A contract of carriage was entered into on 7 October 1997 between the owner of the Happy Ranger (the respondent) and Parsons Corp (the appellant) for the carriage of three reactors from Italy to Saudi Arabia. As one of the reactors was being loaded on board the vessel, it fell to the ground and was damaged.

The contract consisted of three documents: a signed, printed front page, a six-page printed rider containing 18 clauses and an attached specimen form of a bill of lading. The printed front page was headed 'Contract of Carriage'. Clause 5 of 'Contract of Carriage' provided that 'The Carrier's regular form of Bill of Lading as per specimen attached, is applicable and shall form part of this Contract'.

Clause 3 of the attached specimen form of bill of lading provided as follows:

3. GENERAL PARAMOUNT CLAUSE

The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels 25 August 1924, as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, Articles I to VIII of the Hague Rules shall apply. In such case the liability of the Carrier shall be limited to £100 sterling per package.

Trades where Hague-Visby Rules apply

In trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on 23 February 1968 - the Hague-Visby Rules - apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of Lading….

No bill of lading was issued for the damaged reactor. The main two questions on appeal were first, whether the Hague-Visby Rules applied to the contract of carriage concerned; second, if they did not, whether the respondent had successfully limited its liability to GBP 100 per package. The appellant argued that it was the Hague-Visby Rules that were incorporated because the trade was a shipment from Italy. It was not necessary to consider whether the contract of carriage fell within art 1.b of the Hague-Visby Rules because the parties had made their intention clear in cl 3 of the bill of lading.

Held: (Tuckey LJ, with Aldous LJ concurring; Rix LJ dissenting.) Appeal allowed.

The majority held that the Hague Rules were not enacted in Italy so the first sentence of the first para of cl 3 of the bill was not applicable. The argument centred around the second para of the clause.

First, the majority accepted that the word 'trades' in cl 3 included voyages or carriage of cargoes within the scope of art 10 of the Hague-Visby Rules. Article 10 applied 'to every bill of lading relating to the carriage of goods'. The issuing of a bill of lading was a necessary condition of the application of the Hague-Visby Rules, but it was not in itself sufficient. The scope of art 10 must be subject to art 1.b of the Hague-Visby Rules. If the contract in this case was not one which was covered by a bill of lading or similar document of title, the Hague-Visby Rules, including art 10, did not apply. If the Rules did not apply, they were obviously not compulsorily applicable. The majority acknowledged that this conclusion meant that the second para of cl 3 was surplusage because the Rules would apply compulsorily with or without it, but no real significance could be attached to this in a document of this kind.

Second, unless the contract was one which was covered by a bill of lading or similar document of title, the Hague-Visby Rules would not apply compulsorily by the proper law of the contract as the second para of cl 3 required. The language of s 1(4) of the Carriage of Goods by Sea Act 1971 (UK) made it clear that art 1.b of the Hague-Visby Rules simply required that the contract should provide for the issuing of a bill of lading. The fact that no bill of lading of any description was issued in respect of the goods was not of itself conclusive against the applicability of the Hague-Visby Rules.

Third, the argument was made that if the bill of lading which the parties contemplated would be issued was in the same form as those actually issued for the other reactors on this voyage, the Rules would not apply because they were 'straight' bills. As the bills actually issued in this case were not 'straight' bills, it was not necessary to decide this point.

The last issue was whether the respondent could limit its liability by reference to art 4.5 of the Hague-Visby Rules. The appellant argued that the words 'in any event' in art 4.5 referred to the exempting events set out in art 4 and not to other causes. They should be read as subject to the pre-condition that the respondent had complied with the obligation to exercise due diligence to make the ship seaworthy under art 3.1, similar to the approach adopted in regard to the exceptions set out in art 4.2. The Court disagreed and held that the words 'in any event' meant what they said. They were unlimited in scope. A limitation of liability was different in character from an exception. The words 'in any event' did not appear in any of the other art 4 exemptions, including art 4.6 (dangerous cargo) and, as a matter of construction, they were not intended to refer only to those events which give rise to the art 4 exemptions.

Rix LJ disagreed on the first point and held that the Hague-Visby Rules applied if the trade met the requirement of art 10 itself, without the need to satisfy art 1.b. The incorporation of cl 3 in the contract of carriage and, through cl 3, the incorporation of Hague-Visby Rules, required some manipulation of the language and effect of those Rules in their incorporated state. The Hague-Visby Rules needed to be made to apply to the contract of carriage even though they were drafted as applying to bills of lading or contracts of carriage covered by bills of lading.