DMC Category Rating: Confirmed and Developed

By Jim Leighton, BSc (Hons), LLB, LLM (Maritime Law), Claims Consultant and International Contributor to DMC’s CaseNotes

Background
The cargo-owner sued the shipowner for conversion and breach of contract in relation to a consignment of copper stowed in 18 containers shipped at Durban and destined for Shanghai. A fraudster created and presented a false bill of lading against which the shipowner gave a delivery order, entitling the fraudster to delivery of the cargo from a Shanghai warehouse. Customs at Shanghai do not permit cargo to be taken out of the container terminal in the port without proof of payment for customs duty being endorsed on a delivery order. The fraudster paid the customs duty and its delivery order was then endorsed. A day later the cargo-owner presented its (genuine) bill of lading and the shipowner was able to stop delivery to the fraudster.

Despite the shipowner giving the cargo-owner another delivery order, it had not been endorsed by Customs with any record of customs duty having been paid and the cargo-owner could not, therefore, obtain delivery from the Shanghai warehouse. That impasse continued and still exists. The cargo-owner obtained an order from Aikens J ordering the shipowner to deliver the cargo or pay the full value of the cargo. From that order the shipowner appealed, contending that its liability was only a limited one. That depended on whether the shipowner’s liability was governed by the Hague Rules ("HR") or the Hague-Visby Rules ("HVR") or the terms contained in the bill of lading. Under the circumstances, the first instance judge, Aikens J, isolated five issues that required resolving and the Court of Appeal reviewed these.

Note that, the cargo-owner never alleged that the shipowner was negligent in any way and the shipowner never alleged that there were any steps that the cargo-owner could or should have taken to mitigate its loss.

Judgment
The leading opinion was given by Longmore LJ, with whom Tuckey and Lloyd LJJ unanimously agreed.

Longmore LJ agreed with (1) but disagreed with (2). According to Longmore LJ the first part of clause 1(a) of the bill of lading made it clear that, at a minimum, the HR would apply to the shipment from Durban to Shanghai. However, the same reasoning that Aikens J used to conclude that the HVR was not applicable by virtue of the force of law also justified a conclusion that clause 1(a) of the bill of lading also did not incorporate the HVR due to its wording. Clause 1(a) used the words "compulsorily" and "compulsory" but, in either case, the HVR itself was not compulsory or compulsorily applicable for shipments from South Africa to China, so the HVR did not bite by virtue of the wording of clause 1(a). The fact that South Africa had national legislation that, in effect, provided for the same regime as the HVR did not in itself mean that the HVR applied. This was because the bill of lading was subject to English law (thus Article X⁴ of the HVR, via COGSA 1971, determined whether the HVR was compulsorily/compulsory applicable), clause 1(a) did not make specific reference to the South African legislation being incorporated into the bill of lading, South Africa was not a contracting State to the HVR and the bill of lading itself was not issued in a contracting State to the HVR.

Application of Either Set of Rules Post-Discharge?
At first instance, the shipowner argued that the HR applied after discharge, so that they were entitled to limit the claim to £100 per package or unit. The cargo-owner argued that the HR/HVR (whichever applied) only applied for the period between loading and discharge – the period after discharge was, therefore, governed by the terms of the bill of lading. While the parties could have agreed that the HR/HVR applied to the shipowner’s obligations before loading and after discharge they had not done so here. Aikens J accepted the cargo-owner’s submissions.

Longmore LJ highlighted that – following the decisions in Gosse Millard v Canadian Government Merchant Marine Ltd [1927] 2 KB 432, 434, per Wright J and Pyrene Co v Scindia Navigation Co [1954] 2 QB 402, 408, per Devlin J (being accepted doctrine in The "Arawa" [1977] 2 Lloyd’s Rep 416, 424-5, per Brandon J and The "Captain Gregos" [1990] 1 Lloyd’s Rep 310, 311, per Bingham LJ) – "the parties are free to agree on terms other than the [HR] (or the HVR) for periods outside the actual period of the carriage." These judgments considered the proper interpretation of Articles II⁵ and III, rule 2⁶ of the HR/HVR (being in identical words).

