A recent and keenly awaited decision from the Supreme Court relating to the extent of protection offered to carriers by a key international convention highlights contracting risks and the importance of ensuring that rigorous assessment of risk forms part of the contracting process.

Our shipping disputes and commercial teams consider the significance of the judgment from their perspectives.

Background

Contracts for the carriage of goods by sea are often subject to the Hague Visby Rules (‘HVR’) by force of law or by contractual incorporation into bills of lading and charterparties. They contain a framework of rights and obligations of the parties, including maximum exclusions of liability. There are defined, short, time limits for claims to be brought. Incorporation of the HVR rules allows parties to understand and manage their risks and arrange appropriate insurance. 

Article III, rule 6 of HVR provides that the carrier of the goods will be discharged from “all liability” unless court proceedings are commenced within one year of the delivery of the goods or the date when they should have been delivered. The Supreme Court has now ruled on whether the one-year time limit applies to claims after discharge of the goods from the vessel and specifically to misdelivery claims i.e. where the carrier delivers the goods without production of the bill of lading to a person not entitled to receive them.

FIMBank Plc v KCH Shipping Co Limited (or the “GIANT ACE”) 

FIM Bank was the lawful holder of 13 bills of lading covering a cargo of coal being shipped on board the vessel “GIANT ACE” from Indonesia to India. KCH Shipping Co Ltd (“KCH Shipping”) was the demise charterer of the vessel and the contractual carrier under the bills of lading. The Hague Visby Rules were incorporated into the bills of lading.

The cargo was discharged from the vessel in India in April 2018 and had been placed in stockpiles. FIM Bank alleged that the cargo had subsequently been (i.e. at a time after discharge from the vessel) misdelivered.

FIM Bank commenced arbitration proceedings against the carrier, claiming damages for the misdelivery. The proceedings were commenced more than 12 months after the cargo should have been delivered. 

The questions for the court

The court was required to consider whether the one-year time limit under HVR applied to claims for misdelivery of cargo occurring after discharge had been completed. 

FIM Bank argued that a six-year time limit (per the Limitation Act 1980) applied as HVR applied only to carriage by sea, beginning with loading and ending on discharge of the cargo from the vessel, and the Rules therefore ceased to apply afterwards.  

KCH Shipping argued that the HVR applied to all obligations undertaken by the carrier under the bill of lading, up to and including delivery, and therefore the one-year deadline applied and FIM Bank’s claim must fail. 

FIM Bank had been unsuccessful both in the High Court and the Court of Appeal and appealed to the Supreme Court.

Supreme Court decision

The Supreme Court unanimously dismissed the appeal.

The court highlighted there were a number of indicators that Article III, rule 6 of the HVR was intended to be of wide application. The breadth of the wording including “all liability whatsoever in respect of the goods” supported a wide interpretation. The court also considered the object and purpose of the time bar, being to ensure finality for parties and to enable accounts and books to be closed. That object was best met if all claims arising out of the contract were covered by the time bar.

On that basis, the court concluded that the article III, rule 6 time bar in the HVR did apply to breaches of duty by the carrier which occurred after discharge of the goods but before or at the time of delivery, including misdelivery. It could equally apply to breaches of duty which occurred before loading.  

The court also determined that the precise terms of the Bill of Lading did not displace the relevant terms of the HVR, for reasons which are beyond the scope of this note.

Why does this matter?

For litigators involved in carriage of goods claims, this is an important clarification of the extent of protection afforded by the HVR. It shows that those pursuing and defending these claims need to know the breadth of the international conventions which are engaged and what deadlines are being working to. If a further reminder was ever needed, this is an example of sticking the earliest possible date in your limitation diary, even if you think you have a good argument as to why an earlier deadline does not apply. 

For those negotiating commercial contracts, another key reminder from GIANT ACE is the importance of stringent diligence in the drafting and negotiation of contracts that address risk allocation. The case illustrates the potential for outcomes to significantly diverge based on the specificity and clarity of contractual provisions.

We strongly encourage care is exercised to ensure that any risk management mechanisms incorporated into a contract – whether these are time bar provisions, liability caps, indemnity clauses, or other risk-assuming provisions – are explicitly designed to cover foreseeable risks pertinent to the transaction. This also extends to ensuring these provisions align with the stipulations of the company's insurance policies. 

Further, it should not be assumed that every international convention, such as HVR, or industry standard contractual terms covers your precise risks – in practice, they may not adequately cover the unique risks specific to a particular company or transaction. A more thorough risk assessment process involving input from legal experts and/or insurance advisors is recommended to identify and mitigate potential gaps in risk coverage. Where there are gaps and identified risks are not adequately addressed, they should be managed through supplementary contractual arrangements or by procuring appropriate levels of insurance coverage. 

If you need advice on drafting commercial contracts or navigating the complexities of carriage of goods claims, our shipping team and commercial team are here to help. We will work with you to mitigate risks and safeguard your business.

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