A consignment of copper stowed in 18 containers was shipped from Durban, South Africa to Shanghai, China. Fraudsters presented a false bill of lading against which the shipowners gave a delivery order entitling the fraudsters to delivery from the container terminal. The fraudsters paid the customs duty and their delivery order was endorsed accordingly. When the cargo-owners presented the true bill of lading a day later, the fraud was revealed. The shipowners arranged that the container terminal did not release the goods to the fraudsters. However, the cargo-owners could not take delivery of the goods because their delivery order has not been stamped with any record of duty having been paid as required by the customs rules in Shanghai. Litigation commenced in the Maritime Court of Shanghai between the fraudsters, the shipowners and their agents over the ownership of the cargo. The cargo-owners issued a claim form in the Commercial Court of the High Court in London against the shipowners for delivery up of the cargo or damages from the shipowners for the conversion of the cargo (Trafigura Beheer v Mediterranean Shipping Co [2007] EWHC 944 (Comm) (CMI35)). The High Court ordered the shipowners to deliver the cargo or pay its full value. From that order the shipowners appealed, contending that their liability was limited. The Court of Appeal considered the same five issues that have been identified in the High Court. Issues 1 to 3 were related to the Hague/Hague-Visby regime, and issues 4 and 5 were tangentially related:

(1) On the true construction of clause 1(a) of the bill of lading terms, do the Hague Rules ('HR') or the Hague-Visby Rules ('HVR') apply to the bill of lading contract? If the HVR apply, do they do so by contract or the force of law?

(2) On the true construction of the bill of lading terms, in particular cl 4, 7 and 22, do the HR or the HVR also apply to the period after the cargo had been discharged from the ship but whilst the containers remained in the container terminal to the order of the shipowners ('the post-discharge period')?

(3) If the HR, alternatively HVR, do apply to the post-discharge period, then, on the true construction of art 4.5 of the HR or the HVR (whichever is applicable), are the shipowners entitled to limit their monetary liability for conversion of the cargo during the post-discharge period? If so, to what amount?

(4) If the HR, alternatively HVR, do not apply to the post-discharge period, then does cl 22 of the bill of lading exclude or limit any monetary liability of the shipowners if they convert the cargo during the post-discharge period?

(5) If the HR, alternatively HVR, do not apply to the post-discharge period and the shipowners cannot exclude or limit their monetary liability for conversion of the cargo by virtue of the terms of the bill of lading, then what is the proper measure of damages for conversion of the cargo on the facts of this case? In particular: (a) are the cargo-owners entitled to claim damages based on the value of the cargo at the time of judgment or is that claim limited to the value of the cargo at the time of conversion; and (b) are the cargo-owners entitled to recover, in addition to the value of the cargo, any of their 'hedging losses'?

Held:

1) On the true construction of cl 1(a) of the bill of lading, the Hague Rules applied as a matter of contract.

2) On the true construction of the bill of lading terms, the Hague Rules were not applicable to the post-discharge period.

3) Consequently, the question on art 4.5 of either of the Rules did not have to be decided. However, it was noted that it should be answered ‘against the background of a concrete set of facts which specifically raises the question for decision’.

4) Clause 22 of the bill of lading was not understood to exclude or limit any monetary liability of the shipowners in case of conversion during the post-discharge period. Delivering against the original bills of lading is an essential obligation. Any exemption or limitation of liability for such breach has to be clearly expressed.

5) The cargo-owners were entitled to damages based on the value of the cargo at the time of the judgment but they were not entitled to hedging losses.