Court of Appeal, Malaysia

Denis Ong JCA, Mohd Saari JCA, Mohd Noor Ahmad JCA

28 March 2003

KEYWORDS

Bill of Lading – Misdelivery – Exclusion Clause in Bill – Effectiveness of Post-Discharge Exclusion Clause to cover liability for Misdelivery – Liability Limitation to £100 – Value not stated on the bill of lading – Hague Rules Art. IV(5) – Is Container the package or unit?

FACTS

Three containers of firecrackers were shipped from Port Klang (in Malaysia) to Sibu (in Sarawak, Malaysia) under a bill of lading. Hague Rules applied by virtue of s. 2 of the Carriage of Goods by Sea Act 1950. The bill provided “the responsibility of the carrier whether as carrier or as custodian or bailee of the goods shall be deemed to commence only when the goods are loaded on the ship and to cease absolutely on discharge when they are free of the ship’s tackle“. The bill also limited liability of the carrier £100 per package or unit. There was no value of the cargo stated in the bill.

The vessel reached Sibu and discharged the cargo. Thereafter, the cargo was misdelivered. The cargo interest sued the carrier for the value of the cargo. The High Court found for the cargo interest and held the carrier liable. The carrier appealed, relying on the responsibility-clause excluding liability after discharge.

HELD (BY COURT OF APPEAL – UNANIMOUSLY)

1. Liability of the carrier after discharge, including for misdelivery, was excluded by the responsibility clause.

2. Appeal allowed with costs here and below.

3. Even if the carrier was liable, which it was not, the liability was limited to £300 by a clause limiting liability to £100 per package or unit, because in this case the container was the package or unit and the limitation is in line with Art. IV(5) of the Hague Rules.

OBSERVATION

The decision is not in line with the established authorities whereby an exclusion clause, particularly in a standard form contract such as the bill of lading, will be construed narrowly against the party relying on it. More so when the exclusion is about the fundamental obligation of the party relying on it. Hence, it is opined that it does not represent the good approach to be followed.

In a contract for carriage, it is a fundamental obligation of the carrier to deliver the cargo at the end. Without that, there will be a total failure of consideration.

In Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576, [1959] 3 All ER 182, [1959] 3 WLR 214, [1959] 2 Lloyd’s Rep 114 (PC on appeal from Singapore), the liability clause read “the responsibility of the carrier … shall be deemed … to cease absolutely after [the goods] are discharged”. In this case, Lord Denning, delivering the judgement of the Privy Council, said:

If the exemption clause, on its true construction, absolved the shipping company from an act such as that, it seems that, by parity of reasoning, they would have been absolved if they had given the goods away to some passer-by or had burnt them or thrown them into the sea. If it had been suggested to the parties that the condition exempted the shipping company in such a case, they would both have said: “Of course not”. There is, therefore, an implied limitation on the clause, which cuts down the extreme width of it; and, as a matter of construction, their Lordships decline to attribute to it the unreasonable effect contended for. But their Lordships go further. If such an extreme width were given to the exemption clause, it would run counter to the main object and intent of the contract. For the contract, as it seems to their Lordships, has, as one of its main objects, the proper delivery of the goods by the shipping company, “unto order or his or their assigns”, against production of the bill of lading. It would defeat this object entirely if the shipping company was at liberty, at its own will and pleasure, to deliver the goods to somebody else, to someone not entitled at all, without being liable for the consequences. The clause must, therefore, be limited and modified to the extent necessary to enable effect to be given to the main object and intent of the contract … To what extent is it necessary to limit or modify the clause? It must, at least, be modified so as not to permit the shipping company deliberately to disregard its obligations as to delivery. For that is what has happened here. The shipping company’s agents in Singapore acknowledged: “We are doing something we know we should not do”. Yet they did it. And they did it as agents in such circumstances that their acts were the acts of the shipping company itself. They were so placed that their state of mind can properly be regarded as the state of mind of the shipping company itself. And they deliberately disregarded one of the prime obligations of the contract. No court can allow so fundamental a breach to pass unnoticed under the cloak of a general exemption clause.

Although the above judgment may treat a clause excluding liability for fundamental breach as invalid, subsequently it has been considered that it is permissible to exclude liability even for fundamental breach but only by a clause clearing intending to exclude such liability, subject to the rule of narrow interpretation of the clause against the party relying on it. See Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827 (UK HL).

