The Rotterdam Rules
On Wednesday September 23, 2009, at the United Nations Commission on International Trade Law (“UNCITRAL”) signing ceremony in Rotterdam, the Rotterdam Rules were signed by 15 countries. The United States was one of the parties to sign the Convention, but of course that is only a step along the path towards accession to the treaty. As anyone who follows such things even loosely well knows, the U.S. has a long and distinguished history of failing to ratify important treaties. Remember the League of Nations? Treaty ratification in the U.S. requires a two-thirds approval in the Senate, and this can be a significant challenge even where there is broad popular support.
In fact, the signing ceremony is only a step along the path for the Rotterdam Rules themselves: the Convention expressly provides that it will only come into force one year after the 20th ratification is deposited with the United Nations. As of today, 21 countries have signed the treaty, including Denmark, France, the Netherlands, Norway, Spain, Switzerland, and Greece, as well as several of the “Hamburg Rules” countries in Africa, but none have yet ratified it.
I certainly won’t promise it, but I will predict that the U.S. will ratify the Rotterdam Rules. The U.S. took a leading role in the negotiations, and the positions taken by the U.S. delegates were generally widely backed by interested industry representatives. Much of the Convention tracks a similar effort initiated in the U.S. several years ago by its Maritime Law Association to remake the United States Carriage of Goods by Sea Act (“COGSA”), and although that statute was never enacted, the final agreed upon language submitted to Congress was generally viewed as a reasonable compromise among the various U.S. shipping interests.
In fact, the U.S. view probably leans a bit towards the cargo interests’ side; we are obviously a major importer and exporter of cargo, but largely as a result of our tax and employment laws there is little in the way of an American-flagged shipping fleet-with the exception of coast-wise trade. Still, the large commercial interests had significant input into the Convention and it appears there is general consensus (if, perhaps, not uniform excitement) about the Convention as ultimately adopted by the United Nations. Moreover, it seems clear that the time is ripe to update COGSA, which was enacted in 1936—long before containers, electronic waybills, and multimodal transport were even imagined—and which is viewed by many as an impediment to international uniformity of the law.
The Big Changes
So what does it all mean? My intention here is to try to highlight some of the places where the implementation of the Rotterdam Rules would represent a significant change in U.S. cargo law. Some of the changes I will mention are changes to the Hague Rules as a whole, and thus apply to all Hague Rule jurisdictions, but I will particularly try to highlight some of the changes that may be unique to the U.S.
1. Scope of Application. The Rotterdam Rules cover carriage of goods in the liner trade even where no bill of lading or other transport document or electronic record has been issued. This is an expansion of existing regimes, like COGSA, that only apply to bills of lading or other documents of title. The Rotterdam Rules do not apply to charter parties or other similar contracts for the use of space on a ship; however, if a bill of lading is issued pursuant to a charter, then the Rotterdam Rules would apply to the bill of lading and its parties or holders in due course. “Volume contracts,” such as service agreements, are subject to the Rotterdam Rules, but the parties to such agreements are permitted to derogate from its terms in many respects.
COGSA is unusual in that it applies by law to shipments to and from the United States, whereas the Hague Rules effectively apply only to shipments from a contracting state. The Rotterdam Rules adopt the U.S. approach and are applicable to shipments either to or from a contracting state.
2. Period of Responsibility. COGSA and the Hague Rules apply only “rail to rail,” meaning only from the point of loading to the point of discharge from the vessel. A primary goal of the Rotterdam Rules, by contrast, was to embrace the modern development of “door to door” shipping, and they thus provide that the carrier’s period of responsibility commences “when the carrier or a performing party receives the goods for carriage and ends when the goods are delivered.” (See Art. 12).
The Rotterdam Rules distinguish between “maritime performing parties”, such as stevedores, and “non-maritime” performing parties, such as rail or motor carriers on a multi-modal transport. Carriers and maritime performing parties automatically benefit from the defenses and limitations of liability provided for in the Rotterdam Rules, whereas non-maritime performing parties will continue to be covered by existing forum law governing inland transport, such as the Carmack Amendment in the U.S. that governs interstate rail and road transport in many circumstances. For maritime performing parties, the Rotterdam Rules would effectively implement by statute what is already commonly accomplished by Himalaya clauses, and for non-maritime performing parties, the Rotterdam Rules would leave essentially untouched the existing law concerning the proper scope of applicability of Himalaya clauses.
3. Right of Control. Unlike COGSA and other past cargo regimes, the Rotterdam Rules contain express provisions clarifying when cargo interests may give modifying delivery instructions which, for instance, change the identity of the consignee or the port or discharge. (See Art. 50). Article 51 vests this power in the hands of the shipper but permits the shipper to transfer such control to other parties. Article 52 obliges the carrier to comply with reasonable instructions in this respect, and Article 53 protects the carrier where such instructions are given by providing that delivery in accordance with revised instructions by the controlling party shall be deemed delivery at the place of destination.
4. Error in Navigation Defense. Substantively, one of the more significant changes in the Rotterdam Rules is the elimination of the carrier’s defense that the damage or loss was caused by the error of the master or crew in the navigation of the vessel. Long viewed by many as anachronistic, this provision of COGSA was originally premised on the view that the Owner should not be responsible for the negligence of an otherwise competent crew once the voyage had commenced since it was effectively powerless to control the Vessel once she broke ground. In this day and age of modern communication and travel, this assumption seems fairly subject to question.
In keeping with the principle that the owner’s control effectively ceased once the vessel sailed, the carrier is obliged under COGSA and the Hague Rules only to exercise due diligence to make the ship seaworthy at the commencement of the voyage. Under the Rotterdam Rules, by contrast, that obligation extends for the full duration of the voyage and the “negligent navigation” defense has been eliminated.
