Trafigura Pte Ltd v TKK Shipping Pte Ltd (The Thorco Lineage)¹

This case concerned a cargo of zinc calcine loaded in Baltimore on the vessel THORCO LINEAGE for carriage to Hobart, Australia. The contract of carriage was evidenced by a bill of lading incorporating the terms of a voyage charterparty, included a reference to LMAA Arbitration.

Whilst en route, the vessel lost power and grounded on an atoll in French Polynesia. Salvors were appointed, under a Lloyd's Open Form (LOF) signed by the master.  The vessel was refloated and taken to Papeete, French Polynesia, for inspection and temporary repairs. She was subsequently towed under the LOF to South Korea for further repair. 

When a master signs a salvage contract he does so on behalf of owners of both the vessel and the  cargo², meaning that both interests are obliged to contribute to the costs of salvage. Furthermore, the standard LOF incorporates the Lloyd’s Salvage and Arbitration Clauses, pursuant to which the salvors have a maritime lien on the property salved for their salvage remuneration, until security is provided. For their part, the cargo interests provided salvage security in the sum of USD 8 million.

Only a small quantity of the cargo suffered physical loss and damaged in this case, the majority of the consignment having made it to the destination undamaged, after transhipment in South Korea. Cargo interests commenced LMAA arbitration against the contractual carrier, alleging breach of the contract of carriage (specifically, as to seaworthiness) and seeking an indemnity and/or damages in respect of the following losses:

• Physical loss and/or damage to the cargo: USD278,658.31.
• Liability to pay the salvors: USD7,355,000.
• On-shipment costs in respect of the cargo: USD723,831.85.
• Costs incurred in arranging for the salvage sale and/or disposal of some of the physically damaged cargo: USD58,934.74.

It was common ground that the contract of carriage was subject to the Hague-Visby Rules. Specifically, Article IV r.5(a) of the Hague-Visby Rules provides as follows:

"Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding the equivalent of 667.67 units of account per package or 2 units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher."

The carriers argued that their liability to indemnify cargo’s liability for salvage, as well as on-shipment costs, was limited by reference to the weight of the goods which were physically lost or damaged (in this case, being a relatively small part of the cargo), because the words "goods lost or damaged" at the end of Article IV(5)(a) referred to goods which had been lost or physically changed. A calculation limited to the physically lost or damaged cargo would yield a limit only a fraction of the true loss suffered by cargo interests.  Conversely, if the weight of all of the subject consignment was to be taken into account then the limit would exceed the true loss, in which case cargo interests stood to be fully indemnified.

The claimant cargo interests argued that the limit of the carrier’s liability in respect of salvage and on-shipment costs was to be calculated by including the weight of the salved cargo, and was not limited to that of the lost or damaged cargo.  They advanced this case on two alternative grounds:

• The words "goods lost or damaged" in Art IV(5)(a) meant goods lost or damaged, whether physically or economically; or

• The maritime lien assertable on the cargo in respect of salvage costs damaged the Claimant's proprietary or possessory title in the cargo. The cargo was, consequently, damaged.

In the further alternative, if both of these submissions were not accepted, then cargo interests argued that the carrier’s liability in respect of salvage and on-shipment costs would represent a liability at large, and not one subject to any limit at all under Article IV(5)(a).

In a judgment handed down on 13 January 2023, the Commercial Court considered the authorities at length, and concluded that “the goods” referred to in Art IV(5)(a) meant all of the goods the subject of the contract of carriage.  The objective of Art IV(5)(a) was clearly to establish the carrier’s limit of liability in respect of the entirety of the goods in question.  From this start point, the court held that goods carried by sea may be damaged physically or economically, as a result of the fault of the carrier. In the present case the goods had been damaged economically because their value on arrival at discharge port was diminished as a result of the claimant having to incur salvage charges and on-shipment costs.

Having so found, the court did not need to consider the alternative arguments, but again went on to agree with cargo interests that the salved goods were physically damaged within the meaning of Article IV (5)(a), if this were so required, by reason of the imposition of a maritime lien on the Claimant's proprietary or possessory interest in them. 

On the second alternative argument, however, the court agreed with the carrier, rejecting the argument that (on the supposition that the burden of salvage and on-shipment costs had not caused the salved cargo to be damaged in any sense) then the claim would not be subject to the Art IV(5)(a) limit at all.  So long as the physical damage and the economic loss arose from the same breach of the contract of carriage then the court held that all elements together would be subject to the Art IV(5)(a) limitation. 

[1] [2023] EWHC 26

[2] Art 6, Salvage Convention, 1989