News and insights

Key Points 

In The Thorco Lineage [2023] EWHC 26 (Comm) the English High Court held that:

• Art IV Rule 5(a) of the Hague-Visby Rules encompasses claims for economic loss as well as physical loss or damage.
• Where all of the cargo is subject to an economic loss and only part of the cargo suffers physical damage, the limits in Art IV Rule 5(a) are to be calculated in respect of the whole cargo and not just the physically damaged portion of the cargo.

Background 

The claim arose following the grounding of the Thorco Lineage in French Polynesia in June 2018 whilst carrying a cargo of zinc calcine from Baltimore, USA to Hobart, Australia.

The Vessel was successfully re-floated by salvors. As a result of the grounding and the salvage operation a small part of the cargo was physically damaged.

The cargo interests paid approx. US$7M to the salvors, and also incurred on-shipment costs in respect of the cargo.

Cargo interests commenced arbitration proceedings against the carrier. A Section 45 application was made to the Court to determine the true construction and application of Article IV(5)(a) of the Hague-Visby Rules.

The question of law before the Court was:

Was the carrier entitled to limit its liability in respect of the cargo interests’ liability for salvage and the on-shipment costs and if so, in what amount?

Article IV r.5(a)

Article IV r.5(a) of the Hague-Visby Rules is set out in full below:

“Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding the equivalent of 667.67 units of account per package or 2 units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher.”

The Previous Position – The Limnos [2008] EWHC 1036 (Comm)

In The Limnos [2008] EWHC 1036 (Comm) the English High Court had previously held that:

• The words “goods lost or damaged” only referred to goods which had been physically damaged and did not include goods which had been economically damaged.
• Where purely economic loss was suffered in respect of the goods, any claim would be unlimited as it would not be caught by Article IV r.5(a).
• However, where goods were both economically and physically damaged, any claim would be limited under Article IV r.5(a) by reference to the weight of the goods physically damaged.

Decision 

The Court in The Thorco Lineage refused to follow the decision in The Limnos and instead held that:

• “loss or damage in connection with the goods” covered claims where the goods were damaged economically as well as physically.
• “the goods lost or damaged” referred to the goods in the first part of Art IV Rule 5(a) which had been either lost or damaged physically or economically.
• The claim was therefore limited by reference to the whole cargo and not just the small proportion that had been physically damaged.
• In the alternative, if “the goods lost or damaged” did not encompass goods that had been subject to economic loss, then the whole of cargo had been physically damaged by way of the salvor’s lien.

Comment 

Whilst the decision is clearly a positive result for cargo interests, it is not all bad news for carriers as the effect of the decision is that claims for pure economic damage to goods will be limited under Article IV r.5.

In any event, the decision is far from the final word on the issue as we are now left with two inconsistent first-instance decisions. Given that leave to appeal was refused by the Court, we will have to wait another day for a Court of Appeal decision to resolve the debate one way or another.