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This case concerns the meaning of “loss or damage to or in connection with the goods” under Article IV r5(a) of the HVR, which, unless the value of goods has been declared by the shipper and inserted into the bill of lading, limits the amount of loss to the higher of 666.67 SDR per package or unit or 2 SDR per kilogram of gross weight of “the goods lost or damaged”

In the Thorco Lineage the High Court had to decide whether, when part of a cargo suffers minor physical damage, but economic loss is suffered in respect of the whole cargo, the economic loss is limited by reference to the weight of the physically damaged cargo.

This had been the controversial decision in 2008, in The Limnos [2008] 2 Lloyd’s Rep 166 which also decided that if there was no physical damage then there would be no limit on the economic loss claim. The bizarre consequence of that decision was that, where the economic loss was consequent on the physical damage, a small amount of physical damage could limit the economic loss to cargo to a very low amount of money but if there was no physical damage, then the economic loss claim would be unlimited.

The Thorco Lineage grounded in 2018 and the master signed a Lloyd’s Open Form (LOF) appointing salvors. Under a LOF both owners and cargo interests have to contribute to the salvage costs. Incorporated into a standard LOF are the Lloyd’s Salvage and Arbitration Clauses. These provide at clause 4.7 that until security is provided for their remuneration, salvors have a maritime lien on the salved property. Whilst only a small part of the cargo suffered physical damage following the grounding, all of the cargo was subject to the salvors’ maritime lien as a result of the salvage contract and cargo interests had to put up security to obtain possession of their cargo. Cargo interests claimed an indemnity from the carrier for this (on the basis of the carrier’s alleged breach of their seaworthiness obligations) plus the damage to the cargo and the on-shipment expenses of sending the cargo to its intended destination.

The Carrier argued, in accordance with the decision in The Limnos, it that should be able to limit its liability on the basis that under Article IV(5)(a) the limitation figure was calculated by reference to the weight of the part of the cargo that was actually physically damaged, and that the wording of the Article did not include goods that were only subject to economic loss. If correct, this would have enabled the Carrier to limit to an amount representing only a small part of the actual loss. If the weight of the whole cargo was taken into account, then the limit would exceed the loss and the cargo interests would be fully indemnified.

The judge concluded that “the goods” meant all the goods under the contract of carriage. The objective of Art IV(5)(a) was to establish the carriers’ limit of liability in respect of all of the goods. The judge rejected the argument that the Article did not include goods that were only subject to economic loss. He recognised that goods can be damaged either economically or physically and stated that there was no basis for treating limitation differently between the two. He decided that the 2008 case had been wrongly decided and held that Article IV r5(a) applies to claims in respect of economic loss to cargo not just physical damage. Further, claims for economic loss are not limited by reference to the weight of the physically damaged cargo. The limit is to be calculated by reference to the weight of the physically or economically damaged cargo in accordance with the amounts set out in Rule 5.

The judge refused the Carrier leave to appeal to the Court of Appeal and that means this judgment in unappealable.

Under the English law precedent system, a High Court decision does not bind other High Court judges, although it is persuasive. Therefore, we now have two conflicting decisions. In our opinion it is likely that any future hearing on the meaning of “goods” in relation to Article IV(5(a) will follow the judgment in the Thorco Lineage as it makes the most sense, for the reasons explained above.

For those Charterers who are carriers under the relevant bill of lading, this case means that their potential liability for economic loss where there is a minor amount of physical damage is much higher as they cannot now limit on the basis of that physical damage. However, comfort can be drawn from the fact that the Thorco Lineage rejects the position from The Limnos that where there was no physical damage to cargo, the claim for economic loss would be unlimited.

The MECO Group