Dead in the Water: The Nautical Fault Exemption of the Hague-Visby Rules

by Phoebe Leau

The Hague-Visby Rules (“HVR”), devised nearly a century ago, are an anachronism. Today, they precede at least two other treaties1 which were contrived with the intention to modernise existing laws on maritime carriage.2 No doubt the HVR are a wellspring of academic controversy – they have been ruthlessly branded as “outdated”3 and nonsensical.4 The opprobrium is not wholly unjust: the modern phenomenon of containerisation (affreightment of goods by container), for instance, makes a complete farce5 out of the HVR’s exclusion of on-deck cargo.6

This essay addresses, in particular, Art IV(2)(a), which encapsulates the nautical fault exemption (“NFE”). The NFE immunises carriers from liability for loss or damage in consequence of any “act, neglect, or default of the master … or [its] servants … in the navigation or … management of the ship.” Broadly, it is theorised that the NFE has long outlived its utility. Its continued preservation therefore jeopardises cargo interests.

I. IS THE NFE AN ARTEFACT OF THE PAST?

Before the genesis of the NFE, carriers bore strict liability7 for all damage to cargo interests despite less-sophisticated tools of communications preventing them from managing the ship or its crew during voyage.8 Increasingly, carriers resorted to contractual exemption clauses to relieve themselves of extensive liability,9 to the detriment of cargo interests. The HVR was thus a legal mechanism by which the law attempted to strike a delicate balance between carrier and cargo interests: it establishes an ‘irreducible core’ of carrier obligations, but allows carriers to escape liability in exceptional circumstances,10 such as where carriers experience nautical fault.

At first blush, the NFE seems defensible. It serves as an apportionment of risks between cargo and carrier interests, such that the latter will not bear the full brunt of liability for crew, cargo, and vessel in a collision.11 Additionally, since carriers tend not to be involved in the carriage of goods once the vessel departs from the port of loading, exonerating carriers from responsibility for the actions of those actually involved in the carriage is ostensibly fair.

The above, however, erroneously assumes that carriers remain incapable of controlling the vessel whilst it traverses the high seas today. In reality, it is evident that technological revolution renders the NFE otiose. Contemporary satellite technologies, for instance, enable continuous monitoring and control of ship operations (including the actions of the ship’s crew) through, inter alia, radar and GPS.12 Carriers have also been held to comparatively higher standards of vessel management.13 Technology has rectified the very problem the NFE sought to alleviate – that a shore-based carrier loses control of the vessel upon its departure from the port.14 It also diminished the enormity of risks borne by carriers during the period of carriage, as increased control of the ship generally reduces risks of mischief and risks to cargo, crew or vessel.

In principle, risks should be borne by the party who is in a better position to obviate such loss.15 Against contemporary developments, the carrier, who is actually able to supervise the cargo while it remains at sea (through, inter alia, improved maritime technology or appointing competent mariners), is thus better poised to assume the risk of cargo damage. However, the NFE continues to foist upon cargo interests the burden of such risks, even though cargo owners can do effectively nothing to minimise or eliminate risks while the goods are in transit. It follows that, firstly, the NFE is excessively rigid and fails to accommodate changes to maritime practices; secondly, that risk allocation under the NFE is manifestly prejudicial to cargo interests, especially when one considers the broad range of actions (any “acts, neglect, or default”) contemplated by the provision.

