Serena Navigation v. Dera

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(1) Serena Navigation Ltd (2) The London Steamship Owners Mutual Insurance Association Ltd -v- (1) Dera Commercial Establishment and (2) Standard Chartered PLC, (The Limnos): 
English High Court, Queen’s Bench Division, Commercial Court: Burton J.: [2008] EWHC 1036: 15 May 2008
Simon Rainey QC and Ruth Hosking, instructed by Holman Fenwick & Willan, for the carrier
Lawrence Akka and Angharad Parry, instructed by Barlow Lyde & Gilbert LLP, for the cargo owner
This judgment concerned the interpretation of the words "goods lost or damaged" within Article IV Rule 5 (a) of the Hague-Visby Rules. Surprisingly, this is the first occasion on which the interpretation of these words has been considered by the Courts.
In this case, the court determined that, where part of the cargo had been physically damaged but the remainder had, in consequence, also lost value as a "distressed cargo", the carrier’s liability was to be limited by reference to the weight of the cargo physically damaged, and not by reference to the weight of the entire cargo.

DMC Category Rating: Confirmed

This case note is based on an article, written by Alexandra Saxty, Solicitor, that was originally published in Hill Dickinson’s Marine, Trade and Energy Newsletter July 2008

The relevant passage in the Hague-Visby Rules states: "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 666.67 [Special Drawing Rights] per package or unit or 2 [Special Drawing Rights] per kilogram of gross weight of the goods lost or damaged, whichever is the higher."

The hearing before Mr Justice Burton concerned a preliminary issue which had arisen in relation to the cargo owner’s (First Defendant) counterclaim against the Claimant, the owner/carrier of a quantity of US corn from Louisiana to Aqaba on the Limnos (the "Vessel"). The bill of lading held by the cargo owner, to which the carrier was a party, incorporated the Hague-Visby Rules.

The facts assumed for the purposes of the case were that, following bad weather on the voyage, a small quantity of cargo (about 7 or 12 m/t) was wet damaged by leakages through the vessel’s hatch covers. The amount claimed in respect of this tonnage was USD 1,742.40. An attempt was made to segregate and dispose of the damaged corn. However, there was an issue, assumed in favour of the cargo owner, that some of it was not properly segregated and was discharged together with the sound cargo. Further, up to 250 tonnes had to be discharged by bulldozers and suffered as a result an increased number of broken kernels. Thus, the quantity of cargo said to have been physically damaged prior to or at the time of discharge from the vessel was from 7-12 up to 250 tonnes. This quantity (which was known as the "Conceded Tonnage") was accepted as being damaged cargo and falling within the definition of "goods lost or damaged" under Article IV Rule 5 (a) of the Hague-Visby rules.

However, the cargo owner claimed additional losses amounting to about US$1.5 million which arose as a consequence of the wet damage (the "Consequential Losses") for the following reasons.

As a condition of allowing discharge of cargo from the holds in which wet damage had occurred, the Jordan Silos and Supply General Co required that the cargo be fumigated, chemically treated and then transferred to pre-fumigated and disinfected silos. This operation resulted in an increase in the number of broken kernels and a depreciation in the value of the cargo amounting to US$362,142.

The whole cargo acquired a reputation as a distressed cargo and its sound arrived market price was depressed by US$13 per m/t resulting in a loss of US$571,842.26 and yet further expenses were incurred by the cargo owners as a result of the requirements of Jordan Silos.

Cargo owner’s claim
The cargo owner claimed that the consequential losses fell into the category of economic damage and that as such it was recoverable by a cargo owner under the Hague-Visby Rules (this was an agreed point (Article IV Rule 5(a) making express reference to "loss or damage to or in connection with the goods" – emphasis added) and that such damage should fall within the meaning of the phrase "goods lost or damaged", by reference to the weight of which limitation was to be applied under Article IV Rule 5(a). In view of this and given that the economic damage (consequential losses) affected the whole cargo, the cargo owner claimed that limitation of liability should be by reference to the gross weight of the whole cargo i.e. 43,999.86 tonnes. This would easily exceed the amount claimed by the cargo owner.

The carrier disagreed with this interpretation and claimed that, whilst economic loss was recoverable under the Hague-Visby Rules, the words "gross weight of the goods lost or damaged" meant that the amount recoverable in respect of economic loss was, for the purposes of limitation, to be based only on the weight of the goods that were physically lost or physically damaged (emphasis added). As a result, the carrier claimed to be entitled to limit liability by reference to the conceded tonnage only.

The cargo owner submitted that the carrier’s interpretation was wrong, as (1) this would be inconsistent with the acceptance in other parts of the Hague-Visby Rules that economic damage is recoverable and (2) it "flouts business common sense", in circumstances where there is a small amount of physical damage and a large economic loss claim, to limit liability by reference to the weight of the physical damage.

Mr Justice Burton held that the words "goods lost or damaged" are not to be construed in the same way as "loss or damage" as interpreted in the field of contract and tort, where they are frequently taken to mean that loss is economic and damage is physical and together to cover all kinds of loss, in the sense of loss incurred. In his view, the words "goods lost or damaged" refers to two categories of goods, namely: (1) goods that are lost in the sense of being missing or destroyed and (2) goods that are damaged in the sense of not being lost, but surviving in damaged form. He therefore rejected the cargo owner’s argument that the words "goods lost or damaged" meant the same as "loss or damage." He further commented that although there were anomalies as to both the construction and effect of the owner’s interpretation, it was not "inappropriate or contrary to good commercial sense".

As a result, the carrier was found to be entitled to limit liability in respect of the cargo owner’s claim by reference to the Conceded Tonnage. It was yet to be determined precisely what the quantity of this tonnage was to be.

It is not known if this decision will be appealed.

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