NEW ZEALAND MARITIME LAW

Tasman Orient Line CV v Dairy Containers Ltd (CA)

IN THE COURT OF APPEAL OF NEW ZEALAND
CA 205/01

BETWEEN: TASMAN ORIENT LINE CV
Appellant

AND: DAIRY CONTAINERS LIMITED
Respondent

Hearing: 30 May 2002

Coram: Keith J
Blanchard J
Anderson J

Counsel: T J Broadmore for the Appellant
P Rzepecky for the Respondent

Judgment: 17 June 2002

JUDGMENT OF THE COURT DELIVERED BY KEITH J

[1] In October 1999, 70 coils of electrolytic tin plate were shipped from the port of Busan in Korea on the ship Tasman Discoverer. When the cargo was unloaded at the port of Tauranga about a month later, 55 of the coils were found to have been damaged by sea water which had got into the hold. Tasman Orient Line CV agrees with Dairy Containers Ltd that it is liable. They differ only on the question whether the amount payable is the actual amount of the loss, NZ $613,667.25, or is limited to £5,500 under a limitation of liability provision included in the bill of lading. Williams J in the High Court, after a trial based on agreed facts, held in favour of the higher figure. Tasman Orient Line appeals.

The provisions of the bill of lading and the Hague Rules

[2] The parties agree that the amount to be paid is governed by cl 6(B)(b)(i) of the bill of lading insofar as it may be effective to limit the liability of Tasman Orient Line to the lower figure. That provision reads:

… the liability of the Carrier in respect of … loss or damage shall be determined:

…

(b) Where no international convention or 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 … .

[3] As the introductory words to subpara (b) suggest and the parties agree, subpara (a) is concerned with the liability being determined in accordance with international conventions or national laws which cannot in the circumstances be departed from to the detriment of the merchant. That is not the present case. Counsel were agreed that Korean law does not apply a compulsory liability regime to the contract of the carrier and that the matter is simply one of contract, governed by New Zealand law.

[4] The front page of the bill of lading, which includes the detail about the goods to be carried, includes this passage:

Accepted by the Carrier from the Shipper in apparent good order and condition … the total number or quantity of containers or other packages indicated above [the line above reads "Total No. of Containers/Packages SAY: SEVENTY (70) COILS ONLY] (for purposes including limitation of Carrier's liability) … .

[5] The bill was a tackle to wharf bill, and provided that on its presentation (duly endorsed) to the carrier by or on behalf of the holder the rights and liabilities under it became binding between the carrier and holder as though the contact had been made between them.

[6] Tasman Orient Line claimed the protection of the £100 limit for each of the 55 damaged coils. Dairy Containers, by contrast, invoked the gold clause of the Hague Rules of 1924 which are referred to in subpara (b). Article 4(5) of those Rules, in their English translation of the original French text, states this limit on the liability of the carrier and the ship in terms which at first glance may appear to be parallel to cl 6(B)(b)(i):

5. 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.

It is common ground that the shipper made no declaration in terms of the final part of that provision or under the parallel provision of cl 8(5) of the bill of lading. Such a declaration would of course give the carrier the opportunity to propose an increase in the freight and to make different insurance arrangements.

[7] Article 4(5) of the Rules is to be read with art 9, the gold clause:

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 point of discharge of the goods concerned.

[8] The current value of the quantity of gold worth £5,500 in 1924 exceeds the loss actually suffered by Dairy Containers. It contends that art 9 requires the reference to "£100" in art 4(5) to be read in terms of the current value of the gold worth £100 in 1924.

[9] Dairy Containers' argument also invokes the "clause paramount" of art 3(8) of 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 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.

[10] A related provision of the bill of lading is cl 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 and subclause (1) above or otherwise, such provision shall be null and void to that extent but no further.

[11] Clause 6 is concerned with "combined transport" while cl 7 regulates "port to port shipment". The parties agree that nothing turns in this case on the difference between the two but because of the references to cl 7 in cl 8(2) and in the High Court judgment we set out its terms:

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.

