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DMC/SandT/03/04
P&O Nedlloyd BV v. Utaniko Ltd; DKBS 1912 and AKTS Svenborg (trading as
Maersk Line) v. East West Corporation
English Court of Appeal: Mance, Brooke and Laws LJJ.: 12 February 2003
Nicholas Hamblen QC and Michael Davey, instructed by Stallard and Hill
Taylor Dickinson P&O Nedlloyd and Maersk Line
Stephen Males QC and Richard Waller, instructed by Clyde & Co, for the cargo
interests
CARRIAGE OF GOODS BY SEA: DELIVERY IN CHILE: NEGOTIABLE BILLS OF LADING:
MISDELIVERY FROM CUSTOMS WAREHOUSE: RESPONSIBILITY OF CARRIERS FOR MISDELIVERY:
CARGO INTERESTS’ TITLE TO SUE UNDER CARRIAGE OF GOODS BY SEA ACT 1992:
CONSIGNEES AS AGENTS FOR SHIPPERS: SHIPPERS AS UNDISCLOSED PRINCIPALS OF
CONSIGNEES: CLAIMS IN BAILMENT: CLAIMANTS’ RIGHTS TO SUE AS BAILORS SURVIVE
STATUTORY TRANSFER OF CONTRACTUAL RIGHTS: CLAIMANTS’ RIGHTS TO SUE FOR DAMAGE
TO THEIR REVERSIONARY INTEREST: CARRIERS’ OBLIGATION AS BAILEES: CARRIERS’
OBLIGATION IN NEGLIGENCE: STATUS OF CUSTOMS WAREHOUSE IN CHILE: FAILURE TO
INSTRUCT WAREHOUSE OPERATORS/CONTAINER OPERATORS TO DELIVER ONLY AGAINST SIGHT
OF ORIGINAL Bs/LADING: EXCULPATORY CLAUSES IN Bs/LADING: NOT APPLICABLE WHERE
BILLS PROVIDED FOR COMBINED TRANSPORT: NOT APPLICABLE TO DELIVERY WITHOUT
PRODUCTION OF ORIGINAL BILLS OF LADING
Summary
This decision confirmed the judgment at first
instance, in which carriers were
held responsible for misdeliveries from a Customs warehouse in Chile, since they
had failed to instruct the warehouse; operators or the relevant Container
Operator [the entity empowered under Chilean law to issue a temporary import
permit for containers] to ensure that delivery was given only on sight of an
original bill of lading. The appeal court confirmed that the shippers had no
title to sue, once their contractual rights had been transferred to the
consignees, pursuant to the Carriage of Goods by Sea Act 1992 nor could they be
considered the consignees’ undisclosed principals. The claimants’ rights to
sue in bailment, however, survived the statutory transfer of their contractual
rights. The claimants’ retained a sufficient immediate right to the possession
of the goods, in addition to their reversionary interest, to found a claim for
loss arising from the negligence of the bailee. But the bailment was a
"bailment on terms", the relevant terms being those of the bills of
lading. The exclusions of the ‘port-to-port’ clauses in the carriers’
bills of lading were, however, ineffective, partly because the carriage in
question was not ‘port-to-port’ but ‘combined transport’ and partly
because the wording of those clauses did not encompass the delivery of goods
without production of the original bill of lading.
DMC Category Rating: Developed
Facts
This was an appeal from a judgment of
Thomas J. in the English Commercial Court, rendered on 7 February 2002, in which
he held the two appellant container liner operators, P&O Nedlloyd and Maersk
Line, liable for the misdelivery of certain consignments of goods in containers
carried by them from Hong Kong to San Antonio in Chile. The cargo claimants were
related companies, carrying on in Hong Kong a business of exporting goods
manufactured in China to other parts of the world. In September and October 1998
(in the case of Maersk Line) and February 1999 (in the case of P&O), the
claimants shipped goods in containers from Hong Kong to San Antonio in Chile, by
liner services operated by Maersk Line (DKBS 1912 and AKTS Svenborg) and P&O
Nedlloyd. The buyers in Chile were Gold Crown, based in Santiago; payment terms
were cash against delivery. Liner bills of lading were duly issued for the
consignments, naming the claimants as the shippers and Gold Crown as the notify
party. The goods were consigned to the order of various Chilean banks. The bills
of lading were duly endorsed by the claimants and sent by the claimants’
bankers in Hong Kong to their correspondent bankers in Chile, with instructions
only to release them against payment. It was common ground in the appeal that
all the relevant bills were capable of transfer by endorsement, within the
meaning of s.1.2(a) of the UK Carriage of Goods by Sea Act of 1992 (the ‘1992
Act’) – see below. The judge at first instance held, however, that the
claimants retained full control over the documents, as the banks at all times
held them to their order and direction. The claimants’ bankers, whether in
Hong Kong or Chile, never had a security interest in the bills.
On arrival at San Antonio, the respective ships’ agents, in
accordance with Chilean Customs law, arranged for the goods to be placed in a
licensed Customs warehouse, pending the payment of import duty. The practice was
for consignees in Chilean ports to engage a customs agent licensed to act as
such, and to endorse the bills of lading to it as its authority to collect the
goods. It was the duty of the customs agent to verify to Customs that his
principal was entitled to the goods and to keep the relevant documents for five
years. To obtain release of goods from the warehouse, a customs agent would
present to the warehouse operator a document, legalised by Customs, with a
voucher showing payment of the relevant duty. Where, as here, the goods were
containerised, their release could in practice be obtained by a different route.
The Chilean agents of the shipping lines commonly acted as "container
operators" under a Customs regulation of April 1995. As such, they were
authorised to issue to consignees’ customs agents a TACT (‘Title for the
Temporary Admission of Containers’). Once legalised by Customs, this could be
presented to the warehouse operator to obtain release of the relevant container
from Customs’ jurisdiction. Strictly, this release was on a temporary basis,
and applied only to the container. But, in practice, assuming that the goods
were not unloaded from the container in the warehouse, it enabled the goods to
be removed from Customs’ jurisdiction to, or to the order of, the customs
agent who held and presented the TACT. In the present cases, the customs agent
used by Gold Crown obtained TACTs, paid the relevant Customs duties, had the
TACTs legalised by Customs, presented the TACTs and obtained the release of the
goods inside them, without at any time having presented, or having been asked to
present, the relevant original bills of lading. The goods thus passed into the
physical possession of Gold Crown. Whilst Gold Crown made some payments to the
claimant shippers, they failed to pay for the goods in seven of the containers
in the Maersk consignment and in two of those in the P&O shipment. e
shippers claimed the value of those goods from the carriers.
