English Court introduces uncertainty over calculation of package limitation

An important defence to cargo claims under the Hague-Visby Rules is the right to invoke “package limitation” by which, broadly speaking, a carrier can limit its liability by reference to the amount of cargo “lost or damaged”. A similar right exists under the Hague Rules.

An important legal point about package limitation was seemingly resolved in 2008 when the English High Court said the limitation amount is to be calculated by reference to the amount of cargo physically damaged only and does not extend to cargo which could only be described as “economically damaged”.
The Court has now had a change of heart.

The Thorco Lineage (2023)

The Thorco Lineage suffered an engine failure and grounded, causing physical damage to the ship and cargo. Salvors were engaged to refloat the ship, resulting in cargo interests incurring a salvage liability in excess of USD 7m. In addition to other costs, the cargo suffered physical damage worth about USD 300,000 (less than 5% of the salvage liability).

A legal question arose for the High Court to decide: was any liability the carrier owed to cargo interests to be limited by reference to the weight of the physically damaged cargo only or also by reference to the weight of all salved cargo which had suffered economic damage due to the salvage liability and on-shipment costs?

The Judge decided that limitation was to be calculated by reference to the amount of all the cargo even though this was contrary to a previous decision in The Limnos.

The Limnos (2008)

In The Limnos, a small amount of cargo was found wet on discharge, as a consequence of which the entire cargo acquired a reputation as a distressed cargo decreasing its value.

The High Court had to decide whether the calculation of package limitation under the Hague-Visby Rules per the weight of cargo “lost or damaged” could include economic loss as well as physical damage. The Judge in that case decided limitation was to be based on the weight of the physically damaged cargo only.

Salvage lien

The Judge in The Thorco Lineage also considered that cargo is physically damaged within the meaning of the package limitation part of the Hague-Visby Rules where it incurs a maritime lien for salvage.

Comment

Once again the shipping community is faced with two conflicting decisions on an important legal principle (as happened in The Eternal Bliss until the Court of Appeal intervened). Whilst the Judge hearing The Thorco Lineage correctly noted he was not required to follow the decision reached in The Limnos, this is not good news for those who value English law for its certainty of outcome.

One positive point arising from the approach favoured in The Thorco Lineage is that it avoids the possibility that a shipowner cannot invoke package limit at all when cargo is only economically damaged, with no physical loss or damage.

The Judge refused the shipowners permission to appeal to the Court of Appeal and so the correct interpretation of the words “goods lost or damaged” for the purpose of the Hague-Visby Rules limitation will remain uncertain for a while longer.