The defendants were the Norwegian shipowners of the vessel St Joseph. The plaintiffs, the Government of the Republic of Guatemala, owned goods on the vessel. The plaintiffs purchased the goods from the sellers, Office General de l'Air, a French firm. Under a supplemental contract, the sellers also undertook to procure necessary permits, packaging, insurance, and transport for the goods. Agents for the sellers entered into a charterparty with the defendants to carry the goods from Antwerp, Belgium, to Puerto Barrios, Guatemala. From there, the sellers undertook to convey the goods by land to Guatemala City for delivery there. The goods were shipped on the vessel by a French firm, Valcke & Co, under a bill of lading issued at Antwerp in May 1929 and consigned to the plaintiffs at Puerto Barrios. The bill gave particulars of the contents of the cases loaded but did not specify their value, nor was such value declared by the shippers to the defendants before shipping. Arrangements were made to pass the bill to the plaintiffs so that the goods would be discharged smoothly for the sellers to convey them to Guatemala.

The goods were found damaged upon discharge. The defendants admitted liability, but argued that their liability was limited by Belgian law, which embodied the Hague Rules in art 91 of the Code de Commerce, an article of 21 August 1879, replaced by the following provisions made on 28 November 1928:

(A) A negotiable bill of lading issued for the transport of goods by any ship of any nationality soever departing from or destined to a port of the Kingdom or the Colony is governed by the following rules:-

Article IV. (5.) Neither the carrier nor the ship shall in any event be held responsible for loss or damage caused to or in connexion with goods for a sum exceeding 3500 belgas or 17,500f. per package or unit unless the nature and the value of such goods has been declared by the shipper before shipment and this declaration has been inserted in the bill of lading.

The defendants argued that the contract was governed by Belgian law because the bill was issued in Antwerp, the charterparty was signed there, and the goods were shipped there. As soon as the bill changed hands to the plaintiffs, the bill became the operative document and was governed by Belgian law and therefore subject to the Hague Rules. The plaintiffs disagreed, arguing that the bill did not refer to Belgian law or the Hague Rules. Furthermore, the goods were not shipped under the bill but under the charterparty, to which the Belgian Code does not apply. The bill was a mere receipt. No Belgian shipped the goods. No Belgian made the charterparty or bill. The questions under the limitation of liability issue were: (1) What was the contract between the plaintiff and the defendants? (2) Does Belgian law apply to that contract?

Held: Judgment for the plaintiffs.

The plaintiffs' right to recover damages is not limited by Belgian law, which is irrelevant here. The bill did not refer to the Hague Rules or art 91 of the Belgian Code which embodies those Rules. Under Belgian law, the shipowners' liability is limited. But Belgian law does not apply to the relations between the plaintiffs and the defendants. The contract between them is made by the plaintiffs offering the bill to the defendants and getting delivery of the goods covered by the bill. This contract was made in Guatemala. No Belgian had anything to do with the business except as agents. The goods were the property of the plaintiffs because of their contract with the sellers, not because of the bill. The plaintiffs merely presented the bill and are bound by the terms contained in the bill and no more: Brandt v Liverpool, Brazil and River Plate Steam Navigation Co [1924] 1 KB 575, 595. Neither party contemplated for Belgian law to apply. The bill was a mere receipt at the start; it does not suffice to say that Belgian law governed the bill at the start. The Belgian Code has no application to mere receipts. The contract of carriage was contained in the charterparty in which Belgian law is not a term. Even if the plaintiffs were bound by the bill at the start by asking for delivery, the defendants cannot import Belgian law into it.

Although Belgian law had nothing to do with this case, the Court decided to deal with it because the defendants' argument was based on it. Article 91 of the Belgian Code de Commerce was intended to bring into the force the Hague Rules. These Rules are the outcome of a Convention by some of the maritime powers held in 1923 at Brussels. The Carriage of Goods by Sea Act 1924 (UK) embodied the Rules in a Schedule to the Act, and the Rules were applied as from 1 January 1925. The UK Act confines its application to outward bills of lading only. Other foreign countries, including Belgium and France, signed the Convention on 25 August 1924. Guatemala was not a party to the Convention and never signed it. The Scandinavian countries were not parties to the Convention and did not sign it, but by 1932 Norway appeared to be contemplating legislation on these lines. No foreign country brought the Rules into force by enactment except Belgium and possibly, to some extent, the Netherlands. The Belgian Code is different to the UK Act, notably in that the Code applies to both outward and inward bills. The operative words in the UK Act are that the Rules 'are to have effect' in relation to carriage under bills to which the Rules apply. Every such bill is to contain an express statement that it is to have effect subject to the Rules. The operative part of the Belgian Code in art 91 says:

(A) A negotiable bill of lading … is governed by the following Rules. (B) Any bill of lading (issued under the Rules) shall contain a statement that it is governed by the Rules of Article 91.

Article 1.b of the Hague Rules provides that the Rules apply to a bill 'issued by virtue of a charterparty from the moment when this document governs the relations between the carrier and the holder of the bill of lading'.

In the UK Rules the word 'regulates' is used instead of the word 'governs'. A witness gave evidence to the Court that, by Belgian law, this means from the moment the bill is remitted to a third party who is not a party to the charterparty. The witness said that the provisions apply by reason of the fact that the bill is remitted, and the Rules apply retroactively from the time of shipment. The witness further said that if the shipper is the charterer and the shipper sends the bill to an agent, and the agent itself presents as agent, art 91 does not apply. The witness said that if the bill is negotiated the third person is bound, for art 91 applies as soon as the bill gets into the hands of a person who is not a party to the charterparty. The Court took this evidence (as to getting into the hands of a third party and remitting the bill and so forth) to mean that when the bill gets into the hands of a third party by negotiation on a transfer of property the Rules come into operation, and that they do not do so when there is a mere handing of the bill to someone to collect the goods.

For the defendants' argument to succeed, the defendants must show: (1) that the bill was a negotiable bill and was negotiated; (2) that a bill which leaves out any statement that it is governed by the Rules as required by the Code has such a term implied in it. But the Court found that the defendants did not show this. The bill was not negotiable. Furthermore, on the evidence, it was not negotiated. The goods did not pass to the Guatemalan Government by reason of the consignment. Furthermore, a bill of lading which by Belgium law must contain a statement that it is governed by the Rules, and does not contain such a statement, cannot be held to have the same effect as if it had. The Hague Rules cannot be a part of the contract contained in the bill unless the parties to it have clearly agreed that they shall apply.

The defendants either knew of the Belgian law and, as the defendants' country had not agreed to the Convention or adopted its provisions, chose to disregard it, or the defendants did not know of the Belgian law and never gave it a thought and had no regard to it. The defendants do not prove which of these positions the defendants occupied. The defendants cannot now turn round and say it was an implied term of the contract.

The nations have not adopted a uniform system of applying the Hague Rules. Most nations have not embodied them in their law at all, others differ in the way they have adopted them. The Belgian Code, in adopting the Convention, enacts that the Rules should apply to both inward and outward bills, the UK Act applies the Rules to outward bills only. The Belgian law says that bills of lading are 'governed by' the Rules; the law in force in Palestine says the Rules are to be deemed to be inserted (The Torni [1932] P 27 and 78). This creates room for confusion.

Despite the defendants' reliance on The Torni [1932] P 27 and 78, the Court distinguished the decision on its different facts.