Other Carriage Modes
Cases
Kuwait Airways Corporation and Another v. Kuwait Insurance Company SAK and Others
[1999] UKHL 12
Lord Browne-Wilkinson
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hobhouse of Woodborough. For the most part I am in complete agreement with his conclusions and reasoning.
The only exception is in relation to question 3 where, unhappily, I disagree with him. Since the question raises a “one-off” point of construction it is pointless for me to consider the matter at any length. I will state my views very shortly. The aircraft and spares were covered by an all-risks policy. That policy excluded certain risks, including war risks. Those excluded risks were then covered to an extent by a separate war risks policy, section 1 of which provides:
“Subject to the terms, conditions and limitations set out below, this Policy covers loss of or damage to the Aircraft nominated in the Schedule against claims excluded from the Assured’s Hull ‘All Risks’ Policy as caused by:
(a) War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power.
(b) Strikes, riots, civil commotions or labour disturbances.
(c) Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting therefrom is accidental or intentional.
(d) Any malicious act or act of sabotage.
(e) Confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil, military or de facto) or public or local authority.
(f) Hijacking or any unlawful seizure or wrongful exercise of control of the Aircraft or crew in flight . . . made by any person or persons on board the Aircraft acting without the consent of the Assured.”
The War Risks Policy extended the indemnity provided by the policy to spare parts save in respect of the indemnity provided by paragraph (a).
At the outbreak of the Gulf War, the armed forces of Iraq took control of the airport in Kuwait including spare parts belonging to the airline. If the only ground under which such spare parts were covered was paragraph (a) above then the airline is not entitled to an indemnity in respect of the spare parts lost. If, on the other hand, the airline is entitled also to claim an indemnity under paragraph (e) above the airline is entitled to indemnity for the spare parts since all that was excluded was paragraph (a). The rest of your Lordships take the view that the case does fall within paragraph (e) as well as paragraph (a).
As I understand your Lordships’ reasoning it is that the word “seizure” has a normal and usual meaning. Having reached the view that what took place in Kuwait would fall within that meaning of the word seizure, your Lordships then look for some special reason why the word should have a more limited meaning in the present document and, not having found any such good reason for limiting its natural meaning, decided that the word seizure in paragraph (e) covers the present case.
My Lords, I am unable to adopt that method of construction. The word seizure does not have one meaning that it bears in all normal circumstances. Lord FitzGerald in Cory v. Burr 8 App. Cas. 393 at p. 405 said:
“‘Seizure’ seems to be a larger term than ‘capture’ and goes beyond it, and may reasonably be interpreted to embrace every act of taking forcible possession either by a lawful authority or by overpowering force.” (emphasis added)
Your Lordships take that as being a statement that the normal and usual meaning of seizure includes forcible capture. In my judgment it does not say that: what it says is that seizure as a word is capable of including such behaviour. Whether it does so or not must, in my view, depend upon the context in which the word is used, not starting with a presumption either way.
In the present case it seems to me clear that each sub-paragraph (a)-(f) of section 1 of the War Risks Policy was designed to deal with one particular type of peril, exclusively of perils dealt with by other paragraphs. Paragraph (a) deals with belligerent risks; paragraph (b) with risks caused by civilian gatherings and commotions; paragraph (c) with acts of terrorism and political unrest; paragraph (d) with deliberate damage to property not covered by other paragraphs; paragraph (e) losses from the assumption of control over property by the local government whether national or at a lower rank. To take a risk of a kind which is plainly a war risk and say that it is covered not only by the war risk clause (paragraph (a)) but also by another clause is, in my judgment, to give a false and unnatural meaning to the policy. If the approach adopted by your Lordships is right, I can see no reason why it should not be said that almost any event which occurs in war (and therefore covered by paragraph (a)) is also a “malicious act” within paragraph (d). This would mean that the exclusion from cover of risks under paragraph (a) would be wholly ineffective.
Therefore I differ from the majority of your Lordships on this point. I would hold that on question 3 the loss does not fall within paragraph (e) but only under paragraph (a) and accordingly I would dismiss the appeal. In all other respects I would make the orders proposed by Lord Hobhouse
LORD LLOYD OF BERWICK
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Hobhouse of Woodborough. I agree with it and for the reasons he gives I would answer the questions in the way he proposes and allow the appeal to that extent.
LORD CLYDE
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hobhouse of Woodborough. For the reasons he gives I too would allow the appeal of the Airline upon the spares disputes. I agree that the questions should be answered in the way which he proposes.
LORD HUTTON
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Hobhouse of Woodborough. I agree with it and for the reasons he gives I too would answer the questions in the way he proposes and allow the appeal to that extent.
LORD HOBHOUSE OF WOODBOROUGH
My Lords,
In the early hours of 2 August 1990 Iraq invaded the State of Kuwait. Meeting only slight resistance the Iraqi forces rapidly overran its territory and by the end of the day the Iraqi forces had effectively conquered the whole of Kuwait. The invasion was aimed at seizing Kuwait’s wealth for Iraq. This objective included appropriating the aircraft and spares and equipment which they would find in Kuwait and removing them to Iraq. All this was pre-planned. Thus, Kuwait Airport was one of the primary targets of the invading forces. They wished, as a strategic element in their invasion plans, to establish control of the civilian and military airfields. By 8 a.m. the Iraqi tanks had arrived at the airport. Shortly after 10.00 a.m. an Iraqi officer told the manager of the Airport that the airport was now part of a military zone. By that time Iraqi soldiers and tanks had completely surrounded the Airport as a whole including the terminals and other buildings.
On 2 August, The Kuwait Airways Corporation, which is the national airline of Kuwait and the primary plaintiff in the action, had 15 aircraft on the ground at the Airport and large quantities of spares and equipment. The value of the aircraft was about US $692m and of the spares etc. some US $300m. In accordance with their pre-arranged plan, the Iraqis started to remove aircraft from Kuwait to Iraq on 2 August (using civilian pilots to fly the aircraft). The removal of the aircraft was completed over the following days; one aircraft had to remain in Kuwait longer than the others as it was undergoing an overhaul at the time. Similarly, the spares and equipment were systematically removed and taken to Iraq either by air or by road over the ensuing days.
By these actions the Iraqi Government forcibly dispossessed the Airline of the aircraft and the spares. As will be apparent from the figures which I have already given this represented a very large financial loss to the Airline. At the time, the Airline was insured for war risks with a number of local insurance companies, led by the first defendant Kuwait Insurance Company S.A.K., which were, in their turn, reinsured upon the London market. The Airline claimed for its losses under the relevant insurance contract. It was not disputed that the Airline had suffered losses of the character of the total loss of the aircraft and spares; it does not matter for present purposes whether the total loss was to be treated as actual or constructive. In the following January (at a time when, it will be remembered, Iraq was still in occupation of Kuwait) the Underwriters paid to the Airline US$300m which the Underwriters contended was their maximum liability under the relevant contract of insurance. The Airline was not satisfied with this situation and by a writ issued on 30 July 1991 commenced proceedings in the Commercial Court here in London. The dispute between the parties raised a number of questions of fact and law which were initially tried before Rix J. in October and November 1995. The points of law were primarily questions of construction which arose on the insurance contract. There were also questions of law which arose in relation to subrogation rights and sue and labour. These latter points arose from the fact that, following the successful recapture of Kuwaitand the conclusion of the military campaign against Iraq, the Airline had been able by litigation and other means to recover some of the aircraft and to commence proceedings directed to their recovering some indemnity from third parties in respect of their losses. These latter questions have not been fully tried but have been dealt with so far on the basis of preliminary issues of law directed by the Commercial Judge.
Rix J. in a judgment reported at [1996] 1 Lloyd’s Rep. 664 made various findings of facts and decided the issues of law which arose upon them. On some questions of law he decided in favour of the Airline, on others in favour of the Underwriters. His overall conclusion was favourable to the Underwriters and effectively upheld the adequacy of the payment that had earlier been made before the action had been commenced. The Airline was dissatisfied with this outcome and appealed to the Court of Appeal challenging certain of the decisions of points of law of the Judge. The decision of the Court of Appeal, Lord Justices Staughton, Otton and Schiemann, (reported at [1997] 2 Lloyd’s Rep. 687) was not unanimous. They decided some of the legal issues differently to the Judge. However, the outcome was effectively the same as before. The Airline, with the leave of Your Lordship’s House, has appealed further on certain of the questions of law. The Underwriters have also argued before Your Lordships certain of the points on which they failed in the Court of Appeal.
The points which in my judgment your Lordships have to consider are all points of the construction of the insurance contract. They are mostly points upon which there has already been a difference of judicial opinion. They are all points which could easily have been avoided by the exercise of care in the preparation and drafting of the insurance contract. Very large sums of money are involved and it must be a matter of comment and concern that those involved on both sides of this transaction should have seen fit to set out their contractual intention in a way that is inadequately structured and expressed and so obviously capable of giving rise to dispute. Such disputes are unnecessary. They can be avoided, as has been repeatedly pointed out by those before whom such disputes come for determination, by the exercise of proper care in the drafting of the documents which create and define the relevant contractual obligations.
The demerits of such lack of precision and clarity are not confined to the uncertainty that it produces but extend to the wholly undesirable delay before the disputes between the parties are fully determined. This appeal has been heard in the latter part of 1998 but relates to a dispute which arose in 1990. This is not satisfactory either from a commercial point of view or for the purposes of administration of justice. It cannot be in the interests of any participant in the insurance market that there should be such uncertainties and delays. Nor can it be satisfactory that an assured should be left in such doubt about the extent of his cover or should have to wait for so long before receiving an indemnity or have to engage in costly litigation to ascertain and enforce his rights. Sometimes litigation may be inevitable, as where some wholly unforeseen event occurs; but that is not the case here. This is a contract of insurance: the disputes have arisen from matters which should have been well within the contemplation of those preparing a war risks contract.
The Insurance Contract: The anniversary date of the Airline’s cover was 1 July. At the time of the events in question no new contract of insurance for the period 1 July 1990 to 30 June 1991 had yet been drawn up; however, a renewal quotation dated 14 June 1990 had been obtained and accepted. This document is therefore the contractual document for the relevant year. It is an outline document in letter form which cross-refers to the expiring cover. It therefore has to be read with the expiring cover in order to understand what its effect is. The expiring cover is entitled “Aviation Hull and Spares War Risks and Allied Perils”. It is a contract which, in market terms, is written by Underwriters who are active in the war risks sector of the market. The general cover for the Airline is provided for in a separate contract of insurance which is as a matter of practice referred to as the “All Risks” policy.
The insurance of aviation risks has historically developed from the marine market as a distinct class of business. Much of the terminology and practices of the aviation market derive from the marine market and therefore need to be understood by reference to the equivalent terminology and practices of the marine market although there are differences between them, not least, that the marine market is governed by the codifying statute, the Marine Insurance Act 1906, whereas there is no similar statute governing the non-marine market (which includes aviation). The normal market practice is to insure risks in comprehensive terms in what is sometimes called an “All Risks” cover which is then cut down by exclusions; the excluded perils are then covered by more specific insurance contracts or extension clauses according to the needs of the relevant assured. There are no doubt market reasons for adopting this approach, not least to assist the structure of rating risks.
An example of this approach in the marine market is the treatment of war risks. Historically the “S G” policy (as scheduled to the 1906 Act) covers war risks but these risks are then excluded by the standard “FC&S” clause. This led to the practice in the market of insuring war risks defined as being the risks which were excluded by the FC&S clause. This approach over the years gave rise to many disputes many of which could have been avoided had a more direct approach been adopted. The historical approach has been departed from in many sectors but its influence is still to be observed in the contracts which your Lordship’s House has to consider on the present appeal.
The relevant All Risks policy in the present case is a relatively structured document as can be seen from the contents list with which it starts. It thus recognises much of what I have said earlier about the need for care in the preparation of documents of this character and importance. It covers both aircraft (clause 1.1) and spares and equipment (clause 1.2). It also covers various classes of liability risks. It is not necessary to go into the detail of this. The policy includes a General Exclusion expressed in these terms:
“This policy shall not apply to:
4.1 War and Allied Risks in accordance with the following war, hijacking and other perils exclusion clause (Aviation) AV48B (not applicable to spares and equipment and passenger entertainment systems whilst in transit as defined in the applicable Institute Clauses):-“
The policy then sets out the clause referred to–paragraphs (a) to (f)–which we find again set out in the war risks cover: see below. In respect of spares and equipment the geographical cover is comprehensive and not confined to spares in transit. It is however subject to express limits–US$10m any one item, US$30m any one sending, and US$150m any one location.
The All Risks Policy includes a number of clauses extending the cover provided. One is the “Extensions of Cover” clause 1.5:
“This section of the policy is also to cover:
1.5.1 ………
1.5.2 Sue, labour and costs and expenses and salvage charges and expenses incurred by on or on behalf of the assured in or about the defence, safety, preservation and recovery of the insured property and also [extraordinary general average sacrifice and expenditure] and costs and expenses arising out of all search and rescue operations. Provided always that these costs and expenses shall be included in computing the losses hereinbefore provided for, notwithstanding that the company may have paid for a total loss.”
A dispute has arisen as to the effect of this proviso.
The expiring war risks cover covers the interests set out in the schedule in section 6. The schedule identifies the assured, including the Airline. The aircraft insured are listed with agreed values ranging between US$5m and US$66m. It states: “newly acquired aircraft are automatically covered hereunder.” It then continues:
“The maximum agreed value any one aircraft shall not exceed US$80m–and the maximum sum insured in respect of ground risks is US$300m–any one occurrence, any one location applicable to this policy and policy number AV/HW/GK/256.”
It is thus a valued policy for the aircraft. The assured is given a liberty to add aircraft to the policy subject to their not being valued higher than US$80m. (The spares are dealt with in a separate wording which it would appear was attached to the war risks policy and to which I will revert.)
Continuing with the wording of the policy which applies to the hull risks (i.e. the aircraft), section 1 of the policy is headed “Loss of or damage to aircraft.” It provides:
“Subject to the terms, conditions and limitations set out below, this Policy covers loss of or damage to the Aircraft nominated in the Schedule against claims excluded from the Assured’s Hull ‘All Risks’ Policy as caused by:
(a) War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power.
(b) Strikes, riots, civil commotions or labour disturbances.
(c) Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting therefrom is accidental or intentional. (d) Any malicious act or act of sabotage.
