Maritime Cases Commentary

Court of Appeal, Singapore

Kulasekaram J, Lai Kew Chai J, Abdul Wahab Ghows J

Civil Appeal No. 79 of 1982

2 October 1984

KEYWORDS

Bill of lading - Hague-Rules Art. III(6) one-year time limit - Amendment after time limit - Addition of new cause of action by adding another bill into the claim, after time limit - Order 20 rr 5(2) and 5(5) of the Rules of the Supreme Court 1970

FACTS

A cargo claimant sued the carrier in respect of four bills of ladings, numbered KKS 1, KKS 3, KKS 31 and KKS 32. The suit was filed within the Hague-Rules Art. III(6) one-year time limit. After the time had set in, the claimant sought to amend the claim by adding one more bill, number KKS 33, under Order 20 rr 5(2) and 5(5) of the Rules of the Supreme Court 1970. The High Court disallowed the addition. Hence, the appeal by the cargo claimant to the Court of Appeal

HELD (BY COURT OF APPEAL - UNANIMOUSLY)

1. Generally, all amendments should be allowed ‘for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings’

• For an amendment to be allowed after time had set in, two conditions must be satisfied. First, it was a genuine mistake. Second, the mistake did not cause any misleading or doubt as to cause any reasonable doubt as to what the litigation was about in fact in the mind of the other party.

• The facts about the bill KKS 33 cannot be inferred from the original claim in any way.

• Hence, adding the bill KKS 33 will not satisfy Order 20 rr. 5(2) and 5(5) providing for addition of a cause of action after time has set in, namely “the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.”

• Accordingly, appeal dismissed.

OBSERVATION

The Rules of the Supreme Court 1970, in Order 20 rr. 5(2) and5(5), was the same as the current Rules of Court in Singapore (and Rules of Court 2012 in Malaysia). The rules read as follows:

(2) Where an application to the court for leave to make the amendment mentioned in paragraphs (3), (4) and (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

(5) An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.

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Federal Court, Malaysia

Thomson LP, Wee Chong Jin CJ (Singapore), Wylie CJ (Borneo)

17 August 1964

KEYWORDS

Bill of Lading - Misdelivery by Shipowner without production of bill - Cargo claim by holder of Bill, one year after misdelivery - Art. III(6) One-Year Time Limitation - Application of Time Limit where liability arises outside of loading to discharge period, that is at point of delivery

FACTS AND DECISION

Cycles were shipped from the UK to Singapore under five bills of lading, subject to Hague Rules. The bills of ladings were indorsed to and held by bank. Goods were misdelivered by the Shipowner to another without production of the bill upon letter of indemnity. The bank took action one year after the misdelivery. The shipowner relied on Art. III(6) one-year time limit.

The court held that the one year time limit did not apply as the application of the Hague Rules was limited to liability arising from the time of loading to the time of discharge. They do not apply when liability arises in connection with delivery after discharge, as in this case. This was because the entire Hague Rules applies only between the time of loading and the time of discharge, by virtue of Art. II of the Rules.

OBSERVATION

In many cases, delivery will be after discharge. In such case, as per this decision, the one-year time limit, and the liability limitation in Art. IV(5), will not apply where any damage occurred between discharge and delivery or for misdelivery. However, there are instances where the delivery will be together with discharge, such as where the consignee takes delivery and discharges the cargo from the ship (eg. free-in and free-out). In such cases, if a misdelivery happens together with discharge, then the the one-year time limit will apply. The ratio in this case is applicable both to cases under Hague and Hague-Visby Rules, and both to time limitation in Art. III(6) and liability limitation in Art. IV(5). To overcome the effect of this decision, it will be possible for the carrier to insert a specific time and liability limitation clause for misdelivery.

The case was was approved and followed by the Malaysian Federal Court in The Lung Yung & Thai Yung, Owners & Ors v Sadit Timber Sdn Bhd & Ors [1984] 1 MLJ 29. The Alhani [2018] EWHC 1945 (Comm) will support the decision in this case.

Hague-Visby Rules discharges the carrier and shipper from all liability ‘whatsoever’ ‘in respect of the goods’. In the case of Hague Rules, the word ‘whatsoever’ is not there, but the words ‘in respect of the goods’ is there. Arguments have been advanced based on these words, in contrast to The Alhani and Peninsular and Oriental Steam Navigation, that the intention of the Rules is to globally provide the time limitation including in misdelivery and post-discharge damage cases. Even if that was not so in the case of Hague Rules, the argument goes, it is at least so in the case of Hague-Visby Rules with the additional word ‘whatsoever’. Similar argument can be advanced in the case of application of liability limitation regime in Art. IV(5) to misdelivery and post-discharge damage delivery cases with the words ‘in any event’ and ‘loss or damage to or in connection with the goods’. The words ‘in any event’ here has been widely interpreted, though not in the context of misdelivery or post-discharge damage: see Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd, The Kapitan Petko Voivoda [2003] EWCA Civ 451; [2003] 1 All ER (Comm) 801; [2003] 2 Lloyd's Rep 1; (2003) Times, 17 April; [2003] All ER (D) 46 (Apr) (English CA), and Parker Distributors (Singapore) Pte Ltd v A/S D/S Svenborg & Anor [1982-1983] 1 SLR 153 (Singapore CA).

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COURT OF APPEAL, Singapore

Wee Chong Jin CJ, FA Chua J, AV Winslow J

28 May 1974

KEYWORDS

Bill of Lading - Cargo Claim - Burden on Cargo Claimant to prove damage during transit - Cargo Claimant relying on Expert Report, without offering Expert as Witness - Singapore Evidence Act s. 32(1)(b) - Estoppels in favour of indorsee of bill against carrier by statement in bill of lading only in respect of external condition, not internal condition

FACTS AND DECISION

Many packages of clothing material was shipped from Karachi (in Pakistan) to Singapore on board two ships, namely the Lars and the Jens, owned by the same shipowner under a few clean bills of lading.

Upon delivery, the consignee (indorsee of the bills) complained that the goods had been damaged. For the goods carried by the Lars, the complaint was that the goods were damaged by sea water while in transit. For the goods carried by the Jens, the complaint was that the goods were damaged by rain water while on lighterage.

To prove the damage, its nature and extent, the only evidence essentially adduced by the consignee were some reports of experts, none of whom was called to give evidence. The court held that whilst the carriers would be estopped from challenging order and condition of goods when shipped, the burden was still on the consignee to prove that they arrived damaged and the extend of the damage. The court pointed out that the estoppel is in respect of external condition of the goods and not the internal condition. The reports, in the absence of the expert giving evidence before the court, was inadmissible, being hearsay evidence. In so holding, the court first pointed out that it did not fall within the Evidence Act s. 32(1)(b) exception, i.e. the attendance of the witness cannot be procured without an amount of delay or expense which under the circumstances of the case appears to the court unreasonable (See Observation [2]). Second, the s. 32(1)(b) was not intended to be available to expert witnesses (See Observation [3]). Accordingly, the claim was disallowed.

OBSERVATION

[1] Whether Hague or Hague-Visby Rules will apply during lighterage will depend on the terms of the bill. If the bill stated that the goods will so be discharged into lighters, then the Rules will likely not apply for the lighterage phase: see Captain v Far Eastern Shipping Co [1979] 1 Lloyd’s Rep 595.

However, if the bill did not state that the goods will be so discharged or that merely gave a liberty to the carrier to so discharge, then likely the lighterage phase will be subject to the Rules: see Mathew Foods Ltd v Overseas Containers Ltd [1984] 1 Lloyd’s Rep 317.

[2] Sec. 32(1)(b) of the Evidence Act, which is materially identically to the same section in the Malaysian Evidence Act 1950 and in the Indian Evidence Act 1872, providing an exception to the general rule against admissibility of hearsay evidence, reads as follows:

32. (1) Statements, written or verbal, of relevant facts made by a person ... whose attendance cannot be procured without an amount of delay or expense which under the circumstances of the case appears to the court unreasonable, are themselves relevant facts in the following cases:

(a) ...

(b) when the statement was made by any such person in the ordinary course of business ...  or of a document used in commerce, written or signed by him.

The position in England and Wales is the different. Hearsay evidence is admissible by virtue of s. 1 of the Civil Evidence Act 1995, subject to procedural safeguards in ss. 2 and 3 of the Act and CPR Rule 33.1 - 33.6. However, the weight to be attributed is a matter for the court to determine, depending on the circumstances (s. 4 of the Act).

[3] Subsequent to this case, the Evidence Act was amended in 2012 by addition of s. 32B(1) that will allow s. 32(1) to be available also to expert witnesses. The s. 32B(1) reads as follows:

Subject to this section, section 32 applies to statements of opinion as they apply to statements of fact.

There is no equivalent amendment in Malaysia and India, hence the observation made on this point in this case is still relevant to Malaysia and India.

The position in England and Wales is again different. CPR Rule 35.5 provides that expert evidence is normally given in a written report, unless the court otherwise directs, and the court will not ordinarily direct an expert to attend a hearing in small claims tracks and fast tracks. However, provision is made for the report to be checked by mechanisms such as written questions to the expert (CPR Rule 35.6), court's direction to a party to provide further information to the expert (CPR Rule 35. 9), single joint expert report (CRP Rules 35.7 and 35.8), discussion between experts and a subsequent report by them to the court (CPR Rule 35.12, 35 PD 9).

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Court of Appeal, Singapore

Wee Chong Jin CJ, FA Chua J, AP Rajah J

4 September 1979

KEYWORDS

Bill of Lading - Cargo Claim - Containerised Cargo, stuffed and sealed by Shipper and unpacked by Carrier upon discharge - Short goods - US Carriage of Goods by Sea Act 1936 - Notations of ‘House to Pier Container’, ‘Shipper’s Load, Stowage and Count’ and ‘Received the container said to contain goods in apparent good order and condition …’ - Effect of s. 3(40, Bill as prima facie evidence of statements therein - Are the notations a non-responsibility clause invalid under s. 3(8)?

FACTS AND DECISION

A container was shipped from New York to Singapore. The contents of the containers apparently included 580 cartons of soaps shipped by the shipper to the consignee (indorsee of the bill). The container was stuffed and sealed by shipper's agent and delivered to the carrier for carriage. The carrier issued a bill of lading stating the number of packages to be 580, description of package and goods to be cartons of toilet soap. The bill was subject to US Carriage of Goods by Sea Act 1936, which has largely adopted Hague Rules (USA is not a signatory to the Hague or Hague-Visby Rules). The notations in the bill included:

a) 'House to Pier Container';

b) 'Shipper's load, stowage and count';

c) ‘the goods or the containers ... other packages said to contain goods herein mentioned were received in apparent good order and condition, except as otherwise indicated herein to be transported to the port of discharge named.’;

d) ‘Received the container … said to contain goods herein mentioned in apparent good order and condition …’

Upon discharge at Singapore, the shipowner's agent unpacked the container and stacked the soap cartons in the designated area of the port's godown. When the goods were delivered to the consignee, there were only 375 cartons, short of 205 cartons. Unpacking and stacking were done by contractors of the carrier, without presence of any representative of the carrier, consignee or port authority. There was no explanation for the shortage.

The consignee sued the carrier. The consignee argued that the bill was prima facie evidence of shipment of 580 cartons, relying on s. 3(4) of the Act, which is materially identical to Art. III(4) of the Hague Rules. The carrier argued that the bill was only evidence of receipt of the container and not the contents inside the container which the carrier had no opportunity of checking.

It was established by evidence that 'House to Pier Container' meant that the packaging was done in the supplier’s warehouse or factory and the container will be towed to the pier intact”. 'Shipper's load, stowage and count' meant that the shippers stuff the container, stow them and count them without any  representative from the carrier and seals the container and ships it on board.

Accordingly, the court held that the bill did not raise any presumption as to the cargo inside the container shipped and that the burden of proving it rested with the consignee, which it failed to discharge.

The consignee further argued that any notation to the effect that the acknowledgement was limited to receipt of a container rather than the contents of the container was contrary to s. 3(8) of the Act, which is materially identical to Art. III(8) of the Hague Rules.

The court rejected this argument, holding such notations are not a non-responsibility clause and hence do not contravene the s. 3(8). Accordingly, the court disallowed the claim.

OBSERVATION

The principle reinforced by this case is that as long as the carrier had no means of checking the contents of the cargo and the fact is clear on the bill, by whatever notation or statement, the Art. III(4) presumption does not arise.

The finding that the notations are not a non-responsibility clause is in line with established authorities such as The Esmeralda 1 [1988] 1 Lloyd’s Rep 206 (Supreme Court, NSW).

Sec. 3(4) of the US Carriage of Goods by Sea Act 1936 reads as follows:

Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods as therein described in accordance with paragraphs (3)(a), (b), and (c), of this section ...

Sec. 3(8) of the Act reads as follows:

Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability otherwise than as provided in this Act, shall be null and void and of no effect. ...

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COURT OF APPEAL, Singapore

Wee Chong Jin CJ, T Kulasekaram J, FA Chua J

23 July 1981

KEYWORDS

Bill of Lading - Cargo Claim - Damage due to Negligence of Carrier - Defence in s. 4(2)(a) of the US Carriage of Goods Act 1936 (identical to Art. IV(2)(a) of the Hague and Hague Visby Rules) - Scope of ‘act, or neglect or default in the management of the ship’ in the section - management of ship’s empty cargo carrying facilities as opposed to managing cargo.

FACTS AND DECISION

A cargo of kraft paper was carried from Buenos Aires (in Argentina) to Singapore under a bill of lading subject to US Carriage of Goods by Sea Act 1936, which has largely adopted the Hague Rules (although US is not a signatory to the Hague or Hague-Visby Rules). The cargo was damaged by water. The facts leading up to the damage were as follows. The paper was stowed in a hold at the stern (rear side of the ship). Below the hold, there were two deep tanks with a manhole access from the main deck. The purpose of the tanks was twofold. One, to carry cargo of vegetable oil (or dry cargo) and another to store fuel oil (for ship's propulsion). At the time of the incident, both tanks were originally empty having discharged the last cargo of vegetable oil. The crew went into the tanks to clean them. The master ordered filling the tanks with about 350 tons of water, which will be done with one hour of pump operating. The total capacity of the two tanks were 780 tons. The engineer turned the pump on at 6 pm and was supposed to turn it off at 7.00 pm. He forgot to turn it off until 8.30 pm, with the result the pump filled up the tanks to the full capacity and further exceeded the capacity. The water entered the main deck and the cargo hold where the paper was stored, since manholes were left open at that time to facilitate inspection of the water levels. Thus the paper was damaged.

The consignee (indorsee of the bill) sued the carrier. The carrier claimed that the damage was caused by an 'act, or neglect or default in the management of the ship', so that liability for that would be excluded by s. 4(2)(a) of the Act. The said section is identical to Art. IV(2)(a) of the Hague and Hague-Visby Rules. The Court agreed with this contention and held that the carrier was not liable, because the negligence was not with regard to any particular cargo but was about the management of the ship.

OBSERVATION

Notably, in this case, although the holds had dual purpose - carriage of cargo and storing of fuel oil for the ship - at the time of the negligent act or omission, it was not carrying any cargo and the actions performed were concerned with management of the ship or ship's cargo carrying facilitates but not any cargo itself. The reason for performing the work in relation to the cargo carrying facilities might have been to prepare the ship to carry next cargo, but that did not affect the ability of the carrier to rely on the exception and the decision.

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Court Of Appeal, Singapore

Wee Chong Jin CJ, Lai Kew Chai J, Fa Chua J

13 May 1982

KEYWORDS

Bill of Lading - Cargo Claim in the name of ‘Owners of the Cargo’ - Shipper’s address given as Plaintiff’ address - Plaintiff asked for and obtained Security in name of Shipper - Shipper was not the consignee or bill of lading holder - Plaintiff maintained argument Shippers are interested (Dunlop v Lambert 1839) - Application by Plaintiff to Amend Claim after Limitation Period - Court Refused Amendment

FACTS AND DECISION

Automotive spare parts carried on board vessel Kota Pahlawan from Singapore to Jakarta (Indonesia) under a bill of lading. Shipper was a Singapore company. The bill was issued to order of a bank. Party to notify was an Indonesian company. Hague-Visby Rules was applicable (by Singapore Carriage of Goods by Sea Act 1972 (Cap 30) now renamed as Carriage of Goods by Sea Act (Cap 33)). The shipper requested the Art. III(6) one-year time limit to be extended by four months, which the carrier agreed. Within the extended time, an action in rem was filed in the name of "Owner of the Cargo ...". The plaintiff requested security by bank guarantee in the name of the shipper in order not to arrest the ship, which the carrier accordingly furnished. The carrier did not file appearance (equivalent to ‘acknowledgement of service’ in England and Wales), hence the plaintiff secured default judgement. The carrier successfully applied to set aside the default judgment on grounds (among others) that the plaintiff was not the indorsee of the bill of lading. At this point, the plaintiff applied to amend the writ (equivalent to ‘claim form’ in England and Wales), seeking to name the indorsee of the bill as the plaintiff. By then, time limitation had already set in.

From the fact that the shipper's address was given as the plaintiff's address and that the security was  requested and given in favour of the shipper, the court decided that the true identity of the plaintiff in the original writ was the shipper rather than owners of the cargo (which could in effect mean the indorsee of the bill). The court found that the amendment sought now was to change the identity of the plaintiff, and not merely to correct the name of any plaintiff where the mistake was a genuine one and not misleading as to identity of the plaintiff. Accordingly, the court held that the amendment did not fall within Order 20 rules 5(2) and 5(3) of the Rules of the Supreme Court 1970 and refused the amendment.

OBSERVATION

The Rules of the Supreme Court 1970 is the predecessor to the current Rules of Court. The current Rules has the an identical provision with the same reference. The Order 20 rules 5(2) and 5(3) read as follows:

(2) Where an application to the court for leave to make the amendment mentioned in para (3) ... is made after any relevant period of limitation current at the date of issue of the writ has expired, the court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

(3) An amendment to correct the name of a party may be allowed under para (2)  notwithstanding that it is alleged that the effect of the amendment will be to substitute a new party if the court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the person intending to sue or, as the case may be, intended to be sued.

An identical provision is found in the current Rules of Court 2012 in Malaysia by the same reference.

In England and Wales, amendment and changes to parties after the period of limitation has expired is regulated by CPR Rules 17.4 and 19.5. However, both the rules are limited to cases where limitation is set by the Limitation Act 1980, Foreign Limitation Periods Act 1984 or any other enactment allowing such amendment or change. As the one-year time limit is not from any of the three legislations named in the CPR, but from Art. III(6) of the Hague-Visby Rules incorporated by the Carriage of Goods by Sea Act 1971, the CRP rules will not apply to cargo claims. Thus, any amendment or change to parties in cargo claims will be governed by common law.

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Court of Appeal, Singapore

Wee Chong Jin CJ, Lai Kew Chai, AP Rajah J

28 April 1983

KEYWORDS

Bill of Lading - Cargo Claim - Breach of agreement to store goods in ‘strong room or locker room’ - Goods lost and damaged - Fundamental Breach and Deviation argued - Entitlement of Carrier to Rely on Liability Limitation in s. 4(5) of US Carriage of Goods by Sea Act 1936 - Effect of ‘in any event’ in s. 4(5) similar to Art. IV(5) of Hague and Hague Visby Rules

FACTS AND DECISION

Seventeen packages of Parker writing instruments were carried from San Francisco to Singapore under a bill of lading. It was agreed that the goods would be carried in 'strong room or locker room'. However, it was not carried in such room. The value of the goods were not declared in the bill of lading. Five packages were lost and three were damaged resulting in loss of more than USD86,000. The consignee sued the carrier for the loss.

The applicable law was US Carriage of Goods by Sea Act 1936, which had largely adopted the Hague Rules (although US is not a subscriber of the Rules). Sec. 4(5) of the Act provided for liability-limitation in the sum of USD500 per package when value was not declared. The s. 4(5) read as follows:

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States or in case of goods not shipped in packages per customary weight unit or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

The carrier sought to limit its liability to $500 per package as per the section. The consignee argued that this was a case of fundamental breach or deviation, that is, the carrier embarked on a performance that was different from that contracted for, so that the carrier should not be entitled to rely on the statutory liability-limitation.

However, the court disagreed. The court placed emphasis on the words 'in any event' in the section and held that it covers the scenario in question. Hence, the court held that the carrier was entitled to rely on the liability limitation in the section.

