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Cite as: [2005] 1 WLR 215, [2004] 2 All ER (Comm) 667, [2005] WLR 215, [2004] UKPC 22

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Dairy Containers Ltd v Tasman Orient Line CV (New Zealand) [2004] UKPC 22 (20 May 2004)

Privy Council Appeal No. 34 of 2003

Dairy Containers Limited Appellant

Tasman Orient Line CV Respondent

FROM

THE COURT OF APPEAL OF NEW ZEALAND

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 20th May 2004

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Hoffmann

Lord Phillips of Worth Matravers

Lord Carswell

Dame Sian Elias

[Delivered by Lord Bingham of Cornhill]

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Dairy Containers Limited appeals against a decision of the Court of Appeal (Keith, Blanchard and Anderson JJ, 17 June 2002), reversing a decision of Williams J made on 27 July 2001. The short, but financially significant, issue in the appeal concerns the correct interpretation of a damage limitation clause in a contract for the carriage of goods by sea. The contract was contained in or evidenced by a bill of lading, issued on behalf of Tasman Orient Line CV as carrier, of which Dairy Containers became the holder.

The contract was for the carriage of 70 coils of electrolytic tin plate from Busan in Korea to Tauranga in New Zealand aboard the carrier's vessel Tasman Discoverer. The bill of lading form used was apt for combined transport or port to port shipment, but the notation "tackle/wharf" and the identification of Tauranga as both the port of discharge and the place of delivery, on the face of the bill, made plain that this was intended to be (as in fact it was) port to port shipment. On delivery, 55 of the coils were found to be irreparably damaged by sea water, and the carrier has accepted liability for that damage. The loss suffered by Dairy Containers is agreed to be NZ$613,667.25, a sum which would be recoverable on its construction of the damage limitation clause, and was awarded by the judge. But the carrier contends (and the Court of Appeal held) that Dairy Containers' right of recovery is limited to £100 sterling, lawful money of the United Kingdom (or its equivalent in another currency), per damaged coil, a total of £5,500 sterling.

The cargo of 70 coils was recorded on the face of the bill as:

"Accepted by the Carrier from the Shipper in apparent good order and condition (unless otherwise noted herein) the total number or quantity of containers or other packages or units indicated above (for purposes including limitation of Carrier's liability) (*) stated by the Shipper to comprise the goods specified below for transportation subject to all the terms hereof (including the terms on the reverse hereof and the terms of the Carrier's applicable tariff) from the Place of Acceptance or the Port of Loading, whichever applicable, to the Port of Discharge or the Place of Delivery, whichever applicable. On presentation of this document (duly endorsed) to the Carrier, by or on behalf of the Holder, the right and liabilities arising in accordance with the Terms hereof shall (without prejudice to any rule of common law or statute rendering them binding on the Shipper, Holder and Carrier) become binding in all respects between the Carrier and Holder as though the contract contained herein or evidenced hereby had been made between them."

The asterisk in brackets referred to the total number of packages, 70 coils, recorded in the box immediately above this clause. No declaration of value was made.

The terms on the reverse of the bill begin with a series of definitions. On a strict application of these, the present carriage would be "combined transport" and not "port to port shipment", but the parties are content to treat it as the latter and the distinction does not affect the outcome of the appeal but only the textual route by which the outcome is reached.

Clause 5 of the printed terms is in these terms:

"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, to which reference is there made, distinguish between (a) combined transport 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.

The rules governing the first of these categories (set out in clause 6(A) (1)) are plainly inapplicable in the present case, since the stage of transport where the loss or damage occurred is known. When these rules apply, the carrier is not to be liable for loss or damage caused by a series of specified causes and is to be liable only for such loss or damage as is not attributable to any of those causes, the burden of proving causation by one of the excluded clauses being on the carrier. Where, under this provision, the carrier is liable for compensation for loss or damage to goods,

"such compensation shall not exceed US$2.50 per kilo of gross weight of the Goods lost or damaged."

Mr Rzepecky, in the course of his able and attractive argument for Dairy Containers, relied on this limitation provision as being, in any ordinary transaction, more generous and commercially realistic than the limitation contended for by the carrier in the present case.

