In April 1984, goods were loaded on the defendants' vessel, the Rosa S, at Leghorn, Italy, for carriage to Mombasa, Kenya. The defendants issued a bill of lading. Kaluworks Ltd (the plaintiffs) were the consignees. Some goods were found damaged upon discharge, causing the plaintiffs loss of 107,758.53 in Kenyan pounds. It was undisputed that the carriage was subject to the Hague Rules. The defendants admitted liability but disputed quantum, claiming that their liability was limited to GBP 100 under art 4.5 of the Hague Rules. The plaintiffs argued that '100 pounds sterling' meant GBP 100 gold value as provided by art 9 of the Hague Rules, and that GBP 6,630.50 (equivalent to 6,491.25 in Kenyan pounds) was the correct limit of the defendants' liability. No value of the goods was declared by the shippers or inserted in the bill of lading. Clause 2 of the bill provided that any dispute arising out of the bill of lading should be governed by English law.

Held: Judgment for the plaintiffs.

The defendants were liable for 6,491.25 in Kenyan pounds. Article 9 of the Hague Rules qualified the phrase '100 pounds sterling' in art 4.5 by expressing it as a gold value figure, as intended. Using English law, the gold content of 100 pounds sterling at the date of the contract and its breach can be determined.

The limit of the defendants' liability under this bill must be ascertained by reference to the provisions of the Hague Rules. The only authoritative text of the Hague Rules is in French. The bureau of the Conference did authorise an English translation. In this translation art 4.5 reads:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding £100 per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading …

Article 9 provides:

The monetary units mentioned in this convention are to be taken to be gold value. Those contracting states in which the pound sterling is not a monetary unit reserve to themselves the right of translating the sums indicated in this Convention in terms of pound sterling into terms of their own monetary system in round figures. The national laws may reserve to the debtor the right of discharging his debt in national currency according to the rate of exchange prevailing on the day or the arrival of the ship at the port of discharge of the goods concerned.

Subject to two points, both parties were content with the English translation. In art 4.5 the French text reads '100 livres sterling'; a better translation would be '100 pounds sterling'. In art 9 the French phrase is 'reserver au débiteur la faculte de se libérer' which perhaps has been too narrowly translated using the words 'debtor' and 'debt' as opposed to, for example, 'the party liable' and 'his liability'. Neither party made arguments which depended upon this refinement of the precise meaning of the French text of art 9.

The plaintiffs argued that art 4.5 must be read with the first sentence of art 9 so that it says GBP 100 sterling gold value. They argued that the gold content of GBP 100 sterling was in 1924 defined by the Coinage Act 1870 (UK), and was at the date of this bill of lading, and at judgment date, defined by the Coinage Act 1971 (UK) as being equivalent to 732.238 g of fine gold. They argued that the gold value is therefore the value of that quantity of gold. Assessing the defendants' liability based on the date of the delivery of the goods leads to GBP 6,630.50.

The defendants argued, unsuccessfully, that the correct limit is GBP 100 sterling in today's money or its nominal equivalent expressed in Kenyan currency. They argued that all considerations of gold value should be excluded. They argued that art 4 should be construed on its own without recourse to art 9; that art 9 is too unclear to qualify the words of art 4. They sought to rely upon historical arguments to support the conclusion that the Hague Rules treated sterling currency as a nominal money or account and not as the gold value of sterling. They finally argued that if any gold value was to be taken into account, it was simply the quantity of gold that a hundred pounds sterling would at the date of the accrual of the cause of action have bought and that its purpose was simply to provide stability in terms of sterling between the date of the accrual of the cause of action and any date when judgment might thereafter be given.

