Sub-Bailment
Cases
Sandeman Coprimar SA v Transitos y Transportes Integrales S.L. & Ors
[2003] EWCA Civ 113 [2003] 2 WLR 1496, [2003] QB 1270
Phillips MR
This question requires consideration of the manner in which a sub-bailment on terms operates. The doctrine was first clearly stated by Lord Denning MR in Morris v Martin [1966] 1 QB 717. That case involved the sub-bailment to the defendants, with the consent of the owner, the plaintiff, of a fur stole that had been delivered to the bailee for cleaning. The fur stole was converted by a servant of the sub-bailee. The contract between the bailee and the sub-bailee contained exempting conditions. The Court of Appeal held that the defendants, as sub-bailees for reward, owed the plaintiff the same duty to take reasonable care of the fur that was owed by the bailee. They were liable for the default of their servant. The exempting conditions did not, on their true construction, exempt from liability for the loss. In these circumstances it was unnecessary to decide whether they applied as between the plaintiff and the defendants. Lord Denning expressed the view that in such circumstances the owner was bound by the conditions as if he had expressly or impliedly consented to the bailee making a sub-bailment containing those conditions, but not otherwise.
This doctrine was approved and applied by Steyn J. in Singer Co. (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep. 164. It also received approval by members of the Court of Appeal in The Kapetan Marcos NL (No 2) [1987] 2 Lloyd’s Rep 321 and The Captain Gregos (No 2) [1990] 2 Lloyd’s Rep. 395.
In Johnson Matthey & Co. Ltd v Constantine Terminals [1976] 2 Lloyd’s Rep. 215, Donaldson J. adopted a different approach to the entitlement of a sub-bailee to rely, as against the bailor, upon the terms upon which the bailee had sub-bailed the goods to him. The sub-bailees in that case sought to rely upon their standard conditions to provide a defence in respect of their loss of a consignment of silver belonging to the plaintiffs. Donaldson J. first observed that it was probably possible to hold, following the approach of Lord Denning in Morris v Martin, that there had been a bailment on terms with the consent of the plaintiffs. He went on to hold, however, that such consent was unnecessary. He explained the basis of this at p.222:
“But the plaintiffs cannot prove the bailment upon which, in my judgment, they must rely, without referring to terms upon which the silver was received by Constantine Terminals from International Express. These terms establish (a) that Constantine Terminals were bailees for reward, but also (b) that the implied duties of such a bailee were qualified by exceptions. And, despite Mr Wadsworth’s vigorous argument to the contrary, I really do not see how the plaintiffs can rely upon one part of the contract while ignoring the other. Consent seems to me to be relevant only between the bailor and head bailee. If the sub-bailment is on terms to which the bailor consented, he has no cause of action against the head bailee. If it was not, the sub-bailee is still protected, but if the bailor is damnified by the terms of the sub-bailment he has a cause of action against the head bailee.”
Morris v Martin and Johnson Matthey v Constantine Terminals received detailed analysis in the decision of the Privy Council, delivered by Lord Goff The Pioneer Container [1994] 2 AC 324. In that case the plaintiffs engaged carriers to ship goods by sea under bills of lading which gave the carriers authority to sub-contract ‘on any terms’. The carriers sub-contracted to the defendant ship owners on terms which included a Taiwanese exclusive jurisdiction clause. The issue was whether this clause was binding as between the plaintiffs and the defendants.
Lord Goff first considered the relationship between the plaintiffs and the sub-bailee. On this he found authoritative guidance in the decision of the Privy Council in Gilchrist Watt and Sanderson Pty. Ltd. v York Products Ltd [1970] 1 WLR 1262. There the defendants were stevedores who had lost two cases of clocks that they had received as sub-bailees of the shipowners, who owed a duty to deliver them to the plaintiffs under the bills of lading. The Privy Council held that the defendants were liable to the plaintiffs, in that, as Lord Pearson observed at p.1267, they:
“took upon themselves an obligation to the plaintiffs to exercise due care for the safety of the goods, although there was no contractual relation or attornment between the defendants and the plaintiffs.”
