Impact of Changes Brought by Rotterdam Rules - Research Paper Example

Table of Contents Table of Contents 2 3 The Rotterdam Rules 4 Main Features of the Rotterdam Rules 4 Impact on Carrier 5 Maximum Liability and Door-to-Door Cover 5 Liability for Delay 7 Freedom of Contract 7 E-commerce 8 Nautical Fault Defense 8 Seaworthiness of Ship and Cargo 8 Extension in Time to File Suits 9 Jurisdiction 9 Carriers Defenses for Liabilities 9 Impact on the Performing Parties 10 Impact on Insurer 11 Conclusion 12 Bibliography 13 Abstract The convention for the International Carriage of Goods Wholly or Partly by Sea or the Rotterdam Rules are a much awaited necessary step to incorporate the international shipping law into the modern period. The Rotterdam Rules will replace the COGSA Law adopted in United States and the Hague-Visby Law and the Hamburg Law adopted by various nations to provide a unified international law for transport by sea wholly or partly. The paper deals with the major changes in the rules in the Rotterdam Rules in comparison with the other laws. It discusses the major changes and their impact on the various parties involved, namely carrier, performing parties and the insurer. The paper tries to explain the impact with respect to each of the changes. The evidence and examples have been analyzed which are in turn taken from credible sources and authors. It is being hoped that after going through the paper, the reader will have a clear view about the impacts of the Rotterdam Rules and then might be able to conclude the effects in the future. The Rotterdam Rules Rotterdam Rules is the United Nations Convention for the International Carriage of Goods Wholly or Partly by Sea (Lanan). It was adopted on 11 December, 2008 by the UN General Assembly and was signed on 23 September 2009 and was signed initially by 16 participating countries (Lanan). Later on other countries also contributed bringing the number up to a total of 21 (Lanan). Main Features of the Rotterdam Rules Existing expansion to include door-to-door transport and extends the carriers responsibility for goods from the point of time when goods are received to the point of time when goods are delivered. (UN). Extension of freedom of contracts to include volume or service contracts (UN). Elimination of the "Nautical Fault Defense" under which a carrier was spared from claim of liability on goods damaged due to navigational fault (UN). Imposition of liability on carrier to ensure seaworthiness of vessel throughout the journey (UN). Increase in the limit of liability to 875 SDRs per package and 3 SDRs per kilogram (UN). Imposition of liability on carriers for delay in delivery to an amount equal to "2.5 x the amount of freight of the cargo in question" (UN). Extension in the time to suit period by the cargo claimant against the carrier to 2 years (UN). Expansion of shipper's obligation and liability in terms of information availability for hazardous cargo (UN). It supports widely the use of electronic commerce (UN). Containerization plays an important role in Rotterdam Rules and in depth rules with details are provided (UN). Carrier's employees, agents and independent contracts are allowed to have the same rights and obligations as enjoyed by the carrier as long as they are deemed to be "Maritime performing parties" (UN). We will now discuss the impact of this new convention with respect to the carriers, the performing parties and the insurer. Impact on Carrier The new Rotterdam Rules 2009 has a great impact on the carriers. This can be seen with respect to the changes in the provisions of liability and obligations. According to the Rotterdam Rules the overall liability of the carrier has been increased exponentially. Under the convention, there will be a "uniform" liability regime instead of a "network" liability regime as long as there does not arise any conflict with any other international law. The various effects are discussed here as under. Maximum Liability and Door-to-Door Cover The convention has increased the maximum liability levels to 875 SDRs ($ 1376) per package or 3 SDRs ($ 4.5) per kilogram whichever is higher on a door-to-door basis as opposed to the previous levels of 666 SDRs ($ 1018) per package or 2 SDRs ($ 3) per kilogram whichever is higher on a tackle-to-tackle basis (UN) (Lex Meracatorica, 1968). This gives an increase of 209 SDRs ($ 358) per package or 1 SDR ($ 1.5) per kilogram which represents approximately 33% and 50% respectively on the sea leg of the transport and a further liability on the inland part of transport which is currently not governed by any other law (International Monetary Fund, 2010). This is an astronomical increase in the liability for any carrier. Also, under the network liability regime the maximum liability on road transport is $4.41 per kilogram regardless of the number of packages which comes to approximately $ 44,100 per 10,000 kilograms containing 1,000 packages whereas the Rotterdam Rules imposes a liability of $131,250 (Lex Meracatorica, 1968) (UN) (International Monetary Fund, 2010). This change in the liability will surely alter the relationship dynamics between the shipper, carrier, performing parties and insurer (Lanan). LIMITS OF LIABILITY IN THE CARRIAGE BY SEA REGIMES HGR 1924 HVR 1986 HMR 1978 RTR 2008 Per Package/ Unit Per Kilo 100 666.66 SDR 835 SDR 875 SDR 2 SDR 2. 5 SDR 3 SDR HGR: Hague Rules 1924 HVR :Hague - Visby Rules 1968 HMR: Hamburg Rules 1978 RTR: Rotterdam Rules Source: (Lex Meracatorica, 1968), (UN) Liability for Delay This law states that if a carrier delays in the delivery of goods then the carrier is liable to pay 2.5 times the freight of the cargo in question (UN). This type of liability was not there in any of the international laws. The law says that if a carrier delays the delivery and the cause of delay is not in the article 17.3 of the Rotterdam Rules then the carrier is liable to pay the amount. In order to claim the liability the claimant just needs to prove the late delivery due to fault on part of the carrier (UN). The carrier is also responsible is the delay is caused due to any of the performing party (UN). This brings out a more serious relationship between the carrier and the performing parties. Further the Rotterdam Rules is very ambiguous with respect to rules pertaining to delay as the language suggests that shipper or consignee might not pay the freight to the carrier on delay of delivery (Davis, 2009). However, article 42 strongly says that the carrier cannot withhold delivery due to non-payment of freight (UN). So in such a case if a container contains the goods of 10 parties and the whole container is delayed. Then the carrier will have to deliver the goods, may not receive the freight and pay the consignees an amount equal to 2.5 times the freight they were due for (Chami, 2009). This law seems quite unfair to the carriers as they will incur costs, will not receive their pay and further be subject to statutory penalty. This will de motivate the carriers to use other means and incur extra costs in order to make good their promises to avoid unnecessary law suits as they will be penalized anyways if they get delayed (Chami, 2009). Freedom of Contract This is a provision in the Rotterdam Rules wherein a carrier may make up a contract suiting his needs. Under this, the carrier may accept or decline to any of the provisions of liability mentioned in the Rotterdam Rules (UN). This implies that the carrier may charge extra costs to cover the full Rotterdam Rules liability from a consignee (The West of England Ship Owners Mutual Insurance Association, 2009). This has been left for the carrier to decide. Also a number of contracts could be made between the different parties involved (The West of England Ship Owners Mutual Insurance Association, 2009). And applying the right combination a chain could be formed which will provide for a circular indemnity clause in the volume contracts which will cover the needs of each party involved (The West of England Ship Owners Mutual Insurance Association, 2009). E-commerce E-commerce is an integral part of the Rotterdam Rules (UN). It supports widely the use of dematerialized documents and use of technology in the supply chain and operations (UN). The carrier can now get rid of the paperwork and so the cost may reduce (Canadian International Freight forwarders Association, 2009). However, the initial cost of setting up a complete database management system in place will have to be borne by the carrier but the results and profits of this will come to the carrier in the future (Canadian International Freight forwarders Association, 2009). Nautical Fault Defense Rotterdam Rules eliminate the "Nautical Fault Defense" clause of the earlier rules (UN). Under this rule, the carrier was exempt from liability for damage of goods if there was a delay due to faulty navigation (Lex Meracatorica, 1968). However, Rotterdam Rules now exclude that clause and so the carrier will be liable to pay up the same damages as in any other case of liability (UN). It implies that it is the duty of the carrier to ensure no fault and any operational fault is not for the customer (UNICTRAL, 2007). So, this additional liability again increases the burden