The Rotterdam Rules 2009 – From the Perspective of Israeli Forwarders

A few months ago the UN General Assembly adopted a new international convention relating to carriage by sea called the “Convention on Contracts for the International Carriage of Goods Wholly or Paltry by Sea” which is intended to replace the Hague Convention of 1924 as amended from time to time. The new convention, known in short as “the Rotterdam Rules”, was signed in Rotterdam in September 2009. The Rotterdam Rules will enter into force only a year after they have been ratified by 20 counties.

There is no doubt that the Rotterdam Rules change the legal position of cargo owners and sea carriers, existing under the Hague Convention, in so far as concerns international sea carriage. In this article we shall refer to some of the important ramifications of these Rules for the legal status of international forwarders in Israel.

The Hague Convention was signed in 1924 and was amended several times over the years. In view of the many changes occurring in the area of international trade, including international multimodal transport, over the last century, the UN decided to establish new rules aimed at improving the efficiency of international transport and providing opportunities for new players in the sector.

Contrary to the Hague Convention which is short and relatively comprehensible, the Rotterdam Rules are spread over 18 chapters and contain 96 articles, some of which are complex and not easily understood. This fact may lead to different interpretations which will undermine the purpose of the Rules – harmonization of the law – and may therefore have the opposite effect to what the drafters of the Rule sought to achieve.

Generally speaking, it may be said that compared to the Hague Convention, the changes affected by the Rotterdam Rules tend to favour cargo owners at the expense of sea carriers.

Thus, for example, the Rotterdam Rules increase the limitation of liability of carriers to 875 units of account per package or 3 units of account per kilogram (which ever is higher), impose liability on the carrier for delay in the arrival of goods at the rate of two and a half times the freight payable on the delayed goods and extend the period of limitation for filing claims to two years.

While the Rotterdam Rules expand the liability of sea carriers compared to their present position under the Hague Convention, one may ask what significance the Rotterdam Rules have for international forwarders and their liability towards cargo owners.

According to the Rotterdam Rules, a “carrier” means a person who enters into a contract of carriage under which he undertakes to carry cargo by sea or using multimodal transport which includes sea transport. Contrary to the Hague Convention which applies (according to its definition) to the owners or charterers of vessels, the Rotterdam Rules apply to any parties who contractually undertake to perform sea transport whether alone or by means of another. Nonetheless, the Rotterdam Rules clarify that they will not apply to a person acting as an agent or other person retained by the cargo owner who does not undertake the carriage.

In our opinion, if and when the Rotterdam Rules become binding they will dramatically change the legal status of Israeli forwarders who act as contractual carriers, as this will be the first time in which the liability of Israeli forwarders who act contractual carriers will be entrenched in law. (It is important to qualify these remarks by noting that we are referring here to international forwarders who assume a contractual obligation to carry the cargo for the cargo owner (i.e., act as contractual carriers) and not to forwarders who act as agents and coordinate the transport with a sea carrier who enters into a direct contract with the cargo owner under a contract of carriage).

In the world generally, this is not a significant innovation from the point of view of forwarders, as according to laws prevailing world wide, the liability of forwarders acting as contractual carriers and undertaking to perform sea transport is in any event limited by the limitations levels set out in the Hague Convention; in Israel, however, the position is not as straightforward and in legal terms has not been adequately clarified.

Indeed, a large proportion of the judgments in Israel accept the fundamental distinction whereby a forwarder acting as an agent, who has been retained by the cargo owner to coordinate the carriage, is not personally liable for the performance of the carriage, while a forwarder who has undertaken the carriage (a contractual carrier) is liable for the performance of the carriage although as such he is also entitled to enjoy the benefit of the protections afforded to a sea carrier by the Hague Convention. Nonetheless, there are cases which have held that a forwarder who has assumed an obligation to carry (whether under a bill of lading or other contractual document) and who acts as a contractual carrier, is not entitled to enjoy the benefits of the protection given to a sea carrier by the Hague Convention as the international forwarder does not meet the definition of a “carrier” under that Convention.

Patently, the broad definition of “carrier” in the Rotterdam Rules (any person who enters into a contract of carriage under which he undertakes to carry merchandise by sea or using multimodal transport which includes sea transport) also applies international forwarders who act as contractual carriers, thereby clearing up the doubt which so far has characterized the limits of liability of the international forwarder in Israel, a doubt which has led to multiple litigation and contradictory judgments.

Moreover, (in principle) the Rotterdam Rules create legal harmony between sea carriers and international forwarders who act as contractual carriers, a necessary outcome from the point of view of the forwarders. At present, the Israeli forwarder faces a claim by the customer may not obtain a back to back indemnity from the sea carrier in respect of a sum which he has been held liable to pay the customer, if his liability is not limited as aforesaid. It is unreasonable for the forwarder’s exposure vis-à-vis his customer to be different from the exposure of the actual sea carrier vis-à-vis the customer. The current inequality discriminates against the forwarder and not against the client. Equating the forwarder to the carrier will enable the forwarder to be indemnified by the carrier on a back to back basis, in respect of the same sum that was awarded against him to the customer. In view of the lack of legal certainty, insurance companies currently refuse to provide liability insurance to forwarders and those which do agree require very high premiums. Limiting the liability of forwarders and putting them in the same position as sea carriers will bring about competition between the insurers and reduce premiums. Lack of legal certainty also leads to uncertainty on the part of the cargo insurers regarding the right of subrogation. All this will change if and when the Rotterdam Rules are ratified by Israel.

In summary it may be said that the Rotterdam Rules increase the scope of liability of the sea carriers towards cargo owners under the Hague Rules and increase the scope of liability of international forwarders who act as contractual carriers in other places in the world in which the liability of the forwarders is subject to the Hague Convention.

On the other hand, from the point of view of forwarders in Israel, the Rotterdam Rules will, for the first time, define in a clear and mandatory fashion the scope of liability of forwarders who have chosen to act as contractual carriers. If at present an international forwarder who assumes a contractual obligation to perform a carriage cannot identify with certainty the scope of his liability and the risk that he is undertaking, this will change if and when the Rotterdam Rules are applied in Israel; the Israeli forwarder will then be able to know the extent of his liability towards the cargo owner. This fact, per se, will eliminate the vagueness affecting the liability of forwarders who act as contractual carriers and will create compatible expectations, certainty and legal harmony in business transactions between forwarders and their customers. A statutory definition of the rights and obligations of an international forwarder will also assist the forwarder himself to properly assess his risk when he gives an undertaking to a customer to perform a carriage as a contractual carrier compared to the benefits which he derives from this transaction. All that needs to be done at present is to wait and see whether the Rotterdam Rules will come into force.

Adv. Roy Gilad