SEAS Wood Products Sdn Bhd (the shipper) shipped a cargo of timber from Port Kelang, Malaysia, to the Port of Sydney, Australia. The cargo was shipped under a bill of lading issued at Port Kelang and issued by Pineseas Maritime Pty Ltd (Pineseas) on behalf of the master. Pineseas was the agent of the owner of the vessel.

The cargo was loaded on 2 February 1994 and discharged around 5 March 1994 at Port Kembla, where it had been directed by the Australian agents for Pineseas, Pacific Asia Express Pty Ltd. The cargo was collected by Tex Transport Pty Ltd, haulage contractors and bond store proprietors, and taken to its bond store for quarantine clearance and collection by TNT Australia Pty Ltd (TNT) for transport to Sydney. When TNT collected the cargo, it was found to be badly water damaged and unsuitable for sale by Timber Sales (the consignee). It was sold at public auction at a loss.

The Judge at first instance held that the decision to divert the vessel to Port Kembla was reasonable. The decision to deviate was due to industrial action taking place in the Port of Sydney. Hunter J found that the diverting of the vessel to Port Kembla was reasonable and was 'warranted by the terms of the bill and of the (Hague) Rules'.

However, his Honour further held, for the purposes of this case, that the primary obligation of the carrier is to be found in art 3.2 of the Hague Rules and, in particular, the obligation to 'properly and carefully discharge the goods carried'. The act of contracting for and discharging the subject cargo into open bond storage should be treated as serious breach of the obligation to 'properly' or to 'carefully' discharge the cargo. His Honour said that 'there is nothing in art 4 of the [Hague] Rules to which the owner may have recourse which would ameliorate the owner's liability for that breach and art 7 does not address liability for a failure to act properly and carefully in discharging the cargo'.

The carrier appealed.

Held: Appeal allowed.

The carrier was under a contractual liberty to deviate, and the trial Judge was correct in holding that the deviation was within the contractual entitlement contemplated by the bill of lading.

Four other matters were argued on appeal:

1. Clause 13 of the bill of lading excluded the carrier from liability for damage after the goods left the ship's deck in Port Kembla. After discharge, art 7 of the Hague Rules permitted the carrier to exclude its liability.
2. Clause 15 of the bill of lading excluded liability as it provided that the carrier in arranging transport from Port Kembla to Sydney acted as forwarding agent only, and restricted the carrier's liability to 'the part of transport performed by him on vessels under his management'.
3. Clause 24 of the bill of lading limited the carrier's liability to GBP 100 per package. That clause is not struck down by art 3.8 of the Hague Rules because the loss or damage occurred outside the scope or operation of the Hague Rules.
4. Clause 24 of the bill of lading discharged the carrier from all liability unless suit was brought one year after the delivery of the goods. The goods were delivered to the consignee on 9 March 1994. Although a suit was commenced on 1 March 1995 within the twelve months period, that suit was against Far East Shipping Co, not the carrier. While there was no appeal against the decision of Rolfe J of 31 August 1995 granting leave to amend the statement of claim so issued by substituting Nikolay Malakhov Shipping Co Ltd in place of Far East Shipping Co, that order did not have the effect of excluding or negating the pleaded defence based upon cl 24 of the bill of lading which operated to discharge the carrier from liability absent a writ being issued against the carrier within one year after delivery. The rules of the Supreme Court of New South Wales could not revive a cause of action extinguished by cl 24. Article 3.6 applied similarly to cl 24 to provide the same time for defence.

Article 3.2 imposes upon a carrier the duty to 'properly and carefully … carry, keep, care for and discharge the goods carried'. Article 3.8 renders null, void, and of no effect any clause in a bill of lading which purports to relieve or lessen the liability of the carrier for damage resulting from negligence or failure to perform the obligations imposed by art 3.2. Those obligations are subject to art 4.

The damage occurred in subsequent storage after the operation of transport, and storage had occurred after discharge. Thus, so it was argued, the Hague Rules had no application at the time the damage occurred, and thus the carrier had the benefit of the exclusions from liability contained in cll 3, 5, and 24 as a matter of contract unrestricted by the operation of art 3.8.

The Hague Rules relate to bills of lading in respect of carriage of goods by sea. The use of the expression 'by sea', however, is not determinative of the point at which there has been completion of the obligation to 'properly and carefully ... discharge' the goods carried. Article 3.1 makes plain that some obligations are imposed upon the carrier prior to the point of time when a vessel loads goods or puts to sea.

There is thus no general proposition available that the Rules only have application in the time period during which the vessel is at sea, including being in port, with goods on board. The contention that the Hague Rules attach rights and liabilities only for a time period was rejected by Devlin J in Pyrene Co Ltd v Scindia Steam Navigation Co Ltd [1954] 1 Lloyd's Rep 321 (CMI2100) where he stated:

Even if 'carriage of goods by sea' were given by definition the most restricted meaning possible, for example, the period of the voyage, the loading of the goods (by which I mean the whole operation of loading in both its stages and whichever side of the ship's rail) would still relate to the carriage on the voyage and so be within the 'contract of carriage'.