Following this decision, Lord Goff held that there was a ‘collateral bailment’ between the plaintiffs and the defendant shipowners. He then turned to consider the terms of this bailment. He approved the doctrine formulated by Lord Denning in Morris v Martin, adding at p.339 this comment on the relevance of ‘consent’:
“It must be assumed that, on the facts of the case, no direct contractual relationship has been created between the owner and the sub-bailee, the only contract created by the sub-bailment being that between the bailee and the sub-bailee. Even so, if the effect of the sub-bailment is that the sub-bailee voluntarily receives into his custody the goods of the owner and so assumes towards the owner the responsibility of a bailee, then to the extent that the terms of the sub-bailment are consented to by the owner, it can properly be said that the owner has authorised the bailee so to regulate the duties of the sub-bailee in respect of the goods entrusted to him, not only towards the bailee but also towards the owner.”
Lord Goff went on to state that this doctrine did not turn on estoppel, nor on contract:
“Such a conclusion, finding its origin in the law of bailment rather than the law of contract, does not depend for its efficacy either on the doctrine of privity of contract, or on the doctrine of consideration. That this may be so appears from the decision of the House of Lords in Elder, Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] A.C. 522. In that case, shippers of cargo on a chartered ship brought an action against the shipowners for damage caused to the cargo by bad stowage, for which the shipowners were responsible. It is crucial to observe that the cargo was shipped under charterers’ bills of lading, so that the contract of carriage contained in or evidenced by the bills of lading was between the shippers and the charterers. The shipowners nevertheless sought to rely, as against the shippers, upon an exception in the bill of lading which protected the charterers from liability for damage due to bad stowage. It was held that the shipowners were entitled to do so, the preferred reason upon which the House so held (see Midland Silicones Ltd v Scruttons Ltd [1962] AC 446, 470 per Viscount Simonds, following the opinion of Fullagar J. in Wilson v Darling Island Stevedoring and Lighterage Co. Ltd [1956] 1 Lloyds’s Rep. 346, 364; 95 C.L.R. 43, 789) being found in the speech of Lord Summer [1924] A.C. 522, 564:
‘in the circumstances of this case the obligations to be inferred from the reception of the cargo for carriage to the United Kingdom amount to a bailment upon terms, which include the exceptions and limitations of liability stipulated in the known and contemplated form of bill of lading.’
Of course, there was in that case a bailment by the shippers direct to the shipowners, so that it was not necessary to have recourse to the concept of sub-bailment. Even so notwithstanding the absence of any contract between the shippers and the shipowners, the shipowners’ obligations as bailees were effectively subject to the terms upon which the shipowners implicitly received the goods into their possession. Their Lordships do not imagine that a different conclusion would have been reached in the Elder, Dempster case if the shippers had delivered the goods, not directly to the ship, but into the possession of agents of the charterers who had, in their turn, loaded the goods on board; because in such circumstances, by parity of reasoning, the shippers may be held to have impliedly consented that the sub-bailment to the shipowners should be on terms which included the exemption from liability for bad storage.”
Lord Goff then turned to the decision in Johnson Matthey v Constantine Terminals. He held that the analysis of Donaldson J. was unsound, being contrary to Morris v Martin and the Gilchrist Watt case. The exposition of the law that followed merits citation in full:
“In addition, the conclusion of Donaldson J. that consent is relevant only between the owner and the bailee is inconsistent with the reasoning of Lord Denning M.R. in Morris v C.W. Martin & Sons Ltd. when he expressed the opinion, at p.729, that the bailor is bound by the terms of the sub-bailment to which he has consented but not otherwise. Their Lordships have already expressed their agreement with the approach of Lord Denning on this point. Indeed, as they see it, once it is recognised that the sub-bailee, by voluntarily taking the owner’s goods into his custody, ipso facto becomes the bailee of those goods vis-à-vis the owner, it must follow that the owner’s rights against the sub-bailee will only be subject to terms of the sub-bailment if he has consented to them, i.e., if he has authorised the bailee to entrust the goods to the sub-bailee on those terms. Such consent may, as Lord Denning pointed out, be express or implied; and in this context the sub-bailee may also be able to invoke, where appropriate, the principle of ostensible authority.
