Hasgue Rules Limit

Dairy Containers Limited Appellant vs Tasman Orient Line CV Respondent

Privy Council decision ( New Zealand case)

Briefly, this case is concerned with the application of the Hague Rules and how private contractual terms provide the benefit to carrier in applying limitation in its favour. The brief details on the case are as follows:

Diary Container Line were the holder of a bill of lading issued on behalf of Tasman Orient Line and the contract of carriage entered into involved the carriage of 70 coils of electrolytic tin plate from Busan to Tauranga in New Zealand . The carrying vessel was Tasman Discoverer. While the bill of lading was suitable for combined transport or port to port, the notation on it was “tackle/wharf” and Tauranga was both the port of discharge and place of delivery. The agreement was thus port to port shipment.

On delivery, 55 of the coils were found to be damaged by seawater (beyond repair) and the carrier did not deny liability. The loss suffered by Dairy Containers was agreed at NZ$613,667.25 and was awarded to Dairy Containers, on the construction of the bill of lading damage limitation clause. However the carrier appealed and it was agreed by the Court of Appeal that Diary Containers' right of recovery was limited to £100 sterling, lawful money of UK or its equivalent in another currency per damage coil i.e. total £5,500 sterling.

Briefly the bill of lading states the number of packages as 70 coils and there was no declaration of value. The goods were accepted in apparent good order and condition and the terms of the bills of lading were binding on the parties concerned.

On the reverse of the bill of lading clause 5 states:

" Carrier's Responsibility

(1) The Carrier shall be liable for loss of or damage to the Goods occurring between the time when it accepts the Goods for transport and the time of delivery, in accordance with the provisions of Clauses 6(A), (B) and 7 of this Bill of Lading.

(2) Subject to any limitation of the Carrier's liability which is applicable under Clauses 6(A), (B) and 7, when the Carrier is liable for compensation, in respect of loss of or damage to the Goods, such compensation shall be calculated by reference to the invoice value of the Goods plus Freight and Insurance if paid and the Carrier shall not be responsible for any loss of profit or any consequential loss."

Clauses 6(A), (B) and 7, distinguish between (a) combined transports when the stage of transport where the loss or damage occurred is not known, (b) combined transport when the stage of transport where the loss or damage occurred is known, and (c) port to port shipment.

Situation (a) above would be inapplicable since the stage of transport where the damage occurred is known. The additional terms in the bill of lading further provide the carrier with exemption from liability for loss or damage caused by a series of specified causes stated therein. Where a loss or damage did not arise from such exempt causes, carrier's liability shall not exceed US$2.50 per kilo of gross weight of the Goods lost or damaged.

The lawyer for Diary Containers relied on this limitation as being more commercially realistic and generous than the pound sterling limitation sought by the carrier as above indicated.

Port to Port shipment is governed by clause 7 which states:

"In case of Port to Port shipment, the liability of the Carrier in respect of loss or damage to the Goods shall be determined by the national law, which would be applicable to the similar carriage by sea under paragraph (B) of Clause 6, or failing which, by the Hague Rules as referred to in paragraph (B)(b)(i) of Clause 6 irrespective of whether the loss or damage is proved to have occurred while the Goods are on board a sea-going vessel, or prior or subsequent thereto."

Additionally clause 8(2) provides as follows :

"If any provision of this Bill of Lading is held to be repugnant to any extent to any international convention or national law which is applicable to this Bill of Lading by virtue of Clauses 6 and 7 and sub-clause (1) above or otherwise, such provision shall be null and void to that extent but no further."

Both parties agreed and as accepted by the Courts that carrier's liability is governed by clause 6(B)(b)(i), either as applying directly or as incorporated by clause 7. Thus the Hague Rules, to which reference is made in both clauses, are of obvious relevance. Following provisions have been referred to.

Article IV rule 5 (so far as relevant) provides:

"Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding £100 per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading."

Article IX of the Rules provides:

"The monetary units mentioned in this convention are to be taken to be gold value.” It is to be observed that the effect is limitation is based on gold value of the pound sterling and not its nominal or paper value. It was decided in another case that the limitation shall be calculated by reference to the quantity of gold which was the equivalent of £100 sterling in 1924

In this case amongst the various considerations, it was necessary to determine the correct interpretation of clause 6(B)(b)(i)

The opening words of clause 6(B)(b)(i) serve to incorporate the Hague Rules if no international convention or national law governs and the loss or damage is proved to have occurred at sea or on inland waterways. There then follow two deeming provisions expressed to take effect "for the purposes of this sub-paragraph". The limitation of liability under the Rules is deemed to be "£100 Sterling , lawful money of the United Kingdom per package or unit". References in the Rules to carriage by sea are deemed to include references to carriage by inland waterways. The Rules are to be construed in accordance with these deemed meanings. In each instance, the need for the deeming provision arises because without it the term in question does not have the meaning it is to be deemed to have. The limitation of liability under the Rules is not "£100 Sterling , lawful money of the United Kingdom per package or unit": it is the limitation provided by article IV rule 5 as qualified by article IX. The references to carriage by sea in the Rules do not include carriage by inland waterways. Thus the purpose of the deeming provision is to give the Rules a meaning different from that which they would have in the absence of a deeming provision. The deemed extension of the Rules to include inland waterways is irrelevant to this case. But the deemed limitation provision lies at the heart of it, because it stipulates a limit of £100 sterling, lawful money of the UK , a nominal or paper value (although article IV rule 5 would permit payment of the equivalent of that sum in another currency). The deemed limitation provision gives effect to article IV rule 5 as if it were unqualified by article IX.

Above therefore has the effect of altering the limitation set in the Hague Rules in the strength of the contractual terms. The Court of Appeal unanimous judgment accepted the express limitation in clause 6(B)(b)(i) and allowed the carrier's liability to be limited to £5,500 sterling in ordinary or paper currency, without the benefit of gold value as intended in the Hague Rules.

Disclaimer – no professional advice is intended and reference to case details is recommended for the full understanding of the case.