The gold value provision in art 9 is clear and effective: Fiat Co v American Export Lines Inc [1965] AMC 384 (Court of Appeal, Florence) (CMI2143); Air Cameroun v Cie Maritime des Chargeurs Réunis (1967) Jurisprudence Français 675 (Court of Appeal, Rouen); SpA A Carniti v Cc SpA Comesmar [1979] 81 Dir maritt 90 (Tribunal of Genoa); Agemar SRL v Siat [1979] 81 Dir maritt 215 (Court of Appeal, Trieste); The Doroty [1979] ETL 550 (Federal Court, Canada) (CMI1910); Hussain v Great Eastern Shipping Co [1960] ILR Ker 1028 (Court of Appeal, Kerala); Norway and Asia Lines v Adamjee Jute Mills Ltd [1981] BLD 152 (Court of Appeal, Bangladesh) (CMI856); The Vishva Pratibha [1980] 2 MLJ 265 (High Court, Singapore) (CMI398); Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co (unreported), 31 July 1986 (New South Wales) (CMI668). These foreign cases show that, with one unpersuasive exception, there has been a consistent international practice of recognising and giving effect to art 9. Although The Vishva Pratibha favours the defendants, Brown Boveri casts doubt on it. The Court should seek to give Conventions (eg the Hague Rules) and the contracts into which they are incorporated an interpretation which is consistent with the international practice and not over-influenced by domestic prejudices.

Although the substance of the Hague Rules appear in the Carriage of Goods by Sea Act 1924 (UK) (COGSA 1924), considerations of domestic legislation do not arise because parties referred to the Hague Rules as an international Convention. Therefore the defendants' historical arguments based on the monetary history of the UK in the 1920s are questionable. However, one must take into account that the bill of lading expressly identifies the provisions as having originally formed part of and as deriving from the Hague Rules and which has as its purpose, both express and implicit, the furtherance of international uniformity in the rules governing bill of lading contracts. One must not expect, nor must one treat the parties to this bill of lading as if they expected, that the provisions of the Hague Rules were in all respects drafted as contractual provisions or provisions of domestic legislation. Article 9 itself illustrates this. Two of the paras of art 9 can solely have relevance in relation to the freedom of action of contracting States and the domestic legislation that they may pass. They will not themselves have direct effect in relation to this bill of lading contract. But those two paras, like the preamble to the Convention, are part of the Convention and must be considered in construing the provisions to which the parties to this bill of lading have said that their contract is to be subject.

The first sentence of art 9 qualifies the reference to '100 pounds sterling' in art 4.5. It has the intended effect of expressing the sterling figure as a gold value figure: Pyrene Co v Scindia Navigation Co [1954] 2 QB 402, 413 (CMI2100). A gold value limit in art 4.5 is unproblematic. The UK Coinage Acts of 1870 and 1971 define the gold content of the pound sterling. 'Sterling' refers to English currency: Treseder-Griffin v Co-operative Insurance Society [1956] 2 QB 127 (CA) 151. 'Gold sterling' means gold coins: ibid.

The gold content of the pound sterling can be determined by English law. At the time of contractual formation, the gold content of the pound sterling was ascertainable, being the same content as had existed in 1924. There was no issue of uncertainty, timing, illegality, or public policy.

The purpose of any gold clause must be to escape from the principle of nominalism. As stated in Feist v Société Intercommunale Belge d'Electricite' [1934] AC 161 (HL) (Feist), the gold clause, if it is to be effective for this purpose, must be a gold value clause, not merely a gold payment clause. There is a distinction between specifying the mode of payment and the measure of liability: Feist 172. There is no doubt into which category the provisions of the Hague Rules come. The function of art 4.5 is to provide the measure of the limit of liability of the carrier. The first sentence of art 9 expressly refers to gold value. Given that this measure of liability in gold is clear and sufficiently precise, the ordinary rules of construction should apply here: New Brunswick Railway Co v British and French Trust Corp [1939] AC 1 (HL) 18, 35.

The defendants' historical argument based on English domestic legislation reinforced the plaintiffs' arguments and undermined the defendants' view. The material placed before the Court by the defendants showed every reason why the drafters of the Hague Rules should be concerned to include in it not merely a reference to the pound sterling but also a reference to the gold value of that currency. The radical arguments of the defendants accordingly fail.

