Article

by T.O. Lee

The Hague Rules (1924) and Hague Visby Rules (1971) are the most popular conventions for maritime transport and form the basis of the Carriage of Goods by Sea Act (COGSA) used in major trading countries, such as the US, Canada and the UK. But these old rules needed to be updated to cope with rapid developments in sea transport, such as containerization, electronic transport documents and multimodalism. It took the United Nations six years (April 2002 to July 2008) and thirteen working sessions to complete the drafting of the new rules, which are called the UNCITRAL Convention on Contract for the International Carriage of Goods Wholly or Partly by Sea. The Convention was adopted by the UN General Assembly in December 2008. Because the signing ceremony took place in September 2009 in Rotterdam, the rules are commonly known as "the Rotterdam Rules".

Signatory and ratification

Out of 180-plus countries in the UN, only 19 have signed the Rotterdam Rules, namely Armenia, Cameroon, Congo, Denmark, France, Gabon, Ghana, Greece, Guinea, Madagascar, Netherlands, Nigeria, Norway, Poland, Senegal, Spain, Switzerland, Togo and the US. Signing the rules does not mean that they are binding; for this to happen, ratification is required. From this list, it is clear that the Convention is not supported by some major trading countries, such as Canada, Germany, Italy, Australia, Japan, Korea and China.

Views from interests groups

Carriers' interest groups - such as ICS, ECSA, BIMCO, P&I Clubs and the WSC - expressed their strong support for the rules because they, like the Hague Rules, are favourable to carriers or shipowners. From my experience in resolving international trade disputes, it is clear to me that most, if not all, rules are made by the stronger parties to govern weaker ones. One could also cite examples in UCP 600, namely the disclaimer articles 34 to 37. Shippers' interests groups, such as European Shippers' Council, strongly object to the new rules for the same reason. However, powerful shippers such as Exxon, Wal-Mart and Cargill can opt out the Rotterdam Rules with their "volume contracts" and make their own private arrangements with carriers. The same will not normally be the case for the weaker small- and medium-sized enterprises (SMEs), as discussed later in this article.

Freight forwarders' associations like FIATA and CLECAT have also expressed serious concerns. Some big forwarders may assume the role of both carriers and shippers in their various operations. In practice, some carriers run a freight forwarder business under a different registration. CLECAT is urging EU governments not to ratify this Convention, and the European Commission has expressed serious reservations concerning the suitability of the rules to govern multimodal transport and has proposed an alternative regional regime.

The rules are also being heavily criticized by some scholars and practitioners on the grounds set forth in the following paragraphs.

Drafting

Critics of the rules say that their language is too legalistic and too complex, with long sentences and imprecise words, that make them difficult for practitioners to understand. They claim that this will lead to a number of lawsuits asking courts to clarify the meaning, intent and impli cations of the terms in dispute. The rules are said to differ in drafting, content, form, style and terms, and to set aside 100 years of established jurisprudence, as well as to erase years of trade practices and customs.

Limited scope of application

Critics note that the rules only cover multi modal transport that involves a sea leg; they do not cover other form of transport such as rail and air, road and air or road and inland waterways. Article 26 of the rules states that if goods are damaged before or after loading on board or discharge from the cargo ship, other international instruments have precedence over the rules.

Technical complexity

The rules provide detailed provisions for three main types of transport documents: negotiable transport documents, non-negotiable transport documents and straight bills of lading. Critics note that a simple transport document, a bill of lading for example, depending on its content, may fall into any of these three categories and that it would take an experienced maritime lawyer to tell the difference. They assert that rules should not be too technical and detailed, because this makes them inflexible and difficult to apply.

Contract rules versus acts

The Hague, Hague-Visby and Hamburg Rules are carriage of goods by sea acts and the United Nations Convention on International Multimodal Transport of Goods (1980) is a multimodal transport act. Critics point out that the Rotterdam Rules, by contrast, are contract rules, and that practitioners may be unfamiliar with this new approach. They also note that the precedents established by the first three sets of rules or the UN Multimodal Transport Convention cannot be applied to the Rotterdam Rules, leaving parties in litigation unprepared for unpleasant surprises.

Multiple exceptions and opt outs

The Rotterdam Rules contain multiple exceptions to specific articles, primarily through the notorious "volume contracts" that open wide exit doors for the otherwise responsible parties, such as carriers. On top of that, opponents note that opt outs are allowed in the areas of juris diction and arbitration, making the rules not binding in these important areas. States that have ratified the rules are given the freedom to opt out of these provisions, though the Rules will bind those contating states if they agree. The fact is that for those states that opt out, the applicable law and forum of trial or arbitration would be uncertain.

Conflicts with other conventions

Other criticism is that the Rules apply to a "contract" of carriage (rather than "carriage" of goods) from the place of receipt to the place of delivery, including the port of loading and the port of discharge. These four places/ports may be in different countries and subject to different jurisdictions, particularly concerning delivery on land, where other conventions, such as the CMR (Convention on the Contract for International Carriage of Goods by Road) and CIM (Uniform Rules concerning the Contract for International Carriage of Goods by Rail) may override the Rotterdam Rules. However, the CMR and the CIM also govern certain carriage by sea. This, observers say, would create conflicts amongst the Rules and the other conventions. In the event of a dispute or uncertainty over the place where damages have actually occurred, whether at sea or on land, it would be difficult to determine which convention/rules is to apply.

Unequal obligations and liabilities

Sea carriers may offer purely sea carriage under the Rotterdam Rules and hence be able to limit their period of responsibility to exclude loading, handling, stowing and unloading if the shipper so agrees. Some say this would not be fair to shippers, who expect the carrier to be responsible for the entire journey, from start to finish, including the carriage over land, as the Rotterdam Rules claim to cover.

Controversial "volume contracts"

As noted earlier, the Rotterdam Rules allow carriers to contract out of nearly all the provisions by means of volume contracts. This is of considerable concern to international organizations. A volume contract is one that covers carriage of a specified quantity of goods by a series of shipments made within an agreed period of time. The threshold for applying such contracts can be as low as shipping three or more containers in a year.

In a volume contract, the shipper's liabilities will be increased but the liabilities of the carrier will be reduced. Some argue that powerful shippers like Wal-Mart, Cargill, P&G and Exxon may dictate the terms in volume contracts, but that SMEs have no bargaining power and will be placed at a disadvantage. The savings in reduced freight rates in exchange for a carrier's reduced liabilities may not be justified compared with the potential risk associated with these contracts.

Other questionable provisions

The Carriage of Goods by Sea Acts in major trading countries treat the receipt of goods by the carrier without an unfavourable endorsement of a bill of lading as prima facie evidence of good receipt. The carrier has a continuous duty to take care of the goods in its custody. However, article 17 (5) (a) of the Rotterdam Rules places the burden of proof on the claimant (the consignee or holder of a bill of lading) to demonstrate the carrier's negligence. The shipper, consignee or holder of a bill of lading cannot access information about the conditions of carriage (such as lack of seaworthiness of the cargo ship, improper crewing, equipment, etc.), that is easily available to the carrier or its agents. The criticism here is that this is unfair to the consignee or holder and is difficult to execute.

On the other hand...

I do not want to focus exclusively on negative criticism of the Rules. There is, in fact, one positive feature that needs to be mentioned: the carrier's maximum liability has been increased to 3 SDR per kilogram and 867 SDR per package.

T. O. Lee FAE MCIArb MITD was a member of UCP 600 Consulting Group and is a Fellow of the Academy of Experts, Gray's Inn, London and member of UN International Multimodal Transport Association, Geneva. His website is www.tolee.com and his e-mail is experts@ tolee.com