This was an application for determination of a point of law arising in the course of an arbitration. The claimant was the owner of a bulk cargo of zinc calcine on the Thorco Lineage for carriage from the USA to Australia under a bill of lading issued in Switzerland. The vessel lost power following an engine failure, and grounded on Raroia Atoll in French Polynesia, suffering extensive damage. An LOF was signed by the master with Smit Singapore Pte Ltd and The Nippon Salvage Co Ltd. The vessel was refloated and taken to Pape'ete, French Polynesia, for inspection and temporary repairs. It was subsequently towed under the LOF to South Korea for repairs, where the cargo was discharged. The salvors had a maritime lien for their salvage remuneration on the property salved. The claimant was required to put up general average security to obtain possession of its cargo.

It is assumed that the defendant carrier’s breach of contract caused the claimant the following loss and damage: i) liability to pay the salvors - USD 7,355,000; ii) physical loss and/or damage to the cargo - USD 278,658.31; iii) onshipment costs in respect of the cargo (some of which was physically damaged and some of which was not) - USD 723,831.85; iv) costs incurred in arranging for the salvage sale and/or disposal of some of the physically damaged cargo - USD 58,934.74. In the arbitration, the claimant claimed an indemnity or damages for loss, damage, and expense in respect of the cargo including the costs of salvage, onshipment costs, disposal costs, and a sum in respect of the lost or damaged cargo.

The Hague-Visby Rules have the force of law in relation to the bill of lading and contract of carriage. Article 4.5.a of the Rules provides as follows:

Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding the equivalent of 667.67 units of account per package or 2 units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher.

The question of law is whether the defendant is entitled to limit its liability, and if so, in what amount in respect of each head of loss.

The claimant argued that the defendant’s liability in respect of the claimant’s liability to pay salvage and onshipment costs was limited by reference to the weight of the whole salved cargo because: (a) the words 'goods lost or damaged' in art 4.5.a refer to goods lost or damaged, physically or economically; or (b) the maritime lien on the cargo for salvage damaged the Claimant’s proprietary or possessory title in the cargo so that the cargo was damaged. Alternatively, pursuant to the decision of Burton J in Serena Navigation v DERA Commercial Establishment (The Limnos) [2008] 2 Lloyd’s Rep 166, the defendant’s liability in respect of the claimant’s liability to pay salvage and the onshipment costs was not subject to any art 4.5.a limit.

The defendant argued that its liability was limited by reference to the weight of only those goods which were damaged physically, because the words 'goods lost or damaged' in art 4.5.a referred to goods which have been lost, or goods the physical state of which has been changed; and the cargo was not damaged by reason of being subject to a maritime lien. Since only a small amount of the cargo was physically damaged, the defendant's liability should be limited to USD 800,000.

Held: The limit of the defendant's liability in respect of the claimant’s liability to pay salvage and the onshipment costs is based upon 2 SDRs per kilo of the whole cargo. That limit apparently exceeds the defendant's liability.

The approach which the Court should follow when construing an international agreement such as the Hague-Visby Rules has been summarised by Popplewell J, with the approval of the Court of Appeal, in Glencore Energy UK Ltd v Freeport Holdings Ltd [2017] EWHC 3348 (Comm) [27] (CMI115), and [2019] EWCA 388 [24] (CMI332):

(1) The Hague Rules as Convention treaty obligations are subject to arts 31 and 32 of the Vienna Convention on the Law of Treaties 1969.The primary duty of the Court under art 31 is to ascertain the ordinary meaning of the words used, not only in their context but also in the light of the evident object and purpose of the Convention. The language of the text is to be taken as a whole against this background.

(2) Because the Hague Rules are the outcome of international conferences and have an international currency, being applied by foreign courts, it is in the interests of uniformity that they should be construed on broad principles of interpretation which are generally accepted rather than rules of construction particular to English law. For the same reasons, their interpretation is not to be controlled by the English law cases which preceded the Rules, and the Court should not pay excessive regard to earlier decisions of English courts in construing the international code. Where there are words or expressions which have received judicial interpretation as terms of art, the words may be presumed to have been used in the sense already judicially imputed to them; but the words have to be given their plain meaning, which should be given effect to without concern as to whether that involves altering the previous law.

(3) Recourse may be had to the travaux préparatoires, in accordance with art 32 of the Vienna Convention, but only in the circumstances there identified, namely to confirm the ordinary meaning, or where without them the meaning would be ambiguous, obscure, or lead to a result which is manifestly absurd or unreasonable. The travaux will only be determinative in a case in which they clearly and indisputably lead to a definite legal intention.

The travaux préparatoires contain no discussion of the meaning of the words 'goods lost or damaged'. Sir Kenneth Diplock stated in his address that the delegates were dealing with 'shipowners’ liability for goods lost or damaged'. But there was no discussion of the meaning of 'goods lost or damaged'. Thus the travaux préparatoires are of no assistance. There is neither a 'bull’s eye' to resolve any ambiguity, nor confirmation of any meaning of 'goods lost or damaged'

After a thorough review of the authorities and academic commentaries, the Court declined to follow the decision of Burton J in The Limnos, and concluded that where goods are carried by sea they may, as a result of fault by the carrier, be damaged physically or economically. Here the goods were damaged economically, because the value of the goods was diminished on arrival at the discharge port as a result of the claimant having to incur salvage charges and onshipment costs which were necessitated by the casualty. The textual context in which the words 'goods lost or damaged' are found in art 4.5.a is one in which they serve to define or quantify the limit to which the claims described earlier in the article are subject. In that context one would expect those words to give effect to, and not frustrate, the aim of the article, which is to limit the carrier’s liability for loss or damage to, or in connection with, the goods. If the phrase 'goods lost or damaged' means 'goods lost or damaged physically or economically', the aim of the article is achieved. Such a meaning is the ordinary meaning of 'goods lost or damaged' in the context of contracts for the carriage of goods by sea.

On that construction of art 4.5.a, the liability of the defendant in respect of the claimant’s liability to the salvors is limited to 2 SDRs per kilo of the whole cargo. Likewise, the liability of the defendant in respect of the onshipment costs incurred by the claimant is limited to 2 SDRs per kilo of the whole cargo.