on the carrier (Chami, 2009). Seaworthiness of Ship and Cargo In the earlier rules, it was said that the carrier should ensure the seaworthiness of the ship and cargo at the time of departure and will be held liable for any default (Lex Meracatorica, 1968). In the Rotterdam Rules, it has been increased by saying that the carrier should ensure the seaworthiness of the ship as well as the cargo for the entire journey and can be held liable for any damages (UN). This again increases an obligation of the carrier and so he must have a proper checking system in place to be saved from any such liability (UK P&I Club, 2009). Extension in Time to File Suits Earlier rules allowed a time period of 1 year to claim suits whereas Rotterdam allows a time period of 2 years to file suits (UN). By this, the claimants will have more time to collect evidence and file a much stronger case (Encyclopedia, 2009). It now becomes extremely difficult for the carrier to win the suits (Lanan). The carrier will now have to be more careful and ensure as minimum a loss as possible otherwise he might fall in a big trouble to win the case (Davis, 2009). Jurisdiction Under the Rotterdam Rules the claimants have the option to choose from a number of available areas of jurisdiction which was previously decided by the carrier (UN). This new clause increases the uncertainty on the part of the carriers (Ramberg, 2009). The carriers might be held responsible in a jurisdiction which is new or far away from the location of the carrier (Ramberg, 2009). This in turn might increase the legal costs of the carrier (Canadian International Freight forwarders Association, 2009). Carriers Defenses for Liabilities The Rotterdam Rules have included more defenses available to carrier for liability claims in case of loss or damage during the term of contract (UN). This provides a relief to the carriers as the defenses included is more up to date and inserted by keeping the current scenarios in mind (Ziel, 2009). These defenses will help the carrier to escape from the liabilities caused by events which is much more common in today's world (UK P&I Club, 2009). Impact on the Performing Parties The "Himalaya Clause" implies that the performing parties like the servants, agents and sub-contractors do not have any liability for cargo interests and if they are found to be liable then they may enjoy the same benefits as that of the carrier has under the bill of lading (SKULD, 2008). Under this the claimants cannot claim upon the carrier for damages caused due to the deeds of the performing parties. Any of the previous rules did not deal with this clause especially in the case of independent contractors (Lex Meracatorica, 1968). This led to losses on part of the consignee as they were not able claim damages incurred by them (Davis, 2009). The Rotterdam Rules lay out that the performing parties are under the same obligations and have the same liabilities as that of the carrier (UN). It expressly deals with this issue. This increases the obligations of the performing parties (Canadian International Freight forwarders Association, 2009). As the performing parties are now included in the definition of a carrier, they have a much more increased liability and obligations (UN). They are now under the same liabilities and obligations and enjoy the same benefits as the carrier as discussed in the paper earlier (UN). They have the same liability limits, jurisdiction and other obligations pertaining to the seaworthiness of the ship and cargo and all other applicable rules (Atkinson, 2009). However, due to extension in the freedom of contracts under the Rotterdam Rules the performing parties and the carriers may opt-out of the general rules laid down and devise a new contract to exclude from such liabilities (Atkinson, 2009). This of course will impact the relationships between the carrier and the performing parties (SKULD, 2008). Impact on Insurer The Rotterdam Rules have increased the liability of the carrier as well as that of the performing parties to a great extent. The damages and losses are more closely looked at and also the limit of liability has been increased. This increases the burden on the carrier and performing parties. In order to safeguard their interests the carriers and performing agents take the help of the insurance companies to indemnify them against any losses (Review, 2009). Earlier the insurance companies provided insurance on the cargo sent by sea for the period they were at sea (European Shippers Council, 2009). But since the liability of the carriers have increased beyond the sea as well, i.e., to the