Article 2 gives the carrier all its rights and immunities, including the right to limit its liability. It is entitled to do that 'in relation to the loading' and 'under every contract of carriage'. Article 1.e provides that 'carriage of goods' covers the period from the time when the goods are loaded on to the time they are discharged from the ship.

No special significance need be given to the phrase 'loaded on'. It is not intended to specify a precise moment of time. Of course, if the operation of the Hague Rules began and ended with a period of time, a precise specification would be necessary. But they do not. It is legitimate in England to look at s 1 of the Carriage of Goods by Sea Act 1971 (UK), which applies the Hague-Visby Rules not to a period of time but 'in relation to and in connection with the carriage of goods by sea'. The Hague Rules themselves show the same thing. The obligations in art 3.1, for example, to use due diligence to make the ship seaworthy and crew and equip it properly, are independent of time. The operation of the Hague Rules is determined by the limits of the contract of carriage by sea and not by any limits of time. The function of art 1.e is only to assist in the definition of contract of carriage.

There is excluded from that definition any part of a larger contract which refers, for example, to inland transport. It is natural to divide such a contract into periods, a period of inland transport, followed perhaps by a period of sea transport, and then again by a period of inland transport. Discharging from rail at the port of loading may fall into the first period; loading on to the ship into the second. The reference to 'when the goods are loaded on' in art 1.e is not intended to do more than identify the first operation in the series which constitute the carriage of goods by sea; as 'when they are discharged' denotes the last.

It is more reasonable to read the Hague Rules as contemplating loading and discharging as single operations. It is no doubt possible to read art 1.e literally as defining the period as being from the completion of loading until the completion of discharging. But the literal interpretation would be absurd. Why exclude loading from the period and include discharging? How does one give effect to the frequent references to loading in other Rules? How does one reconcile it with art 7, which allows freedom of contract 'prior to the loading on and subsequent to the discharge from'? Manifestly both operations must be included. That supports the view that art 1.e is naming the first and the last of a series of operations which include, in between loading and discharging, 'handling, stowage, carriage, custody and care'. This is in fact the list of operations to which art 2 is by its own terms applies. In short, nothing is to be gained by looking to the terms of art 1.e for an interpretation of art 2.

But that still leaves it necessary to consider the meaning of 'loading' in art 2. Just how far does the operation of loading, to which art 2 grants immunity, extend? Article 3.2, for example, provides: 'the carrier shall properly and carefully load', etc. If ‘load’ includes both stages, does that obligate the shipowner, whether it wants to or not, to undertake the whole of the loading? If so, it is a new idea to English lawyers, though perhaps more revolutionary in theory than in practice. But if not, and 'load' includes only the second stage, then should it not be given a similar meaning in art 2, with the result that immunity extends only to the second stage?

There is, however, a third interpretation of art 3.2. The phrase, 'shall properly and carefully load' may mean that the carrier shall load and that it shall do it properly and carefully; or that it shall do whatever loading it does properly and carefully. The former interpretation perhaps fits the language more closely, but the latter may be more consistent with the object of the Hague Rules. Their object, as it is put in Carver, 9th ed, p186, is to define not the scope of the contract service but the terms on which that service is to be performed. The extent to which the carrier has to undertake the loading of the vessel may depend not only upon different systems of law but upon the custom and practice of the port and the nature of the cargo. It is difficult to believe that the Hague Rules were intended to impose a universal rigidity in this respect, or to deny freedom of contract to the carrier. The carrier is practically bound to play some part in the loading and discharging, so that both operations are naturally included in those covered by the contract of carriage.

On this view the whole contract of carriage is subject to the Hague Rules, but the extent to which loading and discharging are brought within the carrier's obligations is left to the parties themselves to decide. The success of the first three arguments advanced by the appellant depends upon the meaning to be attached to the obligation to 'properly and carefully discharge' the goods. The appellant's contention concentrated on the circumstance that the damage occurred when the goods were in the open bond store. This was said to be after discharge.

The consignee argued that by arranging for or contracting with Tex Transport to store the cargo in an open bond store there was a breach of the obligation to 'properly and carefully discharge the goods' because it was plainly negligent to arrange for cargo liable to rain damage to be stored in the open. That arrangement was made prior to any 'discharge' of the cargo: indeed, whilst the cargo was on board and at sea. Arranging for such storage was part of the function or activity encompassed within 'discharge'. Thus, the Hague Rules applied to the contractual obligation in both functional and time respects. The alternative submission was that the cargo was 'discharged upon storage within the Tex Transport yard as arranged by the carrier (appellant) at Port Kembla'.

These submissions raise three distinct questions.

1. Is the arranging of cartage and stowage of cargo in a bond store part of the function of 'discharge'? If so, the duty to 'properly and carefully discharge' was breached because to arrange storage of rain damageable goods in the open was negligent.
2. If not, is the implementation of that arrangement part of the function of discharge? Tex Transport was not negligent in its performance for it did what it contracted to do. However, if placing the cargo in open bond storage is part of the function of discharge, the placement would not be a performance of the duty to properly and carefully discharge, because the cargo so placed was liable to damage in the event of rain.
3. When was discharge complete? At what point were the limits of the operation of the Hague Rules reached?

