The Rotterdam Rules

The United Nations General Assembly adopted the Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea’ on 11th December 2008. The signing ceremony was subsequently held in Rotterdam, hence ‘The Rotterdam Rules’. The aim being to replace the current Hague Rules, Hague Visby Rules and Hamburg Rules by extending and modernising their content to reflect current trade and transport practices. The convention will come into force 12 months after it has been ratified by 20 nations. At the time of writing 25 countries had signed the agreement but only 4 had ratified, the latest being Cameroon on 11.10.17. the others are Congo, Spain and Togo. There is a current perception that if the USA ratifies the convention, this would be the trigger for many other countries to follow.

The protocol has 96 articles within its 18 chapters.  The main feature of the Rules is to migrate from purely ‘tackle to tackle’ operations to allow for the concept of ‘door to door’ shipments. However, it is generally accepted that it is not a multi-modal convention in its purest sense. The rules cover the maritime voyage, stevedoring and allied services, port storage and port / terminal handling and, under certain circumstances, inland road and rail carriage within the designated port area. The key innovations within the rules includes regulated delivery obligations by the carrier, a two year time restriction in making a claim, limitation of liability raised to 875 Special Drawing Rights (SDR) per package or 3 SDRs per kilo, provision for delay claims up to 2.5 times the freight cost and removal of the defence of ‘Error of Navigation’ which is included in the Hague Visby Rules. 

The Hague Visby rules were incorporated into UK law by way of The International Carriage of Goods by Sea Act 1971. Whilst these rules were intended to address the inadequacies of The Hague Rules 1924. Hague Visby was not universally adopted and a further attempt to rectify a confused situation, with a modernised approach, was the entry into force of the Hamburg Rules in 1992. The latter rules were ratified by over 20 countries. However, the Hamburg Rules were not ratified by some of major trading nations, including the UK.

Thus, the concept of the Rotterdam Rules is two-fold. Firstly, to have a uniform set of maritime conditions of carriage in use, globally and secondly to reflect current, and likely future, practice in international trade and transportation. The UK, and other major players, have not ratified nor signed the rules and this is largely due to perceived problems with articles aimed at modifying existing protocols. For example, the use, and acceptance, of electronic bills of lading as a 21st century alternative to their traditional paper equivalents. This innovation is quite crucial to trade facilitation and, even though it may necessitate amendments to existing legislation such as the 2000 Electronic Communications Act, this should not constitute an insurmountable barrier. In this context, fraud has also been cited as a concern in relation to electronic bills of lading. Whether fraud is more likely in an electronic environment than a paper based process is debateable and, in any event, this should be evaluated in the wider context of the migration to e-commerce. Interestingly, important international trade protocols, Incoterms and Uniform Customs & Practice for Documentary Credits have, for some time, recognised the migration to e-commerce so it should be no surprise that this is a significant aspect of the Rotterdam Rules.

Possibly the most controversial aspect of the rules is that of Volume Contracts. The Rules define a Volume Contract as “a contract of carriage that provides for the carriage of a specified quantity of cargo in a series of shipments during an agreed period of time [and] [t]he specification of the quantity may include a minimum, a maximum or a certain range”.   Where the conditions for Volume Contracts are met the parties, effectively, have an element of contractual freedom. During the drafting process both France and Australia stated that “the volume contract would leave a loophole in the convention that would enable the parties to release themselves from the binding provisions of the Instrument”.   This concept of contractual freedom is considered by some to be a retrograde step, allowing a return to the practice of ‘negligence clauses’. It could also appear that the concept does not constitute any problem for larger shippers but may pose a disadvantage to small and medium sized traders. Shipowners would often be able to ‘contract out’ of the Convention under the Volume Contract exemptions.The Rules are, of course, a compromise and there is a case to say that the Volume Contract provisions are a response to commercial needs. Many believe that the Rules do indeed provide sufficient protection to smaller shippers but this remains contentious.

The question of whether the UK will sign and ratify the Rules remains. The British International Freight association (BIFA) remain opposed to the Rules for a number of reasons, such as the complexity of the convention, the concept of the ‘maritime performing party’, which could at times include forwarders, increased compensatory limits which could lead to higher insurance premiums, the FIATA preference for a full network liability system and the question of Volume Contract exemptions.

It seems that the certainties are that there is a clear need for a new, globally accepted, set of conditions of carriage which reflect contemporary practice in international trade and transportation but that the Rotterdam Rules may not fit the bill. As such, there is no likely hood of the Rules coming into effect any time soon.  

Article written by Jon Walden - Associate of Strong & Herd LLP

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