In 1982, Baltic Shipping Co (Baltic) shipped a cargo of electrical equipment from Genoa to Sydney aboard the Nadezhda Krupskaya. Two crates of equipment were badly damaged during the voyage. The parties had incorporated the Hague Rules 1924 into the relevant bill of lading. The carrier, Brown Boveri (Australia) Pty Ltd (Brown Boveri) originally had judgment entered against it in the New South Wales Supreme Court for AUD 32,221.33. The primary judge, Yeldham J, held that Brown Boveri's liability was to be calculated by reference to the value of gold that was the equivalent of 100 pounds sterling in 1924, adjusted for inflation to the current value.

On appeal, Brown Boveri argued that its liability was either restricted to GBP 100 per package converted to AUD, or the AUD equivalent of the current gold value of 100 pounds sterling per package or unit.

Held: Appeal dismissed. 'Gold value' means the quantity of gold which was the equivalent of 100 pounds sterling in 1924 and adjusted for inflation.

The Hague Rules had both an international origin and international application, affecting trade between a variety of countries, and must be construed in that context. Ideally any construction of the Hague Rules delivered by an Australian court should fall in line with interpretations elsewhere. The Court was influenced by the decision in The 'Rosa S' [1988] 2 Lloyd's Rep 574, which approved the decision reached at first instance in this case by Yeldham J.

Article 4.5 of the Hague Rules restricted carrier or ship liability to 100 pounds sterling per package or unit, while art 9 stated that any monetary units mentioned in the Hague Rules were to be read as their gold value. This is the value of the gold that 100 pounds sterling or its equivalent in another currency could purchase.

The appellant submitted that arts 4.5 and 9 were completely unrelated, and that art 9 was concerned more with State to State relations than with shippers and carriers, and affirmed that States could convert 100 pounds sterling to their own currencies. If reading arts 4.5 and 9 separately, the amount owed by Brown Boveri would be GBP 100 converted to AUD per package. If art 9 was interpreted as impacting on art 4.5, art 4.5 must refer to the amount of gold that could be bought in the modern day for GBP 100, with that amount then converted again to the relevant State's monetary system (here, Australia).

The Court observed that when originally drafted, arts 1-8 and 9-16 of the Hague Rules were formulated separately, which arguably meant that arts 4.5 and 9 have no actual impact on the other. However, a deeper examination of the Hague Rules reveals that the articles form one cohesive whole, and art 9 onward is concerned with more than just relationships between State parties to the Hague Rules. Both arts 4.5 and 9 also reference the pound sterling as the relevant currency.

The Court examined the history of the Hague Rules and found that these provisions, especially art 9, were intended to provide a measure of stability and predictability to international dealings by reference to gold value, given the currency inflation that many countries experienced after the First World War. Articles 4.5 and 9 must not be viewed as divorced from one another, because the objective value of gold referred to in art 9 was meant to clarify what the equivalent was of the 100 pounds sterling stated in art 4.5. The purpose of art 9 extended beyond providing for the gold value of pounds sterling and other currencies. To assume that this was the case would ignore that when the Hague Rules were drafted, one currency was as variable as any other, so the 'gold value' idea was not actually tied to any currency in particular. The value of gold was perceived as being more stable than most European currencies and was used for that reason.

Since the respondent originally sued the appellant in an Australian court seeking a judgment that would be expressed in Australian dollars, it would not be appropriate to allow the appellant to pay pounds sterling in notes or the gold value of that amount. The judgment needed to be satisfied in Australian currency.

The Court noted the complexity surrounding the interpretation of both arts 4.5 and 9 and also that 100 pounds sterling, while a considerable amount of money in 1924, no longer had much worth in a commercial context. This could be partially overcome by requiring that the equivalent of 100 gold pounds sterling in 1924 per package be tendered.

In Kirby P's judgment, it was also expressly recommended that the Hague-Visby Rules be adopted in Australia, to update rules such as those found in arts 4.5 and 9 of the Hague Rules.