5. Limitation of Liability. COGSA’s “package” limitation of liability is $500 per package or “customary freight unit.” Under the Rotterdam Rules, the limitation would be the greater of 875 “units of account” per package or “shipping unit” or 3 units of account per kilogram, unless the shipper declares a higher value and the carrier agrees to a higher limitation. (See Art. 59). The unit of account is the Special Drawing Right as defined by the International Monetary Fund. At today’s exchange rate this is just over $1,400 per package.
While the Rotterdam Rules’ package limitation amount is quite a bit higher than COGSA’s, it will also be more difficult to break. Article 61 provides that the carrier shall be precluded from relying on the package limitation only where a loss resulted from “a personal act or omission . . . done with the intent to cause such loss or recklessly and with knowledge that such loss would probably result.”
In the U.S., the principle has developed in the case law that a “deviation” from the bill of lading would preclude the carrier’s right to rely on the limitations of liability provided in COGSA. Article 24 of the Rotterdam Rules makes clear, on the other hand, that a deviation shall not deprive the carrier of any defense or limitation under the Rules. Article 25 of the Rotterdam Rules describes the circumstances where cargo may be carried on deck, however, and it adopts the U.S. “rule” that where the shipper and carrier expressly agree that cargo will be stowed below deck, the carrier’s failure to comply with that requirement will deprive it of the right to limit liability under the Rotterdam Rules.
6. Apportionment of Damages. Under the U.S. Supreme Court’s decision in Schnell v. Vallescura, 293 U.S. 296 (1934), a carrier under the COGSA regime is liable for all damage where its negligence was at least a partial cause of the loss, unless it can satisfy its burden of segregating the damages for which it is responsible from those for which it was not. In most instances, the result of this rule is that the carrier is responsible for the entire loss even if it is clear that some indeterminate portion of the damage resulted from some other cause. The Rotterdam Rules take a more lenient approach, providing in Article 17(6) that where there are multiple causes of a loss, “the carrier is liable only for that part of the loss, damage or delay that is attributable to the event or circumstance for which it is liable pursuant to this article.” Thus, the courts should have greater flexibility under the Rotterdam Rules to apportion liability based on the degree of causation.
7. Time to Sue. The timebar period under COGSA is one year. Under the Rotterdam Rules it is two years.
8. Jurisdiction and Arbitration. The Rotterdam Rules contain two Chapters, 14 and 15, which were the subject of much debate and negotiation during the drafting process. These relate to jurisdiction and arbitration, respectively. In the end, there was such lingering disagreement about these Chapters that they were included as “opt-in” Chapters that will only bind a Contracting State if that state expressly so declares when it ratifies the Rotterdam Rules.
For the countries that adopt it, Chapter 14 provides a list of optional fora in which cargo interests in the liner trade may commence suit against the carrier even where there is an exclusive forum clause. This includes the carrier’s domicile, the place of receipt or final delivery, the first port of loading or final port of discharge on the sea leg, or a place specified in the contract. In claims against maritime performing parties, such as stevedores, the claimant may sue in the port where that party provided its services in connection with the cargo. Adoption of Chapters 14 and 15 in the United States would thus represent-for the liner trade at least—the overruling of the Supreme Court’s decision in a case known as SKY REEFER (Seguros of Reaseguros, S.A. v. M.V. SKY REEFER, 515 U.S. 528 (2995)), under which forum selection and arbitration clauses in bills of lading have regularly been enforced in the United States.
Claims under a charterparty would not be subject to this laundry list of possible alternate fora, nor would claims by holders in due course of negotiable bills of lading issued under a charter, so long as the bill adequately identifies “the parties to and the date of the charterparty or other contract” under which the transport contract was issued and incorporates “by specific reference the clause in the charterparty or other contract that contains the terms of the arbitration agreement.” (See Art. 76(2)). A carrier may not, however, enforce an arbitration or forum clause in a charterparty bill of lading negotiated to a third party in the liner trade, nor may the carrier enforce an arbitration or forum clause in a charterparty bill of lading which is different from the arbitration clause in the charterparty. Forum and arbitration clauses in volume contracts, assuming they meet the Rotterdam Rule’s criteria, would be enforceable.
The Rotterdam Rules would not impact a party’s right to commence an action in another forum to obtain security by, for instance, arresting a ship or attaching property in the U.S. pursuant to Rule B.
The Rotterdam Rules are not intended to be a revolutionary treaty, and much of the law relating to the international transport of cargo will be substantially unchanged if and when they come into force in the United States. The changes that are made are largely incremental, but on the other hand the Rotterdam Rules are an important step towards bringing much-needed uniformity to this area of the law and, perhaps even more importantly, towards addressing some of the fundamental changes in the industry that have occurred over the past eighty years. The Rotterdam Rules may not appeal equally to all sectors of the industry, but there does seem to be wide acknowledgement that they are a material improvement over the existing hodge-podge of treaties and laws and should be ratified. Only time will tell, however, whether the Rotterdam Rules will join the ranks of the world’s most important international treaties or go the way of the Hamburg Rules into relative obscurity.
- United Nations General Assembly Resolution 63/122, U.N. Doc. A/RES/63/122 (December 11, 2008): United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea.
- Report of the Working Group to the MLA Committee on Carriage of Goods on The Convention of Contracts for the International Carriage of Goods Wholly or Partly by Sea (“The Rotterdam Rules”), February 20, 2009.
- Sturley, Modernizing and Reforming U.S. Maritime Law: The Impact of the Rotterdam Rules in the United States, Texas International Law Journal, Vol. 44, No. 3, p. 27 (2009).
Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. Additional information on Blank Rome may be found on our website www.blankrome.com.