Note: the Court of Appeal decision has been upheld in a judgment of the Judicial Committee of the UK Privy Council, dated 20 May 2004. For a note on the Privy Council decision, click here

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The consignment was carried under a bill of lading which contained the following relevant provisions:
Clause 6(B)(b)(i):
"Where no international convention or national law would apply [mandatorily], the liability of the Carrier for loss of or damage to the goods shall be determined:

(i) By the Hague Rules contained in the International Convention for the Unification of Certain Rules relating to Bills of Lading dated 25 August 1924 (hereinafter called the Hague Rules), if the loss or damage is proved to have occurred at sea…..; for the purpose of this sub-paragraph the limitation of liability under the Hague Rules shall be deemed to be £100 Sterling, lawful money of the United Kingdom per package or unit…. and the Hague Rules shall be construed accordingly:"

Clause 8
"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….. such provision shall be null and void to that extent but no further."

The case was governed by New Zealand law. It was common ground that there was no international convention or national law mandatorily applicable to the bill of lading.

The relevant provisions of the Hague Rules were Article III Rule 8, which reads:
" Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability and otherwise than as provided in this convention, shall be null and void and of no effect……"

Article IV, Rule 5, which reads:
"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……."

and Article IX which reads:
"The monetary units mentioned in this convention are to be taken to be gold value."

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Judgment at First Instance
At first instance, judgment was given in favour of Dairy Containers, the cargo interests.

The question for the court was whether the wording of Clause 6(B)(b)(i) in the bill of lading entitled Tasman Orient to limit its liability to 55 times £100 sterling in legal tender of the United Kingdom or whether the package limitation was 55 times that arising out of Articles IV Rule 5 and IX of the Hague Rules as judicially construed.

After analysing the judgments in the case of The "Rosa S" [1988] 2 LLR 574 and in Brown Boveri (Australia) v. Baltic Shipping Co [1989] 93 ALR 171, Williams J. held that the result of these two Articles was ‘that the package limit is effectively £100 sterling gold value, that is to say, the quantity of gold which was the equivalent of £100 sterling or the gold content of that amount when the Hague Rules were adopted in 1924.’ The judge quoted with approval from the judgment of the court of appeal in the Brown Boveri case to the effect that "the first sentence of Article IX was inserted to achieve stability and to avoid the effect of erosion of sterling’s value by inflation so that the limit of liability of £100 sterling was added to by a qualification that the amount of the sterling was not simply to be £100 sterling; it was to be the value of the gold which £100 sterling would then buy."

In the present case, the parties had by contract incorporated the Hague Rules into the bill subject to the limitation of liability under Clause 6(B)(b)(i) to "£100 sterling lawful money of the United Kingdom per package or unit." However, in the judge’s view, the effect of Clause 8(2) of the Bill of Lading was to nullify the package limitation in Clause 6(B)(b)(i) to the extent that it was in conflict with the Hague Rules – in other words, he held that the Hague Rules had to be given contractual primacy over the terms of the bill of lading. Further, the Hague Rules being incorporated in their entirety into the bill, the clause paramount in Article III Rule 8 confirmed that to be the result. It followed that if there were any inconsistency between the phrase "£100 sterling lawful money of the United Kingdom per package or unit" in Clause 6(B)(b)(i) and the phrase "£100 per package or unit or the equivalent sum in other currency" in Article IV Rule 5, the latter supervened and the former was nullified.

In the court’s view, the effect of including the words "sterling lawful money of the United Kingdom" in Clause 6(B)(b)(i) was merely to clarify the currency of the liability limitation, to avoid the possibility of confusion with other national currencies denominated in pounds.

A further reason for the judge reaching the view he did was the inherent unlikelihood of the parties agreeing that recovery should be limited to a sum set 77 years earlier. That unlikelihood was demonstrated by comparing the possible results in this case, £5500 against NZ$613,667. The judge concluded that it was "highly improbable in a business transaction involving the importation of valuable goods by sea that the importer…….would have agreed to run the risk of being able to recover only a few per cent of the value of its loss in the event of damage."

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Judgment of the Appeal Court
The Court of Appeal overruled the judgment at first instance and found in favour of the shipping line carriers.

The court emphasised that it was not dealing with mandatory national legislation; it was concerned only with the interpretation of the agreement that the parties had made. A careful analysis of clause 6(B)(b)(i) of the bill of lading showed that the words "the limitation of liability under the Hague Rules shall be deemed to be £100 Sterling, lawful money of the United Kingdom per package or unit" were clearly intended to replace the limit that would otherwise have applied under Articles IV.5 and IX of the Hague Rules by a new limit written in terms of national currency only. The final words of the clause – "and the Hague Rules shall be construed accordingly" had to be read as requiring that the relevant parts of the Hague Rules be read as being amended by the new ‘deemed’ parts. The end result was that the carrier’s liability was limited to £100 sterling, lawful money of the United Kingdom per package or unit, that is, to a total in this case of £5,500.

Article 3.8 of the Hague Rules would operate as a paramountcy clause when the Rules applied compulsorily as a matter of statute, but that was not the case here, where the court was concerned simply with the interpretation of a contract. In that context, the more general provisions of Art.3.8 have to give way to the express limitation stated by the parties in clause 6(B)(b)(i) of the bill of lading. The more specific provision has to be preferred "as a matter of the common sense reading of the bill of lading as a whole. The parties’ plain purpose was to alter that aspect of the Hague Rules. That purpose must be given effect to."

Similar points could be raised in answer to the arguments based on clause 8(2) of the bill of lading but, in the court’s view, that clause could apply only ‘to the extent’ that the Hague Rules were applicable by virtue of clause 6. That extent was determined in relevant part by clause 6(B)(b)(i). The extent of the Hague Rules as so applied, did not include the original limitation provisions of Art.IV.5 and IX. As a result, there could be no repugnancy between the bill of lading and those provisions. It would make no sense, the court held, to direct a modification in those Articles and then immediately to make it null and void.

Contrary to the judge at first instance, the court did not view the reference to ‘lawful money of the United Kingdom’ as simply defining the currency in which payment should be made. "No reason," the court said, "can be given for such a strained reading."

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