The bills of lading contained an English law and jurisdiction
clause and the claimants accordingly commenced proceedings in the English High
Court against the respective carriers, on the grounds that they had delivered
cargo without presentation of the bills of lading. The claim against Maersk Line
amounted to US$134,800 and that against P&ONedlloyd to US$95,150.
Judgment at First Instance
The judge found in favour of the claimants. In his judgment, the judge
identified and considered four issues, which he summarised under the headings of
- title to sue
- the delivery obligation
- the exceptions in the bills of lading and
- the claim in negligence
Under heading 1, the judge held that the claimants, by
identifying the Chilean banks as consignees in the bills and by delivering the
bills to the banks for collection of the price on their behalf, the claimants
had parted with all contractual rights of suit to the banks, by virtue of ss.2
and 5 of the 1992 Act. He further found that claimants had no rights of suit as
"principals" of the Chilean banks and that they had, in the absence of
any endorsement of the bills back to them by the banks, acquired no rights of
suit by virtue of the banks redelivering the bills to them. Secondly, he held
that, as a result of the transfer of the bills to the Chilean banks, the
claimants had also parted with any right to immediate possession of the goods
and had thereafter no rights in bailment against the shipping lines or any other
bailees of the goods. However, he held thirdly that the claimants, although
without any immediate right to possess the goods, could, as proprietors of the
goods, claim for the effective permanent deprivation of their proprietary
interest, which had occurred as a result of the delivery of the goods to Gold
Crown.
As regards the obligation to deliver, the judge held that whilst
English law governed the substance of the obligation to deliver in relation to
each bill of lading, Chilean law, as the law of the place of performance,
governed the mode of performance. In that respect, the judge found that,
although the goods in their containers were, after discharge in Chile, within
Customs’ "jurisdiction" until their release to the consignee’s
customs agent, they remained in the physical possession of the shipping line or
their warehouse operators. They were not, therefore, to be regarded as having
been "delivered" by the shipping lines, within the meaning of the
Hamburg Rules, incorporated into the Chilean Code of Commerce. While it was
common ground that Chilean law required a customs agent to have and retain all
three original bills of lading, the judge further found that there was nothing
under Chilean law or practice to prevent warehouse operators, or shipping line
agents acting as container operators, from insisting upon the presentation by a
consignee’s customs agent of an original bill of lading for their inspection,
before they agreed to release the goods or to issue a TACT for that purpose. Nor
was there any impediment to the shipping lines in this case contracting with the
warehouse operators or shipping agents they used for such presentation to be
made before release of any goods or of the containers holding them. There was,
in the judge’s view, no custom or usage in Chilean ports for warehouse
operators and shipping line agents to make or permit such deliveries without
presentation of original bills of lading.
Under the third heading of the exceptions in the bills of
lading, the judge held that the shipping lines could not rely upon clauses which
purported to exempt them from liability for loss or damage to the goods after
discharge from the carrying vessel. He held that these clauses were not
available to the lines, since the bills of lading in question had been made out
as "combined transport" bills. He also held that, if the clauses had
applied, they did not cover misdelivery without presentation of the bills of
lading.
As to the claim in negligence, the judge held that the shipping
lines were "clearly negligent" in failing a) to contract with the
warehouse operators on terms (or to give instructions) that an original bill was
to be presented prior to release of the cargo and b) to instruct their port
agents to demand sight of an original bill before issuing the TACT form as
container operators. The judge noted that neither shipping line appeared to have
taken advice on this important issue and that there were other lines who did
give such instructions or enter into such contracts – which was "clearly
the prudent practice". Had such precautions been taken, the losses would
not – on the balance of probabilities – have occurred.
The Issues on Appeal
On appeal, the shipping lines argued that they did not owe any
duty of care to the claimants and, if they did, they were not in breach of any
duty that they did owe. They also questioned whether the judge had been correct
in his interpretation of the application and scope of the bill of lading
exceptions clauses.
For their part, the claimants asserted their right to sue under
four principal headings:
a) as shippers, whose rights of suit had not been extinguished under s.2(5)
of the 1992 Act;
b) as the undisclosed principals of the Chilean banks;
c) as a result of the transfer back to them (by redelivery
of the bills) of the contractual rights of suit;
d) in bailment
Court of Appeal Judgment
The only reasoned judgment in the Court of Appeal was
delivered by Lord Justice Mance.
As regards title to sue, he agreed with the judge at first
instance that by, consigning the bills of lading to the Chilean banks and then
causing them to be delivered to them, the claimants had effectively transferred
their contractual rights to the banks. The court found that the 1992 Act clearly
contemplated the transfer of rights of suit to persons who were, as regards the
shippers, agents and noted that s.2(4) expressly gave such persons the right to
sue for loss or damage suffered by their principals by reason of a breach of the
bill of lading contract. Similarly, the court agreed with the judge at first
instance that the claimants could not sue as their agents’ "undisclosed
principals", saying that "there is nothing in the statutory scheme of
the 1992 Act to lend any support to the idea that, after a statutory transfer of
contractual rights by a principal to its agent, the principal can still sue in
contract in its own name". The claimants’ further argument, based on the
redelivery of the bills to the claimants by the banks, was, in the event, not
pursued on appeal.
As regards the claim in bailment, the Court of Appeal differed
from the trial judge, who had held that, although the claimants remained at all
times the party entitled to delivery, their rights to sue in bailment had been
effectively transferred to the Chilean banks, along with the contractual rights
of suit. The Court of Appeal considered this issue together with the finding by
the judge at first instance that the claimants had title to sue in negligence,
by virtue of their reversionary proprietary interest. A large part of the appeal
process had been devoted to the suggestion that the judge’s decision at first
instance involved recognising a tortious duty to take care to avoid loss or
third party theft, which the shipping lines maintained, ran counter to the
general principle that no such duty is recognised in tort.
In dealing with this complex issue, the Court of Appeal
identified some basic principles.
