The Court of Appeal recently reviewed a decision by the Kota Kinabalu High Court which dismissed an application by the first defendant for determination of a preliminary issue under Order 33 of the Rules of Court 2012.(1)

Facts

The plaintiff was a steel manufacturer based in Sabah. The first defendant was the owner of the vessel Builder's Success. The plaintiff hired the first defendant to transport 2,000 metric tonnes of steel bars purchased from a company in Penang to Kota Kinabalu. The second defendant was the insurer.

On arrival in Kota Kinabalu, it was discovered that the steel bars had corroded. The plaintiff sued both the first and second defendant jointly and severally for the sum of RM710,157.

Before the high court, the first defendant applied for a preliminary issue to be determined under Order 33, Rules 2(3)(2) and 5 of the Rules of Court 2012. The sole preliminary issue was whether the plaintiff's suit was barred by the statute of limitation under Article III(6) of the Hague Rules, which provides that a suit for loss or damage must be brought within one year of delivery of the goods or the date on which the goods should have been delivered. The plaintiff commenced its suit one year and one month after the goods were received by the plaintiff.

The high court referred to several cases – in particular, Aries Tanker Corp v Total Transport Ltd,(2) the Court of Appeal case of Cosco Container Lines Co Ltd v Trengganu Forest Products Sdn Bhd Appeal(3) and PDZ Lines Sdn Bhd v Master Agencies (M) Sdn Bhd(4) – and ultimately held that the one-year limitation period applied.

However, the court held that it was bound by the Court of Appeal's decision in Terengganu Forest Products, in which the high court's decision striking out the plaintiff's suit was reversed and the Court of Appeal ordered the case to proceed to trial.

Based solely on the grounds that it was bound by the Court of Appeal's decision, the high court dismissed the first defendant's application. The first defendant appealed to the Court of Appeal.

The Court of Appeal held that two issues needed to be addressed:

  • whether the limitation period in the bill of lading as provided for in the Hague Rules was inapplicable for being contrary to Section 29 of the Contracts Act 1950; and
  • whether the Court of Appeal's decision to reverse the high court's interlocutory decision in Terengganu Forest and order the case to proceed to full trial was binding on the high court.

Application of Hague Rules in Sabah

The Hague Rules are the provisions of the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading concluded in Brussels on August 25 1924. The United Kingdom was a signatory and party to the rules and Sabah became a party through the United Kingdom. The convention was amended by the Visby Protocol in 1968 and consequently the Hague Rules became known as the 'Hague-Visby Rules'. The rules applicable in the context of the case at hand were the Hague Rules, as applied to Sabah in 1961.

In Peninsular Malaysia, the Hague Rules were made part of domestic law through the Carriage of Goods by Sea Act 1950. However, the Sabah legislature instead followed regulations issued by the governor in council. Using the power conferred on the governor in council under Sections 277 and 278 of the North Borneo Merchant Shipping Ordinance 1960, the governor in council issued the Merchant Shipping (Subsidiary Legislation) Regulations 1961 (the 'Sabah Regulations'), applying, among other things, the Sarawak Regulations in North Borneo, with effect from April 1 1961.

Article III(6) of the Hague Rules (as applied by the Sarawak Regulations and made applicable to Sabah by the Sabah Regulations) provides as follows:

"Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, or, if the loss or damage be not apparent, within three days, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading.

The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable facilities to each other for inspecting and tallying the goods."

The plaintiff's contention was that the provision in Paragraph 6 on the statute of limitations to bring an action was contrary to Section 29 of the Contracts Act 1950. It relied on the Supreme Court's judgment in New Zealand Insurance Co Ltd v Ong Choon Lin in its argument.(5)

Section 29 of the Contracts Act 1950 reads as follows:

"Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent."

The Court of Appeal agreed with the high court's finding that Section 29 of the Contracts Act 1950 applies only to agreements limiting the time by which a party can enforce its rights as formulated by the parties themselves. In New Zealand Insurance Co Ltd v Ong Choon Lin the disputed matter was regarding a condition in a fire policy which had been issued by the appellant. This condition prevented the respondent from bringing an action for loss or damage after 12 months had passed since the incident. This time limit was imposed by the appellant and was thus not required by statute.

