By a charterparty dated 4 December 1997, Islamic Solidarity Shipping Co Jordan Inc (the shipowner) chartered the Jordan II to TCI Trans Commodities AG for a voyage from Mumbai in India to Barcelona and Motril in Spain.

Jindal Iron & Steel Co Ltd (shipper) sold 435 steel coils to Hiansa SA (consignee). The coils were shipped from Mumbai aboard the Jordan II. The shipment was evidenced by two bills of lading issued on behalf of the shipowner and containing contracts of carriage from Mumbai to Motril. The face of the bills of lading provided ‘Freight payable as per CHARTERPARTY dated 04.12.97’. The reverse of the bills contained a clause incorporating the terms of the voyage charterparty. The Hague-Visby Rules were applicable to the shipment.

The charterparty provided freight was to be paid FIOST (free in and out stowed and trimmed) and shippers/charterers/receivers to put the cargo on board, trim and discharge cargo free of expense to the vessel. This agreement transferred responsibility for those functions from the shipowner to shippers, charterers and consignees. Both the bills of lading and the charterparty were governed by English law.

In February 1998, the cargo was discharged at Motril. The shipper and consignee claimed the cargo had been damaged by rough handling during loading and/or discharging, and/or inadequate stowage due to failure to provide dunnage, failure to secure the coils and/or stacking them so the bottom layers were excessively compressed.

The preliminary issue to be tried was whether the agreement in the charterparty which purported to transfer responsibility for loading, stowage and discharge from the shipowner to the shipper/charterer and consignee was invalidated by art 3.8 of the Hague-Visby Rules. The High Court and the Court of Appeal held that it was not. The shipper and consignee appealed to the House of Lords.

The appeal concerned the correct interpretation of the Hague-Visby Rules. Article 3.2 provides that, subject to art 4, the carrier must ‘properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried'. Article 4.2 relieves the ship and carrier from liability for loss or damage arising from any act or omission of the shipper or owner of the goods (art 4.2.i) and any other cause arising without the actual fault or privity of the carrier (art 4.2.q). Article 3.8 provides that any clause in a contract of carriage that relieves the ship or carrier from liability for loss or damage or lessens the minimum liability provided by the Hague-Visby Rules is 'null and void and of no effect'.

Held: Appeal dismissed.

The central issue is whether art 3.2 defines the scope of the contract (as argued by the shipper and consignee) or merely stipulates the manner of performance of the functions undertaken by the carrier as provided by the contract. Where the parties to a contract of carriage agree that loading, stowage and discharge are to be performed by the shippers, charterers and consignees, the question is whether such an agreement transfers responsibility for those functions from the shipowner to the shippers, charterers and consignees or whether that agreement is invalid by virtue of art 3.8.

Long standing precedent says that such a reallocation of risk by agreement is permissible and the carrier is not liable (Pyrene Co Ltd v Scindia Steam Navigation Co Ltd [1954] 2 All ER 158 (CMI2100); GH Renton v Palmyra Trading Corp of Panama [1956] 3 All ER 957 (CMI2113) and this has been consistently applied in subsequent cases.

In interpreting art 3.2, the starting point is the text. The language appears to provide for a single standard of carrying out properly and carefully not only loading and discharging but also caring for the goods carried. However, Devlin J in Pyrene based his obiter interpretation (subsequently applied in Renton) on the broad object of the Rules. When interpreting art 3.2, its purpose and context are important. A purposive interpretation which permits the transfer of responsibility for the loading and discharging functions to the party who selects and pays for stevedores, avoids unreasonable results. Devlin J’s interpretation was not based on technical rules of English law but on a perspective relevant to maritime nations generally. Where a conflict arises between purely linguistic considerations and the broad purpose of an international Convention, the latter should prevail. Counsel for the cargo owners drew on the general thrust of the travaux préparatoires to support their claim, but nowhere in the travaux is there a statement that art 3.2 prevents an owner and merchants from reallocating responsibility for loading, stowage and discharge of cargo to merchants. It is not obvious that the drafters would have concluded that a shipowner should be liable to cargo owners for damage caused by cargo owners themselves when they undertook the relevant duty and did it badly.

No English textbook writer has challenged the correctness of the decision of the House of Lords in Renton and it has been followed in Australia, New Zealand, Pakistan and India. However, internationally, there is no dominant view. It is true that third party bill of lading holders will, in practice, often not have seen the charterparty or have had advance notice of its terms, but this is a risk of international trade and cannot affect the correct interpretation of art 3.2. Everything ultimately turns on what is the best contextual interpretation.

The operation of the Hague Rules and Hague-Visby Rules is under constant review. In 1968 an international conference met to improve the operation of the Hague Rules. If the decision in Renton had worked unsatisfactorily it ought to have emerged at the conference which led to the adoption of the Hague-Visby Rules but the issue was not raised and art 3.2 remained unaltered. UNCITRAL is undertaking a revision of the rules governing the carriage of goods by sea. It will extend to art 3.2 and take into account representations from all interested groups. This factor makes it inappropriate to re-examine Renton now.

As observed by Lord Mansfield in Vallejo v Wheeler (1774) 98 ER 1012 in 'mercantile transactions the great object should be certainty; and therefore it is of more consequence that a rule should be certain, then whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon.' This consideration was reaffirmed in The Starsin [2003] UKHL 12. The House will only depart from an earlier decision where that decision has been demonstrated to work unsatisfactorily in the market place and has produced manifestly unjust results. The House is satisfied that this high threshold has not been met and it would not be proper to reverse the earlier decision.

Since the decision in Renton, shipowners, charterers, shippers and consignees have acted on the basis that it correctly stated the law. There may be many outstanding disputes that would be affected by a departure from Renton. Even if the cargo owners’ interpretation of art 3.2 is correct, the case against departing from Renton is overwhelming.