TRANE CO. AND OTHERS v. HANJIN SHIPPING CO. LTD. AND OTHERS

HCCL215/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.215 OF 1999

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J U D G M E N T

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Introduction

1. This is the trial of certain preliminary issues pursuant to RHC, Order 33, rule 3.

2. These issues arise in the context of an action to recover compensation for damage occasioned to a piece of air-conditioning machinery shipped on board the vessel "Hanjin Marseilles" on a flat rack container for carriage from Seattle to Hong Kong in November 1997. During the voyage the air-conditioning machinery broke free from the lashings which secured it to the flat rack, and tipped over.

3. The 1st defendant's primary contention in this action that the damage was sustained by reason of inadequate lashing, and that the 1st defendant, as carrier, is under no liability to the plaintiffs.

4. However, the preliminary issues the subject of this judgment concern the 1st defendant's plea of limitation. It is admitted by Hanjin Shipping that the bill of lading contains or evidences the contract of carriage, but it is asserted that this contract was subject to the United States Carriage of Goods by Sea Act ("US COGSA"), and accordingly that in any event the 1st defendant's liability is limited to US$500.00.

5. Hence the application by the 1st defendant, by summons dated 13 April 2000, for an order that there be a trial of the preliminary issues specified on the face of that summons. Notwithstanding its assertion as to the absence of primary liability, the 1st defendant says that in so far as the value of the claim can be so limited, commercial considerations dictate that this aspect be decided before considerable costs are expended at trial.

6. Against this background, leave was granted by this court to proceed with the trial of these preliminary issues.

The issues

7. The issues to be determined are drawn thus :

(1) Whether on the true construction of the contract in or evidenced by Bill of Lading no. HJSCMSPA10027805 issued at Minneapolis and dated 21 November 1997 the said contract incorporated and/or was subject to the provisions of the US COGSA 1936.

(2) If so, whether the 1st defendant's liability for the plaintiffs' claim in this action is limited to US$500.00.

8. The parties to the trial of these preliminary issues are solely the plaintiffs and the 1st defendant. No viva voce evidence has been necessary. The issue for the court is essentially one of construction of Clauses 2 and 3 of the Hanjin Shipping Bill of Lading no. HJSCMSPA10027805 dated 21 November 1997. There is no dispute that the country of shipment was the United States, nor that US COGSA was in force and applied compulsorily to outward carriage from US ports.

The relevant contractual provisions

9. For the purposes of this trial the material provisions on the back of the relevant bill of lading are as follows :

"1. DEFINITIONS

When used in this Bill of Lading ....

....

(b) 'Carrier' means Hanjin Shipping Co. Ltd.

....

(f) 'Merchant' means any actual or previous holder of this Bill of Lading.

(g) 'Package' means the single largest unit of Goods (e.g. container, pallet, box, bale) delivered by Merchant to Carrier pursuant to the terms of this Bill of Lading.

....

2. CLAUSE PARAMOUNT

(a) This Bill of Lading shall have effect subject to the International Convention for the Unification of Certain Rules relating to Bills of Lading, dated at Brussels 25 August 1924 (The Hague Rules) as enacted in the country of shipment, unless the protocol, dated Brussels 23 February 1968 (The Hague-Visby Rules) or the United States Carriage of Goods by Sea Act, 1936 (U.S. COGSA, 46 U.S.C. Appendix 1300-1315) apply compulsorily.

(b) When no such enactments are in force in the country of shipment, the corresponding Hague Rules, Hague-Visby Rules or U.S. COGSA legislation (Hague/Visby/COGSA legislation) of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the Hague Rules shall apply.

(c) The applicable Hague/Visby/COGSA legislation shall govern throughout the time when the Goods are in the actual or constructive custody of the Carrier. The Carrier takes all reservation possible under the Hague/Visby/COGSA legislation relating to the period before loading and after discharging and while the Goods are in the charge of another Carrier, and to deck cargo and live animals.

