Buyer & Third Parties
Cases
“Starsin”, Owners of cargo & Ors v. “Starsin”, Owners and/or demise charterers
[2003] UKHL [2003] 1 CLC 921, [2003] 2 All ER 785, [2003] 1 All ER (Comm) 625, [2004] AC 715, [2004] 1 AC 715, 2003 AMC 913, [2003] UKHL 12, [2003] 1 LLR 571, [2003] 1 Lloyd’s Rep 571, [2003] 2 WLR 711
LORD STEYN
My Lords,
42. In 1995, while the Starsin was on time charter to Continental Pacific Shipping Limited (“CPS”), bills of lading on CPS’ liner form were issued for the carriage of 17 parcels of timber and plywood. The carriage was between ports in Malaysia and Antwerp/Avonmouth. The cargoes were damaged. Receivers sued the owners for breach of contract, or alternatively in tort in the event that the bills of lading were charterers’ bills.
43. On this appeal the central issues are:
1. Whether the Owners or Charterers were the carriers under the bills of lading;
2. What, if any, protection the Himalaya clause in the bills of lading affords the Owners;
3. Depending on the answer to 2, the question may arise whether the Owners can be sued in tort.
I. The Identity of the Carrier.
44. The issue was whether the bills of lading were charterers’ or owners’ bills. The terms of each of the 17 bills reveal inconsistent provisions. CPS were the charterers. The signature box on the face or front of a specimen bill of lading prominently carried a signature “As Agent for Continental Pacific Shipping (The Carrier).” The face of the bill of lading contained essential commercial provisions such as the identity of the shippers, the name of the vessel and a description of the cargo, as well as a reference to the contract of carriage, the latter being set out in the box commencing with the word “Shipped.” Clause 1(c) is consistent with what appears on the face of the bill of lading: it provides that the “carrier” is “the party on whose behalf this bill of lading has been signed.” So far the document is in harmony. But tucked away in barely legible tiny print on the back of the bill of lading are two clauses which contradict the contractual position revealed by the face of the bill. Clause 33 provides that the contract evidenced by the bill of lading was “between the merchant and the owner of the vessel named herein (or substitute).” Clause 35, a demise clause, provides that the bill of lading shall only take effect as a contract of carriage “with the owners or demise charterers.”
45. How is the problem to be addressed? For my part there is only one principled answer. It must be approached objectively in the way in which a reasonable person, versed in the shipping trade, would read the bill. The reasonable expectations of such a person must be decisive. In my view he would give greater weight to words specially chosen, such as the words which appear above the signature, rather than standard form printed conditions. Moreover, I have no doubt that in any event he would, as between provisions on the face of the bill and those on the reverse side of the bill, give predominant effect to those on the face of the bill. Given the speed at which international trade is transacted, there is little time for examining the impact of barely legible printed conditions at the time of the issue of the bill of lading. In order to find out who the carrier is it makes business common sense for a shipper to turn to the face of the bill, and in particular to the signature box, rather than clauses at the bottom of column two of the reverse side of the bill.
46. Taking advantage of their knowledge of the way in which the market works two commercial judges – Colman J and Rix LJ in the Court of Appeal – adopted the mercantile view. The majority in the Court of Appeal – Morritt V-C and Chadwick LJ – in effect gave preponderant effect to the boilerplate clauses on the back of the bill. In my view it would have an adverse effect on international trade if the latter approach prevails. Professor Debattista (Is the end in sight for chartering demiseclauses?, Lloyds List, Wednesday 21 February 2001, 5) rightly warned that the effect of the judgment of the majority would be to create traps for the unwary: see also the criticism of the majority judgments by Professor Gaskell and others in Contracts for the Carriage of Goods by Land, Sea and Air, LLP, ed. Yates, as updated by service issue No. 21, dated 31 December 2001, para 1.6.4.2.25.1, and by Dr Girvin and Professor Bennett in English Maritime Law 2000, [2002] LMCLQ, at 84-87. As Rix LJ observed, commercial certainty and indeed honesty is promoted by giving greater effect to the front of the bill of lading.
47. This conclusion is reinforced by the ICC Uniform Customs and Practice for Documentary Credits: 1993 revision in force as of January 1, 1994. Article 23(a) reads as follows:
“If a Credit calls for a bill of lading covering a port-to-port shipment, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which:
i. appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by:
– the carrier or a named agent for or on behalf of the carrier, or
– the master or a named agent for or on behalf of the master.
Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting . . .”
In paragraph v. it is expressly stated that banks will not examine the contents of terms and conditions on the back of the bill: see further Position Paper No. 4: UCP 500—Transport documents articles. At the very least this material suggests that, faced with the need for prompt decisions in international trade, this is how parties involved in such a transaction would view the bill of lading. It demonstrates how far removed from the real world of commerce the technical approach advocated by the cargo owners in this case is. Moreover, insofar as there is a choice between two competing interpretations, this material strongly suggests that the best interpretation is to give predominant effect to the face of the bill.
48. It follows that in my judgment the ruling of the majority on the identity of the carrier point cannot stand. I would also hold that the ex tempore judgment in Fetim BV v Oceanspeed Shipping Limited (The Flecha) [1999] 1 Lloyd’s Rep 612 was wrong.
49. Counsel for the cargo owners raised an alternative argument. He argued that words like “The Carrier,” “For the Carrier,” and “As Carrier,” can be treated as adding the personal liability of CPS rather than excluding the liability of the owners. This is a question of interpretation. Counsel for the owners showed convincingly that the bill of lading contemplated a single carrier. It is only necessary to mention specifically that the completed signature box, as well as the definition clause, points to a single carrier. I would reject this alternative argument.
50. I conclude that CPS was the sole carrier under the bill of lading. The owners were not parties to the contract of carriage and are not liable under the bill of lading contracts. Their potential liability in tort must now be considered.
II. The Himalaya Clause.
51. The issue whether the owners are protected from liability in tort by the Himalaya clause now arises.
52. The owners rely in particular on that part of clause 5 of the bills of lading which Lord Bingham has recited and labelled part (1). The owners contend that part (1) confers on them a general exemption from liability.
53. Before this question of construction can be considered a preliminary issue must be examined. As Lord Bingham has pointed out by reference to the Himalaya clause contained in the Conline bill of lading form some words have been left out of clause 5: see the clauses in New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154 and Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The New York Star) [1981] 1 WLR 138. The deletion was plainly a mistake. In these circumstances the court should, in order to give effect to the reasonable expectations of the parties, fill the gap by inserting what had been omitted. What falls to be construed is the clause so reconstructed.
54. The result is that it cannot be argued that part (1) is flawed by reason of a lack of agency or authority. Accordingly part (1) must take effect in accordance with the terms of clause 5 as reconstructed.
55. For my part the language of part (1), contextually considered, is capable of one interpretation only. The shipowners are clearly “independent contractors.” It is not capable of being read as a mere covenant not to sue. In categorical language part (1) confers on the shipowners a general exemption from liability.
56. The various attempts by the cargo owners to argue that part (1) is “not clear enough” are on examination at variance with the benign advance heralded by The Eurymedon, carried forward by The New York Star [1981] 1 WLR 138 and reaffirmed in The Mahkutai [1996] AC 650. In The New York Star Lord Wilberforce commended a wide interpretation of the reasoning in The Eurymedon. He said at 144:
“. . . the decision does not support, and their Lordships would not encourage, a search for fine distinctions which would diminish the general applicability, in the light of established commercial practice, of the principle.”
In The Mahkutai, supra, Lord Goff of Chieveley observed about The Eurymedon (at 664E):
“Nevertheless there can be no doubt of the commercial need of some such principle as this, and not only in cases concerned with stevedores; and the bold step taken by the Privy Council in The Eurymedon [1975] AC 154, and later developed in The New York Star (1981) 1 WLR 138, has been widely welcomed.”
When in ITO Ltd v Mida Electronics Inc 28 DLR (4th) 641 the Supreme Court of Canada followed The Eurymedon, McIntyre J commented (at 667):
“Himalaya clauses have become accepted as a part of the commercial law of many of the leading trading nations, including Great Britain, the United States, Australia, New Zealand, and now in Canada. It is thus desirable that the courts avoid constructions of contractual documents which would tend to defeat them. I would therefore accept the approach taken by Lord Wilberforce and, in doing so, I observe that the court is simply giving effect to that which the parties themselves clearly agreed to in writing.”
This is the approach which should be adopted in the case before the House.
57. In my view the arguments of the cargo owners are of the very type which Lord Wilberforce warned against. I would respectfully also echo an extra-judicial statement by of Lord Goff of Chieveley in Commercial Contracts and the Commercial Court (1984) LMCLQ 382, 391:
“We are there to help businessmen, not to hinder them; we are there to give effect to their transactions, not to frustrate them; we are there to oil the wheels of commerce, not to put a spanner in the works, or even grit in the oil.”
This is a particularly apposite observation in regard to the ground-breaking development in The Eurymedon. The difficulties created in international trade by the doctrines of privity of contract and consideration had to be overcome. Those doctrines obstructed the process of giving effect to the reasonable expectations of parties. Fortunately, as was pointed out in ITO, at 667, by McIntyre J, “one of the virtues of the common law is that it has never let pure logic get in the way of common sense and practical necessity when a desirable result is sought to be achieved.” The desired result was to give businessmen the freedom to make arrangements for the allocation of risks as they thought right. The decisions in The Eurymedon, and The New York Star, were taken in the context of classical English contract law. It is true that this result can now be achieved more simply and directly by a combination of the Carriage of Goods by Sea Act 1992 and the Contracts (Rights of Third Parties) Act 1999. Nevertheless, the plain objective of the decisions in The Eurymedon and The New York Star was to enable businessmen to make sensible and just commercial arrangements, and thereby further international trade. Legal policy favours the furtherance of international trade. Commercial men must be given the utmost liberty of contracting. They must be left free to decide on the allocate commercial risks. In my view there can be no good reason to set at naught on an interpretative basis the allocation of risk in the Himalaya clause.
58. That brings me to the question of the impact of the incorporated Hague Rules on clause 5. Clause 2 (described as the “Basis of Contract”) incorporated the Hague Rules. This neutral fact tells us nothing about the impact of the Hague Rules on the Himalaya clause. That depends on the proper construction of the relevant Hague Rules. Of course, the ship owner will not be entitled to rely on the Himalaya clause if it offends the Hague Rules. The question is whether the exemption in favour of the ship owners in fact is in conflict with the Hague Rules.
59. I turn to the critical provisions of the Hague Rules. Article III rule 8 of the Hague Rules. This provision reads as follows:
“Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. . . .”
The critical question is whether the exemption in the Himalaya clause is contained in a contract of carriage. “Contract of carriage” is a well understood term: it refers to a contractual undertaking for the carriage of goods. It contemplates the usual incidents of such a contract, with the customary executory obligations. Next one has to consider the status of the exemption. In law it is a separate and independent contract. It contains no executory obligations. It merely confers a general exemption on the owners. Is it nevertheless to be treated as “a contract of carriage” within the meaning of article III rule 8? While this is a difficult question I have come to the conclusion that the answer ought to be No. Despite the fact that it comes into existence by the rendering of service by the vessel I am on balance of the view that in its natural and ordinary meaning “a contract of carriage” under article III rule 8 contemplates a contract with the usual incidents and executory obligations of a contract of carriage. In other words, it envisages a contract for the carriage of goods. Focusing simply on article III rule 8 I incline to the view that the exemption is not contained in a contract of carriage.
60. One cannot, however, construe article III rule 8 in isolation. Article III rules 1 and 2 of the Hague Rules are relevant. They read as follows:
“1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to –
(a) Make the ship seaworthy.
(b) Properly man, equip and supply the ship.
(c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.
2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.”
Once one has concluded that the exemption is contained in a contract of carriage that must hold good for all the provisions of the Hague Rules including the obligation to make the ship seaworthy, etc. That would indeed be a curious and implausible result flowing from a contract for an exemption clause. It would mean that the cargo owners of damaged parcels on the Starsin would in principle have had contractual remedies not on the bill of lading but on the Himalaya contract. That cannot be right. This factor reinforces my interpretation of article III rule 8. I would therefore hold that in the Hague Rules a contract of carriage means an agreement to carry and not an agreement simply for an exemption albeit that the consideration for the promise involves performance by the vessel.
61. I have noted the reasoning based on the words in para (3) that the independent contractor “shall to this extent be deemed to be [a party] to the contract contained in or evidenced by this Bill of Lading”. For my part this places a weight on those words which they will not bear.
62. For my part this result is in no way anomalous. It is loyal to the rationale of the advance in the rationality of English law achieved in The Eurymedon and The New York Star. It results in a readily predictable scheme, viz all claims in contract and tort have to be channelled to the charterers. That gives effect to what the parties intended to achieve. It has the merit of being a just decision achieved without in any way straining the Hague Rules. I would hold that the exemption contained in part (1) of clause 5 protects the owners against any liability in tort.
63. Regretfully, and in the spirit of accepting that one must not be too confident that one is right, I consider it appropriate to record my disagreement with the majority on this issue.
III. Tort.
64. This issue falls away. Given that it has been fully argued I accept, however, that the House should express a view on it. It is well established that a claim in negligence for damage to property is only maintainable by a person who had either the legal ownership of or a possessory title to the property at the time when the damage occurred: Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] AC 785. Accepting this principle, the cargo owners argue that they meet its requirements. Rix LJ convincingly demonstrated the fallacy in the argument. He said (at 459, cols 1-2):
“. . . there is only one cause of action, which arises when (more than negligible) damage is first caused. It is not open, therefore, to a new owner to say, . . . that a new cause of action, in respect of further (albeit progressive) damage which has developed after the transfer of title, has come into being in favour of the transferee. It may be different where entirely different damage is done on different occasions by reason of a different defect, as where, owing to defective hatch covers, one hold is flooded on one day and another hold is flooded on a different day: but that is for another occasion. In my judgment, however, the progressive damage done in this case does not create new causes of action in respect of the later stages of the same progressive damage, even in the hands of a new cargo-owner and even upon the assumption that the new cargo-owner was always within the scope of the shipowner’s duty of care. . . . further consideration of the nature of the damage and the cause of action in question prevents recovery.”
I am in full agreement with the judgment of Rix LJ in this respect. The exception in respect of Makros Hout, which Rix LJ mentions in paragraph 108 of his judgment, arises because Makros Hout obtained title before the voyage began.
IV. Conclusion.
65. I would allow the appeal.
LORD HOFFMANN
My Lords,
66. The appellants (“the shipowners”) are respectively the owners and demise charterers of the bulk carrier Starsin. On 3 October 1995 they time-chartered the vessel to Continental Pacific Shipping (“CPS”) for one trip, estimated 65/85 days. On 8 December 1995 the vessel began a voyage from Malaysia to Europe carrying a number of consignments of timber and plywood which had been shipped under separate bills of lading. On arrival in January 1996 it was found that 17 consignments had been damaged by fresh water; some of the cargo had been wet when loaded and negligent stowage had caused condensation which affected those and other consignments during the course of the voyage. The holders of the bills of lading (“the cargo owners”) sue the shipowners for breach of the contracts of carriage contained in or evidenced by the bills of lading and in tort for negligence in stowing the goods.
67. Whether the shipowners are liable in contract depends upon whether they were parties to the contract of carriage made with the shippers and evidenced by the bills of lading. The time charter provided in clauses 8 and 33 that CPS should be entitled to require the master to sign bills of lading on behalf of the shipowners or authorise their agents to sign bills of lading on behalf of the master who would in turn be contracting on behalf of the shipowners. So there is no doubt that CPS had authority to cause a contract of carriage to be created between the shipowners and the shippers. But the question is whether they did so.
68. The port agents who signed the bills of lading used printed forms headed “Liner Bill of Lading” and bearing the name and logo of CPS. The printed text, if one reads it through carefully, shows that the forms were meant to be used by a master signing on behalf of the owners. The form has printed on the front “In witness whereof the Master of the said Vessel has signed the number of original Bills of Lading stated below”. Then there is a box for the place and date of issue and, below that, another box for a signature. The form does not say expressly on whose behalf the master is signing but the master is the servant of the shipowner and unless he is authorised by the charterers to sign on their behalf and clearly does so the bill of lading will be construed as having been signed on behalf of the shipowner: see The Rewia [1991] 2 Lloyd’s Rep 325, per Leggatt LJ at p. 333.
69. The impression that the forms are meant to be used as owner’s bills is confirmed by a reading of the small print on the back. Clause 33, headed “Identity of Carrier” says in terms that the contract evidenced by the bill of lading is between the cargo owner and “the Owner of the Vessel named herein”, that only the shipowner is to be liable for any breach of the contract of carriage, that the “Line, Company or Agents” which has executed the bill of lading “is not a principal in the transaction” and that “the said Line, Company or Agents shall not be under any liability arising out of the contract of carriage”.