OBSERVATION

A similar decision was reached by the English Court of Appeal in Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd, The Kapitan Petko Voivoda [2003] EWCA Civ 451; [2003] 1 All ER (Comm) 801; [2003] 2 Lloyd's Rep 1; (2003) Times, 17 April; [2003] All ER (D) 46 (Apr) where the contract provided for carriage 'under deck only' but the goods were carried on deck and damaged. The court held that despite this serious breach, the carrier was entitled to rely on the Hague Rules Art. IV(5) liability-limitation because it was applicable 'in any event'. The Art. IV(5) is materially similar to the s. 4(5) except in the amount of the liability limitation.

The Art. IV(5) reads as follows:

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 £100 per package or unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

It is opined that despite the appellate courts having favoured a literal reading of the words 'in any event', the doors for judicial ingenuity to refuse the liability-limitation regime in cases of serious breach is not closed. Arguably, the agreement such as to carry under deck or in a strong room can be treated as a collateral contract separate from the main carriage contract but embodied in the bill of lading that will be transferred with the bill.

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Court of Appeal, Singapore

Wee Chong Jin CJ, LP Thean, Punch Coomaraswamy J

13 May 1988

KEYWORDS

International Trade - Dispute between Seller and Buyer as to Condition of Goods when Shipped - Clean Bill of Lading issued by Shipowner - Bill states “Apparent Good Order and Condition” - Evidential Value of the Bill of Lading statement in case between Seller and Buyer

FACTS AND DECISION

A seller sold and shipped steel plates to the buyer. The shipowner issued a clean bill of lading. Upon delivery of the goods, the buyer complained they were damaged. The buyer made a claim against the seller for the resultant loss. The trial court found that the cause of damage was threefold. First, defects in the plates. Second, spillage of salt onto the plates during discharge. Third, exposure to weather in buyer's open yard. The seller was only liable in respect of the first cause, but not the second (See Observation [1] below) and third ones. In the circumstances, the trial judge apportioned liability 50:50 between the seller and the buyer, and ordered the seller to pay 50% of the loss.

The seller appealed, and the buyer cross-appealed. The seller relied on the clean bill of lading to argue that it had shipped the goods in good order and condition. The Court of Appeal rejected this argument on grounds that it may not show qualitative defects and it only shows the 'apparent' order and condition. The court also doubted if the bill of lading was an evidence of quality in a suit between the seller and the buyer. The court also refused to disturb the apportionment decided by the trial court, as it was based on findings of fact and there was no error of law. Accordingly, the court affirmed the trial court's decision.

It is opined that in fact bill of lading will merely be hearsay evidence if it is relied on to prove the statements therein, and it may either be inadmissible or of limited value if admitted (see Observation [2] below).

OBSERVATION

[1] The seller's responsibility is only until the goods pass the rail of the ship, thereafter the risk is with the buyer: Manbre Saccharine Co v Corn Products Co [1919]1 KB 198; C Groom Ltd v Barbar [1915] 1 KB 316. Hence, for the damage that occurred during discharge, the risk was with the buyer, although the buyer may have a claim against the shipowner if the spillage was the latter's fault (see Hague /  Hague-Visby Rules - Articles II(1), II(2), III(6) and IV(2)).

[2] In Singapore, Malaysia and India, all with nearly identical Evidence Act, hearsay evidence is generally inadmissible (see ss. 32(1), 60 of the Evidence Act). However, an exception in s. 32(1)(b) of the Act may apply in case of bills of lading. The s. 32(1)(b) reads as follows:

32. (1) Statements, written or verbal, of relevant facts made by a person ... whose attendance cannot be procured without an amount of delay or expense which under the circumstances of the case appears to the court unreasonable, are themselves relevant facts in the following cases:

(a) ...

(b) when the statement was made by any such person in the ordinary course of business ...  or of a document used in commerce, written or signed by him.

In England and Wales, hearsay evidence is admissible by virtue of s. 1 of the Civil Evidence Act 1995, subject to procedural safeguards in ss. 2 and 3 of the Act and CPR Rule 33.1 - 33.6. However, the weight to be attributed is a matter for the court to determine, depending on the circumstances (s. 4 of the Act).

As between the shipper and the carrier, the statements constitute a prima facie evidence against the carrier, which the carrier may rebut with evidence adduced by the carrier (i.e. burden on carrier); as between the a third party transferee of the bill of lading in good faith, the statements are conclusive evidence, so that no evidence may be adduced by the carrier to rebut it: Article III(4) of the Hague / Hague-Visby Rules. However, this does not extend to dispute between the seller and the buyer, as in this case.

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Court of Appeal, Singapore

Wee Chong Jin CJ, TS Sinnathuray J, LP Thean J

14 September 1989

KEYWORDS

Bill of Lading - Cargo Claim - Singapore Jurisdiction Clause - Voluntary Application of Art. III(6) Hague Rules by Contract - Contractual One Year Period Time Limit - Admiralty Action in Rem - Application to Amend Writ in Rem to add two Sister Ships after Contractual Limitation Period - Conditional Appearance entered - Nature of Action in Rem when Conditional Appearance entered, when Unconditional Appearance entered, when no Appearance entered - When No Appearance, only Res Liable - When Unconditional Appearance, both Res and Owner Liable, Liability of Owner not limited to value of Res

FACTS AND DECISION

Cargo of cotton sheets were carried from Karachi (in Pakistan) to Singapore under two bills of lading on board the vessel Brani. The bills provided Singapore laws to be the governing law. They also provided one year time limitation to bring any suit and incorporated the Hague Rules, which too provided for one year time limit by Art. III(6).

The cargo arrived damaged and the cargo owner took an admiralty action in rem within the one year limitation period against the owners of the Brani Island.

After the one year limitation period, the cargo owner applied ex parte (without notice) to amend the writ (equivalent to ‘claim form’ in England and Wales) change the description of the defendant as the owners of the Brani Island, Senang Island and Kusu Island. The last two are sister ships of the Brani. The registrar allowed the application. Subsequently, the cargo owner arrested Kusu Island and the shipowner entered an unconditional appearance (equivalent to ‘acknowledgement of service’ in England and Wales with option of intent ‘to contest jurisdiction’ selected) and applied to strike out the amendment made.

First, the court dealt with the question whether addition of a res in an action in-rem was equivalent to addition of a defendant, even when the owner of all the res was the same person. In an action in-rem, if the defendant does not enter appearance (or enters conditional appearance), then the liability is only on the res and limited to the res. If the owner enter unconditional appearance and thereby submits to the jurisdiction of the court, the liability is also on the owner and it is not limited to the value of the res against the owner. Accordingly, when issued, the writ is only against the res, despite being described as the owners of the res. Thus, the court answered the question in the affirmation.

Second, the court considered the question whether res may be added, by amendment to the description of the defendant, after the contractual limitation period. The court answered this question in the negative, as the amendment sought was not a mere correction to the name of the res-defendant, but to add to it.

Accordingly, the court struck out the amendment and set aside the service of the same on the Kusu Island.

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Court of Appeal

Wee Chong Jin CJ, TS Sinnathuray J, Yong Pung How J

12 September 1990

KEYWORDS

International Trade - Letter of Credit - Discrepancy - Procedure for dealing with Discrepancy, Bank to ask Buyer for Instruction - Waiver of Discrepancy - Practical Test of Strict Conformation - Conformation a matter of Construction - General Description of Goods, not Inconsistent with Letter of Credit, permissible in documents other than Invoice (Art. 32(c) UCP 1974 Revision) - Insurance Policy geographical coverage description can be  in more specific than that in Letter of Credit

FACTS AND DECISION

Buyer's bank opened 2 letters of credit for shipments of motor vehicles in identical terms. Each was for four units of new motor cars of specified make and model, shipment from Hamburg to Singapore. Pursuant to the terms of the letter of credit, the seller was to furnish among others insurance policy covering from seller's warehouse to buyer's warehouse and a certificate of shipment issued by the shipowner, and full set of bills of lading.

The seller tendered the documents. There was one certificate of shipment only covering both bills of lading and issued by the shipowner's agent. The certificate described the car as in the letters of credit save that the word 'new' was not included. The bank notified the buyer only of the discrepancy that the certificate was issued by the of the shipowner's agent. The buyer replied accepting the discrepancy. The insurance policy coverage was from 'warehouse West Germany to warehouse Singapore'. The bill of lading showed that the goods were received in Stuttgard and the loading port was Hamburg, both in West Germany, and the port of discharge was Singapore. The bank made the payment.

The buyer failed to reimburse the bank The bank sued the buyer and obtained a summary judgment. In an attempt to set aside the summary judgment, the buyer argued that the bank should not have paid because there was no strict compliance. This allegation was premised upon four grounds. One, there should have been two separate certificates of shipment, one for each bill of lading, and the certificate should have been issued by the ship owner. Second, bills were not originals. Third, the insurance policy coverage differed from that required in the letters of credit. Fourth, the certificate of shipment missed the word 'new'.

As to the first ground, the court held whilst there must be strict conformation, that was not all and that could not be rigidly applied to all situations. Conformation was a matter of construction and each case must be decided on its own merits. As it was not expressly said in the letters of credit that there must be a separate certificate, the single certificate tendered satisfied the purchase, hence no non-conformation on this count. On the objection of the buyer that the certificate was issued by the shipowner's agent, the court held that the discrepancy was waived by the buyer by accepting it, although the buyer did not sign the acceptance on the certificate itself. When the bank considers there is a discrepancy, this is what the bank must do, that is, ask the buyer for its instructions and follow the same, which the bank did.

As to the second ground, the court found that the bills appeared to have been properly signed, and dismissed this ground.

As to the third ground, the court held that the insurance policy was merely more specific and not discrepant.

As to the fourth ground, the court held that it was permissible to describe the goods in general terms not inconsistent with the description in the letter of credit, other than in invoice. This was allowed by Art. 32(c) of the UCP for Documentary Credits (1974 Revision) [This is now provided in the current UPC 600 at Articles 18(c) and 14(e).] In this case, the missing 'new' was not inconsistent with the letter of credit, but was merely more general and less specific than the letters of credit description. Accordingly, the court dismissed this ground too.

Accordingly, the court found for the bank, by way of summary judgment.

OBSERVATION

UCP for DC 1975 - Art. 32(c): The description of the goods in the commercial invoice must correspond with the description in the credit. In all other documents the goods may be described in general terms not inconsistent with the description of the goods in the credit.

The procedure for the bank to check with the buyer on any discrepancy is now in Art. 16(b) of the current UCP 600, which provides:

When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).

The said Art. 14(b) provides:

A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

Overview by ARUN KASI

Court of Appeal, Singapore

Chao Hick Tin JA, Tan Lee Meng J

27 August; 3 October 2002

KEYWORDS

Bill of Lading - Straight Consigned Bill - Although similar to Seaway Bill, still has characteristics of Bill of Lading other than negotiability - Delivery without Presentation of Bill not permissible, unless allowed by clear words - Misdelivery - Conversion

FACTS AND DECISION

A motor car was shipped by a seller after the buyer paid the downpayment. The shipowner issued a straight consigned bill naming the buyer as the consignee. The bill was handed to the seller as the shipper.

While the seller still retained the bill, as the buyer has not paid, the shipowner delivered the car to the buyer. Thus the seller sued the shipowner for misdelivery.

The court held that it was a misdelivery for the shipowner to deliver without presentaion of the bill, although it was a straight consigned bill, and held the shipowner liable for conversion. 

The court explained that a straight bill of lading, although similar in some aspects to seaway bill, essentially retains other characteristics of a bill of lading except that it is not negotiable like order or bearer bills. The court further said that the fact that a bill of lading was issued must mean that the parties intended delivery against presentation of the bill, unless otherwise said by clear words.

The decision was made summarily.

OBSERVATION

This decision is in line with The Rafaela S [2005] UKHL 11.

Overview by ARUN KASI

Court of Appeal, Singapore

Chao Hick Tin JA, Judith Prakash J

11 September 2002; 30 October 2002

KEYWORDS

Bill of Lading - Bill originally issued to order. Bill then indorsed in blank, making it bearer bill. Bill then indorsed specifically by buyer’s bank to sub-buyer’s bank, converting it back as order bill - Bill returned by sub-buyer’s bank to buyer’s bank without indorsement back - Buyer’s bank cancelled all indorsements and claimed cargo from shipowner - shipowner already misdelivered cargo without presentation of bill - court struck out buyer’s bank’s claim as buyer’s bank was not the lawful holder because the bills were not indorsed back to it.

FACTS AND DECISION

In this case, crude palm oil was carried. The bills of lading were issued by the shipowner to the order of the shipper. The shipper-seller indorsed them in blank and delivered the same to the buyer. The buyer sold the cargo to a sub-buyer and delivered the bills to the buyer's bank, without any indorsement. The buyer's bank indorsed them to the sub-buyer's bank and forwarded the same to the latter. The sub-buyer did not pay and collect the bills. Hence, the sub-buyer's bank returned the bills to the buyer's bank, however without any indorsement. The buyer's bank then cancelled all the indorsements, namely the shipper's indorsement in blank and its own indorsement to the sub-buyer's bank, just by stamping "Cancelled" on the indorsements.

In the meantime, the shipowner misdelivered the goods without presentation of the bills. The buyer's bank, holding the bills, sued the shipowner for the loss. The shipowner applied to strike out the claim.

The court held that the bills, which were originally order bills became bear bills when they there indorsed in blank and delivered to the buyer. They then again became order bills when they were specifically indorsed by the buyer's bank to the sub-buyer's bank and delivered to the latter. Accordingly, when the sub-buyer's bank returned the bills, it should have indorsed them to the buyer's bank. As this was not done, the buyer's bank did not become the lawful holder of the bill. It was no open to any party to cancel an indorsement once made, hence the cancellation of the indorsements by the bank was of no effect. Accordingly, the court struck out the claim. 

Overview by ARUN KASI

Court of Appeal, Singapore

Yong Pung How CJ, Chao Hick Tin JA, Judith Prakash J

11 September 2002; 12 November 2002

KEYWORDS

Bill of Lading - Misdelivery - Conversion action available only to a bill of lading holder - Action by Glencore Switzerland, bills endosed to and held by Glencore UK as agents for Glencore Switzerland

FACTS AND DECISION

Fuel oil belonging to the claimant, carried on board the Hyperion from Iran to Fujairah, was misdelivered into another tanker, namely the Cherry, owned by another carrier. The owners of the Cherry then wrongfully on-carried the cargo to Singapore and misdelivered the same to a wrong person. The claimant however did not hold the bill of lading. The claimant brought an action in conversion (among others) against the owners of Cherry. The court disallowed the claim, as a claim in conversion was only available to a person who held the immediate right to possession, i.e. holder of the bill. The result would have been the same even if the action was brought against the former carrier who misdelivered to the latter carrier.

This was a consolidated appeal case, in which the court also decided a claim brought by the claimant against the owners of the Cherry, but in respect of a different shipment of fuel oil from Kuwait to Fujairah and two other claims brought by the same claimant against the owners of two other tankers, the Epic and the Addax. In the case of these three shipments, carried by the Cherry, the Epic and the Addax , the bills of lading were endorsed to and held by a sister company of the Swiss based claimant (Glencore International AG, Switzerland) in the UK (Glencore UK Ltd, UK) The sister company was holding the these three bills as agent for the claimant, hence the claimant was considered the holder of these bills. All the cargo of the three shipments were misdelivered by the respective owners of the three tankers without presentation of the bill (upon instruction of the seller, who also happened to be the time charterer of the three carrying ships) The claims in respect of these three shipments, bought on the basis of the bills of lading contract (among others), were allowed.

OBSERVATION

However, the procedural correctness of the decision in relation to the three shipments is questionable, as the bills were not merely held by the UK company, but were indorsed to the UK company. Hence, the UK company was the holders of the bill in the eyes of the law, even if they held it for the benefit of the Swiss company. In fact, s. 2(4) of the Bills of Lading Act in Singapore, which is identical to s. 2(4) of the Carriage of Goods by Sea Act 1992 in the UK, makes provision for this scenario by allowing the holder of the bill to take action for the benefit of the owner of the cargo. Hence, as a matter of procedure, the better and safer approach, particularly taking into account the short time limit (Art: III(6) of the Hague Rules / Hague-Visby Rules: Time limit of one year to bring suit from the date of delivery or from the date when the cargo should have been delivered) would have been at least to join the UK company as a claimant.

Overview by ARUN KASI

Court of Appeal, Singapore

Yong Pung How CJ, Chao Hick Tin JA, Tan Lee Meng J

24 September 2003; 21 November 2003

KEYWORDS

Bill of Lading - Deck Cargo - Carriage of Goods on Deck under Common Law - Hage-Visby Rules not apply - Absolute Obligation to provide Seaworthy Ship - Exemption by by specifically referenced Exclusion Clause, and not by generally worded Exclusion Clause - Obligation York Antwerp Rule, Rule D, as interpreted by Goulandris Brothers v B Goldman & Sons - Actionable Fault test - Shipowner’s entitlement to General Average Contribution - Court criticised The Imrov and refused to follow

FACTS AND DECISION

Cargoes of logs were carried by a shipowner on deck, under a few bills of lading. The agreement was to carry on deck. Hence, the Hague-Visby Rules did not apply and the carriage was subject to common law. The bills of lading provided that the cargoes were carried on deck 'at [s]hipper's risk; the [c]arrier not being responsible for loss or damage howsoever arising [or howsoever caused]'.

The ship was unseaworthy at the outset of the voyage and broke-down during the voyage. She was towed to the discharge port. The shipowner claimed general average contribution from the cargo owners, in respect of the towage costs. Hence, the action by the shipowner against cargo owners.

Under the York Antwerp Rules, which was applicable to this case - Rule D as interpreted by Goulandris Brothers Ltd v B Goldman & Sons Ltd [1957] 3 WLR 596 - if the general average arose due to an 'actionable fault' of the shipowner, then the shipowner will not be entitled to general average contribution. In this case, whether the shipowner committed an actionable fault dependent on 2 things. One, the seaworthiness of the ship and another the exemption clause.

At common law, the shipowner's liability to provide a seaworthy ship at the beginning of the voyage is an absolute one, that can only be exempted by specific reference and by any general exclusion clause. It was the finding at the trial that the ship was unseaworthy at the outset of the voyage. As the exclusion clause here was not one specifically referring to the seaworthiness-obligation, the court held that it did not relief the owner from liability. Hence, there was an actionable fault on the part of the shipowner and the court disallowed the general average claim of the shipowner. In arriving at this conclusion, the court critisised The Imrov [1999] 1 All ER (Comm) 724, which held that a general exclusion clause exempted the shipowner from liability for seaworthiness, as being out on line with authorities and refused to follow it.

OBSERVATION

The York Antwerp Rules are normally voluntarily incorporated into bills of lading, as seemingly was so in this case. The Rule D, in the latest 2016 version of the Rules, reads: “Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the common maritime adventure, but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault.” The rule was the same in its predecessors 2004 and 1994 versions, save for the unlined part (“common maritime”).

Overview by ARUN KASI

Court of Appeal, Singapore

Chao Hick Tin JA, Judith Prakash J

27 July 2005; 14 September 2005

KEYWORDS

Bill of Lading - Misdelivery - Action by buyer’s bank, as holder of bill of lading, against shipowner - Bill issued to order of buyer’s bank - No indorsement of seller-shipper to seller’s bank or of seller’s bank to buyer’s bank required - No direct transfer of bill from the seller to the buyer’s bank required - Buyer’s bank the lawful holder - Buyer’s bank entitled to maintain action against shipowner

FACTS AND DECISION

This case involved four shipments of logs from a Malaysian port to an Indian port, payment by way of letters of credit. The buyer arranged its bank to issue the letters of credit. The sellers shipped the cargoes. The shipowner issued bills of lading to the order of the buyer. Seemingly, the sellers were the shippers and accordingly named in the bills of lading. The sellers presented the bills to the sellers' bank together with the other required documents, which the bank forwarded to the buyer's bank for payment. There was no indorsement by the sellers to the seller's bank. There was also no indorsement by the seller's bank to the buyer's bank. The buyer's bank paid. Subsequently, the buyer defaulted in reimbursement to the buyer's bank and bill was retained by the buyer's bank. The buyer's bank claimed delivery of the goods, as the holder of the bills, from the shipowner. The shipowner was not able to deliver, as there was a misdelivery. Thus, the buyer's bank sued the shipowner. The shipowner applied to strike out the claim, claming that the buyer's bank was not a lawful holder because the bills were not indorsed by the shippers to the sellers' bank and were not on-indorsed by the sellers' bank to the buyers bank, alternatively the bills were not directly delivered by the shippers to the buyer's bank. The court dismissed the application, holding that that there was no necessity to so indorse or to make a direct transfer from the shippers, as the named consignee (with 'to order' addition) was the buyer's bank. The court also acknowledged the commercial practice of such indorsement, that the court said was not necessary.