3. LITIGATION AND CLAIM

(a) Disputes arising under the Bill of Lading shall be determined at the option of the Merchant by the courts and in accordance with the law (including choice of law) at

(i) the Carrier's principal place of business, (being Seoul, Korea, except for actions under U.S. COGSA, where the Carrier's principal place of business also includes Long Beach, California.); or

(ii) the place of receipt of the Goods by the Carrier, or the port of discharge."

The opposing views

10. The ambit of the argument is in short compass, and at the end of the day devolves upon the meaning to be attributed to the phrase "apply compulsorily", the concluding words in subclause (a) of Clause 2 of the bill of lading, the Paramount Clause.

11. The 1st defendant contends that the words "apply compulsorily" clearly are directed to the status in the country of shipment of the legislation to which reference is made, and to nothing else. So that subclause (b) is only triggered when no Hague, Hague-Visby or US COGSA legislation is in force in the country of shipment. On this analysis, the 1st defendant says that as a matter of contract the obligations arising under the bill of lading are governed by the provisions of US COGSA.

12. To the contrary. The plaintiffs assert that the term "apply compulsorily" refers to compulsory application of US COGSA under the designated proper law of the contract, in this instance Hong Kong law given that Hong Kong is the port of discharge, and that since US COGSA does not apply compulsorily under Hong Kong law, this bill of lading is neither subject to US COGSA nor, of course, to the package limitations therein. On the plaintiffs' construction the "preferred default regime" for resolution of the parties contractual obligations under this bill of lading is the Hague Rules.

Construction

13. The views put forward by the parties are mutually exclusive. There is no middle ground. After some reflection, I consider that the 1st defendant's construction is to be preferred.

14. I agree with Mr Sussex SC, for the 1st defendant, that subclause (a) of Clause 2 is directed simply to the question of identifying whether the Hague Rules, the Hague-Visby Rules, or US COGSA apply so far as the law of the country of shipment is concerned. In my view, he is correct in saying that within subclause (a) the words "enacted" and "apply compulsorily" are transposed and are used synonymously.

15. Assistance on the meaning of "apply compulsorily" can be garnered from the opening words of subclause (b), viz. "When no such enactments are in force in the country of shipment....", which leads to the conclusion that the provisions of (b) only come into play when, as a matter of fact, none of these three sets of legislation are in force in that country, which in this instance, of course, is the United States.

16. I further accept the submission that the provisions of subclause (a) are not "proper law sensitive", and that what is involved is simply an incidental question of foreign law, namely, whether as a matter of fact a relevant enactment is in force in the country of shipment.

17. It follows from the foregoing that I do not accept Mr Wright's persuasive submission that the words "apply compulsorily" necessarily relate to whether there is compulsory application of the Hague-Visby or US COGSA legislation under Hong Kong law, and (so the argument goes) that it is only after first asking if there exists compulsory application under Hong Kong law that it is then permissible to proceed to have regard to the contractual position, which in this instance involves consideration of "the next stage", namely subclause (b).

18. I do not think that this approach is consonant with the way in which Clause 2 is drawn. Nor for that matter do I think that Clause 3, which Mr Wright maintains should be considered first, represents a proper law clause as understood in the sense of providing an express choice of proper law of this contract of carriage. This is because, as Mr Sussex points out, Clause 3 expressly refers in the parenthesis to the choice of law rules of the law of the forum, that is, its conflicts rules, so that if Hong Kong's conflicts rules are applied to determine the system of law with which the contract has its closest and most real connection, that would inevitably point to US law in any event - and hence application of US COGSA. Hence, Mr Sussex concludes, it matters not if the 1st defendant arrives at the application of US COGSA via a pure construction route, or alternatively because this legislation comes in as part of the proper law of the contract.

19. In accepting the 1st defendant's construction argument, I have also borne in mind that in other jurisdictions in situations wherein the courts have wrestled with the construction of similar Clauses Paramount, the approach taken has tallied with the 1st defendant's approach in this case : see The Bintang Bolong [1988] QBD (Admiralty Court), (unreported), The Pembroke [1995] 2 Lloyds 290 (NZ High Court), The Coral [1993] 1 Lloyds 1 (Eng. CA), The Bukhta Russkaya [1997] 2 Lloyds 744 (Eng. Commercial Court), The Botic [1999] 4 SLR 749 (Sing. High Court).