70. Much the same ground is covered by clause 35, which has no heading but is known as the demise clause. It says that if the vessel is not owned by the company or line by whom the bill of lading is issued “(as may be the case notwithstanding anything that appears to the contrary)” the bill of lading shall take effect only as a contract of carriage with the shipowners. It appears from an article in the Law Quarterly Review by Lord Roskill ((1990) 106 LQR 403-406) that this clause was devised to deal with conditions in the Second World War, when requisitioned ships on time charter were frequently operated by commercial liner companies which issued their own bills of lading. As the law then stood, only an owner or demise charterer could limit liability under sections 502 and 503 of the Merchant Shipping Act 1894. The words quoted above in brackets were, as Lord Roskill said, to “to put the bill of lading holder on express notice of the possibility that the ship concerned was chartered.” The rest of the clause was to make it clear that in such case the owner was the carrier. Conformably with this purpose, the demise clause appears originally to have been printed on the front or “business” side of the bill of lading: see The Berkshire [1974] 1 Lloyd’s Rep 185. One question in this appeal is the extent to which it remains efficacious for this purpose after its migration to the small print on the back.
71. The forms, therefore, were printed for use as owner’s bills. But the port agents signed them, in the signature boxes on the front of the documents, “As Agent for Continental Pacific Shipping (The Carrier)” or “As Agents for the Carrier Continental Pacific Shipping” or “As Agents for Continental Pacific Shipping as Carrier”. That meant, in my opinion, that anyone reading only the front of the document would think that CPS was the party assuming liability as carrier. He might have been slightly puzzled by the statement that the bill of lading had been signed by the master when it evidently had not. He may well have reflected that people often use forms which have in some respects to be adapted for the particular circumstances without deleting the inconsistent parts: see The Okehampton [1913] P. 173. But the reasonable reader of the front of the bill of lading would have had no doubt that CPS, and only CPS, was accepting liability as carrier. “Carrier” is a technical term familiar to anyone who has to deal with a bill of lading. The bill of lading evidences a contract of carriage and “carrier” is the name given to one of the parties to such a contract. As it happens, that is what condition 1(c) on the back of these bills of lading says. But that is what a reasonable reader would have thought it meant even without looking at the back. It is what Article I(a) of the Hague Rules says it means. In The Flecha [1999] 1 Lloyd’s Rep. 612 Moore-Bick J., faced with a similar Continental Pacific Shipping bill of lading signed “as agents for Continental Pacific Shipping as carriers” said that the term “carrier” was being used “loosely” and that this was “not unusual or surprising”. I can well imagine that a timber merchant in Kuching might say over coffee that his goods were being carried by Continental Pacific Shipping without knowing or caring whether the particular vessel was owned, demise chartered or on time charter. But such loose usage of a critical expression in the bill of lading itself does seem to me surprising.
72. On the other hand, a reader who turned the bill over and read the printed conditions might lose confidence in his initial impression. The identity of carrier and demise clauses would suggest deeper waters in which it might be necessary to resolve the apparent conflict between the form of signature and the other printed provisions of the bill of lading which show that it was meant for use as an owner’s bill.
73. How is this conflict to be resolved? The interpretation of a legal document involves ascertaining what meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed. A written contract is addressed to the parties; a public document like a statute is addressed to the public at large; a patent specification is addressed to persons skilled in the relevant art, and so on.
74. To whom is a bill of lading addressed? It evidences a contract of carriage but it is also a document of title, drafted with a view to being transferred to third parties either absolutely or by way of security for advances to finance the underlying transaction. It is common general knowledge that such advances are frequently made by letter of credit and that the bill of lading is ordinarily one of the documents which must be presented to the bank before payment can be obtained. The reasonable reader of the bill of lading will therefore know that it is addressed not only to the shipper and consignee named on the bill but to a potentially wide class of third parties including banks which have issued letters of credit.
75. Since a bill of lading is a legal document, the merchant or banker to whom it is addressed will know that on some questions of interpretation he will need to consult a lawyer. But he will also expect to be able to find out certain essential things for himself. These will include the identity of the carrier. The normal bill of lading recognises this distinction by having some of its terms written or printed on the front, where the businessman or banker can readily find them without a lawyer at his elbow, and the mass of other clauses printed at the back. Of course there will be cases in which the information provided on the front will be too obscure to provide the businessman or banker with the information he expects. In such a case, he may have to ask his lawyer to see whether the question can be elucidated by plunging into the small print at the back, or, if he is a banker offered the bill of lading pursuant to a letter of credit, he may simply reject it on the ground that he cannot be expected to puzzle out the answer by reference to other parts of the document. On the other hand, if the information is clearly stated on the front, the reasonable merchant or banker would go no further. The banker, for example, will accept the bill of lading when tendered against a letter of credit as having been issued by the named carrier without examining the terms on the back.
76. As it is common general knowledge that a bill of lading is addressed to merchants and bankers as well as lawyers, the meaning which it would be given by such persons will usually also determine the meaning it would be given by any other reasonable person, including the court. The reasonable reader would not think that the bill of lading could have been intended to mean one thing to the merchant or banker and something different to the lawyer or judge.
77. The proposition that bankers do not examine the contractual terms on the back of a bill of lading has long been common general knowledge and for many years the courts have said that they were not expected to do so: see Scrutton LJ in National Bank of Egypt v Hannevig’s Bank (1919) 3 LDAB 213, 214 and Salmon J. in British Imex Industries Ltd v Midland Bank Ltd [1958] 1 QB 542, 551-552. In more recent times, bankers have issued public statements to this effect in the form of the ICC Uniform Customs and Practice for Documentary Credits. Article 23 of the edition which was in force when these bills of lading were issued (UCP 500) provides that if a credit calls for a bill of lading, banks will accept a document which
“appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by:
– the carrier or a named agent for or on behalf of the carrier, or
– the master or a named agent for or on behalf of the master.
Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting.”
78. Article 23(a)(v) states that banks will not examine the contents of the terms and conditions of carriage, that is to say, the terms printed on the back. The position is stated even more clearly in the ICC Position Paper No. 4, published on 1 September 1994 to clarify Article 23(a)(i):
“1. The name of the carrier must appear as such on the front of the document. The expression ‘the front of the document’ means the side showing the details of the goods, vessel and voyage, and the expression ‘the back of the document’ means the side showing the details of the contract of carriage.
NOTE – Subparagraph (a)(v) of these UCP Articles states that banks will not examine the terms and conditions of carriage. Banks will therefore reject documents which fail to comply with the requirements set out in ‘1’ above, ie which fail to indicate the name of the carrier on the front of the document, even though the identity of the carrier may be indicated on the back of the document.
3. Where the document is signed by an agent for (or ‘on behalf of’) the carrier, the agent must be named and must indicate the principal for (or ‘on behalf of’) whom he is signing, in one of the following ways:
a. when the word ‘carrier’ has not been used on the front of the document to identify the party acting as carrier, eg
ABC Co Ltd
as agent for (or ‘on behalf of’)
XYZ Shipping, carrier
(signature).”
79. Mr Milligan QC, who appeared for the cargo owners, said that Article 23 of UCP 500 was irrelevant because it only specified the conditions upon which a bank would accept a bill of lading as conforming to the terms of a letter of credit. That had nothing to do with the interpretation of the bill of lading as between the parties (or alleged parties) to the contract of carriage. I do not agree. It is true that the purpose of Article 23, when UCP 500 has been incorporated into the terms of a letter of credit, is to specify what will count as a conforming bill of lading. But what it also shows is that, if the conditions for identifying the carrier have been satisfied, the bank will treat the document as having identified that party as the carrier. In other words, Article 23 and the Position Paper show that if a document bears upon its face the words “ABC Co Ltd as agent for XYZ Shipping, carrier [signature]” the bank will treat it as meaning that XYZ Shipping is the carrier. Since it is common general knowledge that banks almost invariable issue letters of credit on the terms of UCP 500, those terms will be part of the background available to the reasonable reader seeking to ascertain the meaning of the bill of lading. He will know that a bank, one of the potential addressees which anyone issuing a bill of lading must have in mind, would accept it as meaning that the person named on the front as the carrier was indeed the carrier. And the reasonable reader will not think that the bill of lading could have been intended to have one meaning to a bank and another to a consignee or assignee.
80. For this purpose it does not matter whether port agents in Malaysia are likely to have heard of UCP 500. Their knowledge and views on these matters are irrelevant because, unlike UCP 500, they are not reasonably available to everyone in the class of persons to whom the document was addressed. Nor does it matter that, as appears to have been the case here, the same port agents issued other bills in different and non-conforming form: this too is not something which the reasonable addressee of these bills could be expected to know and therefore not admissible background. The construction given to the bill of lading must be objective and uniform and, in the case of the identity of the carrier, determined by an unequivocal statement on the face of the document.
81. Thus it seems to me that in the present case the reasons for treating the words on the front of the bill of lading as determinative and overriding the identity of carrier and demise clauses go well beyond the general common sense rules of construction which give “preponderant importance” to the terms of the signature over the body of the document (see Universal Steam Navigation Co. Ltd v James McKelvie and Co [1923] AC 492, 500) or to written additions over boilerplate print (see Glynn v Margetson & Co [1893] AC 351).
82. I respectfully think that where the majority judgments of Sir Andrew Morritt V-C and Chadwick LJ in the Court of Appeal went wrong is that they conscientiously set about trying, as lawyers naturally would, to construe the bill of lading as a whole. In fact the reasonable reader of a bill of lading does not construe it as a whole. For some things he goes no further than what it says on the front. If the words there are reasonably sufficient to communicate the information in question, he does not trouble with the back. It is only if the information on the front is insufficient, or the questions which concern the reader relate to matters which do not ordinarily appear on the front, that he turns to the back. And then he calls in his lawyers to construe the document as a whole.
83. For similar reasons, I think that The Flecha [1999] 1 Lloyd’s Rep. 612 was wrongly decided. Moore-Bick J, as an experienced shipping lawyer, was so conscious of the presence of the identity of carrier and demise clauses on the back of the bill of lading that could not imagine that they could be overridden by a port agent’s stamp and signature on the front. He said that the term “carrier” on the front was used loosely but I think that what he really meant was that it must have been a mistake. If one were construing the document as a whole, giving equal weight to all its clauses, one might possibly conclude that it was a mistake: compare Mannai Investment Co. Ltd v Eagle Star Life Assurance Co. Ltd [1997] AC 749. But the bill of lading is addressed, among others, to persons who will try if possible to identify the carrier simply by what it says on the front. What The Flecha and the majority decision in the Court of Appeal did was to drive a wedge between the reasonable perception of a bank taking up the bill and the construction which would later be given to the bill by a court in litigation, perhaps involving the same bank. This does not seem to me commercially fair.
84. Mr Milligan argued that in the alternative that the description of CPS as carrier in the signature box was not inconsistent with the shipowners being parties to the contract of carriage. In Fred. Drughorn Limited v Rederiaktiebologet Transatlantic [1919] AC 203 the House of Lords held that a charterparty which described one of the parties as “charterer” was not inconsistent with his being agent for an undisclosed principal who also assumed the rights and duties of charterer. So, in this case, Mr Milligan said that the description of CPS as “carrier” was not inconsistent with giving effect to the demise clause under which CPS were deemed to be agents for the shipowners. They were disclosed agents (the agency being disclosed by the demise clause) for an unnamed principal.
85. This might be a powerful argument if the bill of lading were a different kind of document. But, for the reasons which I have given, I think that if the carrier is plainly identified by the language on the front of the document, one never gets to the demise clause on the back. The language on the front simply takes priority and no attempt at reconciliation is required. Mr Milligan also submitted that CPS may have contracted both for themselves and the shipowners, the latter being unnamed or undisclosed principals. Rix LJ, who appears to have floated this theory in the Court of Appeal, said that it might be considered “novel and inconsistent with the settled expectation of the shipping trade”. He would know this better than I, but I do not think that any reasonable merchant or banker who might be assumed to be the notional reader of this bill of lading would imagine that there was more than one carrier or that the carrier was anyone other than CPS.
86. It follows that in my judgment the appellants were not parties to the contract of carriage and are therefore not liable in contract.
87. Are they liable in tort? There is no dispute that the damage to the cargo was caused by the negligence of their servants employed on the vessel. The case has been argued on the basis that the shipowners owed the normal duty of care to the cargo owners on the ground that it was foreseeable that bad stowage would damage their goods. The existence of that duty could be reinforced by the fact that the shipowners were bailees or sub-bailees of the goods.
88. But a person who sues for damage to goods must show that he had title to the goods at the time the damage occurred. Otherwise he has suffered economic damage rather than physical damage to his property: he has paid for goods which were damaged and therefore worth less at the time that he acquired title. Such loss cannot be recovered in an action for negligence: The Aliakmon [1986] AC 785.
89. In the present case, only Makros Hout had obtained title before the voyage began. Prima facie, therefore, they are entitled to sue. The other cargo owners obtained title from the shippers at various stages during the voyage. The judge held that notwithstanding that the negligent act was the stowage at the commencement of the voyage and that, once the voyage had begun, progressive damage to the cargo was inevitable, the other cargo owners could recover for the proportion of the damage which had been caused to their consignments after they had obtained title.
90. My Lords, in agreement with the Court of Appeal, I think that this was to treat the progress of the damage as creating new causes of action which accrued per diem in diem. But in my opinion there was a single cause of action which accrued to the persons who owned the cargo at the time when the negligent stowage caused it any significant damage. That cause of action comprised all damage caused by the negligent stowage, even if some of that damage did not manifest itself until after they had parted with ownership. As significant damage was suffered by all the cargo before title passed to the cargo owners (other than Makros Hout), they have no cause of action in tort.
91. The respondents relied upon the decision of the House of Lords in Darley Main Colliery Co v Mitchell (1886) 11 App Cas 127. But that was an unusual case in which the cause of the damage (digging coal under ground) was not a wrongful act. It gave rise to a cause of action only in so far as it let down some part of the surface. So there was no unifying element in the cause of action such as, in this case, is provided by the negligent stowage. Each letting down of the surface was a separate cause of action. In the present case, all damage caused by the negligent stowage is a single cause of action which is complete once any significant damage has occurred.
92. That means that only Makrous Hout have a prima facie claim in negligence. But the shipowners say that even that claim is excluded by an exemption clause on the back of the bill of lading, namely condition 5, known as the Himalaya clause after the decision in Adler v Dickson (The Himalaya) [1955] 1 QB 158. As sub-bailees, they may also have been entitled to rely on any terms of bailment contained in the contract between them and the charterers as bailees, i.e. the charterparty: see The Pioneer Container [1994] 2 AC 324. But no reliance has been placed by either side on those terms. The argument has turned entirely upon the effect of the Himalaya clause. The relevant provisions are quoted in the speech of my noble and learned friend Lord Bingham of Cornhill and I shall adopt his numbering of the relevant parts.
93. A Himalaya clause in a contract of carriage is designed to create contractual relations between the shipper and any third parties whom the carrier may employ to discharge his obligations. It does so without infringing the English doctrines of privity of contract and consideration, which, until the Contracts (Rights of Third Parties) Act 1999, prevented third parties from claiming benefits under contracts. The way it works is this. The shipper makes an agreement through the agency of the carrier with the third party servant or contractor. Such third parties may have authorised the carrier in advance to contract on their behalf or they may afterwards ratify the agreement. The terms of the agreement are that if such a third party renders any services for the benefit of the cargo owner in the course of his employment by the carrier, he will be entitled to the exemptions and immunities set out in the clause. At that stage, the agreement is not a contract. The third party makes no promise to the shipper to render any services and, until he has actually rendered them, no contract has come into effect. It is the act of rendering the services which provides the consideration and brings into existence a binding contract under which the third party is entitled to the exemptions and immunities. The efficaciousness of the clause to achieve these results has been affirmed by the decision of the Privy Council in The Eurymedon [1975] AC 154. The theory of the agreement which becomes enforceable conditionally upon the act providing consideration was developed by Sir Garfield Barwick CJ in his dissenting judgment in the High Court of Australia in Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (The New York Star) (1978) 139 CLR 231 and adopted by the Privy Council when it affirmed his judgment on appeal: see The New York Star [1981] 1 WLR 138.