(e) Confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil military or de facto) or public or local authority.
(f) Hi-jacking or any unlawful seizure or wrongful exercise of control of the Aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the Aircraft acting without the consent of the Assured.
“Furthermore this Policy covers claims excluded from the Hull Policy from occurrences whilst the Aircraft is outside the control of the Assured by reason of any of the above perils. The Aircraft shall be deemed to have been restored to the control of the Assured on the safe return of the Aircraft to the Assured at an airfield not excluded by the geographical limits of this Policy, and entirely suitable for the operation of the Aircraft (such safe return shall require that the Aircraft be parked with engines shut down and under no duress).”
This is the primary war risks cover. As will be appreciated it cross-refers to and quotes the war risks exclusion in the All Risks policy.
Section 2 of the policy extends the scope of the cover in connection with hi-jacking and extortion. Section 3 includes certain general exclusions which qualify the cover provided by section 1. Thus, wars between major powers are excluded as are all consequences of atomic or nuclear explosions. General exclusion (c) follows the wording of (e) of section 1 so as to exclude acts by or under the authority of any Government in clause 4 of the schedule to the policy, that is to say, the Government of registration. This must mean the registration of the insured aircraft; they were in fact all registered in Kuwait. Section 4 incorporates the terms and conditions of the All Risks policy (so far as appropriate). Section 5 gives the Underwriters the power on 7 days’ notice to cancel the policy on various dates or to vary the rate of premium or geographical limits. Nothing arises on these clauses which are usual in a war risks cover.
So far there has been no reference to spares. Spares are dealt with in an express clause which is unnumbered and appears simply to be an attachment to the policy like various other sets of standard clauses. It reads so far as material:
“AIRCRAFT SPARES AND EQUIPMENT EXTENSION
It is noted and agreed that the indemnity provided by this Policy other than Paragraph (a) of Section One is extended to include loss of or damage to Aircraft Spares and equipment which is the property of the Assured or for which they are responsible.
Subject to a limit of US$10,000,000 any one item, US$30,000,000 any one sending and US$150,000,000 any one location.
The maximum limit under this Policy for Hull War Risks and Spares Combined any one Aircraft is limited to US$80,000,000.
Nevertheless, paragraph (a) of Section One of this Policy shall apply in respect of spare parts and equipment whilst in transit by sea or air.
………
………
“Whenever the term ‘Aircraft’ is used in the Policy to which this extension applies the same will also be deemed to mean Aircraft spares and equipment.”
(It will be noticed as a curiosity that the cover in respect of spares whilst in transit has been duplicated with the cover in the All Risks policy.)
Points of construction arise in relation to the aircraft spares and equipment extension in conjunction with section 1 of the War Risks policy. Questions of construction also arises under paragraph (e) of section 1.
The final document to which I need to refer is the quotation letter of 14 June 1990. This letter is in summary form and sets out the terms of the quotation under various headings which correspond to those which one would expect to find on a slip presented by a broker to an underwriter. Thus the headings include “type”, “assured”, “period”, “interest”, “sum insured”, “situation”, “conditions”, and “information”. There is a general incorporation of all the existing terms of the expiring cover, subject of course to the variations set out in the letter. The only part of the letter which it is necessary for the purposes of this appeal to refer to is the entry opposite “sum insured”:
“Max. agreed value US$80,000,000 any one aircraft
Max. ground limit US$300,000,000
Spares/Equipment–not exceeding US$10,000,000 any one item/US$30,000,000 any one sending/US$150,000,000 any one location.”
The dispute which arises under this document relates to the application of the “max. ground limit”: whether it just applies to the aircraft or it also includes spares. Underwriters submit that it is an overriding limit on all losses that occur otherwise than in the air and that therefore, once they have paid out US$300m in respect of the loss of aircraft on the ground, there can be no scope for any further liability in respect of spares on the ground.
The Issues: The remaining questions which the parties have argued on this appeal have been formulated by them in the following terms.
Spares, Question 1: Does the ground limit of US$300m apply to a loss on the ground of aircraft and all spares, or only to a loss of aircraft? This question was answered by Rix J. in favour of the Underwriters and by the majority of the Court of Appeal in favour of the Airline.
Spares, Question 3: Was the loss of spares caused by a peril within section 1(a) alone or was it caused partly or wholly by a peril within (e)? The relevance of this question is that, if it was (a) alone, the Airline could not recover in respect of spares; if it was (e) alone the Airline could recover whatever the answer to Question 4; but if it was partly (a) and partly (e), the answer to Question 4 became critical. Question 3 was answered in favour of Underwriters by Rix J. and unanimously in favour of the Airline by the Court of Appeal.
Spares, Question 4: Is cover in respect of spares on the ground altogether excluded if the loss is by war, invasion, acts of foreign enemies, or hostilities, or can a claim nevertheless be based on some other peril such as seizure? This question was answered in favour of the Airline by Rix J. and in favour of Underwriters by a majority of the Court of Appeal. Schiemann L.J. agreed with the Judge on this question.
The other group of questions were those relating to sue and labour. Only the first of these questions raised a pure point of construction. This was:
“Are sue and labour expenses subject to the ground limit of US$300m or (when they are incurred to recover spares) subject to the US$150m limit for any one location?”
Both the Judge and the Court of Appeal decided this question in favour of the Airline and then went on to consider certain other questions of law which on that hypothesis arose for consideration. In my judgment the question should be answered in favour of the Underwriters and I therefore do not need to set out or express any view about any of the other questions relating to sue and labour which were discussed in the Court of Appeal and before Rix J.
The Surrounding Circumstances Relevant to the Construction of the Insurance Contract:
No surrounding circumstances were relied upon by either party beyond those which would be apparent from a general description of the parties, the character of the business of the Airline and the ordinary practices of the insurance market. There was however one additional aspect which was relied upon by Mr. Pollock QC on behalf of the Underwriters although it was not treated as significant by either of the courts below.
In 1982, having reconsidered the extent to which underwriters at Lloyds should be prepared to write war risks, clauses were prepared designed to limit the exposure of underwriters to war risks on goods. A general principle was to confine cover to goods in transit and to define what amounted to transit in narrow terms. Inter-underwriter agreements existed: the War Risk Waterborne Agreement, the War Risk Airborne Agreement. It can be seen that these agreements may have influenced the willingness of reinsurers to cover goods in transit more favourably than goods not in transit, as occurred in the present case. But they contemplate that cover will still be provided for goods not in transit subject to suitable safeguards, such as cancellation clauses. These documents are not persuasively favourable to the adoption of one construction of the relevant contracts with which Your Lordships are concerned in the present case rather than another. Further, such documents, which are essentially underwriters’ documents, cannot be relied upon by them to affect the rights of assureds under contracts of insurance unless those documents are incorporated into the insurance contracts themselves, which they were not. In fairness to Mr. Pollock, his argument recognised the very limited use that he could make of these documents. In my judgment they did not assist at all.
Spares: Question 1:
The argument of the Underwriters was that, looking at the quotation letter dated 14 June 1990, it was simply providing for an overall ground limit of US$300m. It was said that this was the fair reading of the words “max ground limit”. Leaving on one side for the moment whether this is a fair reading of the quotation letter in isolation, it is clearly not right to read it otherwise than in conjunction with the existing cover for which it was providing the renewal and to which it refers. When this is done it can be seen that the figures appearing under the rubric “Sum Insured” correspond to sums which are to be found in the expiring war risks cover. Thus the “Max. agreed value US$80,000,000 any one aircraft” relates to the provision in paragraph 2 of the schedule in section 6 relating to the maximum agreed value that any newly acquired aircraft can have if it is to be automatically covered by the policy. The “Max. ground limit US$300,000,000” relates to the words “the maximum sum insured in respect of ground risks is US$300,000,000–any one occurrence, any one location.” That is where the figure in the quotation (which happens to be unchanged) is to be inserted. Similarly, the three figures in the letter relating to spares/equipment relate to the figures to be inserted in the second paragraph of the “Aircraft Spares and Equipment Extension.” The clear import of the quotation letter is that the relevant figures in the expiring cover are to remain unchanged in the renewed cover.
The argument of the Underwriters on this question involves the submission that there has been a major reduction in the extent of the cover between the expiring policy and the renewal. There can be no serious doubt that in the expiring cover the US$300m figure applied only to aircraft and that the differently defined limits set out in the Spares Extension mean what they say and are additional to whatever recovery the assured may be entitled to in respect of the loss of aircraft on the ground or elsewhere.
Accordingly on this question I agree with the decision of the Judge and of the Court of Appeal.
Spares: Question 3
On this question the Court of Appeal unanimously reversed the decision of the Judge. It is not disputed that a cause of the loss of the aircraft and of the spares was an event falling within paragraph (a) in section 1 of the policy. It is accepted that the causes of the Airline’s loss included, for example, the invasion of Kuwait by Iraq and the acts of foreign enemies, that is to say, of Iraq. The issue is whether it can also be said that the Airline’s losses were caused by the seizure of the aircraft and spares by a government within the meaning of paragraph (e). The Airline submits that its loss was also caused by, indeed, most immediately caused by the seizure of the aircraft and spares by the Iraqi government.
The ordinary meaning of the word “seizure” is the act of “taking forcible possession either by a lawful authority or by overpowering force” and this is its ordinary meaning in an insurance policy. (Cory v. Burr 8 App. Cas. 393) The Judge confirmed that the word “seizure” was a “perfectly acceptable description of what happened to the aircraft on 2 August”. (p. 689) Notwithstanding that he accepted that this was the ordinary meaning of the word and that it had been recognised by authority, the Judge came to the conclusion that in the context of this clause a different interpretation must be adopted. He did not accept the Underwriters’ submission that section 1 was to be construed as containing a well-graduated “ladder” of risks but he does seem to have been inclined to treat the various paragraphs as exclusive of each other. He gave his reasons for deciding this point in favour of Underwriters at pp. 690-691 of the report of his judgment:
“. . . however, there is in my judgment force in [Underwriters’] submission that there is intended to be no overlap between paragraph (a) and paragraph (e). Paragraph(a) is dealing with war, foreign or civil, or other violent manifestations of large-scale internal disorder. Paragraph (e) is dealing with acts done by governments or other public authorities. It seems to me that prima facie the acts of such authorities are those done, presumably lawfully or at any rate under colour of law, within their own territories. That is to my mind strongly supported by the reference to ‘nationalisation’ and to ‘public or local authority’: for it is only within any nation that one would normally speak of the nationalisation of assets (by the government of that nation), and it would be unusual for a mere public or local authority to exercise powers outside its proper sphere or locality. Save in time of war, governments do not exercise power outside their territories, unless it be in international air space or on the high seas. Moreover, ‘seizure’ occurs immediately after ‘nationalisation’, which is hardly conducive to giving it a broad meaning embracing circumstances of large-scale and belligerent violence. It may also be noted that ‘capture’, i.e. belligerent seizure, is omitted from the long list of dispossessory perils mentioned in (e). Clause 4 of section six is also relevant here, for it excludes the operation of paragraph (e) in the case of the government of registration, viz. Kuwait. Thus paragraph (e) could not apply to any form of governmental confiscation, seizure or requisitioning arising out of internal disorder in Kuwait itself. What paragraph (e) therefore seems to have in mind is the danger which foreign governments or other foreign public authorities may pose to the possession of aircraft which make international flights outside the nation of their registration. There is finally the fact that the spares extension which I take it is designed to be used with the ‘RJM 1’ form containing the paragraphs of perils under discussion, distinguishes between paragraph (a) perils and the other paragraphs, extending cover under the former for spares only while in transit. If ‘seizure’ in (e) embraced seizure arising out of the belligerent or other violent disorders specified in (a), there would be the surprising result that cover was extended for ground risks in the case of the former but not in the case of the latter, an inconsistent result. Moreover, the commercial logic of the limited extension afforded by the spares extension would seem to be that Underwriters are willing to take the risk of aircraft being caught on the ground in time of war etc., but not spares: presumably because there will be a reasonable chance that highly mobile aircraft can be kept out of trouble, even in such perilous times, whereas spares cannot be. For all these reasons I accept the Underwriters submissions that on the facts of this case there was no loss under paragraph (e).”
The Court of Appeal unanimously took a different view. Like Rix J. they all started from the premise that what occurred was properly described as a seizure of the aircraft and spares by the Iraqi government. Staughton L.J. rejected the arguments based upon the context in paragraph (e) and that the word seizure must be confined to non-belligerent seizure. He recognised the force of the argument that there might be an intention to exclude the consequences of war and invasion in relation to spares when these overlap with the risks in the other paragraphs but he rejected the argument that this justified giving a meaning to those other paragraphs, themselves derived from the All Risks policy, other than their proper meaning. Thus, he did not accept the conclusion that the seizure must be peaceable. Schiemann L.J. agreed with Staughton L.J. on this point without adding reasons of his own.
Otton L.J. gave his reasons for agreeing with Staughton L.J. and disagreeing with the Judge. He commented upon the degree of overlap both internally within the various paragraphs and as between the various paragraphs. He referred to the Underwriters’ arguments. He said:
“I see no reason to construe the word narrowly, or to deprive the relevant peril of its usual meaning; the peril of ‘seizure’ within this policy has no different meaning from that which would normally be ascribed to it. The word has a well accepted commercial usage in the context of insurance . . . .”
“I am unable to accept that the paragraph (e) perils are limited to the acts of governments or other public authority within their own territories. The assets of an international corporation can be situated in many countries throughout the world. They are not necessarily all fixed assets. Thus one sovereign government might confiscate a fixed asset or restrain an aircraft of another national Airline lying within the territory and make a demand (usually in money) which must be certified before the aircraft will be released.”
He also rejected the argument based upon the exclusion of confiscation by the government of registration of the aircraft saying that it did not assist the Underwriters but rather confirmed that the reference to any government must be to a foreign government. He concluded that there was no justification for giving the word “seizure” in paragraph (e) a restricted interpretation:
“I am satisfied that ‘seizure’ is an appropriate peril to describe the events which have caused the loss of the aircraft and spares, i.e. forcible dispossession.”
