Gold Star Line Ltd (the second defendant) time chartered the ship Sun Flower. The second defendant issued two bills of lading for goods shipped at Durban (South Africa) for delivery at Yokohama (Japan). The name of the second defendant headed the bills. The bills were signed 'as agents for the Master' by Miller, Weedon & Carruthers (Pty) Ltd, who were the general agents for the second defendant. The bills contained a Hong Kong choice of law clause, a clause paramount, and a demise clause.

The clause paramount provided, among other things, that when the Hague Rules were not in force in the country of shipment, the 'Colony of Hong Kong Carriage of Goods by Sea Ordinance and the Rules contained in the Schedule thereto shall apply, as if the goods were being carried from a port in the Colony of Hong Kong to any port'.

The demise clause read: 'If the vessel is not owned by or chartered by demise to the company or line by whom this Bill of Lading is issued (as may be the case notwithstanding anything that appears to the contrary) this Bill of Lading shall take effect only as a contract with the owner or demise charterer as the case may be as principal made through the agency of the said company or line who act as agents only and shall be under no personal liability whatsoever in respect thereon.'

Subsequently, Mitsui & Co Ltd (the plaintiff) claimed against the second defendant for damages for breach of a contract of carriage evidenced by the two bills. The second defendant relied on the demise clause as a defence to the plaintiff's claim.

The plaintiff argued that the second defendant must be assumed to be the carrier and a contracting party to the contract of carriage; thus the demise clause was rendered void by the Carriage by Sea under Bills of Lading Rules made pursuant to Hong Kong’s Carriage of Goods by Sea Ordinance. Article 3.8 of those Rules corresponded to art 3.8 of the Hague Rules.

The issue was thus whether the second defendant, by issuing the two bills, merely acted as an agent for the owner of the Sun Flower (the first defendant) and was thus under no personal liability to the plaintiff. The plaintiff and second defendant consented to have this issue set down for hearing as a preliminary issue before the trial of the action.

Held: Action against the second defendant dismissed.

The Court held that the demise clause does not operate to relieve the carrier from liability, as the demise clause indicates that the contract of carriage is a contract with the owner or demise charterer as principal through the agency of the second defendant, who acts as an agent only. The Court declined to follow the Canadian case of Canadian Klockner Ltd v D/S A/S Flint, Willy Kubon & Federal Commerce & Navigation Co Ltd [1973] 2 Lloyd's Rep 478. Thus the demise clause was not rendered void by art 3.8.

The Court also held that the clause paramount incorporating the Hague Rules cannot render void another clause in the same contract (ie the demise clause) because the Rules were incorporated by contract and not by legislation, and because the demise clause must have some effect.

The Court found that the demise clause prevents the plaintiff from arguing that the second defendant cannot benefit from the demise clause unless the second defendant was a party to the contract of carriage.