In June 1984, the Captain Gregos carried crude oil from Egypt to Rotterdam. The carrier was Compania Portorafti Commerciale SA (the appellant). A bill of lading was issued incorporating the Hague-Visby Rules. The initial consignee was Ultramar Panama Inc (the first respondent). It sold the cargo to Phibro Energy (the second respondent), which, in turn, sold the cargo under a processing deal to BP (the third respondent; together, the respondents).

The cargo was discharged in favour of BP on 16 and 17 June 1984. Under art 3.6 of the Hague-Visby Rules, the one-year period for bringing an action expired on 17 June 1985. The respondents claimed short delivery on 5 December 1985. They argued that the appellant used part of the cargo for bunkering, and diverted another part of the cargo into gathering space on board and did not deliver it to the third respondent. On 28 June 1987, the appellant issued an originating summons claiming a declaration that the respondents' claim had been extinguished under art 3.6 of the Hague-Visby Rules.

Hirst J found in favour of the respondents. He concluded that the issue of delivery was outside the scope of art 2 of the Hague-Visby Rules. This was a tort claim. Therefore, art 3.6 stipulating the limitation period did not apply to misdelivery. Even if wrong delivery was within the scope of the Hague-Visby Rules, the Hague-Visby Rules could not apply to the cargo theft. Otherwise, this should have been expressly stated in the Rules.

The appellant appealed.

Held: The Court of Appeal disagreed with Hirst J’s conclusion and found that art 3.6 applied to wrong delivery. The appeal was adjourned to determine the outstanding questions on which the appeal's outcome depended.

The respondents accepted that the 'theft' used in the summons and the declaration did not properly describe the civil cause, which lay in conversion and negligence.

Bingham LJ: The Court's first task is to decide whether the one-year time limit in Article 3.6 of the Hague-Visby Rules applied to this case. The Hague-Visby Rules were incorporated into English law by the Carriage of Goods by Sea Act 1971 (UK) (COGSA), and they had effect as a part of the directly enacted statute (The Hollandia CMI597). The Rules represent a negotiated bargain between shipowners whose interest lies in maximum immunity and cargo-owners whose interest lies in maximum redress.

The Hague-Visby Rules introduced two amendments as compared with the Hague Rules that were relevant for the case:

1) Whereas art 3.6 of the Hague Rules had provided ‘be discharged from all liability in respect of the goods unless suit is brought …', the Hague-Visby Rules stated 'be discharged from all liability whatsoever in respect of the goods, unless suit is brought…'; and

2) Article 4.bis was entirely new.

Reference to the travaux préparatoires which led to the amendment of art 3.6 showed that the object of the amendment was 'to give the text a bearing as wide as possible, so as to embody within the scope of application of the one year period, even the claims grounded on the delivery of the goods to a person not entitled to them, ie even in the case of what we call a wrong delivery'.

The respondents accepted that the appellant breached its obligation under art 3.2 of the Hague-Visby Rules, but contended that: 1) the respondents relied on causes of action in tort which were outside the Rules; 2) the causes of action in part arose after discharge, so outside the period of time defined by art 1.e; 3) the Hague-Visby Rules did not protect a shipowner who was guilty of intentional wrongdoing; 4) the travaux préparatoires showed no clear legislative intention, and were not concerned with deliberate misappropriation.

Bingham LJ referred to The New York Star [1980] 2 Lloyd’s Rep 317, where the goods were carried under the bill of lading with no implementation of the Hague-Visby Rule, but contained the clause that repeated art 3.6 of the Hague Rules. Lord Wilberforce of the Judicial Committee of the Privy Council said the consignee could not avoid the time limitation by bringing an action in tort since the wording 'all liability' meant what it said, ie included all liability with no distinction between obligations in contract and liability in tort.

Bingham LJ agreed that a temporal term to the 'carriage of goods' supported an argument that the Hague-Visby Rules did not apply to events occurring before loading or after discharge. Art 2 of the Rules defined the scope of the operations to which the responsibilities, rights, and immunities apply. Apart from the obligation of seaworthiness (art 3.1), the central obligation of the carrier is properly and carefully to load, handle, stow, carry, keep, care for, and discharge the goods carried (art 3.2). The acts that the respondents complained about breached art 3.2 of the Hague-Visby Rules. The appellant did not properly and carefully discharge the goods, whether intentionally or negligently, and so converted them to its own use. The claim based on breach of the Rules could not fail. The claim was treated as misdelivery.

The language of the Hague-Visby Rules is even more emphatic than that analysed in The New York Star and considered by Lord Wilberforce to be 'all-embracing'. The phrase 'all liability whatsoever in respect of the goods' meant exactly what it said and applied to all claims based on delivery or misdelivery. This conclusion was also supported by the fact that the time limitation in art 3.6 of the Hague-Visby Rules was intended to achieve finality and enable the shipowner to clear its books (The Aries CMI2194).