In fact, such an indorsement would have no legal effect. If the buyer's bank transferred the bill to the buyer or any other, then such an indorsement by the buyer's bank and transfer of the bill by the buyer's bank would have been required.

The court pointed out that the three conditions required to satisfy s. 5(2)(a) were that (a) the cargo claimant, in this case the buyer's bank, was in possession of the bill, (b) it was the named consignee on the bill, and (c) it was in possession of the bill in good faith, all of which were satisfied in this case. The court said that what s. 2(a)(a) meant by 'lawful' holder is that the holder had come into possession of the bill 'in good faith' and satisfied the s. 5(2) requirements. The court also pointed out that any action available to the buyer's bank against any other party in this connection is not a bar to an action by the buyer's action against the shipowner under the bills of lading.

Overview by ARUN KASI

Court of Appeal, Singapore

Chan Sek Keong CJ, Andrew Phang Boon Leong JA, Belinda Ang Saw Ean J

21 November 2006; 27 March 2007

KEYWORDS

Charterparty - Seaworthiness - Cargoworthiness - Exemption Clause for Cargoworthiness - Express, Pertinent and Apposite words required for Exemption Clause - Obligation arising from Contractual Description of ship distinct from obligation for Seaworthiness, Cargoworthiness - Magnitude of Failure taken into account in deciding if Ship failed to answer Contractual Description - Contractual Description Exemption Clause not covering Contractual Description obligation

FACTS AND DECISION

Parties entered into a charterparty of a product tanker to carry palm. The terms of the charterparty were contained in fixture recap and Vegoilvoy Tanker Voyage Charterparty 1950 form. The ship's identity in the fixture form included a description 'epoxy coated'. The fixture also gave the option of substituting the ship. Clause 1(a) of the form provided the standard clause that the shipowner 'shall before and at the commencement of the voyage, exercise due diligence to make the Vessel seaworthy and to make the tanks in which cargo is carried fit and safe for its carriage and preservation.' Clause 1(b) of the form gave an option to the shipowners to cancel the charter if the tanks upon testing proved to be defective and repairs could not be effected within 24 hours.

Upon arrival at the loading port, it was found out that the epoxy coating in the tanks had gone by 40%. The charterers did not accept the ship and asked the shipowners to provide a substitute ship. The shipowners refused and cancelled the charterparty, claimed to be entitled to do so under the clause 1(b). As a result, the charter was unable to perform its contracts with its suppliers and customers. The charterers sued the shipowners for damages.

The court held that the failure of coating was of such a magnitude that the ship was considered not epoxy quoted, contrary to the description in the fixture. The description constituted a separate and independent obligation from the clause 1(a) obligation to exercise due diligence to provide a seaworthy ship. Clause 1(b) right to cancel did not save the shipowner from the consequences of breach of the independent obligation to provide a ship answering the description in the fixture. More so, as the general rule was that typewritten clauses would prevail over printed clauses, whilst in this case the  description was specifically typewritten and the clause 1(b) was part of the standard printed form.

Coming to clause 1(a) court, the court acknowledged that seaworthiness-obligation was a fundamental one and can only be exempted by 'express, pertinent and apposite' words. However, in this case, the court opined that clause 1(b) and its invocation were sufficient to exempt the seaworthiness obligation. However, the court did not find the need to answer this question, as the charterers were entitled to the relief for reason of breach by the shipowners of the fixture description.

Overview by ARUN KASI

Court of Appeal, Singapore

Yong Pung How CJ, Lai Kew Chai J, LP Thean J

24 September 1992

KEYWORDS

International Trade - Letter of Credit - Tender of Documents - Discrepancy - Test for Strict Compliance with terms of Letter of Credit - Scope of Duty of Banker in checking Documents - Reasons for Rejection of Documents - Rectification of non-compliance within expiry period of Letter of Credit - - Waiver of Discrepancy - Estoppel by Conduct

FACTS AND DECISION

A seller and buyer agreed on sale and purchase of two shipments of cochin type or crude coconut oil, payment by letter of credit. The buyer arranged its bank to open a letter of credit, subject to Uniform Customs and Practice for Documentary Credits (1974 Revision) Rules. The validity period of the letter of credit was until 15th October 1981. The documents required by the letter of credit included a certificate of analysis issued by an independent laboratory, certifying free fatty acid (FFA) content in terms of 'lauric acid’.

The seller, through its bank, tendered the documents including a certificate issued by one company to the buyer's bank. The buyer's bank forwarded the same to buyer on 1st October 1981. The buyer rejected it on grounds that the certificate was not from an independent laboratory. The buyers' bank accordingly informed the seller's bank that the documents were rejected for the said reason. The seller then submitted another certificate, issued by Camino Chemicals Inc on, which again the buyer's bank forwarded to the buyer. The buyer once again rejected, on 7th October 1981, claiming that a defective tender cannot be subsequently made good. The buyer's bank conveyed it to the seller's bank on 10th October 1981. The seller's bank protested, saying the re-tender was good as it was made within the validity period of the letter of credit. Then, on 16th October 1981, the buyer came out with new and switched reasons for rejecting, namely the that the Camino report was not a certificate of analysis and that the FFA was described in terms of 'lauric and oleic acid'. This was again conveyed to the seller's bank on 20th October 1981.

The seller sued the buyer's bank. On the question of the Camino report, the court held that the Camino report was a certificate of analysis. The court said that requirement of strict compliance with the terms of the letter of credit did not mean literal compliance and inconsequential discrepancies can be disregarded. The test was whether the documents, properly read and understood, do not contain any discrepancy that called for an inquiry or investigation or invited litigation. On the question of the description of the FFA content, the court agreed that it was not conforming. There was evidence before the court to say that by trade usage 'lauric' and 'oleic' measurements were interchangeable. But the court pointed out that a bank's acceptance or rejection of the documents are based on what was on the face of the documents, by a standard of ordinary and competent banker, and a banker would not expected to undertake an examination of the trade usage. However, the court held that the buyer's bank was estopped by conduct from raising this as it did not raise this objection until the expiry period of the letter of credit although it had the option of doing so. Accordingly, the seller was entitled to assume that there was no objection on this count. Hence, judgement for the seller.

OBSERVATION

The procedure for the bank to check with the buyer on any discrepancy is in Art. 16(b) of the current UCP 600, which provides as follows:

When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).

The said Art. 14(b) reads as follows:

A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

Overview by ARUN KASI

Court of Appeal, Singapore

LP Thean, Rajendran J, Karthigesu J

3 February 1993

KEYWORDS

Charterparty - Bill of Lading - Demise Clause - Shipowner’s Lien on Sub-Freight - Mode of Exercise of Lien

FACTS AND DECISION

A ship was on time charter. The charterparty included a demise clause which authorised the charterer to issue bills of lading as agents for the shipowner. It also included a lien clause which gave the shipowner a lien on sub-freight. The charterer had an agent who issued bills and collected freight. The charterer defaulted in payment of hire. The shipowner gave notice to the charterer's agents that the shipowner had exercised the lien and accordingly asked the agent to pay any freight they were holding and will collect to the shipowners. Then the shipowner quickly switched its stand by saying it was claiming freight as the principal in the bills of lading issued.

The agent refused to pay and the shipowner sued the agent. The court summarily dismissed the claim of the shipowner holding that the shipowner did not have a right to intercept otherwise than by exercise of the lien. The exercise must be by giving notice to the shippers asking them to pay any freight, not paid yet, to the shipowners. It could not be exercised by giving notice to the charterer or its agent to on-pay any freight collected or to be collected.

The court decided this summarily at the instance of the shipowner's application for summary judgment.

Overview by ARUN KASI

Court of Appeal, Singapore

Yong Pung How CJ, LP Thean J, Goh Joon Seng J

8 February 1993

KEYWORDS

Bill of Lading - Deviation when unable to Discharge, pursuant to Contingencies Clause in Bill of Lading - Abandonment of Voyage - Termination of Carriage Contract - Involuntary Bailment after Abandonment of Voyage - Consequences of Transshipment after Abandonment of Voyage without Cargo Owner’s Instruction - Conversion - Trespass to Goods - Liability of Shipowner as if Insurer

FACTS AND DECISION

Cargo was carried from Bangkok in Thailand to Khorramshahr in Iran on board vessel Kota Sejarah. She could not discharge in Khorramshahr due to laborers’ strike there. She proceeded to Porbander in India as the final destination and discharged the cargo there into the port godown. The shipowner was authorised to do so by a contingencies clause in the bill of lading in the event of contingencies like strike, etc. It was not disputed that the shipowner was so authorised. Thereafter, on 1st March 1979 the shipowners and the cargo owners discussed further arrangements, but not was reached. Then, around early May 1979, the shipowner loaded the cargo on board vessel Kota Agung bound for Khorramshahr, without any notice to the cargo owners. Just after that, on 10th May 1979, when the vessel had not set on the voyage yet, the cargo owners instructed the shipowners not to hold on the the cargo, as the Iranian buyers had defaulted and further undertook to pay the storage charges. However, the shipowner refused to off-load the cargo, but parties came to an arrangement for reshipment of the cargo from Khorramshahr to Bangkok at a certain rate. Upon arrival at Khorramshahr, the vessel caught fire and the cargo was destroyed totally. The cargo owner sued the shipowner in contract, conversion, bailment, negligence and trespass to goods.

The court found that the contingencies clause did not authorise transshipment after cargo was discharged at the Indian port as the final destination, at which point the voyage was abandoned and the contract for carriage terminated. Upon discharge at the Indian port, the shipowners became bailee involuntarily. The court held that transshiping without or contrary to the cargo owner’s instruction was a trespass to the goods. Removing one’s goods against his wishes or wrongful interference with another’s goods is trespass to goods. A bailee may move the goods to a safer or suitable place, but not return to perform the terminated contract for carriage. As a trespasser, the shipowner stood in the place of an insurer and had to pay for the loss, irrespective of any negligence. On another count, as a bailee too, the shipowner is liable for the loss, as the shipowner was not able to prove that the fire happened without its fault. The court also held that the shipowner had committed a ‘conversion’ by transshiping the cargo.

OBSERVATION

The validity of this conversion point is arguable, as the shipowner did not pass on the goods to any other by the transshipment, but were still holding it for the cargo owner. However, any finding on this will not affect the judgement as the shipowner was already found liable on trespass and bailment.

Overview by ARUN KASI

Court of Appeal, Singapore

Yong Pung How CJ, Karthigesu JA, LP Thean JA

3 May 1994

KEYWORDS

Bill of Lading - Freight Forwarder’s Bill - Freight Forwarder’s position vis-a-vis Shipper and Shipowner - Interim Order for Release of Cargo - Shipowner’s Lien under Bill of Lading (contractual lien) - Shipowner’s Lien otherwise than under Bill of Lading (non-contractual lien) - Shipowner’s entitlement to Quantum Meruit Freight

FACTS AND DECISION

The Court of Appeal dealt with a situation where competing bills were issued by the freight forwarder and the disponent shipowner for the same shipment to the same shipper. In this case, the buyers contracted with a freight forwarder to ship the buyer's cargo from Houston (USA) to Damai (Malaysia). In turn the freight forwarders contracted with a disponent shipowner for the carriage. The buyers paid the freight to the freight forwarder. The freight forwarder returned a clean bill of lading issued to the buyer's bank, noting 'freight prepaid', issued by someone other than the disponent shipowner. Subsequently, the disponent shipowner issued another bill also to the buyer's bank. This bill was claused and noted freight was not paid. This bill, as usual, also conferred on it the right of lien on cargo for the freight. The buyer did not come forward to pay the freight once again. The disponent shipowner discharged the cargo in Singapore without completing the voyage and claimed its right of lien under its bill of lading. In turn, the respondent claimed damages for breach of contract based on the bill given by the freight forwarder. The freight forwarder has gone into liquidation.

The court made an interim order for release of the cargo to the respondents subject to the respondent furnishing a banker's guarantee for any lien claim. Thereafter, upon final hearing, the court found the freight forwarder was the principal contracting party vis-a-vis the buyer and the disponent owner. One contract of carriage between the buyer and the freight forwarder, and another between the freight forwarder and the disponent shipowner. Thus, the court held that the disponent shipowner would not be able to rely on the lien clause in its bill of lading (i.e. Contract between the disponent shipowner and the freight forwarder) against the buyer. Although a private carrier who carries a cargo of an owner to the destination intended by him will be entitled to a lien even without any direct contract between them, but that did not help the disponent shipowner here because it did not complete the voyage to Damai. The disponent shipowner was also not entitled to any quantum meruit claim as there was no agreement, express or implied, by the buyer to pay freight to the disponent shipowner.

Overview by ARUN KASI

Court of Appeal, Singapore

Yong Pung How CJ, Karthigesu J,LP Thean JA

26 April 1994; 15 September 1994

KEYWORDS

International Trade - Bare fob contract - buyer’s right to nominate shipment time with the shipping period - buyer must give reasonable notice for nominating time - repudiation - wrongful allegation of repudiation is itself a repudiation which the other party may accept or refuse

FACTS

The events in chronological order was as follows:

26 April 1988  Contract for sale and purchase of latex was entered between seller and buyer, on bare fob terms.

3 May 1988     Buyer notified seller that space has been booked on board a particular vessel (Majapahit) eta loading port (Singapore) 13 June 1998 for loading between 10 June 1998 and 15 June 1988.

28 May 1988   Buyer confirmed nomination of Majapahit as firm and final.

7 June 1988     Buyer notified seller that the goods must be delivered to the shipowner by next day, 8 June 1998 12.00 pm, or else the loading will be on another vessel (Gowa), scheduled to arrive at Singapore on 27 June 1988.

8 June 1988     Buyer wrote to seller that the booking on Majapahit has been cancelled due to lack of response from the seller.

Buyer also claimed that the seller had breached the contract.

9 June 1988     Buyer wrote to seller that the buyer was ready to nominate Gowa, with reservation of rights for damage.

11 June 1988   Buyer wrote to seller that the sale and purchase contract, by lack of response from the seller, had been repudiated by the seller and that the buyer accepted the same.

Seller replied, refusing any repudiation and stating it will supply as soon as possible.

14 June 1988   Buyer demanded return of letter of credit

15 June 1988   Seller returned the letter of credit

Buyer sued the seller for damages.

HELD (BY COURT OF APPEAL - UNANIMOUSLY)

1. In bare fob contracts, generally the buyer has the right to determine the exact time within the shipping period at which the goods are to be shipped, but the buyer has to give reasonable notice, failing which buyer may be taken to repudiate the contract.

• Confirmed Nomination of Majapahit on 28 May 1988 was valid, hence loading between 10 June 1988 and 15 June 1988.

• Call of seller on 7 June 1988 to deliver to the cargo to the shipowner by noon next day, even before Majapahit arrived, was both unreasonable and, as vessel not arrived yet, premature.

• Buyer, by the message of 11 June 1988, claiming it accepted the repudiation by the seller (which was non existent), had itself repudiated.

• Seller, by return of the letter of credit on 15 June, had accepted the buyer’s repudiation.

• Accordingly, case of the buyer dismissed.

Overview by ARUN KASI

Court of Appeal, Singapore

Yong Pung How CJ, Chao Hick Tin JA And Belinda Ang J

21 May 2003; 25 August 2003

KEYWORDS

Charterparty -  Bill of Lading - Incorporation of Charterparty terms into Bill of Lading - Delivery against Bill of Lading - Lien - Liability of Cargo to satisfy Lien

FACTS AND DECISION

A cargo of crude oil was carried under a charterparty and bill of lading. The charterparty had a lien clause that said “[t]he Owner shall have an absolute lien on the cargo for all freight, deadfreight, demurrage …”. It also had a demurrage clause stating “[c]harterer shall pay demurrage per running hour …”. The bill of lading incorporated the charterparty in these words: “freight payable as per charter party ... all terms and conditions, liberties and exceptions of the charter party are herewith incorporated".

At the discharge point, the owner of the cargo was not able to produce the original bill of lading and the shipowner refused to deliver the cargo. The shipowner obtained an order for sale of the cargo and the cargo was sold by the Sheriff. There was a delay of 130 days before discharge and the shipowner claimed demurrage for this and sought to recover the same from the proceeds of the sale. The owner of the cargo, who was not holding the bill, objected to this and claimed that the shipowner was liable for conversion in selling off the cargo.

The High Court allowed the shipowner’s claim for demurrage and dismissed the cargo owner’s conversion claim. In the High Court, the owner of the cargo conceded that if the shipowner could exercise a lien, then the same can be satisfied on the proceeds of the sale, but argued that the shipowner was not entitled to demurrage and was not entitled to exercise the lien. The High Court held that the shipowner was entitled to demurrage and to exercise the lien, hence allowed the demurrage claim and recovery of the same from the proceeds of sale. On appeal, the owner of the cargo attempted to introduce a new argument namely under the charterparty the liability to pay demurrage was only on the charterer and hence same cannot be claimed against the proceeds of sale of the cargo belonging to the owner of the cargo. The Court of Appeal refused to allow this argument to be introduced and upheld the decision of the High Court.

OBSERVATION

Even if the new argument was allowed to be introduced, the decision might not have been different, as this was not a regular case where the litigation was between the shipowner and the bill of lading holder, where the bill of lading holder would try to push the liability onto the charterer. In this case, irrespective of whether it was the charterer or the bill of lading holder (who did not come into picture) was liable, the shipowner would have had a lien on the cargo when demurrage was not paid.

Although a contractual lien may be limited between the contracting parties, in the sense that it may not be good if a non-owner gave the lien and subsequently the true owner makes a claim for the cargo (Welsh Development Agency (Holdings) Ltd v Modern Injection Mouldings Ltd [1986] Lexis Citation 1535), that will not assist the subsequent purchaser as the one in the Singapore case. This is because the contractual lien was rightly given by the lawful owner at the time and the subsequent purchaser purchased with knowledge of the document (charterparty) creating the lien.

When the shipowner rightly exercises the lien, any right of the owner to the proceeds of the sale will be for the proceeds less the sum of the demurrage payable to the shipowner. This is so as long as the lien clause was incorporated into the bill of lading and was effective between the parties to the bill of lading. This will more likely be so in a lien clause as it will be stated in neutral terms binding the cargo rather than any party.

Overview by ARUN KASI

Court of Appeal, Malaysia

Hamid Sultan bin Abu Backer JCA, Hanipah binti Farikullah JCA, Kamaludin bin Md Said, JCA

18 June 2020

KEYWORDS

Letter of Credit - Strict Compliance - Tender of House Bill or Freight Forwarder’s Bill for Payment - Bank-to-Bank Reimbursement - Dispute between Confirming Bank and Issuing Bank - UCP 600 - Payment upon faxed copy - Application of 5 banking days rule in reimbursement claims - UCP 600 Articles 7, 13, 14, 17, 20, 26

FACTS

A letter of credit (LC) was issued by an issuing bank in India for USD1,962,500 plus / minus 2% in value in favour of a beneficiary (seller) in Malaysia. The LC was payable in 60 days after the date of the bill of lading. The LC was confirmed to the beneficiary by a confirming bank in Malaysia. The LC was issued subject to UCP 600. The documents required under the LC for payment included a bill of lading. It was one of the terms of the LC that “Short Form, Blank Back, Stale, Freight Forwarder, House Bill of Lading is not Acceptable.” The following events took place, in chronological order:

24/11/2011     Beneficiary faxed the document including a bill of lading signed by one Diffreight Agencies (M) Sdn Bhd on behalf of the carriers.

25/11/2011     Confirming bank, upon request of the beneficiary, negotiated and paid the beneficiary in advance of the maturity date.

30/11/2011     Beneficiary tendered the original documents (same as those faxed).

01/12/2011     Confirming bank couriered the original documents to the issuing bank.

