4 th Global Shipping Summit 23-24 October 2009, Dalian, China

1. 4th Global Shipping Summit23-24 October 2009, Dalian, China The Rotterdam Rules: For or against them? Dr. Mahin Faghfouri

2. UN Convention on Contracts for the International Carriage of Goods Wholly or Partly By Sea: The Rotterdam Rules • Introduction • What is covered - Multimodal application III. Substantive liability regime: A. Obligations / liability of the carrier B. Obligations / liability of the shipper C. Position of freight forwarders D. Terminal operators … IV. Mandatory nature: “Volume contracts”

3. I. Introduction The Rotterdam Rules: • adopted by the United Nations General Assembly in December 2008 • opened for signature in a signing ceremony on 23 September 2009 in Rotterdam, the Netherlands • States will now consider whether or not to ratify • 20 ratifications required for the Convention to enter into force

4. The Rotterdam Rules: someindustry views Strong lobbying already taking place: • Carrier representatives, e.g. ICS, WSC, ECSA, BIMCO express their strong support • Shippers interests, e.g. European Shippers’ Council (ESC) express strong opposition • Freight forwarders & MT interests e.g. FIATA, CLECAT, IMMTA express serious concerns

5. II. What is covered The Rotterdam Rules • apply to contracts for carriage of goods by sea and multimodal transport includingan international sea leg • establish a mandatory liability regime, but permit extensive freedom to derogate contractually • include 96 articles in 18 chapters

6. And: • cover issues not currently subject to uniform liability regime • many of the provisions are lengthy and highly complex • based on maritime concepts and existing maritime liability regimes, but with significant changes in structure, substance and drafting • provide for electronic communication & electronic alternatives to traditional paper documents

7. Multimodal application The Rotterdam Rules: • extend maritime liability regime to MT involving a sea leg • highly controversial throughout the negotiations • Concerns as to: - unsuitability of the liability rules to apply to MT - increasing fragmentation of the law applicable to MT - possible conflict with unimodal conventions

8. Multimodal application Liability system:Not uniform(art. 26) • Certain mandatory provisions in hypothetically applicable unimodal conventions take precedence Door-to-door responsibility? • Carrier may only be responsible - During the period of responsibility as contractually defined - For some of a carrier’s functions Problem for MT shipper!

9. III. Substantive liability regime • Obligations and liability of the carrier(ch. 4 & 5) Obligations include duty to: • carry and deliver goods to the consignee (art.11) • care of cargo during period of responsibility (art. 13(1) & 12) • exercise due diligence to make and keep the ship seaworthy throughout the voyage(art.14)

10. Carrier’s liability for loss, damage or delay: • Is based on fault (art. 17) • Long list of exceptions to liability (art. 17(3)) somewhat based on Hague Visby Rules but with significance differences including: deletion of the exemption for “nautical fault” But: new rights and exemptions Liability is limited: 3 SDR per kg. & 875 SDR per pkg (art. 59)

11. Burden of proof rules: changed favouring the carrier Loss due to combination of causes: Carrier may be liable for part of loss while under existing conventions would be liable for the whole loss Important shift in risk allocation • Change in burden of proof rules: to balance elimination of “nautical fault” exemption!

12. Furthermore carrier has the right to: • Deliver goods without presentation of negotiable b/l if it contains statement to that effect (art. 47(2)) undermining document of title function of the b/l • Dispose of undelivered goods at the expense and risk of the consignee, and • Would only be liable for loss/damage if claimant proves carrier failed to take reasonable steps to preserve the goods and knew or ought to have known that the loss would result from its failure to take such steps (art. 48)

13. B. Shipper’s obligations and liability(chapter 7) Obligations and liability: • more extensive and detailed than in existing conventions Liability: based on fault(art.30) • Must deliver goods in such condition that “they will withstand the intended carriage … and… will not cause harm to persons or property”(art. 27) • Provide timely information / instructions / documentations (for proper handling/carriage & compliance with laws & regs.)(art. 29)

14. Strict liability:(art.30(2)) • Provide accurate information: contract particulars(art. 31) • Dangerous goods: duty to inform carrier & mark/ label dangerous goods (art. 32) N.B: “documentary shipper” liable in addition to shipper(art. 33) Shipper may be responsible for some of carrier’s functions (art. 13(2)) Obligation to take delivery (ch. 10) Multiple causes and burden of proof

15. Shipper’s obligations / liability: mandatory • may not be contractually excluded or limited (art. 79(2)) • substantive provisions more onerous to shippers, and • no monetary limitation on shipper’s liability • Arguments:modern shippers are more sophisticated? But: special rules for sophisticated parties: Freedom of contract for “Volume contracts”: application of the Rules not mandatory but by default

16. C. Position of freight forwarders Freight forwarders as: • Carriers: vis-à-vis small shipper (subject to liability regime of carriers) • Shippers: vis-à-vis unimodal carrier, e.g. ocean carrier (subject to liability regime of shippers)

17. D. Terminal operators… Terminal operators, stevedores, warehousemen, cargo terminals engaged in logistics operations… • As maritime performing parties are Subject to liability regime of carriers • Inland carrier: a maritime performing party if performs or undertake to perform activities exclusively within a port

18. IV. Mandatory nature: “Volume contracts” The Convention primarily establishes mandatory liability rules both for carriers and shippers(art. 79) So: unlike the existing conventions it isnot only the carrier who is subject to mandatory minimum standards of liability but also the shipper And:unlike carrier the shipper’s liability is not limited

19. “Volume contracts” (= service contracts) are exempt from mandatory application of the Convention So: its provisions may be modified or contracted out under certain condition New approach: highly controversial Position under the existing transport conventions: restriction of freedom of contract to protect small parties against unfair contract terms

20. Definition of “volume contracts”:extremely wide may cover almost any contract of carriage in liner trade And: No minimum quantity of cargo required Apparent rationale: “volume contracts” are contracts between sophisticated parties of equal bargaining power!

21. Potential consequences • Volume contractsbetween parties of equal bargaining power: - No general concern, except for protection of 3rd parties • Volume contracts between parties of unequal bargaining power: small shipper & large container carrier in liner trade: - Potential for abuse! - Freely negotiated? Or contract of adhesion?

22. Potential consequences • Marginal application of the Convention • “Volume contracts” may be used as devices to circumvent application of the Convention • Future extensive use of volume contracts at global level could mean effectively: no international uniformity

23. Conclusions!

24. For further information see: UNCITRAL documents: • Text of the Convention and statements by some industry representatives: www.uncitral.org, UNCTAD documents: • UNCTAD Commentary on earlier draft of the Convention (UNCTAD/SDTE/TLB/4) and Freedom of Contract and Carrier Liability (UNCTAD/SDTE/TLB/2004/2): www.unctad.org/ttl/legal IMMTA submission to UNCITRAL: A/CN.9/WG.III.WP.97 • See also: Mahin Faghfouri, International Regulation of Liability for Multimodal Transport: www.immta.org