94. The first question is whether this version of the clause created the necessary agency. I agree with my noble and learned friend Lord Bingham of Cornhill that words have been omitted because of a common copyist’s error and that it is possible to identify the substance of the missing words. The clause ought therefore to be read as if it contained them. They make it clear that the carrier acts as agent to contract for the exemptions in parts (1) and (2). I do not think that there is any contradiction between the somewhat sophisticated technique of construction which has to be applied to restore clause 5 to its intended form and the more rough and ready approach used to decide who is the carrier. The latter is, as I have said, a question which the reasonable merchant or banker would expect to be able to decide for himself. On the construction of condition 5, he would undoubtedly want to consult a lawyer. For similar reasons, I do not think that it is relevant that the Himalaya clause is preceded by a separate and verbose sentence purporting to confer upon the carrier a series of immunities of which some are probably in conflict with the Hague Rules and others unnecessary.
95. The next question is the nature of the exemption conferred by part (1). It confers immunities upon the carrier’s servants, agents or independent contractors. I agree with Colman J. and the unanimous Court of Appeal, for the reasons they gave, that the shipowners were independent contractors to carry the goods for the charterers. The cargo owners no longer contest this point. The condition then says that no such servants, agents and independent contractors “shall in any circumstances whatsoever be under any liability whatsoever to the shipper”. That seems reasonably clear. It appears to exempt them from any liability. But Colman J. and all the members of the Court of Appeal agreed that it did not. Why not?
96. First it was said that part (1) is not a contract between the shipper and a third party. It is a covenant with the carrier, enforceable only by the carrier, by which the shipper promises that neither he nor his successors in title will sue the third party. The way to enforce it is for the carrier to obtain an injunction prohibiting the shipper from suing the third party: see The Elbe Maru [1978] 1 Lloyd’s Rep. 206. In the Court of Appeal, Chadwick LJ ( at p. 471) made his position on this point very clear: “The starting point”, he said, “is to appreciate that [part (1)] has effect only as an agreement between the shipper and the carrier.” He referred to the words of part (3) (“all such persons shall to this extent be deemed to be parties to the contract contained in or evidenced by this Bill of Lading”) and said that the words which he italicised showed that the agency mechanism was to apply only to part (2).
97. I have two difficulties about this argument. The first is that, read as a whole, the Himalaya clause makes it clear that the carrier contracts as agent for the third party in respect of both parts (1) and (2). The agency mechanism is not in my opinion created by part (3); it is created by the words in part (2) –
“and for the purpose of all the foregoing provisions of this clause the carrier is or shall be deemed to be acting on behalf and for the benefit of all persons who are or might be his servants or agents [etc].”
98. Part (3) has a different function which was in my opinion correctly identified by Beattie J. in his judgment at first instance in The Eurymedon [1971] 2 Lloyd’s Rep. 399, 409:
“the words “shall to this extent” indicate that the stevedore is only made a party to the exemption clause and not the remainder of the main contract”
99. The purpose of deeming the third party to be party to the bill of lading to that extent is to ensure that the exemption clause is enforceable against subsequent assignees. As part of the bill of lading it will be enforceable under the Carriage of Goods by Sea Act 1992 or possibly the common law rule that the consignee is bound by his acceptance of the bill of lading and request for delivery of the goods: see The Eurymedon [1975] AC 154, 168.
100. It may be that Colman J. and the Court of Appeal were misled because they were not given the words which had dropped out of the clause. But even without them I would have decided that the agency covered both parts (1) and (2). That is because in my opinion, and I understand it to be that of all your Lordships, part (1) simply cannot be read as a covenant not to sue. It does not say that the shipper is not to sue the third party. It says that he shall not be under any liability. A similar point arose in Gore v Van Der Lann [1967] 2 QB 31, in which the plaintiff contracted with the Liverpool Corporation that their bus drivers would not be liable to her for any damage however caused. The Corporation did not purport to contract as agent for the drivers and when the plaintiff sued a driver it was conceded that he could not rely upon the exemption: see Midland Silicones Ltd v Scruttons Ltd [1962] AC 446. But the Corporation intervened to claim that the contract was a covenant not to sue the drivers which they could enforce. The Court of Appeal rejected this argument, saying that the agreement could not be construed as containing such a covenant. So it seems to me that part (1) is either a contract of exemption between shipper and third party or it is wholly ineffective. In my opinion it was the former.
101. The second argument is that if the first part of the clause means what it appears to say, cases like the The Eurymedon [1975] AC 154, The New York Star [1981] 1 WLR 138 and The Mahkutai [1996] AC 650 would have been decided on different grounds or at any rate argued differently by the eminent counsel who appeared in them. This kind of argument is always rather speculative – one seldom knows exactly why some point was not taken – and a close examination of those three cases does not make it any stronger. When The Eurymedon was decided at first instance in New Zealand ([1971] 2 Lloyd’s Rep. 399) Beattie J. had no doubt (at p. 408) that the first part of the clause meant what it said:
“The first part, down to ‘acting as aforesaid’, contains a general exemption from liability for servants and agents of the carrier, while acting in the course of their employment. From there on, is created an agency clause…”
102. Beattie J. noted that the first pleaded defence was simply that the defendants (in that case, stevedores) were not liable because the work was done in the course of their employment. The second defence pleaded a package limitation and the third the time bar under the Hague Rules. The judge noted that all three defences depended upon showing that the agency mechanism succeeded in creating contractual relations between the defendants and the shipper and that if that worked, the time bar would be enough to defeat the action. But he observed in passing that –
“If it were not for the time factor then there would be room for a further issue, namely, whether this purported exemption from liability in clause 1 overrides the Hague Rules…The issue would then be whether the word “stevedore” came within the meaning of the word “carrier””
103. In other words, the only answers which Beattie J. could see to a complete exemption under the Himalaya clause were (1) the agency mechanism did not work or (2) the contract created by the agency mechanism was a contract of carriage, so that the exemption was struck down by Article III.8 of the Hague Rules. Since the decisions of the Privy Council in The Eurymedon and The New York Star it is clear that in principle the agency mechanism can work and I have already explained why I think it works for part (1) of this clause. That leaves the question of whether the purported exemption would be struck down by the Hague Rules. I shall come back to that point later.
104. In the New Zealand Court of Appeal, Turner P. summarised the issue as follows:
“The only defence raised, and the only point argued by the stevedore-defendant, either before Beattie J. or before us, was the efficacy of a clause in the bill of lading which purported to exempt it from liability to the owner of the goods for negligence in stevedoring. Beattie J. held the clause effective, and this appeal is from his decision.”
105. Perry J. clearly held the same view, because he remarked:
“It should be noted here that the clause endeavours to protect the servants and agents of the carrier even further than the carrier himself. Under the UK Carriage of Goods by Sea Act 1924 he may limit his liability but cannot exempt himself from liability and yet here is a clause which purports to exempt his servants or agents.”
106. The New Zealand Court of Appeal allowed the appeal on the ground that they did not think that the agency mechanism worked. They could not find any consideration moving from the stevedores. So they did not consider the point which Beattie J. said would arise if the agency did work but there had been no time bar, namely whether the contract was subject to the Hague Rules.
107. In the Privy Council it was recognised, as it had been by Beattie J., that if the agency mechanism worked, the time bar would be enough to enable the appellants to succeed. So nothing was said about the potential effect of the exempting part of the clause.
108. In The New York Star [1981] 1 WLR 138 there was a general exemption clause and a separate time bar. The stevedores recognised that there was a strong argument that the doctrine of fundamental breach might prevent the exemption clause from applying to the facts. The stevedores had handed over the goods to a thief without requiring production of the bill of lading. (Compare Sze Hai Tong Bank Ltd v Rambler Cycle Co. Ltd [1959] AC 576.) In the Privy Council Mr Gleeson QC, for the stevedores, included reliance upon the “general exclusion provisions” as an alternative at the end of his printed case (paragraph 20) but his stronger argument, upon which he succeeded, was based on the time bar. So there was no discussion of the issues which arise in this case.
109. The Himalaya clause in The Mahkutai [1996] AC 650 was said by Rix LJ (at p. 461) to be similar but not identical. It was similar in that it had words similar to part (2), although in a somewhat narrower form. But it was different in that it did not have part (1) at all. Instead, it had what was plainly a covenant not to sue in a form similar to that in the The Elbe Maru [1978] 1 Lloyd’s Rep. 206. There was no general exemption clause. This difference seems to me rather important and makes it less surprising that the case contains no discussion of the effect of a general exemption clause. It is true that Lord Goff of Chieveley said ([1996] AC 650, 666) that the function of a Himalaya clause was –
“to prevent cargo owners from avoiding the effect of contractual defences available to the carrier (typically the exceptions and limitations in the Hague-Visby Rules) by suing in tort persons who perform the contractual services on the carrier’s behalf.”
110. But this dictum is clearly addressed to the clause used in the case. I do not think it would be fair to treat it as laying down that this was the only function of any Himalaya clause.
111. The third argument is from redundancy. The second part of the clause says that servants and independent contractors are to have the same protection as the carrier. So, it is said, if the first part exempted the independent contractor from all liability whatever, he would not need the protection of the second part. This argument was accepted by Colman J. ([2000] 1 Lloyd’s Rep. at p. 99) and by Rix LJ and Sir Andrew Morritt V-C in the Court of Appeal ([2001] 1 Lloyd’s Rep. at pp. 462, 476).
112. My Lords, I seldom find arguments from redundancy very compelling and I think that in the case of a Himalaya clause they carry little weight. I do not think it surprising that when the clause was drafted (probably after Adler v Dickson (The Himalaya) [1955] 1 QB 158) the draftsman thought it might be prudent to wear belt as well as braces. In the legal climate of that time such prudence would have been justified. Exemption clauses were under threat from extensions of the fundamental breach doctrine and the draftsman might have thought that if the exemption in part (1) failed, the third party should at least be able to fall back upon the exemptions and time limits available to the carrier. That is what happened in The New York Star [1981] 1 WLR 138.
113. That brings me to the fourth argument, which is that the complete exemption conferred by part (1) is cut down by Article III.8 of the Hague Rules, which provides that any clause in a contract of carriage relieving “the carrier or the ship” from liability for negligence shall be null and void. I confess that on this point my opinions have fluctuated but in the end I have been persuaded that the reasoning of Lord Hobhouse of Woodborough is correct and that Article III.8 does have this effect.
114. Putting the argument in my own words, it seems to me to run as follows. I do not think that the collateral contract between shipper and independent contractor is a “contract of carriage” so as to attract the application of the Hague Rules. But part (3) says that the independent contractor “shall to this extent be deemed to be parties to the contract contained in or evidenced by this Bill of Lading”. That means, as I said earlier, that he is a party only for the purpose of taking the benefit of the exemption clause against the shipper and any transferee of the bill of lading. But, for that purpose only, the provisions of the bill of lading, insofar as they are relevant, apply to him. The only provision which has been suggested as relevant in the present case is Article III.8, which applies by virtue of the paramountcy provision in part (2). That does apply to exemption clauses and restricts their effect. I think that this argument was also accepted by Colman J. ([2000] 1 Lloyd’s Rep. 85, 100) and Rix L.J. ([2001] 1 Lloyd’s Rep 437, 462).
115. I think that such a construction is in accordance with the general policy of the Hague Rules, which was to provide an acceptable balance in distributing the risks of loss and damage between carrier and cargo owners. The rules are intended to preserve the common law remedies which cargo owners would have in English law for loss of or damage to the cargo in the circumstances there specified. Of course they do have this effect anyway in relation to the contractual carrier, the charterer. But the preservation of these remedies must also be considered in relation to the procedures available for enforcement. By section 20(2)(g) of the Supreme Court Act 1981 the High Court has admiralty jurisdiction in respect of claims for loss of or damage to goods carried in a ship (which may, as in this case, be a claim in tort) and by section 20(2)(h) it has jurisdiction in respect of any claim arising out of any agreement relating to the carriage of goods in a ship. Jurisdiction may be founded by the arrest of the ship, which will also provide security for the claim. Without the right to these enforcement procedures, a cargo claim against a foreign carrier would in many cases be unenforceable. But by section 21(4)(i), the action in rem may be brought against the ship only if the person who would have been liable in personam was at the time when the action was brought the beneficial owner or charterer by demise.
116. It follows that in the case of goods carried under a bill of lading issued by a time charterer, the liability in personam of the time charterer will not enable the cargo owner to arrest the ship. He may do so only if the shipowner is also liable in tort. But such liability will not exist if the time charterer is able to stipulate for complete exemption on the part of the owner. The remedy which the Hague Rules were intended to preserve may in such cases be unenforceable.
117. I would therefore make the orders proposed by my noble and learned friend Lord Bingham of Cornhill.
Scruttons Ltd v Midland Silicones
[1961] UKHL 4 [1962] AC 446
Lord Denning
MY LORDS,
There are three contracts which fall for consideration in this case :
The Bill of Lading. This evidenced a contract between the
shipper and the carrier whereby the carrier agreed to carry a drum of
silicone diffusion pump fluid by ship from New York to London and
deliver it there to the consignee. In this contract the carrier stipulated
that, in case of loss, damage, or delay the value was to be deemed
to be $500 and he was not to be liable for more than $500 per
package ” unless the nature and value thereof was declared by the
” shipper in writing before shipment and inserted in the Bill of
” Lading “.
The Stevedoring Contract. This was a contract between the
carrier and the stevedores whereby the stevedores agreed to discharge
the vessels of the carrier in the Port of London. The stevedores agreed
to be responsible for any damage to or loss of cargo while being handled
or stowed, unshipped or delivered. But the stevedores stipulated that
they should have ” such protection as is afforded by the terms, conditions
” and exceptions of the Bills of Lading “. By this stipulation the steve-
dores clearly sought to be protected by the same conditions as the
carrier was, so that they too would not be liable for more than $500
a package on undeclared cargo. It is noteworthy that so far as declared
cargo was concerned, the stevedores agreed ” to effect an Insurance
” Policy on Lloyds to cover any damage or loss on which a value in
” excess of S500 per package has been declared “.
The Sale of the Goods. This was a contract between the shipper
and the consignee under which the property in the goods passed to the
consignee whilst the goods were on board the ship. Thereupon there
was transferred to the consignee all rights of suit and he was subject
to the same liabilities in respect of the goods as if the contract contained
in the Bill of Lading had been made with the consignee himself.
The shipper did not declare the value of the drum to the carrier, and its
value was not inserted in the Bill of Lading. If a declaration of value had
been made, the drum would have been included in a list of special cargo for
the use of the carriers and the stevedores, and, in accordance with the usual
practice, it would have been given special stowage : and it would, no doubt,
have been covered by the Insurance Policy referred to in the stevedoring
contract. But as there was no declaration of value in this case, the drum
was dealt with as ordinary cargo, both by the carriers and the stevedores.
The drum was duly carried to London. The stevedores duly discharged
the ship and put the drum into a shed. The consignees sent a lorry to take
delivery of the drum. The stevedores were in the very act of lowering the
drum on to the lorry when they negligently dropped it and some of the
contents were lost. The drum was worth far more than $500 and the loss
was far more than $500. If the consignee had sued the carrier for the loss,
the consignee could not have recovered more than $500. If the carrier had
sued the stevedores for the loss, the carrier could not have recovered more
than $500. But it is said that the consignee can sue the stevedores in tort
for negligence and recover the full value (£593 12s. 0d.) from them, despite
the fact that the value was never declared as being in excess ol $500
(£179 Is. 0d).
Now there are two principal questions in this case which need separate
consideration: The first is whether the stevedores can rely on the limitation
clause in the Bill of Lading to which they were not parties: The second is
whether they can rely on the protection given by the stevedoring contract
to which they were parties.
So far as the first question is concerned the stevedores rely on the reasoning
Off this House in the Elder Dempster case [1924] A.C. 522, which was stated
by Scrutton, L.J. to be that ” where there is a contract which contains an
” exemption clause, the servants or agents who act under that contract have
” the benefit of the exemption clause “, see Mersey Shipping & Transport Co.
Ltd. v. Rea Ltd. (1925) 21 L.l.L.R. at p. 377. By ” servants or agents ” there
the Lord Justice clearly means to comprehend all those who do the actual
work in performance of the contract; ” servants ” being those under the direct
control of the contracting party, and “agents” being those who are
employed as sub-contractors for the purpose. The books are full of the use
of the word ” agent” in that sense: and I propose in this judgment to
continue to use it so. And I think that the Lord Justice had in mind only
exemption clauses in the carriage of goods. He knew as well as anyone that
the law of England has always drawn a broad distinction between the carriage
of goods and the carriage of passengers, see the classic judgment of the
Court of Exchequer Chamber in Readhead v. Midland Rly. Co. (1869)
L.R. 4 Q.B. 379 at p. 382.
My Lords, it is said that, in stating this proposition, for once Homer
nodded and that this great master of our commercial law—and the members
of this House too—overlooked the ” fundamental principle ” that no one
who is not a party to a contract can sue or be sued upon it or take advantage
of the stipulations or conditions that it contains. I protest they did nothing
of the kind. You cannot understand the Elder Dempster case without some
knowledge of the previous law and I would draw the attention of your
Lordships to it.