01/12/2011     Issuing bank sent a SWIFT message to amend the LC terms to additionally require SGS Certificate of Analysis, Weight and Quantity.

03/12/2011     Issuing bank received the original documents.

10/12/2011     Expiry of 5 banking days after 03/12/2011.

20/12/2011     Issuing bank sent, by SWIFT, the Notice of Refusal to reimburse to the confirming bank on two grounds of discrepancies, namely, the bill tendered was a freight forwarder’s bill and no SGS certificate was tendered. The notice claimed it was issued pursuant to Art. 23.

06/01/2012     Document were returned by the issuing bank to the confirming bank.

21/01/2012     Maturity date of the LC, i.e. 60 days after the date of the bill of lading (if the bill of lading was an acceptable one).

The issuing bank refused to reimburse the confirming bank on the maturity date. Hence, the confirming bank sued the issuing bank.

The case went for a full trial. Articles 2 (definitions), 7, 10(a) and (c), 14(a), (b) and (l), 16(c), (d), (f) and (g), 20, and 23 of the UCP 600 were considered by the court in arriving at its decision.

The High Court ([2018] MLJU 1716, decided by Noorin Badaruddin J on 13 November 2018) found for confiming bank. On appeal by the issuing bank, the Court of Appeal unanimously reversed the High Court decision and found for issuing bank.

HELD BY HIGH COURT (Subsequently reversed by Court of Appeal)

1. The documents tendered were compliant.

• The amendment made by the issuing bank on 01/12/2011 was not effective.

• The confirming bank had complied with its duty to examine the documents on the face of them pursuant to Art. 14.

• The time limit to notify any refusal with reasons was 5 banking days by virtue of Art. 16 but that the issuing bank notified the purported discrepancy and refusal only after this time limit.

• The sum of USD 1,983,765.65 (equivalent to RM8,118,560.92 based on the exchange rate of USD1.00 equivalent to RM4.0925) be paid by the issuing bank to the confirming bank.

• Interest at the rate of 5% per annum on USD1,983,765.65 (equivalent to RM8,118,560.92 based on the exchange rate of USD1.00 equivalent to RM4.0925) from 22.1.2012 until the date of payment.

• Costs of RM60,000.00.

HELD BY COURT OF APPEAL

1. The documents tendered were not compliant.

2. The time limit to notify any refusal with reasons within 5 banking days by virtue of Art. 16 did not apply here. Art. 16 refers to ‘discrepancy’ in documents. It applies when the required document is tendered, but is discrepant. It does not apply where the document tendered is different from the document called for by the LC), as in this case. In this case, the LC called for a bill of lading issued by a shipowner, but what was tendered was a bill of lading issued by a freight forwarder.

3. Art. 1 of UCP 600 renders itself subject to express terms of the LC. In this case, the express terms required a bill of lading issued by a shipowner. That requirement cannot be circumvented by any terms of the UCP 600.

4. The confirming bank had not complied with its duty to examine the documents on the face of them pursuant to Art. 14.

5. The confirming bank is not entitled to any reimbursement under the LC.

6. Appeal was allowed with costs here and below, and order of the High Court was set aside.

OBSERVATION ON HIGH COURT DECISION

The two core questions as to liability to be decided in the case were:

1. Whether the documents presented were compliant, i.e. whether the bill of lading was a fit one for payment under the LC?

• Whether the issuing bank was time-out in notifying discrepancies and refusal?

One question that surfaces as to quantum was:

• Whether the liability to pay was in USD or equivalent sum in MYR as per exchange date on some date?

Issue 1

The LC expressly prohibited ‘freight forwarder bill of lading’. In this case, Diffreight signed the bill on behalf of the carrier. This does not tell, on the face of the bill, in one way or another whether it is a freight forwarder’s bill. Accordingly, the objection premised on ‘freight forwarder bill’ should fall.

The true question is whether the bill was compliant in terms of Art. 20(a)(i), which reads as follows:

Article 20: Bill of Lading

a.     A bill of lading, however named, must appear to:

1. indicate the name of the carrier and be signed by:

                • the carrier or a named agent for or on behalf of the carrier, or

                • the master or a named agent for or on behalf of the master.

        Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

        Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

This binds two things. First, the document must be a bill of lading. Second, it must state the name of the carrier under the bill of lading.

On the first point: ‘bill of lading’ is not defined in any statute, hence one must go back to the common law to find its meaning. Under the common law, a document will be a bill of lading if (i) is the receipt for cargo, (ii) evidences contract of carriage, (iii) confers constructive possession of the goods on the person to whom it has been issued, (iv) is a document of title in the sense that the rights under it can be negotiated (i.e. transferred without attornment by the issuer). ‘Constructive possession’ is the right to claim possession. Such a right can only exist against a person who has the actual possession and thus can give it. To say otherwise will render the constructive possession illusory. Thus, only a document issued by a person having the actual possession can confer constructive possession of the goods on any other and hence be a bill of lading. This means only a document issued by a shipowner can be a bill of lading, although it may be signed by an agent or charterer on behalf of the shipowner. Almost all popular forms of bills of lading intended to be signed by a charterer, such as BIMCO forms, have a demise clause and an identity of the carrier clause that will render the charterer an agent of the shipowner when singing the bill, hence rendering it a bill of lading issued by the shipowner for legal purposes. For a detailed discussion of this point, see John S Mo, ‘Forwarder's Bill and Bill of Lading’, Asia Pacific Law Review, Vol. 5, No. 2, Summer 1997, p. 96-110. In this case, the bill of lading merely stated in effect that it was issued on behalf of the carrier. ‘Carrier’ can mean two things in practice. One is the ‘actual carrier’ another is ‘mere contractual carrier’. There is nothing on the face of the bill for one to determine that it was issued on behalf of the actual carrier, i.e. the shipowner. Hence, the bill does not comply with the terms of the LC read together with Art. 20(i)(a).

On the second point: independent of the outcome of the first point, in this case, the bill does not disclose the ‘name’ of the carrier. For this reason too, the bill does not comply with Art. 20(i)(a).

Accordingly, the bill was not a compliant one and not fit for payment.

In fact, a trial is not necessary most of the times to determine the compliant-effect of a bill, as this is a matter of construction of documents only and has to be decided on such basis alone, per Art. 14, that reads as follows:

Article 14: Standard for Examination of Documents

1. A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

Issue 2

Under Art. 14(b), the time limit for a bank to examine the documents for compliance is 5 banking days. It reads as follows:

• A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

The 5 banking days rule is reflected with more strength in Art. 16. It requires a refusing bank to notify the refusal with reasons to the presenter within the 5 banking days, failing which the refusing bank is precluded from claiming the documents are non-complying. It reads in relevant part as follows:

Article 16: Discrepant Documents, Waiver and Notice

1. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate.

• …

• When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter.

The notice must state:

1. that the bank is refusing to honour or negotiate; and

1. each discrepancy in respect of which the bank refuses to honour or negotiate; and

1. a)  that the bank is holding the documents pending further instructions from the presenter; or

b)     that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

c)      that the bank is returning the documents; or

d)     that the bank is acting in accordance with instructions previously received from the presenter.

• The notice required in sub-article 16 (c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.

• A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may, after providing notice required by sub-article 16 (c) (iii) (a) or (b), return the documents to the presenter at any time.

• If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.

• …

The references to presentation and presenter above, including a confirming bank claiming reimbursement from the issuing bank, per Art. 2, which reads in relevant part as follows:

Article 02: Definitions

For the purpose of these rules:

                       …

‘Presentation’ means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered.

‘Presenter’ means a beneficiary, bank or other party that makes a presentation

In this case, the issuing bank took more than 5 days to notify the refusal to pay. Accordingly, Art. 16(g) will preclude it from claiming the document are non-compliant. However, there is nothing in the UCP 600 to relieve the burden on the presenter, in this case, the confirming bank, to prove that the documents are complying on the face of it to claim the reimbursement.

It must be noted that Art. 16(g) does not say if the bank does not refuse within the 5 banking days, then the non-compliance is waived or it is presumed the documents are compliant or the presenter is relieved from its duties to tender compliant documents. In this connection, a few articles of the UCP 600 must be visited. First, Art. 7, that sets out the obligation of the issuing bank as follows:

Article 07: Issuing Bank Undertaking

1. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honour if the credit is available by: …

• ...

• An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. …

Article 15: Complying Presentation

1. When an issuing bank determines that a presentation is complying, it must honour.

• When a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the documents to the issuing bank.

• When a nominated bank determines that a presentation is complying and honours or negotiates, it must forward the documents to the confirming bank or issuing bank.

In this case, on the face of the documents, there is no compliance as the purported bill was not a bill of lading and in any event, the name of the carrier was not stated in the bill. Accordingly, no case on the part of the confirming bank is established for the issuing bank to defend.

On passing, it must be noted that the failure of the issuing bank to comply with the 5 banking days timeline did not affect the confirming bank’s payment to the beneficiary (which was made even before the sight of the original documents contrary to UCP 600 Art. 17(a)) or the ability of the confirming bank to decide within the 5 business days after receipt of the documents from the beneficiary (whilst the end of the 5 business days for the issuing bank to refuse to the confirming bank would fall later). The duty imposed by the UCP 600 Art. 16 on the confirming bank is for it to independently decide, based on the document, to refuse or not. If it makes a wrong decision, it has to face the consequences.

Issue 3

This is an international transaction. What the parties had agreed to pay is only in USD. There is no reason to convert it to MYR or any other currency on any given date. Any judgement in such cases should only be in the currency that parties have agreed, in this case, USD.

Conclusion

The High Court decision on Issues 1 and 2 above were not substainable. As such, the need to go into Issue 3 would not in fact arise.

OBSERVATION ON COURT OF APPEAL DECISION

The Court of Appeal rightly reversed the High Court decision. The court observed that the classical common law cases about bills of lading are largely about ocean bills, meaning shipowner’s bills, as opposed to NVOC’s bills (eg. freight forwarder’s bill). The court also looked at the practical side of the NVOC’s bills and observed that the ‘security’ provided by an NVOC bill was inferior to the security provided by a shipped bill issued by the shipowner, although, to say it more accurately, there is no security in an NVOC’s bill save that an in personam claim can be taken against the NVOC / transferor of the bill.

Court of Appeal, Malaysia

David Wong JCA, Mary Lim JCA, Harmindar Singh JCA

14 February 2017

CATCH WORDS

International Trade - Bill of Lading - Misdelivery without presentation of bill - Consignee did not hold bill at time of misdelivery, but held it after that - Conversion by wrongful receipt - Conversion by continued retention - Conversion by processing cargo - Cargo claim against person receiving cargo -Role of bona fide of the person receiving the cargo - Interplay between proprietary right and possessory right - Estoppel by suits of consignee against other wrongdoers in respect of loss of same cargo.

FACTS

A buyer purchased about half a million tons of crude palm oil from a seller, shipment from Belawan (in Indonesia) to Chittagong (in Bangladesh). The buyer paid the full contract price (USD1,874,317.25) to the seller in advance of shipment. The shipment was made on board the vessel Suppavan 1 on 8 November 2003. Bills of ladings were issued on the same date. In the meantime, the buyer had made an arrangement to on-sell the cargo to a sub-buyer (for USD1,917,965.75), which did not go through.

On 9 November 2003, seemingly at the instance of the sub-buyer, the shipowner delivered the cargo at Port Klang (in Malaysia) to the sub-buyer's nominee without presentation of the bills. The delivery was made by discharge of the oil into the nominee's shore tanks on 9 and 10 November 2003 (whereafter the nominee processed the cargo and produced resultant products). On 10 November 2003, the buyer received the bills.

The buyer sued the nominee in 'conversion' for the sub-sale price, USD 1,917,965.75. The nominee challenged the action with the following contentions.[i] First, the buyer obtained the bills only on 10 November 2003, and hence did not at the time of the alleged conversion have the possessory right (immediate right to possession) to maintain the action in conversion. Second, the nominee was a purchaser of the cargo in good faith by a chain of further sub-sale transactions flowing from the sub-buyer. Third, the buyer had sued the sub-buyer for the sub-sale price as well as conversion in two other actions and had obtained a judgment in one of them and lost the other. However, no was payment received from the sub-buyer who had by then been wound up.

The High Court found for the buyer and allowed the buyer’s claim. Hence the appeal by the nominee.

HELD (BY COURT OF APPEAL - UNANIMOUSLY)

On the first contention (standing of buyer to sue in conversion):

1. The buyer had made full payment to the seller before 8 November 2003. Thus, upon shipment on 8 November 2003, the property in the goods was transferred to the buyer.

2. As the buyer had the title to the goods at the time of discharge, the buyer had the possessory right at that time.

3. Accordingly, the buyer had the standing to maintain an action in tort of conversion in relation to the discharge (Leigh & Sullivan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon).[ii]

4. Even if the property in the goods did not pass to the buyer on 8 November 2003, it had at least passed on 10 November 2003 when the buyer received the bills and thus the possessory right, which the buyer retained at all material times thereafter (Enichem Anic SpA and Others v Ampelos Shipping Co Ltd, The Delfini).[iii]

5. Accordingly, by 10 November 2003, the buyer had the standing to maintain an action in tort of conversion.

As to act of conversion:

6. It was an act of conversion for the nominee to receive the cargo belonging to the buyer, without authority, on 9 and 10 November 2003 (Clerk & Lindsell on Torts).[iv]

7. As the nominee continued to retain the cargo and processed it after 10 November 2003, the nominee had committed conversion at least by these acts.

On the second contention (good faith purchase claim):

8. For a conversion action, it does not matter whether the defendant - nominee - acquired the cargo in good faith (Marfani & Co Ltd v Midland Bank Ltd).[v]

On the third contention (two other suits against sub-buyer):

9. The buyer has an independent right of action against each tortfeasor (Clerk & Lindsell on Torts).[vi]

1. Accordingly, the two other suits are not a bar to this action

Disposition:

1. Appeal dismissed with costs of RM20,000.

OBSERVATION

On standing of the buyer:

1) When did the buyer acquire title to the goods?

Property in goods passes when it is intended to pass as between the seller and the buyer.[vii] For property to pass, the goods must be ascertained and unconditionally appropriated to the contract.[viii]

When goods are delivered to the carrier to transmit them to the buyer, without reservation of right of disposal, unconditional appropriation is deemed to happen, so property will pass.[ix] Where bill of lading is to the order of the seller, prima facie right of disposal is reserved, so property will not pass.[x] When goods are shipped and payment is made, generally, property will pass.[xi]

In this case, the property (also called 'title' and 'proprietary right') would have passed when the cargo was shipped on 8 November, since full payment was already made by then.

2) Are proprietary right and possessory right interconnected?

When goods are in transit, the possessory right (also called 'immediate right to possession' and 'constructive possession') is with the lawful holder of the bill.[xii] The proprietary right will pass according to the Sale of Goods Act. They may not coincide, although in some cases like bearer bill both the possessory and the proprietary rights will be represented by the bill. Accordingly, the two are not necessarily interconnected.[xiii]

In fact, in the UK and in Singapore, s. 2(4) of their respective Acts[xiv] envisages the possessory rights and the proprietary rights falling in different persons, and expressly  makes provision for the holder of the bill to take action against the carrier for the benefit of any other person having interest or right over the goods. There is no equivalent statutory provision to this in Malaysia. However, even in the absence of such statutory provision, the position is the same at common law, which will apply in Malaysia.[xv] As early as 1839 it was held in Dunlop v Lambert[xvi] that the holder of the bill who has suffered no substantial damages may, at common law, obtain substantial damages for the benefit of a third party who has actually suffered those losses.

3) When did the buyer acquire the possessory right?

Ordinarily, the buyer would acquire the possessory right when it received the bill, in this case on 10 November. However, the point is more complex in this case.

The immediate right to possession is one against the carrier.[xvii] If one comes to hold the bill when the carrier has the actual possession, then the holder will have the constructive possession because he has the immediate right to possession against the carrier. In such case, if the carrier subsequently misdelivers the goods - misdelivery meaning delivery to a wrong person - then the carrier has interfered with the constructive possession (i.e. immediate right to possession) of the holder of the bill at the point and time of misdelivery.[xviii] Thus, at that point and time, the carrier has committed the tort of conversion.[xix] It is a fact that once the conversion has happened the holder of the bill no longer has any right to possession against the carrier, as the carrier himself does not have possession.[xx] So what happens is that at the time of conversion, the right to possession against the carrier that existed up to and at the time conversion is turned into a right for damages for the conversion against the carrier as the tortfeasor.

However, if the carrier did not have the actual possession of the goods at the time when the holder of the bill came into possession of the bill, then the holder of the bill cannot acquire any constructive possession by coming to hold the bill. Accordingly, the holder of the bill cannot sue the carrier in conversion, as there was no interference by the carrier of any possessory right of the holder of the bill.[xxi] But this does not affect the transfer of the contract embodied in the bill to the holder of the bull, so that he can sue the carrier for breach of the contract in non-delivery of the goods to him,[xxii] as the contractual rights of the shipper under the bill of lading contract are transferred to the holder of the bill.[xxiii]

In this case, as the carrier no longer had the actual possession at the time the buyer received the bill, the buyer could not, and did never, acquire any immediate right to possession against the carrier (constructive possession).

However, one case will support an argument contrary to this. That is Bristol and West of England Bank v Midland Railway Company.[xxiv] In this case, an action was taken by a holder of a bill of lading, the bank to which the bill was pledged, against the carrier for conversion committed prior to the bank coming to hold the bill. The court allowed the claim. It appears that the court had treated that the rights of suit in earlier conversion in respect of the cargo had been transferred to the subsequent holder of the bill. However, this is a difficult proposition as both under s. 1 of the Bills of Lading Act 1855[xxv] and under s. 2(1) of the Carriage of Goods by Sea Act 1992[xxvi] what passes on are only the rights in contract and not tort.[xxvii] The court seemed to suggest that independent of the 1855 Act, applicable at that time, the rights for a conversion-action had been transferred to the holder of the bill, at common law. But there does not seem to be any precedent at common law that a bill of lading contract carries with it tort-action rights. What might have influenced the court to arrive at the result that it arrived is possibly the need to to do overriding justice to the case, since it cannot be doubted that the bank had a right of action against the carrier for non-delivery based on the bill of lading contract, although the case did not seem to be so pleaded. If this case were to be followed, that will mean the rights of action in conversion that happened before the buyer came to hold the bill was nevertheless transferred to the buyer, hence the buyer can maintain an action in conversion. It is opined that this case should not be followed for reasons already discussed and there is no need to expand the law as suggested by this case as the holder of the bill in such a situation will always have his rights of action under the bill of lading contract.[xxviii]

4) On 9 and 10 November (dates of delivery), who had the possessory right, if not the buyer?

The possessory right, until 10 November, was with the seller as the holder of the bill or shipper named in the bill^[xxix]. Hence, the right to sue the carrier for any conversion in delivery of the cargo to the nominee on 9 and 10 November would be with the seller,[xxx] although he had sold the cargo and collected full payment before that. For an action in conversion, it matters not whether the claimant was the owner of the goods at the time of conversion, as a conversion action is based purely on possession or right to possession.^[xxxi] In fact, it is common for banks, as holder of bill of lading, to sue carriers for conversion - although the banks are not the owner of the cargo.[xxxii]

5) What was the wrong committed by the carrier, the liability for it and to whom the liability is owned?

It is a most settled law that it is a misdelivery for a carrier, carrying goods subject to a bill of lading, to deliver otherwise than against presentation of the original bill of lading.^[xxxiii] This is a strict liability.[xxxiv] This is so even if the person receiving the bill gives a letter of indemnity to the carrier (which is quite common), he is the actual owner (whilst the bill may be held by his bank), the carrier delivers against a bill that turns out to be a forged one.^[xxxv] If a carrier misdelivers, he will be liable to the holder of the bill: (i) in tort of conversion for interfering with the possessory right of the holder of the bill; (ii) for breach of contractual obligation in the bill of lading to deliver to the holder of the bill, i.e. liability for non-delivery.