In the case at hand, the condition limiting the period within which an action could be brought for loss or damage arising from the carriage of goods was found in the bill of lading. However, this condition was not inserted in the bill of lading by the parties as is usually the case in other contracts. Instead, the condition was inserted due to Regulations 2 and 4 of the Sarawak Regulations – that is, it was a condition mandated by statute, not by an agreement between the parties to the contract. The Court of Appeal thus held that the limitation period in the bill of lading was not contrary to Section 29 and was therefore valid.

Case law

This case involved a contract of carriage for 56 containers of plywood. The plaintiff was the shipper and the defendant was the carrier. Relying on the bill of lading, the plaintiff submitted documents, including the bill of lading, to the negotiating bank for payment pursuant to a letter of credit.

The cargo was neither loaded on board the vessel as stated in the bill of lading, nor discharged at the designated port. Instead, it was discharged at a different port and subsequently transhipped to its destination port on another vessel.

The matter went to arbitration and the plaintiff was ordered to pay compensation. The plaintiff sued the defendant under the tort of deceit, claiming fraudulent misrepresentation in the bill of lading. The defendant applied to have the plaintiff's writ of summons and statement of claim struck out under Ordinance 18, Rule 19(1) of the Rules of the High Court 1980 on the grounds that the claim was time barred under the Hague Rules, as applied in Peninsular Malaysia by the Carriage of Goods by Sea Act 1950. However, the plaintiff submitted that the limitation period under the Hague Rules did not apply, as its action was based on tort, not contract, and the limitation period in the Hague Rules applies only to contractual liabilities.

The high court allowed the defendant's application, holding that the words "all liability" in Article III(6) of the Hague Rules were broad enough to cover the plaintiff's claims.

On appeal, the Court of Appeal ordered the case to proceed to trial, where judgment was entered for the plaintiff. At trial, the high court held that as the defendant had not appealed the Court of Appeal's decision on the issue of limitation, it could not raise the issue again.

The defendant appealed the high court's decision. In relation to the issue of limitation, the Court of Appeal held as follows:

"On the facts of the case which is now on appeal before us, we have come to an inescapable conclusion that the issue of estoppel based on limitation has been raised and argued before three forums, ie, the Senior Assistant Registrar, the judge-in-chambers and finally the Court of Appeal. The finality is that, since there was no further appeal the issue of limitation had been determined in the respondent's favour. On that basis, the appellants fail on the first ground."

Binding effect

The plaintiff's claim in Terengganu Forest Products was based on the tort of deceit by virtue of the fraudulent misrepresentation made by the defendant in the bill of lading.

Further, the plaintiff's claim was not for loss or damage of the goods in the course of their being carried by the carrier (the goods had arrived intact). Instead, the loss claimed by the plaintiff was for the total value of the goods, plus the compensation it had to pay to the buyer pursuant to the arbitral award.

The Hague Rules are meant for contracts of carriage, as evidenced by a bill of lading or other similar documents. The provision for limitation in Article III(6) of the rules clearly relates to loss or damage to goods during such carriage. The Court of Appeal's decision in Terengganu Forest Products to overturn the high court's striking out order was purely based on the nature of the plaintiff's cause of action: the tort of deceit.

The Court of Appeal was of the opinion that its decision in Terengganu Forest Products was not binding on other courts and thus the court allowed the first defendant's appeal.

For further information on this topic please contact Rajasingam Gothandapani at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email (rajasingam@shearndelamore.com). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.

Endnotes

(1) Chong Fui Shipping & Forwarding Sdn Bhd (Company 85804-U) v Steel Industries (Sabah) Sdn Bhd (Company 263484-U).

(2) [1977] 1 All ER 398.

(3) [2011] 4 CLJ 473).

(4) [2012] 5 CLJ 880.

(5) [1992] 1 CLJ (Rep) 230.

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