“EVER GIVEN” Grounding– The Impact on Sellers and Buyers
The proper application of limitation rights as provided for by both international conventions and local laws has long been a topic of discussion in the UAE and the wider GCC. This has recently been considered again as cargo interests pursued recoveries following the capsizing of the car carrier Golden Ray.
While the UAE Courts revisit the issues of which limitation regimes are to apply and how, some cargo interests have arguably already settled at a significant undervalue by relying upon the wrong limitation provisions and in doing so walked away from hundreds of thousands of dollars. This in itself begs the question, notwithstanding the terms of a contract, which limitation regimes actually apply in practice?
As the UAE Courts consider these issues and pending a final judgment, we explore the application of limitation provisions for maritime claims by UAE Courts.
On 8 September 2019, the Golden Ray (the Vessel), a 2017 built car carrier, capsized in Simons Sound near the Port of Brunswick, Georgia, USA. The Vessel was laden with a cargo of approx. 4,200 vehicles which were intended for discharge across the GCC, including in the UAE.
The cause of the Vessel’s capsizing allegedly remains unclear, however there is some speculation surrounding the Vessel’s stability and/or poor navigation. Due to bad weather and the COVID-19 pandemic, delays halted the salvage operations resulting in them turning into a wreck removal operation. The Vessel and its cargo were respectively declared a total loss.
Contracts of carriage typically incorporate a set of international rules for the international carriage of goods by sea, namely the so-called Hague Rules 1924, the Hague-Visby Rules 1968 and the Hamburg Rules 1978. These rules provide a framework of rights and obligations that apply to the carriage of goods by sea, including when and how a carrier might limit its liability.
Of these international rules, the Hague-Visby Rules are the most widely adopted and are the rules which are relevant to the Golden Ray incident and pursuant to which some Middle East insurers settled claims. Article IV Rules 5 of the Hague-Visby Rules limits a carrier’s liability for loss or damage to goods to 666.67 SDR per package(s) or unit(s) or 2 SDR per kilogram of gross weight, whichever is higher. This limitation is typically incorporated by way of a clause paramount in the bill of lading or contract of carriage affirming the limitation’s application. Article IV Rule 5(e) clarifies that a carrier’s right to limit liability will be lost if it is proven that the carrier intended to cause loss or was reckless and had the knowledge that loss would probably result.
However, it is wrong to think that the express terms of a contract of carriage will automatically be applied by the UAE courts, especially when such terms (like the Hague-Visby Rules) have not been ratified by the UAE, are in conflict with local laws and are not expressly agreed by the consignee.
Where a UAE Court accepts jurisdiction to hear a cargo claim and notwithstanding the underlying contract of carriage may have a foreign law and jurisdiction (court) clause, the UAE Court will, by default, typically apply UAE law especially where a consignee did not negotiate the contract of carriage. In adopting this approach the UAE courts will typically ignore the limitation provisions incorporated in the contract of carriage, whether pursuant to the Hague-Visby rules or one of the other international regimes.
Conversely, when applying rights of limitation pursuant to UAE law, the UAE courts will initially consider Federal Law No. 26 of 1981 (UAE Maritime Code) and the recently ratified 1996 Protocol to the 1976 Convention on Limitation of Liability for Maritime Claims (LLMC), which also applies to property claims. By way of example, Article 276(1) of the UAE Maritime Code provides that a carrier’s liability for loss or damage to goods shall be limited to a sum not exceeding AED10,000 (approx. 1,910.95 SDR) for each package or unit, or a sum not exceeding AED30 (approx. 5.73 SDR) per kilogram per gross eight of the goods, whichever is higher; this is approx. three times the limit provided by the Hague-Visby Rules.
While the Golden Ray cargo claims continue to be litigated before the GCC courts, with much focus being on the carrier’s right to limit and how, what is clear is that those cargo interests who settled claims in accordance with the Hague-Visby limits as provided for in the contracts of carriage, settled at a substantial undervalue.
The UAE is not a signatory to the Hague Rules 1924, the Hague-Visby Rules 1968 nor the Hamburg Rules 1978 and therefore these will not be applied by the UAE courts, including any rights of limitation. Accordingly, cargo interests, cargo insurers and recovery agents alike should be mindful of this when settling claims as not all contractual terms are applied as read.