In truth, at the root of this question lies a doctrinal dispute of a fundamental nature, which is epitomised in the question: is it a prerequisite of a bailment that the bailor should have consented to the bailee’s possession of the goods? An affirmative answer to this question (which is the answer given by Bell, Modern Law of Personal Property in England and Ireland, at pp.88-89) leads to the conclusion that, if the owner seeks to hold a sub-bailee responsible to him as bailee, he has to accept all the terms of the sub-bailment, warts and all; for either he will have consented to the sub-bailment on those terms or, if not, he will (by holding the sub-bailee liable to him as bailee) be held to have ratified all the terms of the sub-bailment. A negative answer to the question is however supported by other writers, notably by Palmer, Bailment, at pp.31 et seq., where Professor Palmer cites a number of examples of bailment without the consent of the owner, and by Professor Tay in her article ‘The Essence of Bailment: Contract, Agreement or Possession?’ (1966) 5 Sydney Law Review 239. On this approach, a person who voluntarily takes another person’s goods into his custody holds them as bailee of that person (the owner); and he can only invoke, for example, terms of a sub-bailment under which he received the goods from an intermediate bailee as qualifying or otherwise affecting his responsibility to the owner if the owner consented to them. It is the latter approach which, as their Lordships have explained, has been adopted by English law and, with English law, the law of Hong Kong.
Their Lordships wish to add that this conclusion, which flows from the decisions in Morris v C.W. Martin & Sons Ltd [1966] 1 Q.B. 716 and the Gilchrist Watt case [1970] 1 WLR 1262, produces a result which in their opinion is both principled and just. They incline to the opinion that a sub-bailee can only be said for these purposes to have voluntarily taken into his possession the goods of another if he has sufficient notice that a person other than the bailee is interested in the goods so that it can properly be said that (in addition to his duties to the bailee) he has, by taking the goods into his custody, assumed towards that other person the responsibility for the goods which is characteristic of a bailee. This they believe to be the underlying principle. Moreover, their Lordships do not consider this principle to impose obligations on the sub-bailee which are onerous or unfair, once it is recognised that he can invoke against the owner terms of the sub-bailment which the owner has actually (expressly or impliedly) or even ostensibly authorised. In the last resort the sub-bailee may, if necessary and appropriate, be able to invoke against the bailee the principle of warranty of authority.”
Thus far the cases that we have considered have been those in which the sub-bailee has sought to rely upon conditions which reduced his liability or, in the Pioneer Container, were beneficial to him. What if some of the terms agreed between the bailee and the sub-bailee increase the liability of the sub-bailee beyond that arising under the common law? Can the bailor enforce such conditions against the sub-bailee? Professor Palmer addresses this question at p.1329 of the second edition of his work on Bailment:
“Occasionally, the terms of the sub-bailment will cast upon the sub-bailee a greater responsibility for the safety of the goods than would exist at common law. These terms are clearly enforceable by the intermediate party since he will enjoy a contractual relationship with the sub-bailee. Even if the sub-bailment is gratuitous the sub-bailee will apparently be bound by his promise to the intermediary, because a gratuitous bailee seems capable of enlarging his duty at common law.
The more immediate question is whether such additional duties are directly enforceable by the owner against the sub-bailee. In certain circumstances such enforcement should be possible. If the terms of a sub-bailment can be invoked to reduce the common law duties that are owed by the sub-bailee to the owner, they should be relevant to establish a responsibility that is greater. The criterion would be whether such additional duties were an integral part of the owner-sub-bailee relationship, and essential to its efficacy, or were merely incidental. The sub-bailee should therefore be liable to the owner for the non-performance of any duty which represents one of the central terms or understandings upon which he was allowed to assume possession.”
This is one possible solution to the problem, but not the only one.
We draw attention to the observations of Lord Goff in the passage cited above that, were it correct that consent of the bailor was a prerequisite of a bailment, any resulting bailment would be subject to ‘all the terms of the sub-bailment, warts and all’. It seems to us that it must follow from this, and indeed that it should logically be the case, that where a bailor consents to and thereby authorises a sub-bailment on terms, all the terms agreed between the bailee and the sub-bailee, insofar as these are applicable to the relationship of the bailor and the sub-bailee, apply as between the bailor and the sub-bailee.