The two things - misdelivery and non-delivery - are often confused.[xxxvi] Non-delivery is a nonfeasance. Misdelivery is a misfeasance or malfeasance. For ‘non-delivery’, an action lies in contract for breach of contract embodied in the bill of lading. The breach is committed at the time the carrier is supposed to deliver but fails or at a time when the carrier incapacitates itself from performing the delivery obligation in the contract by a misdelivery. For ‘misdelivery’, an action lies in tort for conversion. The tort is committed at the time when the carrier misdelivers to a person without presentation of the bill of lading. The distinction is thus, although both may coincide. A misdelivery will necessarily also be a non-delivery, but a non-delivery may or may not be also a misdelivery.

Accordingly, in this case, the carrier has committed both misdelivery and non-delivery. The carrier’s liability for misdelivery in conversion is only to the person who had the possessory right at the time of conversion.[xxxvii] Hence, it is to the seller, in this case.[xxxviii] The carrier’s liability for non-delivery is to the holder of the bill, to whom all the rights under the bill of lading contract is transferred to,[xxxix] extinguishing the rights of the shipper.[xl]

6) Did the nominee acquire title to the cargo?

The general rule is that nemo dat quod non habet, that is ‘no one gives what he does not have.’ This in effect means that only an owner of the goods can pass title, hence if a purchaser purchases or gets them from someone who is not the owner, the purchaser will not acquire the title.

This rule has been statutorily codified in Malaysia, Singapore and the UK. In Malaysia, the general rule is in s. 27 of the Sale of Goods Act 1957, and the exceptions in ss. 27 - 30. In Singapore, the general rule is in s. 21 of the Sale of Goods Act, and the exceptions in s. 21, 23 - 26. In the UK, the same section numbers, in the Sale of Goods Act 1979, except that there is an additional exception in s. 22. Generally, the exceptions are when a buyer purchases the goods in good faith for value where (i) the goods had been sold with authority of the owner; (ii) the owner is estopped from denying the seller’s authority by conduct; (iii) sale is by a person holding a voidable title that has not been avoided at the time of the sale; (iv) sale is by the seller or purchaser in possession after sale or sub-sale of the goods or document of title to the goods; or (v) sale is by a mercantile agent, having customary authority, of the said seller or purchaser. If a purchaser purchases the goods in transit, in the ordinary way, by transfer of the bill of lading, then he will fall within the exception nos. (i), (ii) or (iv).[xli] It must be observed that ‘good faith’ of the purchaser is irrelevant unless the purchase falls within one of the excepted categories.

In this case, the nominee purchased it without the bill of lading. Hence, no exception to the general rule will apply and the nominee could not get title. This will mean the title at all material times from 8 November has been with the buyer.

7) On 9 and 10 November (dates of delivery), was there any conversion by the nominee, and if so, who had the right of action?

In attempting to answer this question, it will be helpful first to visit some of the popular definitions of ‘conversion’. Salmond^[xlii] defines conversion as "[t]he wrong of conversion consists in any act of wilful interference with a chattel, done without lawful justification, whereby any person entitled thereto is deprived of the use and possession of it." Clerk & Lindsell^[xliii] defines it as “an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it”. This was accepted by the English Court of Appeal in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5)^[xliv] as accurately summarising the tort of conversion. In this case, Lord Nicholls enunciated the test for ‘conversion’ as:

First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession).

Second, the conduct was deliberate, not accidental.

Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods.

Conversion is a tort of strict liability^[xlv] ‘in which the moral concept of fault in the sense of either knowledge by the doer of an act that it is likely to cause injury, loss or damage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part.’^[xlvi]

Some of the categories Clerk & Lindsell[xlvii] give of conversion include:

• when property is wrongfully taken or received by someone not entitled to do so;

• when it is wrongfully parted with;

...

(e) when it is wrongfully retained;

...

(g) when the defendant, without physically interfering with it, wrongfully denies access to it to the claimant.

From the above, it cannot be doubted that wrongfully receiving a cargo will amount to conversion.

As the nominee received the cargo, without the bill of lading and without the authority of the person having the possessory rights at that time namely the seller, the nominee had committed a conversion. The right of action for this is with the seller.[xlviii]

The bona fide argument, which it will be hard to advance when a purchaser purchased goods in transit without bill of lading, is nevertheless irrelevant to a case in conversion - a strict liability tort. A purchaser who purchases goods in transit without bill of lading should know the risk that he takes in so doing and that any of his remedy will be against the seller if subsequently there is a claim by any other person entitled to the cargo.

8) After 9 and 10 November (dates of delivery), was there any conversion by the nominee in continuing to retain and process the cargo, and if so, who had the right of action?

One of the categories of conversion identified by Clerk & Lindsell[xlix] is wrongful retention of the goods against the one having the possessory rights - this in fact recognises conversion can be a recurring tort.[l] Another is wrongfully denying access to the person having the possessory rights.

Both the categories beg the question who had the possessory rights over the cargo, during the time they were retained by the nominee and until they were processed and transformed into some other products.

The starting point, generally in law, is that ordinarily the one having the proprietary right will also have the possessory right. However, by action subsequent to his becoming the owner or by circumstances subject to which he became the owner, his possessory rights might be or become detached and pass on to another. For example, one buys a car. Upon becoming the owner, he must also have the possessory right. But if he lets the car on hire, then he has parted with his possessory rights for the period of the let. The same thing may be true if he buys a the car that is already subject to a lease to a hirer. During the period of the let or lease, if the owner interferes with the possession of the hirer, the hirer will have an action in conversion against the owner.[li]

A bill of lading is an instrument that will so detach the possessory rights from the owner to the holder, where the two are different persons. When the bill of lading is spent, by delivery of the goods by the carrier whether rightly or wrongly, the bill no longer represents the goods and the detachment by the bill comes to an end. After this if there is no person other than the owner acquiring the possessory rights as allowed by the law, then they must come back to or vest in the owner.

Accordingly, in this case, the possessory rights after 10 November must have been held by the buyer. This proposition is supported by the fact that after 10 November, the buyer could have gone to the court for an order of specific relief[lii] to compel the nominee to deliver the cargo to the buyer. Hence, the buyer would have the right of action in respect of any conversion that has happened after 10 November.

When the nominee retained the cargo after 10 November, that was contrary to the possessory rights of the buyer. Hence, the nominee committed conversion. Similarly, the nominee acted contrary to the possessory rights of the buyer by processing the cargo to produce other products, and hence committed conversion. However, once the cargo has been processed, there will no longer be any immediate right to possession of the cargo that no longer exist. Accordingly, the buyer would have a right of action in conversion against the nominee for the conversion that took place from the starting time of retention after 10 November to the time of processing.

9) Is an action in detinue available to the buyer for the retention and processing by the nominee after 10 November?

Detinue (tort) is another possible action in this case. Detinue is similar to conversion, but is more centered on refusal by a person to deliver up goods when demanded by a person having the right to immediate possession. If the buyer had demanded such delivery before the goods were processed, then it will also have an action in detinue. A claim in detinue will be for return of the goods coupled with a claim for value of the goods as damages in the alternative.[liii] The time for assessment of damages will be at the time of judgment rather than at the time when the wrong was committed, demand was made or when they should have been returned.[liv] This is because detinue, unlike conversion, is considered to be a continuing wrong.[lv]

Whilst ‘detinue’ as a cause of action survives in Malaysia[lvi] and in Singapore,[lvii] it was abolished in England, Wales and N. Ireland by s. 2(1)Torts (Interference with Goods) Act 1977 and apparently replaced with a scheme of tort called interference with goods.[lviii]

If an action in detinue was to be taken, that must have been by the buyer, as the person having the right to immediate possession and upon whose demand the nominee refused to delivery up the cargo.

10) Are there any other remedies available to the buyer, as the ‘owner’, against the nominee for ‘infringement of proprietary right’?

This is an area of gap in the common law. That was well said by Lady Hale in OBG Ltd and another v Allan and others Douglas and others v Hello! Ltd and others (No 3) Mainstream Properties Ltd v Young[lix] as follows:

The common law, as is well known, lacked any general proprietary remedy equivalent to the Roman law vindicatio. It provided three separate remedies for wrongfully taking away, keeping, or disposing of another's goods: trespass, detinue and trover or conversion.

Trespass to goods will be where such as a one interferes with goods in possession of another with the result that the later suffers a loss. For example, in Transco Plc v United Utilities Water Plc,[lx] the court held that it was a trespass to goods where workmen performing repairs underground mistakenly closed a gas stopcock servicing the claimant, and hence liable for the interrupted gas supply to the claimant.

It must be observed that all the three causes of action in relation to interference with goods - (i) conversion (also called trover); (ii) detinue and (iii) trespass to goods - are all based on possession or possessory right of the claimant, and not the proprietary right.

Comparatively, Roman law had direct relief when one’s ownership in goods has been infringed by another interfering with the goods, of which there is no equivalent at common law. A brief statement of the Roman law on this point appears in A Casebook on Roman Property Law[lxi] as follows:

The Roman action called vindicatio or rei vindicatio (“vindication of property”) is the action through which an owner who is out of possession sues to recover possession of his property. It is used both for movable and immovable property. The defendant in a vindicatio is the current possessor (or someone who holds for the possessor). If the defendant’s possession is lawful (i.e., with iusta causa), then the defendant has an affirmative defense to the action based on the nature of that causa. As shown by the formula at the head of this chapter of the Casebook, if the defendant loses the action and refuses to restore the property, then he will be assessed the value of the property in dispute.

But what is available in Malaysia, Singapore and the UK is largely what is there in the common law and equity, subject to some statutory additions. In England, Wales and N. Ireland, there is Torts (Interference with Goods) Act 1977. In Malaysia, there is Specific Relief Act 1950,[lxii] which deals with reliefs of equitable nature and injunctions and will be of relevance in restoring when one’s proprietary rights have been wrongfully interfered with or infringed.

However, it has been seen in a number of cases that courts have used the words ‘proprietary right’ and ‘possessory right’ interchangeably when dealing with conversion.[lxiii] That does not seem to be in line with the law. In any event, that does not seem to be intended to extend the law of conversion, by ratio, to cover proprietary right. The statement by Lady Hale in OGB Ltd case[lxiv] appears to accurately state the position of the common law in this area.

Overall:

11) Commentary on overall result arrived by the court

It is opined, with due respect, that the net result arrived by the court can be sustainable but on largely different, limited and arguable grounds: namely conversion or detinue by retention and processing of the cargo by the nominee after 10 November.

Overview by ARUN KASI

[i] Among others.

[ii] [1986] 2 All ER 145, speech of Lord Brandon at p. 149(UK HL).

[iii] [1990] 1 Lloyd’s Law Rep 252, speech of Lord Justice Mustill at p. 268 (EW CA).

[iv] 20th edn, at para 17-09. It is at the same para in the latest Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017.

[v] [1968] 1 WLR 956 (EW CA), speech of Diplock LJ at pp 970-971; RH Willis & Son v British Car Auctions Ltd [1978] 1 WLR 438, speech of Lord Denning MR at 441 (EW CA).

[vi] 20th edn, at para 17-125. It is at para 17-125 in the latest Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017.

[vii] Sec. 19 Malaysian Sale of Goods Act 1957 / s. 17 Singapore Sale of Goods Act / s. 17 UK Sale of Goods Act 1979.

[viii] Sections 18 and 23 in Malaysia / ss. 16 and 18 r. 5(1) in Singapore / ss. 16 and 18 r. 5(1) in the UK. In Singapore and the UK, there are exceptions to the requirement of ascertainment in s. 20A of their respective Acts, when a specified quantity of unascertained goods forming part of an identified bulk is sold.

[ix] Sec. 23(2) in Malaysia / ss. 18 r. 5(2) in Singapore / ss. 18 r. 5(2) in the UK.

[x] Sec. 25(2) in Malaysia / s. 19(2) in Singapore / s. 19(2) in the UK.

[xi] Mitsui & Co Ltd v Flota Mercante Grancolombiana SA (The Ciudad de Pasto and The Ciudad de Neiva); The Ciudad de Pasto [1989] 1 All E.R. 951; [1988] 2 Lloyd's Rep. 208; [1988] 4 WLUK 98; Times, April 27, 1988; [1989] C.L.Y. 3330 (EW CA), speech of Staughton LJ at [1989] 1 All ER 951 at p. 957: “It seems to me that in the ordinary way a seller will not wish to part with the property in his goods if they are shipped overseas until he has been paid in full.” In this case, when 80% of the contract price has been paid in advance of shipment, the court held that the property in the goods did not pass to the buyer.

[xii] Enichem Anic SpA and Others v Ampelos Shipping Co Ltd; The Delfini [1990] 1 Lloyd’s Law Rep 252; (1989) Times, 11 August (EW CA), speech of Lord Mustill at [1990] 1 Lloyd’s Law Rep 252 p. 268: “the bill of lading fulfils two distinct functions. 1. It is a symbol of constructive possession of the goods which … can transfer constructive possession by endorsement and transfer; it is a transferable ‘key to the warehouse’. 2. It is a document which, although not itself capable of directly transferring the property in the goods which it represents, merely by endorsement and delivery, nevertheless is capable of being part of the mechanism by which property is passed.”

[xiii] The Delfini, supra.

[xiv] Carriage of Goods by Sea Act 1992 in the UK, and Bills of Lading Act in Singapore.

[xv] By virtue of ss. 3(1)(a) and 5 of the Civil Law Act 1956.

[xvi] (1839) 6 Cl & F 600.

[xvii] In the context of the law relating to bill of lading.

[xviii] Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017, para 17-43: “A person has title to sue for conversion if and only if he had, at the time of the conversion, either actual possession or the immediate right to possess the property concerned.”

[xix] General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 2 All ER 314; [1963] 1 WLR 644, 107 Sol Jo 29 (EW CA), speech of Diplock LJ at [1963] 2 All ER 314 at p. 317: “There are important distinctions between a cause of action in conversion and a cause of action in detinue. The former is a single wrongful act and the cause of action accrues at the date of the conversion; the latter is a continuing cause of action which accrues at the date of the wrongful refusal to deliver up the goods and continues until delivery up of the goods or judgment in the action for detinue.”

[xx] Primetrade AG v Ythan Ltd [2005] All ER (D) 05 (Nov); [2005] EWHC 2399 (Comm) at paras 68, 70: "there cannot be a right (against the carrier) to possession of the goods if the goods no longer exist ... If the reason for the loss is a breach of contract by the carrier, there may at that stage spring up a contractual right to damages". Although this case mentions that there may spring a right to contractual damages, that does not rule out damages for conversion in tort, a right well settled in law when one’s possession or immediate right to possession has been unlawfully interfered with - see Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) [2002] UKHL 19; [2002] 2 AC 883; [2002] 3 All ER 209; [2002] 2 WLR 1353; [2002] 1 All ER (Comm) 843; [2003] 1 LRC 430; (2002) Times, 21 May; [2002] All ER (D) 252 (May) (UK HL).

[xxi] The Cherry and Others [2003] 1 SLR 471 (Singapore CA): In this case, the owners of the vessel Cherry misdelivered the goods. The cargo owner, who did not hold the bill at the time of misdelivery, sued the shipowner for conversion. The court disallowed the claim, as a claim in conversion was only available to a person who held the immediate right to possession, i.e. holder of the bill. The Future Express [1993] 2 Lloyd's Rep. 542; [1993] 7 WLUK 364; [1994] C.L.Y. 4046 (English CA): In this case, the bank received the bill of lading after the cargo had been misdelivered by the carrier. The bank sued the carrier for conversion, which the court disallowed as the bank did not have possessory right at the time of conversion. Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017, para 17-45: “The right on which a conversion claimant relies must have existed at the time of the alleged conversion.

[xxii] Primetrade AG v Ythan Ltd, supra.

[xxiii] In Malaysia, by s. 1 of the UK Bills of Lading Act 1855 (effective in Malaysia by virtue of s. 5 of the Civil Law Act 1956). In the UK, by s. 2(1) of the Carriage of Goods by Sea Act 1992, subject to ss. 2(2) and 5(2). In Singapore, by same section numbers of the Bills of Lading Act.

[xxiv] [1891] 2 Q.B. 653; 61 LJQB 115, 7 Asp MLC 69, 40 WR 148; 65 LT 234, 7 TLR 627 (WA CA).

[xxv] Applicable in Malaysia by virtue of s. 5 of the Civil Law Act 1956.

[xxvi] Currently in force in the UK.

[xxvii] See Primetrade AG v Ythan Ltd, supra.

[xxviii] In Malaysia, by s. 1 of the UK Bills of Lading Act 1855 (effective in Malaysia by virtue of s. 5 of the Civil Law Act 1956). In the UK, by s. 2(1) of the Carriage of Goods by Sea Act 1992, subject to ss. 2(2) and 5(2). In Singapore, by same section numbers of the Bills of Lading Act.

^[xxix] Depending on the terms the bill was issued (eg. to order of the shipper, to order of any other person like buyer’s bank, to bearer or straight consigned to consignee). If a bill has not gone out of the hands of the shipper, irrespective of to order of whom it is issued, the seller will have a right to return the bill to the carrier for switching or delivery of the cargo, hence the possessory right.

[xxx] Subject to a contrary argument that can be advanced based on Bristol and West of England Bank v Midland Railway Company, supra, the limitations to which has been discussed earlier.

^[xxxi] Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017, para 17-43: A person has title to sue for conversion … It is not necessary to prove ownership, and indeed even an owner may not sue unless he either possesses or has the immediate right to possess.”

[xxxii] eg. Bristol And West Of England Bank v Midland Railway Company [1891] 2 Q.B. 653; 61 LJQB 115, supra.

^[xxxiii] Chabbra Corpn Pte Ltd v Jag Shakti (owners); The Jag Shakti [1986] AC 337; [1986] 1 All ER 480; [1986] 2 WLR 87: [1987] LRC (Comm) 228; [1986] 1 Lloyd's Rep 1, 130 Sol Jo 51; [1986] LS Gaz R 45 (PC on appeal from Singapore).

[xxxiv] Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5), supra: conversion is a tort of strict liability.

^[xxxv] The Jian He [2000] 1 SLR 8 (Singapore CA); Motis Exports Ltd v AF 1912 [2000] 1 Lloyd’s Rep 211 (EW CA).

[xxxvi] Minmetals South-East Asia Corp Pte Ltd v Nakhoda Logistics Sdn Bhd [2018] MLJU 859 (Malaysia CA).

[xxxvii] Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017, para 17-43, supra.

[xxxviii] However, if Bristol and West of England Bank v Midland Railway Company, supra, is followed, then the buyer can be treated as a person who can maintain an action in conversion. The limitations to accepting this case as representing the right law has been discussed, supra.

[xxxix] Sec. 1 of the UK Bills of Lading Act 1855 (effective in Malaysia by virtue of s. 5 of the Civil Law Act 1956), s. 2(1) of the Carriage of Goods by Sea Act 1992 in the UK and s. 2(1) of the Bills of Lading Act in Singapore provide for transfer of rights of suits under the bill of lading contract to the lawful holder of the bill. Sections 2(2) and 5(2) in the UK and Singapore Act specifically provide for the transfer of rights where the holder of the bill comes into possession of the bill when the bill no longer gives a right (as against the carrier) to possession of the goods, provided that (i) he so came to possess by virtue of a transaction made when the bill represented the cargo or (ii) the bill is returned to him upon rejection of the bill or goods by another.

[xl] Sec. 2(5) in the UK Carriage of Goods by Sea Act 1992 and the Singapore Bills of Lading Act. There is no equivalent statutory provision applicable in Malaysia. However, even in the absence of such provision, there is no restriction in transfer of rights in such situation under the s. 1 of the Bills of Lading Act 1855, applicable in Malaysia.

[xli] His good faith will usually not be an issue, as he has purchased by transfer of bill of lading - an instrument recognised as document of title.

^[xlii] Salmond on Torts (1907), p 284.

^[xliii] 22nd edn., UK, Sweet & Maxwell, 2017, para 17-17.

^[xliv] Supra.

^[xlv] Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5), supra.

^[xlvi] Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956 (EW CA), speech of Diplock LJ at pp. 970-971.

[xlvii] 22nd edn., UK, Sweet & Maxwell, 2017, para 17-08.

[xlviii] This point had already been discussed at length earlier, together with possible contrary argument by reference to Bristol And West Of England Bank v Midland Railway Company, supra.

[xlix] 22nd edn., UK, Sweet & Maxwell, 2017, para 17-08.

[l] Although General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd, supra says that conversion is a single wrongful act as opposed to a continuing cause, but that does not mean that conversion cannot be committed by recurring acts such as retention.