II. OTHER SALIENT CRITICISMS

The NFE has been described as “conceptually awkward”, as it enables carriers to benefit from proving the negligence of shipboard personnel16 who are typically its agents17 and/or employees. This is arguably an aberration: the party which has access to how the loss occurred is ordinarily not required to show the fault of others, but rather that such loss occurred independently of its own fault.18 The NFE also defies time-tested legal doctrines such as vicarious liability19 (of the carrier through the errant mariner), and it is not altogether clear why the shipping context should be the exception to the norm.20

Separately, the dissonance between the HVR and other international conventions for carriage of goods is conspicuous. The Hamburg Rules and the Rotterdam Rules have all expunged the NFE.21 Moreover, no equivalent of the NFE exists in treaties governing carriage by road,22 rail,23 and air24 – where carriers are prima facie liable until they prove the converse.25 Significantly, the Warsaw Convention governing aviation transport was drafted in the same time period as the HVR; the defence of negligent navigation of the aircraft was, however, eliminated by the Hague Protocol of 1955. This absence of the NFE from these treaties per se underpins the fact that the Art IV(2)(a) is plainly antiquated.

III. IS THE NFE BEYOND SALVATION?

In practice, Courts are loath to interpret the NFE too liberally,26 being very much alive to its notoriety. Judicial discretion in construction is thus exercised to limit the applicability of the NFE. The question is whether such discretion as exercised is capable of salvaging the inherent deficiencies in Art IV(2)(a). While acknowledging that ‘reading down’ the NFE can impede the force and frequency with which the NFE is applied, this writer contends that it is not.

As a preliminary note, Art IV(2)(a) governs all “[acts], neglect, or default”, and is not accompanied by any ‘qualification’ clause27 specifying acts which fall outside the provision. By necessary implication, Art IV(2)(a) would exempt liability for wilful, intentional or reckless conduct.28 The all-encompassing scope of Art IV(2)(a) is somewhat alarming. However, even if it does exclude intentional transgressions,29 its ambit remains unduly expansive. This is immediately apparent from The Tasman Pioneer,30 in which the Court opined that the NFE is only inapplicable to “damage with actual or imputed intent”, as envisaged in Art IVbis(4).31 It was further clarified that a carrier need not prove the bona fides of persons enumerated in the provision to avail himself of protection conferred by the NFE.32 On the facts, the master conducted himself disingenuously in pursuance of personal benefit, but not an intention to cause harm.33 Absent the latter, the carrier could not be liable for the master’s mala fides – which include, inter alia, the falsification of the vessel’s course plot post-collision and attempted concealment.

Respectfully, the ruling in The Tasman Pioneer bodes ill for cargo interests. It is not disputed that masters are agents of the shipowner and, that under agency law, principals are not invariably liable for the deeds of its agent. However, this case signifies that cargo interests have effectively no recourse against the wrongdoings of shipboard personnel, unless they can show that the carrier’s agents or servants acted with actual or imputed intention to cause damage.34 From the perspective of cargo interests, this is a nearly insurmountable evidentiary barrier. How can cargo owners, who are not usually privy to ship management and navigation at sea, be realistically expected to meet their burden of proof? In any case, there is no logical reason why a carrier should be liable for its servant’s barratry, but escape liability for other morally objectionable conduct of a lesser degree than barratry. The generosity with which carriers are treated therefore engenders tremendous injustice for cargo interests.

Apart from interpreting the term “acts”, the NFE may also be circumscribed by manipulating the terms “navigation” and “management of the ship”. It is well-established that “navigation” entails seamanship35 and includes steering the wrong course.36 In Gosse Millerd v Canadian Government Merchant Marine, Greer LJ (whose dissent the House of Lords endorsed on appeal) held that an alleged act will constitute ship management if it relates primarily to the care of the ship. However, if it relates solely or primarily to the cargo, it will not be an act of ship management.37

The differentiation of cargo management from ship management is contentious – not least because such distinction can often be tenuous. In The Iron Gippsland38 and The Eternity39 respectively, the negligent operation of a gas tanker (designated for vessel protection) and a ship’s valve both amounted to cargo mismanagement, which fell beyond the ambit of the NFE. In contradistinction, the failure to secure tarpaulins to the ship’s hatches was construed as an act of ship management in The Hector,40 as the structure in its entirety formed part of the ship’s defences.41

It is acknowledged, however, that subsequent decisions have cast doubt on The Hector and its instructiveness is suspect. Additionally, this writer observes that it is now more difficult for a carrier to invoke the NFE:42 in the later cases, courts have engaged in robust scrutiny of alleged acts of ship mismanagement to better safeguard cargo interests.43 The corollary is that judicial discretion exercised in interpretation of Art IV(2)(a) aids in achieving an optimal balance of interests between the two camps. However, the very existence of a need to ‘read down’ the NFE highlights the sheer breadth of immunity granted under the provision, as well as its fundamental incompetence in coping with changing attitudes.