The High Court judgment

[12] After setting out the facts, relevant provisions of the bill of lading and Hague Rules, summarising the parties' submissions, and discussing the two relevant decisions, Williams J stated that it was axiomatic that since this was a contract case the parties, subject to any relevant statute, were free to contract on such terms as they wished, including incorporating in the contract provisions of other documents such as the Hague Rules. Care was required in drafting the contract to avoid what had been referred to as "the gold clause trap", the Judge quoting a text which emphasised the paramountcy rule in art 3(8) (para [9] above). He continued:

[34] Seen in that light, the parties agreeing that this is a case of combined transport where the stage of transport where the damage to the goods is known but where no international convention or national law applies, they have by contract incorporated the Hague Rules into the bill subject to the limitation of liability under cl 6(B)(b)(i) to "£100 sterling lawful money of the United Kingdom per package or unit". Clause 7 makes it clear that Tasman Orient's liability for this shipment is to be ascertained "by the Hague Rules as referred to in para (B)(b)(i) of cl 6". The effect is that all the Hague rules are incorporated into Tasman Orient's bill of lading.

[35] However, the Hague Rules being incorporated in the bill by cl 6(B)(b)(i) the effect of cl 8(2) is to nullify the package limitation of liability under cl 6(B)(b)(i) to the extent that it may be in conflict with or repugnant to the Hague Rules or, to put it another way, the Hague Rules are 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 Art III r 8 confirms that to be the result.

[36] It follows that if there be any inconsistency between the phrase "£100 sterling lawful money of the United Kingdom per package or unit" in cl 6(B)(b)(i) and the phrase "£100 per package or unit or the equivalent of that sum in other currency" in Art IV, r 5, the latter supervenes and the former is nullified.

[13] The Judge then examined aspects of the drafting of cl 6(B)(b)(i) and art 4(5). One was that "the addition in cl 6(B)(b)(i) of the words 'sterling lawful money of the United Kingdom' does no more than make the currency of the liability limitation clear to avoid any possibility that it might be construed as Irish, Kenyan or any other national currency denominated in pounds". There was no effective difference between the limitation of liability in the two provisions and, if there were, art 4(5) supervened. For the reasons given in the two cases he discussed (The "Rosa S" [1988] 2 Lloyd's Reports 574 (HCEW) and Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co [1989] 1 Lloyd's Reports 518 (NSWCA), he held there was a linkage between art 4(5) and art 9 with the consequence that there was a stark difference between the limitation of liability in cl 6(B)(b)(i) and that in the articles. In the event of such a conflict, he said, the bill provides for the articles to prevail and the package limitation in cl 6(B)(b)(i) is nullified by cl 8(2). Reasons supporting that conclusion were the unlikelihood of parties agreeing that recovery now should be limited to an amount set 77 years ago, and the value of the consistency of interpretation of an international maritime instrument. Williams J then said this:

[45] For all those reasons, the Court respectfully follows the decisions in The "Rosa S" and Brown Boveri. The problem for Tasman Orient is, as the learned author [Richardson] of the "Hague and Hague-Visby Rules" [4th ed 43-44] observed, in drafting its bill of lading it incorporated the whole of the Hague Rules not merely Arts I-VIII so it fell into the 'Gold Clause' trap by allowing and requiring the Hague Rules to supervene over cl 6(B)(b)(i).

Submissions

[14] Counsel's submissions were commendably to the point and concise. Mr Broadmore, for Tasman Orient, the carrier, emphasised that the issue to be resolved was one of the meaning of the contract, the bill of lading, as indeed the parties had said in their agreed statement of facts for trial:

The parties agree … that the issue for determination is whether the terms of clause 6(B)(b)(i) and in particular the words "…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 …" results in the second defendant being able to limit its liability to £5,500 sterling in ordinary or paper currency, or whether the package limitation is that normally applied by Article IV, R.5 and Article IX of the Hague rules.

[15] He submitted that the Judge had misstated the issue at the outset when he said that

The critical question is … whether cl 6(B)(b)(i) is effective to contract out of the package limitation in the Hague Rules.

The issue was not one of contracting out but of construction of the words used. The implanted changes made by cl 6(B)(b)(i) take effect and are governing notwithstanding arts 9 and 3(8). Clauses 7 and 8(2) of the bill of lading either do not apply or apply to the text of the Rules as amended by cl 6(B)(b)(i). The instruction at the end of that clause to construe the Hague Rules "accordingly" led to the same result.

