Pyrene Co Ltd sold a fire tender to the Government of India through a department called the ISD for delivery 'free on board' (FOB) from London. Through their agents, Bahr Behrend, ISD arranged for the carriage of the goods on the defendants' vessel, the Jalazad. Through the ship's fault, the tender was dropped and damaged while being lifted onto the vessel and before it was across the ship's rail. According to the contract of sale property in the tender had not yet passed to ISD. The plaintiffs had to pay GBP 966 for its repair and were now suing the defendants for that sum. A bill of lading in respect of the tender, and which incorporated the provisions of the Carriage of Goods by Sea Act 1924 (the Act) was prepared by the defendants but was never issued. No declaration of the nature and value of the tender was made to the defendant.

The defendants admitted liability but claimed that they were entitled to limit the claim to GBP 200 (as per the parties’ acceptance of the British Maritime Law Association’s Agreement of 1 August 1950) pursuant to the Schedule of the Act which incorporated art 4.5 of the International Convention for the Unification of Certain Rules of law relating to Bills of Lading, and Protocol of Signature 1924 (the Hague Rules).

Held: The plaintiffs are bound by the Hague Rules as incorporated into the contract of carriage and can only recover the sum of GBP 200. Judgment was given for that sum.

The defendants had to establish that they were entitled to rely on art 4.5 of the Hague Rules and thus had to prove that:

1) The Hague Rules were effective to limit their liability;
2) The contract incorporated the Hague Rules; and
3) There was privity of contract between themselves and the plaintiffs.

First, the Court dealt with the plaintiff's argument as to the effectiveness of the Hague Rules. The plaintiffs contended that even if a bill of lading incorporating the Hague Rules had been issued in respect of the tender it would not assist the defendants in relying on any of the rights and immunities made available by art 2, including art 4.5 which is the limitation provision, as the accident occurred outside the applicable period as defined by art 1.e.

Article 2 provides:

Subject to the provisions of Article 6, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth.

Article 1.b defines 'Contract of carriage' as follows;

'Contract of carriage' applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same.

Article 1.e then defines 'Carriage of goods' as 'cover[ing] the period from the time when the goods are loaded on to the time they are discharged from the ship'.

The plaintiffs submitted that the definition in art 1.e which operates through the definition of 'contract of carriage' in art 1.b cuts down the meaning of art 2. The plaintiffs relied on the English cases of Harris v Best, Ryley & Co (1892) 68 LT 76 and Argonaut Navigation Co Ltd v Ministry of Foods [1949] 1 KB 572 which held that loading is a joint venture consisting of the shipper's duty to lift the cargo to the rail of the ship (which the Court labelled the first stage of loading) and the ship owner's duty to take it on board and stow it (which the Court labelled as the second stage of loading). As such, they argued that the word 'on' in art 1.e had the same meaning as 'free on board'. As a consequence, goods are loaded on the ship only when they are put across the ship's rail, and since the tender never was, it had not reached the second stage of loading and therefore, the Hague Rules did not apply.

The Court held that this was a fallacious argument as the rights and liabilities under art 2 of the Hague Rules attached not to a period of time. Instead, they attached to a contract or the sea leg of a contract which contains both inland and sea transport. The function of art 1.e was to assist in the definition of 'contract of carriage' for example, to exclude any part of a larger contract which relates to inland transport such as 'discharging from rail at the port of loading' and to include parts of it which relate to sea transport such as 'loading onto the ship'. The Court held that the reference to 'when the goods are loaded on' in art 1.e 'is not … intended to do more than identify the first operation in the series which constitutes the carriage of goods by sea; as 'when they are discharged' denotes the last'. It held that s 1 of the Act did not incorporate the Hague Rules into English law in respect of a particular period of time but rather 'in relation to and in connection ''with the carriage of goods by sea'''. This, it thought, was harmonious with the Hague Rules themselves, as art 3.1 requiring the exercise of due diligence to make the ship seaworthy, man and equip it properly, was similarly independent of time.

The Court also held that it would be a mistake to seek the interpretation of 'loaded on' in art 1.e in accordance with the peculiarity of English law as was contended for by the plaintiffs. Doing so would entail the incorrect presumption that the Hague Rules were drafted in light of English law.

Once the Court concluded that art 1.e did not cut down art 2, it further examined whether the definition of 'loading' in art 2 excluded operations on the shore side of the ship's rail. The Court reiterated that it did not think that the framers of the Hague Rules had contemplated a divided operation of loading, 'and in the absence of such a presumption the natural meaning of ''loading'' covers the whole operation'. It rejected the interpretation of loading as only covering the second stage as contended by the plaintiffs. In reaching this conclusion the Court construed the word 'load' in art 3.2 of the Hague Rules. It provides: 'Subject to the provisions of Article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried.' The Court stated that the phrase 'shall properly and carefully load' in this article meant that 'the carrier shall load and that he shall do it properly and carefully; or that he shall do whatever loading he does properly and carefully'. It, therefore, held that the whole operation of loading and discharging was included in the contract of carriage even though the carrier was free to determine the extent of its involvement in both operations. By parity, it rejected the interpretation of loading in art 2 as only covering the second stage of loading. The Court further held, on the facts of the case that the rights and immunities under art 2 extended to the whole operation of loading carried out by the defendants.

Subsequently, the plaintiffs argued that the Hague Rules were only incorporated in a contract of carriage if a bill of lading was issued, and since no bill of lading was issued in this case, including a shipped bill of lading, the Rules did not apply. They based this on art 1.b which provides that '"Contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar document of title…'. The Court stated that the use of the word 'covered' in the provision recognised that a contract of carriage was always completed before a bill of lading was issued, which simply evidences the existing contract. Therefore, whenever parties enter into a contract of carriage with the expectation that a bill of lading will be issued in respect of the contract, that contract is covered by a bill of lading from its inception, it is a contract of carriage within the definition of the Rules, and as such the Hague Rules will apply to it from its creation. The Court concluded that the Hague Rules applied to the contract between the defendants and ISD.

However, the plaintiffs made two final arguments:

i) They were not a party to the contract between the defendants and ISD, nor to any similar contract;
ii) Even if they were, the limitation would not apply to them by virtue of the concluding section of art 1.b which provides that 'such bill of lading or similar document of title regulates relations between a carrier and a holder of the same'. And since the plaintiffs were never holders of the bill of lading, they were exempt.

In respect of the second contention, the Court rejected the argument first, by holding that those words only applied to bills of lading issued under a charterparty and not to bills of lading generally. Secondly, the words are intended to define the moment in time 'at which the bill of lading becomes a contractual document within the meaning of the [R]ules' and not the parties to the contract.

Regarding the first contention, the Court held that the plaintiffs were party to the contract of carriage that was concluded through Bahr Behrend between ISD and the defendants. It rejected the plaintiffs' contention of the shipowner acting upon a 'bald bailment'.