The defendants owned the Merak. TB & S Batchelor & Co Ltd (the plaintiffs) had purchased timber from Rauma-Repola Oy in Walkom, Finland. On April 1961, the plaintiffs entered into a charterparty (the April charter) with William Dickinson & Co Ltd (Dickinson) for the carriage of timber in a vessel to be nominated. Clause 10 of the April charter stipulated that:

the bills of lading shall be prepared in the form indorsed upon this charter … freight and all terms, conditions, clauses (including clause 32) and exceptions as per this charter.

Clause 32 of the April charter provided that:

Any dispute arising out of this charter or any bill of lading issued hereunder shall be referred to arbitration. … All claims must be made in writing and the claimant's arbitrator must be appointed within 12 months of the date of final discharge otherwise the claim shall be deemed waived and absolutely barred.

Dickinson performed its charterparty with the plaintiffs by chartering the vessel under a charterparty dated September 1961 with the defendants (the September charter), which was on the same terms and conditions as the April charter (including cll 10 and 32) except as to freight and a new clause which provided, among other things, that bills of lading for this cargo were 'to be signed with reference' to the April charter. Thus the defendants were called upon to perform Dickinson's duty under the April charter.

Timber was shipped on the vessel for carriage to Newport, UK. Bills of lading were duly issued. The goods were delivered at Newport by 21 November 1961. The plaintiffs issued a writ on 15 November 1962, alleging breach of contract by the defendants and claiming, among other things, damages. The plaintiffs claimed as indorsees of bills of lading signed by the master of the vessel and issued in Walkom. Each bill stated that the voyage is as per the April charter and provided that:

All the terms, conditions, clauses and exceptions including clause 30 contained in the said charterparty apply to this bill of lading and are deemed to be incorporated therein.

It also had a paramount clause that incorporated the Hague Rules and expressly stipulated that any term of the bill of lading repugnant to any extent to any legislation incorporated by the clause shall be void to that extent and no further. Article 3.6 of the Hague Rules provides that:

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after the delivery of the goods or the date when the goods should have been delivered.

At first instance, Scarman J stayed further proceedings on the claim for damages because parties had agreed to arbitration. This meant that the plaintiffs could not pursue their claim: they were out of time to commence arbitration. Scarman J refused to grant an extension of time to commence arbitration: see Owners of Cargo on Board the Merak v The Merak (Owners) [1965] P 223 (CMI2132).

On appeal, the plaintiffs abandoned their argument for extension of time. Nevertheless, the plaintiffs repeated the following arguments made at first instance: (1) the arbitration clause was not incorporated in the contract due to the inadequate incorporation clause, even though the latter's reference to cl 30 was an error; (2) the dispute did not fall within the scope of the arbitration clause; and (3) even if the arbitration clause was incorporated, it was nullified by the paramount clause in the bill of lading.

The plaintiffs accepted that if the arbitration clause was incorporated and there was no repugnancy, the arbitration clause justified a stay of the action. The parties agreed that the English version of the Hague Rules, scheduled to the Carriage of Goods by Sea Act 1924 (UK) (COGSA 1924), was the same as the Finnish version. The plaintiffs argued that 'suit' in the English version of the Hague Rules meant an action in the courts and not an arbitration.

The plaintiffs argued that any term requiring the commencement of arbitration proceedings within a 12-month period to prevent the discharge of the shipowner from liability is void, by reason of the paramount clause and arts 3.6 and 3.8 of the Hague Rules. The plaintiffs argued that an arbitration clause with its own time bar would confer extra protection to the shipowner that would be struck down by art 3.8. According to the plaintiffs, article 3.6 of the Hague Rules confers immunity on the shipowner only if court proceedings are not initiated within one year. However, the application of the arbitration clause has conferred immunity despite notwithstanding that court proceedings were in fact initiated within the year, because those court proceedings have been stayed due to the arbitration clause at a time when it is too late to commence arbitration. Thus the arbitration clause has deprived the plaintiffs, as owner of the goods, of a right to enforce the contract which, though not of course positively conferred by the Hague Rules, existed under that code.

