DMC/S&T/19/01
European Gas Turbines Ltd v. (1) MSAS Cargo International, (2) Hapag-Lloyd AG
and (3) Hapag-Lloyd (UK) Ltd.
English High Court: Popplewell J:[2001] CLC 880: May 2000
NEGLIGENCE: NATURE OF DAMAGE: APPREHENSION OF DAMAGE IS NOT DAMAGE: ASSUMPTION OF RESPONSIBILITY: RECOVERABILITY OF ECONOMIC LOSS: NOT INCONSISTENT WITH CONTRACTUAL STRUCTURE
Summary
Where the claimants had incurred expenses in replacing the bearings of a
generator believed to have been damaged by its carriage on a trailer not
equipped with an appropriate suspension system, such expenses were not
recoverable in negligence when no physical damage to the bearings could be
established. The mere apprehension of damage was not equivalent to damage.
Where communications between claimants and defendants established that the defendants had assumed responsibility for the carriage of the generator on a suitably equipped trailer, the defendants were liable to the claimants for economic loss arising from the breach of this undertaking. Such liability was not inconsistent with the contractual structure established in this case, even though the result was that the defendants could not rely on contractual protections provided in the Hapag-Lloyd bill of lading, under which Hapag-Lloyd had carried the generator as sub-contractors to MSAS.
DMC Category Rating: Developed
Facts
The claimants were the owners of a gas turbine generator that they had
purchased in 1990 from General Electric (GE) in the United States. At the end of
December 1990, GE entered into a contract of carriage with MSAS for the carriage
of the generator from Baltimore in the US to Lincoln in the UK, via Liverpool.
MSAS then entered sub-contracted the entire carriage to the defendants, Hapag-Lloyd,
who in turn contracted with hauliers for the transport of the generator from
Liverpool to Lincoln by road. The generator was to be
carried on an ‘air-ride
system’, which meant that the trailer used for the road transport would have
an air-ride suspension system, as opposed to a conventional sprung or moverleaf
suspension system. The air-ride system would provide a smoother ride, thus
preventing or minimising the risk of the generator being subjected to vibration
during the road haulage. The Hapag-Lloyd bill of lading issued in Baltimore on
10 January 1991 was annotated ‘must be air-ride trailer for delivery’.
Specific instructions to this effect were also given on arrival of the Hapag-Lloyd
ship at Liverpool, by the forwarding agent for the claimants to the Hapag-Lloyd
agents there.
In the event, the trailer used for the road haulage to Lincoln was conventionally sprung. As a result, the claimants were concerned lest the bearings of the generator had suffered vibration damage during the journey from Liverpool. The claimants contacted GE, who advised that the generator be sent to their European agents in Germany, where the generator would be stripped down and the bearings inspected. This was done in May 1991. Although no physical damage could be established, GE recommended that, to avoid any risk that damage might have occurred, all the bearings be replaced; unless this were done, their warranty would be withdrawn. The bearings were accordingly replaced. The claim for the costs incurred in this operation was thus one for ‘pure economic loss’.
The preliminary issues to be determined were therefore the following:
a) did the consignment suffer ‘damage’ such as to give the claimants a
cause of action against the Hapag-Lloyd defendants in negligence, when no damage
had been proved and where only the risk of damage had been claimed;
b) did the Hapag-Lloyd defendants assume a responsibility to the claimants
such as to give the claimants a right to claim economic loss?
The significance of point b) is that, if the Hapag-Lloyd interests did assume
such a responsibility, then they would not be entitled to rely upon the
limitation clauses in the Hapag-Lloyd bill of lading and their liability would
be unlimited.
The MSAS defendants did not take part in the proceedings, having gone into liquidation.
Judgment
On the first issue, the judge ruled against the claimants, saying that ‘to
seek to elevate ‘apprehension of damage’ to ‘damage’ seems to me to be
taking the law a step too far….’
On the second issue, the judge stated the general principles to be applied as
the following:
‘1 There is a generally applicable governing principle, identifiable from
the case of Hedley Byrne v. Heron Partners Ltd [1964] AC 465, to the effect
that, where the defendant has assumed a responsibility to the claimant in
relation to certain services, he will be liable in damages in respect of
economic loss which flows from the negligent performance of the services;
2 The test is whether there was a conscious assumption of responsibility to
perform the relevant task, not a conscious assumption of legal responsibility….;
3 The governing principle relates to services, not just to the giving of
advice. Once a case is se
en to fall within the governing principle, there is no
longer any need to justify the recovery of economic loss in terms of whether it
is ‘fair, just and reasonable’, as might otherwise be required in the light
of Caparo Industries Plc v. Dickman [1992] 2 AC 605.’
Applying those principles to the present case, the judge held that there was ‘the equivalent of a contract without consideration’ between the claimants and the Hapag-Lloyd defendants - based on communications between the claimants’ forwarding agents and the Hapag-Lloyd agents in Liverpool - by which the defendants undertook the safe carriage of the generator within the UK.
In answer to this the defendants had submitted that they were entitled to the protection of the bill of lading conditions and that those conditions were inconsistent with their liability under an assumption of responsibility for unlimited economic loss. The defendants had pointed out that the claimants had a perfectly good claim against MSAS in contract for the same losses as those claimed against them and that it would not be right, ‘simply because MSAS are no longer financially viable, that the principle of assumption of responsibility should be used to short-circuit the contractual structure put in place by the parties.’ The judge did not accept this argument. He did not find in this case ‘the presence of a contractual chain which would be inconsistent with an assumption of responsibility…. the safe carriage of this generator was in fact the responsibility of all the defendants. In my judgment, the claimants were entitled to sue [MSAS] under the contract and the [Hapag-Lloyd] defendants under the assumption of responsibility.’
He accordingly found in favour of the claimants.