The Rotterdam Rules Speakers Panel CIFFA AGM 13 May 2010 Gavin Magrath

Agenda How we got here and what’s next What’s new for Shippers? Concerns + Criticisms Comments + Questions All content © Copyright 2010 Magrath O’Connor LLP

What Are The Rotterdam Rules? The Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea Negotiated through the United Nations Commission on International Trade Law (UNCITRAL) in co-operation with the WTO A Proposed Global Legal Regime for Multimodal Transport All content © Copyright 2010 Magrath O’Connor LLP

100 Years of Cargo Law Need for Harmonized System Recognized 1924: Hague Rules adopted (~58 ratify) –1936: largely adopted into US law 1968: Visby amendments added –~52 ratify, but never adopted into US law 1968: Negotiation begins at UNCITRAL 1978: Hamburg Rules established –Only ~30 ratify, including 10 landlocked nations –~20 signed but did not ratify 1996: Proposal for a new convention adopted All content © Copyright 2010 Magrath O’Connor LLP

Failure of Hamburg left Many Dissatisfactions with Hague Regime Application restricted to carrier BLs only Liability from loading to discharge only ‘error in navigation’ defence Low carrier limitations No liability for delay Very short notice period and short time bar Increasing international fragmentation Canada supported both Hamburg and the new Rules All content © Copyright 2010 Magrath O’Connor LLP

The Journey is almost Finished… 1980s: Hamburg Rules fail to achieve widespread adoption 1996: Proposal for new convention adopted 2001: UNCITRAL Working Group formed July 2008: Draft convention adopted by UNCITRAL December 2008: Convention adopted by General Assembly September 2009: Signing ceremony at Rotterdam October 2009: 22 nd and most recent signature 2011+??: Coming-into-force …but is there a light at the end of the tunnel? All content © Copyright 2010 Magrath O’Connor LLP

Rules Come Into Force One Year After 20 Ratifications 22 Signatures May be made at September/09 or later Indicate intent to be bound Not binding in domestic law Not sufficient for coming- into-force Zero Ratifications Must be done by domestic authority Federal States clause No Reservations Optional Chapters 15 and 16 Are all ratifications really equal? All content © Copyright 2010 Magrath O’Connor LLP

What Will Canada Do? Convention has some benefits for shippers and removes some defences for carriers; Convention has substantial untested provisions; CIFFA views some provisions as concerns; and ‘Volume contracts’ may eviscerate rules… …but if USA signs, does the desire for uniformity trump these concerns? All content © Copyright 2010 Magrath O’Connor LLP Canada has not indicated an intention to sign…

Agenda How we got here and what’s next What’s new for Shippers? Concerns + Criticisms Comments + Questions All content © Copyright 2010 Magrath O’Connor LLP

Evolution of Limitations SDR/kgPackageDelay H/V* SDR- COGSA-USD$500- Hamburg SDR 2.5x Freight Rotterdam (Art ) 3875 SDR 2.5x Freight Art 61: Rotterdam Limit cannot be broken unless damage is intentional or reckless! All content © Copyright 2010 Magrath O’Connor LLP

Scope of Application Extends Beyond Bills of Lading For carriage under a ‘transport document’ (not only a Bill of Lading); For carriage including an international sea leg (as opposed to that portion of it); –But “Door” provisions do not displace existing international land conventions; Applies to carrier’s ‘maritime performing parties’ at ports; Where receipt, loading, discharge, or delivery are in a contracting State (Art. 5) All content © Copyright 2010 Magrath O’Connor LLP

Responsibility Extended from Tackle to Door Art 12: from the time at which the carrier or performing party receives goods for carriage and ending when goods are delivered. –…or when received from/delivered to a 3 rd party authorized by law –But onus is now on the shipper to establish this period of responsibility! (Art.17(1)) All content © Copyright 2010 Magrath O’Connor LLP

Notice and Time Bar Extended Notice (Art 23) The obligation to provide written notice so that the carrier may preserve evidence: At delivery or within 7 days if hidden; –Up from delivery/3 days; Failure not fatal; 21 days notice for delay; Notice is Joint + Several. Time Bar (Arts 62-64) The time before which a claimant must file suit in a competent court: Within 2 years (up from 1; May be extended in writing; Permitting 90 days in which to file suit seeking indemnity for 3P claim. All content © Copyright 2010 Magrath O’Connor LLP

Jurisdiction and Arbitration Ch 14: Jurisdiction Plaintiff may sue: –In Carrier’s domicile –At place of receipt –At place of delivery –At Port of loading/discharge –In a competent Court agreed under a Volume Contract Maritime Performing Parties sued only in their Port or Domicile Ch 15: Arbitration Any place agreed under a volume contract that is –Individually negotiated; or –Contains a prominent statement and specifies sections containing the arbitration agreement. States may opt-out of these Chapters! All content © Copyright 2010 Magrath O’Connor LLP

