Why we need governance: digitalisation and contracts of carriage
Professor Miriam Goldby, QMUL - blog by Sean How, UNCLC Research Assistant
On 28 February 2024, the University of Nottingham Commercial Law Centre hosted a research seminar by Miriam Goldby, Professor of Shipping, Insurance, and Commercial Law at Queen Mary University of London.
Professor Goldby presented on the topic “Why We Need Governance: Digitalisation and Contracts of Carriage,” which explores some of arguments originally made in her chapter entitled “The Impact of New Commercial Practices on Liner Contracts of Carriage: New Wine in Old Skins?” in Chapter 10 of J Chuah (ed), Research Handbook on Maritime Law and Regulation (Edward Elgar, 2019), and which have been developed further for her forthcoming monograph, Governing the Digital Transformation of International Trade, under contract with OUP.
Maritime Digitalisation Developments
Professor Goldby began her talk by highlighting developments in the digitalisation of the maritime industry. Although there has been a growing push towards legal recognition of the effects of digital processes, for example, through the UNCITRAL Model Law on Electronic Transfer Records to which she contributed, and recent legislation like the Electronic Trade Document Act (‘ETDA’) 2023, many digitalisation initiatives remain largely industry-led and self-regulated.
This poses risks stemming from highly asymmetric bargaining positions, especially problematic in effectively oligopolistic setups such as the liner carriage market, where carriers have the stronger position and are therefore able to impose contract terms onto shippers and cargo owners.
Contracts of adhesion, commonly known in English jurisprudence as “standard form contracts,” are often imposed by the carrier and offered to the shipper on a take-it-or-leave-it basis. Contracts of carriage are excluded from the Unfair Contract Terms Act (UCTA) 1977 in a bid to keep the English market competitive and attractive to international trade. Instead these contracts are regulated by international conventions, the most widely applicable of which, however do not include all aspects of the transportation process within their scope.
Unregulated Allocation of Risks
Professor Goldby then explained how the Hague Rules (1924) and the later Hague-Visby Rules (‘HVR’) (1968), as well as the Hamburg Rules (1978), attempt to “reduce the potential for abuse in contracts of adhesion” (UNCTAD 2009, 127) by regulating contracts of carriage, providing a level playing field on the international stage. Nonetheless, there remain unregulated aspects of the transportation and delivery service that should be more comprehensively regulated. For example, what constitutes the carrier’s delivery obligations is left unspecified in the Hague Rules and HVR.
Despite this, under the HVR, the one-year time bar on claims against the carrier applies also to misdelivery claims. This was upheld in The Alhani [2018] EWHC 1495 and confirmed in Fimbank v KCH Shipping [2023] EWCA Civ 569 in interpreting the drafters’ intention from the Conventions’ Travaux Preparatoires. In addition, while the face of the bill of lading may appear to entitle its lawful holder to delivery of the goods, this can be contradicted by the detailed contractual terms, whereby the carrier excludes its liability for any loss occurring after the discharge of goods.
In this regard, Professor Goldby cited The MSC Amsterdam [2007] EWCA Civ 794, where it was held that clear words were required for the carrier to exclude liability for such a serious breach of duty as misdelivery, and even then, these clear words must not contradict the rest of the contract.
Issues in the Delivery Process
These issues are particularly important in the current climate of maritime trade. Logistical processes of discharge, release, and delivery in modern ports are widely automated. Innovative port processes such as the use of electronic cargo release systems may create new efficiencies, but they also introduce new risks not yet allocated by the Rules; the allocation of these risks and liabilities continues to be done by contract, which may also be silent about it. Given the asymmetric positions of the parties, this state of affairs could easily prejudice the cargo-owner, who may as a result have to bear risks that the carrier is better placed to prevent or mitigate. This is not necessarily because the cargo owner is in a weaker bargaining position: the standardisation of processes which is necessary to accomplish the complex logistical operation of transporting goods internationally can mean that the carrier is unlikely to be willing to modify terms even vis-à-vis powerful contracting counterparties.
To illustrate what could go wrong, Professor Goldby drew on Glencore v MSC [2017] EWCA Civ 365, a case in which the cargo-owner was not a weaker party in terms of bargaining power. In an act of cybercrime, a shipment of cobalt was misappropriated through unauthorized use of pin codes by unknown persons. Release and delivery were clearly distinguished in the Forwarder’s Covenant in the bill of lading, yet the non-contractual release note which had incorporated the Forwarder’s Covenant terms provided that discharge of the cargo would constitute due delivery. The court held that the bill of lading terms would be binding, and the carrier had breached the contract as it had neither delivered the goods nor issued a delivery order. The outcome was therefore that the carrier bore the risk of misappropriation, which may appear suitable, as it would seem to have had much more control over the way in which the electronic release system was set up and used.
However, this case was not decided on the basis of what allocation of risk could be considered more appropriate in commercial terms, but on whether there was a breach of contract. Regrettably, evidence of where the cyber-security breach occurred, and the question of who was responsible for establishing secure electronic authentication were not considered. The decision in Glencore suggests that clear contractual wording could have enabled the carrier to escape liability for misdelivery. Indeed, the carrier in question, MSC, amended its contractual wordings following these events. Ultimately, this precedent has not solved the underlying issues of proper risk allocation.
In conclusion, Professor Goldby offered suggestions for improving the state of regulation of the delivery process. First, the courts could interpret the contract or imply terms so as to allocate the risk of loss to the party for whom preventing the loss would be cheapest. This not only promotes certainty but also aligns with commercial sense and would incentivize the carriers to mitigate against this risk, although there remains a danger of the courts overstepping into “making a contract for the parties.”
Second, where the terms are clear, the court could consider striking out terms that misallocate the risk of loss. In light of the non-application of UCTA 1977, the only available legal basis for doing this would appear to be the doctrine of fundamental breach of contract. This may incur policy objections, however, as it might make English law and jurisdiction less attractive to carriers, who may otherwise seek more sympathetic regimes to govern their contracts. It would in any case be preferable for these issues to be addressed at the international level.
Third, standardisation processes being adopted by the Digital Container Shipping Association should seek to establish a clearer process for when cargo is physically handed over by the carrier at delivery stage, clarifying how the link will be made between the person receiving the cargo and the holder of the bill of lading. Lastly, the international architecture needs greater consistency. While they have not come into force yet due to low levels of ratification, the Rotterdam Rules 2008, are salutary in addressing the gaps in the earlier conventions. Article 12 extends the carrier’s period of responsibility to delivery and not just discharge, while Article 14 provides a clear and mandatory obligation to deliver the goods to the holder. Stronger international regulation in the ilk of the Rotterdam Rules would provide a more certain and stable environment towards tackling these issues.