Court of Appeal brings the “Paramount Clause” to the present day – the common sense meaning to “shipping man”, today

Yemgas Fzco & Ors v Superior Pescadores S.A. [2016]

Superior Pescadores” [2014], is a case in the English High Court before Mr Justice Males in which the Court had to decide whether a Clause Paramount providing for the Hague Rules “as enacted in the country of shipment…” meant the Hague Rules or the Hague-Visby Rules. He found, albeit reluctantly, that this was a reference to the Hague Rules. However the Court of Appeal re-examined the position and has held that in the present day, it can be a reference to the Hague-Visby Rules.
As a matter of English law, the Hague Rules were incorporated into English law by the Carriage of Goods by Sea Act 1924. The 1924 Act was repealed by the Carriage of Goods by Sea Act 1971 (which came into force in 1977) giving effect to the 1968 Brussels Protocol amending the Hague Rules, better known as the Hague-Visby Rules, thereby giving them force of law in the United Kingdom.

In the Superior Pescadores, the cargo owners had a claim against the vessel owners for cargo damage. Following the cargo damage, the parties had agreed that any cargo claim would be subject to English law thereby applying the Hague-Visby Rules in accordance with the Carriage of Goods by Sea Act, 1971. However for some of the bills of lading, the cargo owners wished to rely on the Hague Rules because for those bills of lading, it would have resulted in a higher limitation than the limits provided for in the Hague-Visby Rules. So, despite English law applying the Hague-Visby Rules, the cargo owners argued that the higher limits of the Hague Rules (where they existed) could nevertheless be contractually incorporated because, in accordance with Article IV, Rule 5 (g) of the Hague-Visby Rules, parties could contractually agree on a higher package limitation. The cargo owners said the Clause Paramount did just that.

Two issues therefore arose before Mr Justice Males. The first was whether the wording of the Clause Paramount incorporated the Hague Rules (because that is what the clause refers to) or the Hague-Visby Rules (because they are, arguably, the way in which the Hague Rules are now enacted in the country of shipment, Belgium). The second was whether, if the Clause Paramount was a reference to the Hague Rules (and so contractually incorporated), could the cargo owners rely on its higher package limitation, as argued above.

Mr Justice Males held that, because of authorities which bound the Court, the Clause Paramount was a contractual agreement that the Hague Rules would apply – notwithstanding that it might be largely ineffective in these circumstances where English law applied (and therefore the Hague-Visby Rules). However he did say that, had the point been free from authority, he would have been inclined to hold that a Clause Paramount referring to the Hague Rules “as enacted in the country of shipment” could refer to the Hague-Visby Rules in the absence of any contrary indication in the clause.

On the second issue, Mr Justice Males held that parties could theoretically agree different package limitations even if that different package limitation was not specified (as long as the figure did not turn out to be less than the limits provided for by the Hague-Visby Rules). However in the circumstances of this case, it would not apply because he considered that it could not have been the parties’ intention here.

The cargo interests, who had been successful on both points of law but then failed on the facts, appealed. The appeal was heard before Lord Justice Longmore (who gave the leading judgment), Lord Justice Tomlinson and Lord Justice McCombe, who unanimously agreed that the appeal should be dismissed and held, as Mr Justice Males held, that the Hague-Visby limit applies to this case. However the route by which the Court of Appeal reached this decision was a different one from Mr Justice Males.

Longmore LJ noted that Mr Justice Males had reached his conclusion unwillingly but nevertheless found it odd given that most maritime nations have long adopted the 1968 Hague-Visby Rules (the United Kingdom doing so by the Carriage of Goods by Sea Act 1971). He found that whilst this Clause Paramount identified the Hague Rules, it was the Hague Rules “as enacted in the country of shipment” which are to apply to the contract. Given that Mr Justice Males had no evidence Belgium enacted the Hague-Visby Rules, Longmore LJ had to proceed on the basis that it was enacted in the same way as it had been in the United Kingdom. Longmore LJ’s analysis of the position in this respect was clear:

On any ordinary and sensible view of English law, therefore, the Hague Rules “as enacted” in England are the Hague Rules as enacted by the schedule to the 1971 Act, a schedule to which in its title refers to the Hague Rules “as amended”. The position in Belgium must be taken to be the same.

He noted that Mr Justice Males had the same inclination but had then found himself bound by the authorities (considered in detail in our previous bulletin). Longmore LJ did not find himself so bound, however.
When considering the “Agios Lazaros” [1976], Longmore LJ formed the view that while that case might show what “shipping men meant by the phrase ‘clause paramount’ in 1972” it does not help determine what the phrase “the Hague Rules…as enacted in the country of shipment” meant to shipping men in 2008.

Longmore LJ did not disagree with the lower court’s examination of the “Bukhta Russkaya” [1997]– where the clause paramount had been held to be one which referred to both the Hague Rules and the Hague-Visby Rules (in defined circumstances). However, given the facts of the present case (where there is reference to just one set of rules: “Hague Rules… as enacted in the country of shipment”), Longmore LJ distinguished the decision. Longmore LJ said:

I think that… since 1977 a typical clause paramount, which did not differentiate in terms between the two sets of rules, would be taken by shipping men to incorporate the Hague-Visby Rules…

Finally, Longmore LJ considered “the authority on which the judge chiefly relied”: Parsons Corp v CV Scheepvaartonderneming Happy Ranger (The Happy Ranger) [2002]. In the “Happy Ranger”, the Court considered a clause which had a first limb providing for the “Hague Rules… as enacted in the country of shipment” and a further limb identifying when the Hague-Visby Rules would apply. The cargo was shipped from Italy, where the Hague-Visby Rules applied. Tomlinson J (now LJ Tomlinson, one of the Court of Appeal judges in this case) reasoned that “Hague Rules… as enacted in the country of shipment” could not mean the Hague-Visby Rules where the clause contained a “clear distinction is drawn between the Hague Rules and the Hague-Visby Rules and their enactment.” In the eyes of Longmore LJ, Mr Justice Males’ reliance on this statement (he had described it as highly persuasive) was misguided in circumstances where, as in this case, there was no specific reference to the Hague-Visby Rules in some other part of the same clause. Nor did Longmore LJ agree with Mr Justice Males’ reliance on the Court of Appeal’s obiter comment that because the Hague Rules are not enacted in Italy, the Hague Rules “as enacted in the country of shipment” could not mean the Hague-Visby Rules.

Longmore LJ therefore held that

any case, in which a bill of lading is issued in 2008 incorporating the Hague Rules as enacted in the country of shipment and in which the country of shipment has (as here) enacted the Hague-Visby Rules, should be regarded as a case which is subject to the Hague-Visby Rules rather than the (old) Hague Rules.

Tomlinson LJ, now with more information as to how the Hague-Visby Rules came to be, focused on the “Happy Ranger” suggesting that he probably should have expressed himself differently and concluded that “the Hague Rules as enacted in the UK are the Hague Rules as enacted by the Schedule to the Carriage of Goods by Sea Act 1971.” (i.e. the Hague-Visby Rules).

In circumstances where the Clause Paramount was deemed to incorporate the Hague-Visby Rules there was no need to address the second issue as to whether the cargo owners could rely on a higher limits provided by the Hague-Rules by contract.

Mr Justice Males’ instincts in the High Court were therefore correct; however, the Court of Appeal did not seem to think that he should have been bound by the authorities. Even so, his decision was upheld and there is now a useful clarification as to what parties are deemed to agree to when they incorporate a clause paramount with these commonly used words.