Delay - lacks independently compensable head of damages in sea trade

“Time flies. It is no coincidence that time flies - it does not travel by sea! Time, therefore, is not an essential element of sea transportation.”[1]

 Consider this situation: Carriage contracts are agreed between carrier and various shippers. The carrier has agreed to transport oranges and steel coils from Mumbai, India to Rotterdam, Netherlands to arrive on 15 August. There is delay of two days due to carrier’s negligence in managing speed of vessel and then storm caused delay of five days. The vessel deviates to London to pick up cargo from there. This deviation adds ten days and finally when the vessel arrives Rotterdam there is strike on port causing delay of three days in discharge and delivery. Goods are received after twenty days delay. Oranges are half inedible and remaining are sold at lower market value due to fall in market price. Steel coils were required in construction which was delayed due to delayed delivery. Consignee of steel coils suffers penalties for delayed construction. The delays are instrumental in generating physical and economic losses caused by excusable (storm, strike) and inexcusable (deviation, managing speed will be issue considering contractual provision) events.    

Similarly, in aftermath of Hanjin shipping Co. Ltd.’s[2] (Hanjin) bankruptcy, the Hanjin ships were arrested or stuck due to denial of entry by ports. 61 Hanjin container ships and 18 bulk carriers were stuck awaiting further instructions. The Korea International Trade Association estimated that the ships stuck in halfway were carrying cargos owned by 8,300 cargo owners and was worth more than USD 14 billion. The losses for delays were huge and claimed by cargo owners from cargo insurers.[3] It will be case for cargo insurers or cargo-claimants to recover such damages from the carrier.

Thus, this article seeks to comprehend the provisions available to seek damages for delay under the Hague Visby Rules, Hamburg and Rotterdam Rules. There is lack of consideration for 'delay' as separate head of damages till date under international conventions and well-known authorities for carriage of goods laws. The reason for such treatment is concluded to be lack of legal status as separate head for seeking damages and delay not being primary cause[4] of loss but usually secondary cause[5] in most cases rather than primary cause of damages claim.

The distinction of primary and secondary cause is necessary to establish the burden of proof process. If the primary cause is unseaworthiness or deviation which is breach by carrier or an act of god, then the primary cause’s burden of proof process regulates the causation even if delay due to such primary reason caused the losses (physical or economic). But if the loss is due to delay as primary cause, the carrier can evidence the position that he exercised due diligence or reasonable despatch to be discharged of liability. The care of cargo is absolute obligation whereas timely delivery is contingent upon reasonable despatch, avoidance of unreasonable delay or contractual terms, and the categorization of delay as primary and secondary.[6] Thus, the cargo-claimant would have interest in evidencing delay as secondary cause so as to apply burden of proof applicable to such primary breach of carrier’s duty which is absolute under contract or the Rules than having delay as primary cause which has lesser burden on the carrier (of reasonable despatch or due diligence) during voyage.

 1.1.        Cargo Claims

 The term ‘cargo claim’ is most often used in maritime industry, but not defined in law governing cargo claims. Clause 3 of Inter-Club Agreement includes delay claims in definition of cargo claims.[7] However, this definition is applicable for risk apportionment between charterer and shipowner and does not applies between carrier and cargo owner.

The term as understood by marine market is interpreted in The Casco[8] as claims for loss or damage arising in relation to the cargo and measured by reference to the cargo and the claims which the goods’ owner may bring under the Rules.[9] Cresswell J. held cargo claims includes claims for physical loss of or damage to cargo and claims for financial loss such as fall in market value of cargo or cost of storing/transhipping of cargo. Inter-Club Agreement definition does not elaborate on type of delays or any exemptions but simply includes delay as one of the head of claims and The Casco definition is broad to include delay claims as cargo claims.

COGSA 1992 Section 2, provides who is entitled to claim. The BOL holder including ship delivery order, and straight bill or way bill holder to claim against carrier. The remedies are also extended to the cargo interests, where the BOL or “similar document” was contemplated to be issued but was actually not issued.[10]

1.2.        Delay - lacking independently compensable head of damages

It remains unjustifiable to not consider delay as separate head in today’s world of advanced technology with autonomous sailing becoming reality, growing competition and ever-expanding world trade with seaborne traffic through innovative ships. Technology is reducing interference and uncertainties pertaining to time of voyage. Delay has been treated as subsidiary topic under other major issues of “loss or damage” or ‘deviation and delay’.[11]

 The concept of delay is often used in connection with deviation. For instance, Carver deals with issue of delay jointly with deviation as “Deviation and Delay”[12] and so as secondary issue consequent upon deviation. Further, word ‘delay’ or the concept is not addressed at all in the Rules separately and is dealt with under “loss or damage” by courts due to the silence of the Rules[13]. The ambiguous or very general wording of the Rules allows the courts to develop tendency of looking into delay in context of “loss or damage” as used throughout in HVR under articles III (6), (8), IV (1) – (5), VI bis and VII. The Rules do not disqualify the recovery of consequential loss caused due to delay. Thus, the courts have interpreted in both ways based on the conditions applicable pursuant to principles of common law such as reasonable despatch and remoteness of damage principle.