- It is well established that the existence of claims in bailment does not
depend on contract, but on consent. The duties of a bailee arise out of the
voluntary assumption of possession of another’s goods. The cases of The
Pioneer Container [1994] 2 AC 324 and Morris v. C.W.Martin & Sons [1966]
1 QB 716 were cited as relevant authorities.
- A bailee may owe duties not merely to his bailor, but to a third party
owner.
- An owner’s remedies cannot necessarily be confined to situations
involving either a direct bailment or a sub-bailment, since the goods may
come into the possession of a bailee in other circumstances. The Court
quoted with approval a passage from Palmer on Bailment (2nd
Edition, 1991) to the effect that "For most practical purposes, any
person who comes knowingly into the possession of another’s goods is,
prima facie, a bailee."
- Not only possession, but the immediate right to possession can give rise
to claims in bailment. Reference was made to the case of Transcontainer
Express v. Custodian Security [1988] 1 LLRep 128, as authority for this
point.
- Although the nature of the legal duties owed by a bailee to the goods may
vary according to the circumstances, see Morris v. Martin, above, there is a
general duty not to convert the goods, that is, "not to do
intentionally… an act inconsistent with the bailor’s right of property
therein". This is in addition to the "independent and additional….duty
of a bailee for reward to take reasonable care of his bailor’s
goods", including protecting them against theft. Further, in the event
of loss or damage to goods in his possession, a bailee is liable unless he
can prove that such loss or damage occurred without fault on his part.
- A contractual bailee for reward cannot avoid responsibility for the
performance of his duties by delegation to servants or agents.
- The non-contractual liability of a bailee may be modified by the doctrine
of bailment on terms, which has now been accepted by the Privy Council in
the Pioneer Container case, above. Under this doctrine, a bailee may, in
answer to the owner’s non-contractual claim for loss or damage to the
goods, rely upon the terms on which he voluntarily accepted the goods from
his immediate bailor, if the owner expressly or impliedly consented to the
goods being bailed to the bailee on such terms.
In then addressing the inter-relationship of claims based on
possession or the right to possession with claims based on a reversionary
interest, the Court approved the decision in Moutataff v B.O.A.C [1967]
1LLRep. 396, to the effect that an original bailor has a right of action
against a sub-bailee for breach of duty "if he has the right to immediate
possession of the goods or if the goods are permanently injured or lost".
Having set out the principles, the Court then examined in
detail the claimants’ submissions in relation to bailment and held firstly,
that the claimants were the original bailors of the goods to the shipping
lines under the bills. In shipping the goods, they were acting on their own
behalf, not as agents for the consignees, against whom the claimants reserved
the right to deal with and re-direct the goods. Secondly, the Court held that
the transfer of the bills to the Chilean banks, together with the attendant
contractual rights, as agents for the claimants, did not abrogate the
relationship of bailment that continued in existence between the claimants and
the lines. This was so, whether or not the effect of the transfer was to
confer on the banks a sufficient possessory interest for them to pursue claims
in bailment themselves against the lines.
Prior to the passing of the 1992 Act, the right to possession
of the goods and the contractual rights under the bill of lading could be held
in different hands. Was the effect of the Act to ensure that the two must now
be held in the same hands? The Court thought not. But whatever the position
might be in that regard, the Court did not consider that the 1992 Act could be
treated as working an automatic transfer of any rights in bailment, so that
they enured exclusively to the person entitled under the Act to exercise the
contractual rights. The Court saw nothing surprising in the idea that one
party should, as a result of the statutory transfer, possess the contractual
right to delivery against the contracting carrier, while another person, the
real owner and party at risk, should possess a right of suit in bailment
against anyone, including the carrier, for loss or damage caused by their
negligence as bailees in possession of the goods.
The Court’s views on the title to sue point could therefore
be summarised as follows;
- The claimants were the original bailors of the containers of goods to the
shipping lines.
- That bailment continued despite the delivery of the bills of lading to the
Chilean banks named in them as consignees, and despite the transfer of the
contractual rights under the bills to the banks under the 1992 Act.
- Whether or not the Chilean banks themselves acquired sufficient possessory
title to pursue claims in bailment was not the critical issue. In the Court’s
view, they did not, but assuming that they did, they were never more than
agents at will in relation to the claimants, who retained a sufficient
immediate right to possession throughout to enable them to pursue claims in
bailment. Even if that were wrong, the claimants could claim for any loss of
or damage to their reversionary interest and any such claim would constitute
a claim in, or to be determined by the same principles as govern a claim in,
bailment.
- On this basis, it was unnecessary for the Court to consider whether, if
the lines had no other potential responsibility towards the claimants, they
must at least be regarded as owing them an ordinary duty of care.
As regards the claim in negligence, the shipping lines had
argued that there was no basis for holding them responsible once they had
parted with possession of the containers to their warehouse operators. The
lines submitted that the duties of a bailee, towards an owner or person
entitled to immediate possession of the goods with whom (as here) he had no
contractual relationship, were limited to the period until he delivers up
actual possession of the goods. This contrasted with the duties owed by a
contractual bailee, who had to answer under the contract not merely for
himself and his servants but also for his agents and sub-contractors.
Whilst the Court was prepared to accept, without deciding the
issue, that there was a general distinction between contractual and
non-contractual bailment along these lines, the Court held that, even in
circumstances where a bailee is authorised to sub-contract on the basis that
he will thereafter have no personal responsibility for the goods, the
cessation of his responsibility may depend not merely upon his making a
sub-contract of the authorised kind, but also on his exercising due care in
the selection of the sub-contractor. Thus, in this case, the Court considered
that where a bailee or sub-bailee sub-contracts part of the functions that he
has undertaken towards his immediate bailor, his duties as bailee towards
persons with whom he has no contract must extend to (a) ensuring that any
sub-bailment that he arranges respects the basis of the bailment relationship
that he has, by voluntarily taking possession, himself accepted towards both
the persons entitled to immediate possession and, as regards the protection of
their reversionary interest, the owners even if not entitled to immediate
possession, and (b) taking reasonable care to protect their interests, which
involves taking care that any sub-bailment involves a competent and
appropriate sub-bailee.
