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The Rotterdam rules A new era for international trade – probably After six years of intergovernmental negotiations, the United Nations General Assembly has finally adopted the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, also known as the “Rotterdam rules” (the Rules). It has scheduled a signing ceremony for the new convention to take place on 23 September <strong>2009</strong> in Rotterdam. Before it can come into force, however, the new convention There are several significant changes. For certain carriers, the Rules will apply door-to-door. The Rules also attempt to strike a fair balance of risks between carriers and cargo interests by removing the “navigational fault” exception, increasing the package/weight limitation and enhancing time limitation for cargo claims. Other reforms are designed to accommodate changing shipping practice. The most significant reform is probably the introduction of a “volume contract” exception, which permits the contracting carrier to disregard the what is known as “wet multimodal transportation” in order to accommodate contracts of carriage and insurance agreements that are nowadays mainly concluded on a door-to-door basis. This is a significant change from existing law, since most current international regimes apply on a tackleto-tackle or port-to-port basis. Although the Rules would facilitate door-to-door transportation, the parties will still be able to opt-out of the inland leg of carriage (by truckers and railroads), so that the Rules will only apply to the sea leg. requires ratification by at least 20 nation member states, and no reservations Rules almost in their entirety. are permitted (except as regards the provisions relating to jurisdiction and arbitration, which are subject to express affirmation). In addition, ratifying states must discard earlier conventions. The key changes This article highlights the key changes made by the Rules and compares The Rules consist of 96 articles packaged in 18 chapters, and aim to replace the existing patchwork of conventions and conflicting national laws that have grown up in the absence of a multimodal transport agreement. The new convention aims to offer the possibility of a jurisprudential environment in which international maritime trade can develop in such a way as to allow traders to govern their transactions in a more predictable and consistent manner. them with the existing international conventions. • Door-to-door transportation coverage. The Rules were primarily designed to govern the liability of carriers providing 4
• Volume contract. Current legal regimes such as the Carriage of Goods by Sea Act 1971 (COGSA)/ Hague-Visby rules and the Hamburg rules give the parties a degree of freedom of contract – for example, the right to exempt expressly contracts of affreightment. However, the Rules extend this freedom to allow parties to conclude a volume contract, enabling them (subject to certain conditions) to opt-out of almost all the responsibilities of carriers and shippers covered in a contract of carriage, and to derogate from the Rules. Put simply, contracting parties can (with a few exceptions) essentially disregard the Rules altogether. A “volume contract” is defined in the Rules as a single contract of carriage that specifies the quantity of goods carried in a series of shipments during an agreed period of time. This is a significant change because almost all containerised cargo in the world is presently transported under service contracts, which are similar to volume contracts. But unlike service contracts, volume contracts may (thanks to the Rules) not have to comply with any international maritime regimes. This could possibly result in the transportation of the world’s cargo being unregulated. In particular, if there are no restrictions on the use of the volume contract so as to prevent abuse, there is a risk that small and medium-sized shippers will be at a serious disadvantage when contracting with carriers. • Shippers’ obligations. The Rules recognise that shippers are in a better position than carriers to identify risks associated with dangerous shipments. Consequently, shippers are saddled with a number of obligations under the new regime, including the duty to provide information about cargo that is of a hazardous nature. The Rules also expressly impose liability on a shipper that breaches these • Carriers’ liabilities. Carriers have increased responsibilities under the Rules as a result of the elimination of the navigational fault exception. This exception allows a carrier to escape liability for cargo damage if the loss stems from a navigational fault or an error in navigation. The Rules also expressly impose an obligation on shipowners to ensure that their ships are seaworthy throughout the voyage, and not just at the start of the voyage as required under the current law. Carriers’ bills of ladings will also be prohibited from excluding liability for cargo damage either pre or post “ship’s rail” (ie before cargo is loaded on the ship or after discharge). Furthermore, the package limitation has been raised to 835 special drawing rights (SDRs) per package (equivalent to about US$1,260 per package) and weight limitation to three SDRs per kilogram (equivalent to about US$4.44 per kg), which is a substantial increase from the current limitations under the COGSA/Hague-Visby rules. However, the higher package limit can be avoided if the parties enter into volume contracts. Carriers may potentially take advantage of the volume contract in an attempt to escape the increased liability. Finally, the carriers can be held liable for delay in delivery if the time for delivery has been agreed in the contract of carriage. • Maritime performing parties. The Rules also introduce new concepts, including “maritime performing parties”. This means that a carrier’s employees, agents and independent contractors will have the rights and obligations enjoyed by the carrier without the need to include a Himalaya clause (ie a contractual provision giving benefits to a third person or entity who is not a party to the contract) in the transport agreement. However, all maritime performing parties will be jointly and severally liable to cargo interests for cargo claims. This means that, under the new regime, cargo interests will have several targets to pursue. This may have a substantial commercial impact on (for example) terminal operators, who fall within the definition of “maritime performing parties”, since they will be forced to accept greater risk and, as a result, higher insurance spend. • Time limitation for cargo claims. The Rules increase the time allowed for a cargo claim to be filed against the carrier from the standard one year (beginning with the date of delivery) under the COGSA/Hague-Visby rules to two years. • Jurisdiction and arbitration. The provisions on jurisdiction and arbitration will not apply unless the adopting state specifically declares that it will be bound by them. Such a declaration may be made – and withdrawn – at any time. If the declaration is not made at the time the Rules come into force in a particular state, it will take effect six months after the declaration. The downside of this freedom to allow a state to choose whether to adopt the provisions on jurisdiction and arbitration, or whether to include either or both of them, is that it will lead to considerable variations between nations. This will defeat the underlying objective of the Rules to provide an internationally uniform regime. Future of the Rotterdam rules At this stage, when the Rules have not yet been signed let alone ratified, no-one can be sure whether or not the new convention will succeed in establishing a widely accepted international maritime regime. Several legal commentators are concerned that the length and complexity of the Rules may be a source of litigation, as parties struggle to agree on the precise meaning of some of the provisions of the convention. Others are actually lobbying against ratification. Many uncertainties remain and the fate of the Rules will depend on several factors, especially on how many and which countries will ratify the Rules and how quickly they will come into force. It will only be when the 20th nation has ratified convention and the Rules have come into force, that it will be possible to start assessing their practical impact on international trade. Anthony Woo Partner a.woo@kennedys.com.hk Vanessa Liu Solicitor v.liu@kennedys.com.hk obligations. 5
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