The probable reason for giving delay a supplementary treatment under carriage of goods contract can be that duty to carry with reasonable despatch was not considered traditionally fundamental obligation.[14] This is because, carrying goods to destination is considered primary duty. It can be considered reasonable in ancient days when the shipping industry was still developing. However, with modern day shipping lines and technical developments in navigational methods it seems imbalanced in favour of shipowners to continue not enforcing any kind of obligation on shipowner considering the competition in market where a delay can lead to loss of business altogether.

1.3.        ‘Loss or damage’ under the Rules

Delay is considered with reference to ‘loss or damage’ under the Rules.[15] The delay is not recoverable for ‘loss or damage’ occurring during or after such delay unless the delay has caused the ‘loss or damage’ in question. The treatment of courts in relation to delays pertaining to carriage of goods being restricted to ‘loss or damage’ is due to wordings of the articles III (6), (8), IV (1) – (5), VI bis and VII. The courts have not held delay as breach itself but losses resulting from delay as breach of carriage contract as the general rule of damages is applicable in context of delay.[16] The ambiguity of phrase ‘loss or damage’ was repeatedly encountered in cases to answer whether ‘loss or damage’ is in reference to loss to party or to goods carried?[17] Further, it is considered[18] whether the loss or damage stated in the HVR only applies to physical loss or includes other losses such as economic losses.

The results as to allowing economic loss is varying, however, it is frequently followed that ‘loss or damage’ does not necessarily implies exclusion of non-physical damages even after having contrary ruling[19] on the issue from American courts which were referred before UK courts and rejected in G.H. Renton.[20] The House of Lords in G. H. Renton ruled that “the words “loss or damage to or in connection with goods” in article III, rule 8, were not limited to actual loss of or physical damage to the goods, and were wide enough to cover the damages claimed”.[21] Lord Morton reasoned that the words “or in connection with” were inserted in order to give a wider scope to the clause, and words are wide enough to cover, for example, the loss or damage sustained by the cargo owners in having to bear the cost of transhipping the goods from Hamburg and of storage at that port.[22]

Considering article III (6) applying one year time bar provision in HVR, giving narrow meaning to terms ‘loss or damage’ as physical damage would mean the claim is not time barred to one year in case of economic losses. Thus, interpretation must not be limited to physical damage. This reasoning is accepted by American courts as seen in Commercio Transito[23] which was departure from its previous rulings on ‘loss or damage’ issue. Further, the court stated that restricting interpretation of ‘loss’ to only physical loss throughout the Act (i.e. the Rules) would be inappropriate such as in case of article IV (2) which exempts carrier and ship from liability resulting from certain causes beyond their control.[24] Thus, economic loss due to acts outside the control of carrier would make them liable without limitation applicable in HVR if ‘loss or damage’ is given restricted meaning of physical damage.

Recently, in The Limnos[25] the consequential losses such as economic loss was considered a claim as ‘loss or damage’ which was incurred after discharge as “loss or damage in connection with the goods” falling within the first part of article IV 5(a) of the HVR even though the submission was based on ‘economically damaged’ goods which was rejected by Burton J. Burton J. adopted four categories of “loss or damage in connection with goods” given by Lord Morton in G.H. Renton.[26] As per Lord Morton the phrase “loss or damage in connection with” under article III (8) covers four events—(a) loss “to” goods (whatever that may mean); (b) damage to goods; (c) loss in connection with goods; (d) damage in connection with goods.[27]

Conversely, the American case of United Merchants,[28] which was decided before Commercio Transito,[29] considered ‘loss or damage’ under article III as only physical damage by stating that duties under article III were not concerning duties to make timely delivery because in United Merchants the shipper was claiming for one month delay in delivery of cargo. However, American courts have supported English court’s reasoning in later judgments such as Commercio Transito,[30] which is relevant precedent on delays in US till date. Further, considering UK courts judgments above, it does not seem to limit the application of words ‘loss or damage’ “in connection with goods” to only physical damages and thereby excluding delay as that would be unnecessary qualification to the terms not provided for, by even implication, in the Rules. Although, one reason for excluding pure economic loss from ‘loss or damage’ given by United Merchants seems rational under first paragraph of article III (6) which provides for notice to carrier in writing for loss or damage at the time of removal of goods or if loss is not apparent within three days of such removal. This is rational argument for first paragraph of article III (6) as the economic loss will not fall under apparent or non-apparent loss. But to use the same restricted meaning throughout the Rules would defeat the purpose of providing remedy to shippers.

