When are goods lost or damaged?
The Limnos [2008] 1 Lloyd’s Rep.50
The Commercial Court has recently given a decision on the meaning of the words “goods lost or damaged” within Article IV Rule 5(a) of the Hague-Visby Rules.
Article IV Rule 5(a) of the Hague-Visby Rules permits a carrier/ship to limit liability for “any loss or damage to or in connection with the goods” carried to 2 SDRs per kilogram of gross weight of the “goods lost or damaged”. There has previously been no English legal authority as to what precisely the expression “lost or damaged goods” refers. The type of uncertainty which can be encountered when applying Hague-Visby weight limitation where only part of a cargo has been physically damaged is illustrated by the facts in The Limnos.
The judgment given by Mr Justice Burton was on a preliminary issue concerning a claim brought in respect of a shipment of US corn from Louisiana to Aqaba. The relevant bill of lading incorporated the Hague-Visby Rules. On arrival at Aqaba a small quantity of wetting damage was discovered in holds 2 and 3, which in total contained some 44,000 mt of corn. The wet damaged cargo (said to be 7 or 12 mt) was segregated and disposed of. It was alleged that a further 250 mt of the cargo in holds 2 and 3 suffered physical damage when kernels within the cargo were damaged by bulldozers during discharge. It was accepted by the Owners that this quantity, which had been physically damaged prior to or at the time of discharge, fell within the definition of “goods lost or damaged” under Article IV Rule 5(a) of the Hague-Visby Rules (the “conceded tonnage”).
The preliminary issue was concerned with whether the weight of the remaining cargo in holds 2 and 3 also fell within the definition of “goods lost or damaged”. As a condition of allowing discharge, the Jordanian authorities required that the remaining cargo from those holds be transferred into silos for fumigation. During fumigation the number of broken kernels increased, resulting in a depreciation in the value of the cargo. In addition, the entirety of the corn from the two holds acquired a reputation in the market as a distressed cargo which depreciated its price.
The cargo interests argued that the words “lost or damaged” included goods which have been “economically damaged”. The Owners argued simply that “lost or damaged” meant goods physically lost or physically damaged only. The cargo interests’ total claim was for US$1.55 million. If limitation was calculated by reference to all the cargo in holds 2 and 3, it would be calculated on the total weight of 44,000 mt, which would produce a limitation figure greater than the value of the total claim. If limitation was calculated by reference to the physically damaged cargo only (i.e. the conceded tonnage) limitation would be based on a maximum of 250 mt and limited to approximately US$85,000.
The Owners’ argument and reasoning was preferred by Mr Justice Burton. He first held that the phrase “lost or damaged” referred to two categories of goods:
1. “goods that are lost in the sense of vanished, gone, disappeared, destroyed…” and
2. “…goods that are damaged, in the sense of not being lost, but surviving in damaged form”.
He rejected cargo interests’ arguments that the remainder of the cargo, beyond the conceded tonnage, could be described as “economically damaged”, holding that a claim for losses which were consequential upon physical damage could not be a claim for economically damaged goods. Therefore the entirety of the cargo interests’ claim would be subject to limitation determined by reference to the weight of only the physically damaged cargo (the conceded tonnage).
The judgment leaves open a number of questions on the interpretation of the words “goods lost or damaged”. The possibility that goods might be described as “economically damaged” on different facts remains. Mr Justice Burton commented that if it was an appropriate question to ask whether goods have been ‘economically damaged’ then this would have to be assessed at the time of delivery/discharge, by reference to whether the goods had then depreciated and whether there was a likelihood that some monies might need to be spent in relation to them. Mr Justice Burton also gave no view as to the position in respect of a claim for a pure economic loss (where the claimant has suffered no physical loss, such as with a claim for delay) stating that such claims were not in his view frequent.
It remains to be seen whether permission to appeal will be granted.