The defendants also advanced alternative arguments which were partly designed to answer the obvious question why the first sentence of art 9 was included if it was not intended to have the effect for which the plaintiffs contended. Thus the defendants argued that the first sentence of art 9 could be given adequate effect to by construing it as a reference to the amount of gold that could be bought with GBP 100 sterling at the date of the contract or at the date of the delivery of the goods. But that is not its natural meaning. What is referred to in the Hague Rules is the gold value of GBP 100 sterling. It is monetary gold that is referred to, the expression being 'monetary units'. The relevant monetary unit is the GBP 1 gold coin or sovereign which has a defined gold content and it is the value of that quantity and fineness of gold that is the measure of value. The defendants next argued that the reference to gold value only becomes material when it is necessary to convert from pounds sterling into some other currency. This argument has the support of the editor of Raoul Colinvaux, Carver's Carriage by Sea (12th edn, Stevens & Sons 1971) and is also supported by the other sentences of art 9. The second sentence enables contracting States which do not wish to pass domestic legislation referring to the pound sterling to use a figure in art 4.5 expressed in their own currency. If they choose to do this it is clear that it is their obligation to take the sum in their own currency which corresponds to the gold value of sterling not some other nominal value. (It was of course contemplated that such legislation might come to be passed some considerable time after 1924.) Similarly, the last sentence contemplates that the domestic legislation may give the carrier the right to discharge its liability in the local currency ascertained at the rate of exchange prevailing on the day of the arrival of the ship at the port of discharge. But again, the Hague Rules clearly contemplate that it is to be the gold value of sterling that is to be used as the measure of value against which the right to discharge the liability in the local currency must be assessed.

The gold value referred to is the gold value of sterling. It would appear that this was the belief of the drafters of COGSA 1924, since that Act was of course domestic UK legislation. Since the pound sterling was (and is) the monetary unit used in the UK and the gold sovereign was (and still is) legal tender in the UK, if the defendants were right there would have been no need or justification to include any reference to gold value in COGSA 1924. But the reference to gold value was specifically inserted in COGSA 1924, even though it had not appeared in the draft Hague Rules. This can only have been to underline as a matter of English law that what was being referred to in art 4.5 was the gold value of the pound sterling, not its nominal or paper value.

Even if the defendants were correct to say that the reference to gold value in the first sentence of art 9 was solely to be referred to when there was a necessity for converting to some other currency than sterling, that argument would not assist them in the present case. In the present case the plaintiffs claim damages expressed in Kenyan pounds. That is the currency in which they have suffered their damage. They are entitled, if they so choose, to a judgment expressed in Kenyan pounds: The Despina R [1979] AC 685 (HL) (The Despina R). Therefore, if the defendants are to avail themselves of their right to limit their liability under art 4.5, they must convert that limit into Kenyan pounds to establish that the limit is less than the amount for which the plaintiffs are asking judgment. An expression of the value of that limit in terms of Kenyan pounds is required; there must be a translation from the gold value of sterling into the nominal value of Kenyan pounds. Therefore, even on this argument the defendants cannot escape from the consequences of the first sentence of art 9.

The defendants argued further that the purpose of the first sentence of art 9 was to guard against the devaluation of sterling currency between the date when the goods owners' cause of action accrued, normally the date of delivery of the goods, and the date of obtaining either a favourable judgment or an arbitration award. The defendants argued that what was contemplated was that on, say, the date of discharge one would assess what quantity of gold could be bought with GBP 100 sterling (nominal) and that one would then use that quantity of gold as the basis for assessing the limit of the carrier's liability which was applicable at the date of judgment or award. Thus, if the judgment or award was to be given in, say, Kenyan pounds, one would ask what number of Kenyan pounds was necessary at that later date to purchase that quantity of gold. This argument cannot be supported. First, it depends on the erroneous approach of treating the gold value provision as requiring consideration of how much gold 1 GBP would buy as opposed to what was the gold value of the pound sterling. Secondly, it patently does not fit in with the scheme of the Hague Rules. The purpose of the gold clause provision in art 9 is clearly to provide a single and constant measure of value by reference to gold not a fluctuating value. What would result on the defendants' submission is that that value would be constantly fluctuating up to the time of discharge. Further it is unrealistic to suppose that the parties to the Hague Rules, or indeed the parties to this bill of lading, had in mind and were making provision for the essentially procedural problems which existed under English law prior to the decisions in Miliangos v George Frank (Textiles) Ltd [1976] AC 443 (HL) and The Despina R.

Separately, the defendants' attempt to rely on a clause of the bill of lading to limit its liability in a manner inconsistent with the Hague Rules was unsuccessful as it was contrary to Hague Rules art 3.8 and the concluding words of the clause paramount in the bill of lading (which resembled art 3.8).