption of liability for gross negligence would be inadmissible in this case.

In 1991, the Hamburg Court of Appeal held that a clause exempting the carrier from liability for shore damage was valid, irrespective of whether the damage occurred as a result of gross negligence or not. The Federal Supreme Court reversed the decision, though on other grounds, without considering the question of the validity of such clauses. In 1996, the Hamburg Court of Appeal delivered a judgment similar to its 1991 decision, recognising the historic origin of such customary clauses, namely that once the goods are on the quayside, they are not normally in the custody of the carrier. The carrier therefore does not have any immediate control over the care of the cargo by independent operators ashore.

In addition, the court held that such clauses validly make use of the scope for exemption of liability provided by the Hague Rules. The carrier's liability for the infringement of a material obligation, e.g., the delivery of goods to an unauthorised third party without presentation of the bill of lading, should by no means be the object of such a clause.

In another significant decision made by the Hamburg Court of Appeal in November 2000, a clause exempting liability for shore damage was held to be valid and in conformity with the law of standard terms of business. The court held that liability for shore damage was not one of the mandatory basic principles of the statutory regime. In view of the carrier's lack of control over the goods on the quayside, the court found that the exemption did not constitute an unreasonable disadvantage from the point of view of the receiver of the goods.

This decision was appealed to the German Federal Supreme Court, which, to the surprise of most, dismissed the appeal. It was expected that the Federal Supreme Court would take the opportunity to express an opinion on this issue. The fact that it did not do so can in practice only mean that the Federal Supreme Court concurred with the reasoning of the Hamburg Court of Appeal. Therefore one may say with some certainty that a clause exempting liability for shore damage under these circumstances will stand up to the test of the German AGB Act and that the judiciary will uphold it.

It is, however, an open question whether this also holds good in a case where, for example, the goods were stolen after discharge with the consequence that the carrier could not fulfil its cardinal obligation, namely the delivery of the goods to the receiver authorised by the bill of lading to take delivery. In such a case, an exemption clause covering non-delivery to the authorised receiver named in the bill of lading could be held to be invalid in toto, as it cannot be limited to the legally valid parts of the clause. To avoid this objection from the outset, the shore damage clause should limit the exemption of liability so that it does not cause an infringement of the carrier's duty to care for the goods or exclude liability for delivering the goods to the authorised receiver.