Mediterranean Shipping Co SA Geneva (the plaintiff) shipped seven containers that were owned by Sipco Inc (the defendant) from Japan to Iran. Six containers arrived according to schedule, but the seventh did not arrive until months later, having apparently been left at Halifax. As a result, the first six containers were unable to clear customs because the documentation indicated that seven containers were to be cleared. The plaintiff brought a claim against the defendant for unpaid freight and related charges. The defendant argued that it was subject to charge-backs by its customer in Iran and incurred other expenses due to the mis-shipment. In addition, it submitted that it was entitled to claim a set-off. The plaintiff submitted that the bill of lading specifically provided that no set-off existed against the carrier's claim for freight. In addition, the plaintiff submitted that the bill of lading was expressly subject to the Hague-Visby Rules, under which it would have no liability for the damages claimed, and under which it was entitled to limit its liability.

The issues, among others, were: (1) whether the defendant was entitled to set off the plaintiff's claim; and (2) whether the plaintiff breached its contract or was negligent in handling the containers, and whether the defendant incurred damages.

Held: The plaintiff's claim was allowed.

Set-off is the 'right of a debtor to claim that his liquidated debt due to a creditor shall be expunged by another liquidated debt ... due by the creditor to him'. Unless stated otherwise in the contract, the defendant cannot raise set-off of its claim for damages as a defence against the plaintiff's claim for unpaid freight. The bill of lading was silent regarding set-off, the defendant would not have been able to rely on the defence unless the contract explicitly so provided.

The one-year statute of limitation runs from delivery, not discharge, and delivery takes place on the day that the last piece of cargo, the seventh container in this case, has been discharged and actually or constructively delivered. The defendant stated that the seventh container was delivered in the first week of July 1998. Given that the defendant filed its defence and counterclaim on 18 June 1999, the defendant began its action within one year of the delivery, and therefore the counterclaim was not prescribed under the Hague-Visby Rules.

Article 3.2 of the Hague-Visby Rules requires the carrier to properly and carefully load, handle, stow, keep, care for and discharge the goods carried. This duty at loading is very broad. It means that the cargo is loaded safely, loaded without delay, and stowed in such a manner that it can be found for quick and safe discharge. After reviewing what each party had proved, the Court concluded that the plaintiff was negligent in handling the seventh container. However, the defendant shared a part of the responsibility when it asked that the bill of lading be signed even though only six of the seven containers had arrived, thus causing problems with the Iranian Customs.

The plaintiff's responsibility was not limited by the clauses in the bill of lading. Article 3.8 of the Hague-Visby Rules provides that any clause in a contract of carriage relieving the carrier or the ship from liability for damage to goods arising from negligence shall be null and void. Nevertheless, the defendant failed to provide any evidence of damages. The evidence regarding the cost of transferring, storage, insurance and handling of the first six containers was not sufficient to establish on the balance of probabilities that the defendant suffered these losses.