While the duties of a sub-bailee towards an owner or other
person may often be expressed as being to take reasonable care not to convert,
lose or damage the goods while in the sub-bailee’s possession, this cannot
be understood in a narrow sense. "Taking care of goods while in your
possession is no licence to deliver them up deliberately or even carelessly to
a stranger". It is fundamental to any bailment that the bailee is looking
after the goods of others, in their interests, and must redeliver them to
those entitled having regard to the nature of the particular bailment which he
has voluntarily accepted. Where a bailee has – as here under the bills of
lading, having regard to the finding of the judge at first instance on Chilean
law – accepted responsibility as bailee in respect of the whole period until
delivery up of the container loads ex warehouse in San Antonio, it is the
bailee’s duty, if he entrusts warehousing of the goods in San Antonio to a
third party, to ensure that he does so on a basis consistent with the bailment
that he himself has undertaken.
The Court then held that, in the present context, that meant
taking steps to ensure, by making arrangements with the warehouse operators or
others, that delivery was only to be made against an original bill of lading.
The taking of steps to ensure that goods were delivered up against
presentation of original bills of lading reflected a fundamental aspect of the
duties of a carrier by sea. The duty to deliver against an original bill was
owed in this case under the bills of lading and it was of obvious importance
in relation to anyone who was the owner or entitled to immediate possession of
the goods. The Court therefore concluded that the shipping lines parted with
possession of the goods, but only on a basis that exposed the goods to
abstraction by person with no entitlement. That constituted just as much a
breach of the duties the shipping lines owed as bailees in possession, as if
they had left them unattended during a period when they were in actual
possession.
In summary, the Court supported the finding of the judge at
first instance on the negligence issue. The shipping lines as, or as persons
under the same responsibilities as, bailees, made arrangements with (a) the
Customs warehouse operators and (b) their port agents who under local practice
also acted as container operators in issuing TACTs, on a basis that failed
appropriately to reflect the bailment that they themselves had voluntarily
undertaken to respect the possessory or proprietary interest of the claimants.
Had the appropriate arrangements been made or instructions given, the judge
was, on the balance of probabilities, satisfied that the goods would not have
been removed and the losses avoided. Even if, contrary to the views of the
Court (of Appeal), the claimants’ title to sue rested only on their
reversionary interest, that was also, on the judge’s findings, effectively
lost.
Although the Court concluded that the claimants had title to
pursue their claims in, or on the same principles as govern claims in,
bailment, those claims were subject to the terms of the bills of lading on
which the goods were originally bailed by the claimants themselves to the
shipping lines. The rationale of the doctrine of bailment on terms existed in
the voluntary taking into possession of another’s goods on terms qualifying
the taker’s responsibility towards the owner or other person entitled to
immediate possession, to which such owner or other person had consented.
Where, as in this case, a shipper bailed goods to a shipping line on the terms
of the shipping line’s bill, and the contractual aspects of their
relationship were by statute transferred to a third party, any rights that the
shipper might (as owner, person entitled to immediate possession or simply
bailor) continue to enjoy against the shipping line arising from the line’s
possession of the goods as bailees must continue to be subject to the same
terms.
The next question was whether the bills of lading in the
present case included any relevant qualifications or exemptions of
responsibility, protecting the shipping lines from the claimants’ claims.
The Court held that both the P&ONedlloyd and Maersk Lines bills had been
made out on a "combined transport" basis, because the boxes on the
face of the bills for "Place of Receipt" and "Place of
Delivery" had been filled in – although the words inserted were simply
the names of the ports of loading and discharge. That in turn meant that
clauses attempting to limit the carrier’s responsibility to the period after
loading and before discharge over ship’s rail were inapplicable.
Although not necessary for its decision, the Court expressed
the view that, even if those clauses had been applicable, they would not have
exonerated the shipping lines. The relevant clause in the Maersk Line bill,
clause 5(3)(b), had been considered in the earlier case of Motis Exports Ltd
v.Dampskibsselskabet AF 1912 [1999] 1 LLRep. 837. It read as follows:
"Where the carriage called for commences at the port of
loading and/or finishes at the port of discharge the Carrier shall have no
liability whatsoever for any loss or damage to the goods while in its actual
or constructive possession before loading or after discharge over the ship’s
rail…. however caused."
The claim in the Motis Exports case concerned a dispute
between the parties to a bill of lading contract. The court there held that
the clause could not protect against misdelivery against a document that the
shipping line took to be a genuine bill, when in fact it was a plausible
forgery. The clause was focussed upon responsibility for physical perils
associated with the period following discharge, rather than upon the
obligation to deliver against an original bill of lading. Although in the
present case, the claim could not be advanced contractually, it remained
relevant to construe the clause in its contractual context and to consider
whether, in that light, it applied to a default of the particular nature that
had occurred here. This case, like that of Motis Exports, was not concerned
with any physical peril associated with the post-discharge period but with the
basic issue of delivery up to the right person against the proper document. On
that basis, the Court agreed with the judge at first instance that the loss
fell outside clause 5(3)(b).
The Court reached a similar conclusion as regards the P&ONedlloyd
bill of lading. The relevant clauses there were:
"5. Port to Port Shipment
The Carrier shall be under no liability whatsoever for loss of
or damage to the Goods, howsoever occurring, if such loss or damage arises
prior to loading onto or subsequent to discharge from the vessel…" and
"7(5)(b)
The rights, defences, limitations and liberties of whatsoever
nature provided for in this Bill of Lading shall apply in any action against
the Carrier for loss or damage or delay, howsoever occurring and whether the
action be founded in contract or in tort, negligence or fundamental breach of
contract."
In the Court’s view, the words "howsoever
occurring" addressed causation and not the type of loss. They were
designed to reinforce the scope of existing exclusions, rather than to extend
their scope to different kinds of loss. As a result, clause 7(5)(b) did not
expand the ambit of protection afforded by clause 5.
Accordingly, even if they had applied to the carriage of the
containers in the present case, these clauses would not have protected the
shipping lines against the claimants’ claims.
In summary, therefore, the Court of Appeal held:
- The claimants were unable to claim in contract, whether as original
parties or as principals of the Chilean banks, or on any other basis.
- The claimants retained the right to immediate possession of the goods at
all material times and were on that basis entitled to hold the shipping
lines responsible as bailees for any loss or damage resulting from the lines’
breach of duty as bailees.