It bears mention that the distinction between ship and cargo management is susceptible to obfuscation by the involvement of containerised cargo. Containers can serve as the ship’s apparatus/equipment if supplied by the carrier,44 or be construed as an extension of the ship’s superstructure.45 Hence, there may be difficulties in discerning when, for example, the mishandling of containerised cargo during voyage might equate to a breach of Art III(2), or mismanagement of the ship as conceived by Art IV(2)(a) – each of which will produce vastly dissimilar consequences. If it falls within the latter category, the carrier is immune from liability irrespective of any breach of Art III(2).46 This may result in the frustration of legitimate expectations of cargo interests, and is arguably unfair.

Where the NFE does apply, courts can do little to mitigate the hefty losses suffered by cargo interests. This is because Art IV(2)(a), in exempting liability for all loss and damage, can supersede breaches of other obligations in the HVR. In The Aconcagua,47 the heating of a bunker tank caused the ignition of a cargo of dangerous chemicals; subsequently, an explosion transpired. Notwithstanding that the charterers failed to properly care for the cargo,48 the Court found that they were protected by the NFE, as the heating of the bunker tank (for transfer to the engine room) constituted ship management.49 This decision, if anything, epitomises the injustice to cargo interests perpetuated by the NFE. The charterers could not have escaped liability for contravening their obligations under Art III(2) but for the existence of Art IV(2)(a).50 However, their liability under Art III(2) was ultimately subordinated to the NFE.

IV. CONCLUSION

Ironically, the very progenitor of the NFE — the U.S., by s 3 of the Harter Act51 — has since pressed for its deletion in Senate proposals for its new Carriage of Goods by Sea Act52 and the travaux préparatoires to the Rotterdam Rules.53 If anything, this demonstrates that the NFE is in a state of obsolescence. The rigid insistence of Art IV(2)(a) on risk allocation in favour of carrier interests, for instance, accentuates the incapability of the NFE to adapt to contemporary developments in maritime carriage. Yet, this is to be expected when one ruminates upon the historical background of the HVR: its drafting and negotiations process was dominated by powerful ship-owning economies, which resulted in the over-representation of carrier interests. Additionally, the focus on ‘codifying’ industry practices as they stood rendered the HVR’s provisions overly specific and unpliable, leaving no room for the incorporation of subsequent transformations and changes.

In light of the shortcomings of the NFE, its deletion and substitution with ‘prima facie’ fault provisions in the Hamburg Rules and Rotterdam Rules is emphatically welcome. It may be that, very exceptionally, the allocation of risks under the NFE creates a fair compromise between cargo and carrier interests. This might be so in cases where, for example, the shipowner was unable to exert control over the vessel (perhaps due to breakdown in telecommunications).55 Also, the deletion of the NFE may well increase the risks borne by carriers and cause a corresponding spike in freight rates.56 Ultimately, however, it bears emphasis that cargo interests are in a more vulnerable and precarious position than carriers, for reasons highlighted above. Carriers should therefore bear higher risks than cargo owners while goods are in transit, so that the interests of both parties can be evenly balanced. The HVR falter in this respect, thus offering a disappointing compromise on cargo interests.


[1] Hamburg Rules (1978); Rotterdam Rules (2008).

[2] E.g. Preamble of Rotterdam Rules.