 In respect of discharge from all liabilities for time bar, article III (6) Hague Rules had limited wording earlier which contained words such as “discharge from all liabilities from loss or damage”. However, the HVR contained words under article III (6) as “from all liabilities whatsoever in respect of goods”. This change certainly includes wider scope of claims and have been held to be applicable to delay claims.[31]

Therefore, it is prudent to consider the term ‘loss or damage’ as including delay losses or economic loss and being subject to the Rules. However, certain provisions such as article III (6) can be given restricted meaning considering their context.

1.4.        Treatment of delay under Hamburg and Rotterdam Rules

1.4.1.    Hamburg Rules

Hamburg Rules makes carrier liable for delay under articles 5 and 6. Article 5(1) stated that carrier is liable for “loss of or damage to the goods, as well as from delay in delivery,” caused by any occurrence while carrier was in charge of goods unless carrier proves that he or his servants or agents took all reasonable measures to avoid the occurrence and its consequences. Article 5(2) introduces time frame for delivery and considers delay in delivery when the delivery is not on contractually agreed date and in absence of any contractual provision within time as reasonably required by diligent carrier as per circumstances. article 6 (1)(b) provides for quantification of recovery of losses for delay. Recovery of consequential loss for damaged goods has no such limit and thus it will be governed by Hadley v. Baxendale[32] rule for consequential losses.[33] Article 8 (1) article 8(2) facilitates the loss of right to limit responsibility by carrier and its agents or servants if the delay in delivery was caused due to act or omission done with intent or recklessly and with knowledge that such delay would happen.

1.4.2.    Rotterdam Rules

The carrier is liable for failing to deliver on contractually agreed time under Article 11. Article 17 (1) provides basis of the liability and makes carrier liable for delay that took place during which the carrier has responsibility. Article 17 (5) (a) and (b) provides that carrier will be liable for delays caused due to unseaworthiness or improper crewing or were not fit and safe for reception, carriage, and preservation of the goods except if the carrier can prove that such delay was not due to the causes mentioned above or proper due diligence was not conducted by carrier. Article 21 provides delay is caused when the goods are not delivered at place of destination on contractually agreed time. Notice of loss due to delay is required to be made within 21 days of delivery of goods to get compensation pursuant to article 23 (4). Article 60 provides limitation of liability for economic loss due to delay.

Although there are several references under article 17 to “loss, damage, or delay”, the definition of delay under article 21 is limited to contractually agreed time and thus it is supposedly not applicable for ‘delay’ not falling in contractually agreed time such as those caused due to collision, detention or deviation, even if unreasonable.[34]

Accordingly, Hamburg and Rotterdam Rules does not provide any different remedy apart from what is available under English law. Both the Rules are not applicable in UK as they are not signed and ratified by UK. This paper discusses the legal scenario in reference to applicable laws.

Conclusion

Hamburg and Rotterdam Rules does not provide any different remedy apart from what is available under English law. Both the Rules are not applicable in UK as they are not signed and ratified by UK. The lack of consideration for delay as separate head of damages is concluded to be due to lack of legal status for seeking damages under international conventions and delay being secondary cause in most cases rather than primary cause of damages claim. The lack of legal status creates the need for relying on and investigating further to comprehend liability based on ‘time as essence’ or condition under contractual provisions and common law such as reasonable despatch and negligent or unreasonable delay.

Considering the burden for delays on maritime law for matching the liability as imposed on air carrier (due to freight received for smooth and fast delivery), rail carrier (having timely schedules which they strictly adhere to) and road carriers (who have short legs of journey), the attempt was made under Rotterdam Rules which did not materialize and also if it becomes applicable the supposedly narrow interpretation of delay would lead the claimant’s losses irrecoverable or subject to national laws. Since more than 80 per cent of global trade[35] takes place through shipping, it is in interest of international commerce and economies to consider the traders interest at international level rather than leaving it at mercy of national laws of varied countries and contemplation of parties.

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[1] Alexander von Ziegler, ‘Delay and the Rotterdam Rules’, (2009) 14 Unif. L. Rev. 997

[2] Prior to bankruptcy, Hanjin was South Korea's largest container transport company and world's seventh largest container carriers.

[3] Greg Knowler, ‘Another Hanjin vessel arrested, this one in Australia’ (JOC.com, September 06, 2016), <https://www.joc.com/maritime-news/container-lines/hanjin-shipping/another-hanjin-vessel-arrested-one-australia_20160906.html> accessed 10 June 2018

[4] Primary cause can be evidenced by the fact that the delay is principle reason of loss such as sailing at slower speed than agreed speed to reach on time. Other causes delaying the voyage are secondary causes such as delays due to unseaworthiness, deviation, strike on port, bad weather, arrest of vessel, etc.

