4th Global Shipping Summit23-24 October 2009, Dalian, China

The Rotterdam Rules: For or against them?

Dr. Mahin Faghfouri

International Multimodal Transport Association

UN Convention on Contracts for the International Carriage of Goods Wholly or Partly By Sea:

The Rotterdam Rules

I. Introduction

II. What is covered

- Multimodal application

III. Substantive liability regime:

A. Obligations / liability of the carrier

B. Obligations / liability of the shipper

C. Position of freight forwarders

D. Terminal operators …

IV. Mandatory nature: “Volume contracts”

I. Introduction

The Rotterdam Rules:

• adopted by the United Nations General Assembly in December 2008

• opened for signature in a signing ceremony on 23 September 2009 in Rotterdam, the Netherlands

• States will now consider whether or not to ratify

• 20 ratifications required for the Convention to enter into force

The Rotterdam Rules: some industry views

Strong lobbying already taking place:

• Carrier representatives, e.g. ICS, WSC, ECSA, BIMCO express their strong support

• Shippers interests, e.g. European Shippers’ Council (ESC) express strong opposition

• Freight forwarders & MT interests e.g. FIATA, CLECAT, IMMTA express serious concerns

II. What is covered

The Rotterdam Rules

• apply to contracts for carriage of goods by sea and multimodal transport including an international sea leg

• establish a mandatory liability regime, but permit extensive freedom to derogate contractually

• include 96 articles in 18 chapters

And:

• cover issues not currently subject to uniform liability regime

• many of the provisions are lengthy and highly complex

• based on maritime concepts and existing maritime liability regimes, but with significant changes in structure, substance and drafting

• provide for electronic communication & electronic alternatives to traditional paper documents

Multimodal application

The Rotterdam Rules:• extend maritime liability regime to MT involving a sea leg

• highly controversial throughout the negotiations

• Concerns as to:

- unsuitability of the liability rules to apply to MT

- increasing fragmentation of the law applicable to MT

- possible conflict with unimodal conventions

Multimodal application

Liability system: Not uniform (art. 26)

• Certain mandatory provisions in hypothetically applicable unimodal conventions take precedence

Door-to-door responsibility?• Carrier may only be responsible

- During the period of responsibility as contractually defined

- For some of a carrier’s functions

Problem for MT shipper!

III. Substantive liability regime

A. Obligations and liability of the carrier (ch. 4 & 5)

Obligations include duty to:• carry and deliver goods to the consignee (art.11)

• care of cargo during period of responsibility (art. 13(1) & 12)

• exercise due diligence to make and keep the ship seaworthy throughout the voyage (art.14)

Carrier’s liability for loss, damage or delay:

• Is based on fault (art. 17)

• Long list of exceptions to liability (art. 17(3)) somewhat based on Hague Visby Rules but with significance differences including:

deletion of the exemption for “nautical fault”

But: new rights and exemptions

Liability is limited: 3 SDR per kg. & 875 SDR per pkg (art. 59)

Burden of proof rules: changed favouring the carrier

Loss due to combination of causes:

Carrier may be liable for part of loss while under existing conventions would be liable for the whole loss

Important shift in risk allocation

Q. Change in burden of proof rules: to balance elimination of “nautical fault” exemption!

Furthermore carrier has the right to:

• Deliver goods without presentation of negotiable b/l if it contains statement to that effect (art. 47(2))

undermining document of title function of the b/l

• Dispose of undelivered goods at the expense and risk of the consignee, and

• Would only be liable for loss/damage if claimant proves carrier failed to take reasonable steps to preserve the goods and

knew or ought to have known that the loss would result from its failure to take such steps (art. 48)

B. Shipper’s obligations and liability(chapter 7)

Obligations and liability:• more extensive and detailed than in existing conventionsLiability: based on fault (art.30)

• Must deliver goods in such condition that “they will withstand the intended carriage … and… will not cause harm to persons or property” (art. 27)

• Provide timely information / instructions / documentations (for proper handling/carriage & compliance with laws & regs.) (art. 29)

Strict liability: (art.30(2))

• Provide accurate information: contract particulars (art. 31)

• Dangerous goods: duty to inform carrier & mark/ label dangerous goods (art. 32)

N.B: “documentary shipper” liable in addition to shipper (art. 33) Shipper may be responsible for some of carrier’s functions (art. 13(2))

Obligation to take delivery (ch. 10)Multiple causes and burden of proof

Shipper’s obligations / liability: mandatory

• may not be contractually excluded or limited (art. 79(2))

• substantive provisions more onerous to shippers, and

• no monetary limitation on shipper’s liability

• Arguments: modern shippers are more sophisticated?

But: special rules for sophisticated parties:Freedom of contract for “Volume contracts”:application of the Rules not mandatory but by default

C. Position of freight forwarders

Freight forwarders as:

• Carriers: vis-à-vis small shipper (subject to liability regime of carriers)

• Shippers: vis-à-vis unimodal carrier, e.g. ocean carrier(subject to liability regime of shippers)

D. Terminal operators…

Terminal operators, stevedores, warehousemen, cargo terminals engaged in logistics operations…

• As maritime performing parties are

Subject to liability regime of carriers

• Inland carrier: a maritime performing party if performs or undertake to perform activities exclusively within a port

IV. Mandatory nature: “Volume contracts”

The Convention primarily establishes mandatory liability The Convention primarily establishes mandatory liability rules both for carriers and rules both for carriers and shippersshippers (art. 79)

So: unlike the existing conventions

it is not only the carrier who is subject to mandatory minimum standards of liability but also the shipper

And: unlike carrier the shipper’s liability is not limited

“Volume contracts” (= service contracts)

are exempt from mandatory application of the Convention So:

its provisions may be modified or contracted out under certain condition

New approach: highly controversialPosition under the existing transport conventions:

restriction of freedom of contract to protect small parties against unfair contract terms

Definition of “volume contracts”: extremely wide

may cover almost any contract of carriage in liner trade

And:

No minimum quantity of cargo required

Apparent rationale:

“volume contracts” are contracts between sophisticated parties of equal bargaining power!

Potential consequences

• Volume contracts between parties of equal bargaining power:- No general concern, except for protection of 3rd parties

• Volume contracts between parties of unequal bargaining power:

small shipper & large container carrier in liner trade: - Potential for abuse!

- Freely negotiated? Or contract of adhesion?

Potential consequences

• Marginal application of the Convention

• “Volume contracts” may be used as devices to circumvent application of the Convention

• Future extensive use of volume contracts at global level could mean effectively: no international uniformity

Conclusions!

For further information see:

UNCITRAL documents:

• Text of the Convention and statements by some industry representatives: www.uncitral.org,

UNCTAD documents:

• UNCTAD Commentary on earlier draft of the Convention

(UNCTAD/SDTE/TLB/4) and Freedom of Contract and Carrier Liability (UNCTAD/SDTE/TLB/2004/2):

www.unctad.org/ttl/legal

IMMTA submission to UNCITRAL: A/CN.9/WG.III.WP.97

• See also: Mahin Faghfouri, International Regulation of Liability for Multimodal Transport: www.immta.org