[li] See Brierly v Kendall (1852) 17 QB 937; 21 LJQB 161; 16 Jur 449; 117 ER 1540; 18 LTOS 254.

[lii] Perpetual mandatory injunction.

[liii] See Rosenthal v Alderton & Sons Ltd [1946] KB 374; [1946] 1 All ER 583; 174 LT 214 (EW CA). See also Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017, para 17-43.

[liv] See Rosenthal v Alderton & Sons Ltd, supra. See also Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017, para 17-43.

[lv] General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd, supra.

[lvi] See Rules of Court 2012 - Order 13 rule 3 and Order 19 rule 4.

[lvii] See Antariksa Logistics Pte Ltd and others v McTrans Cargo (S) Pte Ltd [2012] SGHC 154; [2012] 4 SLR 250, para 158 (SG HC).

[lviii] Clerk & Lindsell on Tort, 22nd edn., UK, Sweet & Maxwell, 2017, paras 17-03, 17-88, 19-94. One of the extensions made by this Act is to extend conversion to include ‘loss or destruction of goods which a bailee has allowed to happen in breach of his duty to his bailor … which is not otherwise conversion’ (s. 2(2)).

[lix] [2007] UKHL 21; [2008] 1 A.C. 1 (UK HL), speech of Lady Hale at para 308.

[lx] [2005] EWHC 2784 (EW QB).

[lxi] Herbert Hausmaninger, et al, A Casebook on Roman Property Law, USA, Oxford University Press, 2012, Ch 4.

[lxii] A similar statute in India is Specific Relief Act 1872 (as in a number of commonwealth jurisdictions).

[lxiii] Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5), supra.

[lxiv] infra.

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

Court of Appeal, Malaysia

Abdul Kadir Sulaiman JCA, Arifin Zakaria JCA, Richard Malanjum

14 July 2005

KEYWORDS

International Trade - Breach of Sale and Purchase Contract - Meaning of ‘transshipment’ - false bill of lading

FACTS

Seller and buyer entered into a contract, whereby the seller was to manufacture certain equipment and ship them from Port Klang (in Malaysia) or Singapore to Benghazi (in Libya). The contract was on c&f terms. No transshipment was allowed. Contract price RM1,523,000. Advance payment RM1 million was to be paid by the buyer million against performance bond. Payment of balance price, RM523,000, was to be by letter of credit.

The performance bond was furnished and the letter of credit was issued. 

The letter of credit prohibited  transshipment and allowed shipment from Port Klang or Singapore.

However, the seller arranged shipment by a feeder vessel Seng Leong from Port Klang to Singapore, and then, after warehousing in Singapore, from Singapore to Benghazi by vessel Lady Jane.

The seller accordingly shipped the cargo from Port Klang to Singapore. However, after arrival in Singapore, the cargo was never shipped on baord Lady Jane to Benghazi.

In the meantime, the seller procured a bill of lading that stated the cargo was shipped on board Lady Jane from Port Klang - a false statement. The seller presented the bill to the buyer's bank for payment under the letter of credit. However, the payment was not made. The buyer sought to draw on the performance bond.

The seller sued the buyer for balance payment and to prevent the buyer from drawing on the performance bond.

The buyer counterclaimed for drawing on the performance bond.

The High Court found for the buyer, dismissing the seller's claim and allowing the buyer's claim to draw on the performance bond. Hence, the appeal by the seller against both these decisions.

The High Court dismissed the seller's claim and allowed the buyer's counterclaim. Hence, the appeal by the seller against both decisions.

HELD (BY COURT OF APPEAL - UNANIMOUSLY)

1. It was a transshipment to transfer the cargo by feeder vessel first to Singapore and then to ship from there to Benghazi.

2. The seller had breached the contract.

3. In any event the cargo was not shipped as stated in the bill and in fact was never shipped to Benghazi.

4. Accordingly, the seller was not entitled to the contract price and the buyer was entitled to refund of the advance payment by drawing on the performance bond.

5. Appeal dismissed with cost to be taxed.

Overview by ARUN KASI

Court of Appeal, Malaysia

Aziah Ali JCA, Anantham Kasinather JCA, Umi Kalthum JCA

21 February 2014

KEYWORDS

Bill of Lading - Dangerous Goods - Carried on Deck at Shipper’s Risk - Art. IV(6) Hague Rules - Art. III(2) Hague Rules - Bailment - Negligence

FACTS

A cargo of agrochemicals was shipped from Penang (in Malaysia) to Miri (in Sarawak, Malaysia) under a clean bill of lading and carried on deck. The bill of lading stated that the cargo was shipped on deck at shipper's risk. The shipper had declared them to be dangerous cargo within the knowledge of the shipowner. The shipowner charged an extra fee for carrying the ‘dangerous’ cargo.

During the voyage, the cargo caught fire and an explosion happened, resulting in the ship sinking with total loss of the cargo.

The shipper sued the shipowner for the loss in negligence and bailment. At the trial before the High Court, neither the master nor the chief officer gave evidence.

The High Court dismissed the claim, hence appeal by the shipper against the shipowner.

HELD (BY COURT OF APPEAL - UNANIMOUSLY)

1. The shipowner was liable for the loss.

2. Appeal allowed, with costs here and below of RM130,000.

OBSERVATION

This judgement must be read with extreme caution. There were many shortfalls. First, the court relied on Hague Rules Art. IV(6) obligations of shipper when shipping dangerous cargo. This is more commonly invoked as a defence for the shipowner when the shipowner has landed destroyed or rendered innocuous before discharge by reason of danger exposed by the cargo. Second, the Hague Rules (made part of Malaysian law by s. 2 of the Carriage of Goods by Sea Act 1950) did not apply because the cargo was stated in the bill to be carried on deck and was accordingly carried (Art. 1(c)). Third, the court commented that the bill issued was a clean one in suggesting that the shipowner must in be liable. Clean bill or claused bill is not about dangerous cargo, but about defects in condition or order of cargo. Fourth, the court asked in its central focus asked a question whether the cargo shipped was 'fundamentally different' from that contracted. This line of question is not based on precedents. Fifth, the court did not take the right direction by asking the question whether the shipowner breached its duties as a bailee that can include duty to carry properly adopting a system appropriate to carry the cargo based on the information available to the shipowner.

Despite that, the net result arrived at may be sustainable because the shipowner did not call the master or chief officer to discharge the burden on it to prove that it was not negligent in the carriage (which may include a burden to prove that it deployed the proper system in the carriage of this dangerous cargo and also a duty to ask the shipper questions to satisfy itself of any special requirement when needed).

Overview by ARUN KASI

Court of Appeal, Malaysia

Zaharah Ibrahim JCA, Mohamad Ariff Yusof JCA, Varghese George JCA

5 August 2016

KEYWORDS

Bill of lading - Art. III(6) Hague Rules, one-year time limit - s. 29 of Contracts Act 1950 - Validity of statement or clause incorporating the Hague Rules into bill of lading, pursuant to legal requirement - Reg. 2 of Merchant Shipping (Applied Subsidiary Legislation) Regulations 1961 (Sabah) - ss. 277 and 278 of Merchant Shipping Ordinance 1960 (No 11/1960) (Sabah) - Reg. 2 and 4 of Merchant Shipping (Implementation of Conventions Relating to Carriage of Goods by Sea and to Liability of Shipowners and Others) Regulations 1960 (Sarawak) - s. 277 of Merchant Shipping Ordinance 1960 (Ord 2/1960) (Sarawak)

FACTS

In this case, steel was shipped from Penang to Kota Kinabalu (in Sabah, Malaysia) under a bill of lading. The bill stated that any action must be brought within one year of date of delivery or the date when the goods should have been delivered. The steel, according to the consignee, arrived in corroded state. The consignee sued the carrier, however more than a year after delivery. The carried applied to summarily strike out the action under Order 18 r. 19 of the then Rules of the High Court 1980 (now Rules of Court 2012) on the ground that the Art. III(6) one-year time limit had set it. The consignee challenged it relying on s. 29 of the Contracts Act that invalidates any agreement of parties to reduce time limit allowed by the law. The High Court refused to strike out the action. Hence, the appeal by the carrier to the Court of Appeal.

HELD (BY COURT OF APPEAL -UNAMIMOUSLY)

1. As the one-year time limit was already in the relevant legislation and was stated pursuant to applicable legislation, that did not contravene s. 29, hence valid.

• Appeal allowed with RM20,000 costs, the consignee’s action summarily struck out.

OBSERVATION

The s. 29 of the Contracts Act, which is materially identical to the s. 28 of the Indian Contract Act 1872, provides:

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

However, Exception 1 to the section excludes arbitration from the its scope.

Regulations 2 - 6 of Merchant Shipping (Implementation of Conventions Relating to Carriage of Goods by Sea and to Liability of Shipowners and Others) Regulations 1960 (Sarawak), made under s. 277 of Merchant Shipping Ordinance 1960 (Ord 2/1960) (Sarawak) are materially identical to ss. 2 - 6 of the Carriage of Goods by Sea Act 1950 (applicable only in Peninsular Malaysia - s. 1(2)).

Reg. 2 of Merchant Shipping (Applied Subsidiary Legislation) Regulations 1961 (Sabah) made under ss. 277 and 278 of Merchant Shipping Ordinance 1960 (No 11/1960) (Sabah), incorporates the regulations 2 and 4 of the 1960 Sarawak Regulations (above).

Note: By the above said regulations, the Hague-Rules apply to Sabah and Sarawak, subject to a modification of the £100 liability limitation in Art. IV(5) to RM850 in value, currently - there is no corresponding modification in the 1950 Act.

The relevant provisions were regulations 2 and 4 of the 1960 Regulations of Sarawak, materially identical to ss. 2 - 4 of the 1950 Act. The said regulations read as follows:

2. Application of the Rules.

Subject to the provisions of this Part, the Rules set out in the Schedule (hereinafter referred to as "the Rules"), shall have effect in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in Sarawak to any other port whether within or outside Sarawak.

4. Statement as to application of the Rules to be included in bills of lading.

Every bill of lading or similar document of title issued in Sarawak which contains or is evidence of any contract to which the Rules apply shall contain an express statement that it is to have effect subject to the provisions of the Rules as applied to this Part.

The same result will be achieved whether under Sabah or Sarawak regulations or under the 1950 Act.

The validity of the RM850 limit can be subject of challenge on two grounds. First, the act of the state legislators fixing the value below the Art. IV(5) threshold may constitute a breach of sovereign obligation of Malaysia that has ratified the Rules. Second, seemingly the legislators acted under a misunderstanding that the £100 referred to the face value rather than gold value. The suitable mode of the possible challenge will be by judicial review. If such a challenge succeeds, that will nullify the Regulation 7 that has effected the modification, so that the £100 gold value in Art. IV(5) read together with Art. IX will apply at all times. See also Dr Irwin UJ Ooi, Quest for the ‘gold value’ of a ‘package’ or ‘unit’: Limitation of Liability under the Hague Rules, [2006] 4 MLJ xlvii: the author argues that fixing the liability limit at RM850 per package or unit was probably a result of misunderstanding by the legislators of the regulation as to what the £100 gold value meant. The author further argues fixing the sum as such is in breach of the Art. III(8). Legislators fixing the value below £100 gold value will not breach the Art. III(8) that catches only contractual contravention of the Rules.

Overview by ARUN KASI

Court of Appeal, Malaysia

Tengku Maimun JCA, Nallini Pathmanathan JCA, Zabariah Yusof JCA

11 July 2018

KEYWORDS

House bill of lading - Non-delivery - Misdelivery - Application of Hague Rules Art. III(6) one-year time limit to non-delivery or misdelivery cases - Assessment of damages by fair market value of cargo at destination port at time of breach - Alternative basis of assessment by cost of cargo to holder of bill

FACTS

There were cargoes of timber on board vessels from Port Klang to Shanghai. The cargoes were covered by 25 house bills of lading issued by a Malaysian freight forwarder - a non vehicle owning carrier (NVOC). The bills named the original supplier in Malaysia as the 'shipper' and one Jiangsu Sopo as the 'notify party'. Seemingly, the bills were issued to order, meaning to order of the shipper, who indorsed them in blank, so that the bills became bearer bills. Freight was paid.

A Singapore trader purchased the cargoes for about USD13 million and fully paid for them, and obtained the 25 house bills. The Singapore trader entered into an agreement to on-sell the cargoes to a Shanghai sub-buyer. However, problems arose over payment by the Shanghai sub-buyer.

While negotiation as to payment between the Singapore trader and the Shanghai sub-buyer dragged time, the vessels arrived and cargoes were discharged into warehouse. The negotiation, and thus the sale, failed. The bills were not parted with and were with the Singapore trader.

The Singapore trader contacted the Malaysian freight forwarder, informing the latter that the former was the holder of the bills and asked for the agent's details to arrange collection of the cargoes. The freight forwarder either did not respond or merely responded asking the Singapore trader to contact the 'notify party' namely Jiangsu Sopo. Then the Singapore trader demanded delivery, again no avail.

Then, the Singapore trader sued the freight forwarder for non-delivery. By the time, the suit was filed, it was about a month more than a year after discharge, at least in respect of some of the bills. It appeared that by then the cargoes were misdelivered, as far as the house bills were concerned, to some person without presentation of the house bills.

In background to the house bills, as it will usually be, the shipowner had issued ocean bills which were held by the freight forwarder. The ocean bills named the same shipper in the house bills as the shipper. Ordinarily, when the house bills are presented to the freight forwarder, it will exchange them for the ocean bills so that the presenter can present the ocean bills to the shipowner in order to collect the cargo from the shipowner. In this case, the freight forwarder failed to do so.

The freight forwarder argued that the holder of the bills should have contacted the ‘notify party’ about the collection, that the cargoes were incurring warehouse charges being uncollected for long and that the action was time barred as it was brought more than one year after discharge, seemingly in respect of some of the bills. The Hague Rules Art. III(6) provides for one-year time limit from the date of delivery or the date when the cargo should have been delivered to bring action. The Rules are made part of Malaysian law by s. 2 of the Carriage of Goods by Sea Act 1950.

The High Court dismissed the claim, hence the appeal by the Singapore trader to the Court of Appeal.

HELD (BY COURT OF APPEAL - UNANIMOUSLY):

As to obligation to deliver against the bills:

a) The house bills are the documents of title to the goods.

b) Delivery may only be made against presentation of the bills.

c) Failure to accordingly deliver is a fundamental breach.

d) Non-delivery will find liability in contract and tort of conversion.

e) If the carrier suffers storage charges by reason of delay in collection of the goods by the holder of the bills, the carrier may claim those charges from the holder of the bills, but that is not an excuse for non-delivery or misdelivery.

f) The argument that the holder of the bill should have contacted the notify party is devoid of any merit.

As to the one-year time limit argument:

g) The one-year time limit does not apply to non-delivery or misdelivery cases for three reasons, below.

h) First, the time in Art. III(6) starts count from the date of ‘delivery’. ‘Delivery’ here means delivery to the right person, that his holder of the bill. As the cargoes were never delivered to the right person in this case, the time did not start count.

i) Second, non-delivery or misdelivery, after discharge, is not subject to the one-year time limit, as the Hague Rules is about events happening from the time of loading to the time of discharge. The decision of the Malaysian Federal Court in Peninsular Peninsular & Oriental Steam Navigation Co Ltd & Ors V Rambler Cycle Co Ltd [1964] 30 MLJ 443 was followed.

j) Third, the freight forwarder was counting the time from ‘discharge’ from the ship, which is different from ‘delivery’ and was wrong.

As to the quantum of damages:

k) The holder of the bills, by ordinary measure of damages, is entitled to fair market value of the cargoes at the destination port at the date of the breach (i.e. the date when the goods should have been delivered).

l) The amount paid by the Singapore trader for the cargoes to its suppliers, which it proved to be about USD13 million, was acceptable as an alternative method of assessment, being the actual loss.

m) The customs declaration showing the value to be about USD2 million was not an acceptable evidence of the value in this case.

Disposition:

n) Appeal allowed. Freight forwarder is liable. The quantum is the price for which the Singapore trader purchased the goods, namely USD13,591,622.65.

o) Freight forwarder to pay costs here and below in the sum of RM70,000.

OBSERVATION:

1. Is a house bill issued by a non vehicle owning carrier (NVOC) a document of title to or a document conferring constructive possession of ‘the goods’?

It is a most settled law that delivery must only be made against the bill [Chabbra Corporation Pte. Ltd. v Jag Shakti (Owners), The Jag Shakti [1986] 1 MLJ 197, [1986] AC 337, [1986] 1 All ER 480, [1986] 2 WLR 87, [1987] LRC (Comm) 228, [1986] 1 Lloyd's Rep 1, 130 Sol Jo 51, [1986] LS Gaz R 45 (PC on appeal from Singapore CA)]. When the freight forwarder did not so deliver, it was liable for non-delivery. However, whether house bills are ‘documents of title’ to the goods is something arguable. In The Maheno [1977] 1 Lloyd’s Rep 81], the New Zealand Supreme Court did not consider a through bill of lading issued by a non-vehicle owning carrier (NVOC) - a freight forwarder - to be a document of title.

UCP [Uniform Customs and Practice for Documentary Credits] 600 in Art. 20(c)(i) recognises through bill of lading as a good tender for payment under letters of credit. This will happen where a carrier issues a bill (called a ‘through’ bill) under which the carriage will be completed with transshipments. For instance, the carrier will perform the first leg of the voyage, and the second leg (upon transshipment) will be performed by another carrier. As far as the second leg is concerned, the original carrier is not the shipowner. There will be only one through bill as far as the shipper is concerned that will cover the entire voyage including all transshipment. The carrier will be standing in the position of a NVOC as far as the legs not performed by it are concerned. The Art. 20(c)(i) reads as follows:

A bill of lading may indicate that the goods will or may be transshipped provided that the entire carriage is covered by one and the same bill of lading.

This will afford an argument that a bill issued by a NVOC has commercially been recognised now as being transferable or negotiable. However, that does not confer on such bill the status of document of title to the goods or of a document giving the construction possession. The bill, at the maximum, is merely a transferable or negotiable contract of carriage. This is because, there will be another bill of lading issued by the shipowner to the NVOC that will in fact represent the cargo. First, it will not be logical that there are two documents of title or documents of constructive possession for the same cargo. Second, the cargo is in the control of the shipowner and not the NVOC. Third, the duty of the shipowner will be to deliver the cargo only to the person presenting the bill issued by it, and it will be inconsistent to say that any other person holding any other bill has the right of possession of the cargo. Hence, only a document issued by the shipowner can give constructive possession or operate as a document of title to the goods.

The best that the NVOC bill can do is to i) confer a right of action on the holder of the bill against the NVOC; and ii) potentially operate as a document giving constructive possession of the ocean bill of lading in the hands of the NVOC. This puts the holder of a house bill, as opposed to an ocean bill, in a disadvantageous position in addition to the limitation that the option of arresting the ship [by in rem action - see s. 21 of the Senior Courts Act 1981 (UK), which is applicable in Malaysia by virtue of s. 24(b) of the Courts of Judicature Act 1964; in Singapore, a similar provision to the s. 21 is in s. 4 of the High Court (Admiralty Jurisdiction) Act] is not available to it as the issuer of the house bill is not the owner or disponent owner [Demise charterer, also called ‘bareboat charterer’] of the ship.

In support of the above proposition, the New Zealand Supreme Court in The Maheno [1977] 1 Lloyd’s Rep 81 did not consider a through bill issued by a NVOC to be a document of title.

2. Is it a right practice for the shipowner to issue an ocean bill naming the house bill shipper as the shipper?

In this case, it seems that the shipowner issued an ocean bill naming the shipper in the house bill as the shipper for the ocean bill. This appears not to be right practice. The freight forwarder, having issued its own house bill, is the one who made the ‘contract’ with the shipowner, hence the shipper as far as the shipowner was concerned. It would be hard to say that the freight forwarder contracted with the shipowner as the agent of the actual shipper, because the the freight forwarder issued its own house bill to the actual shipper, that would have been likely at different rate of freight. The freight forwarder will in fact be the principal vis-a-vis both the actual shipper and the shipowner. Ocean Projects Inc v Ultratech Pte Ltd [1994] 2 SLR 369 (Singapore CA) will support this proposition, where the Singapore Court of Appeal held that when a freight forwarder issued its own bill to the actual shipper, the freight forwarder was the principle vis-a-vis both the carrier actual shipper and the shipowner. Accordingly, the right practice would have been for the shipowner to issue the ocean bill naming the freight forwarder as the shipper.