First of all let me remind your Lordships that this ” fundamental prin-
” ciple ” was a discovery of the 19th century. Lord Mansfield and Buller, J.
knew nothing of it. But in the 19th century it was carried to the most
extravagant lengths. It was held that, where a duty to use reasonable care
arose out of a contract, no one could sue or be sued for a breach of that
contract except a party to it, see Winterbottom v. Wright (1842) 10 M. & W.
109, Alton v. Midland Rly Co. (1865) 19 C.B., N.S. 213. In the 19th century
if a goods owner had sought to sue stevedores for negligence, as he has in
this case, he would have failed utterly. The reason being that the duty of the
stevedores to use reasonable care arose out of their contract with the
carrier; and no one could sue them for a breach of that duty except the other
party to the contract, namely, the carrier. If the goods were damaged, the
only remedy of the owner of the goods was against the carrier with whom he
contracted, and not against the stevedores with whom he had no contract
If proof were needed that the doctrine was carried so far, it is provided by the
many cases in the middle of the 19th century where the owner of goods
sent them by railway for ” through transit” to a destination on another line.
The first carrier carried them safely over his line but they were damaged
by the negligence of the second carrier. It was repeatedly held that the
goods owner had no remedy against the second carrier: for the simple reason
that he had no contract with him. The owner’s only remedy was against
the first carrier with whom he contracted, see Scothorn v. South Staffordshire
Coy. Ltd. (1853) 9 Ex. 341: and not against the second carrier with whom
he had no contract, see Mytton v. Midland Rly. Co. (1859) 4 H. & N. 615,
Coxon v. Great Western Railway Co. (1860) 5 H. & N. 274. If the first
carrier was exempted from liability by the conditions of the contract, the
goods owner had no remedy at all: none against the first carrier because
he was protected by the conditions: and none against the second carrier
because he was ” not liable at all”. It was so held by this House in Bristol
& Exeter Rly. Co. v. Collins (1859) 7 H.L.C. 194. See especially what Lord
Chelmsford said at page 233 with the entire agreement of Lord Brougham,
and what Lord Cranworth said at page 237.
What an irony is here! This ” fundamental principle ” which was invoked
100 years ago for the purpose of holding that the agents of the carrier were
” not liable at all” is now invoked for the purpose of holding that they
are inescapably liable, without the benefit of any of the conditions of
carriage. How has this come about?
The reason is because in the 19th century negligence was not an indepen-
dent tort. If you wished to sue a man for negligence, you had to show some
special circumstances which put him under a duty of care towards you. You
might do it by reason of a contract, by a bailment, by his inviting you on
to his premises on business, by his leaving about a thing which was dangerous
in itself, and in other ways. But apart from some such special circumstances,
there was no general duty to use care. Lord Esher made a valiant attempt
in Heaven v. Pender (1883) 11 Q.B. 503 to enunciate such a general duty but
he had failed. Suppose in those days that you tried to show that the defendant
was under a duty of care, then if you could only show it by reason of
contract, your remedy lay only in contract and not in tort. But if you could
show it, not only by reason of contract, but also for some other reason, as
for instance by reason of his inviting you to his premises, you could sue
either in contract or in tort. It was by a development of this principle that,
in the ” through transit ” cases, the courts eventually found a way of making
the second carrier liable. It was held that if, on through transit, the second
carrier accepted a person as a passenger, the second carrier was under a
duty, irrespective of contract, to carry him with reasonable care, see Foulkes
v. Metropolitan District Railway Company (1880) 5 C.P.D. 157. Likewise if
a second carrier accepted goods for carriage, so that they were lawfully on his
premises, he was under a duty to the owner to use reasonable care, although
there was no contract between them, see Hooper v. London & North Western
Railway Company (1880) 50 L.J. Q.B. 103 (overruling Mytton v. Midland
Railway Company, supra); and Meux v. Great Eastern Railway Company
[1895] 2 Q.B. 387. But when the courts found this way of making the
second carrier liable, they did not thereby open a way by which the injured
person could escape the conditions of carriage. If he had agreed that the
carriage was to be ” at owner’s risk ” for the whole journey, he was held
to his agreement, even when he sued the second carrier in tort, see Hall v.
North Eastern Railway Company (1875) L.R. 10 Q.B. 437, Barratt v. Great
Northern Railway Company (1904) 20 T.L.R. 175. It has been suggested that
in such cases the contract is made with one company for one part of the
journey and with the other company for the other part of the journey, see
Wilson v. Darling (1956) 95 C.L.R. at page 67 by Fullagar, J.: but this
explanation cannot stand with the decision of this House in Bristol & Exeter
Railway Company v. Collins (1859) 7 H.L.C. 194, when it was clearly held
that there was only one contract by the goods owner, namely, his contract
with the first carrier, and none by him with the second earner. This being
so, the only acceptable explanation of the ” through transit” cases, to my
mind, is that the second carrier falls within Scrutton, L.J.’s proposition, being
an ” agent”, Chat is, a subcontractor employed to carry out the contract of
the first carrier, and so entitled to the benefit of the conditions.
This brings me to the Elder Dempster case itself. It is important to notice
that the contract of carriage there was between the shippers and the
charterers. The ship-owners were not parties to it. The word ” shipowners “
in the Bill of Lading designated only the charterers. (That appears from
the Judgment of Rowlatt, J. in the appendix to the printed book, p. 17, and
The Okehampton 1913 P. at p. 180 which Lord Sumner clearly had in mind.)
The charterers performed their contract of carriage by means of a hired ship
which they hired from the shipowners. They broke their contract because
the master stowed the goods badly and they were damaged. The goods owner
sued the charterers but failed against them because the Bill of Lading con-
tained an exception of bad stowage. He then sought to recover against the
Shipowners. Now at that time negligence was nor an independent tort: and it
was not at all easy for the goods owner to say why the shipowners were
liable to him. His proper remedy would seem to be against the charterers
with whom he contracted and not against the shipowners with whom he had
no contract. To overcome this difficulty he said that the shipowners were
bailees liable for negligence (see [1923] 1 K.B. 420 at pages 427, 441; [1924]
A.C. 522 at p. 564) or were liable in tort because the goods were lawfully 01
their ship (see [1923] 1 K.B. 420 at p. 427 ; [1924] A.C. 522 at pages 526, 564),
He relied on seven cases. Especially on the observations of the Court of
Appeal in Hayn v. Culliford (1879) 4 C.P.D. 182 but Lord Sumner dismissed
them as obiter. The speeches in this House make it clear that, in
order to make the shipowners liable, the goods owner would have Lo show ” an
” independent tort unconnected with the performance of the contract” (per
Viscount Finlay at page 548) or a ” tortious handling entirely independent of
” contract” (per Lord Sumner at p. 564). For instance, if the shipowner
owned another ship which negligently ran into this one, that would be an
independent tort for which the shipowner would be liable ; and the exceptions
would not avail him. But here the negligence was in the very course of the
performance of the contract—” in the course of rendering the very services
” provided for in the bill of lading “—and the shipowners were not liable.
Two reasons were given for this decision :
The first reason, which I give in the words of Viscount Cave, at p. 534:
The shipowners “were not directly parties to the contract: but they took
” possession of the goods (as Scrutton, L.J. says) on behalf of and as the
” agents of the charterers, and so can claim the same protection as their
” principals “. I feel no difficulty about the word ” agents ” in this context.
It is clearly used to denote people employed as sub-contractors to do the
work. Such people are entitled to the same protection as their principals.
This was the proposition stated by Scrutton, L.J. It was clearly approved
not only by Viscount Cave but also by Viscount Finlay (p. 548) with the
concurrence of Lord Carson (p. 565). It was treated, too, as a correct
proposition by Lord Sumner, with whom Lord Dunedin agreed, for he
accepted that ” the charterers and their agents ” were not liable, see page
564 line 3 from the top, and line 5 from the bottom. Lord Sumner’s only
hesitation seems to have been whether in this case the shipowners took
possession of the goods as ” agents “. They had a possessory lien for hire
and might have been in possession on their own account. He put forward,
therefore, another reason which he regarded as preferable.
The second reason. The shipowners were bailees and liable as such for
negligence quasi ex contractu: but they were protected because the bailment
to them was not a ” bald bailment with unrestricted liability ” but a ” bail-
” ment upon terms which include the exceptions and limitations stipulated
in the known and contemplated form of bill of lading “. (p. 564).
These two reasons were complementary and not alternative as is shown by
the fact that Lord Carson agreed with both (p. 565).
My Lords, I am not unduly attached to the strict doctrine of precedent
but I should have thought there was good ground here to hold yourselves
bound by the first reason in the Elder Dempster case. Just as your Lord-
ships held yourselves bound by a ratio decidendi of three out of five in
Fairman’s case, see Jacobs v. London County Council [1950] A.C. 361 at
pages 368-371: and by a ratio decidendi of four out of five in Nicholls v.
Austin, see Close v. Steel Company of Wales [1961] 3 W.L.R. 319 at pages 330,
334, 347. So should you be bound by the reasoning in the Elder Dempster
case. I confess that I should do my best to distinguish it in some way if I
was quite satisfied that it was wrong, but I am not in the least satisfied
of this.
It is said that the decision is anomalous and contrary to principle but that
is only because you are looking at it through the spectacles of 1961 and
not those of 1924. Since the decision of Donoghue v. Stevenson in 1932 we
have had negligence established as an independent tort in itself. Small
wonder, then, that nowadays it is said that the tortfeasor cannot rely for his
protection on provisions in a contract to which he was not a party. But the
very point in the Elder Dempster case was that the negligence there was not
an independent tort in itself. It was negligence in the very course of per-
forming the contract—done it is true by the sub-contractor and not by the
principal—but if you permit the owner of the goods to sue the sub-contractor
in tort for what is in truth a breach of the contract of carriage, then at least
you should give him the protection of the contract. Were it otherwise there
would be an easy way round the conditions of the contract of carriage.
That is how the Judges in the Elder Dempster case looked at it and I am
not prepared to say they were wrong. I am sure that the profession looked
at it, too, at that time in the same way. If the draftsmen of the Hague Rules
had thought in those days that the goods owner could get round the excep-
tions by suing the stevedores or the master in tort, they would surely have
inserted provisions in those Rules to protect them. They did not do so
because they did not envisage their being made liable at all.
But if you look at the Elder Dempster case with the spectacles of 1961.
then there is a way in which it can be supported. It is this: Even though
negligence is an independent tort, nevertheless it is an accepted principle
of the law of tort that no man can complain of an injury if he has volun-
tarily consented to take the risk of it on himself. This consent need not be
embodied in a contract. Nor does it need consideration to support it
Suffice it that he consented to take the risk of injury on himself. So in the
case of through transit, when the shipper of goods consigns them ” at owner’s
” risk ” for the whole journey, his consent to take the risk avails the second
carrier as well as the first, even though there is no contract between the
goods owner and the second carrier. Likewise in the Elder Dempster case
the shipper, by exempting the charterers from bad stowage, may be taken
to have consented to exempt the ship-owners also. But I am afraid that
this reasoning would not avail the stevedores in the present case: for the
simple reason that the Bill of Lading is not expressed so as to protect the
stevedores but only the ” carrier “. The shipper has therefore not consented to
take on himself the risk of the negligence of the stevedores and is not to be
defeated on that ground. But if the Bill of Lading were expressed in terms by
which the owner of the goods consented to take on himself the risk of loss
in excess of $500, whether due to the negligence of the carrier or the steve-
dores, I know of no good reason why his consent, if freely given, should not
be binding on him. The case of Cosgrove v. Horsfall (1945) 62 T.L.R. 140
appears to suggest the contrary, but that was a contract for the carriage
of passengers and not for the carriage of goods: and as I said in Adler v.
Dickson [1955] 1 QB 158 at p. 184 it is not so easy to find an assent by a
passenger to take the risk of personal injury on himself. The mere issue of
a ticket or pass will not suffice.
I suppose, however, that I must be wrong about all this: because your
Lordships, I believe, take a different view. But it means that I must go on
to consider the second question, namely, whether the stevedores can avail
themselves of the protection clause in their own ” stevedoring contract”.
Here your Lordships are untrammelled by authority. The cases in the High
Court of Australia and in the United States Supreme Court do not touch
the point. The stevedores in those two cases, for aught that appears, had
agreed to do their work on a ” bald ” stevedoring contract ” with unrestricted
” liability “: whereas here they stipulated that they should ” have such pro-
” tection as is afforded by the terms, conditions and exceptions of the Bill of
” Lading “.
It is said here again that the owners of the goods cannot be affected by the
” stevedoring contract” to which they were not parties: but it seems to me
that we are now in a different branch of the law. When considering the
contract between the carrier and the stevedores, it is important to remember
that the carrier of goods, like a hirer, is a bailee: and the law of bailment
is governed by somewhat different principles from those of contract or of tort:
for ” bailment”, as Sir Percy Winfield said ” is more fittingly regarded as
” a distinct branch of the Law of Property, under the title ‘ Possession’,
” than as appropriate to either the law of contract or the law of tort “, see
The Province of the Law of Tort, p. 100. One special feature of the law
of bailment is that the bailee can make a contract in regard to the goods
which will bind the owner, although the owner is no party to the contract
and cannot sue or be sued upon it. The contract must, no doubt, be of a
category which the owner impliedly authorised the bailee to make, such as a
contract for repair, storage, loading, unloading or removal: but provided it is
impliedly authorised, the true owner is bound by it. Thus if a bailee stores
goods in a warehouse on his own account, and the warehouseman stipulates
for a general lien on the terms usual in the trade, the owner of the
goods is bound by it. He cannot claim the goods in defiance of the lien.
Again, if the hirer of goods hands them to a furniture remover to be carried
to his new home, and the remover stipulates, in the usual way of the trade, for
exemption from liability for fire, the remover is entitled to the benefit of the
exemption, not only as against the hirer, but also as against the owner. The
reason for this may be seen by considering what would be the position if
there were no exemption from liability. The bailee would then be able to
recover the full value of the goods from the negligent wrongdoer, but he would
have to account to the true owner for the proceeds, see The Winkfield [1902]
P.42. If the bailee is to be treated as the owner of the goods for the purpose
thus of imposing full liability on the negligent wrongdoer, he is also to be
treated as the owner for the purpose of exempting him from liability, at any
rate where the true owner has impliedly authorised it. And just as the original
owner cannot sue in defiance of the exemption, nor can anyone who buys
the goods from him: for the purchaser takes the goods subject to the subsisting
bailment and the rights of anyone validly claiming under it, see Jowitt & Sons
v. Union Cold Storage [1913] 3 K.B. 1.
A good illustration of these principles is The Kite [1933] P.154. The
lightermen were bailees in possession of the goods. They employed the
tug-owners on the usual terms which included exemption from negligence.
This contract was made with the implied authority of the owners of the
goods. They were therefore bound by the exemption, although they were
not parties to the contract and could not sue or be sued on it. Likewise
Pyrene Co. Ltd. v. Scindia Navigation Co. Ltd. [1954] 2 Q.B. 402. It was not
strictly a bailment case, but it is covered by the same principles. The buyers
employed the shipowners to carry the goods subject to the limitation of
liability under the Hague Rules. This contract was on the terms usual in
the trade and it was made with the implied authority of the seller of the!
goods. He was not a party to the contract. He could not sue or be sued
upon it. But nevertheless he was bound by the limitation contained in it.
Applying this principle, the question is: Did the owners of the goods
impliedly authorise the carrier to employ the stevedores on the terms that
their liability should be limited to $500? I think they did. Put in simple
language, the shipper said to the carrier: ” Please carry these goods to
” London and deliver them to the consignee. You may take it that they are
” not worth more than $500 so your liability is limited to $500. If they were
” worth more, we would declare it to you.” The carrier carries them to
London and says to the stevedores: ” Please deliver these goods to the
” consignee. They have not been declared as being in excess of $500 so
” you need not insure them for more. You are to have the same protection
” as I have, namely, your liability is limited to $500.” It is quite plain
that the consignee cannot sue the carrier for more than $500, and the carrier
cannot sue the stevedores for more than $500. But can the consignee turn
round and say to the stevedores: ” Although the goods were not declared
” as being worth more than $500, yet they were worth in fact $1500 and I
” can make you liable for it.” I do not think our law permits him to do
this. The carrier simply passed on the self-same limitation as he himself had
and this must have been within his implied authority. It seems to me that
when the owner of goods allows the person in possession of them to make a
contract in regard to them, then he cannot go back on the terms of the
contract, if they are such as he expressly or impliedly authorised to be made,
even though he was no party to the contract and could not sue or be sued
upon it. It is just the same as if he stood by and watched it being made.
