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Dairy Containers Ltd v The Ship “Tasman Discoverer” [2002] 3 NZLR 353; [2002] 2 Lloyd's Rep 528 (CA)

In Dairy Containers Ltd v the Ship “Tasman Discoverer” the New Zealand High Court and Court of Appeal had to construe a bill of lading. The courts had to decide whether the bill of lading had effectively incorporated an amended version of the Hague Rules into the bill of lading and thereby made a package limit of lower value than the limit established under the Hague Rules, apply to claims under the bill.

Basic Facts

A bill of lading was issued by the carrier, Tasman Orient Line CV (“Tasman Orient”) for the carriage of 70 coils of electrolytic tin plates from Busan, Korea to Tauranga, New Zealand. When the vessel arrived at Tauranga, 55 of the coils were discovered to have been damaged by sea water which had entered the hold. Proceedings were commenced in the New Zealand High Court in its Admiralty jurisdiction.

Tasman Orient accepted liability for the damage. The total value of the loss was NZ$613,667.25. A dispute arose as to the amount to which Tasman Orient was entitled to limit its liability under the bill of lading. There was no compulsory liability regime for shipments from Korea (1). It was agreed between Tasman Orient and the consignee of the goods, Dairy Containers Ltd (“Dairy Containers”), that the contract in the bill of lading governed the claim and that no International Convention or national law applied by force of law. The limit of liability per package had to be decided by construing the bill of lading which contained the contract between the parties. A trial took place on agreed facts.

Bill of lading provisions

The bill of lading contained the following clauses: (2)

6(B) … If, in case of Combined Transport, the stage of transport where the loss of or damage to the Goods occurred is known, the liability of the Carrier in respect of such loss or damage shall be determined:
(a) by the provisions contained in any international convention or national law, …
(b) Where no international convention on national law would apply by virtue of (a) above:
(i) By the Hague Rules contained in the International Convention for the Unification of Certain Rules relating to the Bills of Lading dated 25 August 1924 (hereinafter called the Hague Rules), if the loss or damage is proved to have occurred at sea or on inland waterways; 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 references in the Hague Rules, to carriage by sea, shall be deemed to include references to carriage by inland waterways and the Hague Rules shall be construed accordingly;….
7. PORT TO PORT SHIPMENT
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.
8. GENERAL
…
(2) 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.

A bill of lading can, of course, incorporate the Hague Rules and make the Rules apply as a matter of contract, if no other regime applies by force of law. In this case, it was agreed by counsel for the parties that the Hague Rules were applied by contract (not compulsorily by force of law) under clause 6(B)(b)(i). The courts had to decide upon the meaning of the limitation of liability provision under 6(B)(b)(i) in the context of the bill of lading as a whole.

Hague Rules provisions

The following provisions of the Hague Rules were relevant to the dispute:
Article III, rule 8 (which is known as the clause paramount) makes null and void any provision which seeks to limit or exclude liability as provided for in the Rules:

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 otherwise than as provided in these Rules, shall be null and void and of no effect…

The package limitation provisions in the Hague Rules are found in Article IV, rule 5. This provides for a limitation of liability for the carrier not exceeding:

“£100 per package or unit, or the equivalent of that sum in other currency….”
Article IX of the Hague Rules provides:
“The monetary units mentioned in this convention are to be taken to be gold value.”

The contentions on the limit

Tasman Orient claimed it was entitled to limit the consignee’s claim to 55 times £100 under the terms of clause 6(B)(b)(i) so that the limit of its liability on the claim was £5,500. Dairy Containers argued that the bill of lading incorporated the Hague Rules in their entirety and that, as a consequence, the limit of liability on the claim was the “gold value” of £100. This was based on the provisions of Article IX of the Hague Rules which provide that the monetary limits are to be “gold value” and the cases which had decided that the limit in Article IV Rule 5 and Article IX are linked so the limit of £100 in Article IV Rule 5 is calculated by reference to the value of the gold which was the equivalent of £100 (as defined by the Coinage Act 1971 (UK)).(3) On the basis of the gold value limit, Dairy Containers could recover its full loss.

High Court

In the High Court,(4) the consignee argued that clause 6(B)(b)(i) should be read down if it did seek to reduce liability below the gold value limit in the Hague Rules. This argument was based on a contra proferentem approach to the wording of the contract. It was also argued that, if the contract incorporated the Hague Rules (including Article III, rule 8) in their entirety, any lower limit in clause 6(B)(b)(i) must be struck down by the clause paramount. It was also contended that the words “lawful money of the United Kingdom” were added in clause 6(B)(b)(i) to make the currency of payment clear (as opposed to referring to the value of the payment) and did not make any greater change in the contract than that.

The High Court held that the Rules had been incorporated in their entirety into the contract, including Article III, rule 8 by clause 8(2). It was held that any limit in clause 6(B)(b)(i) was null and void if it was lower than the gold value measure of the limit established in the Hague Rules and the authorities interpreting those Rules. The Court also found that the phrase “£100 sterling, lawful money of the United Kingdom” was no more than clarification of the currency of payment, rather than wording which changed the basic approach under the Hague Rules which make gold value the way of calculating the limit. Tasman Orient had not succeeded in the terms of its bill of lading, in avoiding the so-called “gold clause trap”.

