Construing Commercial Contracts - The Background, the Purpose or the Words? Part 4

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Bill of lading provisions

The bill of lading contained a clause which provided as follows:

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; or….
7. In the case of Port to Port shipment, the liability of the Carrier […] shall be determined by […] the Hague Rules as referred to in paragraph (B)(b)(i) of Clause 6… (emphasis added)

8(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 […], such a provision shall be null and void to that extent … (emphasis added)

The Hague Rules are an international Convention governing the carriage of goods. Parties can incorporate the Convention into their contracts by contract if it is not applicable by force of law. In this case it was agreed that the Hague Rules were applied by contract not compulsorily by force of law under clause 6(B)(b)(i).

Hague Rules provisions

The following provisions of the Hague Rules were relevant in the case:

Article III, r8 (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.

The package limitation provisions in the Hague Rules are found in Article IV, r5. This provides for a limitation 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 carrier said that the claim is limited to 55 times £100 under clause 6(B)(b)(i). The consignee claimed that the bill of lading incorporated the Hague Rules in their entirety and that, as a consequence, the limit of liability in clause 6(B)(b)(i) was the “gold value” of £100. This was based on the provisions of the Hague Rules which provide that the monetary limits are to be “gold value” and the cases which had decided that the limit of £100 was to be interpreted as being the current value of the gold which was the equivalent of £100 in 1924 (as defined by the Coinage Act 1870) . (19) On the “simple” sterling basis the claim for the damaged coils was severely limited, on the basis of gold value, the claimants would recover their full loss.

In the High Court, the consignee argued that clause 6(B)(b)(i) should be read down if it did 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 which, it was argued, incorporated the Hague Rules in their entirety. It was also contended that the words “lawful money of the United Kingdom”, were simply added in clause 6(B)(b)(i) to make the currency of payment clear and did not make any greater change in the contract than that.

The High Court judge held that the Rules had been incorporated in their entirety into the contract, including the clause paramount. He found, as a consequence, that any limit in clause 6(B)(b)(i) had to be 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 judge also held 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.

The Court of Appeal reversed the judgment in the High Court. 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) made amendments to the Hague Rules as a matter of contract. 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 which did not refer to gold value . (20) The Court further noted that the wording used in the clause was in the same form as an agreement put forward by the British Maritime Association in 1950 to replace the combined effect of the Hague Rules provisions in Articles IV r5 and IX. The court held that the limit was 55 x £100.

This case is on appeal to the Privy Council. It will be interesting to see whether their Lordships agree that the contract has clearly changed the package limit which would apply under the Hague Rules. How do you think their Lordships will interpret the contract? (We will try and consider the case in our workshop if time permits).

Concluding comments

The recent decisions in the courts indicate that the element of controversy surrounding the principles which should be applied in the interpretation of contracts has subsided. While there remains a need for clarification in certain areas, the principles seem fairly well established. The task of the courts, given that reference can be made to purpose and background, is to ensure that the main focus remains on the meaning of the words used by the parties in the contract. Such an approach represents the best way of giving commercial parties what they want from the courts.

19. See The Rosa S [1988] 2 Lloyds Rep 574 (HCEW); Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co [1989] 1 Lloyds Rep 518 (NZNSWCA)
20. See paragraph 25 of the judgment of the court.

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