The second of these categories (combined transport when the stage of transport where the loss or damage occurred is known) is sub-divided. The carrier's liability may be governed (clause 6(B)(a))

"by the provisions contained in any international convention or national law, which provisions:

(i) cannot be departed from by private contract to the detriment of the Merchant [an expression defined to include the holder of the bill of lading, consignee and receiver of the goods], and

(ii) would have applied if the Merchant had made a separate and direct contract with the Carrier in respect of the particular stage of transport where the loss or damage occurred and received as evidence thereof any particular document which must be issued in order to make such international convention or national law applicable."

This provision has no application in the present case, since it has been common ground throughout that this carriage was not governed by any international convention nor by the law of either Korea or New Zealand. The carrier's liability was the subject of contract only, which is the subject of clause 6(B)(b)(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;"

The third category of case (port to port shipment) is governed by clause 7:

"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."

Reference should be made, lastly, to clause 8(2) of the terms, which provides:

"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."

The parties are agreed, and the judge and the Court of Appeal rightly accepted, that the carrier's liability is governed by clause 6(B)(b)(i), either as applying directly or (preferably) as incorporated by clause 7. Thus the Hague Rules, to which reference is made in both clauses, are of obvious relevance. Three 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 [100 livres sterling in the authentic French text] 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.

Those contracting States in which the pound sterling is not a monetary unit reserve to themselves the right of translating the sums indicated in this convention in terms of pound sterling into terms of their own monetary system in round figures.

The national laws may reserve to the debtor the right of discharging his debt in national currency according to the rate of exchange prevailing on the day of the arrival of the ship at the port of discharge of the goods concerned."

The third relevant provision is article III rule 8, which is in these terms:

"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 this convention, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability."

Two observations may be made on these Rules. First, the effect of article IX is to make plain that what article IV rule 5 refers to is the gold value of the pound sterling not its nominal or paper value: see The "Rosa S" [1988] 2 Lloyds Rep 574, 581, per Hobhouse J. In Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co, Yeldham J decided that the limitation confining recovery to £100 per unit in article IV rule 5 was, in the light of article IX, to be calculated by reference to "the quantity of gold which was the equivalent of £100 sterling in 1924", and his decision was upheld by the Court of Appeal of New South Wales: (1989) 93 ALR 171, 172, 175, 188, 192. This interpretation of these two provisions, read together, has been accepted in this appeal. With the passage of 80 years since the Rules were adopted in 1924, and with the marked depreciation in the value of the pound sterling over that period, the practical effect of article IX has become increasingly great. Secondly, where the Hague Rules (including both article IV rule 5 and article IX) have compulsory effect by the operation of domestic law, any limitation of the carrier's liability to a figure lower than that yielded on application of both those provisions will fall foul of article III rule 8 and will be null and void. That result may, or may not, follow where (as here) the application of the Rules is the result of contractual incorporation and not compulsory application by operation of law.

In the present case, therefore, all turns on the correct interpretation of clause 6(B)(b)(i). This clause must be construed in the context of the contract as a whole. The general rule should be applied that if a party, otherwise liable, is to exclude or limit his liability or to rely on an exemption, he must do so in clear words; unclear words do not suffice; any ambiguity or lack of clarity must be resolved against that party: Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12, [2003] 2 WLR 711, paragraph 144, per Lord Hobhouse of Woodborough. There may reasonably be attributed to the parties to a contract such as this such general commercial knowledge as a party to such a transaction would ordinarily be expected to have, but with a printed form of contract, negotiable by one holder to another, no inference may be drawn as to the knowledge or intention of any particular party. The contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed (Homburg, supra, paragraph 73, per Lord Hoffmann), which would certainly include a holder such as Dairy Containers.

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.

In seeking to resist this conclusion, Mr Rzepecky for Dairy Containers placed strong reliance on advice given by John Richardson FCII in The Hague and Hague-Visby Rules, 4th edn, 1998, at page 43, when, having referred to The "Rosa S" [1988] 2 Lloyd's Rep 574, he said:

"Fortunately for carriers this result is not disastrous, as most nations where Hague Rules are still mandatorily applicable have converted the package limitation into local currency instead of using the gold limitation. However, great care is needed in drafting bill of lading contracts (which usually contractually apply Hague Rules to shipments from those nations that have no mandatorily applicable law) to write in only Articles I to VIII of the Hague Rules and then provide separately for a package limitation of £100 (or whatever), thereby avoiding the 'Gold Clause' trap."

Thus Mr Rzepecky relied on the failure to exclude article IX when incorporating the Hague Rules in this bill in support of the inference for which he contended, that article IV rule 5 was intended and should be understood to be qualified by article IX. It may be accepted that if the draftsman of clause 6(B)(b)(i) had followed the course recommended by Mr Richardson, the present argument would not in all probability have arisen. But this argument does not, in the Board's opinion, take Mr Rzepecky far enough. First, to accept that the carrier could have achieved the limitation it seeks by using Mr Richardson's formula is not to say that it is the only drafting formula capable of achieving that result: the question is whether the language of clause 6(B)(b)(i) as it stands is also effective to achieve it. Secondly, as shown above, the language of the clause has the purpose of altering the effect of the limitation provision in the Hague Rules, and it is difficult to see what alteration could have been intended other than to exclude the effect of article IX. The object cannot have been to make plain that it was British and not other pounds which were referred to, as is evident from the reference in the authentic French text to "livres sterling". It cannot be supposed that commercial parties, in a form of contract intended to be used all over the world, would have wished to stipulate for payment in British currency.

The language of clause 7, in the opinion of the Board, throws no light on the problem. If a claim is governed by a compulsorily applicable national law, clause 6(B)(a) is applicable. If not, the Hague Rules "as referred to in paragraph (B)(b)(i) of Clause 6" apply. The words "as referred to" can only mean, in effect, "as modified in" or "subject to".

Clause 8(2) is equally unhelpful to Dairy Containers. On a natural reading, the reference here is to an international convention or national law which is compulsorily applicable. In any event, a term in the bill cannot be repugnant to any provision of the Hague Rules if the term in question represents a modification of the Hague Rules provision agreed by the parties in exercise of their freedom to agree what they will. It would similarly be absurd to hold that a clear contractual limitation agreed by the parties is invalidated by article III rule 8 of the Hague Rules.

If it could be assumed that the terms of this bill had been drafted by a single hand and that they expressed a single coherent intention, there would be force in the point made by Mr Rzepecky, that the limitation of US$2.50 per kilo of gross weight in clause 6(A)(4) appears much more generous to the cargo owner who has suffered damage than the limitation of £100 sterling in clause 6(B)(b)(i). But these would be most unsafe assumptions to make when construing a document such as this. It is notorious that clauses are added and amended by different draftsmen at different times in response to the exigencies of commercial life, when and as they arise. A single draftsman expressing a single coherent intention would have been unlikely to provide one limitation in US dollars per kilo and another in British pounds per package or unit.

The judge held that, since the Hague Rules were incorporated by clause 6(B)(b)(i), the effect of clause 8(2) was to nullify the limitation in that clause to the extent that it conflicted with the Hague Rules limitation provided by article IV rule 5 and article IX; the Hague Rules were given contractual primacy, and so article III rule 8 invalidated the restriction. But the Court of Appeal took a different view. In the unanimous judgment delivered by Keith J it held (paragraph 30), rightly in the opinion of the Board, that the express limitation stated by the parties in clause 6(B)(b)(i) had the purpose of altering the limitation aspect of the Hague Rules and that effect had to be given to that contractual purpose.

Despite the arguments advanced for Dairy Containers the Board, like the Court of Appeal and for essentially the same reasons, finds no lack of clarity in clause 6(B)(b)(i). The carrier's liability is limited to £5,500 sterling in ordinary or paper currency, and Dairy Containers is entitled to an amount in New Zealand currency which it can exchange for that amount at the date of payment. The Board will humbly advise Her Majesty that the appeal should be dismissed, and that the unsuccessful appellant should pay the respondent's costs of this appeal to the Board.