20. In The Pembroke, for example, the proper law of the bill of lading contract was Panamanian (agreed to be the same as the law of New Zealand) under which the Hague-Visby Rules did not apply compulsorily, but upon the "neat question in dispute" centering upon the meaning of the word "compulsorily", Ellis J clearly was prepared to proceed on the basis of compulsory application in the country of shipment, namely Germany (although in the event German law was not satisfactorily proved). Whilst in "The Coral", op.cit., the case proceeded in all respects under English law save for the construction of the General Paramount Clause, wherein the Court of Appeal appears to have interpreted the words "apply compulsorily" in that clause as being synonymous with being enacted in the country of shipment (in that case, South Africa). And in "The Botic", op.cit., in the context of evaluating the merits of a stay application and in considering the provisions of a General Paramount Clause, and whether the Hague-Visby Rules may be applicable by having been incorporated contractually into the bill of lading, Khoo J concluded that the words "apply compulsorily" meant that the Hague-Visby Rules were in force in the country of shipment.

21. I recognize that Mr Wright did not accept that these cases were of much assistance, maintaining that these authorities did not necessarily demonstrate that his approach had been rejected by these particular judges, and that "having galloped over" the necessary steps, as he put it, those courts generally appeared to have arrived at the correct result. Nevertheless, although in matters of construction other authorities necessarily are of limited assistance, what is interesting about these cases (and indeed the highest that it fairly can be put) is that in none of them does it appear to have been suggested that the words "apply compulsorily", or their equivalent, have been regarded as having anything to do with the proper law of the particular contract of carriage, and that in none of these cases has an argument appeared similar to that advanced by the plaintiffs in this case. This no doubt is the reason why, for the purpose of his pure construction argument only, that Mr Sussex was prepared to assume Hong Kong law as the proper law of the contract, because his primary contention is that considerations of proper law simply do not impact upon such a construction issue, and that all that is involved is merely an incidental question of foreign law.

22. In my judgment, the 1st defendant gets home as a matter of pure construction of the contract of carriage, even on the assumption that the bill is governed by Hong Kong law, so that, on the proper construction of subclause (a) of Clause 2, US COGSA applies; alternatively, and if such be needed, as a matter of law under the proper law of this contract which, on the application of Hong Kong's conflicts rules, must be considered to be US law. In this latter context, I do not think it necessary to consider in detail argument as to the merits of Clause 3 in the context of the validity or otherwise of a subsequently exercised option which would appear to have the effect of changing the pre-existing proper law of the contract, since it is not submitted by Mr Sussex that Clause 3 is void, but simply that it has a different effect from that contended for by the plaintiffs. I would comment, however, that the plaintiffs' analysis with regard to Clause 3 does strike me as problematic, since for the purposes of the construction of the preceding clause, the Clause Paramount, Clause 3 appears to be regarded as having retrospective effect (in displacing the proper law attaching to the contract of carriage at inception), whilst for the purpose of characterizing Clause 3 as an express proper law clause, absent application of conflicts rules, it would seem to follow that it operates prospectively. At the end of the day, however, this is not of great moment, because at bottom this case is about a straightforward issue of construction, an issue which I have chosen to resolve in favour of the 1st defendant.

Decision

23. It follows from the foregoing, therefore, that in my judgment the answers to both the preliminary issues to be determined must be in the affirmative.

24. Accordingly, I hold and declare that the 1st defendant's bill of lading dated 21 November 1997 incorporated, and/or was subject to the provisions of the United States Carriage of Goods by Sea Act 1936, and therefore that the 1st defendant's liability for the plaintiffs' claim in this action is limited to US$500.00.

25. I further make an order nisi that the costs of the trial of these preliminary issues are to be to the 1st defendant, to be taxed if not agreed.