- Even if that were not so, the claimants would have been entitled, by
virtue of their reversionary proprietary interest as owners, to hold the
shipping lines responsible in, or on a basis analogous to, bailment for any
loss or damage caused to their goods.
- The shipping lines were in breach of their duty in bailment by virtue of
their failure either to deliver up the goods to a person entitled to them
against presentation of a bill of lading or, when they parted with
possession of the goods to third parties, to arrange for such third parties
to be under any similar obligation regarding delivery up; and such breach
was causative of the claimants’ loss.
- The doctrine of bailment on terms applied to give the shipping lines the
benefit, in relation to the claimants, of any relevant exemptions or
protective conditions in the lines’ bills of lading.
- On the true construction of the bills, there were no relevant exemptions
or protective conditions because
- The bills had to be regarded as combined transport bills, under which
the conditions relied upon by the shipping lines had no
application.
- If that had not been so, the Court would have concluded
that the relevant conditions were not in any event apt to apply to the
particular breaches of duty found by the trial court judge, namely to the
failure of the shipping lines to make arrangements with their
sub-contractors for delivery up to be made against presentation of
original bills of lading, in a manner reflecting the lines’ own
obligations as bailees and the interests of those entitled to the goods.
Judgment in favour of the claimants was accordingly
confirmed.
1. The relevant provisions of the 1992 Act are as follows:
S.1(2)
References in this Act to a bill of lading –
(a) do not apply to a document which is incapable of transfer
either by indorsement or, as a bearer bill, by delivery without indorsement…
S.2
(1) Subject to the following provisions of this section, a
person who becomes
(a) the lawful holder of a bill of lading……….shall (by
virtue of becoming the holder of the bill…..) have transferred to and vested
in him all rights of suit under the contract of carriage as if he had been a
party to that contract.
(2) Where, when a person becomes the lawful holder of a bill of
lading, possession of the bill no longer gives a right (as against the carrier)
to possession of the goods to which the bill relates, that person shall not have
any rights transferred to him by virtue of subsection (1) above unless he
becomes the holder of the bill –
a) by virtue of a transaction effected in pursuance of any
contractual or other arrangements made before the time when such a right to
possession ceased to attach to possession of the bill…
(4) Where, in the case of any document to which this Act
applies-
a) a person with any interest or right in or in relation to the
goods to which the document relates sustains loss or damage in consequence of a
breach of the contract of carriage; but
b) subsection (1) above operates in relation to that document so
that rights of suit in respect of that breach are vested in another person, the other person shall be entitled to exercise those rights for
the benefit of the person who sustained the loss or damage to the same extent as
they could have been exercised if they had been vested in the person for whose
benefit they are exercised.
(5) Where rights are transferred by virtue of the operation of
subsection (1) above in relation to any document, the transfer for which that
subsection provides shall extinguish any entitlement to those rights which
derives –
a) where that document is a bill of lading, from a person’s having been an
original party to the contract of carriage…..
S.5
(2) References in this Act to the holder of a bill of lading are
references to any of the following persons, that is to say –
a) a person with possession of the bill who, by virtue of being
the person identified in the bill, is the consignee of the goods to which the
bill relates;
c) a person with possession of the bill as a result of any
transaction by virtue of which he would have become a holder (falling within
paragraph (a) or (b) above) had not the transaction been effected at a time when
possession of the bill no longer gave a right (as against the carrier) to
possession of the goods to which the bill relates;
and a person shall be regarded for the purposes of this Act as
having become the lawful holder of a bill of lading wherever he has become the
holder of the bill in good faith.
Under heading 1, the judge held that the claimants, by
identifying the Chilean banks as consignees in the bills and by delivering the
bills to the banks for collection of the price on their behalf, the claimants
had parted with all contractual rights of suit to the banks, by virtue of ss.2
and 5 of the 1992 Act. He further found that claimants had no rights of suit as
"principals" of the Chilean banks and that they had, in the absence of
any endorsement of the bills back to them by the banks, acquired no rights of
suit by virtue of the banks redelivering the bills to them. Secondly, he held
that, as a result of the transfer of the bills to the Chilean banks, the
claimants had also parted with any right to immediate possession of the goods
and had thereafter no rights in bailment against the shipping lines or any other
bailees of the goods. However, he held thirdly that the claimants, although
without any immediate right to possess the goods, could, as proprietors of the
goods, claim for the effective permanent deprivation of their proprietary
interest, which had occurred as a result of the delivery of the goods to Gold
Crown.
As regards the obligation to deliver, the judge held that whilst
English law governed the substance of the obligation to deliver in relation to
each bill of lading, Chilean law, as the law of the place of performance,
governed the mode of performance. In that respect, the judge found that,
although the goods in their containers were, after discharge in Chile, within
Customs’ "jurisdiction" until their release to the consignee’s
customs agent, they remained in the physical possession of the shipping line or
their warehouse operators. They were not, therefore, to be regarded as having
been "delivered" by the shipping lines, within the meaning of the
Hamburg Rules, incorporated into the Chilean Code of Commerce. While it was
common ground that Chilean law required a customs agent to have and retain all
three original bills of lading, the judge further found that there was nothing
under Chilean law or practice to prevent warehouse operators, or shipping line
agents acting as container operators, from insisting upon the presentation by a
consignee’s customs agent of an original bill of lading for their inspection,
before they agreed to release the goods or to issue a TACT for that purpose. Nor
was there any impediment to the shipping lines in this case contracting with the
warehouse operators or shipping agents they used for such presentation to be
made before release of any goods or of the containers holding them. There was,
in the judge’s view, no custom or usage in Chilean ports for warehouse
operators and shipping line agents to make or permit such deliveries without
presentation of original bills of lading.
Under the third heading of the exceptions in the bills of
lading, the judge held that the shipping lines could not rely upon clauses which
purported to exempt them from liability for loss or damage to the goods after
discharge from the carrying vessel. He held that these clauses were not
available to the lines, since the bills of lading in question had been made out
as "combined transport" bills. He also held that, if the clauses had
applied, they did not cover misdelivery without presentation of the bills of
lading.