Thus, the conclusion of Rix J. was that the whole of category (e) must be understood as relating to peaceable activities of a government occurring within the territorial jurisdiction of that government. The arguments in favour of this conclusion were said to be the contrast between paragraph (a) and paragraph (e) and the view that they should be construed so as not to overlap, the word “nationalisation” which occurs in (e) coupled with the omission of the word “capture” and the reference to “public or local authority” which, it was submitted, should colour the understanding of the paragraph as a whole and therefore exclude any belligerent activity and, specifically, “belligerent seizure”. It is argued that it should be inferred from the fact that, in relation to aircraft, the general exclusion of acts of the government of registration leads to the expectation that (e) would not in practice apply to aircraft while they were within Kuwait, that there should be a similar territorial exclusion in respect of spares–that (e) would not apply to spares whilst they were in Kuwait.
Effectively the same arguments were urged upon us by Mr. Pollock. It is convenient to take these arguments in the reverse order. The argument that the acts of the Kuwaitigovernment were not covered under this policy does not assist Underwriters. No one suggests that the Airline’s loss was caused by any act of the Kuwaiti government or that it was caused by anything other than the acts of the Iraqi government. The Iraqi government was on any view for the purposes of this policy a foreign government. Similarly, if it were the intention to exclude from the cover provided by this policy anything which occurred within the territorial boundaries of Kuwait, nothing would have been simpler than to say so. This contract contains no such exclusion.
As regards the relationship between paragraphs (a) and (e), (a) is not confined to acts of governments. It relates to situations which may or may not impact upon the assured or its property. Any effect of such situations upon the assured will be through some more specific consequence, typically the destruction or damaging of its property. The confiscation of property is not an ordinary incident of war whereas its destruction or damage is; and those ordinary incidents are the consequence of activities of the combatants. A contrast therefore already exists between the obvious contemplation of paragraph (a) and that of paragraph (e). Paragraph (e) deals with matters which affect the title to or possession of property–the actual loss of possession not some anterior situation which may or may not give rise to a loss. The reference to governments and other authorities in (e) distinguishes between the acts of individuals and the acts of governments. This was also one of the points stressed in Cory v. Burr (sup) where it was pointed out that seizure can include the taking of a ship by insurgent slaves: Kleinwort v. Shepard 1 E. & E. 447. Another illustration is the discussion of the point by Mustill J. in Spinney’s (1948) Ltd. v. Royal Insurance Co. Ltd. [1980] 1 Lloyd’s Rep. 406; he drew the distinction between looting by soldiers and other individuals in the course of hostilities or disorder or their aftermath and seizures by governments as occurred in the present case. Paragraph (e) is concerned with the latter, not the former.
The ordinary meaning of the word seizure as used in marine policies was the subject of the decision of your Lordships’ House in Cory v. Burr. It was argued that the word seizure was confined to belligerent seizure. Lord FitzGerald (in line with the opinions of the Earl of Selborne L.C., Lord Blackburn and Lord Bramwell) rejected this argument, saying at p. 405:
“‘Seizure’ seems to be a larger term than ‘capture’ and goes beyond it, and may reasonably be interpreted to embrace every act of taking forcible possession either by a lawful authority or by overpowering force.”
He is thus giving the word “seizure” an inclusive meaning. It includes both belligerent and non-belligerent forceable dispossession. That is its ordinary meaning.
Thus far there has been nothing to cut down the ordinary meaning of the word seizure. But it is argued that the list of perils in (e) leads to the conclusion that a more restricted use of the word is intended. It must be accepted that the word “nationalisation” is a word which has nothing to do with warlike activities and does connote some lawful or purportedly lawful act under a municipal legal power. But other words used in the paragraph carry, by contrast, an inference of some warlike or hostile situation. The word “restraint” is one which has historically appeared and still commonly appears in policies covering war risks. (See the SG policy annexed to the 1906 Act and rule 10 of the Rules for Construction.) The omission of the word “capture” is fully explained by the fact that it is an inappropriate word to use in aviation insurance as opposed to marine insurance where, historically, takings at sea had been covered and the subjects of marine insurance–ships and cargoes–were (and still are) properly treated as objects of war to be taken in prize or by way of reprisal: this was the meaning of the word capture in marine policies. (Anderson v. Martin [1907] 2 K.B. at 253).
The phrase “requisition for title or use” is strongly supportive of the normal meaning of the word seizure. Requisition is typically something which occurs in the time of war or hostilities involving an exercise of executive or military power. It is precisely analogous to the type of seizure which took place in the present case. From the point of view of the assured it would make no difference whether the aircraft (or spares) were requisitioned to assist the war effort of the foreign government, as, for example, by providing transport for their armed forces, or by way of outright seizure. The situations are directly analogous as are the consequences. The word “appropriation” is similarly unhelpful to the Underwriters’ argument as are the references to “military” and “de facto” governments.
Were the ordinary meaning of the word seizure confined to peaceful seizures, it could certainly be said that the context was not clear enough to widen that meaning so as to refer also to all forcible seizures. But where, as here, the ordinary meaning of the word is any forcible seizure, the context does not suffice to show that the word must have been used in some special or restricted sense. At the best from the point of view of the Underwriters, the context within paragraph (e) is neutral and does not suffice for their purpose. However, in my judgment, it is not neutral but supports the ordinary use of the word and the case of the Airline.
I therefore agree with the unanimous decision of the Court of Appeal that the word seizure is to be understood in its ordinary sense and it follows that the loss in this case comes within paragraph (e) as well as paragraph (a).
Spares: Question 4:
On this question the split of judicial opinion was between Rix J. and Schiemann L.J. on the one hand and Staughton L.J. and Otton L.J. on the other. The argument of the Underwriters addressed this question at two levels. The first type of argument was based upon the wording of the aircraft spares and equipment extension clause; the second type of argument was based upon rhetorical assertion that it would be commercially absurd for the Underwriters to have covered the spares whilst on the ground against risks consequent upon wars or other hostile activities: Staughton L.J. said “repugnant to common sense”. (p. 695).
It is not disputed in the present case, and it is the law, that where there are a number of perils covered by the policy it suffices for the assured to prove that his loss was proximately caused by any one of the perils covered. Similarly, if there is an exclusion, the assured is not entitled to recover under the policy if the excepted peril was a proximate cause of the loss. Thus, for present purposes the point at issue can be paraphrased as being the question whether the risks in paragraph (a) were simply omitted from the cover for spares when not in transit or were, on the true construction of the policy, excepted perils. In the former case the Airline succeeds; in the latter the Underwriters succeed.
The opening words of the extension are “it is noted and agreed that the indemnity provided by this Policy other than Paragraph (a) of Section One is extended to include loss of or damage to Aircraft Spares. . . .” It is therefore an extension clause providing for a qualified extension of the cover. It is not an exclusion clause. The relevant and only exclusion (as that term is properly understood) is to be found in the All Risks Policy. The language is plain. It means that the risks enumerated in paragraphs (b) to (f) are covered. The fact that the clause has been worded as extending the cover to all the paragraphs other than paragraph (a) has precisely the same effect. The language of the extension clause does not assist the Underwriters.
There is a technical argument which was included in the submissions of Mr. Pollock but not placed in the forefront of his case; it refers back to the traditional structure of marine cover and the inter-relation of the SG form, the F C & S clause, and the commonly used printed clauses whereby war risks are then covered. Whilst such arguments are not wholly alien to the construction of aviation policies which to an extent follow the same structure, the spares extension clause in the present contract is more simply drafted and does not necessitate or justify having resort to such methods of interpretation. Where the wording used is straightforward and has a plain meaning, that is the meaning which, save in exceptional circumstances, should be adopted.
This leads to the second way in which the Underwriters’ case was argued and which clearly was influential with the majority in the Court of Appeal. It is submitted that to construe the contract as providing cover for spares not in transit where a cause of the loss was the occurrence or existence of a war would produce exorbitant risks which, so it is said, cannot have been intended to be covered by this contract.
This argument, to which I hope I have done justice, is not one which should be readily accepted. The purpose of insurance, particularly war risks, insurance, is to cover against the exceptional catastrophes. The Underwriters’ position is already protected to some extent by the exclusion of wars between major powers and is further protected by clauses which give the Underwriters the right during the currency of the policy to restrict the scope of the cover by notice or, again by notice, to cancel the policy. It can also be commented that, however the first question was answered, there is a limit to the liability of the Underwriters. Their maximum exposure is known any one location. They are not accepting an unregulated or open-ended exposure. But it must in any event be stressed that it is not for the courts to tell the parties what contract they should have made nor, after the event, to evaluate the merits and demerits of their bargain. If, as here, the parties have used plain language to express their intention, that should be an end of it: the courts should enforce the contract in accordance with its terms.
Therefore I would answer the fourth question in favour of the Airline.
Spares: Conclusion
It follows that I would answer all of the three remaining questions relating to the cover for spares in this contract in favour of the Airline with the result that upon the agreed facts the Airline is entitled to recover from the Underwriters in respect of the loss of spares. The overall limit is, on this basis, agreed to be US$150m. We are not concerned with the question of subrogation rights or recoveries. The assumption of the parties is that they will not reduce the Airline’s loss below the US$150m figure. Any other questions remaining outstanding will have to be disposed of in the Commercial Court action.
The Sue and Labour Question:
As indicated earlier there were a number of questions, possibly hypothetical, which were argued before the Judge and the Court of Appeal concerning the right of the Airline to make some supplementary recovery over and above the US$300m and, as it now appears, the US$150m. Unless this question is decided in favour of the Airline, the other questions on sue and labour do not arise. Both Rix J. and the Court of Appeal did go on to express views about those further questions because they unanimously decided the first sue and labour question in favour of the Airline. The Underwriters on the appeal to your Lordship’s House have contended that the courts below were in error and that on the particular wording of this contract the right was subject to a limit.
It is not in contention that the ordinary purpose and understanding of a sue and labour clause is to authorise the assured to take reasonable steps to recover the insured property or reduce the extent of the insured damage or loss. Indeed it is ordinarily to be inferred that the assured has a duty to take these steps. The law was worked out in various 19th century decisions and codified in the Marine Insurance 1906 section 78. Section 78 (1) provides:
“Where the policy contains a suing and labouring clause, the engagement thereby entered into is deemed to be supplementary to the contract of insurance, and the assured may recover from the insurer any expenses properly incurred pursuant to the clause, notwithstanding that the insurer may have paid for a total loss, or that the subject matter may have been warranted free from particular average, either wholly or under a certain percentage.”
Just as the authority and obligation to sue and labour are supplementary to the contract of indemnity so also is the Underwriters’ liability to reimburse sue and labour expenses reasonably incurred. Provided those expenses have been reasonably incurred, it does not matter whether they were in the end successful or not. They may not succeed in averting a total loss of the subject matter of the insurance. But, having properly sued and laboured in accordance with authority given by the clause, the assured is entitled to look to the underwriter to reimburse him the expenses so incurred. The fact that the underwriter is also having to pay for a total loss does not alter this position.
Thus far the law is wholly in favour of the Airline but it is not possible to stop there because the sue and labour clause incorporated into this particular contract contains a proviso. This reads:
“Provided always that these costs and expenses shall be included in computing the losses hereinbefore provided for, notwithstanding that the Company may have paid for a total loss.”
Why the parties should have chosen to include this proviso is not something we can fathom. But it appears to be capable of having only one meaning. That meaning is that the limits on the liability of the Underwriters are to apply not only to the primary indemnity but also so as to include any sue and labour expenses incurred. The “losses hereinbefore provided for” must mean the losses in respect of the primary obligation to indemnify. The ordinary rule continues to apply that payment for a total loss does not exclude the right to recover sue and labour expenses. But this proviso requires that any sue and labour expenses be included with the primary losses for which cover is provided in the contract. It follows that, where there is a limit on the indemnity, that limit must be applied to the aggregate of the primary loss and the sue and labour expenses. We asked counsel for the Airline to say what was the effect of the proviso if it was not to be that which I have just stated. He was unable to suggest any alternative meaning. He submitted that the effect of the proviso was confined to allowing sue and labour expenses to be recovered in addition to the insured value of the relevant subject matter. However. as already pointed out this does not adequately or satisfactorily explain the proviso. Rix J. and the Court of Appeal seem to have had a similar difficulty in ascribing an acceptable meaning to the proviso and they chose to decline to give it any effect beyond that which would be implied by law in any event.
The proviso appears to be a one-off type of wording. I do not doubt that it has been used before but there is no suggestion that it is a standard wording nor is any plausible explanation given of it other than that which I have adopted. Here again, it is for the parties to define their respective rights and obligations in their contracts with an adequate degree of certainty. That this proviso should have given rise to a dispute is scarcely surprising. But, having done so, its language has to govern.
It follows that in my judgment the Underwriters succeed on this point. The right to add sue and labour expenses to their primary right to indemnity is subject to the same limits as their primary right. On the facts of this case those limits have already been exhausted and it follows that the Airline’s right to claim reimbursement of sue and labour expenses (if any) has also been exhausted.
Conclusions:
It follows that upon the spares disputes, the Appeal of the Airline should be allowed and Spares Question 4 be answered in favour of the Airline. Upon the sue and labour disputes, the appeal of the Airline should be dismissed and Sue and Labour Question 1 be answered in favour of the Underwriters. The Order of the Court of Appeal will be varied in accordance with your Lordships’ judgments and the order that the action of the plaintiffs against the first to fourth defendants be dismissed will be set aside.
Having considered the written submissions of the parties it should further be ordered that the Respondents shall pay the Appellants their costs before this House and two thirds of their costs in the Court of Appeal and one third of their costs before Rix J.
Post Office & Anor v British World Airlines Ltd
[2000] EWHC 204 (Comm)
Thomas J
The construction of clause 4 of the contract between the Post Office and BWA
It was common ground that the liabilities between the Post Office and BWA should be determined by the provisions of the contract. It was not in issue that the scope of clause 4 of the contract, particularly when read with clause 13 and clause 3, was wide enough to make BWA liable for any loss or damage of any item of mail accepted by BWA, subject only to the force majeure clause. It was agreed for the purposes of the preliminary issue that the mail had been accepted by BWA and was at their risk under the terms of the contract.
However, it was contended by BWA that it was only liable under the contract to the Post Office for the amounts which the Post Office had to pay to its customers if that amount had been paid under one of its schemes; and that, in any event, the contract provided a still further limitation as the separate paragraph of clause 4 which subjected BWA to the liabilities imposed by the Carriage by Air Act 1961 applied the limitations of liability contained in the Article 22 of the Warsaw Convention as set out in the 1967 Order.
