TT Talk - What are the limits of limitations?
Audio bar invalid source
An English court review of what comprises, under the Hague-Visby Rules, “loss or damage to or in connection with the goods” where the claim includes both physical damage and economic loss elements. Should limitation be calculated on the weight of the entire cargo or just what was physically lost or damaged?
Cargo owners loaded zinc calcine on to ‘Thorco Lineage’ in the United States for carriage to Australia. Salvors were engaged when the ship ran aground on an atoll in French Polynesia after main engine failure. After the ship was refloated, the cargo was discharged in Korea and, except for a small percentage which was lost or damaged, on-carried on a different ship to Australia.
Cargo owners claimed against the shipowners under Hague-Visby rules for failure to make the ship seaworthy. The claim was made up of USD278,000 in respect of the lost or damaged cargo, and USD7.355 million for salvage costs together with USD800,000 for on-carriage and disposal costs in respect of the entire cargo.
Shipowners responded by seeking to rely on the Limnos, in which it was held that cargo which had had suffered only economic loss was not “goods lost or damaged” for the purposes of Hague-Visby Article IV 5(a). The effect of this would be to limit the cargo owners’ claim to USD800,000. Cargo owners argued that the Limnos had been wrongly decided.
Cargo owners commenced arbitration, but it was agreed that the issue of cargo limitation be referred to the Commercial Court as a preliminary issue.
The court declined to follow the Limnos. It started by defining the purpose of Hague-Visby as to protect carriers and shippers by establishing clear and consistent standards. It continued with a detailed examination of precedent and of the Hague-Visby drafting transcripts (“travaux préparatoires”), which indicated that there was no intention to place goods which were only economically damaged outside the limitation regime. Finally the court found the reference in Article IV to “any loss or damage to or in connection with the goods” to be wide enough to include economic damage.
Therefore, goods which were physically undamaged but which had suffered a diminution in value, encompassing by loss of market value, liability to a third party (including salvors) or a requirement to tranship or incur other costs, were “lost or damaged” for the purpose of Article IV.
As a result, the court held that the limit had to be calculated by reference to the weight of the entire cargo, which in this case produced a figure in excess of the cargo owners’ claim.
As far as concerns the position of shippers and carriers, this decision is two edged. Where economic and physical loss are mixed, as here, shippers are likely to benefit. But where there is only economic loss, carriers are likely to benefit, because this decision will apply Hague-Visby limitation, while the Limnos would apply no limits.
The Limnos had been heavily criticised by commentators. Its most bizarre consequence is that, if a small amount of cargo is physically damaged, a much larger economic claim in respect of the whole cargo will be severely limited. But, if there is no physical damage to the cargo, the same economic claim will not be limited at all.
Leave to appeal was denied, resulting in two conflicting first instance decisions. However, in view of the more detailed reasoning in this case, and the criticism which the Limnos has attracted, it appears more likely that this recent judgment will be followed in future.
TRAFIGURA PTE LTD v TKK SHIPPING PTE LTD (“THORCO LINEAGE”)
 EWHC 26 (Comm)
  2 Lloyd’s Rep 166
If you would like further information, or have any comments, please email us, or take this opportunity to forward to any others who you may feel would be interested.