And his successor in title is in no better position.
My Lords, I have dealt with this case at some length because it is the first
case ever recorded in our English books where the owner of goods has sued
a stevedore for negligence. If the owner can, by so doing, escape the excep-
tions in the contract of carriage and the limitations in the Hague Rules,
it will expose a serious gap in our commercial law. It has great potentialities
too. If you can sue the stevedore for his negligence in unloading, why should
you not sue the master and officers of the ship for their negligence in the
navigation or management of the ship? No longer need you worry about
the limitation to £100 or £200 a package. You can recover the value of the
most precious package without disclosing its nature or value beforehand.
No longer need you worry about bringing an action within one year. You
can bring it within six years. Nor are the potentialities limited to carriage
by sea. They can be profitably extended to carriage by air and by road and
rail. You have only to sue the servants of the carrier for negligence and you
can get round all the exceptions and limitations that have hitherto been
devised. No doubt the carrying company will stand behind its servants.
It will foot the bill, as any good employer would, for the sake of good
relations. But when you find that the carrying company has, in the long
run. to pay for the damage, you see at once that you have turned the flank
of the Hague Rules (for carriage by sea) and the Warsaw Convention (for
carriage by air). The exemptions and limitations which are there so clearly
given to the ” carrier ” do not avail his servants and agents when they are
sued. By suing them, the goods owner will be able completely to upset
the balance of risks as hitherto covered by insurance. No wonder that
Parliament has already found it necessary to step in. It has done so in sections
2 and 3 of the Merchant Shipping (Liabilities of Shipowners and Others)
Act, 1958: and sections 1, 5 and 10 and the First Schedule Article 25A of
the Carriage by Air Act, 1961, which is not yet in force nor likely to be for
some time. But these are only piecemeal efforts of very limited scope. Much
more is needed if the law is such as your Lordships today declare it to be.
For myself, however, I would not allow this gap to be driven in our commer-
cial law. I would not give the ” fundamental principle ” of the 19th century
a free rein. It should not have unbridled scope to defeat the intentions of
business men. I would stand by the proposition stated by Scrutton, L.J. and
affirmed, as I believe, by this House 37 years ago.
I would allow this appeal.
Lord Morris of Borth-y-GestLord Denning
MY LORDS,
There are three contracts which fall for consideration in this case :
The Bill of Lading. This evidenced a contract between the
shipper and the carrier whereby the carrier agreed to carry a drum of
silicone diffusion pump fluid by ship from New York to London and
deliver it there to the consignee. In this contract the carrier stipulated
that, in case of loss, damage, or delay the value was to be deemed
to be $500 and he was not to be liable for more than $500 per
package ” unless the nature and value thereof was declared by the
” shipper in writing before shipment and inserted in the Bill of
” Lading “.
The Stevedoring Contract. This was a contract between the
carrier and the stevedores whereby the stevedores agreed to discharge
the vessels of the carrier in the Port of London. The stevedores agreed
to be responsible for any damage to or loss of cargo while being handled
or stowed, unshipped or delivered. But the stevedores stipulated that
they should have ” such protection as is afforded by the terms, conditions
” and exceptions of the Bills of Lading “. By this stipulation the steve-
dores clearly sought to be protected by the same conditions as the
carrier was, so that they too would not be liable for more than $500
a package on undeclared cargo. It is noteworthy that so far as declared
cargo was concerned, the stevedores agreed ” to effect an Insurance
” Policy on Lloyds to cover any damage or loss on which a value in
” excess of S500 per package has been declared “.
The Sale of the Goods. This was a contract between the shipper
and the consignee under which the property in the goods passed to the
consignee whilst the goods were on board the ship. Thereupon there
was transferred to the consignee all rights of suit and he was subject
to the same liabilities in respect of the goods as if the contract contained
in the Bill of Lading had been made with the consignee himself.
The shipper did not declare the value of the drum to the carrier, and its
value was not inserted in the Bill of Lading. If a declaration of value had
been made, the drum would have been included in a list of special cargo for
the use of the carriers and the stevedores, and, in accordance with the usual
practice, it would have been given special stowage : and it would, no doubt,
have been covered by the Insurance Policy referred to in the stevedoring
contract. But as there was no declaration of value in this case, the drum
was dealt with as ordinary cargo, both by the carriers and the stevedores.
The drum was duly carried to London. The stevedores duly discharged
the ship and put the drum into a shed. The consignees sent a lorry to take
delivery of the drum. The stevedores were in the very act of lowering the
drum on to the lorry when they negligently dropped it and some of the
contents were lost. The drum was worth far more than $500 and the loss
was far more than $500. If the consignee had sued the carrier for the loss,
the consignee could not have recovered more than $500. If the carrier had
sued the stevedores for the loss, the carrier could not have recovered more
than $500. But it is said that the consignee can sue the stevedores in tort
for negligence and recover the full value (£593 12s. 0d.) from them, despite
the fact that the value was never declared as being in excess ol $500
(£179 Is. 0d).
Now there are two principal questions in this case which need separate
consideration: The first is whether the stevedores can rely on the limitation
clause in the Bill of Lading to which they were not parties: The second is
whether they can rely on the protection given by the stevedoring contract
to which they were parties.
So far as the first question is concerned the stevedores rely on the reasoning
Off this House in the Elder Dempster case [1924] A.C. 522, which was stated
by Scrutton, L.J. to be that ” where there is a contract which contains an
” exemption clause, the servants or agents who act under that contract have
” the benefit of the exemption clause “, see Mersey Shipping & Transport Co.
Ltd. v. Rea Ltd. (1925) 21 L.l.L.R. at p. 377. By ” servants or agents ” there
the Lord Justice clearly means to comprehend all those who do the actual
work in performance of the contract; ” servants ” being those under the direct
control of the contracting party, and “agents” being those who are
employed as sub-contractors for the purpose. The books are full of the use
of the word ” agent” in that sense: and I propose in this judgment to
continue to use it so. And I think that the Lord Justice had in mind only
exemption clauses in the carriage of goods. He knew as well as anyone that
the law of England has always drawn a broad distinction between the carriage
of goods and the carriage of passengers, see the classic judgment of the
Court of Exchequer Chamber in Readhead v. Midland Rly. Co. (1869)
L.R. 4 Q.B. 379 at p. 382.
My Lords, it is said that, in stating this proposition, for once Homer
nodded and that this great master of our commercial law—and the members
of this House too—overlooked the ” fundamental principle ” that no one
who is not a party to a contract can sue or be sued upon it or take advantage
of the stipulations or conditions that it contains. I protest they did nothing
of the kind. You cannot understand the Elder Dempster case without some
knowledge of the previous law and I would draw the attention of your
Lordships to it.
First of all let me remind your Lordships that this ” fundamental prin-
” ciple ” was a discovery of the 19th century. Lord Mansfield and Buller, J.
knew nothing of it. But in the 19th century it was carried to the most
extravagant lengths. It was held that, where a duty to use reasonable care
arose out of a contract, no one could sue or be sued for a breach of that
contract except a party to it, see Winterbottom v. Wright (1842) 10 M. & W.
109, Alton v. Midland Rly Co. (1865) 19 C.B., N.S. 213. In the 19th century
if a goods owner had sought to sue stevedores for negligence, as he has in
this case, he would have failed utterly. The reason being that the duty of the
stevedores to use reasonable care arose out of their contract with the
carrier; and no one could sue them for a breach of that duty except the other
party to the contract, namely, the carrier. If the goods were damaged, the
only remedy of the owner of the goods was against the carrier with whom he
contracted, and not against the stevedores with whom he had no contract
If proof were needed that the doctrine was carried so far, it is provided by the
many cases in the middle of the 19th century where the owner of goods
sent them by railway for ” through transit” to a destination on another line.
The first carrier carried them safely over his line but they were damaged
by the negligence of the second carrier. It was repeatedly held that the
goods owner had no remedy against the second carrier: for the simple reason
that he had no contract with him. The owner’s only remedy was against
the first carrier with whom he contracted, see Scothorn v. South Staffordshire
Coy. Ltd. (1853) 9 Ex. 341: and not against the second carrier with whom
he had no contract, see Mytton v. Midland Rly. Co. (1859) 4 H. & N. 615,
Coxon v. Great Western Railway Co. (1860) 5 H. & N. 274. If the first
carrier was exempted from liability by the conditions of the contract, the
goods owner had no remedy at all: none against the first carrier because
he was protected by the conditions: and none against the second carrier
because he was ” not liable at all”. It was so held by this House in Bristol
& Exeter Rly. Co. v. Collins (1859) 7 H.L.C. 194. See especially what Lord
Chelmsford said at page 233 with the entire agreement of Lord Brougham,
and what Lord Cranworth said at page 237.
What an irony is here! This ” fundamental principle ” which was invoked
100 years ago for the purpose of holding that the agents of the carrier were
” not liable at all” is now invoked for the purpose of holding that they
are inescapably liable, without the benefit of any of the conditions of
carriage. How has this come about?
The reason is because in the 19th century negligence was not an indepen-
dent tort. If you wished to sue a man for negligence, you had to show some
special circumstances which put him under a duty of care towards you. You
might do it by reason of a contract, by a bailment, by his inviting you on
to his premises on business, by his leaving about a thing which was dangerous
in itself, and in other ways. But apart from some such special circumstances,
there was no general duty to use care. Lord Esher made a valiant attempt
in Heaven v. Pender (1883) 11 Q.B. 503 to enunciate such a general duty but
he had failed. Suppose in those days that you tried to show that the defendant
was under a duty of care, then if you could only show it by reason of
contract, your remedy lay only in contract and not in tort. But if you could
show it, not only by reason of contract, but also for some other reason, as
for instance by reason of his inviting you to his premises, you could sue
either in contract or in tort. It was by a development of this principle that,
in the ” through transit ” cases, the courts eventually found a way of making
the second carrier liable. It was held that if, on through transit, the second
carrier accepted a person as a passenger, the second carrier was under a
duty, irrespective of contract, to carry him with reasonable care, see Foulkes
v. Metropolitan District Railway Company (1880) 5 C.P.D. 157. Likewise if
a second carrier accepted goods for carriage, so that they were lawfully on his
premises, he was under a duty to the owner to use reasonable care, although
there was no contract between them, see Hooper v. London & North Western
Railway Company (1880) 50 L.J. Q.B. 103 (overruling Mytton v. Midland
Railway Company, supra); and Meux v. Great Eastern Railway Company
[1895] 2 Q.B. 387. But when the courts found this way of making the
second carrier liable, they did not thereby open a way by which the injured
person could escape the conditions of carriage. If he had agreed that the
carriage was to be ” at owner’s risk ” for the whole journey, he was held
to his agreement, even when he sued the second carrier in tort, see Hall v.
North Eastern Railway Company (1875) L.R. 10 Q.B. 437, Barratt v. Great
Northern Railway Company (1904) 20 T.L.R. 175. It has been suggested that
in such cases the contract is made with one company for one part of the
journey and with the other company for the other part of the journey, see
Wilson v. Darling (1956) 95 C.L.R. at page 67 by Fullagar, J.: but this
explanation cannot stand with the decision of this House in Bristol & Exeter
Railway Company v. Collins (1859) 7 H.L.C. 194, when it was clearly held
that there was only one contract by the goods owner, namely, his contract
with the first carrier, and none by him with the second earner. This being
so, the only acceptable explanation of the ” through transit” cases, to my
mind, is that the second carrier falls within Scrutton, L.J.’s proposition, being
an ” agent”, Chat is, a subcontractor employed to carry out the contract of
the first carrier, and so entitled to the benefit of the conditions.
This brings me to the Elder Dempster case itself. It is important to notice
that the contract of carriage there was between the shippers and the
charterers. The ship-owners were not parties to it. The word ” shipowners “
in the Bill of Lading designated only the charterers. (That appears from
the Judgment of Rowlatt, J. in the appendix to the printed book, p. 17, and
The Okehampton 1913 P. at p. 180 which Lord Sumner clearly had in mind.)
The charterers performed their contract of carriage by means of a hired ship
which they hired from the shipowners. They broke their contract because
the master stowed the goods badly and they were damaged. The goods owner
sued the charterers but failed against them because the Bill of Lading con-
tained an exception of bad stowage. He then sought to recover against the
Shipowners. Now at that time negligence was nor an independent tort: and it
was not at all easy for the goods owner to say why the shipowners were
liable to him. His proper remedy would seem to be against the charterers
with whom he contracted and not against the shipowners with whom he had
no contract. To overcome this difficulty he said that the shipowners were
bailees liable for negligence (see [1923] 1 K.B. 420 at pages 427, 441; [1924]
A.C. 522 at p. 564) or were liable in tort because the goods were lawfully 01
their ship (see [1923] 1 K.B. 420 at p. 427 ; [1924] A.C. 522 at pages 526, 564),
He relied on seven cases. Especially on the observations of the Court of
Appeal in Hayn v. Culliford (1879) 4 C.P.D. 182 but Lord Sumner dismissed
them as obiter. The speeches in this House make it clear that, in
order to make the shipowners liable, the goods owner would have Lo show ” an
” independent tort unconnected with the performance of the contract” (per
Viscount Finlay at page 548) or a ” tortious handling entirely independent of
” contract” (per Lord Sumner at p. 564). For instance, if the shipowner
owned another ship which negligently ran into this one, that would be an
independent tort for which the shipowner would be liable ; and the exceptions
would not avail him. But here the negligence was in the very course of the
performance of the contract—” in the course of rendering the very services
” provided for in the bill of lading “—and the shipowners were not liable.
Two reasons were given for this decision :
The first reason, which I give in the words of Viscount Cave, at p. 534:
The shipowners “were not directly parties to the contract: but they took
” possession of the goods (as Scrutton, L.J. says) on behalf of and as the
” agents of the charterers, and so can claim the same protection as their
” principals “. I feel no difficulty about the word ” agents ” in this context.
It is clearly used to denote people employed as sub-contractors to do the
work. Such people are entitled to the same protection as their principals.
This was the proposition stated by Scrutton, L.J. It was clearly approved
not only by Viscount Cave but also by Viscount Finlay (p. 548) with the
concurrence of Lord Carson (p. 565). It was treated, too, as a correct
proposition by Lord Sumner, with whom Lord Dunedin agreed, for he
accepted that ” the charterers and their agents ” were not liable, see page
564 line 3 from the top, and line 5 from the bottom. Lord Sumner’s only
hesitation seems to have been whether in this case the shipowners took
possession of the goods as ” agents “. They had a possessory lien for hire
and might have been in possession on their own account. He put forward,
therefore, another reason which he regarded as preferable.
The second reason. The shipowners were bailees and liable as such for
negligence quasi ex contractu: but they were protected because the bailment
to them was not a ” bald bailment with unrestricted liability ” but a ” bail-
” ment upon terms which include the exceptions and limitations stipulated
in the known and contemplated form of bill of lading “. (p. 564).
These two reasons were complementary and not alternative as is shown by
the fact that Lord Carson agreed with both (p. 565).
My Lords, I am not unduly attached to the strict doctrine of precedent
but I should have thought there was good ground here to hold yourselves
bound by the first reason in the Elder Dempster case. Just as your Lord-
ships held yourselves bound by a ratio decidendi of three out of five in
Fairman’s case, see Jacobs v. London County Council [1950] A.C. 361 at
pages 368-371: and by a ratio decidendi of four out of five in Nicholls v.
Austin, see Close v. Steel Company of Wales [1961] 3 W.L.R. 319 at pages 330,
334, 347. So should you be bound by the reasoning in the Elder Dempster
case. I confess that I should do my best to distinguish it in some way if I
was quite satisfied that it was wrong, but I am not in the least satisfied
of this.
It is said that the decision is anomalous and contrary to principle but that
is only because you are looking at it through the spectacles of 1961 and
not those of 1924. Since the decision of Donoghue v. Stevenson in 1932 we
have had negligence established as an independent tort in itself. Small
wonder, then, that nowadays it is said that the tortfeasor cannot rely for his
protection on provisions in a contract to which he was not a party. But the
very point in the Elder Dempster case was that the negligence there was not
an independent tort in itself. It was negligence in the very course of per-
forming the contract—done it is true by the sub-contractor and not by the
principal—but if you permit the owner of the goods to sue the sub-contractor
in tort for what is in truth a breach of the contract of carriage, then at least
you should give him the protection of the contract. Were it otherwise there
would be an easy way round the conditions of the contract of carriage.
