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Web alert: The effect of a Paramount Clause under English law, where the Hague-Visby Rules are compulsorily applicable

19 September 2014

The English High Court has recently handed down a decision on the effect of a paramount clause in a bill of lading (B/L), in circumstances where the Hague-Visby Rules are compulsorily applicable as a matter of English law. 
 

Background

In The Superior Pescadores [2014] EWHC 971 (Comm), the ship loaded a cargo of machinery and equipment at Antwerp, Belgium for use in the construction of a liquid natural gas facility in Yemen. The B/L contained (on the reverse) the following standard form ‘paramount clause’:
 
“The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.”
 
During the voyage, the cargo inside one hold shifted, causing damage to part of the cargo. An agreement was subsequently reached between the parties that all claims under the B/L would be subject to English law and jurisdiction. That law includes the Carriage of Goods by Sea Act 1971, which renders the Hague-Visby Rules applicable as a matter of statute law when the carriage is from a port in a contracting state. Belgium is such a state.

 

Court case

Court proceedings were subsequently commenced and the cargo owners calculated their claims using the package limits under both the Hague and Hague-Visby Rules interchangeably for each individual claim, preferring to use whichever regime resulted in them being able to claim a higher figure.
 
The ship owners admitted liability, but only to the amount of the package limit under the Hague-Visby Rules, contending that the cargo owners could not ”pick and choose” between limits. Conversely, the cargo owners contended that as a matter of construction, the effect of the paramount clause was such that the parties had agreed contractually on a higher package limitation figure than that for which the Hague-Visby Rules provided (in circumstances where the Hague Rules allowed for a higher figure to be claimed).

 

Conclusion 

The judge in this case concluded that the wording of the paramount clause was not apt to incorporate the Hague-Visby Rules as a matter of construction.  Instead it incorporated only the Hague Rules. However, the court rejected the ”pick and mix” approach of the cargo owners, holding that a paramount clause contractually incorporating the Hague Rules did not have the effect of altering the package limitation under the Hague-Visby Rules. 
 
In the court’s view, the parties must have realised that a contractual choice of the Hague Rules would be largely ineffective here (given the compulsory application of the Hague-Visby Rules) and something more than the standard form ‘paramount clause’ would be required if the parties wished to vary the package limit under the Hague-Visby Rules.