In March 1978, at the Scottish port of Leith, the shippers (the plaintiffs) shipped the cargo on board a vessel belonging to the carriers (the defendants) for carriage to the Dutch West Indies. Condition 2(1) of the bill of lading specified that the law of the Netherlands applied to the contract and that the defendants' maximum liability per package was GBP 250. Condition 2(3) stipulated that all actions under the carriage contract were to be brought before the Court of Amsterdam. The cargo was transshipped in the Netherlands onto the Morviken for carriage to the destination. While it was being unloaded at the discharging port, the cargo was dropped and severely damaged. The plaintiffs estimated the damage at about GBP 22,000 and brought an action in rem against the Hollandia, a ship belonging to the defendants, claiming damages for breach of contract and negligence in the care and discharge of the cargo. The defendants applied for a stay of the action on the ground that the action could only be brought in Amsterdam where, under Dutch law (which at the date of issue of the bill of lading still recognised the Hague Rules rather than the Hague-Visby Rules) the liability would be limited to the amount specified in the bill of lading. The plaintiffs relied on the Carriage of Goods by Sea Act 1971 (UK) (COGSA 1971) and art 4.5 of the Hague-Visby Rules which set a limit of liability of around GBP 11,500.

The first instance Court ordered that all further proceedings in the action be stayed on the ground, principally, that the choice of forum clause in condition 2(3) of the bill of lading required the matter to be tried in Amsterdam. The plaintiffs appealed. The Court of Appeal held that conditions 2(1) and (3) should be null and void. The defendants appealed to the House of Lords.

The core issue on this appeal was whether, in light of art 3.8 of the Hague-Visby Rules, conditions 2(1) and (3) were to be struck down to the extent that they were against this article. The defendants claimed that if the framers of the Hague/Hague-Visby Rules had intended arbitration or forum selection clauses to be struck down by art 3.8 of the Rules, they would have said so explicitly.

Held: Appeal dismissed.

The Hague-Visby Rules scheduled to the COGSA 1971 were to be treated as if they were part of directly enacted statute law in the United Kingdom. In this case, the bill of lading was issued in a contracting State, the United Kingdom, and it covered a contract for carriage from a port in a contracting State. Therefore, the Hague-Visby Rules were applicable.

Condition 2(1) of the bill of lading was ex facie a clause in a carriage contract which purported to lessen the liability of the defendants for loss or damage arising from negligence or breach of contract for which art 4.5 of the Hague-Visby Rules provided. It was therefore rendered null and void and of no effect under art 3.8 of the Hague-Visby Rules.

Unlike condition 2(1), a choice of forum clause such as condition 2(3) did not ex facie offend against art 3.8, since it was a provision of the contract of carriage that was subject to a condition subsequent, and came into operation only upon the occurrence of a future event that might or might not occur. It was most consistent with the achievement of the purpose of the COGSA 1971 that the time at which to ascertain whether a choice of forum clause would have an effect that was proscribed by art 3.8 should be when the condition subsequent was fulfilled and the carrier seek to bring the clause into operation and to rely upon it. If the dispute was about duties and obligations of the defendants or ships that were referred to in that rule and it was established as a fact that the foreign court chosen as the exclusive forum would apply a domestic substantive law which would result in limiting the carrier's liability to a sum lower than that to which it would be entitled if art 4.5 of the Hague-Visby Rules applied, then an English court was commanded by the COGSA 1971 to treat the choice of forum clause as of no effect.