[16] Mr Rzepecky, for Dairy Containers, supported the reasoning of Williams J. The words used by the carrier in its bill of lading do not reduce the limits of liability contained in the Hague Rules, based on the gold value of sterling as established by previous cases and internationally recognised by Courts and the maritime industry. In particular the words used in cl 6(B)(b)(i)

do not displace the combined application of arts 4(5) and 9 of the Hague Rules, and
are otherwise not applicable by virtue of art 3(8) of the Rules and cl 8(2) of the bill of lading.

The Gold Clause - art 9

[17] The purpose of art 9 falls within the broader purpose stated in the preamble to the 1924 Rules where the State parties "recognis[e] the utility of fixing by agreement certain uniform rules of law relating to bills of lading". After setting out the substantive responsibilities, liabilities, rights and immunities of the carrier, the Rules in art 9 defined the "monetary units" mentioned in the Rules or provided for means for fixing them. The only monetary unit in fact included in the Rules was that in art 4(5) which in the authoritative French text was "100 livres sterling, par colis ou unité, ou l'équivalent de cette somme en un autre monnaie". The only reason to mention that text is that the word sterling (which does appear in the second sentence of art 9 in both language texts) is seen by some as emphasising that the payment was not to be made simply in paper money.

[18] In terms of the preambular statement of purpose, uniformity would in part be geographic by ensuring that equivalent payments were made in the different countries accepting the rules by becoming parties to the convention, and in part could be temporal by providing for a relatively stable measure of value, especially given the hyper-inflation being experienced in some countries in the 1920s. At the same time, the provisions of art 9 also envisaged that national legislative measures might be taken to give effect to its terms. One notable example of the use of the second sentence of art 9 (para [7] above) is the fixing by the United States of Carriage of Goods by Sea Act as long ago as 1936 of the limit at $500, a figure which has remained unchanged. The first New Zealand statute to take account of the Hague Rules was the Sea Carriage of Goods Act 1940. While it set out arts 1-8 in full, the Act did not include the gold clause. Rather, its art 9 read as follows:

The monetary units mentioned in these Rules are to be taken to be New Zealand currency.

[19] It was only in 1995 that New Zealand became party to the 1924 convention, but in the form in which it had by then been amended by the Protocols of 23 March 1968 and 21 December 1979. (That amended text appears in part in the fifth schedule to the Maritime Transport Act 1994.) Those amendments replace arts 4(5) and 9 and provide a new relatively uniform and stable method of calculating the limit, by reference to special drawing rights defined by the International Monetary Fund, a method now used in a number of conventions limiting the liability of international carriers.

[20] The United Kingdom Act of 1924 did include the first paragraph of art 9 as actually adopted in the Hague Rules. Notwithstanding that inclusion, the City of London, according to that great authority, Dr F A Mann, found the 1924 Act mysterious, and art 9 was, he says, apparently widely ignored in the United Kingdom at least up to 1945; claims were customarily settled on the basis of a maximum liability of £100 per package or unit. In 1950, however, when the equivalent value had risen to almost £300, the British Maritime Association Agreement purported to fix the limit as £200 sterling lawful money. The figure was increased to £400 in 1977. But, as Mann says, if the Hague Rules applied through compulsory national law (and not as a matter of contract as here) the limit in the Agreement would have been invalid, in terms of the paramountcy clause of art 3(8). For those situations covered by the 1979 version of the Rules that issue has however become hypothetical (F A Mann The Legal Aspect of Money (5th ed 1992) 160).

[21] It is remarkable that it was only in 1988 that a British Court, followed soon after by an Australian one, stated that art 9 of the 1924 text expressed the sterling figure of art 4(5) as a gold value figure (The "Rosa S" and Boveri cases, para [13] above). According to Hobhouse J in The "Rosa S", the purpose of the gold clause was to escape from the principle of nominalism and in particular to provide a single and constant measure of value by reference to gold, not a fluctuating value. That Judge referred to a series of nine decisions to the same effect given in Italy, France, Canada, India, Bangladesh, Singapore and Australia over the previous 15 years.

