Trafigura Pte Ltd v TKK Shipping Pte Ltd

Under Article IV r.5(a) of the Hague-Visby Rules, “goods lost or damaged” may include goods economically damaged by a maritime casualty. The phrase must be construed in the context of carriage by sea and consistently with the earlier reference to loss or damage to or in connection with the goods.

Where a casualty causes the cargo’s value at the discharge port to diminish through salvage charges or on-shipment costs, the carrier’s liability is limited by reference to the weight of the economically damaged cargo, including the whole cargo where the whole cargo suffered that diminution. The court declined to follow The Limnos on the contrary construction.

The claimant sought determination under section 45 of the Arbitration Act 1996 of a question arising in an arbitration concerning a bulk cargo of zinc calcine carried under a bill of lading incorporating the Hague-Visby Rules.

Following an engine failure and grounding, the cargo incurred salvage charges and on-shipment costs. Most of the cargo was not physically lost or damaged, although the claimant’s liability for salvage and the on-shipment expenses reduced the cargo’s value at the discharge port.

The central issue was whether Article IV r.5(a) limited liability by reference to the weight of the whole cargo, the physically lost or damaged cargo, or not at all.

1. Construction of the Hague-Visby Rules. The court applied the international approach required by Articles 31 and 32 of the Vienna Convention on the Law of Treaties: ordinary meaning, context and the Convention’s object and purpose, with restrained use of the travaux préparatoires.
2. Meaning of “goods lost or damaged”. In the context of carriage by sea, goods may be damaged physically or economically. A diminution in value caused by a casualty, including salvage charges, on-shipment costs or delay, may constitute economic damage. The words at the end of Article IV r.5(a) define or quantify the limit and must be read consistently with the earlier words imposing a limit on liability for loss or damage to or in connection with the goods.
3. Primary conclusion. The cargo was economically damaged because its value at the discharge port was diminished by salvage charges and on-shipment costs necessitated by the casualty. The defendant’s liability for both heads of loss was therefore limited to 2 SDRs per kilogramme of the entire cargo. That limit exceeded the defendant’s liability.
4. The Limnos. The court respectfully disagreed with Burton J’s conclusion that economic depreciation did not amount to damage and with his construction limiting “the goods” to physically damaged goods. The decision was wrong and was not followed.
5. Alternative grounds. Although unnecessary to the primary conclusion, the court held that the imposition of a maritime lien for salvage would amount to damage to the cargo owner’s proprietary or possessory interest. It also held, on the alternative assumption that only physically damaged goods counted, that the minimum necessary linkage would be that the physical and economic loss arose from the same breach of contract. The primary conclusion made those alternatives immaterial to the order.
6. Order. Counsel were directed to agree an order giving effect to the conclusion in paragraph 134.