The Rotterdam Rules – yet another failed attempt of replacing the Hague-Visby Rules?

| Insight

The announcement of the Rotterdam Rules in December 2008 was met with optimistic signs that a new and modern international legislation regarding carriage of goods by sea was going to surface. This would mean an actual replacement of the Hague-Visby Rules, an international convention that has been in force with few amendments since 1924.

However, ten years later the question to be asked is whether this was yet another failed attempt? A sufficient number of countries are yet to ratify the Rotterdam Rules, and an earlier optimism of the US ratifying the convention appears to be frustrated, with US being less interested in this convention – at least under its current administration.

Since its inception in 1924, and later amendments in 1968, the Hague Visby rules have earned the status as the prevailing set of terms and conditions for transporting cargo by sea. The Hague Visby rules are without doubt the dominating standard terms and conditions, and they are generally incorporated into charterparties and bills of lading worldwide.

However, the Hague Visby rules have been under criticism from cargo interests for decades, regarded as unbalanced and too favourable for the carrier. The biggest points for criticism have always been the exemption from liability for faults in the navigation of the vessel and the relative low limitation amounts. Failed attempts of replacing the Hague Visby rules have been made in the past, e.g. the convention named «The Hamburg Rules», a convention which came into force in 1992, fourteen years after its announcement. Still, the Hamburg Rules have not been ratified by states representing any large shipping or cargo interests.

With this as a backdrop, the announcement of the Rotterdam Rules in December 2008 was received with great interest and hope within the maritime sector. The Rotterdam Rules were widely announced as the new transport liability regime, and the aim was to replace the Hague Visby Rules as the prevailing liability convention, and becoming the new and improved legal regime on both maritime and combined transports.

The biggest changes from the Hague Visby rules are probably the following items; Firstly, it covers not only transport by sea, as it contain a complete set of rules that may be used for combined transports as well, where parts of the transportation of the cargo is performed by road or rail. Where the Hague Visby rules have been said to cover the cargo from “tackle to tackle”, the Rotterdam rules cover the cargo from “door to door”. Secondly, the mentioned exemption from liability for nautical errors has been removed. Thirdly, the limitation amounts have been increased from 667 SDR per unit or 2 SDR per kilo to 875 SDR per unit and 3 SDR per kilo. Finally, the time bar period for cargo claims has been extended from one to two years.

In reality, this means that if the Rotterdam rules replace the Hague Visby rules, the division of liability between the cargo insurers and the P&I insurers would shift towards the latter covering a bigger part of the liability for cargo damage than today, mainly because of the mentioned removal of the exemption from liability for nautical errors and the increase of the limitation amounts.

The Rotterdam Rules opened for signing in September 2009. Since then, 25 countries have signed the convention, including the USA, the Netherlands, Greece, France, Denmark, Sweden and Norway. However, the convention does not enter into force until one year after ratification by the twentieth UN Member state. The process of ratification takes time, and depends on political willingness and sufficient priority in the signatory states. Presently, only Spain, Togo and Congo have ratified the convention.

Norway has appointed a law commission to review the Rotterdam Rules and its possible ratification, and the commission was in principle in favour of incorporating the Rotterdam Rules, but recommends that Norway does not ratify the convention before the US or any larger EU states do. Incorporating the Rotterdam Rules would mean that Norway has to resign from the Hague Visby Rules, something the commission advises against, before it is certain that the Rotterdam Rules are to be internationally accepted as the new international instrument governing transport of cargo by sea.

It is probably fair to say that all potential member states have been concerned with whether the US, and to some extent China, would ratify the convention or not. As one of the largest importer and exporter of commodities in the world, the US is probably leaning towards the cargo interests’ side than the Owners’ side. For this reason, the US expressed a great interest in developing a new set of legislation that would cover a “door to door” transport, and the US did take a leading role in the negotiation of the convention the six years it took until it was ready late 2008. The US is not a member to the Hague Visby rules, but the general feeling has been that the US has been much more willing to ratify the Rotterdam rules than it ever was for the Hague Visby rules.

However, almost ten years have passed without anything happening with respect to US ratification. Therefore, it is today much more doubtful that this convention will reach the political agenda and awareness in the US. For the US to ratify a convention, the President must obtain advice and consent of the US Senate, which requires two-thirds approval in the Senate. To date, the President’s office has not sent the Rotterdam Rules to the Senate for consideration, which is believed to be due to some US port authorities and terminal operators opposing ratification. This combined with the fact that the current composition of the US Senate makes it difficult to obtain two-thirds approval on any matter, further underlines the fear of the Rotterdam Rules ever being ratified by the US.

Unless China suddenly ratifies the convention, and encourages thus ratification by a large number of Asian countries, there is reason to believe that the convention will never become effective. Currently, the risk of the Rotterdam Rules becoming yet another failed attempt of replacing the Hague-Visby Rules appears realistic.