Limiting Liability for Cargo Claims - Bad News for Carriers

The English High Court has just decided in The Thorco Lineage not to follow its 14-year-old decision in The Limnos on carriers limiting their liability for bill of lading cargo claims.

In The Limnos (2008), 0.6% of the cargo had been damaged during its shipment by the vessel. But the whole cargo was treated in the market as a distressed cargo, so its receiver claimed its US$1.5 million total loss from the owner/carrier under the bill of lading.

The bill of lading incorporated the Hague-Visby Rules (HVR). The owner sought to limit its liability based on the 0.6% physically damaged quantity under Article IV.5(a)’s words emphasised in bold by us: “Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.77 [Special Drawing Rights/SDRs] per package or unit or 2 [SDRs] per kilogram of gross weight of the goods lost or damaged, whichever is the higher.”. The cargo receiver said the limit should be a much higher figure, calculated on the whole cargo quantity – not just the physically lost/damaged part.

The High Court judge (Burton J) agreed with the owner:

1. In the phrase “goods lost or damaged” to which the limit related, the word “damaged” meant ‘physically damaged’, i.e. the 0.6% quantity.
2. The earlier phrase “loss or damage to or in connection with the goods” was different: there the “damage” was physical and the “loss” was economic. But the limit was not calculated based on that phrase.

In The Thorco Lineage, the same question arose. Cargo was shipped from the USA to Australia. The vessel suffered engine failure and grounded. Salvors were contracted. Some cargo was discharged in South Korea and some was transhipped by another vessel to Australia. The cargo receiver claimed US$8.4 million of which 3% of the claim was for the 7%-physically lost/damaged cargo and the balance (the vast majority of the claim) was for its paid salvage and on-shipment costs.

But the High Court judge (Sir Nigel Teare) disagreed with the decision in The Limnos (a High Court judge is not bound by the decision of another one), holding that:

1. The Court’s task was to ascertain the ordinary meaning of the words used (i) in their context; and (ii) in light of the HVR’s object and purpose.
2. There was force in the cargo receiver’s argument that the owner was re-writing Art IV.5(a), whose words in bold above could have included the words ‘physically or economically’ but did not do so.
3. But there was also force in the argument that the phrase “goods lost or damaged” could include economically damaged goods as part of its ordinary meaning. The cargo receiver would, given the expense it had incurred, describe its cargo as economically damaged, and support for this could also be found in the Oxford English Dictionary meaning of the words ‘damage’ and ‘damaged’. It gives effect to the context of carriage of goods by sea. It also gives effect to the apparent intention in the preceding words “loss or damage to or in connection with the goods” in Art IV.5(a) to limit liability for economic losses in connection with goods without physical damage – the HVR drafters could not have intended the limit to apply only to physically damaged goods. One would not expect “goods lost or damaged” to have a meaning resulting in liability for economic loss or damage, which is stated by the first phrase to be subject to limit, not to be limited after all. On the contrary, the two phrases are very closely linked.

The judge also expressed his (obiter dictum/non-binding) view that even if he had followed The Limnos, there was physical damage by reason of the maritime lien the salvor had had over the cargo (damaging the cargo owner’s title to the cargo) until it was given security for its salvage remuneration.

The decision in The Thorco Lineage will come as a pleasant surprise to cargo owners advancing claims for lost profit/expense arising out of loss/damage to cargo. Though it will also benefit shipowners in rarer cases where they will be assisted by limitation of liability and where they do so despite there being no cargo loss or damage at all (such as a claim for the cargo’s loss in value due to delay).

The decision is not being appealed to the Court of Appeal, so it is the final word on this – for now.