Daewoo Heavy Industries Ltd. & Anor v Klipriver Shipping Ltd. & Anor

Unauthorised deck stowage in breach of a carriage contract does not automatically deprive a carrier of the package limitation in Article IV rule 5 of the Hague Rules 1924. The question is one of contractual construction. The seriousness of the breach is not a separate test. The words “in any event” give the limitation broad, natural scope, including loss caused by breach of an underdeck obligation. The limitation is distinct from an exemption clause. Any Article IV rule 2 defence remains fact-sensitive and may fail where the deck carriage caused the loss.

The appeal arose from the loss of and damage to excavators carried from Korea to Turkey. The carriage contract and bills of lading required underdeck stowage, but 26 excavators were restowed on deck without notice or consent. Eight were lost and others damaged in heavy weather.

Langley J held that the deck stowage breached the contract but that the defendants could rely on the Article IV rule 5 limitation where the deck carriage was the effective cause of the loss or damage. He declined to follow The Chanda and answered the relevant preliminary issue in the carriers’ favour. The appeal concerned whether that construction of the Hague Rules 1924 was correct.

The appeal was dismissed unanimously. Longmore LJ delivered the leading judgment. Judge LJ agreed and added observations of his own. Aldous LJ agreed with both judgments.

1. The applicability of a contractual exception or limitation clause depends on construction of the contract. The seriousness of a breach is not a self-sufficient yardstick. The common-law deviation and warehouse authorities did not establish a broad principle of general acceptance which could displace the contractual construction of an international convention. The relevant provisions had to be construed on broad principles of general acceptation: Stag Line Ltd v Foscolo, Mango & Co Ltd [1932] AC 328 and Tilbury v International Oil Pollution Compensation Fund 7th February [2003] EWCA Civ 65.
2. The words “in any event” in Article IV rule 5 naturally meant in every case, including a case involving breach of the contractual obligation to stow cargo under deck. The package limitation was not repugnant to that obligation. The court adopted the reasoning in The Happy Ranger [2002] 2 Lloyds Rep 357, where the materially similar limitation was held to apply despite breach of the seaworthiness obligation.
3. The Antares [1987] 1 Lloyds Rep 424 supported the construction of “in any event” in the time-bar provision. Evans and Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 was materially different because it concerned a separate collateral promise and the incorporation or effect of standard conditions. Lord Denning MR’s broader observation in that case was obiter and could not stand with the later decisions.
4. The court expressly overruled The Chanda [1989] 2 Lloyds Rep 494 and approved the contrary decision in The Nea Tyhi [1982] 1 Lloyds Rep 606. Article IV rule 2 defences were not automatically excluded by unauthorised deck carriage; their availability depended on causation and the facts. The formal order was: appeal dismissed, with no order as to costs of the appeal.

• Court of Appeal (Civil Division): in [2003] EWCA Civ 451, dismissed the appeal unanimously and made no order as to costs of the appeal.
• High Court of Justice, Queen’s Bench Division (Commercial Court): Langley J, in [2002] EWHC 1306 (Comm), held that unauthorised deck stowage breached the contract but did not prevent reliance on the Article IV rule 5 limitation. The answer concerning Article IV rule 2 defences was not appealed.