It seems to us that this result also follows from the application of the principles of the law of contract. Lord Goff’s authoritative analysis in the Pioneer Container traces the origin of ‘bailment on terms’ to principles of the law of bailment that do not turn on contract, but this does not exclude the possibility that the law of contract may have a role to play in this area. The principles of the law of bailment have always overlapped with those of the law of contract, for bailment and contract often go hand in hand. Where a bailee has the consent, and thus the authority, of the bailor to enter into a sub-bailment on particular terms and does so, and where those terms purport to govern the relationship not merely between the sub-bailee and the bailee, but between the sub-bailee and the bailor, it seems to us that all the elements of a collateral contract binding the sub-bailee and the bailor will be present, for there will be privity, via the agency of the bailee, and no difficulty in identifying consideration, at least if the terms are capable of resulting in benefit to each of the parties. It is easier to identify a contract in such circumstances than in the circumstances which led the Privy Council to identify one in The Eurymedon [1975] AC 154.
These considerations are very relevant in the present case. The Judge has found that Seagram implicitly authorised the conclusion of a chain of contracts on CMR terms. The CMR conditions, which applied as between Seagram and TTI required that, if there was such a contractual chain, all links in it should be welded to a single contract by transfer of the goods and the consignment note. TTI produced no consignment note but, as each link in the chain was formed, there was agreement between the immediate parties that the contract should be on CMR terms. It seems to us that in these circumstances the sub-bailment of each party in the chain was on terms of all the CMR conditions, whether by application of the doctrine of bailment on terms or under principles of the law of contract.
Thus we consider that the Judge was correct to rule that Spain-TIR and BCT could not rely upon those of the CMR conditions which limited or fixed their liability without being bound by other relevant CMR conditions. On our analysis, however, no right to elect was open to them. The CMR conditions were applicable as a consequence of the seals being bailed to them on the terms of those conditions.
On this basis, we find that Mr Coburn was correct to submit that Article 36 applied. It was not open to Seagram to sue Spain-TIR in that Spain-TIR was not the first carrier, the last carrier or the carrier performing that portion of the carriage during which the loss occurred. They came into possession of the goods in circumstances where they were authorised to sub-bail them on CMR terms. Seagram cannot, in these circumstances, contend that Spain-TIR remains susceptible to suit in relation to loss of the seals after they had been transferred to a successive carrier.
Was the Judge correct to hold that BCT were liable to Seagram as bailees of the seals?
BCT did not challenge the finding that they were liable for the carriage costs of the cartons containing the seals. By their Respondents’ Notice they contended, however, that, if liability for the guarantee payment was imposed by virtue of Article 23.4, they were not liable for this because they were not bailees of the seals themselves. This argument was based upon the proposition that a person who comes into possession of goods will not be constituted bailee of them if, unknown to him, they have properties which give them an unforeseeably elevated value – see the discussion in Palmer at p.436 and following. As we have held that BCT is under no liability in respect of the guarantee payment, either under the terms of the CMR or at common law, this issue does not arise. We would add that the terms of Article 23 do not seem to us to give any scope for the application of the doctrine in question.
Was the Judge correct to indicate that Spain-TIR and BCT could elect whether to rely on Article 23, but that if they did so they would be bound by all its provisions?
We have already answered this question in paragraph 65 above. The Judge approached the question on the premise that Spain-TIR and BCT fell into the category of persons for whom Article 28.2 makes provision. On our analysis, any liability falling on Spain-TIR or BCT was not ‘extra-contractual’ within the meaning of that term in Article 28.2, but arose because they were subject, whether by contract or the law of bailment, to those provisions of the CMR which both impose and restrict liability.
For the reasons that we have given, Seagram’s appeal will be dismissed and Spain-TIR’s cross-appeal will be allowed.
Order:
1. Appeal Dismissed
2. Cross-appeal allowed
3. Judge’s order to be set aside as per counsel’s draft order