Horst Karcher t/a Karcher Industrial Products (the plaintiff) purchased cassette players from Funny Electronics Co Ltd. These were to be shipped with Piff Shipping Ltd (the defendant). On the defendant’s instructions, Funny Electronics delivered the goods to a godown where they remained for a few days. The goods were subsequently stuffed into a container under the supervision of Manchester (Far East) Adjusting Services (the third party). The third party issued an inspection certificate to the defendant stating that the container was found in apparent good condition, clean and tidy, and in all respects suitable for the contemplated voyage, and that the packages loaded were in apparent good order and condition.

Based on the third party's certification, the defendant issued a clean, shipped on board, combined transport bill of lading. The bill noted that the place of receipt was the Hong Kong Container Freight Station and that the goods were received in apparent good order and condition at the place of receipt.

The ship carrying the goods sailed from Hong Kong. Upon arrival at Hamburg, a surveyor found that the goods had been damaged by fresh water. On the evidence, it was clear that the goods were not damaged after they were discharged from the ship in Hamburg, and that the wetting of the goods occurred sometime before discharge.

As the good faith holder of that bill of lading, the plaintiff sued the defendant for the sum of DEM 102,480.00.

The defendant claimed an indemnity from the third party for breach of contract to survey the goods. Against the plaintiff, the defendant pleaded an exemption of liability (due to damage caused by faulty or insufficient packing not preventable by the exercise of reasonable diligence). The defendant also pleaded a limitation of liability of 2 Special Drawing Rights (SDRs) per kilogram of gross weight of the damaged goods pursuant to cl 8.3 of the bill of lading.

The plaintiff pleaded that the limitation of liability was contrary to the Hague-Visby Rules and of no effect, and that the defendant was estopped from denying that the goods were received by the defendant in apparent good order and condition.

In the event that liability was limited, the parties agreed that such limited compensation would be in the sum of HKD 101,785.60.

Held: Claim allowed in part.

Judgment was given in favour of the plaintiff and against the defendant for HKD 101,785.60 and the third party was to indemnify the defendant.

Articles 3.3 and 3.4 of the Hague-Visby Rules estopped the defendant, as against the plaintiff, from attempting to prove that the goods were damaged before the defendant received them. As such, the defendant was liable to the plaintiff.

However, the defendant was not estopped from showing that the loss or damage to the goods occurred prior to the time of loading. Based on the definitions of 'carriage of goods' and 'contract of carriage' in arts 1.b and 1.e of the Hague-Visby Rules, the scope of 'contract of carriage' in art 3.8 of the Hague-Visby Rules is limited to the sea stage. These words do not cover contracts of carriage covered by a bill of lading outside the extent to which the bill relates to the carriage of goods by sea.

Given that art 3.8 of the Hague-Visby Rules outlaws a reduction of liability by agreement only in so far as the contract of carriage covers the sea stage of the carriage, cl 8.3 of the bill of lading was effective to limit compensation in respect of loss or damage to goods prior to the time they are loaded on the ship.  

Further, art 7 of the Hague-Visby Rules allowed the defendant to contract out of liability in relation to loss or damage before and after the sea stage of the carriage.

The Court found that the goods were wetted prior to loading due to rainfall. Although the damage to the goods caused by the water will get progressively worse with time, the Court found that the goods were damaged immediately upon wetting because their market value would have been affected immediately. As the damage to the goods occurred prior to loading, the defendant was entitled to limit its liability.

The Court also found that the third party breached its obligations to the defendant, both in contract and in the tort of negligence. The defendant was entitled to be indemnified against its liability to the plaintiff.