If the argument that art 3.6 of the Hague-Visby Rules did not apply was correct, other paras of the same art could not apply either. However, they would ordinarily come into play when the respondents knew they did not receive the cargo they should have received, irrespective of the knowledge of how and why the shortage occurred.

Suppose that it was acceptable that the respondents could avoid the application of art 3.6 of the Hague-Visby Rules by suing in tort. In that case, one should have also accepted that the tort claim was permitted by art 4.bis.1. However, the purpose of this art was to ensure that a cargo owner was no better off suing in tort than it would have been if sued in contract.

There was an attraction in the argument that a party should not be able to rely on a one-year time bar to defeat a claim based on its own dishonesty. Bingham LJ mentioned that it would be surprising if the shipping interest represented at the Conference which led to the Hague-Visby Rules were not alert to this issue; however, there were no special provisions regarding it. The Rules seemed to provide the solution by stipulating that the shipowner loses the benefit of financial limitation in case of wilful or reckless misconduct (art 4.5.e). If the servant or agent of the carrier damaged the goods by wilful or reckless misconduct, it could not rely on the provisions of art 4 (art 4.bis.4). The Hague-Visby Rules included no provision which deprives the shipowner of its right to rely on the time bar in this case. This omission could not be regarded as other than deliberate. This approach gained small support from the Court of Appeal in The Antares [1987] 1 Lloyd’s Rep 424.

This conclusion did not lead to injustice. If the party’s cause of action is barred before it knows it has one, this could cause injustice. This could not happen in this case. The respondents should have known about the short delivery when receiving the cargo. The only reason the respondents sought to rely on the appellant’s alleged misconduct rather than the breaches of the rules was that a year had passed without bringing a suit.

For these reasons, Bingham LJ differed from Hirst J. Bingham LJ emphasised separately that he was not greatly influenced by travaux préparatoires that seemed to be concentrated on a different problem, delivery to a party who did not present a bill of lading.

The respondents also relied on another argument that the party could not be bound by the Hague-Visby Rules if it could not be treated as a party to a bill of lading. Hirst J did not address this issue because he accepted the first ground to make the declaration. The Court of Appeal did not hear arguments regarding the respondents being non-parties to the bill of lading. However, they considered the issue of the applicability of the Hague-Visby Rules to non-parties to a bill of lading. Bingham LJ found that the Hague-Visby Rules could not apply to a non-party to a bill of lading for three reasons:

1) Section 1(4) of the COGSA and arts 1.b and 10 of the Hague-Visby Rules make clear that a bill of lading is the bedrock on which the mandatory code is founded. It was not clear why the code would treat the existence of a bill of lading as a matter of so great importance if it applied irrespective of whether the dispute was between parties or non-parties to a bill of lading.

2) Much of the language in the COGSA suggested that the code was intended to govern the relations between the parties to a bill of lading. Section 1(4) spoke of applying the rules to a contract. Article 1.a of the Hague-Visby Rules defined the carrier as including the party who entered into a contract of carriage with a shipper. Article 1.b spoke of regulating relations between a carrier and a holder of a bill of lading or a similar document. Art 2 defined the application of the Hague-Visby Rules 'under every contract of carriage'. Article 10 applied the rules to bills of lading, not carriage.

3) If the drafters of the Hague-Visby Rules intended to make them applicable to non-parties to a bill of lading, they would have made that clear.

Lord Donaldson MR and the House of Lords specifically disavowed the notion that bill of lading terms may be held to regulate the relations between those who were not parties to the bills of lading in The Aliakmon (CMI2224).

Based on this, the appeal was adjourned because it could not be determined until the remaining questions were ruled upon.

Stocker LJ: Art 3.6 of the Hague-Visby Rules was prefaced by the words:

Unless notice of the loss or damage and the general nature of such loss or damage be given … at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery…

These words showed that the shortage should be apparent at the time of discharge. So, the respondents could have framed their claims under the Hague-Visby Rules. No injustice could result from their failure to give the notice in terms of art 3.6 within the time limit.

Slade LJ: The conversion, which resulted in the loss of part of the cargo, was an obvious breach of the obligation to 'keep, care for and discharge' imposed on the carrier by art 3.2 of the Hague-Visby Rules. This breach did not occur after discharge. The complaint was, in substance, of a failure to discharge at the end of the voyage, and to keep and care for the goods during the voyage.

The purpose of arts cited by Bingham LJ in support of the conclusion that the Hague-Visby Rules should apply only to the parties to a bill of lading was subject to the provisions of art 6 of the Hague-Visby Rules to define: 1) the responsibilities and liabilities to which the carrier shall be subject 'under every contract of carriage of goods by sea'; and 2) the rights and immunities to which the carrier shall be entitled under every such contract. Article 6 gave the shipper and the carrier the liberty, within the limits stated by this art, to enter into an agreement by way of variation of the responsibilities, liabilities, rights and immunities, which would otherwise be attached to the carrier by virtue of preceding articles. These provisions by themselves showed that the purpose of all arts was to govern the relationship of the parties to the contract of carriage of goods by sea.