FIMBank (a bank) had financed the purchase of this cargo but was left unpaid under its financing arrangement. The bank therefore wanted to exercise what it alleged to be its security for financing the cargo by demanding delivery under the bills of lading. By the time the bank tried to exercise its security, the cargo had already been discharged from the vessel and collected from stockpiles at the Indian discharge ports by local receivers. The bank found itself empty-handed and therefore brought a claim in arbitration against the carriers, KCH Shipping, under the bills of lading. However, the bank only commenced arbitration against the carrier on 24 April 2020 – more than two years after discharge. The issue of time bar was dealt with as a preliminary issue in the arbitration.

The international carriage of goods by sea is almost always governed by one of two international conventions: the Hague Rules or the Hague–Visby Rules. These conventions set out internationally recognised rights and obligations between sea carriers and the holders of the bills of lading that represent the cargo shipped. Misdelivery claims come about, as in this case, where cargo goes missing during or after discharge due to reasons such as fraud, error, theft, or insolvency. Lawful holders of bills of lading can then bring a claim for misdelivery against the carrier.

The timing of a misdelivery of a cargo is significant: an unappealable decision by the High Court in The Alhani ([2018] EWHC 1495 (Comm)) already confirmed that the 12-month time bar applies where misdelivery of cargo occurs at the time of discharge from the vessel. Before the High Court’s decision on Giant Ace, there had not been an English court decision on the common scenario where a cargo is misdelivered at some point after discharge (for example where it may have been in a stockpile or storage location in the carrier’s custody, pending collection by a receiver. The carrier was content for the preliminary time bar issue to be decided on the assumed basis that misdelivery happened after discharge.

The Supreme Court’s decision

In this case, the bank, as the holder of the bills of lading, argued it had six years to bring a claim against the carrier after the cargo of coal went missing from stockpiles after discharge. The carrier relied on the one-year time bar in the Hague–Visby Rules to defend the bank’s claim. Reed Smith has successfully represented the carrier at every stage in the proceedings: winning in arbitration, the High Court, the Court of Appeal, and now the Supreme Court.

The decisions of the lower courts were explained in our previous client alert.

The basis for the Supreme Court’s decision was:

(a) There is a “period of responsibility” under the Hague and Hague–Visby Rules. This starts with the commencement of loading and ends with the completion of discharge. During this period, the carrier has certain minimum responsibilities and liabilities under the Rules, which cannot be reduced.

(b) However, the existence of the “period of responsibility” does not mean that every part of the Rules only applied during that period. There are plenty of examples in the Rules where provisions apply outside of that period, for example:

i. Article III, Rule 1 imposes an obligation on the carrier to exercise due diligence to make the ship seaworthy “before” the voyage;

ii. The subject matter of Article III, Rule 6 as a whole is delivery (rather than discharge), and specifies things to be done after discharge; and

iii. Article III, Rule 3, which concerns the carrier’s obligation to issue a bill of lading where goods have been received into its charge prior to shipment. This is concerned with the period prior to loading and other events during that time.

(c) The Article III, Rule 6 time bar in the Hague Rules is an example of a provision that does not only apply during the period of responsibility. It says “In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered”

(d) On a natural reading of the language of the time bar in Article III, Rule 6, it applies to events occurring after discharge.

(e) Looking at the purpose of the provision, the time bar in Article III, Rule 6 was clearly intended to achieve finality. The Supreme Court noted that it would make little sense to have a time bar in the Rules that applied to some claims and not others.   Having a time bar that applied broadly would ensure that the need for factual investigation is identified reasonably close in time to the events that have to be investigated. 

(f) Having decided that the time bar at Article III, Rule 6 of the Hague Rules has the broad application mentioned above, the Court held that the even wider wording of the time bar at Article III, Rule 6 of the Hague–Visby Rules has the same effect of providing a definite time bar in misdelivery cases, even where cargo goes missing after discharge.

(g) The Supreme Court also confirmed that the wording in Clause 2(c) of the commonly used Congenbill bill of lading (“The Carrier shall in no case be responsible for loss of or damage to the cargo, howsoever arising prior to loading into and after discharge”) does not impact the one-year time bar in the Rules.

All parties can now benefit from the finality of the time bar: once the deadline has passed, accounts or books can be closed.

Client Alert 2024-230