point of time the delivery has to be done, the insurance will have to modify their terms and the increase of cover up to that period (European Shippers Council, 2009). This increases the risk exposure of the insurance companies as well. Further the limit of liability has also been increased as shown by calculations earlier. So, the amount due on any loss has also increased which means the claims will be higher and so the loss for the insurance companies will be higher in the time of any such claim (Gaskell, 2009). However, the insurance companies can now exercise its rights on the carriers for them to maintain the required level of due diligence as stated out in the convention. This will tend to provide as a cushion as the rules are expected to limit the amount of losses (ISF, 2009). Further the extension in the time to file a suit to 2 years also adds an extra burden on the insurer. He now has to keep the records for a longer period of time (Ziel, 2009). However, all these burdens on the insurance companies leads to higher premium spend by the carriers. This ultimately sets off the burden with greater inflows (Davis, 2009). Conclusion The Rotterdam Rules have increased the liability of all the parties mentioned above. As compared to the previous laws there has been an increase in the burden of carriers, performing parties and insurers in terms of obligations and liabilities. The question that is now poised is "Is the law fair to the carriers, performing parties and insurers" and "Is it economically viable" and "Will it enhance trade" These questions require an answer in order to determine the success of the regime in the future. I hereby conclude by saying that the Rotterdam Rules did a very good job in safeguarding the interests of the consignee but increase in the burden to this extent might not be justified. Bibliography Atkinson, C. N. (2009, May 18). United Kingdom, Transport, The Rotterdam Rules: New Liabilities for Port Operators. Retrieved January 12, 2010, from MONDAQ: http://www.mondaq.com/article.asparticleid=79494 Canadian International Freight forwarders Association. (2009). CIFFA submission to Transport Canada Commentary on the Rotterdam Rules. CIFFA. Chami, D. E. (2009). Obligations of the carrier. Buenos Aires: University of Buenos Aires Law School. Davis, C. M. (2009). The Rotterdam Rules : Changes from COGSA. Encyclopedia. (2009). The Rotterdam Rules - How are they different from the Hague Visby Regime Retrieved January 12, 2010, from Encyclopedia.com: www.encyclopedia.com/doc/1G1-201558152.html European Shippers Council. (2009, June 23). Press Release. Retrieved January 12, 2010, from ESC: http://www.europeanshippers.com/docs/press/090623pr.jsp European Shippers Council. (2009). View of the European Shippers' Council on the Rotterdam Rules. ESC. Gaskell, P. N. (2009, October 14). UQ public lecture to investigate impact of new sea carriage rules on Australia - TC Bierne School of Law. Retrieved January 12, 2010, from The University of Queensland: http://www.law.uq.edu.au/uq-public-lecture-to-investigate-impact-of-new-sea-carriage-rules-on-australia International Monetary Fund. (2010, January 12). SDRs per currency unit and currency unit per SDRs. Retrieved January 12, 2010, from International Monetary Fund: http://www.imf.org/external/np/fin/data/rms_five.aspx ISF. (2009). Year in Review. Retrieved January 12, 2010, from International Chamber of Shipping: http://www.marisec.org/ics-isfkeyissues/text.htm Lanan, K. Launch of the Rotterdam Rules. Lex Meracatorica. (1968). The Hague-Visby Rules - The Hague Rules as Amended by the Brussels Protocol 1968 Multilateral. Retrieved January 11, 2010, from http://www.jus.uio.no/lm/sea.carriage.hague.visby.rules.1968/doc.html Ramberg, J. (2009). Global Unification of transport law : A hopeless task Retrieved January 12, 2010, from HEINONLINE: http://heinonline.org/HOL/LandingPagecollection=journals&handle=hein.journals/psilr27&div=39&id=&page= Review, A. I. (2009). Global News - Rotterdam Rules may increase terminal Operators liability. Asia Insurance Review . SKULD. (2008). Himalaya Clause - SKULD. Retrieved January 12, 2010, from SKULD: http://www.skuld.com/templates/Page.aspxid=2966 The West of England Ship Owners Mutual Insurance Association. (2009). Rotterdam Rules Review. UK P&I Club. (2009). What impact will the Rotterdam Rules have on your liability UK Defence Club. UN. (n.d.). The Rotterdam Rules 2009. UNICTRAL. (2007). United Nations Commission on International Trade Law Fortieth session Vienna., (pp. 41-45). Ziel, G. (2009). The Rotterdam Rules. Texas: Texas International Law Journal. Read More