Background
Seagram, a Spanish company, imports Scotch whisky into Spain. Spain imposes excise duties on spirits, which become payable when the liquor is released from a bonded warehouse. In order to show that the duties have been paid, each bottle released on to the Spanish market bears a paper tax seal. These seals are issued by the Spanish authorities to importers who, in return, are required to give a guarantee against the seals being used illegally. If the seals are not used for their proper purpose or are not returned to the authorities within six months, the guarantor is called upon to pay the equivalent of the duty that would have been payable on that number of bottles.

In August 1994 Seagram entered into an oral agreement with Transitos y Transportes Integrales (TTI) that TTI would carry nine cartons containing 456 tax seals from Madrid to Paisley in Scotland. TTI entered into a sub-contract with a company called Spain TIR to carry the goods from Madrid to Paisley. Spain TIR in turn subcontracted with BJ Walters Limited to carry the cargo from Madrid to Bradford and instructed a company of freight forwarders to arrange for the onward carriage from Bradford to Paisley. The freight forwarders engaged Bradford Cargo Terminal Limited to arrange for the on-carriage of the seals from Bradford to Paisley, and the actual transportation for this leg of the journey was to be effected by Joda Freight.

The cartons went missing at some point after they arrived at the premises of Bradford Cargo Terminal. On hearing the evidence, the judge at first instance held that the seals were lost whilst in the care of Bradford Cargo Terminal and, in consequence, they were never delivered to Joda. TTI was clearly the party primarily liable to Seagram for the loss of the seals in the course of transit. The problem was that TTI was insolvent. The issue was, therefore, which of the other parties could Seagram sue - and for what.

Whom to sue
The contract between Seagram and TTI was subject to the CMR Convention. Under CMR, where successive carriers perform carriage covered by a single contract, each successively becomes party to this contract as a result of accepting the goods and the consignment note relating to them (Article 34). But in this case there was no successive carriage under a single contract, only a series of separate contracts, each individually governed by CMR.

At first instance, the judge held that since Spain TIR was not brought into a contractual relationship with Seagram, it did not rank as a successive carrier under Article 34. But it did owe Seagram duties as sub-bailee on terms governed by the sub-contract it had entered into with TTI. Under those terms, Spain TIR remained responsible for the seals until it delivered them to Paisley. The transfer of the seals to Bradford Cargo Terminal under a further sub-contract did not relieve Spain TIR of this responsibility. As for Bradford Cargo Terminal, since it had voluntarily accepted the seals for reward and was aware of Seagram's interest in the goods, it too, owed Seagram the duties of a sub-bailee. On the facts, the judge held that Spain TIR and Bradford Cargo Terminal had breached their duty of care as sub-bailees.

The value of the goods
Seagram was claiming its full liability under the guarantee as damages. But the judge held that the liability to pay under the guarantee was too remote a loss to be recoverable. No carrier without specific knowledge of the nature of the seals and the guarantee could envisage that the loss of the cartons would give rise to this type of liability.

Seagram, however, argued that the guarantee nevertheless fell into the definition of "other charges" under Article 23 of CMR. This provides that, when a carrier is liable in respect of total or partial loss of the goods, the compensation is calculated by reference to "the value of the goods at the place and time at which they were accepted for carriage… In addition, the carriage charges, Customs duties and other charges incurred in respect of the carriage of the good shall be refunded in full in case of total loss and in proportion to the loss sustained in case of partial loss, but no further damage shall be payable."

The judge held that the guarantee payment could fall within "other charges" if it satisfied the test of remoteness, but that, in this case, it was too remote.

Judgment of the Court of Appeal
1 Whom to sue
The Court of Appeal agreed that Spain TIR and Bradford Cargo Terminal had owed duties to Seagram as sub-bailees, but disagreed that Seagram could still sue Spain TIR. Seagram had implicitly authorised the setting up of a chain of contracts on CMR terms. Where the bailor consents to and thereby authorises a sub-bailment on terms, all the terms agreed between the bailee and the sub-bailee (insofar as they are applicable) apply as between the bailor and the sub-bailee. Each individual contract in this chain was subject to CMR terms, and so it followed that the terms of bailment in each case were also governed by CMR.

Article 36 of CMR provides that proceedings in respect of liabilities for loss, damage or delay can only be brought against the first carrier, the last carrier or the carrier who was performing that portion of the carriage during which the event causing the loss, damage or delay occurred. Since Spain TIR was none of these – its contract being only with TTI - Seagram was unable to sue it for breach of its duty as sub-bailees.

The Value of the Goods
The Court of Appeal agreed with the judge at first instance that the guarantee liability could not form part of the intrinsic value of the goods for the purposes of Article 23, but disagreed that payments under the guarantee fell within the category of "other charges".

In reaching his conclusion, the judge had relied on the decision of the House of Lords in Buchanan & Co v Babco Limited [1978] AC 141. In that case, a consignment of whisky carried on CMR terms from a bonded warehouse in Glasgow to Tehran was stolen in London in the course of transit. As a result, the plaintiffs became liable to pay excise duty of £30,000. The majority of the House of Lords held that the excise duty constituted "other charges" under Article 23.

The Court of Appeal, however, found that the circumstances of this case were different. In Buchanan the excise duty was a charge on the actual goods carried, but the liability in this case arose under the terms of a guarantee because of Seagram's inability to account for the seals. Such a remote consequence of the loss of the seals could not fall within the meaning of Article 23.