That is how the Judges in the Elder Dempster case looked at it and I am
not prepared to say they were wrong. I am sure that the profession looked
at it, too, at that time in the same way. If the draftsmen of the Hague Rules
had thought in those days that the goods owner could get round the excep-
tions by suing the stevedores or the master in tort, they would surely have
inserted provisions in those Rules to protect them. They did not do so
because they did not envisage their being made liable at all.
But if you look at the Elder Dempster case with the spectacles of 1961.
then there is a way in which it can be supported. It is this: Even though
negligence is an independent tort, nevertheless it is an accepted principle
of the law of tort that no man can complain of an injury if he has volun-
tarily consented to take the risk of it on himself. This consent need not be
embodied in a contract. Nor does it need consideration to support it
Suffice it that he consented to take the risk of injury on himself. So in the
case of through transit, when the shipper of goods consigns them ” at owner’s
” risk ” for the whole journey, his consent to take the risk avails the second
carrier as well as the first, even though there is no contract between the
goods owner and the second carrier. Likewise in the Elder Dempster case
the shipper, by exempting the charterers from bad stowage, may be taken
to have consented to exempt the ship-owners also. But I am afraid that
this reasoning would not avail the stevedores in the present case: for the
simple reason that the Bill of Lading is not expressed so as to protect the
stevedores but only the ” carrier “. The shipper has therefore not consented to
take on himself the risk of the negligence of the stevedores and is not to be
defeated on that ground. But if the Bill of Lading were expressed in terms by
which the owner of the goods consented to take on himself the risk of loss
in excess of $500, whether due to the negligence of the carrier or the steve-
dores, I know of no good reason why his consent, if freely given, should not
be binding on him. The case of Cosgrove v. Horsfall (1945) 62 T.L.R. 140
appears to suggest the contrary, but that was a contract for the carriage
of passengers and not for the carriage of goods: and as I said in Adler v.
Dickson [1955] 1 QB 158 at p. 184 it is not so easy to find an assent by a
passenger to take the risk of personal injury on himself. The mere issue of
a ticket or pass will not suffice.
I suppose, however, that I must be wrong about all this: because your
Lordships, I believe, take a different view. But it means that I must go on
to consider the second question, namely, whether the stevedores can avail
themselves of the protection clause in their own ” stevedoring contract”.
Here your Lordships are untrammelled by authority. The cases in the High
Court of Australia and in the United States Supreme Court do not touch
the point. The stevedores in those two cases, for aught that appears, had
agreed to do their work on a ” bald ” stevedoring contract ” with unrestricted
” liability “: whereas here they stipulated that they should ” have such pro-
” tection as is afforded by the terms, conditions and exceptions of the Bill of
” Lading “.
It is said here again that the owners of the goods cannot be affected by the
” stevedoring contract” to which they were not parties: but it seems to me
that we are now in a different branch of the law. When considering the
contract between the carrier and the stevedores, it is important to remember
that the carrier of goods, like a hirer, is a bailee: and the law of bailment
is governed by somewhat different principles from those of contract or of tort:
for ” bailment”, as Sir Percy Winfield said ” is more fittingly regarded as
” a distinct branch of the Law of Property, under the title ‘ Possession’,
” than as appropriate to either the law of contract or the law of tort “, see
The Province of the Law of Tort, p. 100. One special feature of the law
of bailment is that the bailee can make a contract in regard to the goods
which will bind the owner, although the owner is no party to the contract
and cannot sue or be sued upon it. The contract must, no doubt, be of a
category which the owner impliedly authorised the bailee to make, such as a
contract for repair, storage, loading, unloading or removal: but provided it is
impliedly authorised, the true owner is bound by it. Thus if a bailee stores
goods in a warehouse on his own account, and the warehouseman stipulates
for a general lien on the terms usual in the trade, the owner of the
goods is bound by it. He cannot claim the goods in defiance of the lien.
Again, if the hirer of goods hands them to a furniture remover to be carried
to his new home, and the remover stipulates, in the usual way of the trade, for
exemption from liability for fire, the remover is entitled to the benefit of the
exemption, not only as against the hirer, but also as against the owner. The
reason for this may be seen by considering what would be the position if
there were no exemption from liability. The bailee would then be able to
recover the full value of the goods from the negligent wrongdoer, but he would
have to account to the true owner for the proceeds, see The Winkfield [1902]
P.42. If the bailee is to be treated as the owner of the goods for the purpose
thus of imposing full liability on the negligent wrongdoer, he is also to be
treated as the owner for the purpose of exempting him from liability, at any
rate where the true owner has impliedly authorised it. And just as the original
owner cannot sue in defiance of the exemption, nor can anyone who buys
the goods from him: for the purchaser takes the goods subject to the subsisting
bailment and the rights of anyone validly claiming under it, see Jowitt & Sons
v. Union Cold Storage [1913] 3 K.B. 1.
A good illustration of these principles is The Kite [1933] P.154. The
lightermen were bailees in possession of the goods. They employed the
tug-owners on the usual terms which included exemption from negligence.
This contract was made with the implied authority of the owners of the
goods. They were therefore bound by the exemption, although they were
not parties to the contract and could not sue or be sued on it. Likewise
Pyrene Co. Ltd. v. Scindia Navigation Co. Ltd. [1954] 2 Q.B. 402. It was not
strictly a bailment case, but it is covered by the same principles. The buyers
employed the shipowners to carry the goods subject to the limitation of
liability under the Hague Rules. This contract was on the terms usual in
the trade and it was made with the implied authority of the seller of the!
goods. He was not a party to the contract. He could not sue or be sued
upon it. But nevertheless he was bound by the limitation contained in it.
Applying this principle, the question is: Did the owners of the goods
impliedly authorise the carrier to employ the stevedores on the terms that
their liability should be limited to $500? I think they did. Put in simple
language, the shipper said to the carrier: ” Please carry these goods to
” London and deliver them to the consignee. You may take it that they are
” not worth more than $500 so your liability is limited to $500. If they were
” worth more, we would declare it to you.” The carrier carries them to
London and says to the stevedores: ” Please deliver these goods to the
” consignee. They have not been declared as being in excess of $500 so
” you need not insure them for more. You are to have the same protection
” as I have, namely, your liability is limited to $500.” It is quite plain
that the consignee cannot sue the carrier for more than $500, and the carrier
cannot sue the stevedores for more than $500. But can the consignee turn
round and say to the stevedores: ” Although the goods were not declared
” as being worth more than $500, yet they were worth in fact $1500 and I
” can make you liable for it.” I do not think our law permits him to do
this. The carrier simply passed on the self-same limitation as he himself had
and this must have been within his implied authority. It seems to me that
when the owner of goods allows the person in possession of them to make a
contract in regard to them, then he cannot go back on the terms of the
contract, if they are such as he expressly or impliedly authorised to be made,
even though he was no party to the contract and could not sue or be sued
upon it. It is just the same as if he stood by and watched it being made.
And his successor in title is in no better position.
My Lords, I have dealt with this case at some length because it is the first
case ever recorded in our English books where the owner of goods has sued
a stevedore for negligence. If the owner can, by so doing, escape the excep-
tions in the contract of carriage and the limitations in the Hague Rules,
it will expose a serious gap in our commercial law. It has great potentialities
too. If you can sue the stevedore for his negligence in unloading, why should
you not sue the master and officers of the ship for their negligence in the
navigation or management of the ship? No longer need you worry about
the limitation to £100 or £200 a package. You can recover the value of the
most precious package without disclosing its nature or value beforehand.
No longer need you worry about bringing an action within one year. You
can bring it within six years. Nor are the potentialities limited to carriage
by sea. They can be profitably extended to carriage by air and by road and
rail. You have only to sue the servants of the carrier for negligence and you
can get round all the exceptions and limitations that have hitherto been
devised. No doubt the carrying company will stand behind its servants.
It will foot the bill, as any good employer would, for the sake of good
relations. But when you find that the carrying company has, in the long
run. to pay for the damage, you see at once that you have turned the flank
of the Hague Rules (for carriage by sea) and the Warsaw Convention (for
carriage by air). The exemptions and limitations which are there so clearly
given to the ” carrier ” do not avail his servants and agents when they are
sued. By suing them, the goods owner will be able completely to upset
the balance of risks as hitherto covered by insurance. No wonder that
Parliament has already found it necessary to step in. It has done so in sections
2 and 3 of the Merchant Shipping (Liabilities of Shipowners and Others)
Act, 1958: and sections 1, 5 and 10 and the First Schedule Article 25A of
the Carriage by Air Act, 1961, which is not yet in force nor likely to be for
some time. But these are only piecemeal efforts of very limited scope. Much
more is needed if the law is such as your Lordships today declare it to be.
For myself, however, I would not allow this gap to be driven in our commer-
cial law. I would not give the ” fundamental principle ” of the 19th century
a free rein. It should not have unbridled scope to defeat the intentions of
business men. I would stand by the proposition stated by Scrutton, L.J. and
affirmed, as I believe, by this House 37 years ago.
I would allow this appeal.
Lord Morris of Borth-y-Gest
My Lords, the speeches in the case of Elder, Dempster & Co. Ltd, v.
Paterson, Zochonis & Co. Ltd. [1924] A.C. 522 have often been the subject
of close judicial examination. In that case the ship-owners received goods
from the shippers. In the present case there were no dealings which could
properly be said to be dealings between the plaintiffs and the stevedores.
Whether or not the view of the facts in the Elder Dempster case which was
expressed by Lord Sumner in his speech (at p. 548), a speech which com-
manded the agreement of Lord Dunedin and of Lord Carson, can be
regarded as a satisfactory explanation of the case, the speeches do not contain
any statements which are expressed as qualifications of or which suggest any
modifications of the basic rule which, with the binding force of a pro-
nouncement in your Lordships’ House, had been, a few years before, clearly
stated in Dunlop v. Selfridge. For better or for worse that rule was then
firmly built into the structure of English law. The stevedores’ main
contention is, in my view, not tenable.
When the Plaintiffs became holders of the bill of lading (which incor-
porated section 4 (5) of the United States Carriage of Goods by Sea Act,
1936), their rights were limited by the provision that the ” carrier ” would
not (unless a certain condition was satisfied) be liable to a greater amount
than $500 per package or customary freight unit. So far as it incorporated
the provisions of the United States Carriage of Goods by Sea Act, 1936,
the bill of lading did not limit the liability of stevedores but limited that
of the ship and of the ” carrier ” and I would respectfully adopt the views
expressed in the judgment of the Supreme Court of the United States in
Krawill Machinery Corporation v. Robert C. Herd & Co. Inc. (1959)
1 Lloyd’s Rep. 305 to the effect that in the United States Carriage of Goods
by Sea Act the word ” carrier ” should not be read as including stevedores
engaged by the carrier.
Reliance was also placed upon the limiting provision contained in
Condition 24 of the United States Lines’ long form of bill of lading the
terms of which were incorporated in the bill of lading. When Condition 24
is being regarded consideration must also be given to Condition 3 which
provided that in the bill of lading the word ” carrier ” was to include the
ship, her owner, operator and demise charterer ” and also any time
” charterer or person to the extent bound by this bill of lading, whether
” acting as carrier or bailee “. These conditions do not avail the stevedores,
firstly, because they are not comprehended within the words that I have
quoted and, secondly, because in any event they were not parties to the
contract.
If United States Lines had been wishing to make or intending to make
some contract as agents on behalf of the stevedores, there was no reason
why that could not have been so stated in the contract. It is clear that the
contract did not state that it was made by United States Lines on behalf
of the stevedores (Scruttons Ltd.). They are not mentioned in the contract.
It seems to me to be wholly unreal to suggest, in spite of this, that United
States Lines did as to some matters contract as agents for the stevedores.
They did not purport to contract as such agents. Even apart from this
the process of selecting which particular terms of the bill of lading might
or could form the substance of the suggested contract would be speculative
and there could be no certainty in defining what would be the obligations
contractually undertaken by the stevedores towards the Plaintiffs.
Furthermore, I see no rational basis for implying some contract between
the Plaintiffs and the stevedores. When the Plaintiffs were ready to take
delivery of the drum and when a landing order in respect of it had been
issued, the arrangements made by United States Lines for effecting delivery
did not in any way involve the Plaintiffs. There were no circumstances
out of which it could be implied that the Plaintiffs made some contract with
the stevedores. Nor does any different result follow from the use of the
word ” participation” or by asserting that the stevedores were
” participating” in the contractual obligations owed by the United States
Lines to the Plaintiffs. What the stevedores were doing was to perform
their own obligations under the contract which they had made with United
States Lines. United States Lines had engaged them to do something which
they (United States Lines) by the terms of the bill of lading were under
obligation to do. The stevedores were not ” participating ” in anyone else’s
contract: they were setting out to do only what they, by their own contract
with the United States Lines, had undertaken to do.
I would dismiss the appeal.
The New Zealand Shipping Company Limited v A. M. Satterthwaite & Company Limited
[1974] UKPC 4 [1974] 2 WLR 865, [1974] 1 Lloyd’s Rep 534, [1974] UKPC 4, [1974] 1 All ER 1015, [1975] AC 154
Lord Wilberforcce
The facts of this case are not in dispute. An expensive drilling machine was received on board the ship ” Eurymedon ” at Liverpool for transhipment to Wellington pursuant to the terms of a Bill of Lading No. 1262 dated 5th June 1964. The shipper was the maker of the drill, Ajax Machine Tool Company Limited (” the Consignor “)- The Bill of Lading was issued by agents for the Federal Steam Navigation Co. Limited (” the Carrier”)- The consignees were A. M. Satterthwaite & Co. Limited of Christchurch, New Zealand (” the Consignee “)• For several years before 1964 the New Zealand Shipping Company Limited (” the Stevedore “) had carried out all stevedoring work in Wellington in respect of the ships owned by the Carrier, which was a wholly owned subsidiary of the Stevedore. In addition to this stevedoring work the Stevedore generally acted as agent for the Carrier in New Zealand; and in such capacity as general agent (not in the course of their stevedoring functions) the Stevedore received the Bill of Lading at Wellington on 31st July 1964. Clause 1 of the Bill of Lading, on the construction of which this case turns, was in the same terms as bills of lading usually issued by the Stevedore and its associated companies in respect of ordinary cargo carried by their ships from the United Kingdom to New Zealand. The Consignee became the holder of the Bill of Lading and owner of the drill prior to 14th August 1964. On that date the drill was damaged as a result of the Stevedore’s negligence during unloading.
At the foot of the first page of the Bill of Lading the following words were printed in small capitals:
” In accepting this bill of lading the shipper, consignee and the owners of the goods, and the holders of this bill of lading agree to be bound by all of its conditions, exceptions and provisions whether written, printed or stamped on the front or back hereof.”
On the back of the Bill of Lading a number of clauses were printed in small type. It is only necessary to set out the following:
“1. This Bill of Lading shall have effect (a) subject to the provisions of any legislation giving effect to the International Convention for the unification of certain rules relating to Bills of Lading dated Brussels, 25th August, 1924, or to similar effect which is compulsorily applicable to the contract of carriage evidenced hereby and (&) where no such legislation is applicable as if the Carriage of Goods by Sea Act 1924, of Great Britain and the Rules scheduled thereto applied hereto and were incorporated herein. Nothing herein contained shall be deemed to be a surrender by the Carrier of any of his rights or immunities or an increase of any of his responsibilities or liabilities under the provisions of the said legislation or Act and Rules (as the case may be) and the said provisions shall not (unless and to the extent that they are by law compulsorily applicable) apply to that portion of the contract evidenced by this Bill of Lading which relates to forwarding under Clause 4 hereof. If anything herein contained be inconsistent with or repugnant to the said provisions, it shall to the extent of such inconsistency or repugnance and no further be null and void.
It is hereby expressly agreed that no servant or agent of the Carrier (including every independent contractor from time to time employed by the Carrier) shall in any circumstances whatsoever be under any liability whatsoever to the Shipper, Consignee or Owner of the goods or to any holder of this Bill of Lading for any loss or damage or delay of whatsoever kind arising or resulting directly or indirectly from any act neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Carrier or to which the Carrier is entitled hereunder shall also be available and shall extend to protect every such servant or agent of the Carrier acting as aforesaid and for the purpose of all the foregoing provisions of this Clause the Carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be his servants or agents from time to time (including independent contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to the contract in or evidenced by this Bill of Lading.
….
“11. The Carrier will not be accountable for goods of any description beyond £100 in respect of any one package or unit unless the value thereof shall have been stated in writing both on the Broker’s Order which must be obtained before shipment and on the Shipping Note presented on shipment and extra freight agreed upon and paid and Bills of Lading signed with a declaration of the nature and value of the goods appearing thereon. When the value is declared and extra freight agreed as aforesaid the Carrier’s liability shall not exceed such value or pro rata on that basis in the event of partial loss or damage.”
