Case No. DMC/ST/04/01
Borealis Ab v. Stargas Ltd. and Bergesen D.Y. A/S "Berge Sisar" [2001] 1 All ER (Comm) 673
Decision of the English House of Lords: judgement of Lord Hobhouse: March 2001
CARRIAGE OF GOODS BY SEA ACT, 1992: DELIVERY AND DEMAND FOR DELIVERY UNDER Section 3(1)(c): EXTINCTION OF LIABILITIES ON SUBSEQUENT TRANSFER under Section 2(1)
A party that does not take delivery of a cargo, nor demand its delivery, as provided by section 3(1)(c) of the UK Carriage of Goods by Sea Act of 1992, at a time when that party is not the ‘lawful holder of a bill of lading’ so as to ‘have transferred and vested in him all rights of suit under the contract of carriage as if he had been party to that contract’ under section 2(1) of the Act, does not become subject to the liabilities under that contract.
If a party, having once become subject to the liabilities under the contract of carriage, endorses his rights to another so as to transfer to that other his rights under the contract, the transferor is no longer subject to the liabilities under that contract.
DMC Category Rating: Developed
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The Facts
In this case, the ‘Berge Sisar’ was chartered in October 1993 by Stargas
to carry a cargo of liquid propane from Yanbu in Saudi Arabia to Stenungsund in
Sweden. The cargo was originally bought by Stargas from the Saudi Arabian
shippers and then on-sold to Borealis. On the ship’s arrival at the Borealis
terminal at Stenungsand, Borealis rejected the cargo as 
contaminated
and arranged for its sale, at a much reduced value, to Dow Europe, with delivery
at Terneuzen in Holland. The cargo was discharged in Terneuzen in late November
1993. Neither at Stenungsand nor at Terneuzen were the original bills of lading
available. The shipowners, Bergesen, therefore agreed to deliver the cargo
without production of the bills of lading against an indemnity from Stargas. It
was only in January 1994 that the original bills of lading were forwarded by
Stargas to Borealis and by Borealis to Dow.
The Arguments
Disputes arose between the various parties as to whether the contamination of
the cargo was a pre-shipment condition or arose whilst on board the ‘Berge
Sisar’. In the course of the various proceedings, Bergesen claimed against
Borealis for the costs of cleaning the ship’s tanks, pumps and lines from the
contaminated cargo. The basis for this claim was that Borealis was liable under
section 3(1) of the Carriage of Goods by Sea Act of 1992, for the breach of the
original shipper’s obligation under Article IV Rule 6 of the amended Hague
Rules not to ship a dangerous cargo.
If Borealis were so liable, the further question arose as to whether they remained liable even after they had endorsed the bills of lading to Dow and had therefore ceased to be holders of those bills.
The Judgment
The case turned on the interpretation of section 3(1)(c) of the 1992 Act.
This section read in material part:
"(1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection….
(c) is a person who, at the time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,
that person shall (by virtue ….. of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract."
The issue was, therefore, whether the conduct of Borealis in this case had
amounted to a delivery or a demand for delivery of the cargo on its arrival at
Stenungsand. It was clear that delivery, in the sense of ‘the voluntary
transfer of possession from one person to to another’ had
not taken place. The House held also that Borealis had made no ‘demand’ for
the cargo. The actions taken by Borealis at Stenungsand were simply to direct
the Master to their import jetty and to take routine samples of the cargo from
the ship’s tanks. Such ‘co-operative acts’ could not be treated as a
demand by Borealis to deliver.
The House noted that the presence of the word ‘demanded’ in paragraph (c) of section 3(1) gave rise to difficulties of interpretation. "Unless facts occur which give a relevance to the inclusion of the word ‘demanded’ in paragraph (c), in my view the scheme of sections 2 and 3 requires that any such demand be treated as irrelevant for the purposes of section 3(1) and that the Act be construed accordingly. A ‘demand’ made without any basis for making it or insisting on compliance is not in reality a demand at all……. Accordingly it will be unlikely in the extreme that paragraph (c) will ever apply save where there has been an actual delivery of the cargo."
As for the second issue – namely whether a party that had become subject to the liabilities of the contract of carriage pursuant to section 3(1) of the Act remained liable even after it had ceased to be a holder of the bill of lading – the House noted that it had not been specifically addressed in the Act. In these circumstances, the House felt it appropriate to apply the principle decided in the case of Smurthwaite v.Wilkins, whereby the endorser is not liable after he has endorsed the bill of lading over to another who is liable (in this case, Dow).
In consequence, Bergesen had no grounds for claiming against Borealis under the bills of lading for alleged breach of the shipper’s obligation not to load dangerous cargo.
Cases applied
Smurthwaite v.Wilkins [1862] 11 CB(ns) 842