[22] Mr Broadmore did not challenge that line of authority. Rather, he said it was irrelevant. We were concerned with interpreting a contract and cl 6(B)(b)(i) had replaced the gold value meaning of arts 4(5) and 9.

[23] One other aspect of the Hague Rules and the related legislation can conveniently be mentioned at this stage. As Williams J points out, they were designed, beginning with the United States Harter Act of 1893, to impose certain duties of care on the carrier and to prevent contracting out from them. The broad purpose was to restrain the market power of the carrier. The New Zealand legislature enacted similar provisions in 1903 and 1922 (see eg Shipping and Seamen Act 1903 Part XI). Those provisions have remained subject to legislation determining the overall limitation of liability of owners of seagoing vessels (in general fixed in terms of the relevant convention by reference to the tonnage of the ship): see now part VII of the 1994 New Zealand Act and art 8 of the Hague Rules which saves the effect of legislation limiting the liability of owners of seagoing vessels. That paramountcy principle is carried through in art 3(8), in the case where the Rules apply compulsorily through national law.

The meaning of the contract

[24] But that is not our case. We are not concerned with overriding national legislation. Instead, as the parties agree, we are concerned only with the interpretation of their agreement which, as it happens, incorporates a treaty text. We take the wording of cl 6(B)(b)(i) piece by piece. Liability of the carrier is to be determined "by the Hague Rules" in their 1924 form. The reference is to "the Hague Rules" - as a whole, Mr Rzepecky would say. It is not for instance limited to arts 1-8, a formulation that avoids the "gold clause trap". At that point, on the basis of the accepted interpretation of arts 4(5) and 9, Dairy Containers would succeed. But we must read on. The loss must be proved to have occurred at sea (as here) or on inland waterways. That final phrase contemplates the extending of the scope of the Rules since in their own terms they are limited to carriage by sea (eg arts 1(b) and (d), 2, 4(2)(c) and (l), 6, 7 and 8).

[25] There then follows the second part of the sub-paragraph. It begins "for the purpose of this sub-paragraph" which must refer back to the application to the carriage, by the subparagraph, of the 1924 Rules to the carriage and to the determination of liability under them. The plain indication from those words is that some amendment of the Rules, for instance by way of reduction or extension, is about to appear. There would be no apparent point in adding the following words unless some amendment to the Rules is in prospect. The unadorned Rules have, after all, already been made applicable to the carriage by the first part of the subparagraph. The following words then deal with two matters, with a view to amending the Rules so far as the particular parties to the contract are concerned. The first matter is "the limitation of liability under the Hague Rules". That limitation "shall be deemed to be £100 sterling, lawful money of the United Kingdom per package or unit …". The limitation of liability under the Rules is determined by both arts 4(5) and 9 and not simply by the former. That essential linkage appears from the text of the Rules themselves, from the legislative implementation of them, and from the English and Australian cases and the other cases to which they refer. On the face of cl 6(B)(b)(i), the limit set by those two Rules is, however, replaced for the purposes of the present contract by a new limit which is written in terms of national currency only - "£100 sterling, lawful money of the United Kingdom" - and which makes no reference at all to gold value. That statement of the limit of liability, it might also be noted, uses exactly the form of words included in the 1950 British Maritime Association agreement (with of course a different figure), an agreement designed to replace the combined effect of arts 4(5) and 9 and to fix a single standalone limit to liability.

[26] We next turn to the final words of the subparagraph - "and the Hague Rules shall be construed accordingly". (We come back to the reference to inland waterways later.) Subject to a grammatical argument which Mr Rzepecky put forward, those words must be read as requiring that the relevant parts of the Hague Rules are to be read as being amended by the new "deemed" parts. The word "construed" in this context does not merely mean "interpreted". Its effect is reconstruction (eg Yuen Kwok Fung v Hong Kong Special Administrative Region of the People's Republic of China [2001] 3 NZLR 463 para [15]). The wording emphasises the amendments which have been made or "deemed" by the earlier words. The grammatical argument is that the final words relate only to the inland waterway extension. We do not accept that. There is no reason on the face of the document to limit those words to just one of the two matters which the relevant passage is addressing. The passage as a whole deems two matters to be so "for the purpose" of the application of the rules and then, redundantly it might be thought, directs that the Rules be so construed.

[27] We return to the extension of the Rules to inland waterways. As Mr Broadmore submitted, the provision deals with that extension in essentially the same way as it deals with the limitation of liability. It does not expressly amend each of the relevant provisions of the Rules to add a reference to inland waterways each time carriage by sea is mentioned (see eg the provisions mentioned in para [23]). Rather, by a general provision it achieves those extensions in effect. The limitation of liability is established in the same way.

[28] The provision of cl 6(B)(b)(i) does accordingly appear to limit the carrier's liability to "£100 sterling, lawful money of the United Kingdom per package or unit", that is, to a total in this case of £5,500.

[29] Mr Rzepecky had two further answers to that proposition. The first, also expressed in a somewhat different way by the Judge (para [13] above), was that the words of the subparagraph did alter the Hague Rules but only by dealing with the method of payment : while art 4(5) allowed payment by the equivalent of £100 sterling in other currency, the subparagraph limited the method of payment of "lawful money of the United Kingdom". But no reason can be given for such a strained reading. To alter the Hague Rules to achieve only that result makes no commercial sense. In practice the payment would be made in a currency acceptable to the shipper.

[30] Mr Rzepecky's other answer to the conclusion proposed in para [28] above was based on the provisions of art 3(8) and cl 8(2) (paras [9] and [10] above). Williams J had also adopted that position (in his para [35] quoted in para [12] above). Article 3(8) does of course operate as a paramountcy clause when the Rules apply compulsorily as a matter of statute. That critical denial to the carrier of the power to contract out is to be traced back over 100 years to the Harter Act (para [22] above). But, to repeat, we are concerned simply with the contract. The more general provision of art 3(8) has to be related to the express limitation stated by the parties in cl 6(B)(b)(i). That 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.

[31] Much the same reasoning might well be applied to answer the argument based on cl 8(2) of the bill of lading itself. That argument is that so far as cl 6(B)(b)(i) reduces the liability of the carrier that provision is repugnant to the Hague Rules ("any international convention") and is accordingly null and void. We need not, however, answer that argument on that basis or on the basis that cl 8(2) is limited to situations in which the application of the Hague Rules is compulsory as a matter of law, since there is another answer which is clear beyond any doubt. It is that the "extent" to which the Hague Rules are applicable, "by virtue of" cl 6, is determined in relevant part by cl 6(B)(b)(i) - that is in accordance with the meaning which we have already established. The "extent" of the Hague Rules as so applied does not include the original limitation provisions of arts 4(5) and 9. There can accordingly be no question of any repugnancy between the bill of lading and those provisions. Put another way, the repugnancy which will make a provision of the bill of lading null and void is a repugnancy to the Hague Rules as they have been modified by cls 6, 7 and 8(1) (and in this case in particular by cl 6(B)(b)(i)) of the bill of lading. It would of course make no sense to direct a modification in those clauses and then immediately to make it null and void.

[32] We should return to the importance, stressed by Williams J, of the consistency of interpretation of international maritime instruments (para [13] above) or indeed of international conventions generally (eg Dellabarca v Christie[1999] 2 NZLR 548, 551, citing Lord Denning MR in an international transport case, Corocraft Ltd v Pan American Airways Inc [1969] 1 QB616, 655). But that is not our case. We are concerned with the meaning of a contract in the making of which the parties were free to fix their own rights and obligations. We have held that they have not adopted the full Hague Rules.

[33] It follows in terms of the issue presented by the parties (para [14] above) that we conclude that the carrier's liability is limited to £5,500 sterling in ordinary or paper currency. Dairy Containers is entitled to an amount in New Zealand currency which it can exchange for that amount at the date of payment.

Result

[34] The appeal is allowed and the judgments given in the High Court are set aside. A declaration is made in the terms indicated in para [33]. The matter of interest was not addressed before us. If the parties are unable to resolve it they may file memoranda.

[35] The appellant is entitled to costs of $5,000 and to reasonable disbursements to be fixed by the Registrar in the absence of agreement between the parties. Costs in the High Court are to be fixed by that Court, in the light of this judgment.

Solicitors:
Wackrow Smith & Davies, Auckland for the Appellant
McElroys, Auckland for the Respondent