The Pot Office contended that the reference in the contract to the schemes made under the Post Office Act did not restrict the liability of BWA to pay the Post Office only for mail that was carried under schemes. BWA were made liable in respect of all mail carried; the reference to the schemes provided only a limitation of liability. Furthermore, the Post Office submitted that, as the parties had in any event agreed a limitation of liability by reference to the schemes of the Post Office Act, it was inconceivable that they had agreed yet a further limitation under the Warsaw Convention, particularly as that was calculated by weight and thus in a wholly different manner from the per item limit in clause 4.
It is convenient to consider these points in turn.
The reference in the contract to schemes made under the Post Office Act
It was common ground that clause 4 should be construed by reference to the surrounding circumstances and the principles set out in the judgment of Lord Hoffman in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 912f to 913e. On the material before me I am satisfied that the background known to the parties included the following matters:
( The Post Office carried mail (including parcels) either under one of its schemes or under contracts entered into with its customers.
( Mail would be carried under contracts which were entered into between the Post Office and their customers on Parcelforce 24/48 terms or on terms that might include the imposition of liability of the Post Office for loss or damage; it was a feature of the Parcelforce 24/48 terms that inclusive insurance was provided up to a specified amount per item.
( The Post Office provided an ordinary mail service called Parcelforce Standard which provided for compensation as an optional extra.
Against that background, it is difficult to understand how two commercial parties could sensibly have intended clause 4 which in general terms imposed the risk of loss on BWA to limit that risk only to mail carried under one of the statutory schemes. Indeed it seems to me clear from the language of the clause that these two parties intended no such thing and intended the reference to the schemes made under the Post Office Act to act as a ceiling for compensation paid by the Post Office, whether the liability of the Post Office arose under a scheme or under a contract.
The language of the clause, viewed against the surrounding circumstances, made that quite clear. It provided that BWA “shall be liable to pay to the Post Office” for each item lost or damaged “such sum of money as shall be equal to the amount which the Post Office shall, at its sole option and discretion, pay to the sender or addressee of such items as compensation”. Those words are, in my view, clear and imposed liability to pay the amount that the Post Office decided to pay as compensation. There were no words limiting the compensation payable to compensation payable under a scheme. If the parties had intended such a result to follow, given the fact that the parties knew that mail would be carried both under schemes and under contract, I am sure they would have said so.
The wording of the proviso which follows is a limitation on the amount payable. It is clear from the language that by using the words “provided always that such amounts shall not in any case exceed the maximum amount payable [under a scheme]” the parties were referring to the schemes purely for limiting the amount payable. They were not using the proviso to determine whether compensation was payable at all. It seems to me by the use of the reference to the amount the parties made their intention clear.
I am therefore sure, both as a matter of the language of clause 4 and as a matter of a sensible and purposive construction of the clause, that BWA are liable to pay the amount the Post Office paid as compensation for any item lost or damage, but subject to the maximum amount payable under the Post Office schemes.
The position in relation to the amounts paid to BT
It follows therefore that, as the Post Office was bound to pay compensation to BT under its contract with them if the accident was caused by the negligence of BWA, then if they paid on the basis that the accident was or may have been so caused, then the Post Office would be entitled to recover the amount paid from BWA, subject to the limit set out in the Post Office schemes.
The position in relation to the other customer claimants
However, in respect of the other customers which contracted with the Post Office (and possibly also BT on the assumed findings for the purpose of this preliminary issue), the amount the Post Office paid was paid on the basis they were paying out “the insurance cover which should have been arranged under clause 6.5 of the Parcelforce 24/48 terms”. Indeed as clause 6.2 of those terms excluded the Post Office’s liability, there was no other basis on which the Post Office would have paid Motorola, Burberrys and Wemyss Weavecraft.
The question therefore arises as to whether this was paid “as compensation” within the meaning of clause 4. BWA said that the sums paid to Motorola, Burberrys and Wemyss Weavecraft were not paid as compensation within the meaning of clause 4, first because there was no obligation for the Post Office to pay and secondly that what was paid was a payment in lieu of the insurance cover which should have been obtained.
The first contention made by BWA depended upon clause 6.4 of the Parcelforce 24/48 terms and conditions. Under that clause, the Post Office was entitled at any time to modify or withdraw the insurance arrangements. BWA therefore submitted that as the Post Office was entitled at any time to withdraw the insurance arrangements, once it had done so, it was under no liability at all.
I do not accept that argument. Considering the Parcelforce 24/48 terms as a whole, it is clear that the Post Office could only withdraw the insurance arrangements if it gave notice to its customers. I am sure that clause 6.4 was subject to an implied term to that effect and the implication of such a term was necessary to give business efficacy to the contract. If one considers the whole of the terms against the background as advertised, it is clear that the insurance arrangements were a key feature of the services offered to its bulk customers. In my judgment, it could not be withdrawn without giving reasonable notice, thus entitling the bulk customers to decide whether they wished to continue to use the service. As it is to be assumed for the purpose of this preliminary issue that no notice was given, I am satisfied that the Post Office was bound to compensate Motorola, Burberrys and Wemyss Weavecraft on the basis that insurance should have been obtained.
The second argument put forward by BWA was more formidable. They pointed to the fact that under clause 6.2 of the Parcelforce 24/48 terms, the Post Office excluded all liability for loss or damage for the parcels; the Post Office could never therefore have been liable to pay compensation for parcels carried under the Parcelforce 24/48 terms. Instead, the Post Office had agreed to arrange insurance up to a specified sum per parcel; under clause 6.7 of the Parcelforce 24/48 terms, the Post Office stated that they did not act as insurers, but had arranged a facility with insurance underwriters. BWA contended that if insurance had been obtained, it was the insurers who would have paid the customers and not the Post Office. The only right of action that insurers would have had against BWA was a subrogation claim they would have had to bring in the name of Motorola, Burberrys or Wemyss Weavecraft. Any claim against BWA would have been in tort or under the terms of the 1967 order, but such a claim was barred by the provisions of s.29(3) of the Post Office Act. Thus, as insurers could not bring a claim against BWA, it could never have been intended that the Post Office should be entitled to bring a claim under its contract with BWA for sums paid “as compensation” where they had paid out on the basis of the insurance which they should have obtained.
In my view this argument is correct. Construing the agreement against the background known to the parties, I consider that clause 4 was directed at payments that the Post Office would make as compensation and not payments made because the Post Office had failed to obtain insurance. The parties would not have anticipated when they used the words “as compensation”, a payment made by the Post Office in lieu of the insurance that it should have obtained. If and insofar as the customers were insured, whether under their own policies or by a policy arranged by the Post Office, the insurers would have had no rights by way of subrogation against BWA because of the provisions of s.29(3) of the Post Office Act. Thus the parties would never have anticipated BWA being liable to pay in the event of loss or damage where the Post Office were bound to obtain insurance and had excluded their own liability. Thus where the Post Office paid out because it had not obtained insurance, then in my view that payment was not within the words “as compensation” in clause 4.
Thus, in the result, in my view on the assumed findings that have been agreed for the purpose of this preliminary issue, the Post Office are not entitled to recover the sums that have been paid to Motorola, Burberrys or Wemyss Weavecraft. However, if the sums paid to BT were not in fact paid solely on the basis that insurance had not been obtained under the Parcelforce 24/48 terms, but on the basis that the Post Office was or might have been liable for negligence under its contract with BT, the Post Office is entitled to recover the monies paid to BT subject to the per item limit.
“Subject to the liabilities imposed by the Carriage by Air Act 1961”
The limit of liability under the schemes is a limit per item. If the item under Article 22 of the Warsaw Convention was to be applicable as an individual limit, that would be a limit by reference to the weight of either the individual items (if known) or the overall weight of the cargo. It would, in my view, have been wholly uncommercial for the parties to have agreed a limit per item and then to have subjected that limit to yet a further limit calculated on a different basis Do the words used compel that result?
In my view they do not. The reference in this separate paragraph of clause 4 was to the liability imposed by the Carriage by Air Act. I agree with the submission made by the Post Office that these words referred to the general liabilities imposed by that regime and emphasised (just as clause 13 of the contract emphasised) the liability for mail carried. The sentence referring to the Carriage by Air Act did not refer to “limitations and exceptions” and, in my view, there is no need to read the sentence as referring to the limitations. Furthermore Article X of the Guadalajara Convention as applied by the 1967 Order made it clear that nothing in the Convention affected the rights between the carriers. Thus, in my view, the limit applicable to compensation payable was that in the schemes and it was not subject to the further limitation in Article 22.
The alternative claim under the 1967 Order
I find it difficult to see how the Post Office can have a separate claim under the 1967 Order as, in my view, it is clear that the parties intended their liabilities to be governed by the contract.
It was common ground, as I have said, that the contract was in substance and form a charter agreement; BWA provided space on the aircraft for the exclusive use of the Post Office. No freight was payable as the sum payable under the contract was payable irrespective of whether any mail was carried or not. The contract was not a contract for the carriage of a specific consignment by air; no way bills were issued. Furthermore, it is clear from Article X of the Guadalajara Convention, that the terms of that Convention did not affect the rights and obligations of the two carriers as between themselves.
All of these factors point, in my view, to the clear position that the rights and liabilities between BWA and the Post Office were governed exclusively by the contract and not by the terms of the statutory regime. Thus, insofar as the Post Office did not have a claim under the contract or such a claim is limited by the terms of the contract, the statutory regime did not provide it with an alternative cause of action.
In case I am wrong in that view I will briefly express my views on the claim put forward by the Post Office under the 1967 Order. This can be done under three headings:
(1) The manner in which the statutory regime applies
It is clear from the decisions of the House of Lords in Sidhu v British Airways Plc [1997] AC430 and Herd v Clyde Helicopters [1997] AC 534 that where the Conventions apply, they create an exclusive right of action and resort cannot be had to other forms of action. The claim is then governed by the terms set out in the Convention.
(2) Who can sue?
In 1988, Gatehouse J decided in Gatewhite v Iberia [1990] QB326 that there was nothing in the Conventions which required only the consignee or the consignor to sue and an action could be brought by the owner of the consignment. However , as a result of the two decisions at the House of Lords to which I have referred in the preceding paragraph, the question decided by Gatehouse J was reconsidered in 1999 by David Steel J in Western Digital Corporation v British Airways [1999] 2 Lloyd’s Rep 380. He decided that only the consignee or the consignor or the person entitled to delivery could sue. At the conclusion of his judgment he doubted whether the parties had benefited from a further exposition from another first instance court on this long standing issue. As the same issue arises only as an incidental point in this case, I certainly do not wish to add yet another exposition from a first instance judge, particularly as the appeal in Western Digital Corporation is due to be heard in the Court of Appeal shortly.
However it is not easy to apply the concept of consignee and consignor to the carriage of mail by BWA for the Post Office. There were no waybills in respect of the consignments.
Furthermore as far as the customers (Motorola, Burberrys, Wemyss Weavecraft or BT) were concerned, it was a matter entirely for the Post Office whether it sent their goods by air or by road or by rail. Thus it is rather difficult to fit the concepts of contracting carrier and actual carrier and consignee and consignor into carriage under this contract. I find it difficult to see how a customer such as Motorola could be looked on as the consignee or consignor for the purpose of carriage by air when they did not know that their goods would necessarily go by air; furthermore BWA had no relationship with the customer and did not know who they were. As far as BWA was concerned, they were simply carrying a consignment of mail for the Post Office. If anyone had to be regarded as the consignee, I would have taken the view, on the facts of this case, that it was the Post Office and that therefore the Post Office could sue, assuming of course that the 1967 Order applied.
(3) The scope of the liability under Article 18
Article 18 of the Warsaw Convention only imposed liability “if the occurrence which caused the damage so … took place during the carriage by air”. It was BWA’s argument that the claim made by the Post Office was for a loss which was not caused by an occurrence during the course of carriage by air; the claim was for a loss caused by the failure by the Post Office to obtain insurance.
I do not accept that argument. If there was liability under the statutory regime, and the Post Office was entitled to bring a claim, then the claim it was entitled to bring was in respect of the actual loss or damage sustained to the mail. Provided that the actual loss or damage took place during the carriage by air, then it was within Article 18. In my view the actual damage plainly so took place; the limitation in Article 18 is therefore inapplicable.
Conclusion
On the assumed facts for the purpose of the preliminary issue therefore:
( I hold that the Post Office was not entitled under the contract to recover the sums paid to Motorola, Burberrys or Wemyss Weavecraft as these were paid out in lieu of the insurance which it should have obtained.
( The Post Office might be entitled to recover the sums paid to BT, depending on the further elucidation of the facts; the claim was subject to a per item limit.
( I do not consider a claim could be brought under the 1967 Order.
APH Manufacturing B.V. t/a Wyeth Medica Ireland v. DHL
[2000] IEHC 131; [2001] I ILRM 224
Finnegan J
THE CONTRACT OF CARRIAGE
8. The contract of carriage is partly in writing and partly oral. Insofar as the same is in writing it is contained in the following documents
1. The Defendants’ standard terms and conditions. Prior to the discussions concerning the carriage of gestodene micronised the Defendants acted as a carrier to the Plaintiff. On the 16th September, 1993 the Defendants furnished to the Plaintiff their standard terms and conditions. The effect of the same is that where the Warsaw Convention applies the Defendants should have no liability beyond that imposed by the Convention.
2. The Airwaybill. The Defendants stipulated that it would only carry the gestodene micronised provided the hold harmless agreement hereinafter referred to was executed by the Plaintiff. The hold harmless agreement expressly provides that the same is in addition to and does not alter the application of the terms and conditions included in the Defendants’ airwaybill. The airwaybill has endorsed on the same “important notes” which summarise the Defendants’ conditions of carriage. The conditions of carriage to themselves were not led in evidence. The important notes provide that where the Warsaw Convention applies the Defendants’ liability shall be limited by the Convention except as follows:-
“(a) In respect of direct consequence of damage loss or unreasonable delay of the consignment where the Defendants have demonstrated wilful intent or gross negligence.
(b) In respect of indirect consequences of damage loss or unreasonable delay of the consignment the Defendants shall be liable in respect of wilful action, gross negligence and culpable non-observance of essential contractual terms.”
