In this case, three significant issues arose: first, whether the presentation of a 'straight' bill of lading (as opposed to an 'order' bill) is a requirement for delivery of the cargo specified therein; second, the ambit of the term 'discharge' within the meaning of arts 2 and 3.2 of the Hague-Visby Rules; and third, the extent to which it is permissible to 'read down' an exemption clause within a bill of lading so as not to defeat the main object of the contract of carriage.

In one action, Carewins (the plaintiff) alleged that Bright Fortune Shipping Ltd (the first defendant) was the carrier under the contracts of carriage evidenced by the bills of lading specified in the statement of claim in that action. However, in another related action, the plaintiff alleged that Hecny Shipping Ltd (the second defendant) was the carrier under the bills relevant to that action.

The claim and counterclaim in each action relate to the plaintiff's shipment of goods from Hong Kong to Los Angeles, California. In each case, the goods transported by the defendants had been sold by the plaintiff to Artist Fashion Inc (Artist Fashion) in Los Angeles.

In each action the plaintiff alleged that the defendants were subject to the contractual obligation to deliver the cargo in question only to the holder of the original bill of lading, and sought damages in the amount of the invoice value of the goods, amounting to a total in both actions of USD 873,028, representing the sound arrived value of the 23 containers allegedly misdelivered.

In turn, the defendant in each action brought a counterclaim in respect of freight in the amended sum of USD 24,436, and in addition sought declaratory relief that the plaintiff was liable to indemnify the defendants in such amount as the defendants were called upon to pay in respect of demurrage and storage charges occasioned in respect of the balance of 22 containers, out of the 45 in issue in this case, which remained unclaimed by the plaintiff.

Held: The plaintiff's claims in these actions are dismissed, as are the defendants' counterclaims in each action.

Among other issues, the most fundamental issue posed by the defendants is whether the plaintiff has established that the carrier under the respective contracts of carriage evidenced by these 'straight' bills of lading is subject to a contractual obligation to deliver the goods only to the holder of the original bills of lading.

It is settled law in JI Macwilliam Co Inc v Mediterranean Shipping Co SA [2005] UKHL 11 (CMI632) that a straight bill of lading is 'a bill of lading or any similar document of title' within the meaning of art 1.b of the Hague/Hague-Visby Rules, and that the presentation of a straight bill of lading is a requirement for the delivery of the cargo even where there is no express provision to that effect. On the facts of this case, the defendants should have delivered the goods to Artist Fashion only against production of the bill of lading. The defendants were prima facie in contractual breach in failing so to do.

The defendants' submission is that, even if they acted in prima facie contractual breach, they are nevertheless entitled to rely upon the exemption clause and the limitation provision contained within cls 2 and 3 of the terms and conditions on the reverse of the bills of lading.

In substance this raises two questions: first, to what extent are the contractual terms in these actions affected or restricted by the operation of the Hague-Visby Rules; and second, if recourse can be had to the contractual exemptions in question, to what extent is it permissible to 'read down' such exemption clauses so as not to defeat the main object of the contract? The initial element of this debate inevitably focuses upon the ambit of the applicability of the Hague-Visby Rules to the instant contracts of carriage, this Rules being made part of Hong Kong law by s 3 of the Carriage of Goods by Sea Ordinance, Cap 462, the effect of which is thus to give statutory force to a mandatory contractual regime.

The scope of the disagreement under this head is straightforward. The plaintiff argues that the exemption clauses should be subject to the provisions of art 3.8 of the Hague-Visby Rules, and thus that the purported exemption and limitation clauses are out of play. To the contrary, the defendants contend that the Rules have no application after (as here) the goods in question have been discharged from the ship, and thus that the contractual clauses in question remain relevant.

Therefore, whether the contractual exemption and limitation of liability clauses can be applied in the present case depends upon whether the Court concludes that at the time of the misdelivery in question the provisions of the Hague-Visby Rules no longer were applicable. The Court concludes that there is in principle no justification for extending the concept of 'discharge' beyond final unloading to embrace every act up to and including the delivery of the goods. It would be tantamount to regarding the carrier both as carrier and warehouse keeper. It would be wrong to extend the application of the Hague-Visby Rules to the entire contract of carriage, including a period of storage ashore. The proper ambit of the Hague-Visby Rules is vital to this case. It seems to the Court that arts 2 and 3.6 of the Hague-Visby Rules should be read together. Therefore, the plaintiff's primary submission that in this case, the misdelivery took place when the 'care and custody element' of the Rules was still in force is wrong.

If this analysis is correct, then the operational ambit of the Hague-Visby Rules does not extend to the misdelivery on the present facts. Thus, the Court's attention switches to the provisions of the particular exemption clause which presently is invoked by the defendants and which, it follows from the foregoing, remains unaffected and unrestricted by art 3.8 of the Hague-Visby Rules.

Clause 2(b), which is the clause in question reads as follow:

'the [Defendants] shall be under no liability in any capacity whatsoever for loss or misdelivery of the Goods howsoever caused whether or not through the negligence of [the Defendants] [their] servants or agents or sub contractors ...'

The plaintiff's response to this clause is that it does not assist the defendants, given that the fundamental requirement to deliver the cargo only against an original bill of lading supports the further proposition that it is permissible as a matter of construction to limit the ambit of a particular clause in light of that fact.

Contracting parties may agree to conditions of carriage which protect the carrier against liability for loss which may defeat the main object of the contract of carriage, the proviso being only that such an agreement must be made manifest in clear and unambiguous terms. Accordingly, whilst the plaintiff's argument on this issue is well and good as far as it goes, the danger is that there lies within it the propensity to put the point too high and purport to apply it irrespective of the particular terminology of the clause in question. It seems to the Court that it is not the case, and there is no wider principle to the effect that the terms of an exemption clause otherwise clear and unambiguous on its face necessarily will be 'read down' because it purports to exclude liability for misdelivery, which in effect is what the plaintiff came very close to submitting.

Therefore, the plaintiff has succeeded on every issue raised by the defendants, save for that relating to the applicability and effect of the exemption clause in the bills of lading.

[For the successful appeal to the Hong Kong Court of Appeal, see CMI553].