The plaintiff, Consolidated Investment & Contracting Co, chartered the Virgo to transport softwood from Romania through the Suez Canal to Abu Dhabi and Dubai. The charterparty was based on the Gencon form and included cl 39 which stated 'clause paramount as attached'. However, no clause paramount was attached to the charterparty. Nonetheless, every clause paramount incorporates the Hague Rules, which take precedence over other clauses. Therefore, it was common ground that the Hague Rules applied to this case.

The plaintiff acted as a shipper and issued several bills of lading for the cargo. Some of the cargo was carried on deck. While certain bills of lading contained explicit exemptions that released the defendant carrier from liability for cargo carried on deck, others did not include this clause. On one such bill of lading without the exemption, 3,655 pieces of wood were found to be missing when the vessel arrived in Abu Dhabi. The plaintiff's insurers claimed on its behalf for the shortfall from the defendant's P&I club. Article 3.6 of the Hague Rules provides that '[i]n 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'.

The one-year time limit was due to expire on 12 January 1977. On 30 November 1976, the plaintiff filed its claim against the defendant. The plaintiff also informed the defendant about the time limit and requested confirmation of a six-month extension. However, the defendant only agreed to a three-month extension from 12 January 1977-12 April 1977.

On 26 January 1977, the defendant's P&I club requested claim documents relating to the delivery shortage, and within a week, the plaintiff submitted the supporting documents. However, the P&I club took no further action. On 13 April and 16 May 1977, the plaintiff's insurers sent reminders to the P&I club but received no response until 23 May 1977 when the club replied, stating that the three-month extension had expired, rendering the matter time-barred.

The plaintiff then appointed an arbitrator and sought an extension of time based on undue hardship under s 27 of the Arbitration Act 1950 (the Act). Donaldson J in the Commercial Court refused to grant any extension. The plaintiff appealed to the Court of Appeal.

Held: Appeal allowed.

Lord Denning MR: The defendant argued that the statute of limitations under the Hague Rules differed from most others because once the one-year period expires, the right of action itself is extinguished, rather than just the remedy being barred. The defendant referred to Aries Tanker Corp v Total Transport Ltd [1977] 1 WLR 185 (CMI2194), which stated that the time bar under the Hague Rules was a unique kind that 'extinguishes the claim … not one which … bars the remedy while leaving the claim itself in existence'. Therefore, the defendant contended that s 27 of the Act could never apply once the claim was barred by the Hague Rules.

However, s 27 of the Act applied to claims barred either by the extinction of the right or the prevention of the remedy. Regardless of how the claim was barred, s 27 would come into effect. It would be incorrect to interpret s 27 as applicable only to cases where the remedy is barred.

Regarding the merits of the case, even though the plaintiff allowed three months to pass, that duration was not so long that discretion should be denied. Donaldson J applied too stringent a test by ruling that the plaintiff was time-barred.

Ormrod LJ: Article 3.6 of the Hague Rules not only has the effect of barring the remedy but also discharging the liability of the carrier. Therefore, s 27 of the Act would not apply after midnight on 12 January 1977 if art 3.6 did apply. However, art 3.6 never came into effect at all, because both the Hague Rules and s 27 of the Act were incorporated into the contract. As a result, s 27 qualified the terms of art 3.6 and allowed the Court to extend the time.

The purpose of s 27 was to grant the Court discretion to alleviate the hardship caused by clauses similar to art 3.6 of the Hague Rules. If the defendant was correct in its assertion that s 27 did not apply to arbitration clauses, it would render the section almost entirely ineffective because any drafter could easily circumvent it. Parliament intended to prevent this kind of thing from occurring.