9. The Plaintiff’s claim in this action is for the direct consequences of damage to and loss of the consignment and accordingly (a) only is relevant. The effect of the provision is that in the event of damage to or loss of the consignment the Defendants will be liable to the Plaintiff subject to the limitation provided for in the Warsaw Convention Article 22 but such limitation shall not apply if the Plaintiff can establish wilful intent or gross negligence.
3. The Hold Harmless Agreement. The relevance of the hold harmless Agreement is that it incorporates into the contract of carriage the terms and conditions of the airwaybill.
10. I hold that as the same related exclusively to the carriage of gestodene micronised it supersedes the terms of the standard terms and conditions issued in respect of general carriage
4. The Plaintiff’s Fax of 16th February, 1994. By this fax the Plaintiff stipulated as a key point for shipments of gestodene micronised the following –
“Every shipment should be monitored through the system and marked for priority attention.”
11. On the evidence of Mr Pat Walsh, the Plaintiff’s shipping manager I am satisfied that this required of the Defendants that they should be in a position to identify the location of each consignment of gestodene micronised at each point on its journey from Berlin to the Plaintiff’s premises at Newbridge and also that each consignment should be so marked that at each stage on its journey the employees of the Defendants dealing with the same should be aware of the importance of the consignments and deal with the same promptly.
5. Fax dated 17th February, 1994 from Ursula Murray on behalf of the Defendants to Pat Walsh on behalf of the Plaintiff which stipulated that the consignment would not be accepted unless the hold harmless agreement was signest by the Plaintiff and that and without additional controls the consignment should be carried at the Plaintiff’s risk.
12. In addition to the foregoing it was orally agreed between Mr Pat Walsh for the Plaintiff and Mr John Dunne for the Defendants that the Plaintiff would insure the consignment.
13. Having regard to the provisions of the Warsaw Convention Article 23 thereof as hereinafter set out insofar as the contract purported to restrict the liability of the Defendants below that provided for in the Warsaw Convention it was ineffective. Thus the hold harmless agreement, the fax of 17th February 1994 and the terms agreed orally do not relieve the Defendants from liability under the Warsaw Convention
THE WARSAW CONVENTION
14. The Warsaw Convention was adopted into Irish law by the Air Navigation and Transport Act, 1936. The amendments thereto by the Hague Convention were adopted into Irish law by the Air Navigation and Transport Act, 1959 and the amendments thereto by the Guadalajara Convention were adopted into Irish law by the Air Navigation and Transport Act, 1956.
15. The relevant provisions of the Warsaw Convention as amended (hereinafter called “the Convention”) are as follows:-
“Article 1(3) Carriage to be performed by several successive air carriers is deemed for the purposes of this Convention to be one undivided carriage if it has been regarded by the parties as a single operation whether it had been agreed upon under the form of a single contract or of a series of contracts and it does not lose its international character merely because one contract or a series of contracts is to be performed entirely within the territory of the same State.”
“Article 18 (1) The carrier is liable for damage sustained in the event of the destruction or loss of or of damage to any registered luggage or any goods if the occurrence which caused the damage so sustained took place during the carriage by air.
(2) The carriage by air within the meaning of the preceding paragraph comprises the period during which the luggage or goods are in charge of the carrier whether in any aerodrome or on board an aircraft or in the case of landing outside an aerodrome in any place whatsoever.
Article 20 (1) The carrier is not liable if he proves that he and his agents have taken all necessary measures to avoid the damage or that it was impossible for him or them to take such measures.
Article 22 (2) (a) In the carriage of registered baggage and or cargo the liability of the carrier is limited to a sum of 250 francs per kg unless the passenger or consignor has made at the time when the package was handed over to the carrier a special declaration of interest in delivery at destination and has paid a supplementary sum if the case requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum unless he proves that the sum is greater than the passenger’s or consignor’s actual interest in delivery at destination.
(4) The limits prescribed in this act shall not prevent the Court from awarding in accordance with its own law in addition the whole or part of the Court costs and of the other expenses of the litigation incurred by the Plaintiff. The foregoing provision shall not apply if the amount of the damage as awarded excluding Court costs and other expenses of the litigation does not exceed the sum which the carrier has offered in writing to the Plaintiff within a period of six months from the date of the occurrence causing the damage or before the commencement of the action if that is later.
Article 23 Any provision tending to relieve the carrier of liability or to fix a lower limit than that which is laid down in the present Convention shall be null and void but the nullity of any such provision does not involve the nullity of the whole contract which will remain subject to the provisions of the present Convention.
Article 24(1) In the cases covered by Articles 18 and 19 any action for damages however founded can only be brought subject to the conditions and limits set out in the present Convention.
Article 25 The limits of liability specified in Article 22 shall not apply if it proved that the damage resulted from an act or omission of the carrier, his servants or agents done with intent to cause damage or recklessly and with knowledge that damage would probably result; provided that in the case of such act or omission of a servant or agent, it is also proved that he was acting within the scope of his employment.
Article 30(1) In the case of carriage to be performed by various successive carriers and falling within the definition set out in the third paragraph of Article 1 each carrier accepting passengers luggage or goods is subject to the rules set out in this Convention and is deemed to be one of the contracting parties to the contract of carriage insofar as that contract deals with such part of the carriage as is performed under his supervision.
(3) In the case of luggage or goods the consignor will have a right of action against the first carrier and the consignee who is entitled to delivery will have a right of action against the last carrier and further each may take action against the carrier who performed the carriage during which the destruction, loss, damage or delay took place. These carriers will be jointly liable to the consignor or consignee.
LIABILITY OF THE DEFENDANTS
The Defendants have not sought to rely on the Convention Article 20(1) to release them from liability. Accordingly, they are liable to the Plaintiff subject to the limitations contained in the Convention Article 22(2)(a). However, the Plaintiff claims to be entitled to recover fully in respect of its loss upon the following basis –
(a) that it delivered to the Defendants a special declaration of interest in delivery at destination in accordance with the Convention Article 22(2)(a)
(b) that the damage resulted from an act or omission of the Defendants done recklessly and with knowledge that damage would probably result
(c) that the Defendants were in breach of the terms of the contract of carriage contained in the airwaybill, the damage to the consignment having resulted from gross negligence on the part of the Defendants.
SPECIAL DECLARATION OF INTEREST
The Convention limits on liability do not apply where a consignor has made at the time when the package was handed over to the carrier a special declaration of interest in delivery at destination. There are no provisions in the Convention as to the form which such declaration should take: Shawcross and Beaumont Air Law 4th Ed. Vol. 1 para 570. Shawcross and Beaumont suggest that an oral declaration may be sufficient to satisfy the requirements of Article 22(2)(a). Declarations made for purposes other than the purpose of Article 22(2)(a) have been held not to constitute a declaration for the purposes of the article. In Corcraft Limited -v- Pan American Airways Inc . [1969] 1 All ER 82 and Westminster Bank Stot -v- Imperial Airways 1936 All E.R. 890. It was held that the value declared for customs was insufficient. In Cie d’Assurances Alpina -v- Cie Transworld Airlines [1984] 18 RFDA 234 it was held that a declaration for insurance purposes was insufficient.
The Plaintiff relies on three documents as each constituting a special declaration. The first is a fax dated 16th February, 1994 from the Plaintiff to the Defendants which gives the following information:-
“Value of gestodene shipments will be IR£1 million approx per shipment”
16. In construing Article 22(2)(a) significance must be accorded to the word special and I take the view that special requires that the declaration be directed towards invoking the provisions of the Article. The fax of 16th February, 1994 was not so directed and could not reasonably have been understood by the Defendants as being so intended. The intention of Mr Walsh who sent the fax was merely to alert the Defendants that the consignment was of significant value. Accordingly, it does not amount to a special declaration for the purposes of the article.
17. The second document relied upon by the Plaintiff is one headed “Luftfracht” (Air freight). This document emanated from Schering AG in response to a fax dated 18th February, 1994 from Miss Viebig on behalf of the Defendants in which she requested certain information in relation to the consignment, but not the value. The luftracht in response stated the value of the consignment at DM1,800,000. Prior to that date the defendants’ Berlin office had already ascertained from Schering AG the value of the consignment for the purposes of ascertaining whether or not the Defendants would carry the shipment. At the time the luftracht issued the Defendants were already in possession of the consignment so that even if it could otherwise be said to constitute a declaration for the purposes of Article 22(2)(a) it had not been given at the time that the consignment was handed over to the Defendants. Further I accept the evidence of Miss Viebig that the information furnished by Schering AG was in response to her request for information which would satisfy her that the consignment did not consist of goods restricted for carriage according to IATA regulations and it was not therefore given for the purposes of Article 22(2)(a).
18. The third document relied upon by the Plaintiff is an invoice from Schering AG which accompanied the consignment. On the basis of the comments in Shawcross and Beaumont 4th Ed. Vol. 1 para 604 I hold that the invoice could not amount to a declaration for the purposes of the Convention Article 22(2)(a).
19. Accordingly, the Plaintiff is not entitled to be relieved from the limit on liability pursuant to the Convention Article 22(2)(a) as having made a special declaration of interest in delivery at destination.
ACT DONE RECKLESSLY AND WITH KNOWLEDGE THAT DAMAGE WOULD PROBABLY RESULT
20. In order to preclude the limit on liability under the Convention the consignor must show that the damage resulted from an act or omission of the carrier, his servants or agents –
(a) Done recklessly and
(b) with knowledge that damage would probably result
21. To apply a single composite test would be to deprive the conjunctive “and” in Article 25 of meaning
22. As to the meaning of reckless in R -v- Stephenson [1979] 2 All ER 1198, Lane L.J. said –
“A man is reckless when he carries out a deliberate act appreciating that there is a risk that damage … may result from his act. It is however, not the taking of every risk which could properly be classed as reckless. The risk must be one which it is in all the circumstances unreasonable for him to take.”
23. Lane L.G. Applied a subjective test. This was overruled by the House of Lords in metropohitan Police Commissioner -v- Caldwell (1982) AC 341 .
In R -v- Lawrence [1981] 1 All ER 974 Lord Diplock defined reckless in its proper meaning as describing an act which is one that presents a real risk of harmful consequences to which anyone acting with reasonable prudence would recognise and give heed to. This objective test was approved by the House of Lords in R.V. Reid (1992) A.C. 341. In Shawinigan Limited -v- Vokins and Company Limited [1961] 3 All ER 397 Megaw J. had to consider the meaning of the word “recklessly” in the London Lighterage Clause applying an objective test and at p. 403 said –
“In my view, ‘recklessly’ means grossly careless. Recklessness is gross carelessness – the doing of something which in fact involves a risk, whether the doer realises it or not; and the risk being such having regard to all the circumstances, that the taking of that risk would be described as ‘reckless’. The likelihood or otherwise that damage will follow was one element to be considered, not whether the doer of the act actually realised the likelihood. The extent of the damage which is likely to follow is another element, not the extent which the doer of the act, in his wisdom or folly, happens to foresee. If the risk is slight and the damage which will follow if things go wrong is small, it may not be reckless, however, unjustified the doing of the act may be. If the risk is great and the probable damage great, recklessness may readily be a fair description. Each case has to be viewed on its own particular facts and not by reference to any formula. The only test, in my view, is an objective one. Would a reasonable man, knowing all the facts and circumstances which the doer of the act knew or ought to have known, describe the act as ‘reckless’ in the ordinary meaning of that word in ordinary speech? As I have said my understanding of the ordinary meaning of that word is a high degree of carelessness.
In Gurtner -v- Beaton (1991) I & B. Au. R. Vii 499. Owen J. In the context of Article 25 applied on objective test for recklessness. Srawcross S Beaumount at para.447 express their opinion that “recklessly” in Article 25 must now be given an objective uneaning
Upon the basis of these authorities I take the view that the test for recklessness is an objective one.
However Article 25 contains the additional requirement of knowledge that damage would probably result. In the United Kingdom it was held in Goldman v Thai Airways International Ltd (1983) 3 ALL E.R. 693 and in Gurnter v Beaton (1991) 1 S & B Av. R vii 1992 1 S & B Av. R vii 723 that the test as a whole i.e without separately construing “recklessly,” is a subjective one. Goldman v Thai International Airways Ltd was followed by the New South Wales Court of Appeal in SS Pharmaceutical Company Ltd v Qantas Airways Ltd (1988) 1 S & B Av. R vii 313. The same approach was adopted byt eh Swiss Court in Claudio v Avinca Acrovais Nationles de Colombia SA (1987) 1 S& B A v.R vii 281, by the Begian Court de Cassation in Tondriau v Air India (1976) Eur.Tr.907 and by the Italian court in Belgian International Air Service v Mandreoli 1 S & B Av.R vii 601. The alternative view has been taken by the French courts which adopted an objective test for the actors knowledge: Emery v Sabena (1968) 22 RFDA 184, Moynot v Cie. Air France 34 RFDA 105, Eid v Ste. Union des Transports Aeriens Court de Cassation 25th June 1991. This view is also taken in Canada: Swiss Bank Corporation v Air Canada 1 S & B Av. R vii 37.
Having considered the authorities I hold that while the test of recklessness is objective the test of knowledge is subjective. However, the onus on a Plaintiff to satisfy the Court on the subjective test of knowledge can be satisfied by his establishing facts which must have been apparent to the actor and which would give the requisite knowledge to a reasonable person that damage would probably result whereupon the onus would pass to the Defendant who could offer the actor in evidence as to his subjective state of knowledge. In the present case the actor has not been identified and accordingly in order to satisfy the requirement of Article 25 it is sufficient for the Plaintiff to show that the circumstances are such that a person acting with knowledge of those circumstances must be regarded as having the requisite knowledge. As to knowledge being inferred circumstantially see Phibson on Evidence 14th Ed. para 1610.
This is the approach which was adopted by Gleeson CJ and Handley LJ in SS Pharmaceutical Company Ltd v Qantas Airways Ltd where subjective knowledge was inferred from circumstances proved in evidence the actor not being called by the Defendant to give evidence. While Kirby P dissented he did so upon the basis that the evidence was insufficient to discharge circumstantially the subjective text which he applied to the phrase “recklessly etc” as a whole.
While it was held in SS Pharmaceutical Company Ltd v Qantas Airways that the Court may more readily draw an adverse inference where the Defendant does not call the actor to give evidence I do not draw any additional inference from the failure to do so in this case as the evidence before me was that the actor had not been identified and indeed had he been identified the onus would nonetheless remain on the Plaintiff as the Defendant here as always is not obliged to give evidence.