Taking question three first, the Hague and Hague-Visby Rules apply, accordingly to arts 2, 1.b and 1.e taken together, 'from the time when the goods are loaded on to the time when they are discharged from the ship'. This rule is known as 'tackle to tackle'.

'Tackle to tackle' has traditionally meant from the moment when ship's tackle is hooked on at the loading port until the moment when the ship's tackle is unhooked at discharge. If shore tackle is being used, that moment has traditionally been when goods cross the ship's rail. In Pyrene, cargo was attached to ship's tackle and was being loaded on board when the cargo fell outside the ship. It was held that the Hague Rules applied although the goods had not crossed the ship's rail. The decision was correct because (the) ship's tackle had been hooked on.

This application can be extended beyond the tackle-to-tackle period by agreement of the parties which can be done by the terms of the bill of lading. In determining if the Hague Rules have been extended by agreement, it is proper to examine the intention of the parties, the custom and practice of the port, as well as the nature of the cargo itself (eg containers, grain, liquids, bunkers) to determine at what point the operation of loading begins and what point the operation of discharge ends.

The bill of lading does not purport to extend the responsibility of the carrier beyond tackle to tackle. Clause 3 provides that '[t]he Carrier or his Agent shall not be liable for loss or damage to the goods before the goods have passed the ship's rail in loading and after the goods leave the ship's deck in discharging port ...'. It will be necessary to consider whether such a clause is invalidated by art 3.8 of the Rules, but for present purposes it is sufficient to note that the parties have not, by their contract of carriage, sought to expand the applicability of the Hague Rules beyond the common law position by imposing functional obligations on the carrier prior to or after cargo has been handled 'tackle to tackle'. They have not sought to extend the usual meaning of the expressions 'load' or 'discharge'.

The bill of lading expresses the contractual intention of the parties that the carrier was to be responsible for the cargo after its receipt only up to the time of its leaving the ship's deck in the discharging port. That is expressly provided by the first sentence in cl 3. The second sentence strongly implies a contractual position that discharge occurs when the goods leave the ship's deck, or at latest when they leave ship's tackle prior to forwarding from the ship. While the clause contemplates that the cargo may still be in the custody of the shipper at the time whilst it is being forwarded from the ship, landed, or stored, nonetheless those goods are at the sole risk of the merchant. The carrier is said not to be liable for loss or damage howsoever arising.

Thus contractual responsibility for loss or damage to cargo ceases when the operation of unloading removes the goods from the ship's deck. The bill of lading uses a number of different expressions regarding discharge and delivery. On its face it nominates a 'port of discharge'. That was nominated as Sydney. Clause 3 speaks of goods leaving the ship's deck 'in discharging port'. Clause 5 recognises that the 'port of destination' may be the same or different to the 'port of discharge'. Clause 5 provides that in such a circumstance the liability of the carrier ceases on discharge and any transportation to an ultimate destination beyond the point of discharge is organised by the carrier as forwarding agent with no responsibility for damage unless the forward delivery is on 'vessels under his management'. Thus, forwarding from a 'port of discharge' to 'a port of destination' by road is at the responsibility of the merchant.

It follows, that unless cl 3 is struck down by the Hague Rules the carrier is not liable whether sued as a carrier of goods by sea or as a bailee for reward on terms incorporating cl 3. The 'discharging port' may not be the place at which the carrier is obliged to give delivery of the goods, but nonetheless it is at the point of discharge, contractually agreed to be the point at which the goods leave the ship's deck in the discharging port, that the responsibility of the carrier for damage to the goods ceases.

The view of Devlin J in Pyrene that 'the whole contract of carriage is subject to the Rules, but the extent to which loading and discharging are brought within the carrier's obligations is left to the parties themselves to decide' results in there being no conflict between the Hague Rules, and in particular art 3.2, and cl 3. The parties have agreed that the responsibility of the carrier in relation to discharge ceases when the goods leave the ship's deck, and that is so even if the physical function of discharge is performed by the carrier. It follows that the Hague Rules do not strike down cl 3, and it is to be given effect according to its terms. The consequence is that 'discharge' of the goods occurred when the cargo left the ship's deck, and the responsibility of the carrier for damage to the cargo thereafter ceased. The damaged occurred whilst the goods were stored after that discharge, and cl 3 in terms provides that at that time the cargo was at the sole risk of the merchant. If the carrier is sued as a bailee for reward pursuant to a contract incorporating cl 3, it operates to exclude liability on the same basis.

On the misnomer and time bar issue, Sheller and Cole JJA held that the exercise by the Court of a power to correct such a mistake is procedural, albeit that the existence of the mistake may have allowed the party to raise a defence for so long as it remained uncorrected. A party should not be permitted to rely upon a defence available to it only because of a mistake by the other party's solicitor of the sort which occurred in the present case, when the Court has the means to correct the mistake and the party added as a result of the correction is in no worse position than if the mistake had not been made in the first place. Handley JA dissented, preferring the more restrictive approach adopted in The Jay Bola [1992] QB 907, [1992] 2 Lloyd’s Rep 62 (QB) (CMI2049).