The shipowner submitted that, by implication, the parties should be taken to have agreed to the continued application of the obligations and immunities in the HR after discharge until the goods were taken into the custody of the receiver. This was in accord with views expressed in Carver on Bills of Lading (2nd ed., 2005), para.9-130. Longmore LJ, in following Aikens J, considered that the shipowner’s submission was "inconsistent with the express terms of the bill of lading." According to Longmore LJ, clauses 4(ii) and (iii)² and 7³ showed that "the parties did not intend the [HR] to apply after discharge from the vessel."

Limit if HR or HVR Apply
Given that the court had upheld the finding of Aikens J, that the HR/HVR did not apply post-discharge), Longmore LJ considered the issue on limitation of liability to be strictly obiter (not arising for decision on the facts). He, therefore, felt it inappropriate to comment on this issue in the present case.

The Contractual Position Post-Discharge
It was accepted by the shipowner that, following discharge, clauses 4(ii) and (iii) and 7 did not suffice to excuse the shipowner from its act of conversion and breach of contract in issuing delivery orders to the fraudster without the production of the original bill of lading. This was supported by a strong line of authorities: Glyn, Mills Currie & Co v East and West India Dock Co (1882) 7 App Cas 591, The "Stettin" (1889) 14 PD 142, Sze Hai Tone Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576 (PC) and Motis v Dampskibsselskabet af 1912 [2000] 1 Lloyd’s Rep 211 (CA). It was also conclusive in the present case, according to Longmore LJ, because the basic obligation to deliver against an issued (genuine) bill of lading was prominently placed on the front of the bill of lading.

The shipowner, however, sought to rely on clause 22³ of the bill of lading, in particular the 5th and 7th sentences which are quoted in the footnote. Longmore LJ considered that given the "full import" of clause 22³ it raised the question "whether it was likely to have been the intention of the parties that liability for failure to perform obligations of such importance as the obligation to deliver the goods against presentation of a properly indorsed original bill of lading should be limited by sentences buried within a clause of such length and complexity." [The clause contained over 650 words and – as set out in the judgment - occupied some 44 lines of text.] Longmore LJ thought this to be "so unlikely as not to be the case." This followed because, on the whole, clause 22³ seemed to be "concerned with the quantum of non-delivery (not misdelivery) claims". It was, after all, headed "CLAIMS VALUATION, PACKAGE LIMIT TIME BAR".

In agreeing with the conclusions of Aikens J, Longmore LJ pointed to the necessity for "any exemption or limitation of liability for such a breach … to be clearly expressed" and held that clause 22 was "not … apt to limit liability for the essential obligation to deliver against original bills of lading." (Cf. the exception clause in The "New York Star" [1981] 1 WLR 138, 146G, which expressly referred to "misdelivery".)

Value at Date of Breach or Date of Judgment
This was an important issue because the value of copper had risen steadily since the date of conversion.

The form of Aikens J’s judgment against the shipowner provided that, failing delivery of the cargo, the shipowner was to be liable to pay the value of that cargo at the date of judgment. Aikens J considered that this would most fairly compensate the cargo-owner for its loss as a result of the shipowner’s conversion of the goods. Longmore LJ agreed with Aikens J.

Longmore LJ noted that if the events had all happened in England, an order would probably have been made for the sale of the cargo pendente lite (pending the litigation) and no doubt judgment would have been given for the figure fetched at the time of sale, together with interest. That had not happened in China and, apparently, could not occur until a Chinese judgment was obtained. Once judgment was satisfied, the shipowner would have title to the goods and could then sell them and it would obtain the value at the time of that sale. Under those circumstances the value at the date of judgment was considered the fairest way to compensate the cargo-owner.