Article 25 requires knowledge that damage would probably result. In the context of Article 25 “probably” must not be confused with “on the balance of probability”. As the latter phrase clearly recognises, there may in a given set of circumstances be several results which are probable as opposed to merely possible: it is a matter of degree whether a result it to be categorised as probable or merely possible. It is not necessary that the damage would more likely result than not. In Goldman .v. Thai Airways International Ltd at p.700 Eveleigh J said as to the meaning of probably in Article 25:-
“Thus something more than a possibility is required is required. The word “probable” is a common enough word. I understand it to mean that something is likely to happen”.
24. I accept the view that “likely” accurately conveys the meaning of probably as used in Article 25. In S S Pharmaceutical Company Ltd v Qantas Airways Ltd an analysis of the facts as found makes it clear that if something more than that damage was likely was meant by probable, for example more likely than not, the majority could not have found for the plaintiff. In Gurtner v Beaton the Court of Appeal considered its approach as consistent with S S Pharmaceutical Company Ltd and also with Goldman v Thai Airways International Ltd as to the meaning of “probable”.
25. Having regard to the foregoing I find that the Defendants were reckless having regard to the following circumstances:-
1. The consignment was carried on a wooden pallet by forklift without being secured.
2. The nature of the consignment was such it was likely risk that it would be dislodged by movement of the fork lift.
3. It was likely that if dislodged the consignment would be run over by another vehicle having regard to the heavy volume of vehicular traffic, the speed at which that traffic travelled and the constraints under which the drivers operated.
26. To adopt the phrase from S.S. Pharmaceutical Co Ltd v Qantas Airways Ltd the treatment of
the consignment amounted to deplorably last handling
27. Further I find that a reasonable person having knowledge of the circumstances enumerated above would have knowledge that damage of the nature which in fact occurred would probably result if the consignment fell from the fork lift. The onus therefore, passed to the Defendants to show that the actor did not subjectively have the requisite knowledge; they did not apparently seek to identify the actor although it would probably have been possible to do so from their rosters for the night in question and in consequence no evidence as to the actual state of knowledge was led.
28. In consequence of these findings the Defendants are not entitled to rely on the limitation of liability under the Convention.
GROSS NEGLIGENCE
29. The effect of the airwaybill is to render the Defendants liable if damage was caused by gross negligence. Gross negligence is not a concept known to Irish law (see Austin v Manchester etc. Railway to 138 E.R. 181) but as it is included in the contract of carriage it is necessary to ascribe some meaning to the same. The important notes endorsed on the airwaybill are in German and the phrase translated as “gross negligence” is grobe fahrlassigkeit”. As to the meaning of the term in German law I have had the evidence of Dr Grewantshki for the Plaintiff and Dr Menke for the Defendant. Grobe fahrlassigkeit requires recklessness – an inexcusable breach of duty which substantially exceeds the ordinary degree of negligence. While in general the test in German law is the subjective state of mind of the actor as to the risk which he is taking if the actor recklessly did not have knowledge of the risk this can amount to grobe fahrlassigkeit.
30. On the evidence of both witnesses as to German law I am satisfied that the expression “gross negligence” is intended to equate with “grobe fahrlassigkeit” both what has been described and conscious or unconscious and which for present purposes can be termed subjective or objective. Both witnesses gave evidence as to the understanding of Article 25 in German law as being the equivalent to conscious or subjective grobe fahrlassigkeit. This corresponds with the view which I have taken as to the meaning of Article 25 in regard to the second element there required i.e. knowledge, so however that applying the Irish law of evidence, as I must, the required knowledge can be proved circumstantially. Upon the basis of the evidence of the German legal experts having found the Plaintiff to have established its entitlement to be relieved from the limits of liability imposed by Article 25 the Plaintiff must also be entitled to be so relieved pursuant to the provision contained in the airwaybill whereby the Defendants assume liability for damage caused by gross negligence if negligence is equivalent to grobe fahrlassigkeit.
31. I hold that the term gross negligence in the airwaybill is indeed equivalent to grobe fahrlassigkeit in German law.
THE HOLD HARMLESS AGREEMENT
32. The Defendant seeks to be relieved from liability on foot of the hold harmless agreement. However, the hold harmless agreement insofar as it purports to restrict the liability of the Defendants under the Convention having regard to the provisions of Article 23 of the Convention is null and void and so cannot affect the Defendants’ liability under Article 22, neither can it relieve the Defendants from liability under the provisions of the airwaybill for gross negligence as in its terms it expressly provides as follows –
“This agreement is in addition to and does not affect the application of the terms and conditions included on DHL’s airwaybill.”
33. Thus in the event of a conflict between the hold harmless agreement and the airwaybill the latter takes precedence.
FAILURE TO FURNISH A REPORT
34. The fax of the 16th February, 1994 forms part of the contract of carriage and provides as follows –
“Every shipment should be monitored through the system and marked for priority attention”.
35. The Plaintiff contends that pursuant to this provision they were entitled to receive a report on the loss of the consignment and indeed the Defendants agreed to furnish such a report but failed to do so. Earlier in this judgment I construed this clause and I hold that the same does not entitle the Plaintiff to a report. The agreement by the Defendants to furnish such a report is not supported by consideration and cannot amount to a separate contract. The Plaintiff fails on this aspect of it claim.
CONCLUSION
36. Accordingly, I hold that the Plaintiff is entitled to recover the amount of its loss without regard to the limit of liability specified in Article 22 of the Convention upon the basis that the damage resulted from the act or omission of the Defendants done recklessly and with knowledge that damage would probably result and further having regard to the term of the contract of carriage that the limits of liability specified in Article 22 of the Convention should not apply where the damage resulted from the Defendants’ gross negligence.
Noble Caledonia Ltd v Air Niugini Ltd
[2017] EWHC 1393 (QB)
Gilbart J
Article 19 of the Warsaw Convention makes the carrier liable for “damage occasioned by delay in the carriage by air of passengers…..”
Article 28(1) reads
(1) An action for damages must be brought, at the option of the plaintiff, in the territory of one of the High Contracting Parties, either before the court having jurisdiction where the carrier is ordinarily resident, or has his principal place of business, or has an establishment by which the contract has been made or before the court having jurisdiction at the place of destination. (My italics)
(2) ……………………”
Article 28 is a self contained code dealing with jurisdiction, and not just with questions of service: see Rothmans of Pall Mall (Overseas) Ltd v Saudi Arabian Airlines Corporation [1981] 1 QB 368 at 385D per Roskill LJ. Although the Convention was a partial harmonisation of the rules relating to international carriage by air, it was comprehensive in respect of the issues covered. Under the Convention, carriers surrendered their freedom to limit or exclude liability in damages to passengers in exchange for the conditions and limits on claims set by the Convention. If the Convention had not provided a remedy, no remedy was otherwise available: Sidhu v British Airways PLC [1997] AC 430. In the words of Lord Hope of Craighead at 453 C – 454 D:
“Conclusion
I believe that the answer to the question raised in the present case is to be found in the objects and structure of the Convention. The language used and the subject matter with which it deals demonstrate that what was sought to be achieved was a uniform international code, which could be applied by the courts of all the high contracting parties without reference to the rules of their own domestic law. The Convention does not purport to deal with all matters relating to contracts of international carriage by air. But in those areas with which it deals—and the liability of the carrier is one of them—the code is intended to be uniform and to be exclusive also of any resort to the rules of domestic law.
An answer to the question which leaves claimants without a remedy is not at first sight attractive. It is tempting to give way to the argument that where there is a wrong there must be a remedy. That indeed is the foundation upon which much of our own common law has been built up. The broad principles which provide the foundation for the law of delict in Scotland and of torts in the English common law have been developed upon these lines. No system of law can attempt to compensate persons for all losses in whatever circumstances. But the assumption is that, where a breach of duty has caused loss, a remedy in damages ought to be available.
Alongside these principles, however, there lies another great principle, which is that of freedom of contract. Any person is free, unless restrained by statute, to enter into a contract with another on the basis that his liability in damages is excluded or limited if he is in breach of contract. Exclusion and limitation clauses are a common feature of commercial contracts, and contracts of carriage are no exception. It is against that background, rather than a desire to provide remedies to enable all losses to be compensated, that the Convention must be judged. It was not designed to provide remedies against the carrier to enable all losses to be compensated. It was designed instead to define those situations in which compensation was to be available. So it set out the limits of liability and the conditions under which claims to establish that liability, if disputed, were to be made. A balance was struck, in the interests of certainty and uniformity.
All the obvious cases in which the carrier ought to accept liability were provided for. But, as one of the French delegates to the Warsaw Convention, Mr. Ripert, observed (Minutes p. 73) when the definition of the period of carriage was being discussed, there are an infinite variety of cases not all of which can be put in the same formula. No doubt the domestic courts will try, as carefully as they may, to apply the wording of article 17 to the facts to enable the passenger to obtain a remedy under the Convention. But it is conceded in this case that no such remedy is available. The conclusion must be therefore that any remedy is excluded by the Convention, as the set of uniform rules does not provide for it. The domestic courts are not free to provide a remedy according to their own law, because to do this would be to undermine the Convention. It would lead to the setting alongside the Convention of an entirely different set of rules which would distort the operation of the whole scheme.
The Convention is, of course, tightly drawn on these matters. This has been done in the interests of the carrier, whose exposure to these liabilities without the freedom to contract out of them was a principal consequence of the system which it laid down. Were remedies outside the Convention to become available, it would encourage litigation in other cases to restrict its application still further in the hope of obtaining a better remedy, against which the carrier would have no protection under the contract. I am in no doubt that the Convention was designed to eliminate these difficulties. I see no escape from the conclusion that, where the Convention has not provided a remedy, no remedy is available.”
It follows in my judgement that the Convention is a complete code, which has the effect of excluding claims for remedies which are not included within it. That is for the important reasons set out by Lord Hope in that passage.
The parties were in dispute on the interpretation of Article 28. The Claimant argued that the words italicised above in Article 28 were sufficient to cover the operations conducted by ANG through FDL. The Defendant contended that they were not. Counsel informed me that there were no authorities from within this jurisdiction on the meaning of those words. Mr Audland QC argued for the Claimant that assistance was to be found in two authorities from the United States of America.
I was referred to Berner v United Airlines [1956] 3 A.D.2d 9 (N.Y.App Div 1956), a decision of the Appellate Division of the Supreme Court of New York. There the British Overseas Airways Corporation (i.e. BOAC) was appointed “General Sales Agent” for another airline called British Commonwealth Pacific Airlines Ltd, an Australian Corporation, which was in fact the Defendant, and whom I shall refer to as BCPA. Under the agreement BOAC was required to “observe and comply with all reasonable directions and instructions” given to it by BCPA “concerning all matters affecting or arising out of this agreement.” BCPA undertook obligations which, in the view of Bergan J, giving the judgement of the court, went far beyond the usual conception of mere principal and agent relationships. For example, BCPA undertook to see to it that all airline aircraft had a certificate of airworthiness, and also that the aircraft would be operated in conformity with it, and that the aircraft would be suitable for the carriage of passengers. Other terms required the provision of particular types of personnel, the maintenance of a technical log, and the setting up of other affirmative operational conditions. BOAC was required to give every assistance in its power to BCPA, including the making of statements, the production of documents as required by an investigation or inquiry, and a similar reciprocal duty applied to BCPA with regard to BOAC. The agreement also covered the promotion of BCPA’s business by BOAC. BOAC had a New York office in which it carried out the business required by its agreement with BCPA, including telephone and office listings.
The Plaintiffs were executors of the estate of a passenger killed on a BCPA flight. He had bought his ticket in New York for a return flight from San Francisco to Sydney. The claim was issued in New York. The Court considered Article 28. In its version, the words read “where the carrier has a place of business through which the contract has been made.” The Court, having referred to a judgment of Judge Cardozo in Tauza v Susquehanna Coal Co (220 NY 259,268) considered that all that was required was that “enough be done” so that the court will be able to say that the defendant “is here.” The Court described the concept as elastic. The Court described the agency created between BCPA and BOAC as being “of extraordinary breadth. It went beyond mere solicitation of business” and the Court drew attention to the ability of BOAC as agent in New York to require a large number of operational and other aspects affecting the execution of the New York contract of carriage. The Court considered that activities of that kind amounted to “doing business” in the traditional sense. Bergan J, who gave the judgement of the court, continued:
“And it seems to us finally that when (BCPA) undertook by its agent to make a contract of air carriage in New York, expressly and in terms governed by the Warsaw Convention, at a “place of business” within the jurisdiction of the New York Supreme Court and that place of business is literally one “through which the contract has been made” , it is doing business in such a way as to give jurisdiction by the service of process on the agent who this is brought with the carrier’s approval within the literal terms of the Convention. An intent to do business in New York and the implementation of the intent by activity in making the contract furnish sufficient criteria of activity here to give jurisdiction, when the Convention, the contract between carrier and agent, and the contract of carriage are seen in context.”
I was also referred to Eck v United Arab Airlines Inc [1966] Lloyds LR 485, a decision of the United States Court of Appeals (Second Circuit) of October 1965. In that case the plaintiff had bought a ticket in Oakland California at an office of SAS Airlines. Several different airlines were to be used during his journey. Part of his journey involved a flight from Jerusalem to Cairo. SAS confirmed a reservation on that leg of the journey with the Defendant (UAA) at its office in Cairo. UAA did have two offices in the USA in Los Angeles and New York City but neither was involved in the transaction. The Defendant contended that Article 28 prevented the pursuit of the claim in the New York District Court. The Court, relying in part on Berner v United Airlines, entered into a purposive construction of Article 28, and held that the agency agreement with SAS, and the presence of the other two offices, gave a place of business through which the contract was made. It must be observed that the Court not only addressed what the framers of the Convention had thought, but having noted that they had not adverted to what the court described as “the problem of avoidance illustrated by the present case” went on at 492:
“we conclude that if the framers had recognised this problem they would have wished that an airline that had a place of business in the territory of a High Contracting Party and permitted its tickets to be sold in that country be subject to suit in that country’s courts.”
