The mandatory character of the convention and its exceptions: volume contracts

Autor:Michael F. Sturley
Cargo del Autor:Centennial Professor of Law, University of Texas at Austin.

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See note 1

1. Introduction

It is a genuine pleasure for me to be here in Madrid to discuss the Rotterdam Rules2at this distinguished International Congress held on the eve of the formal signing ceremony for the new regime. I extend my sincere thanks to my good friends and professional colleagues, Rafael Illescas Ortiz and Manuel Alba Fernández, for inviting me to participate here, and to their entire team for all of the hospitality that has been extended to me during this visit to Spain.

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It is appropriate indeed to hold this International Congress at Carlos III University. This campus is the professional home of Professor Illescas,3who served as the chairman of Working Group III (Transport Law) of the U.N. Commission on International Trade Law (UNCITRAL). Working Group III, under his gentle hand, assumed the primary responsibility for negotiating the Convention that will be known as the Rotterdam Rules. Professor Illescas also chaired the Commission session in the summer of 2008 during which the final text was adopted. Without his wisdom and patience there would be no Rotterdam Rules today.

It is also - for different reasons - particularly appropriate to discuss "the mandatory character of the Convention and its exceptions" in Madrid. During the long preparatory work on the Rotterdam Rules, that subject was discussed many times in many venues, but it was first raised in Madrid. When UNCITRAL originally conceived the project, it invited the Comité Maritime International (CMI) to prepare the preliminary draft text and the CMI appointed an International Sub-Committee on Issues of Transport Law to undertake that task.4Here in Madrid, at its final meeting before it completed a preliminary draft text, the International Sub-Committee first seriously debated the mandatory character of the instrument and the first proposal was made to provide special treatment for transactions governed by what ultimately came to be known as "volume contracts."5Within the broader Rotterdam Rules, article 80 (which provides for that special treatment) might fairly be called "the Madrid Rule."

Understanding the mandatory character of the Convention and its exceptions requires a review of some history. During the negotiation of the Hague Rules6in the early 1920s, freedom of contract was the principal focus of the debate. The single biggest question at that time was whether the new regime should be mandatory and, if so, to what extent. That debate was resolved with a commercial compromise whereby some transactions (generally7those evidenced by bills of lading) were subject to mandatory rules while other transactions (primarily those between a vessel owner and a charterer) enjoyed substantial freedom of contract.

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In subsequent decades, the liner trade showed less concern with freedom of contract. During the negotiation of the Hague-Visby8and Hamburg Rules,9neither freedom of contract nor the mandatory nature of the rules was a serious issue for discussion. The need for mandatory rules appears to have been simply accepted as a fundamental premise of the exercise. Indeed the Hamburg Rules, if they had been broadly accepted, would have extended the mandatory scope of the international regime and as a result further restricted freedom of contract.

During the negotiation of the Rotterdam Rules, freedom of contract finally returned to center stage. Although article 79 substantially continues the traditional "one way"10mandatory nature of the Hague,11Hague-Visby,12and Hamburg Rules,13at least for carrier liability, article 80 introduces a new commercial compromise to define when the parties to a contract of carriage will enjoy broader freedom of contract.

In this paper, I first review the history of freedom of contract in international maritime conventions, starting with the Hague Rules. I then examine the treatment of the subject in the Rotterdam Rules. I conclude with some consideration of the impact that the Rotterdam Rules’ freedom of contract is likely to have in commercial practice.

2. The mandatory character of the hague rules

In the early nineteenth century, carriers were subject to what has often been described (somewhat inaccurately) as "insurer" liability. A carrier was liable for all cargo damage unless it could prove one of a small list of exceptions.14

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Starting in the middle of the nineteenth century, however, carriers reacted to that responsibility by drafting their bills of lading to include broad exculpatory clauses that were designed to excuse them from liability for most cargo damage.15The nineteenth century British courts, in deference to "freedom of contract," would enforce these broad exculpatory clauses, even to the point of excusing carriers from liability for their own negligence.16European and Commonwealth countries generally followed the British example.17In the United States and some other countries, however, freedom of contract was limited: Carriers could not escape liability for the consequences of their own negligence or for their failure to furnish a seaworthy vessel.18Against this background, the U.S. Congress enacted the Harter Act19in 1893, adopting the famous compromise20that ultimately became the basis for the Hague Rules.21Several other countries followed the U.S. example during the next two decades and adopted Harter-style legislation.22When the International Law Association in 1921 sought to extend Harter-style rules on an international basis, the negotiations that ultimately produced the Hague Rules began. From the beginning, the principal debate was between those representing cargo interests, who sought mandatory rules that would impose minimum obligations on carriers for cargo loss or damage, and those representing carrier interests, who argued for unrestricted freedom of contract. At the first committee meeting to address the proposed new regime, for example, members began by considering four questions to establish the project’s broad parameters. The first of these was "[w]hether the freedom of contract on the part of the shipowner with regard to carriage of goods by sea should be absolute or should be limited by legislation?"23

At the Hague Conference itself, the debate between "freedom of contract" and "state control" occupied a "preliminary meeting" on the Monday of the

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conference week,24all of the first day’s proceedings on the Tuesday,25and part of the second day’s proceedings on the Wednesday.26To provide some perspective on the significance of the debate, it is worth noting that - once the freedom-of-contract issue was resolved - the adoption of the substantive rules was completed by the Friday (two days later). The shipowners argued that they and the cargo owners should be "left absolutely free to make their own bargains in any form they please, provided the terms agreed are stated clearly and are not opposed to the general rules of morality."27Cargo interests responded that "there is no freedom of contract"28because shipowners offered only their standard terms with exculpatory clauses to protect them from every risk. The core debate about whether there should be any mandatory legislation was then reprised in the discussion of various substantive provisions.29The Hague Rules ultimately adopted a compromise whereby mandatory rules were imposed in some circumstances but freedom of contract was preserved in other circumstances. The key discussion in these negotiations began with the arguments of Danish shipowner A.P. Möller at the CMI’s London Conference - where the Hague Rules received their final revision before the diplomatic conference at which they were formally adopted.30He opened his remarks with a dramatic but effective analogy:

I am a tramp shipowner, and . . . my feelings are naturally coloured by my calling . . . . I would also ask your pardon if in the following remarks I should make some criticisms . . . . I would ask them to be attributed to the natural feeling of impatience of the man who is receiving medicine when there is nothing wrong with him.31He went on to explain that the impetus for the new Rules came from "the position as regards liner bills-of-lading."32It was common knowledge that "the liner bill-of-lading is full of clauses in small print that few people have the good eyes to read and no one has time to read. Merchants could justly say

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that there was no freedom of contract in liner bills-of-lading, and so far as I understand it the whole agitation for reform arose through that circumstance."33But in his field, the situation was completely different: "Tramp shipping is done on a basis of free contract. The Bill-of-Lading is not the primary document; the primary document is the charter party, and the charter party is gone through by both parties and signed by both parties."34The same sorts of concerns were behind the discussions of article 1(b),35 which limited application of the Hague Rules to shipments under bills of lading or similar documents of title; article 1(c),36which excluded live animals and deck cargo from the Hague Rules’ coverage; article 1(e),37which limited the Hague Rules to the tackle-to-tackle period; article 6,38which permitted freedom of contract for non-commercial shipments; and article 7,39which preserved freedom of contract during the periods before loading and after discharge.40

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In the end, the negotiators reached the now-familiar commercial compromise whereby the shipowners agreed to surrender "freedom of contract" in liner trades during the tackle-to-tackle period for most shipments, but significant opportunities remained to...

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