[3] Myburgh, “Uniformity or Unilateralism in the Law of Carriage of Goods by Sea?” (2000) 31 VUWLR 355, 367.

[4] A New International Regime for Carriage of Goods by Sea (2012) 30 BJIL. 303, 320.

[5] Ibid.

[6] Art 1 (c).

[7] Liang & Li, “Abolishing the Exemption of Liability for Fault in Ship Management in the Nautical Fault Exemption System” (2006) China Oceans L.R. 537 at 542, 539.

[8] Supra note 4, 329.

[9] Gosse Millerd Ltd v Canadian Government Merchant Marine Ltd [1929] AC 223, 236

[10] As enumerated in Art IV(2).

[11] Weitz, “The Nautical Fault Debate” (1997-1998) 22 TMLJ 581, 588.

[12] Supra note 11, 594.

[13] See e.g. International Convention on Standards of Training, Certification and Watchkeeping for Seafarers.

[14] Zeigler, “Liability of the Contracting Carrier” (2008-2009) 44 TILJ 329, 342.

[15] Supra note 11, 587.

[16] Ibid.

[17] E.g. Masters: Girvin, Carriage of Goods by Sea (Oxford: OUP, 2011), [1.40].

[18] Supra note 11.

[19] Faria, “New Times, New Players, and New Rules” (2008-2009) 44 TILJ 277, 299.

[20] Allocating Shipment Risks (1978) 4 Monash U.L.R. 117, 149.

[21] Supra note 7, 542.

[22] 1956 Convention on the Contract for the International Carriage of Goods by Road.

[23] 1980 Convention concerning International Carriage by Rail.

[24] 1933 Warsaw Convention.

[25] Supra note 11.

[26] Clarke, Maritime Law Evolving (Oxford: Hart Publishing, 2013), 143.

[27] See e.g. Art IV(5)(e) .

[28] Treitel, Carver on Bills of Lading (London: Sweet & Maxwell, 2005), 607.

[29] Which may well be the case in light of Art IVbis(4) read with Art IVbis(1).

[30] [2010] NZSC 37.

[31] Ibid, [13].

[32] Ibid, [21].

[33] Supra note 30, [34].

[34] Supra note 30.

[35] The Hill Harmony [2001] 1 Lloyd’s Rep 147, 159.

[36]  The Satya Kailash & Oceanic Amity [1982] 2 Lloyd’s Rep 465.

[37] [1928] 1 KB 717, 749.

[38] [1994] 1 Lloyd’s Rep 335, 358.

[39] [2009] 1 Lloyd’s Rep 107.

[40] [1955] 2 Lloyd’s Rep 218.

[41] Ibid, 234-235.

[42] Supra note 19.

[43] Cooke et al, Voyage Charters (Oxon: Routledge, 2014), [85.279].

[44] In Houlden & Co v. S.S. Red Jacket [1978] 1 Lloyd’s Rep. 300, the Court held that the standard of seaworthiness applied to “all of the ship’s equipment, including containers supplied to the shippers” (at 1401).

[45] Aladwani, “The Supply of Containers & Seaworthiness” (2011) 42 JMLC 185, 188.

[46] Art III(2) is “subject to the provisions of Art IV”.

[47] [2009] EWHC 1880.

[48] Ibid, [371].

[49] Ibid, [372].

[50] Hashmi, “Rotterdam Rules: A Blessing?” (2011-2012) 10 Loyola MLJ 227, 247.

[51] Harter Act of 1893, 46 U.S.C. §190-196.

[52] Supra note 26.

[53] UN Doc. A/CN.9/WG.III/WP.34 at [30].

[54] Sweeney, “UNCITRAL and the Hague Rules” (1991) 22 JMLC 511, 516.

[55] Mandelbaum, “Risk Allocation for Cargo Loss, Damage, and Delay” (1995-1996) 5 JTLP 1, 38.

[56] Supra note 19.


Download the PDF version of this entry here.