In any event, had Aikens J awarded damages based on the value of the cargo at the date of conversion, he would also have been entitled to award the difference in value between the date of conversion and the date of judgment, as loss consequential on the shipowner’s breach of duty. This was expressly authorised by s.3(2)(b) of the Torts (Interference with Goods) Act 1977 ("the 1977 Act"). Such consequential damages were also the type contemplated by the common law and the 1977 Act did not appear to alter that position.

But Aiken J had also awarded the cargo-owner interest on the invoice value of the goods between the date of conversion and the date of judgment on the basis that, for that period, the cargo-owner had been kept out of its money. Longmore LJ disagreed with this because it provided a "double benefit" (double recovery or compensation) under the circumstances. This was so because "it would be surprising for a claimant to be able both to recover damages for not having had the use of a chattel … and to recover interest for not having had the money which represents the value of the chattel ...." This accorded with the decision of Chitty J, concerning wrongful use of land, in Whitman v Westminster Brymbo Co [1896] 1 Ch 894, 899 (see McGregor on Damages (17th ed., 2003), para.15-037, fn.78).

Comment
The judgment has added to the growing case law that considers the application of the HR/HVR in the post-discharge period. In particular, the recent Hong Kong Court of First Instance decision in Carewins Development (China) Ltd v Bright Fortune Shipping Ltd is notable. The Carewins v Bright Future decision has since gone to appeal and been overruled on the ground that the bill of lading exclusion clause was insufficiently clear to exclude the shipowner’s liability for misdelivery (as to which a case note will be provided in due course by Crump & Co, the international contributor for Hong Kong).

Further, it is clear that the effective exclusion or limitation of liability post-discharge for misdelivery is a matter of the true construction of the exclusion or limitation clause in the contract of carriage in each case. Effective exclusion or limitation of liability for post-discharge misdelivery, therefore, depends on very clear, apt and unambiguous wording in the exclusion or limitation clause itself and will also depend on the particular facts of the case, in terms of whether or not they fall within the strict terms of the exclusion or limitation clause.

(iii) When the goods are in the custody of the Carrier and/or his subcontractors before loading and after discharge, whether being forwarded to or from the vessel or whether awaiting shipment landed or stored, or put into hulk or craft belonging to the Carrier, or pending transhipment, they are in such custody for the risk and account of the Merchant without any liability of the Carrier."

2. Bill of Lading, Clause 7: "The vessel may commence discharging immediately on arrival without notice to the consignee or any other party .... on to quay or into shed, warehouse, depot.....vehicle, vessel or craft as the Carrier or his agents may determine. Such discharge shall constitute due delivery of the goods under this Bill of Lading.... [and] any loss of, of damage to the goods . . . shall, after the end of the Hague Rules period, be at the sole risk of the consignee in every respect whatsoever..."

3. Bill of Lading, Clause 22: "CLAIMS VALUATION, PACKAGE LIMITATION TIME-BAR. …neither the Carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding the limitation allowed under the Hague Rules or the Hague-Visby Rules/SDR limitation or the COGSA limitation, depending on which of these is contractually or compulsorily applicable, per package or unit, unless the nature and the value of such goods have been declared by the Merchant before shipment and inserted in the Bill of Lading… This limitation of liability shall apply to all contractual claims as well as to any claims arising from other causes…"

4. HVR, Article X: "The provisions of these Rules shall apply to every bill of lading relating to the carriage of goods between ports in two different States if
(a) the bill of lading is issued in a contracting State; or
(b) the carriage is from a contracting State; or
(c) the contract contained in or evidenced by the bill of lading provides that these Rules or
legislation of any State giving effect to them are to govern the contract
whatever may be the nationality of the ship, the carrier, the shipper, the consignee, or any other interested person."

5. HR/HVR, Article II: "... under every contract of carriage of goods by sea the carrier in relation to the loading , handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth ..."

6. HR/HVR, Article III, rule 2: "Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried."