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Carriage of Goods by Sea

Dairy Containers Limited -v- Tasman Orient Line CV

May 2004

When a consignment of 70 coils of electrolytic tin plate was discharged from the vessel Tasman Discoverer at the New Zealand port of Tauranga, it was discovered that 55 of the coils were irreparably damaged by sea water. The coils were owned by Dairy Containers Limited, the holder of the bill of lading that had been issued at the loading port of Busan in Korea on behalf of Tasman Orient Line CV ("the Carriers"). The Carriers did not dispute that they were liable for the damage sustained but, relying upon provisions contained in the bill of lading, they claimed that they were entitled to limit their liability to a total sum of £5,500.

It was common ground that the carriage was not governed by any international convention nor by the law of either Korea or New Zealand, and that the Carriers' liability was the subject of contract only. As such it was, therefore, the subject of clause 6(B)(b)(i) of the bill of lading ("the Clause") which, in addition to incorporating the Hague Rules 1924, went on to state that:

"... 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 ..."

The dispute between the parties related to the interpretation of the Clause and became the subject of proceedings in the New Zealand courts. At first instance Mr Justice Williams adopted a construction advanced by Dairy Containers and gave them judgment for the full amount of the loss, which was agreed at a figure of NZ$613,667.25. However, in June 2002, the New Zealand Court of Appeal reversed that decision and held that the Carriers' liability was limited to £100 per damaged coil. Dairy Containers appealed to the Judicial Committee of the Privy Council ("the Board").

The Board agreed that in this case everything turned on the correct interpretation of the Clause. The Board confirmed that, when construing such a clause, 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; any ambiguity or lack of clarity must be resolved against that party. Furthermore, the bill of lading should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to those to whom the document is addressed, including a holder such as Dairy Containers. However, with a printed form of contract such as this, negotiable by one holder to another, no inference could be drawn as to the knowledge or intention of any particular party.

In the Board's view, it was significant that the Clause stated that the limitation of liability under the Hague Rules was "deemed" to be "£100 Sterling, lawful money of the United Kingdom per package or unit". The need for the deeming provision arose because, without it, the term in question did not have the meaning it was to be deemed to have. Under the Hague Rules the limitation was that provided by Article IV rule 5 (which refers to £100 per package or unit), as qualified by Article IX (which states that the monetary units mentioned in the Rules are to be taken to be gold value). Without the deeming provision in the Clause the effect of Article IX would have been to make it plain that the £100 limit referred to was not the nominal or paper value of sterling but "the quantity of gold which was the equivalent of £100 sterling in 1924" (Brown Boveri (Australia) Pty Ltd -v- Baltic Shipping Co (1989)). The purpose of the deeming provision was, therefore, to give effect to Article IV rule 5 as if it were unqualified by Article IX.

The Court of Appeal had held that the express limitation stated in the Clause had the purpose of altering the limitation provisions of the Hague Rules, and that effect had to be given to that contractual purpose. The Board agreed with that interpretation. It also agreed with the Court of Appeal's finding that there was no lack of clarity in the Clause.

It followed, therefore, that the Carriers' liability was limited to £5,500 sterling in ordinary or paper currency (or the equivalent in New Zealand dollars at the date of payment).

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