The rule of narrow interpretation was well demonstrated in Motis Exports Ltd v Dampskibsselskabet AF 1912, A/S and another [2000] 1 All ER (Comm) 91 (UK CA). In this case, the responsibility-clause stated “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 ship’s rail, or if applicable, on the ship’s ramp, however caused”.

The Court of Appeal held that this clause did not exclude liability for misdelivery. The court agreed that ‘Art. VII permits the carrier to exempt or limit liability for loss of damage to goods in his custody prior to loading and after discharge from the ship’. However, the court narrowly construed the clause as being ‘concerned with responsibility for physical peril to the goods and was not apt to cover misdelivery by the carriers’. In arriving at this decision, the court pointed out ‘even if the language of the clause could cover such a case, it was not a construction which ought to be adopted, having regard to the fundamental importance of the obligation to deliver only against an original bill of lading; as a matter of construction, the courts leaned against such a result where possible’.

The court referred, with approval, to the following speech of Lord Herschell LC in Glynn v Margetson & Co [1893] AC 351 at 355:

My Lords, the main object and intent, as I have said, of this charterparty is the carriage of oranges from Malaga to Liverpool. That is the matter with which the shipper is concerned; and it seems to me that it would be to defeat what is the manifest object and intention of such a contract to hold that it was entered into with a power to the shipowner to proceed anywhere that he pleased, to trade in any manner that he pleased, and to arrive at the port at which the oranges were to be delivered when he pleased. Then is there any rule of law which compels the construction contended for? I think there is not. Where general words are used in a printed form which are obviously intended to apply, so far as they are applicable, to the circumstances of a particular contract, which particular contract is to be embodied in or introduced into that printed form, I think you are justified in looking at the main object and intent of the contract and in limiting the general words used, having in view that object and intent. Therefore, it seems to me that the construction contended for would be an unreasonable one, and there is no difficulty in construing this clause to apply to a liberty in the performance of the stipulated voyage to call at a particular port or ports in the course of the voyage.

The court further said ‘even if the language was apt to cover such a case, it is not a construction which should be adopted, involving as it does excuse from performing an obligation of such fundamental importance. As a matter of construction the courts lean against such a result if adequate content can be given to the clause. In my view it can …; it is wide enough also to cover loss caused by negligence, provided the loss is of the appropriate kind.

Mance LJ added ‘the shipowners’ construction of [the clause] would appear to go to the extreme of protecting against any misdelivery, however negligent, and to undervalue the importance which both parties must be taken to have attached to the ship’s obligation to deliver against presentation of original bills of lading’’

However, the court opined “that theft by taking without the bailee’s consent would be covered by the clause, as would loss or damage by fire, flood or other perils”. In saying so, the court referred to the dictum of Clarke J in M B Pyramid Sound NV v Briese Schiffahrts GmbH & Co, The Ines [1995] 2 Lloyd’s Rep 144 when dealing with a similar clause where Clarke J said “the clause seems to me to be concerned with the case where the goods are lost or damaged, and may include the case where they are stolen, but does not include delivery without production of an original bill of lading.”

It is opined that it may be possible to argue if a clause clearly excepted liability for misdelivery, then it is invalid on public policy grounds, as it will render the bill of lading lose its effect and do a disfavour to the international cargo trade that is largely done with bills of lading. See Empire Meat Co Ltd v Patrick Empire Meat Co Ltd [1939] 2 All ER 85[1939] 2 All ER 85: A clause in restraint of trade was void for offending public policy, but the rest of the agreement was not affected by the illegality.

Coming to £100 limitation, the court again did not follow the established authorities. First, the container should not have been considered the unit or package if the contents inside the container was stated in the bill. See The River Gurara [1997] 4 All ER 498; The Aegis Spirit [1977] 1 Lloyd’s Rep 93 (US case). Second, the £100 meant the gold value of the £100 as at 1924. See The Rosa S [1988] 2 Lloyd’s Rep 574; Brown Boveri (Australia) Pty Limited v Baltic Shipping Company [1989] 1 Lloyd’s Rep 518 (NSW Court of Appeal); Shun Cheong Steam Navigation Co Ltd v Wo Fong Trading Co [1979] 2 MLJ 254 (Malaysian Federal Court).

Overview by ARUN KASI