3. Is non-delivery, as opposed to misdelivery, a tort of ‘conversion’?

It is no doubt that a carrier, including a NVOC, is liable for failing to deliver against presentation of the bill issued by it [Chabbra Corporation Pte. Ltd. v Jag Shakti (Owners), The Jag Shakti, supra] whether it is a case of mere non-delivery (such as where the goods are lost) or misdelivery (where the goods are delivered to a wrong person i.e. a person not holding the bill).

At common law, the tort of conversion [also called ‘trover’] is committed in the case of the latter (misdelivery), but not in the case of the former (mere non-delivery not coupled with misdelivery). Conversion has not been an easy thing to define or understand [in Hiort v London and North Western Railway Co 4 Ex D 188, 194, Bramwell LJ said that he had frequently stated that he never understood with precision what a conversion was]. Salmond on Torts [(1907), p 284] defines it as "[t]he wrong of conversion consists in any act of wilful interference with a chattel, done without lawful justification, whereby any person entitled thereto is deprived of the use and possession of it." Clerk & Lindsell [22nd edn., UK, Sweet & Maxwell, 2017 ~ 17-17] defines conversion as “an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it”. This was accepted by the English Court of Appeal in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) [[2002] UKHL 19; [2002] 2 A.C. 883]. as accurately summarising the tort of conversion. In this case, Lord Nicholls enunciated the test for ‘conversion’ as:

First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession).

Second, the conduct was deliberate, not accidental.

Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods.

Conversion is a tort of strict liability [Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2001] 3 W.L.R. 1117; [2001] 1 Lloyd’s Rep. 161 (English CA)] ‘in which the moral concept of fault in the sense of either knowledge by the doer of an act that it is likely to cause injury, loss or damage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part’ [speech of Diplock LJ in Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956 at pp. 970-971 (English CA)].

More directly about loss of goods at common law, Winfield & Jolowicz on Tort [19th edn., UK, Sweet & Maxwell, 2014 ~ 18-102] says when defining conversion “at common law there must be some deliberate act depriving the claimant of his rights: if this element was lacking there was no conversion. Thus if a bailee negligently allowed goods in his charge to be destroyed the claimant’s loss is just the same as if the bailee had wrongfully sold them to a third party but there was no conversion.”

Similarly, Clerk & Lindsell [22nd edn., UK, Sweet & Maxwell, 2017 ~ 17-21] says “[a]t common law there could be no conversion where there was no voluntary act. Therefore if a bailee in breach of his duty to his bailor lost goods or allowed them to be destroyed, he could not be sued for conversion, although he might be liable in contract, negligence, detinue or breach of bailment.”.

Some of the categories Clerk & Lindsell [22nd edn., UK, Sweet & Maxwell, 2017 ~ 17-08] give of conversion are:

(a)when property is wrongfully taken or received by someone not entitled to do so;

(b)when it is wrongfully parted with;

(c)when it is lost by a bailee in breach of his duty to the bailor (not found in common law, but made part of ‘conversion’ in the UK[ England, Wales and Northern Ireland, but not Scotland.] only by s.2(2) of the Torts (Interference with Goods) Act 1977 - for Malaysia, only the common law will apply in this context by virtue of s. 3 of the Civil Law Act 1956);

(d)when it is wrongfully sold, even without delivery, so as to pass good title to the buyer;

(e)when it is wrongfully retained;

(f)when it is wrongfully misused or destroyed; and

(g)when the defendant, without physically interfering with it, wrongfully denies access to it to the claimant.

Accordingly, in Malaysia, a mere non-delivery, not coupled with misdelivery, will not be conversion. Hence, a suit for non-delivery has to be taken in contract based on the bill of lading, in bailment or negligence (tort). A bailment action would be possible when the goods had been lost by negligence of the bailee, and the burden of proofing that he was not negligent is on the bailee once the bailor proves that the goods had been delivered to the bailee in a certain condition [Port Swettenham Authority v The Borneo Co (Malaysia) Sdn Bhd [1975] 2 MLJ 80 (Malaysian Federal Court)]. If the action is taken in negligence, then the burden of proving that the defendant lost the goods by his negligence is on the plaintiff or claimant.

As far as England, Wales and N. Ireland is concerned, in addition to the availability of action in contract, bailment and negligence, an action in conversion will be available for a mere non-delivery by virtue of s.2(2) of the Torts (Interference with Goods) Act 1977, provided that the defendant is a bailee, eg. shipowner. Whether a NVOC like freight forwarder, who does not take physical possession of the goods, is a bailee is not so settled. In Spectra International plc v Hayesoak Ltd [1997] 1 Lloyd’s Rep 153, an English County Court held that a freight forwarder who issued a combined transport bill of lading was a bailee, although it did not take physical possession of the goods, and it was sufficient that goods were at its disposal as freight forwarder to arrange warehousing, transportation and delivery. Despite that, the point can be open to argument.

4. Is Hague Rules Art. III(6) one-year time limit applicable in Malaysia?

The answer is ‘Yes’. Sec. 2 of the Carriage of Goods by Sea Act 1950 makes the Hague Rules part of the Malaysian law.

The s. 2 reads as follows:

Subject to this Act, the [Hague] Rules set out in the First Schedule (hereinafter referred to as “the Rules”) shall have effect in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in Malaysia to any other port whether in or outside Malaysia.

The Art. III(6), in para 5, reads as follows:

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

5. What does ‘delivery’ in the Hague Rules Art. III(6) mean?

It is no doubt that delivery and discharge are two different things. The time limit in the Art. III(6) counts from delivery and not discharge. Although it is common for delivery to be after delivery, there are instances where delivery and discharge happen together, such as in ‘free in and free out’ (FIFO) arrangement, where the consignee does the discharge from the ship and together with that takes delivery.

The word ‘delivery’ in the Art. III(6), by itself, cannot mean delivery to the right person, i.e the lawful holder of the bill, particularly when read in the full context whereby the time starts count from the date of delivery ‘or the date when the goods should have been delivered’.

The correct approach will be just that taken by the Malaysian Federal Court in Peninsular & Oriental Steam Navigation Co Ltd & Ors V Rambler Cycle Co Ltd, namely, the entire Rules are about obligations from the time of loading to the time of discharge (Art. III(2)). Hence, the time limit in the Art. III(6) does not relate to delivery when that happens or is to happen after discharge. The same principle will also apply to damage to goods after discharge but before delivery, hence the liability limit in Art. IV(5) will not apply to such damage.

Peninsular & Oriental Steam Navigation has been followed by the Malaysian Federal Court in another case, namely The Lung Yung & Thai Yung, Owners & Ors v Sadit Timber Sdn Bhd & Ors [1984] 1 MLJ 29. The principle reinforced by these case will find support in the English High Court case The Alhani [2018] EWHC 1945 (Comm).

The said Art. III(2) reads as follows:

Subject to the provisions of Article 6, 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.

The Art. IV(5), in para 1, reads as follows:

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 100 pounds sterling per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

6. Will the position be the same under the Hague-Visby Rules?

The answer is ‘Yes’. The Art. II in the Hague-Visby Rules is identical to the one in the Hague Rules. The Art. III(6) is materially the same. Accordingly, the position in relation to time limit in case of non-delivery or misdelivery is the same.

The Art. IV(5) in the Hague and Hague-Visby Rules is quite similar save that the scheme of quantum of liability limit is different and the words ‘in any event’ has been added in the Hague-Visby Rules Art. IV(5) to read “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with good …”.  These additional words have attracted some argument that the liability limitation regime in the Hague-Visby Rules may apply even when the goods are damaged after discharge but before delivery. These addition words have been interpreted widely in Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd, The Kapitan Petko Voivoda [2003] EWCA Civ 451; [2003] 1 All ER (Comm) 801; [2003] 2 Lloyd's Rep 1; (2003) Times, 17 April; [2003] All ER (D) 46 (Apr) (English CA), and in Parker Distributors (Singapore) Pte Ltd v A/S D/S Svenborg & Anor [1982-1983] 1 SLR 153 (Singapore CA), however not in the context of liability limitation. Despite that, it is opined that the post-discharge damage cannot be subject to the liability limitation in the Hague-Visby Rules Art. IV(5), following the ratio in Peninsular & Oriental Steam Navigation.

Hague-Visby Rules (as last amended with SDR protocol in 1979) apply in the UK, by virtue of s. 1 of the Carriage of Goods by Sea Act 1971. Hague-Visby Rules (as originally made in 1968 without SDR protocol) apply in Singapore, by virtue of s. 3 of the Carriage of Goods by Sea Act. Singapore has not adopted the SDR protocol, but has made its own scheme of quantum of liability limit by Carriage of Goods by Sea (Singapore Currency Equivalents) Order.

7. Is it correct to award damages on the alternative method of assessment of damages based on cost of the goods to the holder of the bill, in alternative to value at the destination port at time of breach?

Damages are to be assessed by the market value of the goods at the time and place of delivery or when and where delivery should have been made (supposed delivery) [Chabbra Corporation Pte. Ltd. v Jag Shakti (Owners), The Jag Shakti, supra]

However, where such value is not readily available or is difficult to assess, it may be acceptable to take the cost of the goods to the holder of the bill as evidence of the market value, unless market has been proved to have fluctuated between the time of purchase by the holder of the bill and the time of delivery (or supposed delivery) or the holder has been shown to have purchased the goods at odd price. This proposition will find favour with The Jag Shakti, where the holder of the bill, who was a financier in that case, was awarded the amount of finance that it had advanced as the damages in the absence of proof of the value of goods at the destination port at the time of breach. The Privy Council there held that the burden to prove of the value was on the holder of the bill, and as it failed to discharge that burden, the only award that can be ‘justified’ was one for the amount of finance it had expended. In that case, the holder of the bill was claiming a lot more than that which the shipowner contested, but the shipowner did not take a challenge to say that the amount of finance was higher than the market value of the goods at the relevant place and time, which it would have been open for the shipowner to do so if it wanted to.

Accordingly, although the result arrived by the court as to quantum stands well in law, the better approach in precision would have been to call the cost of the goods to the holder of the bill as ‘evidence’ of value of the goods at the relevant place and time rather than as ‘alternative’ method of assessment, although the two practically mean the same thing. It will be open to the carrier to challenge any such alternative evidence such as by tendering better evidence of more precise value of the goods at the relevant place and time, if it wishes to do so.

8. Overview of the result arrived by the court

The result, both in terms of liability and quantum, arrived by the court is very well in line with the law.

Overview by ARUN KASI

Federal Court, Malaysia

LP, Lee Hun Hoe CJ (Borneo), Kuala Ali FJ

8 March 1975

On Appeal to PC, PC dismissed the Appeal:

Port Swettenham Authority v TW Wu and Co (M) Sdn Bhd

[1978] 2 MLJ 13

KEYWORDS

Bailment for reward - Burden on Bailee to prove no-negligence - Appeal court slow to interfere with finding by trial court of lack of care

FACTS AND DECISION

93 boxes of pharmaceutical products were delivered into the custody of the Penang port authority godown. Only 29 boxes of them were delivered by the port authority to the cargo owner, missing was 64 boxes.

As a bailee for reward, the burden was on the port authority to prove it was not negligent, once the bailor (cargo owner) had established the delivery of the goods into the custody of the bailee. The court found that the port authority was not able to prove that it had taken all reasonable care of the goods while in its custody. Accordingly, the port authority was held liable for the loss of 64 boxes.

The port authority appealed to the Federal Court, which upheld the decision and found no reason to disturb the factual findings by the High Court as the trial court.

OBSERVATION

Obligations of the bailor are set out in ss. 101, 104, 105 and 114 of the Contracts Act 1950, which has materially codified the common law and is materially identical to ss. 148, 151, 152 and 161 of the Indian Act. The burden of proof is set out in ss. 101-103, 106 and 114 illustration (g) of the Evidence Act 1950, which are identical to the Indian Evidence Act 1872 and with the Singapore Evidence Act (save that the section-number is in advancement by 2 numbers).

The said sections of the Malaysian Contracts Act provide as follows:

100. A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee". ...

104. In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.

105. The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 104.

114. If, by the fault of the bailee, the goods are not returned, delivered, or tendered at the proper time, he is responsible to the bailor for any loss, destruction, or deterioration of the goods from that time.

The said sections of the Malaysian / Indian Evidence Act provide as follows:

101. Burden of proof

(1) Whoever desires any court to give judgment as to any legal right or liability, dependent on the existence of facts which he asserts, must prove that those facts exist.

(2) When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person.

102. On whom burden of proof lies

The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.

103. Burden of proof as to particular fact

The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.

106. Burden of proving fact especially within knowledge

When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.

114. Court may presume existence of certain fact

The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case.

Illustration

The court may presume—

…

(g) that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it;

…

The Privy Council, in affirming the decision of the Federal Court placed emphasis on s. 106 of the Evidence Act and held that it places the burden directly on the bailee, once the bailor has proved that the cargo was delivered in a certain condition and was returned in a certain quantity and condition. The Privy Council disagreed with a speech in a previous Privy Council decision on appeal from India, where the previous board said that an identical s. 106 in the Indian Evidence Act 1872 merely required the bailee to put before the court the relevant evidence and it was for the bailor to prove fault on part of the bailee. The said speech was of Sir Walter Phillimore in Dwarka Nath v RSN Co Ltd AIR 1917 PC 173 at p. 175 as follows:

… Evidence Act of 1872, section 106 … it was therefore right that the defendant Company should call the material witnesses who were on the spot … But this provision of the law of evidence does not discharge the plaintiffs from proving the want of due diligence, or … the negligence, of the servants of the defendant Company. It may be for the Company to lay the materials before the court; but it remains for the plaintiffs to satisfy the court that the true inference from these materials is that the servants of the defendant Company have not shown due care, skill and nerve.

A case similar to this against the Penang port authority by another cargo claimant, with a similar decision by the Federal Court as to the bailment, is Port Swettenham Authority v The Borneo Co (Malaysia) Sdn Bhd [1975] 2 MLJ 80.

Overview by ARUN KASI

Federal Court, Malaysia

Suffian LP, Lee Hun Hoe CJ (Borneo) And Ali FJ

3 August 1975

KEYWORDS

Bailment for reward - Burden on Bailee to prove no-negligence - Appeal court slow to interfere with finding by trial court of lack of care

FACTS AND DECISION

A cargo comprising 173 cartons of tees and soothers were delivered into the custody of the Penang port authority godown. 103 cartons went missing and not delivered to the cargo owner. The High Court found that the cargo owner had established that 173 cartons were delivered into the custody of the port authority and that only 70 cartons were delivered by the port authority to the cargo owner. Hence, 103 cartons went missing.

As a bailee for reward, the burden was on the port authority to prove it was not negligent, once the bailor (cargo owner) had established the delivery of the goods into the custody of the bailee. The High Court found that the port authority was not able to prove that it had taken all reasonable care of the goods while in its custody. Accordingly, the High Court held the port authority liable.

The port authority appealed to the Federal Court, which upheld the decision and found no reason to disturb the factual findings by the High Court as the trial court.

OBSERVATION

Obligations of the bailor are set out in ss. 101, 104, 105 and 114 of the Contracts Act 1950, which has materially codified the common law and is materially identical to ss. 148, 151, 152 and 161 of the Indian Act. The burden of proof is set out in ss. 101-103, 106 and 114 illustration (g) of the Evidence Act 1950, which are identical to the Indian Evidence Act 1872 and with the Singapore Evidence Act (save that the section-number is in advancement by 2 numbers).

The said sections of the Malaysian Contracts Act provide as follows:

100. A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee". ...

104. In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.

105. The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 104.

114. If, by the fault of the bailee, the goods are not returned, delivered, or tendered at the proper time, he is responsible to the bailor for any loss, destruction, or deterioration of the goods from that time.

The said sections of the Malaysian / Indian Evidence Act provide as follows:

101. Burden of proof

(1) Whoever desires any court to give judgment as to any legal right or liability, dependent on the existence of facts which he asserts, must prove that those facts exist.

(2) When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person.

102. On whom burden of proof lies

The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.

103. Burden of proof as to particular fact

The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.

106. Burden of proving fact especially within knowledge

When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.

114. Court may presume existence of certain fact

The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case.

Illustration

The court may presume—

…

(g) that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it;

…

A case similar to this against the Penang port authority by another cargo claimant, with a similar decision by the Privy Council as to the bailment, is Port Swettenham Authority v Twwu-Co (M) Sdn Bhd [1978] 2 MLJ 13 (on appeal from Malaysian Federal Court).

In that case, the Privy Council, in affirming arriving at a similar decision, placed emphasis on s. 106 of the Evidence Act and held that it places the burden directly on the bailee, once the bailor has proved that the cargo was delivered in a certain condition and was returned in a certain quantity and condition. The Privy Council disagreed with a speech in a previous Privy Council decision on appeal from India, where the previous board said that an identical s. 106 in the Indian Evidence Act 1872merely required the bailee to put before the court the relevant evidence and it was for the bailor to prove fault on part of the bailee. The said speech was of Sir Walter Phillimore in Dwarka Nath v RSN Co Ltd AIR 1917 PC 173 at p. 175 as follows:

… Evidence Act of 1872, section 106 … it was therefore right that the defendant Company should call the material witnesses who were on the spot … But this provision of the law of evidence does not discharge the plaintiffs from proving the want of due diligence, or … the negligence, of the servants of the defendant Company. It may be for the Company to lay the materials before the court; but it remains for the plaintiffs to satisfy the court that the true inference from these materials is that the servants of the defendant Company have not shown due care, skill and nerve.

Overview by ARUN KASI

Federal Court, Malaysia

Lee Hun Hoe Ag LP, Ali Ag CJ (Malaya) And Raja Azlan Shah FJ

14 February 1977

KEYWORDS

Bailment - Action by cargo owner against port warehouse operator - burden on bailor to prove the condition of goods at the time of receipt by the bailee, then burden shifts to bailee to prove no-negligence

FACTS AND DECISION

Eight boxes of camera were shipped from Hong Kong to Penang (in Malaysia) under a clean bill of lading. They were discharged into lighters at Penang and then transferred to the warehouse operated by the port authority. Upon delivery to the indorsee of the bill, it was found that eight cameras were missing and some boxes tampered with. The indorsee brought an action against the shipowner, the lighter operator and the port authority. The Sessions Court found that the port authority was liable. The port authority appealed to the High Court that found that the port authority was not liable. On further appeal by the indorsee to the Federal Court, where the parties were only the indorsee and the port authority, the question was where the port authority was liable as bailee.

The Federal Court found that the indorsee was not able to prove the condition of the goods at the time of delivery into the warehouse, after changing of hands from the ship to the lighter and lighter to the warehouse. A mere proof of damage and loss compared against the bill of lading was not sufficient to shift the burden onto the port authority, and the Malaysian Federal Court found against the claimant.

OBSERVATION

Obligations of the bailor are set out in ss. 101, 104, 105 and 114 of the Contracts Act 1950, which has materially codified the common law and is materially identical to ss. 148, 151, 152 and 161 of the Indian Act. The burden of proof is set out in ss. 101-103, 106 and 114 illustration (g) of the Evidence Act 1950, which are identical to the Indian Evidence Act 1872 and with the Singapore Evidence Act (save that the section-number is in advancement by 2 numbers).

The said sections of the Malaysian Contracts Act provide as follows:

100. A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee". ...

104. In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.

105. The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 104.

114. If, by the fault of the bailee, the goods are not returned, delivered, or tendered at the proper time, he is responsible to the bailor for any loss, destruction, or deterioration of the goods from that time.

The said sections of the Malaysian / Indian Evidence Act provide as follows:

101. Burden of proof

(1) Whoever desires any court to give judgment as to any legal right or liability, dependent on the existence of facts which he asserts, must prove that those facts exist.

(2) When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person.

102. On whom burden of proof lies

The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.

103. Burden of proof as to particular fact

The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.

106. Burden of proving fact especially within knowledge

When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.

114. Court may presume existence of certain fact

The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case.