An important issue was whether 'suit is brought' under Hague Rules art 3.6 refers only to the initiation of an action at law or whether it includes the commencement of arbitration proceedings.

Held: Appeal dismissed.

The Court unanimously found that: (1) the arbitration clause was incorporated; (2) the dispute fell within the scope of the arbitration clause; (3) the general paramount clause was not inconsistent with the arbitration clause and therefore did not override the arbitration clause; and (4) 'suit' under Hague Rules art 3.6 should be widely interpreted to include arbitration proceedings. Davies and Russell LJJ declined to follow the contrary view expressed by the US Court of Appeals in Son Shipping Co Inc v De Fosse & Tanghe 199 F 2d 687 (2d Cir 1952), (1952) AMC 1931, 1933.

The Court rejected the plaintiffs' contention that the arbitration clause relieved the carrier from liability or lessened such liability, and was therefore contrary to art 3.8 of the Hague Rules.

The Hague Rules are of international application and have been adopted by many countries as intended. There are many different procedures for initiating proceedings in these various countries and it is to be supposed that the Hague Rules were drafted in the widest possible terms to cover all such various modes of procedure. The Hague Rules deal with responsibilities, liabilities, rights, and immunities attaching to carriers under bills of lading. On the face of the Hague Rules the method of settling disputes would not seem to be germane.

The Hague Rules is an international code designed in part to safeguard holders of bills of lading. It provides for a short limitation period. The objective of article 3.6 of the Hague Rules is to ensure that such disputes are speedily notified and speedily settled, and not to specify any particular mode of procedure for the settlement of disputes. It does not restrict the parties to any form of litigation. It is absurd to bar the claim of a cargo owner who appointed an arbitrator within the 12-month period and the arbitration rendered abortive if within the same 12-month period no writ was issued.

The word 'suit' in English does not appear to have any precise connotation, nor does it seem to point at all clearly to an action at law as opposed to an arbitration. Both are means of enforcing rights under a contract; and an award in an arbitration is capable, at any rate in this country, of being enforced in the courts. Russell LJ added that appointing an arbitrator under an arbitration clause is to set in motion proceedings designed to obtain a decision, which will, if pursued, inevitably lead to a decision, with resort at all stages to a court of law to ensure this.

The word 'suit' in article 3.6 of the Hague Rules does not exclude arbitration because it is merely a contractual prescription for the mode of bringing suit. To bring suit means to pursue the appropriate remedy by the appropriate procedure.

While parties agreed that the English version of the Hague Rules was the same as the Finnish version, the latter strictly applied in this case. Because the Hague Rules may apply under differing legal systems, a wide interpretation of 'suit' is justified. The word 'suit' should be widely interpreted to mean 'proceedings'. Thus the relevant phrase of article 3.6 of the Hague Rules means 'unless proceedings are brought within one year'. Timely commencement of arbitration proceedings meets this requirement.

Besides, if 'suit' excludes arbitration, then the Hague Rules would seem to discourage, if not actually to prevent, the inclusion of an arbitration clause in a bill of lading. Arbitration has long been a method of settling disputes agreed by parties to contracts for carriage by sea. Thus a narrow construction of 'suit' would severely hamper arbitration clauses in a field in which those concerned regard them as desirable.

Even if 'suit' excludes arbitration, the only difference between the Hague Rules and the arbitration clause would be as to the procedure by which liability should be enforced. Although article 3.8 of the Hague Rules strikes out any clause that relieves the carrier from liability for loss or damage or lessens such liability, any clause as to procedure cannot lessen liability: Maharani Woollen Mills Co v Anchor Line (1927) 29 Ll LR 169 (CA).

Separately, Davies LJ noted that the court was not invited to consider any expert evidence as to the precise meaning and ambit of the French expression 'intenter une action'.

Given that the limitation periods in the Hague Rules and the arbitration clause were the same, Davies LJ found it unnecessary to consider the position if the arbitration clause prescribed a different period from the Hague Rules.

Meanwhile, Russell LJ doubted the value of using domestic UK legislation to construe 'suit' in Hague Rules art 3.6, because the paramount clause referred to the Finnish legislation for the Hague Rules.