Should those authorities guide this Court in its interpretation of Article 28 and its application to the facts before it? I remind myself of the point taken in Sidhu v British Airways about the Warsaw Convention being a code. It is also a code which is embodied in statute. One of the effects of having a statutory code is that one must be wary of introducing private law concepts which have not been included. As pointed out by Lord Scarman, albeit in the different context of the Planning Code, in Pioneer Aggregates Ltd v Sec of State for the Envt [1985] AC 132 at 141, but in terms of language and concept a passage to the same effect as Lord Hope’s judgment in Sidhu:
“Where the code is silent or ambiguous, resort to the principles of the private law (especially property and contract law) may be necessary so that the courts may resolve difficulties by application of common law or equitable principles. But such cases will be exceptional. And, if the statute law covers the situation, it will be an impermissible exercise of the judicial function to go beyond the statutory provision by applying such principles merely because they may appear to achieve a fairer solution to the problem being considered. As ever in the field of statute law it is the duty of the courts to give effect to the intention of Parliament as evinced by the statute, or statutory code, considered as a whole.”
So far as Berner v United Airlines is concerned, the intricacies of the relationship between BOAC and BCPA were such that the approach of the Court is compatible with the words of Article 28. It is of some persuasive assistance. But I do not find myself able to adopt the approach of the Court in Eck v United Arab Airlines, where, as the judgment makes plain, the Court engaged in an exercise in interpretation with the aim of overcoming what it saw as “a problem of avoidance.” The approach to interpretation, which requires the court not just to consider what the framers of the Convention intended, but what they would have thought had they been confronted by the current facts, which were never considered by them, is one which I find quite unpersuasive. It is the type of attempt to avoid the effects of a statutory code criticised in Sidhu and Pioneer Aggregates. Further than that, I do not understand how it could be said that the contract had been made through UAA’s place of business, when it was made through SAS in Oakland.
I therefore return to the words of Article 28 in the context of the current litigation. I do so in the context also that the words in Article 28 as they appear in the Carriage by Air Act 1961 require “an establishment by which the contract has been made.” Mr Audland contends that I am not required to interpret those words with the same meaning as “a place at which ANG carried on its activities, or a place of business of ANG” – i.e. the test in CPR 6.9 which I addressed in the first judgement. I am unable to accept that submission. On the basis of the findings which I made in the first judgement, I am unable to regard the activities of Ms Joyce and others at FDL as being “an establishment” in the sense used in the Article. Were I to do so, it seems to me that it would deprive carriers of the protection given them by the Convention in return for their giving up the freedom of contract, as noted by Lord Hope in Sidhu, supra.
The effect of Article 28 is therefore, and unequivocally so, that the state with jurisdiction over the claim is PNG. The tickets were issued by ANG through the agency of FDL, so no question can arise of (for example) Singapore being an appropriate venue.
Given those conclusions, it must be the case that the claim by NC is likely to fail, if pursued in the United Kingdom, given the effect of both Rothmans of Pall Mall and Sidhu. If NC cannot bring its case within Article 19 (delay) then, as the flights were subject to the Convention, it cannot bring a claim for breach of contract. That would offend the principles set out by Lord Hope in Sidhu, and be contrary to what was decided in Rothmans.
I therefore refuse permission to serve the claim out of the jurisdiction. I also refuse permission for the amendment to be made.
I add a postscript. I noted in my first judgement at [56] the anomaly that if ANG had installed one of its employees in an ANG leased office at Gatwick, with no authority to offer altered prices or terms and conditions, then that would pass the place of business test under CPR 6.9. It would probably pass the test under Article 28 as well.
I also heard submissions about the most appropriate forum to hear the litigation. Mr Audland argued that it was London, because the contract was made here, and he would call passengers to describe the effects of the delays. Mr Allen argued in favour of Singapore, where those seeking to restore the aircraft to airworthiness and making decisions about the flight are located. Ironically neither party argued in favour of litigating this matter in PNG. I make no findings about the forum conveniens issue given my conclusions about Article 28.
It would be more comfortable if one could reach another conclusion. An airline wishing to drum up business in the United Kingdom has failed to provide flights at the promised times, or for some time thereafter. NC, the tour operator, has compensated its clients, but has been unable to get recompense from the carrier, whose legal arguments have now directed the claims to Port Moresby. One suspects that that is contrary to the commercial interests of ANG in attracting more custom, but that is a matter for their commercial judgement.
Royal & Sun Alliance Insurance Plc & Anor v MK Digital FZE (Cyprus) Ltd & Anor
[2005] EWHC 1408 (Comm) (21 June 2005)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2005/1408.html
Cite as: [2005] EWHC 1408 (Comm) Aikens J
Issue Five: On the assumption that the English proceedings arise out of carriage under the CMR and Art 31 governs jurisdictional issues, apart from those covered by the Judgments Regulation, does the English Court have the power to stay the English proceedings on grounds of “forum non conveniens”?
In my view the answer to this question is clearly “no”. I think that, logically, the issue first arises in relation to the CMR. The argument is that even if English jurisdiction is established under the CMR, then if England is not the convenient forum, the proceedings can be stayed, particularly if there are pending proceedings in another jurisdiction, in this case France.
That argument assumes that there is room for the doctrine of “forum non conveniens” in the context of the CMR. Neither counsel has referred me to any authority which involves the CMR on this point. However Mr Kenny referred me to Milor SRL v British Airways Plc [1996] QB 702. That is a case on the Warsaw Convention. Jurisdiction was established in England under Art 28 of the Convention, but the defendant sought to stay the action on the grounds that Pennsylvania was the more convenient forum. Both the judge and the Court of Appeal dismissed the application. Phillips LJ, (as he then was), gave the principal judgment. He held, agreeing with Longmore J, that the operation of the doctrine of “forum non conveniens” was inconsistent with the express wording of Article 28, which set out a definitive choice of forums in which a claimant could bring an action for damages under the Convention. Phillips LJ also held, agreeing with the judge, that Article 28 was a self contained code in relation to jurisdiction. Phillips LJ pointed out that the doctrine of “forum non conveniens” was, at the time that the Warsaw convention was concluded in 1929, a doctrine recognised in only a minority of common law countries, of which at that time England was not one. It is, of course, a doctrine that is not recognised at all in civil law countries. As Phillips LJ commented, at page 708: “I think it would be surprising if the high contracting parties had preserved to that small minority of countries which applied the doctrine of forum non conveniens a power to affect the choice of forum in which a dispute should be tried by a process unknown to the majority of the [high contracting] parties”.
In my view exactly the same reasoning and conclusions apply to the CMR. Art 31(1) is an exclusive code as to where proceedings “arising out of carriage under this Convention” may be brought. The final words of that paragraph are “and in no other courts or tribunals”. As with the Warsaw convention, in my view, Art 31(1) leaves no scope for a challenge to the jurisdiction on the grounds of “forum non conveniens”.
I respectfully echo, in relation to CMR cases, the comments that Phillips LJ makes at page 710 of the judgment in the Milor case. There he doubts the gloomy comment of the editors of Shawcross & Beaumont on Air Law, who suggested that the unavailability of forum non conveniens in aviation cases would have most unfortunate consequences. In relation to that, Phillips LJ said: “There is something to be said for a regime which restricts the choice of forum in a manner which excludes those which are likely to be inappropriate, but which does not otherwise permit the plaintiff’s choice to be challenged”. In those circumstances, comments that a case is more connected with one of two countries, both of which could legitimately be the basis for jurisdiction by the claimant under the CMR, are both inapposite and unhelpful.
If the doctrine of forum non conveniens cannot affect the CMR, then, for the reasons that I have already given, the English Court is the proper forum, subject to the “lis pendens” point dealt with under Issue Four. I have decided that the question of which of the two courts should deal with the matter must be determined under the Judgments Regulation. If so then, as is well established, the doctrine of “forum non conveniens” can have no application. It is inconsistent with the Judgments Regulation regime.
Conclusion:
For these reasons the Application of Hi – Tec must be dismissed. I am very grateful to counsel for their interesting and most helpful arguments.
Granville Oil & Chemicals Ltd. v Davis Turner & Co. Ltd.
[2003] EWCA Civ 570
Lord Justice Tuckey:
Clause 30 of the British International Freight Association (BIFA) Standard Trading Conditions (1989 Edition) says:
(A). Any claim by the Customer against the Company arising in respect of any service provided for the Customer or which the Company has undertaken to provide should be made in writing and notified to the Company within 14 days of the date upon which the Customer became or should have become aware of any event or occurrence alleged to give rise to such claim and any claim not made and notified as aforesaid shall be deemed to be waived and absolutely barred except where the Customer can show that it was impossible for him to comply with this time limit and that he has made the claim as soon as it was reasonably possible for him to do so.
(B). Notwithstanding the provisions of subparagraph (A) above the Company shall in any event be discharged of all liability whatsoever howsoever arising in respect of any service provided to the Customer or which the Company has undertaken to provide unless suit be brought and written notice thereof given to the Company within 9 months from the date of the event or occurrence alleged to give rise to the cause of action against the Company.
The question on this appeal is whether in the circumstances of this case clause 30(B) as incorporated in the contract between the appellants and the respondents satisfied the requirement of reasonableness prescribed by the Unfair Contract Terms Act 1977. Judge Behrens in the Leeds Mercantile Court decided that it did not.
The appellants are large international freight forwarders. The respondents, among other activities, manufacture and export paint and regularly use the services of international freight forwarders in the course of their business. On the 27th October 1999 the appellants agreed with the respondents to carry a return consignment of paint from Kuwait to the respondents’ warehouse near Rotherham. To perform this contract the appellants had to collect and pack the paint into two shipping containers in Kuwait and, carry them by sea to Southampton and then by road to the respondents’ warehouse. On the 4th November the appellants agreed to arrange insurance of the consignment against all risks in transit under Institute Cargo Clauses (A). The contract or contracts were subject to the BIFA conditions.
The paint was packed and shipped from Kuwait in November 1999 and delivered to the respondents’ warehouse by the 11th January 2000. The respondents found that it had been damaged in transit and made a claim for £27,673.00 against the appellants within the time prescribed by clause 30(A). The appellants then made a claim on the insurance on the respondent’s behalf. On the 21st. January cargo surveyors inspected the damage on behalf of underwriters. Their report of 8th February said that the damage appeared to have been caused by poor stowage and inadequate restraint within the containers, an excepted peril under the all risks insurance. Underwriters did not however reject the claim on this ground until 31st March. The appellants disputed rejection of the claim, but by letter of 27th June underwriters changed tack and said they were now rejecting the claim because this was a returned shipment. Under the open cover held by the appellants such risks could not be declared to the all risks cover unless the goods were inspected on behalf of underwriters before shipment and there had been no such inspection. The respondents were not told that the insurance claim had been rejected until 2nd August or why it had been rejected until 22nd August. The 9 month period in which to bring a claim for breach of the contract to insure expired on 3rd August. The respondents did not start these proceedings however until 15th November 2001.
The decision under appeal was made on a trial of preliminary issues. The first of these was whether the appellants had contracted as agents, as they contended, or as principals. The judge held that they contracted as principals. The next issue was whether clause 30(B) was incorporated into the contract or contracts between the parties. The judge held that it was: the appellants had discharged the duty on them to bring the existence of the clause to the notice of the respondents. There is no appeal from the judge’s decisions on these two issues. The third issue was:
If clause 30(B) was incorporated into the relevant contracts… is it effective to bar [the respondents’] claims having regard to the provisions of the Unfair Contract Terms Act 1977?
The relevant provisions of the Act are:
3(1) This section applies as between contracting parties where one of them deals …. on the others’ written standard terms of business.
(2) As against that party the other cannot by reference to any contract term –
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; …
except insofar as … the contract term satisfies the requirement of reasonableness.
11(1) In relation to a contract term the requirement of reasonableness for the purpose this part of this Act … is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought to reasonably to have been, known to or in the contemplation of the parties when the contract was made…
(5) It is for those claiming that a contract term … satisfies the requirement of reasonableness to show that it does
13(1) To the extent that this part of this Act prevents the exclusion or restriction of any liability it also prevents –
(a) making the liability or its enforcement subject to restrictive or onerous conditions
Schedule 2 which contains guidelines for application of the reasonableness test, only directly applies to contracts for the sale or hire purchase of goods. Nevertheless it is common ground that its provisions ought to be taken into account in a case such as this (see Stewart Gill Ltd. v Horatio Myer & Co. Ltd.(1992) QB 600, 608). For present purposes the relevant provisions in the schedule are (a) the strength of the parties relative bargaining positions, (c) whether the respondents knew or ought reasonably to have known of the existence and extent of the term (having regard among other things to any custom of the trade and any previous course of dealing) and (d) whether it was reasonable at the time of the contract to expect that compliance with clause 30(B) (by bringing suit within the time limit) would be practicable.
The argument before the judge proceeded on the basis that there had been breaches of contract by the appellants both in relation to the carriage by damaging the goods and the insurance by failing to insure against all risks. Clause 30(B) restricted their liability for such breaches by making its enforcement subject to restrictive conditions, so the Act applied to this term.
The judge first construed clause 30(B) which he said was “in extremely wide terms”. It not only required suit to be bought but also written notice of the suit had to be given within the 9 months. There was no power to extend the time limit in the case of fraud, latent defect or other circumstances which might result in the respondents not discovering that they had a claim within the 9 month period. After referring to three cases he said
90. …The difficulty, as I see it, lies in the width of clause 30(B). Whilst it might be reasonable to have some form of time bar in relation to claims where there is a direct right of indemnity I can see no justification for it in many other claims. If a forwarding agent fraudulently conceals a claim (such as retaining a secret profit) why should he be discharged after 9 months? Similarly if a forwarding agent fails to effect insurance it is difficult to see why he should be excused after only 9 months. As the facts of this case show 9 months is not a long time. These cases involve international trade where investigations can take time. Furthermore even if insurers make their first decision within 4 weeks it can hardly be unusual for such a decision to be challenged and for further time to be expended.
91. In the end I find myself in a similar position to Judge Kenny. Whereas some form of time bar might be reasonable for some form of liability it was not fair and reasonable for there to be a time bar of 9 months for “all liability whatsoever howsoever arising in respect of any service provided for the customer”.