As to the claim in negligence, the judge held that the shipping
lines were "clearly negligent" in failing a) to contract with the
warehouse operators on terms (or to give instructions) that an original bill was
to be presented prior to release of the cargo and b) to instruct their port
agents to demand sight of an original bill before issuing the TACT form as
container operators. The judge noted that neither shipping line appeared to have
taken advice on this important issue and that there were other lines who did
give such instructions or enter into such contracts – which was "clearly
the prudent practice". Had such precautions been taken, the losses would
not – on the balance of probabilities – have occurred.
The Issues on Appeal
On appeal, the shipping lines argued that they did not owe any
duty of care to the claimants and, if they did, they were not in breach of any
duty that they did owe. They also questioned whether the judge had been correct
in his interpretation of the application and scope of the bill of lading
exceptions clauses.
For their part, the claimants asserted their right to sue under
four principal headings:
a)as shippers, whose rights of suit had not been extinguished under s.2(5)
of the 1992 Act;
b) as the undisclosed principals of the Chilean banks;
c) as a result of the transfer back to them (by redelivery
of the bills) of the contractual rights of suit;
d) in bailment
Court of Appeal Judgment
The only reasoned judgment in the Court of Appeal was
delivered by Lord Justice Mance.
As regards title to sue, he agreed with the judge at first
instance that by, consigning the bills of lading to the Chilean banks and then
causing them to be delivered to them, the claimants had effectively transferred
their contractual rights to the banks. The court found that the 1992 Act clearly
contemplated the transfer of rights of suit to persons who were, as regards the
shippers, agents and noted that s.2(4) expressly gave such persons the right to
sue for loss or damage suffered by their principals by reason of a breach of the
bill of lading contract. Similarly, the court agreed with the judge at first
instance that the claimants could not sue as their agents’ "undisclosed
principals", saying that "there is nothing in the statutory scheme of
the 1992 Act to lend any support to the idea that, after a statutory transfer of
contractual rights by a principal to its agent, the principal can still sue in
contract in its own name". The claimants’ further argument, based on the
redelivery of the bills to the claimants by the banks, was, in the event, not
pursued on appeal.
As regards the claim in bailment, the Court of Appeal differed
from the trial judge, who had held that, although the claimants remained at all
times the party entitled to delivery, their rights to sue in bailment had been
effectively transferred to the Chilean banks, along with the contractual rights
of suit. The Court of Appeal considered this issue together with the finding by
the judge at first instance that the claimants had title to sue in negligence,
by virtue of their reversionary proprietary interest. A large part of the appeal
process had been devoted to the suggestion that the judge’s decision at first
instance involved recognising a tortious duty to take care to avoid loss or
third party theft, which the shipping lines maintained, ran counter to the
general principle that no such duty is recognised in tort.
In dealing with this complex issue, the Court of Appeal
identified some basic principles.
- It is well established that the existence of claims in bailment does not
depend on contract, but on consent. The duties of a bailee arise out of the
voluntary assumption of possession of another’s goods. The cases of The
Pioneer Container [1994] 2 AC 324 and Morris v. C.W.Martin & Sons [1966]
1 QB 716 were cited as relevant authorities.
- A bailee may owe duties not merely to his bailor, but to a third party
owner.
- An owner’s remedies cannot necessarily be confined to situations
involving either a direct bailment or a sub-bailment, since the goods may
come into the possession of a bailee in other circumstances. The Court
quoted with approval a passage from Palmer on Bailment (2nd
Edition, 1991) to the effect that "For most practical purposes, any
person who comes knowingly into the possession of another’s goods is,
prima facie, a bailee."
- Not only possession, but the immediate right to possession can give rise
to claims in bailment. Reference was made to the case of Transcontainer
Express v. Custodian Security [1988] 1 LLRep 128, as authority for this
point.
- Although the nature of the legal duties owed by a bailee to the goods may
vary according to the circumstances, see Morris v. Martin, above, there is a
general duty not to convert the goods, that is, "not to do
intentionally… an act inconsistent with the bailor’s right of property
therein". This is in addition to the "independent and additional….duty
of a bailee for reward to take reasonable care of his bailor’s
goods", including protecting them against theft. Further, in the event
of loss or damage to goods in his possession, a bailee is liable unless he
can prove that such loss or damage occurred without fault on his part.
- A contractual bailee for reward cannot avoid responsibility for the
performance of his duties by delegation to servants or agents.
- The non-contractual liability of a bailee may be modified by the doctrine
of bailment on terms, which has now been accepted by the Privy Council in
the Pioneer Container case, above. Under this doctrine, a bailee may, in
answer to the owner’s non-contractual claim for loss or damage to the
goods, rely upon the terms on which he voluntarily accepted the goods from
his immediate bailor, if the owner expressly or impliedly consented to the
goods being bailed to the bailee on such terms.
In then addressing the inter-relationship of claims based on
possession or the right to possession with claims based on a reversionary
interest, the Court approved the decision in Moutataff v B.O.A.C [1967]
1LLRep. 396, to the effect that an original bailor has a right of action
against a sub-bailee for breach of duty "if he has the right to immediate
possession of the goods or if the goods are permanently injured or lost".
Having set out the principles, the Court then examined in
detail the claimants’ submissions in relation to bailment and held firstly,
that the claimants were the original bailors of the goods to the shipping
lines under the bills. In shipping the goods, they were acting on their own
behalf, not as agents for the consignees, against whom the claimants reserved
the right to deal with and re-direct the goods. Secondly, the Court held that
the transfer of the bills to the Chilean banks, together with the attendant
contractual rights, as agents for the claimants, did not abrogate the
relationship of bailment that continued in existence between the claimants and
the lines. This was so, whether or not the effect of the transfer was to
confer on the banks a sufficient possessory interest for them to pursue claims
in bailment themselves against the lines.
Prior to the passing of the 1992 Act, the right to possession
of the goods and the contractual rights under the bill of lading could be held
in different hands. Was the effect of the Act to ensure that the two must now
be held in the same hands? The Court thought not. But whatever the position
might be in that regard, the Court did not consider that the 1992 Act could be
treated as working an automatic transfer of any rights in bailment, so that
they enured exclusively to the person entitled under the Act to exercise the
contractual rights. The Court saw nothing surprising in the idea that one
party should, as a result of the statutory transfer, possess the contractual
right to delivery against the contracting carrier, while another person, the
real owner and party at risk, should possess a right of suit in bailment
against anyone, including the carrier, for loss or damage caused by their
negligence as bailees in possession of the goods.
