The plaintiffs were garment manufacturers trading as C&W Prosperity Knitting Garment Factory Ltd. A contract of sale was entered between the plaintiffs and a Taiwanese company, Goldentex, for the shipment of 158 cartons of garments from Hong Kong to Moscow. The sale contract provided for documents against payment (D/P). The plaintiffs delivered the goods to an agent of China International Freight Forwarders (HK) Co Ltd (the defendant), whose services Goldentex had instructed the plaintiffs to use. The goods were shipped on the Ming Star, discharged at Hamburg, and carried by land to Moscow.

The plaintiffs received a bill of lading dated 19 October 1995 and signed by a Taiwanese company, China International Freight Forwarders Co Ltd, as carrier. The bill of lading was issued in Hong Kong, named the plaintiffs as the shippers and Bronze Lion as the consignee, stated Hamburg as 'port of discharge' and Moscow as 'place of delivery', and did not expressly state an agreed time limit for delivery. Clause 21 of the bill of lading provided for a limitation period of 9 months. Clause 8 of the bill of lading incorporated the Hague-Visby Rules, which also applied in Hong Kong under the Carriage of Goods by Sea Ordinance (Cap 462).

The plaintiffs sent the bill of lading to their bank to collect funds pursuant to the D/P term, but the bill of lading was returned as the bank did not receive payment. The plaintiffs took steps to locate the goods. The carrier informed the plaintiffs that the goods were stored in a warehouse in Moscow as no-one had collected them. The carrier advised the plaintiffs to either take delivery of the goods in Moscow by presenting the bill of lading or to pay freight for the return of the goods. The plaintiffs did not do so and the goods were eventually sold at an auction.

The plaintiffs sued the defendant in the District Court to claim the delivery of the goods or their value or damages for conversion. The trial Judge dismissed the action because it was time-barred by the Hague-Visby Rules and/or cl 21 of the bill of lading. The plaintiffs appealed.

Held: Appeal allowed.

In Pyrene Co Ltd v Scindia Steam Navigation Co Ltd [1954] 2 QB 402, 415-416 (CMI2100), Devlin J explained that the Hague Rules do not attach to a period of time as such; they attach to a contract. Or, where a single contract covers both sea and inland transport, they may attach to part of a contract. In that situation, the only part of the contract that falls within the Hague Rules is that which 'relates to the carriage of goods by sea'. Accordingly, the relevant question to ask is: did the loss or damage to the goods occur during an operation that was part of their carriage by sea? In this case, as the goods had gone via inland transport to Moscow before disputes as to their custody began, the answer must be 'no'. Although Pyrene was decided on the Hague Rules rather than the Hague-Visby Rules, the rationale of Devlin J’s judgment still holds good because the articles of the Hague Rules on which he based his decision have not been amended.

Counsel for the defendant submitted that the Hague-Visby Rules cover misdelivery of goods, and since misdelivery would normally occur after discharge from the ship, the Hague-Visby Rules applied beyond the contract of carriage by sea. He relied on the judgment of the English Court of Appeal in Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) [1990] 1 Lloyd's Rep 310. In the course of his judgment, Bingham LJ considered the question whether misdelivery could be covered by the Hague-Visby Rules. Counsel for the carrier referred to the travaux préparatoires which led to the amendment of art 3.6 of the Hague-Visby Rules. Bingham LJ agreed that the travaux préparatoires tended to demonstrate a legislative intention to apply the time limit to cases of misdelivery (at 314). Of course misdelivery could take place during the voyage, eg by transhipping or by the carrier's use during the voyage, as were the alleged facts in The Captain Gregos. But even if Bingham LJ is to be taken as having endorsed the view that the travaux préparatoires were concentrating on the problem of delivery to a party who did not present the bills of lading (at 316), that would still be in the context of delivery by the sea carrier.

Counsel for the defendant also relied on Liu JA’s judgment in Wily Products Co Ltd v Hecny Shipping Ltd [1995] 3 HKC 47 (CMI1171), where goods covered by combined bills of lading for carriage of goods by sea and land were lost after discharge from the ship but before delivery to the land carrier. In that case, the freight forwarder's argument was based on a distinction between the Hague-Visby Rules and the Hague Rules. The majority of the Court (Litton VP and Patrick Chan J) considered the argument to be irrelevant. Liu JA held, however, that the Hague-Visby Rules applied, referring to The Zhi Jiang Kou [1991] 1 Lloyd's Rep 493, a decision of the Court of Appeal of New South Wales.

Liu JA’s view was not accepted by another division of this Court (Nazareth VP, Godfrey and Ching JJA) in Computronics International v Piff Shipping Ltd [1997] 2 HKC 53, 62-3 (CMI1218). However, that was an interlocutory appeal involving an application to strike out for want of prosecution and the issue was not fully examined. It is not necessary for this Court to consider whether the view expressed in Computronics was justified. It would not be prudent for this Court to do so in this appeal, even by way of an obiter dictum, because one of the parties is not legally represented and this Court has not had the benefit of full argument for both sides. Besides, it is not necessary to express a view on the correctness of Liu JA’s judgment because, even assuming it is adopted, the rationale of his judgment was that the contract of carriage by sea had not terminated (at 52H-I) because the goods were lost at the port of discharge before they were handed over to the land carrier (at 49). Nowhere in Liu JA’s judgment did he suggest that the Hague-Visby Rules applied beyond carriage by sea. In the present appeal, the goods were far removed from that situation. On no stretch of the imagination could the goods be said to be still within the scope of a contract of carriage by sea.

Article 3.6 could not possibly extend to misdelivery after inland carriage. Apart from the express wording of the Rules referring to the contract of carriage by sea, it would make no sense for art 3.6 to require the cargo owner to notify the carrier of loss or damage 'at the port of discharge' (here, Hamburg) if the goods were found to be lost or damaged at the place of delivery (here, Moscow), which may be (and here was) a long distance inland from the port of discharge.

The Court therefore held that the trial Judge erred when he found that the Hague-Visby Rules (and consequently the time bar) applied in this case.

The Court could not reach a decision on the defences based on cl 21 of the bill of lading as they required the trial Judge to have made relevant findings of fact. The Court therefore set aside the trial Judge's order and remitted the case to the District Court for retrial before a different judge.