The reference to Judge Kenny is to the decision in Overseas Medical Supplies v Orient Transport Services (1999) 2 Lloyds Law Rep. 273. That case also concerned a freight forwarders’ failure to insure. There the defendant relied on clause 29(A) of the BIFA conditions, a clause which limits liability to a fixed rate per kilo of the weight of the goods. Judge Kenny held that such a limitation was unreasonable because it applied to any liability of the defendants. This court upheld that decision. Potter LJ at para. 21 said:
The burden of proof of reasonableness lay upon the appellants in the case. Their position was that of a trading organisation which, under a single contract had agreed to combine at least two activities or functions in respect of which the nature of the work undertaken, the incidents of risks as between the parties and the effect of the breach of duty by the appellants were all of different character, yet were treated without distinction as subject to a single limitation of liability of only £600. Whereas it may be that in relation to certain “package” services, a broad brush approach to limitation of liability would be reasonable, and indeed may largely be dictated by the type of insurance cover available in the market to the supplier, the Judge held that in this case, such an approach was unjust and inappropriate for reasons which he clearly and comprehensively stated.
In this case, the evidence before the judge on the issue of reasonableness was limited. The appellants’ managing director, Mr Stephenson, said that a lot of freight forwarding companies were members of BIFA and often, but not always, contracted on BIFA conditions. These conditions had been negotiated between BIFA and customers of freight forwarders represented by a committee. The limitation period allowed a fair and reasonable amount of time for an aggrieved party to bring a claim. It not only allowed adequate time to investigate any potential claim but also provided the defending party with the assurance that if a claim was not brought within the limitation period that was the end of the matter. It was necessary to give time to the defending party to bring proceedings against any culpable third party because his contract with that party was likely to contain a time bar. It was reasonable to expect an insurance claim of the kind with which this case is concerned to be rejected within 4 weeks.
Mr Patrick, the respondents’ export administration manager, said he was unaware of clause 30(B) although he used freight forwarders 30 or 40 times a month. He had used the appellants in the past for carriage of goods by air to the USA and by sea from Kuwait and Australia.
Mr Smith, for the appellants, also sought to rely on evidence given in Schenkers v Overland Shoes Ltd.(1998) 1 Lloyds Rep. 498, another case about the BIFA conditions – this time clause 23(A), a no set-off clause. That clause was held to be reasonable by Geofrey Brice QC whose decision was upheld by this court. In his judgment, with which the other members of the court agreed Pill LJ said at p.506:
The judge heard, and it appears accepted, the evidence of Mr Willis who has long held an office with BIFA, is a former national chairman and now an executive board director. Mr Willis described the background to the BIFA conditions. The current conditions date from 1989 when earlier conditions were revised. They now form the basis of the standard trading conditions of many associations throughout the world. The conditions represent three years of hard work between interested bodies including the British Shippers Council, which represented importers and exporters and included a wide range of UK manufacturers. They are – “the product of the combined efforts of nearly all those associated with the shipping industry and the movement of goods domestically and internationally. They seek to balance the interests of all parties and in my view, have long been accepted as reasonable and fair”. 1200 British freight forwarding companies are registered trading members of BIFA though there are many freight forwarding companies which do not belong.
The judge noted the respondent’s objection to reliance on this passage but does not appear to have formally ruled on it. It seems to me that it would be unrealistic not to take such background information into account, particularly as it accords with what one would expect and the tenor of Mr Stephenson’s evidence.
Before considering the arguments on this appeal we must remind ourselves of Lord Bridge’s warning in George Mitchell (Chesterfield) Ltd. v Finney Lock Seed Ltd. (1983) AC 803, 815. He said:
It may, therefore, be appropriate to consider how an original decision as to what is “fair and reasonable” made in the application of these provisions should be approached by an appellate court. It would not be accurate to describe such a decision as an exercise of discretion. But a decision under any of the provisions referred to will have this in common with the exercise of discretion, that, in having regard to the various matters to which the Act directs attention, the court must entertain a whole range of considerations, put them in the scales on one side or the other, and decide at the end of the day on which side the balance comes down. There will sometimes be room for legitimate difference of judicial opinion as to what the answer should be, where it would be impossible to say that one view is demonstrably wrong and the other demonstrably right. It must follow, in my view, that when asked to review such a decision on appeal, the appellate court should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong.
Mr Smith submits that in this case the judge proceeded on an erroneous principle because he misconstrued clause 30 (B). The clause does not have the width the judge ascribed to it because it does not discharge liability for fraud by the freight forwarder or his fraudulent concealment of a claim. Express words would be needed to have this effect and/or such a clause would be contrary to public policy. In support of these submissions he relies principally on S. Pearson & Sons v Lord Mayor of Dublin (1907) AC 351 where both these reasons appear in the speeches which rejected the contention that the plaintiff could not rely on fraudulent misrepresentations in the face of a contract term that he was to verify all representations for himself and not rely on their accuracy.
Mr Howd, for the respondents, told us that he had not in fact submitted to the judge that the clause was wide enough to exclude fraud or fraudulent concealment of a claim. This was therefore the judge’s point and was, as he says, unfortunate. Nevertheless he submitted that the judge was really only referring to fraud in the sense that the courts interpreted the words “fraudulent concealment” in section 26 of the Limitation Act 1939 which came to mean that neither concealment nor fraud was in fact required. If the judge had meant something more however, Mr Howd submitted that he was right. The principles in Pearson and other cases to which we were referred, Canada Steamship Lines Ltd. v the King (1952) AC 192 and HIH Casualty and General Insurance Ltd. v Chase Manhattan Bank (2001) 2 Lloyds rep. 483 do not apply with the same rigour to clauses which limit rather than exclude liability.
I think it is an inescapable conclusion from what he said that the judge did think that the clause applied to a claim for fraud and to a claim which had been fraudulently concealed by the conduct of the freight forwarder. The judge was not asked to construe the clause so widely and I do not think such a construction was justified. The clause is obviously designed to meet ordinary contractual claims such as those made in this case which a freight forwarder would expect to have to face in the ordinary of course of his business. As Lord Justice Rix put it in HIH Casualty at p. 512:
Parties to a contract plainly look to performance rather than non performance or misperformance, but they also contemplate the latter. It seems to me however that fraud is a thing apart. Parties contract with one another in the expectation of honest dealing.
The majority decision of the House of Lords in HIH Casualty does not cast doubt on these principles.
It follows that I accept Mr Smith’s submission that the judge proceeded to consider the reasonableness of the clause on a mistaken view of its meaning. This is not therefore a case in which we are inhibited by what Lord Bridge said in George Mitchell.
It does not of course follow that the judge reached the wrong conclusion. Mr Howd strongly argued that he did not and that the reasoning in paras. 90 and 91 of his judgment remains sound. As in Overseas Medical Supplies there was no justification for having the same time limit for making a claim for damage to cargo as for a claim for failure to insure. Nine months was not a fair and reasonable time limit within which to bring the latter claim. Other submissions made to the judge (set out in a respondent’s notice) also support his decision. The respondents were unaware of the time bar and there was no basis for saying that they ought reasonably to have been aware of it. Nine months is a very short time limit even compared with other relatively short time limits under international conventions relating to the carriage of goods. Unlike some of those provisions clause 30(B) does not allow for an extension of the time limit under any circumstances. It contains the additional requirement that written notice of the suit is required within the time limit as well. It was not practicable to expect compliance with the time limit as the facts of this case show. In claims of this kind involving cargo underwriters, the freight forwarders and possibly their public liability insurers, it takes considerable time to investigate and prepare a claim, particularly if some of the relevant events occurred abroad. The freight forwarders’ position is protected by clause 30 (A) which requires early notice of a potential claim. His investigation of the claim is not therefore prejudiced.
The Act requires the court to determine whether the term in question is reasonable as between the parties to the contract in question at the time when that contract was made.
Taking the first of the schedule 2 guidelines, the parties in this case were obviously of equal bargaining strength. This was a commercial contract between commercial parties where the respondents might have been able to contract other than on BIFA conditions or to make their own insurance arrangements had they wished.
Although Mr Patrick was unaware of the time bar it seems to me that the respondents ought reasonably to have known of it. Indeed the judge expressly held that the conditions had been sufficiently brought to the respondents’ attention. From their general business experience and of using freight forwarders in particular they must have known that the transaction would be on terms. It was up to them to inform themselves of what those terms were. The BIFA conditions were not a custom of the trade, but in their previous course of dealing with the appellants, the respondents must have dealt on those terms.
Most of the argument turned on whether compliance with a nine month time limit was practicable. Both sides sought support from international conventions and other standard conditions. I will simply summarize the position, because clause 30(B) is of general application and applies to all forms of carriage (by sea, air, and land) with which freight forwarders are involved, so the various time bar provisions can only be an indication of what was reasonable in this case. Under the Hague and Hague-Visby Rules the carrier and the ship are discharged from all liability in respect of the goods unless suit is brought within one year of delivery. The Hague-Visby Rules however extend the time for making a claim for indemnity against a third party by the time allowed by the law of the court seized of the case. The Warsaw Convention (air) contains a time limit of two years. The CMR Convention (road) provides for a one year limitation period with an extension to three years in the case of wilful misconduct. The limitation period is suspended until the carrier rejects the claim. The COT IF convention (rail) contains similar provisions. The ICC uniform rules (1975 No. 298) for carriage of goods by multi-modal transport contain an unqualified time bar of nine months after delivery.
The point which the appellants emphasise is that where, as here, they contract as principals a time limit of nine months is necessary to enable them to make a claim over against the responsible carrier before that claim becomes time barred (frequently within one year). Some time bar less than the statutory period of limitation must I think be justified for this reason. Whatever his contractual relationship with his customer, the freight forwarder is usually not the carrier. He is simply an intermediary. If he is liable to his customer for damaging his goods it is only fair and reasonable that he should be able to pass on that liability to the responsible carrier in time.
So is nine months a reasonable time limit? I have no doubt that it is for a claim for loss of or damage to goods in transit. The loss or damage can be ascertained on delivery. Nine months is ample time for the customer to decide whether to bring suit. This limit is necessary to enable the freight forwarder to claim within the twelve month time limit which applies to many contracts of carriage.
That deals with the typical claim which a freight forwarder will face but, as this case and Overseas Medical Supplies show, he may also face a claim for failure to insure. If it is not practicable to expect such a claim to be made within nine months it suggests that the clause does not pass the test of reasonableness on the same grounds as clause 29(A) failed in Overseas Medical Supplies. This is the point which obviously concerned the judge on the facts of this case and is the main reason for his decision.
The facts of this case are I think unusual. Cargo claims against underwriters of this kind are commonplace and are usually dealt with relatively quickly, unlike some other types of insurance claim. Mr Stephenson’s evidence was that four weeks was normal. At least one would expect the assured to know within this sort of time if underwriters were saying that there was no cover. It is no answer to this to say, as the judge did, that one could expect such a decision to be challenged. Once the assured knows the cover is disputed, he will know that he has nine months from the date of the contract to sort it out or he must sue the freight forwarder if the lack of cover is his fault.
Here, underwriters said that there was no cover on 31st March and again, for a different reason, on 27th June 2000. If the respondents had been told this soon after either of these dates they would have had ample time to claim against the appellants within the nine months time limit for failure to insure. The problem was that the respondents were not told by the appellants that there was no cover and why until 22nd August. They obviously should have been told earlier. I add that there is no question of this information being deliberately withheld. The judge made no such finding and he described Mr Stephenson (and Mr Patrick) as patently honest witnesses.
In pursuing the insurance claim on behalf of the respondents, the appellants were acting as their agents. Whether or not one characterises their role as equivalent to that of an insurance broker, they must in the circumstances have owed a duty to the respondents to tell them that they had no cover as soon as underwriters rejected the claim. They were in continuing breach of this duty until 22nd August. This means that under clause 30(B) the respondents would have had nine months from the latter date to make a claim based on this breach of duty. Unfortunately they did not do so.
On this analysis, the facts of this case do not compel the conclusion that clause 30(B) is unreasonable. As I have said, in the ordinary case the customer will know whether he has cover relatively soon after his goods are damaged. His loss for the failure to insure will of course be related to the amount of his claim for the damage. In these circumstances I think it is fair and reasonable to fix the same time limit for a claim based on failure to insure the goods as is fixed for the claim for damage to those goods.
So I conclude that the judge was wrong to say that this case was comparable to Overseas Medical Supplies. Quite apart from the fact that the judge found in that case that there was no real equality of bargaining position, the failure to insure had caused the customer a loss of over £8,500. Her claim would have been limited to £600 if the limitation of liability clause could be relied on. Such a limit might have been justified for a claim against the freight forwarders for damage to the goods, but was obviously unfair as the measure of compensation for failure to effect an insurance which would have covered the customer’s actual loss. Here the contrast to be made is between a practicable time limit to claim for damage and one to claim for failure to insure. As I have said, given the period of nine months allowed, I think it is fair and reasonable that they should be the same. I do not think there is any good reason why they should not be.
I do not think Mr Howd’s other points advance his case. Clause 30(B) does not permit any extension of time but nor do many time bar provisions. It is worth noting, however, that clause 30(A) does allow for late notification in certain circumstances, so it can be said that those who drafted these conditions must have considered whether similar provisions were required in clause 30(B). It is reasonable to require the customer to give notice that suit has been brought within the nine month period. The whole point of the time limit would be lost if he could start proceedings and then not serve them or otherwise delay in notifying the freight forwarder of their existence. Under the CPR a claimant has up to four months in which to serve his claim form. The fact that damage to the goods may have occurred abroad has not obviously inhibited those who framed the international conventions. Anyway, so far as insurance is concerned, the relevant events are likely to have taken place here.
For these reasons I think the judge reached the wrong conclusion in this case. If necessary I would say he was plainly wrong. I am pleased to reach this decision. The 1977 Act obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms. Here the transaction includes carriage of goods by sea and insurance. These spheres of commercial activity standing on their own are excluded from the Act (see Schedule 1 paras. 1a (insurance) and 2c and 3 (carriage of goods by ship). In this case the element of road transport was sufficient to render the transaction subject to the Act, but the mixed nature of the contract of carriage emphasises the interest of the freight forwarder in having a time limitation which is applicable across the spectrum of his obligations.
I would allow this appeal and vary para. 1.3 of the judge’s order to read:
Clause 30(B) of the BIFA terms is effective to bar the claimant’s claims.
Mr. Justice Hart: I agree.
Lord Justice Potter: I also agree.
- Order: Appeal allowed, the appellant to have the costs of the appeal. As per costs below, the defendant to pay the claimants one third of their costs and the claimants to pay the defendant two thirds. With mutual set off. Leave to appeal refused.