The Rotterdam Rules - an update

It will be recalled that a new convention on the carriage of goods by sea, the Rotterdam Rules, was introduced in September 2009. At that time 23 states signed the convention. Signing is, however, a non-binding formality; it takes ratification for states to be bound by a convention. So far only two countries (Spain and Togo) have ratified, while 20 ratifying states are required for the convention to enter into force. It is believed that it will take ratification by some of the major maritime or trading nations – such as the US or China – for the ratifying process to gain momentum. There are strong indications that the US will ratify, although the position of China is thus far uncertain.

As early as 2009 the Norwegian and Danish governments had assigned their respective Maritime Law Commissions with the task of producing draft legislation based on the Rotterdam Rules, as well as giving recommendations as to whether the respective countries should ratify. The report by the Norwegian Commission (on which the author served as Secretary) was handed to the government in April this year, and the Danish report was handed over in June.

Despite some critical remarks concerning the complexity of the rules, both reports conclude that the rules are generally suitable to form the basis of new legislation, which would then replace the current chapter on liner transport (Chapter 13) in the respective Maritime Codes. Moreover, if the draft legislation is enacted it will apply to national as well as international contracts of carriage (the Rotterdam Rules only apply to the latter).

On the important point of ratification, both the Norwegian and Danish reports highlight the main ambition of the convention: the creation of international uniformity through replacement of the current fragmented system of the Hague, Hague Visby and Hamburg Rules. States however face a dilemma: by deciding to take an active role and ratify in the belief that other states will follow suit, a state risks – if other states fail to ratify – becoming party to a convention that merely exacerbates the current fragmented situation. On the other hand, by taking a wait-and-see position, a state may assist in causing the ratifying process to lose momentum if other states do the same thing.

On this question the Norwegian Commission takes a conservative approach by recommending that Norway should only ratify if the US or some major EU states have already ratified. The Danish Commission makes no similar reservation as it is acting on the assumption that the US will ratify, but in reality this seems to mean the same thing.

The report by the Norwegian Commission is currently being circulated as part of a public hearing with a deadline in October this year for input to the Ministry of Justice from the various interested parties. Thereafter the Ministry will decide whether, and in what form, the draft legislation will be put before Parliament. But as already indicated, the most important part of this process relates to international considerations, with the key question being whether the US will ratify.

While awaiting the answer to this question, we take this opportunity to review some of the main elements of the draft legislation as based on the convention:

• The scope of the rules is more extensive than the current law in that the rules cover door-to-door transports containing a sea leg. The solution is motivated by practical needs: container transport is often performed door-to-door under a single transportation      contract, hence it makes sense to have one set of rules applying to the entire contracted transport. On the other hand, such a door-to-door solution  gives rise to potential complications vis-à-vis conventions and national law applying to other modes of transport than sea carriage (the CMR relating to road transportation, the CIM relating to rail transportation, etc.). The Rotterdam Rules resolves some, but not all, of these conflicts.  The law Commission has provided gap-filling guidelines concerning areas not covered by the Rotterdam Rules.

• The rules contain provisions to facilitate the future adoption of electronic cargo documents.

• The rules contain provisions intended to address current problems with delays in the delivery of goods at  destination caused by lack of production of original cargo documents  (bills of lading). The rules introduce a new kind of cargo document which,  in given circumstances, allows for delivery of goods without production of original documents.

• Certain rules are introduced to allow the cargo owner to give instructions relating to the goods while en route.

• The limitation on liability for cargo damage is somewhat increased compared to the current law (from 2 SDR per kilo/667 SDR per unit to 3 SDR per kilo/875 SDR per unit) while the current exception from liability for nautical fault is abolished.

• The mandatory aspect of the rules is somewhat eased by allowing freedom of contract in so-called volume contracts (service contracts). The background to this is a desire to enable shippers with large quantities of goods to negotiate individual long-term contracts      with carriers, in order for example to reduce freight rates. Currently such volume contracts exist primarily in the US liner trade but their use is likely to expand to other areas.

Due to the effort to achieve modernization, the Rotterdam Rules are more extensive than the existing conventions. Hence the draft legislation is also more extensive than the equivalent provisions in the current Maritime Code. On the other hand the Rotterdam Rules are not intended as a complete code covering all aspects of sea carriage, which means that the rules in some areas must be filled in by national law. In these areas the law Commission has mainly retained the existing rules of the Maritime Code. Examples of such areas include: a carrier’s right to lien the goods; a shipper’s liability for non-delivery of goods; a carrier’s right to pro-rata freight in case of interruption of the carriage; the right of each party to terminate the contract in case of material breach by the other.