NITL Logistics Management May 2, 2007
Delegations from countries around the world wrapped up two weeks of meetings April 27 on work to develop a new international maritime cargo liability regime. As reported in last week’s Notice, the United Nations Commission on International Trade Law (UNCITRAL) has been meeting for several years for the purpose of formulating new rules governing the loss and damage of international freight which has at least a portion of the cargo moving by sea (Notice, April 20).
The current U.S. law known as the Carriage of Goods by Sea Act (COGSA) has been in place since 1936 and is based on an international convention known as The Hague Rules which was first adopted in 1924. Subsequent conventions known as Hague/Visby and the Hamburg Rules have since been adopted by several countries with the notable exception of the U.S. Therefore the current work of UNCITRAL has important ramifications for all parties engaged in the U.S. trades especially if it is ratified thereby replacing COGSA as the law governing loss and damage claims for ocean cargoes.
While at least two more working group sessions are scheduled over the next year, this month’s meeting in New York appears to have established several important changes including most notably the ability of commercial parties to derogate from set liability limits in agreements known as volume contracts between carriers and their customers. Known simply as, “freedom of contract”-- parties under the draft convention would be permitted to set “lower’ or “higher” liability levels in their contractual arrangements. Today such derogations may only be set by contracting at higher levels and never below those set by existing conventions.
In order for either party to derogate from the levels that will be established in this convention, the contract must contain a “prominent” statement that it derogates from the convention and that the contract is “individually negotiated; or (it) prominently specifies the sections of the volume contract containing the derogations.” This provision goes on to stipulate that the derogations cannot be incorporated by reference from other documents, be placed in published tariffs and that express consent must be given to be bound by the derogations. Finally to enforce the derogation, the party who claims the benefit of the derogation, has the burden of proof that the conditions for it have been fulfilled.
The U.S. delegation was a forceful proponent of this provision as it would permit parties for the first time to have maximum flexibility in negotiating freight terms.
Another extensively debated area concerned carrier and shipper obligations due to consequential damages brought about by a delay in the delivery of freight by the carrier and for delaying the vessel by the shipper. Going into this meeting there were several proposals that would have imposed liability for both carrier and shipper caused delay subject to limitations set forth under the convention.
Under the concept agreed to by the delegates no new obligations were created for shipper caused delay. Carriers would be held liable subject to a tentative limit of one times freight unless the parties come to an agreement to exclude this obligation.
The UNCITRAL working group is scheduled to reconvene talks this October in Vienna, Austria. Two major outstanding issues remain including arbitration and the value of the per package limits.
Due to the complexity as well as importance of the outcome of these talks, the League intends to provide regular periodic updates on the progress of the draft convention in the Notice.