[5] delay is considered as secondary cause of loss or damage when immediate cause was unseaworthiness, deviation, strike on port, bad weather, arrest of vessel, etc.

[6] Max Ganado and Hugh M. Kindred, Marine Cargo Delays, (Lloyd’s of London Press Ltd. 1990), 23 - 25

[7] “Cargo claims are claims made by the cargo owners for recovery of their losses due to damages to goods during carriage and transit, …. or delays in receiving goods in breach of contract of carriage including customs dues or fines in respect of such loss, damage, shortage, overcarriage or delay”.

[8] Borgship Tankers v Product Transport Corp ('The Casco'), [2005] 1 Lloyd's Rep 565.

[9] ibid.

[10] Pyrene Co Ltd v Scindia Steam Navigation Co Ltd, [1954] 2 QB 402.

[11] Max Ganado and Hugh M. Kindred, Marine Cargo Delays, (Lloyd’s of London Press Ltd. 1990), 2

[12] Carver’s, Carriage by Sea, (Edited by Raoul Colinvaux, 13th Edn. Vol 1 & 2, London Stevens & Sons 1982), See Deviation and Delay, para 1205 – 1212

[13] International Convention for the Unification of Certain Rules of Law relating to Bills of Lading and Protocol of Signature (Brussels, 25 August 1924) (Hague Rules) and the Hague Rules as amended by the Brussels Protocol 1968 (Hague Visby Rules/ HVR) (collectively referred to as ‘the Rules’)

[14] Ganado (n 11) 2

[15] Carver’s analyzes effect of delay as resulting from deviation which does not apply for losses not caused as result of deviation Carver’s (n 12) para 1205 – 1212

[16] Hadley v. Baxendale (1854) 9 Exch. 341; 2 C.L.R. 517; Victoria Laundry (Windsor) Ltd. V. Newman Industries Ltd [1949] 2 K.B. 528; Koufos v C. Czarnokow Ltd (The Heron II), [1969] 1 A.C. 350; Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48

[17] Carver’s (n 12) para 456 - 462

[18] Anglo-Saxon Petroleum Co. Ltd v. Adamastos Shipping Co. Ltd. [1957] 2 Q. B. 233 (C.A); G.H. Renton (n 20).

[19] Kroll & Co. v. Silver Line Ltd. [1954] A.M.C. 177; and Hirsch Lumber Co. v. Weyerhaeuser Steamship Co., [1956] A.M.C. 1294.

[20] G.H. Renton & Co. Ltd. v. Palmyra Trading Corporation of Panama [1957] A.C. 149.

[21] ibid [159].

[22] ibid.

[23] Commercio Transito Int., Ltd. v. Lykes Bros. Steamship Co., Inc., [1957] A.M.C. 1188 (2nd Cir.) 

[24] ibid.

[25] Serena Navigation Ltd v Dera Commercial Establishment (The Limnos), [2008] EWHC 1036 (Comm).

[26] ibid [39 – 42].

[27] G.H. Renton (n 20) [169].

[28] United Merchants & Manufacturing Inc. v. U.S. Lines Co. (1953) 126 N.Y.S. 2d 560

[29] Commercio Transito (n 23)

[30] ibid

[31] The Casco (n 8); A claim by charterer against owners for loss of use was granted although it did not fall within “cargo claims”.

[32] Hadley v. Baxendale (1854) 9 Exch. 341; 2 C.L.R. 517.

[33] William Tetley, Marine Cargo Claims, (4th Edn. Vol. 1, Thomson Carswell, 2008) 792 - 793

[34] Alexander von Ziegler, ‘Delay and the Rotterdam Rules’, (2009) 14 Unif. L. Rev. 997, 1000

[35] International Maritime Organization (IMO) Website, section - Introduction to IMO, <https://www.imo.org/en/About/Pages/Default.aspx> accessed 26 July 2018

Note: While working on delay claims by cargo-interest for losses and my academic research on delay claims, I learned that there is little or no support on the issue from international conventions. The purpose of uniformity of laws through international conventions seems incomplete without addressing such a major issue which is usually, the cause of claims (whether secondary or primary) in most cases. This article is just to highlight the fact that even while advanced technical developments are taking place around the world in shipping sector in areas of autonomous shipping and blockchain the most crucial factor of timely delivery in sea trade is not addressed effectively.

I hope you found this information useful. I will be happy to hear your views on delay claims and effective solutions that can be applied at international level through conventions.  

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