Kamil Export (Aust) Pty Ltd (Kamil) was the shipper of two shipments under bills of lading issued by NPL (Australia) Pty Ltd (NPL). The first shipment involved cheese and butter on the General Valdez from Melbourne to Guam. The second shipment involved 20 pallets containing 400 cases of nappies on the Cenpac II from Melbourne to Nauru.

The bills of lading for the Guam and Nauru shipments shared identical terms and conditions, including cll 1 and 12. Clause 1 subjected the bills to the Sea Carriage of Goods Act 1924 (Cth), which adopted the Hague Rules, and exempted NPL from liability for 'any loss of or delay or damage to the goods'. Clause 12 excludes NGL from liability for 'any loss, damage or delay howsoever caused to the goods arising after discharge from his vessel'.

NPL misdelivered the goods. For the Guam shipment, NPL released the cheese and butter against a promise to produce the bill of lading, but the promise was not honoured. For the Nauru shipment, Kamil only agreed to release 11 of the 20 packages, but NPL released all 20 packages to the consignee.

Kamil sued NPL for the misdeliveries. For the Guam claim, Kamil only commenced proceedings after one year from when the goods should have been delivered.

The Magistrates Court upheld Kamil's claims, but NPL successfully appealed to a single judge of the Supreme Court. Kamil appealed to the Full Court of the Supreme Court.

This appeal involved two legal issues. First, whether the exemption clauses should be read down to not entirely defeat the object of the contract of carriage. Second, whether the time limit in art 3.6 of the Hague Rules applies to loss that occurs during the period after the goods are discharged from the ship but before they are delivered.

Held: Appeal dismissed for the Nauru shipment suit. Appeal allowed for the Guam shipment suit.

For the Nauru shipment, there was insufficient evidence to justify a finding that the unauthorised delivery of nine of the 20 pallets was deliberate to disapply the exclusion clause. In addition, Kamil did not show that the nine pallets were lost by NPL's breach of a primary obligation which defeated the main object of the contract.

For the Guam shipment, NPL deliberately converted the goods by misdelivery. Clauses 1 and 12 did not apply to the circumstances of the loss. They did not extend to the deliberate conversion of the goods. The time bar provided by art 3.6 of the Hague Rules was inapplicable to the claim.

Fullagar, Marks JJ: A carrier's primary obligation is to discharge the main object of the contract of carriage. The main object of a contract of carriage is to deliver goods to the consignee against the production of the bill of lading (Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576, 586-587). It is a long-practiced understanding in merchant shipping that delivery of consigned goods by the carrier is only made in exchange of the bill of lading. Although a primary obligation may be implied by law (Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 848), the authorities do not speak of the practice as an implied condition of contracts for sea carriage (cp Sze Hai Tong Bank 586; The Stettin (1889) 14 PD 142, 6 Asp MLC 395; Skibsaktieselskapet Thor Thoresens Linje v H Tyrer and Co Ltd [1929] 35 Lloyd's Rep 163; Carlberg v Wemyss Coal Co Ltd (1915) SC 616).

NPL's primary obligation, as implied by the conditions of carriage, was to deliver the goods against the production of the bills of lading.

An exemption clause can defeat the main object of a contract. However, it must use clear and unambiguous terms and be specific (see Nissho Iwai Australia Ltd v Malaysian International Shipping Corp (1989) 167 CLR 219 (CMI2025); Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500). The extent to which an exemption clause protects a carrier from liability for loss of goods depends on the interpretation in the context of the contract as a whole (see Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361; Photo Production; Darlington Futures).

The language of the exemption clauses did not apply to the deliberate conversion of goods in the Guam shipment (cp Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (NSW Court of Appeal, 23 August 1993, unreported)).

Accordingly, cll 1 and 12 should be read down.

The time bar in art 3.6 did not apply to the claim for the loss of goods in the Guam shipment.

The Hague Rules are expressed to only apply to sea carriage. This refers to the period after the goods pass the ship's rail on loading to the time they pass it on unloading or 'from ship's rail to ship's rail'.

The reach of art 3.6 is a matter of construction of the Hague Rules and the contract between the parties (see Rambler Cycle Co Ltd v P&O Steam Navigation Co [1968] 1 Lloyd's Rep 42, 46-47 (James Thomson LP) (CMI670)).

The incorporation of the Hague Rules into the bill of lading did not have the effect that art 3.6 was a term which applied to the contract as a whole. Clause 1 did no more than incorporate the Hague Rules which apply, according to their terms, only to part of the contract between the parties. It was also fallacious to apply the Hague Rules to a period of time rather than a 'part of a contract' because

a single contract may cover both inland and sea transport; and in that case, the only part of it that falls within the Rules is that which, to use the words in the definition of 'contract of carriage' in art 1.b, 'relates to the carriage of goods by sea' (see Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, 415, 417 (Devlin J) (CMI2100).

The time bar as a matter of inference was intended to apply to all claims 'arising out of the carriage (or miscarriage) of goods by sea under bills subject to the Hague Visby Rules ...' (Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) [1990] 1 Lloyd's Rep 310, 315 (Bingham LJ); see also Teys Bros (Beenleigh) Pty Ltd v ANL Cargo Operations Pty Ltd (1990) 2 QdR 288 at 296 (Cooper J); Gosse Millard v Canadian Government Merchant Marine Ltd [1927] 2 KB 432, 434; Goodwin, Ferreira & Co Ltd v Lamport & Holt Ltd [1929] All ER R 623, 625).

The goods were converted after they were discharged. The bill of lading evidenced the contract to which the Hague Rules apply and an obligation on the part of NPL to deliver 'after discharge'. The Hague Rules did not cover the latter obligation (Nissho Iwai; cp China Ocean Shipping Co Ltd v PS Chellaram & Co Ltd (1990) 28 NSWLR 354). No express or implied provision manifested the agreement of the parties to extend the operation of the Hague Rules to 'after discharge'.

Ormiston J: The decision of the Court of Appeal in the Glebe Island should be followed in so far as it is presently applicable. It is eminently desirable that the decisions of the appellate courts of the States should be as consistent as is practicable.

If the happening of a stipulated event will always result in the defeat of the main object of the contract, there will be no scope for holding that that object requires the conclusion that the exempting clause is not applicable to that event.

It is only possible to read down an exemption clause if it will otherwise produce an absurdity or if it will defeat the main object of the contract. The construction should take reference from the main object where appropriate until the High Court expresses a more stringent test.

As the High Court said in Nissho Iwai, an exemption clause may sometimes have effect notwithstanding that it will 'result in the defeat of the main object of the contract', where that is the only logical operation of the clause. In other cases, it may be harder to infer that an exemption clause will not defeat the main object of a particular contract. A proper interpretation of contracts of sea carriage may well consider the main object of such contracts. Where a party does an unauthorised act, as in Darlington Futures, or where a party, as in Glebe Island, acted deliberately to convert the subject goods, the exemption clause should not be given effect.