Rotterdam Rules: why we should support early ratification
9 July 2009
The United Nations Convention on contracts for the international carriage of goods wholly or partly by sea, to be known as the Rotterdam Rules, has generated strong feelings for and against ratification. This article explains why ratification is essential.
The Rotterdam Rules (Rules) are the result of almost ten years’ work in response to concerns that the current mixture of the Hague Rules (developed in the 1920s to protect cargo interests, particularly third party holders of bills of lading, from unexpected surprises about their obligations), Hague Visby and Hamburg Rules, together with national variations in some jurisdictions, has led to fragmentation of liability arrangements. Moreover, the USA was on the point of acting unilaterally to update domestic legislation from the 1930s. Interested parties therefore worked through the private law organisation Comité Maritime International (CMI) to devise new provisions which were passed to the United Nations Commission on International Trade Law (UNCITRAL), for development as an international instrument.
The twin purposes were to restore the lost objective of a single regime for worldwide application and to update provisions which have lagged behind rapid advances over the last 30 years in trade practice, user demands and technology. The process was inclusive with all industry interests encouraged to participate through trade representatives and governments. As a result, the UNCITRAL Working Group reflected an eclectic mix of different, and often opposing, viewpoints. Pressures between the different interest groups resulted in many delicately balanced compromises to achieve the end result of a package offering “something for everybody”.
World trade movements invariably involve a maritime sector at some point. It is, therefore, important for carrier and cargo interests to know that the same legal and commercial provisions will be applied regardless of where the goods are shipped or received. In contrast to uniformity, individual, probably conflicting, requirements in different jurisdictions or regions create uncertainty. Uncertainty will add to costs and force all parties to insure against the most expensive possible outcome depending on where a case is brought, a situation exacerbated by the potential for forum shopping. As with earlier regimes dating from the Hague Rules, the Rules have been developed to avoid this situation.
However, proposals now being aired by the European Commission for the development of a discrete regime within the Community would perpetuate the very problem which the international instrument is designed to cure. Regional arrangements would raise any number of conflicts and questions about which provisions would prevail, particularly when the European sector forms only part of the carriage to or from a state which has accepted the Rules.
Previous cargo regimes have been predicated on liability for port-to-port carriage with requirements for supporting documentation in paper format. While the traditional core element of carrier liability remains a central feature, the Rules are more comprehensive than earlier regimes. Criticisms about the length are unfounded because they provide a step-by-step approach reflecting party rights and obligations throughout the transport chain. Moreover, unlike the Hague Visby Rules which have mandatory application only to bills of lading, the Rules will equally regulate provisions under sea waybills.
An important innovation is that of “functional equivalence” giving equal recognition to paper and electronic documentation. This is an important step forward because it formally acknowledges parties’ rights to use e-commerce which will no longer be impeded by shipper entitlement to demand paper documentation. Instantaneous transmission means that documentation will no longer be delayed in banking or postal systems and this will go a long way to overcoming the age-old problem of cargo arriving before the documentation which often leads to pressure on carriers to release goods without surrender of the necessary paperwork. A by-product is the potential for secure transmission to combat fraud.
The issue of carrier liability was debated over several sessions of the UNCITRAL Working Group with the eventual outcome one of the carefully balanced compromises between carrier and cargo interests. The longstanding principle of carrier fault-based liability for loss of or damage to goods, as well as delay in delivery, has been maintained but elimination of the traditional “nautical fault” defence will affect carrier liability. The process for determining carrier fault and how the arguments move back and forth between the parties as they seek to allege and resist liability, is comprehensively set out.
A further important innovation recognises the need for optional door-to-door arrangements to facilitate container traffic to and from inland destinations. This has been achieved through network liability covering pre- and on-carriage. Central to this “maritime plus” concept, carrier liability under the Rules for carriage before or after the sea leg is displaced only where loss or damage arises outside of the maritime sector and the provisions of another international instrument would have applied had the carrier and shipper agreed a separate contract covering only that part of the carriage. Thus, an incident during cross-border road carriage in Europe would be compensated in accordance with CMR limits (which would also be the basis of the carrier’s recourse action against the road haulier). Damage during a sea leg, or where the location cannot be identified (hidden or concealed damage) or where no international instrument is applicable before or after sea carriage, will always be compensated in accordance with the Rules.
Carrier limitation rights are preserved. The long standing package/weight formula is maintained but compensation levels have been increased from the Hague Visby limits of SDR 666 and SDR 2 respectively to SDR 875 and SDR 3. It is thought that the higher levels will provide full compensation in the majority of cases where carrier liability is upheld.
Shipper liability is addressed. While this has been only superficially covered in earlier regimes, shippers have always been liable for the results of their acts or omissions. As part of the overall allocation of party risk and responsibility, the part to be played by shippers is now clearly set out.
An issue which has created considerable debate is the role of volume contracts which will permit carriers and cargo to derogate from many of the provisions, but not certain fundamental obligations such as seaworthiness. The arrangements, which are optional, have been designed to reflect the needs of those cargo interests requiring tailor-made agreements for their trading activities. Fears have been expressed in some quarters that the interests of smaller shippers could be prejudiced if they are required to accept less favourable terms under a volume contract. However, after long negotiations on this very point, protection was inserted to ensure that such agreements would be voluntary and that the shipper has the unqualified right to demand to contract on terms in accordance with the Rules.
The Rules will be opened for signature at a ceremony in Rotterdam in September and then require ratification or acceptance by 20 states in order to come into force.
The shipping industry, through national associations and international shipowners organisations, has been closely involved throughout the discussions. As with any negotiation, it follows that the industry did not achieve all that it would have wished and some issues remain problematic. However, disadvantages are outweighed by the opportunities offered in up-to-date provisions, particularly electronic documentation, the uniformity conferred by a single instrument for international application and improved clarity as to the allocation of party risk and responsibility.
The advantages are clear. States should be encouraged towards early ratification to give effect to the Rotterdam Rules.
Donald Chard is Head of Legal and Documentary at the Chamber of Shipping and has represented shipowner interests through BIMCO at the UNCITRAL Working Group.