Court of Appeal

The Court of Appeal reversed the judgment in the High Court.(5) The Court emphasised that this was a case concerning the interpretation of a private contract in which the parties had chosen to incorporate the provisions of an international Convention. The Court found that, on its clear meaning, clause 6(B)(b)(i) incorporated the Hague Rules into the contract in an amended form. The court analysed the words of clause 6(B)(b)(i) “piece by piece” and concluded that the wording in the clause plainly was an amendment to the Hague Rule limits (“shall be deemed to be £100 sterling, lawful money of the United Kingdom ... and the Hague Rules shall be construed accordingly”) which did not refer to gold value and could not be read as introducing the gold value limit (6) which applied under the Rules. The meaning of the words “£100 lawful money” was clear and referred to nominal or paper value.

The Court further noted that the wording used in the clause in the bill of lading was the same as that used in the British Maritime Association agreement entered into in 1950 to remove the combined effect of the Hague Rules provisions in Article IV, rule 5 and Article IX and stipulate a nominal value for the package limit in sterling. (7) Accordingly, the court held that, on the clear meaning of the bill, the claim was limited to 55 times £100. The court held that clause 8(2) was irrelevant because it addressed conflict with the Hague Rules only when they applied by international law or national law and not when the Hague Rules had been incorporated by the contract in an amended form under clause 6(B)(b)(i).

Comment

Amendments in bills of lading which seek to remove the effect of Article IX and the “gold clause” cases which interpreted the limits in Article IV Rule 5 by reference to gold value are relatively common and there can be no real doubt that this bill of lading was intended to incorporate some form of amended version of the Hague Rules into the contract. There can also be little argument that clause 8(2) of the bill of lading is intended to apply only when the Hague Rules apply by international law or national law. Further, a simple straightforward reading of the limit in 6(B)(b)(i) would be that it is a limit to £100 in paper money. However, the limit under the Hague Rules has a particular established value under the Hague Rules (the gold value) which a general incorporation of the Hague Rules would bring into a bill of lading.

The real question is whether, in the context a limitation of liability clause invoked by a carrier against a consignee (or other third party) taking up the bill of lading (who has had no opportunity to negotiate the contract), the wording of 6(B)(b)(i) and reference to a limit of “£100 sterling, lawful money of the United Kingdom” was clear enough to change the gold value limit established by the Articles of the Hague Rules. Did this wording exclude the possible interpretation that this was a limit to the gold value of £100 as established by the Hague Rules and that the phrase “lawful money of the United Kingdom” was only added to show the single currency in which payment was to be made? The clause does not refer to the “paper value” of £100 and does not expressly exclude Article IX, or gold value. “£100 sterling, lawful money” might still be read as referring to the gold value of £100. Might a reasonable commercial person with the relevant background in mind on the value of the Hague Rules limits perhaps conclude that there was, at least, some ambiguity in the value of the limit in this bill?

The best chance for the New Zealand consignee on its appeal to the Privy Council lies, possibly, in emphasising the basic principle of the construction of contracts, whether in bills of lading or other commercial documents, that any limitation must be construed strictly against the party seeking to invoke it and a claim that the carrier has not limited liability to the lower limit in the required unambiguous, clear terms. The application of that principle might have some appeal to commercial good sense in the context of package limits which have long been regarded as outdated.

1.On a shipment from New Zealand the Hague-Visby Rules would apply as a matter of law by section 209 of the Maritime Transport Act 1994.

2. Emphasis added.

3. See The Rosa S [1988] 2 Lloyds Rep 574 (HCEW); Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co [1989] 1 Lloyds Rep 518 (NSWCA) where the English and Australian Courts (citing cases decided in several other jurisdictions which supported their rulings) held that Article IV Rule 5 and Article IX together had the effect of “inflation proofing” the limit in the Hague Rules by providing that the value of the limit was to be calculated by reference to the gold value of £100 sterling. In The Brown Boveri, Kirby P, while describing the result of the construction of the Hague Rules which produced the “gold value” as “surprising”, took solace from the result which applied what he regarded as a more realistic package limit under the “gold value” interpretation than the simple currency value which he described as “an obscure and unsatisfactory relic of a bygone age”.

4. [2002] 1 NZLR 265; [2001] 2 Lloyd's Rep 665.

5. See [2002] 3 NZLR 353; [2002] 2 Lloyd's Rep 528 (CA).

6. See paragraph 25 of the judgment of the court.

7. The Gold Clause Agreement was entered into between British shipping and insurance organizations to fix the value of the limit under the Hague Rules as being “£200 sterling lawful money” (at a time when the gold value of £100 was £300). The agreement was amended in 1977 to increase the paper value limits to £400 and abandoned in 1988.