No declaration as to the nature and value of the goods having appeared in the Bill of Lading, and no extra freight having been agreed upon or paid, it was acknowledged by the Consignee that the liability of the Carrier was accordingly limited to £100 by the application of Clause H of the Bill of Lading. Moreover, the incorporation in the Bill of Lading of the Rules scheduled to the Carriage of Goods by Sea Act 1924 meant that the Carrier and the ship were discharged from all liability in respect of damage to the drill unless suit was brought against them within one year after delivery. No action was commenced until April 1967, when the Consignee sued the Stevedore in negligence, claiming £880 the cost o£ repairing the damaged drill.
The question in the appeal is whether the Stevedore can take the benefit of the time limitation provision. The starting point, in discussion of this question, is provided by the House of Lords decision in Midland Silicones Ltd. v. Scruttons Ltd. [1962] A.C.446. There is no need to question or even to qualify that case in so far as it affirms the general proposition that a contract between two parties cannot be sued on by a third person even though the contract is expressed to be for his benefit. Nor is it necessary to disagree with anything which was said to the same effect in the Australian case of Wilson v. Darling Island Stevedoring & Lighterage Company (1956-7) 95 C.L.R. 43. Each of these cases was dealing with a simple case of a contract the benefit of which was sought to be taken by a third person not a party to it, and the emphatic pronouncements in the speeches and judgments were directed to this situation. But Midland Silicones left open the case where one of the parties contracts as agent for the third person: in particular Lord Reid’s speech spelt out, in four propositions, the prerequisites for the validity of such an agency contract. There is of course nothing unique to this case in the conception of agency contracts: well known and common instances exist in the field of hire purchase, of bankers’ commercial credits and other transactions. Lord Reid said this:
” I can see a possibility of success of the agency argument if (first) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were overcome. And then to affect the consignee it would be necessary to show that the provisions of the Bills of Lading Act, 1855, apply.” (l.c. p.474)
The question in this appeal is whether the contract satisfies these propositions.
Clause 1 of the Bill of Lading, whatever the defects in its drafting, is clear in its relevant terms. The carrier, on his own account, stipulates for certain exemptions and immunities: among these is that conferred by Article III (6) of the Hague Rules which discharges the carrier from all liability for loss or damage unless suit is brought within one year after delivery.
In addition to these stipulations on his own account, the carrier as agent for (inter alios) independent contractors stipulates for the same exemptions.
Much was made of the fact that the carrier also contracts as agent for numerous other persons; the relevance of this argument is not apparent. It cannot be disputed that among such independent contractors, for whom, as agent, the carrier contracted, is the appellant company which habitually acts as stevedore in New Zealand by arrangement with the carrier and which is, moreover, the parent company of the carrier. The carrier was, indisputably, authorised by the appellant to contract as its agent for the purposes of Clause 1. All of this is quite straightforward and was accepted by all of the learned judges in New Zealand. The only question was, and is, the fourth question presented by Lord Reid, namely that of consideration.
It was on this point that the Court of Appeal differed from Seattle J., holding that it had not been shown that any consideration for the shipper’s promise as to exemption moved from the promisee, i.e. the appellant company.
If the choice, and the antithesis, is between a gratuitous promise, and a promise for consideration, as it must be in the absence of a tertium quid, there can be little doubt which, in commercial reality, this is. The whole contract is of a commercial character, involving service on one side, rates of payment on the other, and qualifying stipulations as to both. The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit. To describe one set of promises, in this context, as gratuitous, or nudum pactum, seems paradoxical and is prima facie implausible. It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life e.g. sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers’ guarantees; gratuitous bailments; bankers’ commercial credits. These are all examples which show that English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.
In their Lordships’ opinion the present contract presents much less difficulty than many of those above referred to. It is one of carriage from Liverpool to Wellington. The carrier assumes an obligation to transport the goods and to discharge at the port of arrival. The goods are to be carried and discharged, so the transaction is inherently contractual. It is contemplated that a part of this contract, viz. discharge, may be performed by independent contractors—viz- the appellant. By clause 1 of the Bill of Lading the shipper agrees to exempt from liability the carrier, his servants and independent contractors in respect of the performance of this contract of carriage. Thus, if the carriage, including the discharge, is wholly carried out by the carrier, he is exempt. If part is carried out by him, and part by his servants, he and they are exempt. If part is carried out by him and part by an independent contractor, he and the independent contractor are exempt. The exemption is designed to cover the whole carriage from loading to discharge, by whomsoever it is performed: the performance attracts the exemption or immunity in favour of whoever the performer turns out to be. There is possibly more than one way of analysing this business transaction into the necessary components; that which their Lordships would accept is to say that the Bill of Lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shippers and the appellants, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the Bill of Lading. The conception of a “unilateral” contract of this kind was recognised in Great Northern Railway Co. v. Witham L.R. 9 C.F.16 and is well established. This way of regarding the matter is very close to if not identical to that accepted by Seattle J. in the Supreme Court: be analysed the transaction as one of an offer open to acceptance by action such as was found in Carlill v. Carbolic Smoke Ball Company [1893] I Q.B.256. But whether one describes the shipper’s promise to exempt as an offer to be accepted by performance or as a promise in exchange for an act seems in the present context to be a matter of semantics. The words of Bowen L. J. in Carlill v. Carbolic Smoke Ball Co., ” Why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? ” (I.e. p.268) seem to bridge both conceptions: he certainly seems to draw no distinction between an offer which matures into a contract when accepted and a promise which matures into a contract after performance, and, though in some special contexts (such as in connection with the right to withdraw) some further refinement may be needed, either analysis may be equally valid. On the main point in the appeal, their Lordships are in substantial agreement with Beattie J.
The following other points require mention:
1. In their Lordships’ opinion, consideration may quite well be provided by the appellant, as suggested, even though (or if) it was already under an obligation to discharge to the carrier. (There is no direct evidence of the existence or nature of this obligation, but their Lordships are prepared to assume it.) An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce. This proposition is illustrated and supported by Scotson v. Pegg (1861) 6 H. & N. 295 which their Lordships consider to be good law.
2. The consignee is entitled to the benefit of, and is bound by, the stipulations in the Bill of Lading by his acceptance of it and request for delivery of the goods thereunder. This is shown by Brandt v. Liverpool [1924] 1 K.B. 575 and a line of earlier cases. The Bills of Lading Act 1855, section 1 (in New Zealand the Mercantile Law Act 1908, section 13) gives partial statutory recognition to this rule, but, where the statute does not apply, as it may well not do in this case, the previously established law remains effective.
3. The appellant submitted, in the alternative, an argument that, quite apart from contract, exemptions from, or limitation of, liability in tort may be conferred by mere consent on the part of the party who may be injured. As their Lordships consider that the appellant ought to succeed in contract, they prefer to express no opinion upon this argument: to evaluate it requires elaborate discussion.
4. A clause very similar to the present was given effect by a United States District Court in Carle and Montanari Inc. v. American Export Isbrandtsen Lines Inc. and Another [1968] I L1.R.260. The carrier in that case contracted, in an exemption clause, as agent for, inter altos, all stevedores and other independent contractors, and although it is no doubt true that the law in the United States is more liberal than ours as regards third party contracts, their Lordships see no reason why the law of the Commonwealth should be more restrictive and technical as regards agency contracts. Commercial considerations should have the same force on both sides of the Pacific.
In the opinion of their Lordships, to give the appellant the benefit of the exemptions and limitations contained in the Bill of Lading is to give effect to the clear intentions of a commercial document, and cars be given within existing principles. They see no reason to strain the law or the facts in order to defeat these intentions. It should not be overlooked that the effect of denying validity to the clause would be to encourage actions against servants, agents and independent contractors in order to get round exemptions (which are almost invariable and of tea compulsory) accepted by shippers against carriers, the existence, and presumed efficacy, of which is reflected in the rates of freight. They see no attraction in this consequence.
Their Lordships will humbly advise Her Majesty that the appeal be allowed and the judgment of Beattie J. restored. The respondent must pay the costs of the appeal and in the Court of Appeal.
[Dissenting Judgment by Viscount Dilhorne]
On the 5th June 1964 a Bill of Lading was issued by the agents for the Federal Steam Navigation Co., the carriers, to the Ajax Machine Tool Co. Ltd., the consignor, for the carriage of a drilling machine to Wellington in New Zealand. The respondents were the consignees. The Bill of Lading bore on its face the following words: —
” In accepting this Bill of Lading the shipper, consignee and the owners of the goods and the holder of this bill of lading agree to be bound by all of its conditions, exceptions and provisions whether written, printed or stamped on the front or back hereof.”
The consignees accepted the Bill of Lading and so the consignees agreed to its terms and conditions.
In the course of its discharge from the ship at Wellington, the drilling machine was damaged by the negligence of the appellants, the stevedores, and the question for determination in this appeal is whether the appellants are exempted from liability for their negligence by the terms of the Bill of Lading. That depends on the construction to be placed on and the effect of Clause 1 of the conditions printed on the back of the Bill of Lading, and in particular of the third paragraph thereof. That so far as material reads as follows: —
” It is hereby expressly agreed that no servant or agent of the Carrier (including every independent contractor from time to time employed by the Carrier) shall in any circumstances whatsoever be under any liability whatsoever to the Shipper, Consignee or Owner of the goods or to any holder of this Bill of Lading for any loss or damage or delay of whatsoever kind arising from or resulting directly or indirectly from any act neglect or default on his part while acting in the course of or in connection with his employment, and, without prejudice to the generality of the foregoing provisions in this Clause, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Carrier or to which the Carrier is entitled hereunder shall also be available and shall extend to protect every such servant or agent of the Carrier acting as aforesaid, and for the purpose of all the foregoing provisions of this Clause the Carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be his servants or agents from time to time (including independent contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to the contract in or evidenced by this Bill of Lading.”
Before the Board the appellants advanced four main contentions; first, that the Bill of Lading constituted or was evidence of an immediately binding contract between the shippers and the appellants made through the medium of the carriers as agents £or the appellants and supported by consideration; secondly, that the Bill of Lading constituted an immediate bargain between the shippers and the appellants which matured into a binding unilateral contract when the appellants made the bargain unconditional and supplied consideration by performing services in relation to the goods; thirdly, that the BUI o£ Lading contained an offer by the shippers to the carriers as agents for the appellants to enter into a unilateral contract whereby if the appellants performed services in relation to the goods the shipper would give them the benefit of every exemption from and limitation of liability contained in the Bill of Lading; and, fourthly, whether or not there was any contract between the shippers and the appellants, that the Bill of Lading evidenced the consent of the shippers to the performance of services in relation to the goods upon terms that the appellants would have the benefit of every exemption from, and limitation of, liability contained in the Bill of Lading and that this consent nullified the duty of care which the appellants would otherwise have owed at common law, and, alternatively, that this consent excluded or qualified the liability of the appellants for breaches of that duty.
Dealing with the appellants’ third contention first, Clause 1 of the Bill of Lading was obviously not drafted by a layman but by a highly qualified lawyer. It is a commercial document but the fact that it is of that description does not mean that to give it efficacy, one is at liberty to disregard its language and read into it that which it does not say and could have said or to construe the English words it contains as having a meaning which is not expressed and which is not implied.
The Clause does not in my opinion either expressly or impliedly contain an offer by the shippers to the carriers to enter into an agreement whereby if the appellants performed services in relation to the goods the shipper would give them the benefit of every exemption from and limitation of liability contained in the Bill of Lading. I see no difficulty in expressing such an offer in clear and unequivocal language, and if the Clause contained such an offer, I would have been in favour of allowing the appeal. \
What the Clause records is not an offer but an agreement, and one agreement only, made between the shippers and the carriers acting in a dual capacity, on their own behalf and on behalf of all persons who were or might be their servants or employed by them as independent contractors, and an agreement to which all such persons are or are to be deemed to be parties.
I agree with Turner P. in thinking that the terms of Clause 1 cannot be read as constituting such an offer. If the terms of the expressed agreement fail to constitute a legally binding contract between the shippers and the appellants, to read them as merely constituting an offer by the shippers capable of acceptance by conduct by the appellants is to rewrite the Clause.
The appellants’ first contention, that an immediately binding contract was constituted or evidenced by Clause 1, was rejected by Seattle J. at first instance and by all the members of the Court of Appeal and in my opinion rightly; Beattle J. saying: —
“In the present case I consider the stevedore did not give any consideration for what could be said to be tae promise on the part of the consignee to release it from liability or exempt it in certain respects. There is nothing in the Bill of Lading which suggests that the stevedore could sue the consignee for its stevedoring lees or, alternatively, that the consignee could compel the stevedore to carry out the contract which it made with the carrier if it decided not to do so because the agency relationship refers only to the exemption provision which purports to create a benefit only and no detriment or liability is imposed on the stevedore.”
and Turner P. in the Court of Appeal saying: —
” In agreement with other members of the Court I think that in the circumstances of this case it is impossible … to regard the consignor and the stevedore as bound inter se in contract at the time when the bill of lading was signed and delivered, because at that stage it is impossible to see what consideration moved from the stevedore.”
The appellants’ second contention recognises that at the time of the issue of the Bill of Lading there was no legally binding contract between the consignor and the appellants. It was not suggested that the agreement set out in Clause I was not a legally binding contract between the consignor and the carriers and so this contention involves reading the one agreement, to which the consignor on the one hand and the carriers and whomsoever they chose to employ are or are to be deemed to be parties, as a valid contract between the consignor and the carriers and at the same time as a bargain not amounting to a valid contract between the consignor and all those who were at the time employed or who might be employed by the carriers. I do not know of any precedent for construing one agreement in writing in these two different ways.
What was the alleged bargain? If I understood the argument correctly, it was that the consignor would exempt any person employed by the carriers in the carriage and discharge of the drill from all liability if that person performed any services in relation to the carriage and discharge of the drill. The contention was that if such services were performed, that constituted acceptance of the consignor’s offer to exempt and consideration for it; and so by performance the bargain was converted into a full contract.
I admire the ingenuity of the argument. It attempts to overcome the difficulty that Clause 1 is expressed to contain an agreement and not an offer and it attempts to overcome the lack of consideration on which in my opinion the appellant’s first contention founders; but I do not myself see any material difference between A offering J£ money if B does work for A and a bargain between A and B that A will pay B money if B does work for A. In each case A is making an offer which B can accept by doing the work.
In my view one really cannot read the agreement set out in Clause 1 as stating any such bargain. Indeed, however it is formulated, one has only to contrast the alleged bargain with the language of the Clause to recognise that the Clause does not express or imply any such bargain containing any such offer. In my opinion this contention fails for these reasons and for the reasons for which the appellants’ third contention fails. Both contentions involve reading the agreement as if it was or contained an offer.
To give effect to either the second or third contention of the appellants would not just mean straining the language of the Clause but rewriting it. At the end of his speech in Midland Silicones Ltd. v, Scruttons Ltd. [1962] A.C.446 Viscount Simonds referred at p. 472 to the judgment of Fullagar J. in Wilson v. Darling Island Stevedoring and Lighterage Co. ((1956-57) 95 C.L.R. 43) with which Dixon C.J. entirely agreed. Viscount Simonds said that he agreed with every line and word of it and he referred in particular to the passage in Fullagar J.’s judgment in which he protested against a tendency by some artifice to save negligent people from the normal consequence of their fault.
The relevant passage in Fullagar J.’s judgment reads as follows:-—
” What has been supposed to be a principle involved in the Elder Dempster case” ([1924] A.C. 522) ” . . . has . . . been extended so as to give to a stevedore exemption from liability for negligence by virtue of a provision in a bill of lading to which the stevedore is not a party and which is really no concern whatever of the stevedore. This appears to me to be a ‘ development’ of the common law which is altogether out of character, and which is exactly the opposite of what one would have expected and felt to be justified. It is all the more remarkable in view of the fact that the modern tendency has been to expand the field of liability in tort. The common law has, I think, from quite early times—consistently with its general policy of freedom of contract—allowed the validity of provisions of a contract which limit or exclude liability for negligence. But it has always frowned on such provisions and insisted on construing them strictly. In Peek v. North Staffordshire Ry. Co.” ((1863) 10 H.C.L. 473) ” the judges advised the Lords, and the Lords held, that a condition relieving a carrier from all liability for the neglect or default of his servants was neither just nor reasonable within the meaning of a statute. The traditional attitude of the common law is perhaps nowhere more clearly illustrated than in a passage in the judgment of Denning L.J. in Adler v. Dickson ” ([1955] 1 Q.B. at p. 180) ” at the end of which he refers to Peek’s case and particularly to the judgment of Blackburn J. And yet we seem to discern in the latter part of that very judgment, in the New South Wales decisions which are challenged on this appeal, and in two or three other recent cases, a curious, and seemingly irresistible, anxiety to save grossly negligent people from the normal consequences of their negligence—an anxiety which refuses to be baulked even by so well established a general doctrine as that of Tweddle v. Atkinson” ((1861) 1 B. & S. 393). ” This seems to me to be an extraordinary phenomenon and I am sure it would have surprised both Lord Blackburn and Lord Sumner.”