The Court’s views on the title to sue point could therefore
be summarised as follows;
- The claimants were the original bailors of the containers of goods to the
shipping lines.
- That bailment continued despite the delivery of the bills of lading to the
Chilean banks named in them as consignees, and despite the transfer of the
contractual rights under the bills to the banks under the 1992 Act.
- Whether or not the Chilean banks themselves acquired sufficient possessory
title to pursue claims in bailment was not the critical issue. In the Court’s
view, they did not, but assuming that they did, they were never more than
agents at will in relation to the claimants, who retained a sufficient
immediate right to possession throughout to enable them to pursue claims in
bailment. Even if that were wrong, the claimants could claim for any loss of
or damage to their reversionary interest and any such claim would constitute
a claim in, or to be determined by the same principles as govern a claim in,
bailment.
- On this basis, it was unnecessary for the Court to consider whether, if
the lines had no other potential responsibility towards the claimants, they
must at least be regarded as owing them an ordinary duty of care.
As regards the claim in negligence, the shipping lines had
argued that there was no basis for holding them responsible once they had
parted with possession of the containers to their warehouse operators. The
lines submitted that the duties of a bailee, towards an owner or person
entitled to immediate possession of the goods with whom (as here) he had no
contractual relationship, were limited to the period until he delivers up
actual possession of the goods. This contrasted with the duties owed by a
contractual bailee, who had to answer under the contract not merely for
himself and his servants but also for his agents and sub-contractors.
Whilst the Court was prepared to accept, without deciding the
issue, that there was a general distinction between contractual and
non-contractual bailment along these lines, the Court held that, even in
circumstances where a bailee is authorised to sub-contract on the basis that
he will thereafter have no personal responsibility for the goods, the
cessation of his responsibility may depend not merely upon his making a
sub-contract of the authorised kind, but also on his exercising due care in
the selection of the sub-contractor. Thus, in this case, the Court considered
that where a bailee or sub-bailee sub-contracts part of the functions that he
has undertaken towards his immediate bailor, his duties as bailee towards
persons with whom he has no contract must extend to (a) ensuring that any
sub-bailment that he arranges respects the basis of the bailment relationship
that he has, by voluntarily taking possession, himself accepted towards both
the persons entitled to immediate possession and, as regards the protection of
their reversionary interest, the owners even if not entitled to immediate
possession, and (b) taking reasonable care to protect their interests, which
involves taking care that any sub-bailment involves a competent and
appropriate sub-bailee.
While the duties of a sub-bailee towards an owner or other
person may often be expressed as being to take reasonable care not to convert,
lose or damage the goods while in the sub-bailee’s possession, this cannot
be understood in a narrow sense. "Taking care of goods while in your
possession is no licence to deliver them up deliberately or even carelessly to
a stranger". It is fundamental to any bailment that the bailee is looking
after the goods of others, in their interests, and must redeliver them to
those entitled having regard to the nature of the particular bailment which he
has voluntarily accepted. Where a bailee has – as here under the bills of
lading, having regard to the finding of the judge at first instance on Chilean
law – accepted responsibility as bailee in respect of the whole period until
delivery up of the container loads ex warehouse in San Antonio, it is the
bailee’s duty, if he entrusts warehousing of the goods in San Antonio to a
third party, to ensure that he does so on a basis consistent with the bailment
that he himself has undertaken.
The Court then held that, in the present context, that meant
taking steps to ensure, by making arrangements with the warehouse operators or
others, that delivery was only to be made against an original bill of lading.
The taking of steps to ensure that goods were delivered up against
presentation of original bills of lading reflected a fundamental aspect of the
duties of a carrier by sea. The duty to deliver against an original bill was
owed in this case under the bills of lading and it was of obvious importance
in relation to anyone who was the owner or entitled to immediate possession of
the goods. The Court therefore concluded that the shipping lines parted with
possession of the goods, but only on a basis that exposed the goods to
abstraction by person with no entitlement. That constituted just as much a
breach of the duties the shipping lines owed as bailees in possession, as if
they had left them unattended during a period when they were in actual
possession.
In summary, the Court supported the finding of the judge at
first instance on the negligence issue. The shipping lines as, or as persons
under the same responsibilities as, bailees, made arrangements with (a) the
Customs warehouse operators and (b) their port agents who under local practice
also acted as container operators in issuing TACTs, on a basis that failed
appropriately to reflect the bailment that they themselves had voluntarily
undertaken to respect the possessory or proprietary interest of the claimants.
Had the appropriate arrangements been made or instructions given, the judge
was, on the balance of probabilities, satisfied that the goods would not have
been removed and the losses avoided. Even if, contrary to the views of the
Court (of Appeal), the claimants’ title to sue rested only on their
reversionary interest, that was also, on the judge’s findings, effectively
lost.
Although the Court concluded that the claimants had title to
pursue their claims in, or on the same principles as govern claims in,
bailment, those claims were subject to the terms of the bills of lading on
which the goods were originally bailed by the claimants themselves to the
shipping lines. The rationale of the doctrine of bailment on terms existed in
the voluntary taking into possession of another’s goods on terms qualifying
the taker’s responsibility towards the owner or other person entitled to
immediate possession, to which such owner or other person had consented.
Where, as in this case, a shipper bailed goods to a shipping line on the terms
of the shipping line’s bill, and the contractual aspects of their
relationship were by statute transferred to a third party, any rights that the
shipper might (as owner, person entitled to immediate possession or simply
bailor) continue to enjoy against the shipping line arising from the line’s
possession of the goods as bailees must continue to be subject to the same
terms.
The next question was whether the bills of lading in the
present case included any relevant qualifications or exemptions of
responsibility, protecting the shipping lines from the claimants’ claims.
The Court held that both the P&ONedlloyd and Maersk Lines bills had been
made out on a "combined transport" basis, because the boxes on the
face of the bills for "Place of Receipt" and "Place of
Delivery" had been filled in – although the words inserted were simply
the names of the ports of loading and discharge. That in turn meant that
clauses attempting to limit the carrier’s responsibility to the period after
loading and before discharge over ship’s rail were inapplicable.
