Giant Ace in the Supreme Court – the Hague/Hague-Visby time-bar applies to all mis-delivery claims

Posted: 29/11/2024

On 13 November 2024, the Supreme Court handed down judgment in Fimbank Plc v KCH Shipping Co Ltd, The Giant Ace [2024] UKSC 38; a case determining whether the one-year time-bar in the Hague/Hague-Visby Rules applies if the cargo is delivered ashore to the wrong party after it has been discharged from the ship.

Both the Hague Rules 1924 and Hague-Visby Rules 1968 are widely understood to only apply during periods of ocean carriage. This sea carriage stage is customarily described as the Hague/Hague-Visby ‘period of responsibility’, or ‘tackle-to-tackle period’, if the carrier has also agreed to be contractually responsible for the loading and discharging operations. During this period, the rules set out an irreducible minimum of obligations to which the carrier is subject, and article III rule 8 renders null and void any attempt by the carrier to avoid or lessen that liability. Outside the Hague/Hague-Visby period of responsibility, it is generally understood that the scheme of rights and liabilities provided for in the rules do not automatically apply, meaning the carrier is free to contract on more protective terms.

However, the majority of mis-delivery cases arise beyond this period of responsibility, when the cargo is warehoused by the carrier after discharge, and then released by the carrier’s agent to a third party that is not the lawful bill of lading holder. In these circumstances, the Court of Appeal in The Giant Ace had held that the one-year time-bar in article III rule 6 of the Hague-Visby Rules still applies.

Background and Court of Appeal decision

A previous article discussing the underlying facts of the case and the Court of Appeal’s judgment is here.

Essentially, a financing bank that was holding the bill of lading as security had been unable to collect payment from its customer. The bank accordingly brought a claim against the bill of lading carrier for mis-delivery on grounds that the cargo was wrongly delivered to a third party instead of to the bank, apparently in consideration for a letter of indemnity. However, the bank only commenced arbitration more than a year after the subject events. The bill of lading was governed by the Hague-Visby Rules.

The Court of Appeal observed that article III rule 6 of the Hague-Visby Rules is more broadly worded than the original article III rule 6 of the Hague Rules, and the traveaux preparatoires to the 1968 Visby protocol identify that a key purpose of the rewording was to give the text as wide as possible a bearing, and ensure the one-year time limit applies to mis-delivery claims. As the paradigm example of mis-delivery is one occurring ashore after discharge, it is to be inferred that the objective behind the Visby protocol amendment to article III rule 6 was to ensure the one-year time limit applies to all mis-delivery claims. Contrastingly, the Court of Appeal held that article III rule 6 of the original Hague Rules only applies to rights of action arising within the ‘period of responsibility’, otherwise article III rule 6 would be ‘a cuckoo in the Hague Rules nest’.

Supreme Court decision

In a judgment delivered by Lord Hamblen, the Supreme Court agreed that the one-year time limit in the Hague-Visby Rules applies to post-discharge mis-delivery claims. Accordingly, the carrier in The Giant Ace was successful at all four stages; before the tribunal, the Commercial Court, Court of Appeal, and the Supreme Court.

However, much of the Supreme Court’s judgment is devoted towards refuting the Court of Appeal’s findings regarding the position under article III rule 6 of the original Hague Rules. As with the lower court, the Supreme Court considered the respective wordings of the two provisions. Article III rule 6 of the Hague Rules 1924 states:

‘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.’

The corresponding article III rule 6 wording amended by the 1968 Visby protocol states:

‘…the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered.’

Overruling the Court of Appeal, the Supreme Court held that the original Hague Rules wording is also wide enough to apply to claims for mis-delivery arising after discharge has already taken place. This is apparent from the use of the words ‘in any event’ and ‘all liability’, which mean what they say and are clearly capable of applying to liabilities that arise otherwise than by reason of a breach of the rules.

The Supreme Court further observed that the article III rule 6 time limit is stated to run from delivery of the goods, namely the transfer of legal possession on completion of the contract of carriage, rather than physical discharge from the ship, which may be earlier. This is consistent with other Hague Rules provisions, which may also logically apply beyond the classic ‘period of responsibility’. For example, article III rule 3 concerns the carrier’s obligation to issue a bill of lading ‘after receiving the goods into his charge’, which may apply prior to loading if the issuance of a received-for-shipment bill of lading is required. Similarly, article III rule 1, setting out the carrier’s overriding obligation concerning the provision of a seaworthy ship, states that ‘the carrier shall be bound before and at the beginning of the voyage to exercise due diligence’. It is trite law that this obligation applies ‘independent of time’ and will often relate to acts or omissions prior to loading.

Their lordships acknowledged the commercial rationale for an all-encompassing time-bar, which affords the carrier finality, accelerates the settlement of claims, and protects carriers against stale and, correspondingly, unverifiable claims. A universal one-year time limit achieves international uniformity in relation to time limit periods, and obviates any need to delve into whether the court or tribunal seized with the dispute treats time limit issues as a matter of the procedural law of the forum or the substantive law of the contract. In contemplating the object and purpose behind article III rule 6 Hague Rules, the court observed that the fixing of a one-year limit was originally seen as a ‘big win’ for cargo interests and an all-embracing scope of application is consistent with that perception. Of course, if the one-year time-bar were not intended to apply to rights of action arising beyond the period of responsibility, then the carrier would not be bound by the article III rule 8 restriction on varying its obligations and would be free to contract for a shorter time limit.

It was also noted that uniform application of a one-year time limit affords certainty to parties giving security for cargo claims in the form of a letter of indemnity or guarantee. If no claim is brought or time-extension obtained before the anniversary of the claim, any security exposure may be assumed to have expired.

The Supreme Court was accordingly clear in its view that ‘there is no Hague Rules ‘nest’ which requires all the rules to apply only during the period of responsibility’. In all mis-delivery cases decided under the Hague or Hague-Visby Rules, therefore, a one-year time limit applies under English law irrespective of whether delivery is contemporaneous with discharge.

Thoughts for the future

The Supreme Court’s detailed rebuttal of the Court of Appeal’s analysis of the position under the Hague Rules, a regime which did not apply to the parties’ contract and was therefore irrelevant to their outcome, may be curious. In our previous article, it was observed that The Giant Ace is one of a spate of recent judgments involving a mis-delivery claim unsuccessfully pursued by a financing bank.

Most of the world’s ocean cargoes are discharged against letters of indemnity, in breach of the bill of lading contract; a situation we are led to believe will be resolved by ushering in a new age of electronic bills of lading. However, the retention by financing banks of bills of lading as a form of security would continue to prevent electronic bills being available in time to meet the ship, thereby disincentivising their widespread use. Whether the courts are actively encouraging banks towards alternative modes of security is a matter on which we must each form our own view, but it appears the wind is blowing in a clear direction.

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