Volume Contracts Permitted “A contract that provides for the carriage of a specified quantity [range] of goods in a series of shipments during an agreed period of time...” Ch. 16 Art 80 permits derogation from carrier responsibilities where: –The derogation is stated prominently –It is individually negotiated –The shipper has the opportunity to contract on Rules –The derogation is not incorporated by reference Will Volume Contracts become the norm? All content © Copyright 2010 Magrath O’Connor LLP

Agenda How we got here and what’s next What’s new for Shippers? Concerns + Criticisms Comments + Questions All content © Copyright 2010 Magrath O’Connor LLP

Some Untested Provisions Chapters 3 and 8 provide extensive provisions for electronic documents; Chapter 9 codifies rights and obligations on delivery; Chapter 10 codifies the rights of ‘controlling parties’ and Chapter 11 governs the transfer of those rights. Uncertainty generally leads to Litigation All content © Copyright 2010 Magrath O’Connor LLP

Delay Provisions Lack Clarity What delivery time is ‘agreed’? –Where none specified, will a proxy be applied? What is the basis for liability? –“loss resulting from” has been removed! –Appears to be strict: must cargo prove loss? –Due Diligence defence? If not, will carrier be diligent? How will delay claims proceed? –Limited to 2.5x freight (below deductibles) –Not economically viable to litigate but may ‘set-off’ All content © Copyright 2010 Magrath O’Connor LLP Art 21: “Delay in delivery occurs when the goods are not delivered at the place of destination provided for in the contract of carriage within the time agreed.”

Ch 7: New Shipper Obligations Art 27: suitable packing Art 28-29: communications and instructions Art 32: Dangerous goods labeling Art 33: Obligations extend to documentary shipper Art 34: Shipper liable for acts of its servants and agents who are not acting for the carrier But Only the Carrier’s Liability is limited! All content © Copyright 2010 Magrath O’Connor LLP

Potential for Patchwork Application of Door-to-Door Responsibility Door provisions do not oust existing international conventions; Local subcontractor’s liability as per local regulations or terms of subcontract Forwarder can be caught between limits (weight and package) Effective door-to-door responsibility is seen as critical to Multimodal All content © Copyright 2010 Magrath O’Connor LLP

“Volume Contracts” may Undermine Uniformity Most stakeholders perceive undue carrier influence (a major reason for the Hamburg and Rotterdam Rules); Volume Contract provisions allow broad opt-outs; Carriers can be expected to bring economic pressure to negotiate volume contracts with lower liability; Zero-liability volume contracts may therefore become the industry norm. “Freedom of Contract” was the price for US Support All content © Copyright 2010 Magrath O’Connor LLP

How Will ‘Standard’ Volume Agreements be Made? The Agreement must be: for a quantity or range of goods… …during an agreed period of time… individually negotiated not incorporated by reference stated prominently The Agreement could be: for between one and 208 shipments… …over the course of no more than two years At zero-liability or for double the freight charges Willingly accepted as a condition of the relationship All content © Copyright 2010 Magrath O’Connor LLP

How Will ‘Standard’ Volume Agreements Interact? Standard forms already cause legal problems : At the point of customer interaction where the consumer is not sophisticated (ticket cases); Where both parties are sophisticated and both mutually apply different terms (battle of forms). In Transport and under the new Rules : Between inconsistent shipper-side contracts Between inconsistent Performing Party contracts In the context of agency relationships In the context of Himalaya clauses With contractual indemnities All content © Copyright 2010 Magrath O’Connor LLP

Insurers to the Rescue? All content © Copyright 2010 Magrath O’Connor LLP

Agenda How we got here and what’s next What’s new for Shippers? Concerns + Criticisms Comments + Questions All content © Copyright 2010 Magrath O’Connor LLP

Final Thoughts The time for debating individual provisions has now passed; Canada likely has little influence over adoption by other States; The goal of uniformity (and economic reality) requires adoption if US + EU adopt; “There is a certain weariness towards continuing any discussion of reform of International Carriage by Sea law and it is doubtful that further effort will be made to restart negotiations in the event of failure.” - CMLA Canada is a mouse sleeping with an elephant All content © Copyright 2010 Magrath O’Connor LLP

Thank you Gavin Magrath, Partner Magrath O’Connor LLP Direct:

Appendix: Signatories to the Rotterdam Rules (date marked where other than 23 September 2009) Armenia (29 Sept/09) Cameroon (29 Sept/09) Congo Denmark France Gabon Ghana Greece Guinea Madagascar (25 Sept/09) Mali (26 Sept/09) Source: Last updated: 10 May 2010 All content © Copyright 2010 Magrath O’Connor LLP Netherlands Niger (22 Oct/09) Nigeria Norway Poland Senegal Spain Switzerland Togo United States of America