Although not necessary for its decision, the Court expressed
the view that, even if those clauses had been applicable, they would not have
exonerated the shipping lines. The relevant clause in the Maersk Line bill,
clause 5(3)(b), had been considered in the earlier case of Motis Exports Ltd
v.Dampskibsselskabet AF 1912 [1999] 1 LLRep. 837. It read as follows:
"Where the carriage called for commences at the port of
loading and/or finishes at the port of discharge the Carrier shall have no
liability whatsoever for any loss or damage to the goods while in its actual
or constructive possession before loading or after discharge over the ship’s
rail…. however caused."
The claim in the Motis Exports case concerned a dispute
between the parties to a bill of lading contract. The court there held that
the clause could not protect against misdelivery against a document that the
shipping line took to be a genuine bill, when in fact it was a plausible
forgery. The clause was focussed upon responsibility for physical perils
associated with the period following discharge, rather than upon the
obligation to deliver against an original bill of lading. Although in the
present case, the claim could not be advanced contractually, it remained
relevant to construe the clause in its contractual context and to consider
whether, in that light, it applied to a default of the particular nature that
had occurred here. This case, like that of Motis Exports, was not concerned
with any physical peril associated with the post-discharge period but with the
basic issue of delivery up to the right person against the proper document. On
that basis, the Court agreed with the judge at first instance that the loss
fell outside clause 5(3)(b).
The Court reached a similar conclusion as regards the P&ONedlloyd
bill of lading. The relevant clauses there were:
"5. Port to Port Shipment
The Carrier shall be under no liability whatsoever for loss of
or damage to the Goods, howsoever occurring, if such loss or damage arises
prior to loading onto or subsequent to discharge from the vessel…" and
"7(5)(b)
The rights, defences, limitations and liberties of whatsoever
nature provided for in this Bill of Lading shall apply in any action against
the Carrier for loss or damage or delay, howsoever occurring and whether the
action be founded in contract or in tort, negligence or fundamental breach of
contract."
In the Court’s view, the words "howsoever
occurring" addressed causation and not the type of loss. They were
designed to reinforce the scope of existing exclusions, rather than to extend
their scope to different kinds of loss. As a result, clause 7(5)(b) did not
expand the ambit of protection afforded by clause 5.
Accordingly, even if they had applied to the carriage of the
containers in the present case, these clauses would not have protected the
shipping lines against the claimants’ claims.
In summary, therefore, the Court of Appeal held:
- The claimants were unable to claim in contract, whether as original
parties or as principals of the Chilean banks, or on any other basis.
- The claimants retained the right to immediate possession of the goods at
all material times and were on that basis entitled to hold the shipping
lines responsible as bailees for any loss or damage resulting from the lines’
breach of duty as bailees.
- Even if that were not so, the claimants would have been entitled, by
virtue of their reversionary proprietary interest as owners, to hold the
shipping lines responsible in, or on a basis analogous to, bailment for any
loss or damage caused to their goods.
- The shipping lines were in breach of their duty in bailment by virtue of
their failure either to deliver up the goods to a person entitled to them
against presentation of a bill of lading or, when they parted with
possession of the goods to third parties, to arrange for such third parties
to be under any similar obligation regarding delivery up; and such breach
was causative of the claimants’ loss.
- The doctrine of bailment on terms applied to give the shipping lines the
benefit, in relation to the claimants, of any relevant exemptions or
protective conditions in the lines’ bills of lading.
- On the true construction of the bills, there were no relevant exemptions
or protective conditions because the bills had to be regarded as combined transport bills, under which
the conditions relied upon by the shipping lines had no application.
- If that had not been so, the Court would have concluded
that the relevant conditions were not in any event apt to apply to the
particular breaches of duty found by the trial court judge, namely to the
failure of the shipping lines to make arrangements with their
sub-contractors for delivery up to be made against presentation of
original bills of lading, in a manner reflecting the lines’ own
obligations as bailees and the interests of those entitled to the goods.
Judgment in favour of the claimants was accordingly
confirmed.
1. The relevant provisions of the 1992 Act are as follows:
S.1(2)
References in this Act to a bill of lading –
(a) do not apply to a document which is incapable of transfer
either by indorsement or, as a bearer bill, by delivery without indorsement…
S.2
(1) Subject to the following provisions of this section, a
person who becomes
(a) the lawful holder of a bill of lading……….shall (by
virtue of becoming the holder of the bill…..) have transferred to and vested
in him all rights of suit under the contract of carriage as if he had been a
party to that contract.
(2) Where, when a person becomes the lawful holder of a bill of
lading, possession of the bill no longer gives a right (as against the carrier)
to possession of the goods to which the bill relates, that person shall not have
any rights transferred to him by virtue of subsection (1) above unless he
becomes the holder of the bill –
a) by virtue of a transaction effected in pursuance of any
contractual or other arrangements made before the time when such a right to
possession ceased to attach to possession of the bill…
(4) Where, in the case of any document to which this Act
applies-
a) a person with any interest or right in or in relation to the
goods to which the document relates sustains loss or damage in consequence of a
breach of the contract of carriage; but
b) subsection (1) above operates in relation to that document so
that rights of suit in respect of that breach are vested in another person, the other person shall be entitled to exercise those rights for
the benefit of the person who sustained the loss or damage to the same extent as
they could have been exercised if they had been vested in the person for whose
benefit they are exercised.
(5) Where rights are transferred by virtue of the operation of
subsection (1) above in relation to any document, the transfer for which that
subsection provides shall extinguish any entitlement to those rights which
derives
a) where that document is a bill of lading, from a person’s having been an
original party to the contract of carriage…..
S.5(2) References in this Act to the holder of a bill of lading are
references to any of the following persons, that is to say –
a) a person with possession of the bill who, by virtue of being
the person identified in the bill, is the consignee of the goods to which the
bill relates;
c) a person with possession of the bill as a result of any
transaction by virtue of which he would have become a holder (falling within
paragraph (a) or (b) above) had not the transaction been effected at a time when
possession of the bill no longer gave a right (as against the carrier) to
possession of the goods to which the bill relates;
and a person shall be regarded for the purposes of this Act as
having become the lawful holder of a bill of lading wherever he has become the
holder of the bill in good faith.
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