The plaintiff contracted with the defendant to ship a tractor and a generator from Montreal to Deception Bay on board the defendant's ship. The cargo was lost after it was loaded onto a barge belonging to the defendant alongside the defendant's ship at Deception Bay and fell off the deck of the barge into the sea in bad weather.

The Exchequer Court limited liability to CAD 1,000 on the basis that the tractor and the generator were treated as two separate shipping units to which liability would be limited at CAD 500 per unit under art 4.5 of the Canadian Carriage of Goods by Water Act 1970 (which gave effect to the Hague Rules in Canada).

The plaintiff appealed on the issue of package limitation and the defendant cross-appealed denying liability.

Held: Appeal and cross-appeal dismissed.

The plaintiff argued in its appeal that, because the loss happened after the cargo was discharged from the ship onto a barge, it was beyond the period contemplated by arts 1.e and 2 of the Hague Rules. Further, the barge did not fall within the definition of a 'ship' under art 1.d of the Hague Rules, and the Hague Rules did not apply to deck cargo. These arguments were rejected by the Court. The Court found that lightering operations through the use of barges form part of the discharge operations and that this still fell under the ambit of the Hague Rules. This was further supported by art 3.2 which states, among other things, that the carrier shall properly and carefully discharge the cargo. Hence, the carrier’s obligations under the contract of carriage extend to and cover discharge operations even if the cargo was to be lightered onto barges and carried to shore. Therefore, the Hague Rules still applied and the defendant was entitled to rely on the limitation regime of the Hague Rules. The argument that the cargo was excluded from the operation of the Rules because it was 'deck cargo' was untenable because the generator and tractor were carried to the harbour of Deception Bay in the hold of the ship. The fact that the cargo was discharged by delivery through the use of the barge did not convert it into deck cargo.

Turning to the issue of package limitation, the Court found that the meaning of the word 'unit' included an individual piece of cargo (a cargo unit) but did not include a 'freight unit'. The United States, in adopting the present form of its statute ('per package or, in case of goods not shipped in packages, per customary freight unit'), departed from the Hague Rules as adopted in Great Britain and in Canada, and therefore did not afford any substantial guidance in the solution of the problem as to the meaning of the phrase 'per package or unit' in art 4.5. Having regard to the fact that the Hague Rules, upon which the Rules in the Schedule to the Water Carriage of Goods Act are based, were initially formulated at an international Convention convened at Brussels in 1924 for the purpose of establishing uniform rules relating to bills of lading amongst maritime nations, the Court thought it to be helpful to consider the meaning attached to the words 'colis ou unité' as they occur in the same context in the Rules adopted by the Republic of France which was one of the signatories of the Brussels Convention. In the Traité Général de Droit Maritime, vol 2, by Rene Rodière, the author pointed out that a large unpacked machine is to be regarded in the same sense as a package for the purpose of interpreting the rule in question: 'The "package" is therefore the individual item of cargo specialized in the document of title relating to the carriage of goods. It is the specific item accepted by the carrier. ... [T]his concept prevails over a reference to weight, but only if the specification is adequate. The “package” is a specialized individual thing and nothing else. We should avoid the idea, which tends to limit its meaning notably, that a package needs to be wrapped or boxed. That is the solution adopted by the English, German and Italian courts. There is no more justification for it than for that which regarded a package as something of relatively small size. Contrary to these two theories, a large unpacked machine is a “package” within the meaning of our law.' The Court therefore held that the defendant was entitled to limit its liability to CAD 500 in respect of each item of cargo, and that the total damage was to be limited to CAD 1,000.

The defendant argued in its counter-appeal that it was not liable, because due diligence had been exercised to make the ship seaworthy (art 4.1 of the Hague Rules) and the loss resulted from a 'peril of the sea' (art 4.2.c of the Hague Rules). On the seaworthiness and due diligence issue, the Court found that the obligation in relation to seaworthiness only applied to before and at the beginning of the voyage (art 3.1 of the Hague Rules) and that the loss was not caused by any unseaworthiness but by the negligence of the master and the crew which led to faulty stowage on the barge. On the issue of perils of the sea, the Court disagreed that the alleged tempestuous sea and water spouts encountered during the lightering operations amounted to a 'peril of the sea'. These were weather conditions that could and should have been guarded against. The Court also found that it was the negligence of the master and officers (as opposed to the sea conditions) which caused the loss. The defendant was thus not entitled to rely on such defences and was liable under the Hague Rules.