Shipping Laws Changed – How it Affects New Zealand

5-minute read

COVID-19 is having far-reaching effects on the shipping industry, and on importers and exporters, in ways that could never have been foreseen before the pandemic struck.

One such effect, which is worrying the international shipping and trading communities, is the strange decision by Peru to opt out of the Hague Rules and pass new legislation in relation to bills of lading and owners’ obligations to cargo interests.

The fear is that other countries, reeling from the impact of the pandemic on their economies and seeking to get trade moving, will follow suit with arbitrary actions that undermine the international legal framework that traders have relied on for years.

The Hague Rules of 1924 (formally the “International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, and Protocol of Signature”) is an international convention which imposes minimum standards upon commercial carriers of goods by sea.

It outlines the shipowner’s responsibilities and liabilities to cargo interests from the time of loading of the cargo to the point at which it is discharged.

The rules (or subsequent amendments) form the basis of national legislation in almost all of the world’s major trading nations.

It was the first attempt by the international community to find a workable and uniform way to address the problem of shipowners excluding themselves from all liability for loss or damage to cargo.

A minimum mandatory liability for carriers was established but nonetheless the rules have been criticised for being too carrier-friendly.

Shippers bear the cost of lost or damaged goods if they cannot prove the vessel was unseaworthy, improperly-manned or unable to safely transport and preserve the cargo.

This means that the carrier may avoid liability for risks resulting from human errors provided they exercise due diligence and their vessel is properly manned and seaworthy.

Hence why the Hague Rules have their critics who feel they do not provide an appropriate balance in liability.

Later amendments have resulted in the creation of the Hague-Visby Rules, the Rotterdam Rules and the Hamburg Rules, but the overall presence of the Hague Rules and their basic provisions still loom large internationally.

Therefore, the shipping and trading community was blindsided by the decision of Peru to suddenly opt out.

On May 12, Peru published a Supreme Decree which denounced the Hague Rules, which had been in force in Peru since 1965.

No reason was given nor whether another set of rules would be adopted by the country.

The international Chamber of Shipping (ICS) issued a circular in which it surmised the action was related to an emergency Congressional Order passed by Peru two days earlier, to “assist the continuity and efficiency of foreign trade logistics operations”.

It requires the “digitalisation” of logistics procedures. Shipping companies or agents must immediately make available electronic mechanisms for the validation of documents and it becomes an offence for shipowners “to require the physical presentation of a copy of or the original bill of lading or other document as a prerequisite for taking delivery or shipping goods”.

Peru’s “new norm” also appears to open the door for ship operators to be required to render certain services after cargo discharge, possibly relating to the positioning of empty containers, container demurrage, and container cleaning etc., for which no remuneration can be charged.

That said, the ICS has stressed that the provisions are very unclear. What is clear is that the shipping community is very worried about the precedent being set.

The chamber’s circular says: “These developments are very concerning.

While the legislation that has been issued is somewhat ambiguous in terms of its impact and implementation timeline, its appearance in combination with the sudden and unexplained denunciation of the Hague Rules would seem to warrant a formal response from ICS.

“The secretariat has already discussed the matter with various parties including the International Group of P&I Clubs (in relation to the provisions concerning delivery of cargo without production of the original bill of lading and impact on shipowners’ P&I cover) and the World Shipping Council.

“The World Shipping Council has informed ICS of its intention to write officially to the Peruvian Government expressing its concern regarding the provisions in the Congressional Order and its impact on the liner trade.”

So, what do we make of this? Peru isn’t one of our major trading partners so New Zealand isn’t likely to be hugely affected, but the danger is in the precedent being set.

If one country thinks it can denounce an accepted international basis for cargo liability, why won’t others? The purpose seems to be in simplifying trade in order to get goods moving quickly after the ravages of the past few months.

A laudable goal but it could open the door for fraud. What if digital clearance for cargo is insisted upon by countries instead of a bill of lading?

What happens then if a hacker manages to organise an electronic clearance for a shipment? Who is to blame for the theft when a bill of lading has not been presented?

For a legal view of this I asked the view of maritime lawyer Bevan Marten, of Izard Weston. He says Peru’s action is part of a larger narrative, namely the growing prominence of national priorities over international solutions.

“COVID-19- related delays in the supply chain, leading to shortages of essential goods, have likely prompted Peru’s government to decide that the Hague Rules are too ‘carrier friendly’ for a nation without significant shipping interests.

“The most likely response from the [Peruvian] government will be to introduce a more ‘cargo friendly’ regime instead – but it will be interesting to see whether that takes the form of an existing multilateral agreement (such as the Hamburg Rules) or, as seems more likely, a bespoke national regime.

“New Zealand’s shipping sector may not have many direct connections with Peru, but a change of this nature could still signal a wider trend towards the fragmentation of shipping laws across the globe, which can lead to more complex, uncertain, and expensive transactions for shippers and carriers.”

He does however see a possible upside: “On the other hand, Peru’s congressional order suggests a desire to modernise trade documentation and processes, so the outcome could have some advantages in moving beyond the paper-based world of 1924.”

For the moment, we wait to see whether other countries will follow Peru’s lead.

SOURCE: NZ Shipping Gazette

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