Clause I of the Bill of Lading in this case, construed strictly, cannot be read in my opinion as the appellants desire. Anxiety to save negligent people from the consequences of their negligence does not lead me to give an unnatural and artificial meaning to the Clause and a meaning which the words it contains do not bear. To give effect to the appellants1 contentions appears to me to surrender to the anxiety to which Fullagar J, referred, a surrender which cannot be justified simply by labelling the Bill of Lading a commercial document. It is no more a commercial document than a consignment note for the carriage of goods by rail or road and it should not be forgotten that ordinary members of the public as well as those engaged in commerce send goods by sea as well as overland.
The appellants’ fourth contention does not depend on the terms of the Bill of Lading. I have had the advantage of seeing my noble and learned friend Lord Simon of Glaisdale’s opinion and I agree with what he has said with regard to this contention.
As in my opinion the terms of the Bill of Lading do not suffice to exempt the appellants from liability for negligence if sued by the consignor, it follows that they do not operate to exempt them from liability at the suit of the respondents.
For these reasons in my opinion this appeal should be dismissed.
[Dissenting Judgment by lord simon of glaisdale!
I would dismiss the appeal, broadly on the grounds set out in the judgments of the Court of Appeal, even though the arguments presented to the Board on behalf of the Stevedore differed significantly from the way that the case was put in the New Zealand courts.
The case before Beattie J.
The Stevedore’s main contention in the New Zealand courts involved that a legally enforceable contract between at least the Consignor and the Stevedore came into existence when the Bill of Lading was issued. The possibility that such a contract could exist, and could bind a consignee, was envisaged by Lord Reid in Midland Silicones Limited v. Scruttons Limited [1962] AC 446 at p.474.
” I can see a possibility of success of the agency argument if (first) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were overcome. And then to affect the consignee it would be necessary to show that the provisions of the Bills of Lading Act, 1855, apply.”
The case has throughout proceeded on the basis that if Lord Reid’s five conditions were satisfied, Midland Silicones would not apply so as to exclude the Stevedore from exoneration.
It does not appear to have been disputed that Lord Reid’s first two conditions were satisfied (though it will be necessary later to advert to certain difficulties which arise from the wording of Clause 1). Beattie J. also held that Lord Reid’s third condition had been met, the Bill of Lading being in a form with which the Stevedore were familiar and it having passed through their hands prior to the commencement of the unloading. The main argument before Beattie J. turned on whether Lord Reid’s fourth condition had been met—namely, whether any difficulties about consideration moving from the Stevedore had been overcome. It was argued for the Stevedore that there was an implied obligation upon them under the Bill of Lading to discharge the goods consigned, such an obligation providing sufficient consideration. Beattie J. did not accept that any such implication arose, and concluded that because the Stevedore had not given consideration for any promise on the part of the Consignor to release the Stevedore from liability or to exempt them from liability in certain respects (as set out in the Bill of Lading) the Stevedore could not claim to be a party to the contract made or evidenced by the Bill of Lading at the time of its issue.
Beattie J., however, went on to consider the case on the basis of whether the Bill of Lading was or was evidence of the type of contract recognised as efficacious in Carlill v. Carbolic Smoke Ball Co. [1892] 2 Q.B. 484, [1893] 1 QB 256. He held that the exemption clause in the Bill of Lading was an offer of indemnity by the Consignor made through the Carrier as agent for the Carrier’s servants or agents; that this offer was an offer to those persons who might be or turn out to be servants or agents of the Carrier, to the effect that if they performed their various functions in respect of the goods carried, the Consignor would exempt such servants or agents from all liability; that such an offer was accepted and the contract completed when the servants or agents of the Carrier performed their required functions in respect of the goods being carried; that the Stevedore accepted the offer made to them by performing their required function to discharge the drill; that the Consignor’s promise bound the Consignee; and that the Stevedore could accordingly rely on the promise of exemption as against the Consignee. Beattie J. therefore
gave judgment for the Stevedore on this basis.
…..
Further General Observations on Clause 1
I respectfully agree with Richmond J. that the common law does not tend to favour clauses which limit or exclude liability for negligence (see, e.g., Fullagar J., Dixon C.J. agreeing, in Wilson v. Darling Island Stevedoring and Lighterage Company Ltd. [1956] 1 Lloyds Rep. 346; 95 C.L.R. 43, 70-71; referred to with approval by Viscount Simonds in Midland Silicones at p. 472). Richmond 1. added:
” I would in any event be reluctant to give efficacy to an exemption clause by reading into it some stipulation which the draftsman had not himself seen fit to formulate.”
I agree. Certainly a court should not go out of its way to re-word an exemption clause in order to give it efficacy where, as here, ” act, neglect or default” would appear to extend to theft or even malicious damage.
Then there is the provision that ” the carrier is or shall be deemed to be acting as agent or trustee [etc.] “. It is difficult to see how the beneficiary of a trust created by Clause 1 can also be a principal contractor in respect of the same subject matter; nor does this make it any easier to read the provision as an offer leading to a unilateral contract. Then again there is the reference to persons who ” might be ” servants or agents “from time to time”, to which I have already adverted with reference to the Stevedore’s second admission: this would seem to raise formidable difficulties on any issue of ratification.
Finally, on the Stevedore’s arguments in favour of their first three propositions, the Carrier seems, even allowing for the Stevedore’s second admission, to be doing what Viscount Haldane L.C. in Dunlop v. Selfridge [1915] A.C. 847 at p. 854 said could not be done—namely, to contract as principal and agent ” in the same breath “.
The Stevedore’s First Proposition
The whole basis on which the Stevedore contended for an immediate bilateral contract in the New Zealand courts has disappeared with the Stevedore’s first admission. But the two admissions together involve that go beyond Clause I (” for the purpose “; ” to this extent”). I confess to difficulty in grasping the very concept of a contract consisting only of an exemption clause: I am not satisfied that Clause I establishes a pactum between the Consignor and the Stevedore, quite apart from nudum pactum. Moreover, exemption from what? There was, admittedly now, no contractual obligation on the Stevedore to do anything at all. Faced with this question, counsel for the Stevedore answered that it meant exemption from tortious liability if any servant or agent of or independent contractor for the Carrier did anything in relation to the goods in connection with their carriage under the Bill of Lading. But this is reading into Clause 1 what is not there expressed—indeed, re-writing it. In any case, counsel’s construction, even if correct, would establish, not an immediate bilateral contract, but a unilateral contract (such as is proposed in the Stevedore’s second and third propositions)—sometimes, indeed, actually called ” an if contract”.
Since, in the light of the Stevedore’s new admissions before the Board, there was, in my opinion, no immediate pactum created between the Consignor and the Stevedore at the time of the issue of the Bill of Lading, it is strictly unnecessary to consider the new ways in which counsel for the Stevedore formulated his case to support consideration moving from the Stevedore at that time, which would be required to support an immediate bilateral contract—to prevent it being nudum pactum. Nevertheless, I advert briefly to the arguments, in deference to their interest and ability and in view of the importance of the juridical points raised.
Consideration based on an implied promise by the Stevedore to unload the drill having been abandoned, the Stevedore’s case on consideration had perforce to be framed anew. This was done in two alternative ways. First, it was said, consideration moving from an agent of the promisee is sufficient to support a promise to the promisee. For this proposition Fleming v. Bank of New Zealand [1900] AC 577 was cited. But I do not think that such a reading of Fleming’s case is consistent with the decision in Dunlop v. Selfridge, which proceeded (except for Lord Parmoor’s speech) on the assumption that Dews were Dunlop’s agents, and where consideration certainly moved from Dews to Selfridge. Fleming’s case does not purport to be laying down any such general principle of law as contended for by the Stevedore. That case would be, in my opinion, an unsafe foundation for establishing a rider to Dunlop v, Selfridge, which was, of course, later in date. In any event, I do not think that any consideration was given by the Carrier as the Stevedore’s agent. The Carrier was the Stevedore’s agent only ” for the purpose of” Clause 1. The consideration given by the Carrier was given, not as the Stevedore’s agent, but as principal in respect of the alleged separate contract of carriage contained in the Bill of Lading.
The second way in which the Stevedore tried to formulate consideration to support an immediate bilateral contract was based on the proposition that consideration furnished to A by joint promisee B is sufficient to support a promise made to joint promisee C. Though this proposition rests only on dicta (see McEvoy v. Belfast Banking Co. Ltd. [1935] A.C. 24, 36, 43, 52; Coulls v. Bagot’s Executor and Trustee Co. Ltd. [1967] Argus L.R.385, 395, 400, 405), it seems to be an attractive proposition in respect of genuine joint promises. As Windeyer J. said in his dissenting judgment in Coulls case, speaking of ” a contract made with two or more persons jointly “,
” The promise is made to them collectively. It must, of course, be supported by consideration, but that does not mean by consideration furnished by them separately. It means a consideration given on behalf of them all, and therefore moving from all of them.”
But that is not the case here. The only joint promise is in respect of Clause 1, to which alone the Stevedore was allegedly a party. The Carrier did not furnish consideration in respect of this joint promise, but in respect of the alleged separate contract of carriage, to which the Stevedore was not a party (even though, ex hypothesi, Clause 1 was a common term of both alleged contracts). It would be pure fiction to hold that the Carrier was giving consideration on behalf of the Stevedore (and all the other alleged parties to the contract, some not yet ascertained, some possibly not yet in existence).
The Stevedore’s Third Proposition
It is convenient next to consider the Stevedore’s third proposition, based on Carlill’s case, before considering the Stevedore’s new formulation of a unilateral contract in their second proposition, since the former was the way in which the case on unilateral contract was submitted in the New Zealand courts.
It is sufficient to say that I respectfully concur with the views of the Court of Appeal (summarised above) in this part of the case. In particular, I agree that Clause 1 contains no express offer; that it does not have the essential characteristics of a Carlill-type offer, in that it does not contain by reference or implication any particular mode of acceptance by conduct or otherwise; and that its attempted construction as an offer is inconsistent with the words of the Clause itself, which purport to make the Carrier’s servants and agents ” parties to the contract in or evidenced by this Bill of Lading ” (namely the contract of carriage made between the Consignor and the Carrier), not mere offerees to some other separate and different (unilateral) contract.
The Stevedore’s Second Proposition
This was a new way of putting their case, no doubt to obviate some of the points made by the Court of Appeal in relation to the Stevedore’s third proposition. The difference between the two ways of putting the case can be illustrated by two simple types of unilateral contract. In the first, A says to B, ” If you will dig over my kitchen garden next Tuesday I will give you £2.” B replies, “Agreed! If I dig over your kitchen garden next Tuesday I will get £2 from you.” Though there has been what the Stevedore’s second proposition calls ” a bargain “, neither party is contractually bound at this stage, and A can, at any reasonable period before the time for performance, communicate the withdrawal of his offer without incurring liability. But, if the offer is not so withdrawn, and if B on Tuesday does dig over A’s kitchen garden (the mode of performance being clearly indicated), the contract is complete and A is bound to pay B £2. The acceptance is verbal, and performance furnishes the consideration moving from B. In the second type, A may say to B, ” If you dig over my kitchen garden next Tuesday, I will pay you £2.” B does not verbally communicate his acceptance of the offer, A having impliedly waived such requirement. But if A does not communicate any withdrawal of his offer, and if B on Tuesday does dig over A’s kitchen garden, the offer is accepted by the stipulated mode of performance, which also provides the consideration: A is bound to pay B £2. This latter type of unilateral contract—the Carlill-type contract—is that propounded in the Stevedore’s third proposition; the former type of unilateral contract in the Stevedore’s second proposition. As counsel for the Stevedore rightly submitted, they are mutually exclusive. Nevertheless, both require an offer, and one stipulating a mode of performance. Here, for the reasons given in the Court of Appeal and heretofore, there was no offer, and no sufficient stipulation of a mode of performance which would constitute acceptance.
The Stevedore relied for his second proposition on Great Northern Railway Company v. Witham (1873) L,R. 9 C.P. 16, a well-known case the soundness of which has never been doubted. But it is far removed from the instant. It was an example of a very usual type of contract by tender. The plaintiffs invited tenders for goods which they might require in the following year; the defendant wrote offering to supply the goods at specified prices ” in such quantities as the company’s storekeeper might order from time to time “; and the plaintiffs accepted the tender. There was at this stage no completed contract, since no consideration had moved. But the defendant’s letter constituted an offer specifying a mode of acceptance—namely, ordering the goods as required—which, if not withdrawn, the plaintiff could accept by placing such order. On their doing so the contract was complete—the defendant had made an express offer; it had been accepted expressly; and consideration had moved from the plaintiffs to the defendant in the shape of their promise to pay for the goods on delivery. The facts have only to be stated for it to be obvious how that case differs from the instant. Great Northern Railway Company v. Witham is a classic example of the case postulated by Williston whereby an agreement fails to have initial contractual force by reason of want of consideration but is capable of subsisting as an open offer susceptible of acceptance by a stipulated mode of performance, which also simultaneously supplies the consideration. Here, however, for the reasons given by the Court of Appeal, Clause 1, having failed as an immediate bilateral contract (which is what it purports and is expressed to be), cannot without rewriting subsist as an open offer; and such rewriting is not permissible. As Cardozo I. said, giving the majority judgment of the New York Court of Appeals in Sun Printing & Publishing Association v. Remington Paper & Power Company Inc. 139 N.E. 470 (1923) at p.471:
“There is need, it is true, of no high degree of ingenuity, to show how the parties, with little change of language, could have framed a contract to which obligation would attach. The difficulty is that they framed another. We are not at liberty to revise while professing to construe.”
The Stevedore’s Fourth Proposition
It is really sufficient to dispose of this proposition in the circumstances of the instant case to say that, were it correct, all five of Lord Reid’s conditions, which were common ground between the parties, would be entirely irrelevant: Midland Silicones should have been decided the other way.
Furthermore, in my opinion, the Stevedore’s fourth proposition is inconsistent with both the reasoning and the actual decision in Cosgrove v. Horsfall (1945) 175 L.T. 334. It was argued for the stevedore in Midland Silicones that Cosgrove’s case was wrongly decided (p.465); but the decision in Midland Silicones was inconsistent with that contention (cf. Lord Denning, dissenting, at p.489). In Cosgrove’s case the plaintiff, an employee of a transport company, was travelling in one of their omnibuses on a free pass, when a collision occurred with another of the company’s omnibuses, causing the plaintiff injuries. One of the conditions to which the grant of the free pass was subject was that neither the company nor their servants were to be liable to the holder of the pass for personal injury however caused. The plaintiff sued the driver of his omnibus and recovered damages. The defendant’s appeal to the Court of Appeal was dismissed, on the ground that the defendant was not a party to the contract between the plaintiff and the company, the condition of exemption from liability not having been imposed by the company as agents for the defendant. On the Stevedore’s fourth proposition (unlike the first three) agency is quite irrelevant; moreover, the Stevedore’s fourth proposition, if valid, merely needs rephrasing to fit the facts of Cosgrove v. Horsfall so that the defendant should have succeeded.
Counsel relied for the Stevedore’s fourth proposition on the cases where a licence is coupled with a disclaimer of liability and on Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465. In all these cases, however, the right or service extended was gratuitous; and obviously any person making a gift can delimit its extent. The cases give no ground, in my opinion, for any such general principle of law as is implicit in the Stevedore’s fourth proposition, which, if valid, would seem to provide a revolutionary short cut to a jus quaesitum tertio.
Since I cannot accept the Stevedore’s fourth proposition, it is unnecessary to discuss the fine and difficult distinctions which counsel sought to draw between this proposition and the doctrine of volenti non fit injuria.
Conclusion
For the foregoing reasons I respectfully agree with the judgment of the Court of Appeal.
In so concluding I must not be taken to be doubting that a suitably drawn instrument could bring a consignor and a stevedore into a relationship of obligation and meet Lord Reid’s five conditions in such a way that a stevedore could claim the benefit of an exemption clause even against a consignee. In this connection I note that the clause instantly in question appeared in bills of lading before the Midland Silicones case and was not drawn in the light of that case. Alternatively, no doubt, exemption could in practice be secured by a suitably drawn indemnity clause. Finally, there seems no reason to question that, as Turner P. thought, a bill of lading could, if appropriately drafted, contain an offer giving rise to a unilateral contract with a stevedore.