Illustration

The court may presume—

…

(g) that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it;

…

The Privy Council in Port Swettenham Authority v Tw Wu And Company (M) Sdn Bhd [1978] 2 MLJ 137 (PC on appeal from Malaysian Federal Court (apex court)) held that s. 106 of the Evidence Act places the legal burden directly on the bailee, once the bailor has proved that the goods were delivered in a certain quantity and condition to the bailor and that they were returned in short quantity or in a different condition. The Privy Council disagreed with a speech in a previous Privy Council decision on appeal from India, where the previous board said that an identical s. 106 in the Indian Evidence Act 1872 merely required the bailee to put before the court the relevant evidence and it was for the bailor to prove fault on part of the bailee. The said speech was of Sir Walter Phillimore in Dwarka Nath v RSN Co Ltd AIR 1917 PC 173 at p. 175 as follows:

… Evidence Act of 1872, section 106 … it was therefore right that the defendant Company should call the material witnesses who were on the spot … But this provision of the law of evidence does not discharge the plaintiffs from proving the want of due diligence, or … the negligence, of the servants of the defendant Company. It may be for the Company to lay the materials before the court; but it remains for the plaintiffs to satisfy the court that the true inference from these materials is that the servants of the defendant Company have not shown due care, skill and nerve.

Overview by ARUN KASI

Federal Court, Malaysia

Raja Azlan Shah CJ, Chang Min Tat FJ, Abdoolcader J

16 April 1980; 6 May 1980

KEYWORDS

Received for Shipment Bill of Lading - Goods not shipped on board the agreed vessel - Goods shipped on subsequent vessel -Six months delay in delivery, as a result - Liability under bill when cargo not shipped as per the bill - Bill of Lading exempted liability for delay - Effect of the delay-exclusion clause

FACTS AND DECISION

An arrangement was made with a carrier to carry a cargo of paper board from New York to Penang (in Malaysia). The carrier received the cargo and issued a bill of lading, seemingly a 'received for shipment' bill, to carry the cargo on board the vessel SS Priam. The bill of lading provided that the carrier was not to be liable for any delay. The carrier missed shipping the cargo on board SS Priam, but subsequently shipped it on board another vessel. This resulted in a delay of about six months.

The indorsee of the bill sued the carrier for non-delivery by SS Priam. The carrier challenged the action substantially on three gounds. First, the claim was for non-delivery could not be sustained as the goods were subsequently delivered having been shipped on board another vessel. Second, the carrier is not liable on the bill of lading as the goods were never shipped on board SS Priam. Third, the bill exempted liability for all delay.

As to the first ground, the court held that although the claim was for non-delivery by SS Priam, parties understood it actually meant delayed delivery, hence the court allowed the plaintiff (claimant) to proceed with claim as if it was for delayed delivery in the interests of justice. As to the second ground, the court held that it was not necessary for the goods to be shipped on board in order for the carrier to incur liability under contract of carriage. The court said the carriage contract came into existence when the goods were delivered. As to the third ground, the court agreed with the carrier and held that the carrier was exempted from liability.

OBSERVATION

A 'received for shipment' bill is or evidences a contract for carriage. It has been recognised as a document of title. It is transferable as much as a shipped bill, irrespective of whether the goods were actually shipped as per the bill. Accordingly, the carrier fails to perform the contract, i.e. fails to ship the cargo as per the bill, the carrier will be liable on the bill to the holder of the bill.

The transferability of the bill is provided for by s. 1 Bill of Lading Act 1855, applicable in Malaysia by virtue of s. 5(1) of the Civil Law Act 1956. In the case of the UK, it is now provided for by s. 2(1) of the Carriage of Goods Act 1992 and in Singapore by s. 2(1) of the Bills of Lading Act. In fact, s. 1(2)(b) of the 1992 UK Act and the Singapore Act expressly include ‘received for shipment’ bills into the definition of a bill of lading for purpose of transferability.

The court said that the contract for carriage came into existence when the goods were delivered. This may not be so in all cases. Sometimes, the contract may come into existence when the booking is made with an agent of the carrier. There cannot be a doubt that at least by the time the bill is issued the contract has come into existence.

The court held that the liability was exempted. This is a matter of construction. For two reasons, it would have been in line with authorities to refuse to allow the carrier to rely on the exclusion clause in this case. First, the exclusion clause did not relate to any breach of the obligation to ship on board the particular vessel SS Priam. If the goods were shipped on board this vessel and there was a delay in the arrival of the ship for whatever reason, then the exclusion clause could cover. The Asia Star [2007] SGCA 17; [2007] 3 SLR 1 will support this proposition, where the Singapore Court of Appeal held that a clause exempting liability for uncargoworthiness did not relieve the shipowner from liability when the ship did not answer the agreed description as epoxy coated. Second, the obligation to proceed with reasonable dispatch is one of the common law implied terms into contracts for carriage. Implied terms can only be exempted by specific exclusion clause. The exclusion clause here refers to delay and not to a failure to ship on board the agreed vessel that can amount to a failure to proceed with reasonable despatch. The Maori King (Owners) v Hughes [1895] 2 QB 550 (CA) will support this proposition, where the English Court of Appeal held that a clause excluding liability for “failure or breakdown of machinery, insulation and other appliances” did not cover where a cargo of frozen mutton was damaged as a result of refrigeration system that did not work properly since the start of the voyage. Such a construction will also be in line with the general principle that an exclusion clause will be narrowly construed against the person relying on it. This decision by the Malaysian Federal Court does not appear to represent the good law to be followed.

Overview by ARUN KASI

Federal Court, Malaysia

Lee Hun Hoe Ag LP, Ali Ag CJ (Malaya), Raja Azlan Shah FJ

19 May 1977

KEYWORDS

Bill of Lading - Pledge by buyer to bank - Third party creditor obtaining freezing injunction over assets of the buyer, namely the goods in transit - Bank’s rights for immediate possession

FACTS AND DECISION

In this case, the bank was holding the bill of lading issued to its order. A third party secured a judgment against the buyer and obtained an injunction to freeze the assets of the buyer, namely the cargo under the bill still in transit at that time, to satisfy the judgment debt. The bank applied for leave (Permission) to intervene into the injunction proceedings with a view to an order to enable the bank to present the bill and collect the cargo.

The High Court refused to allow the bank to present the bill and receive the cargo (unless the bank furnishes a bank guarantee for a certain amount). It directed the bank to file interpleader proceedings, with the bank as the plaintiff (Claimant) and the third party as the defendant. The bank did not furnish the bank guarantee and appealed to the Federal Court. In the meantime, goods were sold by sheriff and proceeds deposited into the court.

The Federal Court upheld the decision, whilst by that time the goods were already sold by the sheriff and hence that part of the order was spent.

OBSERVATION

This decision will not be commercially welcomed, as it dilutes the function of the bill of lading as conferring right to possession, ability to pledge it in return for financing in international trade and trade certainty related to bills of lading. When ordering interpleader proceedings, the court did not sufficiently consider the bank’s own interest in the goods as the financier, as opposed to any interest of the third party and the buyer, as well as the bank’s immediate right to the goods. The court also did not sufficiently consider that the goods were pledged to the bank and the interest of any judgment creditor over the assets of the buyer was subject to the bank’s interest in these goods as a pledgee and equitable chargee for value. It is dubious whether this decision represents the right law.

In some way, there was not much choice of utility to the Federal Court, since the essential part of the High Court order as to entitlement of the bank to immediate possession of the goods were already spent and the proceeds of sale was safe in the court. That may be the reason the Federal Court was inclined to maintain the interim order made by the High Court even if it was wrongly made. The option of applying for summary judgement was always open the the bank once the interpleader proceedings have commenced.

The decision of the Privy Council in Official Assignee of Madras v Mercantile Bank of India Ltd is to be preferred to this, in which the buyer had pledged the document of title, namely railway receipts, to the bank and became insolvent while the goods were in transit. The Privy Council held that the bank was the pledgee and equitable chargee of the goods, the insolvency administrator merely stood in the shoes of the borrowers, he was not entitled to the goods or their proceeds, the goods or their proceeds having been pledged were not divisible among the creditors.

Overview by ARUN KASI

Federal Court, Malaysia

Raja Azlan Shah, Chang Min Tat FJJ, Syed Othman FJJ

5 December 1978, 26 May 1979

KEYWORDS

Bill of Lading - Cargo Claim - Lost Cargo - Liability Limitation - Art. IV(5) of Hague Rules - Art. IX of Hague Rules - Validity of Lower Liability Limitation clause in Bill of Lading - Art. III(8) of Hague Rules

FACTS AND DECISION

Two packages of medicine was shipped from Hong Kong to Penang (in Malaysia), under bill of lading subject to Hague Rules. One package, worth about RM25,000, was lost in transit and not delivered to the indorsee of the bill. The indorsee of the bill sued the carrier. Liability was not disputed. Carried relied on liability limitation clause in the bill of lading, by which its liability was limited to HK$300 per package. This was lower than the liability limitation amount in the Art. IV(5) of the Hague Rules.

The court held that the clause was invalid under Art. III(8), which invalidates any agreement between the parties lessening the liabilities imposed by the Rules on the carrier. The court held that, as the value of the goods lost is more than the liability limitation amount in the Art. IV(5), the liability was limited to the Art. IV(5) and the court awarded accordingly an equivalent sum to £100 in gold value (Art. IX of the Hague Rules).

OBSERVATION

It appears that all that the court awarded was in essence a sum equivalent to £100. The ‘£100’ in Art. IV(5) read together with ‘gold value’ are severely lacking in clarity. However, the court have held, logically, that it means ‘gold value’ as at 1924, when the Rules were made. This means the amount of money that will be needed today to buy gold of a quantity that could be purchased in 1924 with £100, which will be a far larger sum: Limitation Sum - Gold Value - Hague Rules, Article IV Rule 5, (1989) 6 MLAANZ Journal Part 2 at pp. 64-65; The Rosa S [1988] 2 Lloyd’s Rep 574 (the £100 was found to be £6,630.50 in 1984); Brown Boveri (Australia) Pty Limited v Baltic Shipping Company,[ [1989] 1 Lloyd's Rep 518 (NSW Court of Appeal) (the £100 was found to be more than AUD11,000 in 1989);

If this manipulation was not done (as it seems to be so), this decision is not in line with authorities.

Overview by ARUN KASI

Federal Court, Malaysia

Raja Azlan Shah LP, Lee Hun Hoe CJ (Borneo) & Abdoolcader FJ

17 November 1983

KEYWORDS

Admiralty in Rem Action - Bill of Lading - Misdelivery without presentation of bill - Conversion - Cargo Claim - Time Limitation - Art. III(6) of Hague Rules - Jurisdiction - Stay of Proceedings - Appellate intervention of jurisdiction exercised by High Court judge

FACTS AND DECISION

The holder of a bill of lading brought an action against the shipowner for misdelivery. The bill of had a choice of law clause in favour of Chinese Merchant Marine Act, 1929. The shipowner brought an action in Taiwan, which was pending in appeal. The indorsee of the bill brought an in rem action before the Malaysian court more than one year after the date the goods must have been delivered. The shipowner applied to strike out the proceedings on grounds of jurisdiction and one-year time limit in Art. III(6) of Hague Rules, applicable in Malaysia by virtue of s. 2 of the Carriage of Goods by Sea Act 1950.

The court disagreed with both grounds and dismissed the application to strike out. In disagreeing with the limitation point, the court approved and followed the Singapore Federal Court decision in Peninsular & Oriental Steam Navigation Co Ltd & Ors v Rambler Cycle Co Ltd [1964] MLJ 443. In that case, it was held that Art. III(6) one-year time limitation does not apply to cases of misdelivery that happens after discharge of the cargo from the ship. This was because the entire Hague Rules applies only between the time of loading and the time of discharge, by virtue of Art. II of the Rules.

OBSERVATION

The Alhani [2018] EWHC 1945 (Comm) will support the decision in this case on limitation.

The same principle will apply for the time-limitation and liability limitation (Art. IV(5)) both under the Hague Rules and Hague-Visby Rules. It will equally apply where there is a misdelivery or damage to goods after discharge. However, there are instances where the delivery will be together with discharge, such as where the consignee takes delivery and discharges the cargo from the ship (eg. free-in and free-out). In such cases, if a misdelivery happens together with discharge, then the the one-year time limit, as well as the liability limitation, will apply.

This point can be subject to some argument to the contrary. Hague-Visby Rules discharges the carrier and shipper from all liability ‘whatsoever’ ‘in respect of the goods’. In the case of Hague Rules, the word ‘whatsoever’ is not there, but the words ‘in respect of the goods’ is there. Arguments have been advanced based on these words, in contrast to The Alhani and Peninsular and Oriental Steam Navigation, that the intention of the Rules is to globally provide the time limitation including in misdelivery and post-discharge damage cases. Even if that was not so in the case of Hague Rules, the argument goes, it is at least so in the case of Hague-Visby Rules with the additional word ‘whatsoever’. Similar argument can be advanced in the case of application of liability limitation regime in Art. IV(5) to misdelivery and post-discharge damage delivery cases with the words ‘in any event’ and ‘loss or damage to or in connection with the goods’. The word ‘in any event’ here has been widely interpreted, though not in the context of misdelivery or post-discharge damage: see Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd, The Kapitan Petko Voivoda [2003] EWCA Civ 451; [2003] 1 All ER (Comm) 801; [2003] 2 Lloyd's Rep 1; (2003) Times, 17 April; [2003] All ER (D) 46 (Apr). and Parker Distributors (Singapore) Pte Ltd v A/S D/S Svenborg & Anor [1982-1983] 1 SLR 153 (Singapore CA).

Overview by ARUN KASI

Federal Court, Malaysia

Arifin Zakaria CJ (Malaya), Richard Malanjum CJ (Sabah and Sarawak), James Foong FCJ

27 July 2010

KEYWORDS

International Trade - FOB terms sale and purchase - Buyer to nominate ship, etc - Letter of Credit subject to UCP 500 - Buyer charters ship for the carriage - Buyer notifies Seller of Nominated Ship and agent - Seller accordingly ships - Shipowner issues BIMCO Congenbill form Bill of Lading subject to charterparty - Letter of Credit silent about charterparty - Buyer’s bank reject documents under UCP 500 Artciles 23(a)(i) and 25(a)(ii) (Signature or Authentication on Bill of Lading), Articles 23(a)(vi) and 25 (Charterpary Bill of Lading)

FACTS AND DECISION

Seller and Buyer agreed on FOB terms sale and purchase of sugar, shipment from Tutricorin (in India) to Doha (in Qatar), payment by letter of credit. The Buyer was to nominate the ship. The buyer got the letter of credit issued by the buyer's bank. The buyer charterted a ship for the carriage and notified the seller of the nomination and the buyer's agent. The seller accordingly shipped the cargo. The ship issued a bill of lading subject to charterparty (in BIMCO Congenbill form). The bill was signed with the words "For UNICORN MARITIMES (INDIA) PVT LTD' and "AS AGENTS".

The letter was credit was silent about charterparty. Upon tender of documents by the seller to the buyer's bank for payment under the letter of credit, the latter refused payment for two reasons. First, the bill was signed by Unicorn as agents, without stating agents for whom, such as agents for ABC Ltd the owner of the ship. Second, the letter of credit did not permit charterparty bill of lading. The seller sued the buyer's bank for the payment.

UCP 500 Articles 23(a)(i) and 25(a)(ii) provide for signature or authentication on bills of lading. Art. 23(a)(vi) provide for no indication of charterparty bill except where permitted by the letter of credit. They read as follows:

Article 23. Marine/Ocean Bill of Lading

a. If a Credit calls for a bill of lading covering a port-to-port shipment, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which:

i) appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by:

- the carrier or a named agent for or on behalf of the carrier, or

- the master or a named agent for or on behalf of the master.

Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting, ...

...

vi) contains no indication that it is subject to a charter party ...

Article 25. Charter Party Bill of Lading

a. If a Credit calls for or permits a charter party bill of lading, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which:

i) ...

ii) appears on its face to have been signed or otherwise authenticated by:

- the master or a named agent for or on behalf of the master, or

- the owner or a named agent for or on behalf of the owner.

Any signature or authentication of the master or owner must be identified as master or owner as the case may be. An agent signing or authenticating for the master or owner must also indicate the name and the capacity of the party, i.e. master or owner, on whose behalf that agent is acting, …

The court agreed with both grounds of rejection of the bank and summarily struck out the action.

OBSERVATION

On the 'subject to charter party' count, it was the fault of the buyer that he did not get its bank to permit that in the letter of credit, whilst it was the buyer who arranged the charter party, nominated the ship and had control of the form of the bill. However, the letter of credit constitutes an independent transaction between the issuing bank and the seller. The terms and matters of conduct or fault between the seller and buyer cannot be brought into the letter of credit transaction between the seller and the bank. The bank acts on the face of the documents. If the documents tendered do not comply with the terms of the letter of credit, then the bank is obliged to reject, unless the discrepancy is waived by the buyer (Art. 16(b) of the current UCP 600: "When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies").

The corresponding provisions to UCP 500 Art. 25(a) in the current UCP 600 is Art. 22(a), which reads as follows:

22. Charter Party Bill of Lading

a.     A bill of lading, however named, containing an indication that it is subject to a charter party (charter party bill of lading), must appear to:

i.     be signed by:

• the master or a named agent for or on behalf of the master, or

• the owner or a named agent for or on behalf of the owner, or

• the charterer or a named agent for or on behalf of the charterer.

Any signature by the master, owner, charterer or agent must be identified as that of the master, owner, charterer or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the master, owner or charterer.

An agent signing for or on behalf of the owner or charterer must indicate the name of the owner or charterer.

The notable addition here is that the charterer or its agent is authorised to sign the the bill.

The corresponding provision to UCP 500 Art. 23 is Art. 20 in the current UCP 600, which reads essentially in the same terms as follows.

20. Bill of Lading

a.     A bill of lading, however named, must appear to:

        i.     indicate the name of the carrier and be signed by:

                • the carrier or a named agent for or on behalf of the carrier, or

                • the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

...

vi.     contain no indication that it is subject to a charter party.

Overview by ARUN KASI

Federal Court, Malaysia

Wee Chong Jin CJ, Tan Ah Tah JF, Winslow J

30 Septermber 1966

KEYWORDS

Bill of Lading - Cargo Claim - Amendment to name of parties after time limitation has set in

FACTS AND DECISION

The bill of lading prominently displayed a call name of Malaya Indonesia Line. However, the bill was actually issued Swedish East Asia Co Ltd, which a careful scrutiny of the bill would have revealed. [In fact, the agent of the Malaya Indonesia Line and Swedish East Asia Co Ltd alerted the claimant of the fact that the shipowner concerned was the latter, even prior to issue of the writ, but which the claimant disregarded]. The claimant issued the writ against “Malaya Indonesia Line”. In fact there was no legal entity by this name, however, this was a call name used by three shipowners including Swedish East Asia Co Ltd. After time limit had set in, the claimant substituted the defendant with the name of Swedish East Asia Co Ltd by leave of the court. The amended writ was served on an agent, who was the agent both for the Malaya Indonesia Line and Swedish East Asia Co Ltd. The defendant did not apply to set aside the leave to substitute, instead pleaded the time limitation in the defence based on the date of amendment to the writ.

The High Court accepted the relevant date for purposes of time limitation, insofar as Swedish East Asia Co Ltd was concerned, was the date of amendment and not the date of writ. Accordingly, the High Court allowed the defence and dismissed the action. The claimant appealed against the decision to the Federal Court (apex court), which upheld the decision of the High Court. The Federal Court held that, after the time limitation, correction of a mere misnomer would be allowed, but not a substitution. The court relied on Davies v Elsby Brothers Ltd [1960] 3 All ER 627 (CA) (not a ‘shipping’ related case), that set out the general principle and test in relation to amendments to parties after time limit has set in.

Overview by ARUN KASI

Federal Court, Malaysia

Suffian LP, Lee Hun Hoe CJ (Borneo), Wan Suleiman FJ

6 June 1975

KEYWORDS

Goods lost by Port Godown - Challenge as to contents of boxes lost - Evidential value of Bill of Lading to prove contents of boxes lost in case between Consignee and Port

FACTS AND DECISION

A question as to the evidential value of the bill of lading in a dispute between the consignee and warehouse operator came before Federal Court (apex court).

In this case, two boxes alleged to contain pharmaceutical products were discharged at the Penang port (in Malaysia) and stored in the port’s godown. Subsequently, the two boxes went missing and the port authority was not able to deliver them to the consignee. The consignee sued the port authority for the value of the goods. It was the case of the consignee that the boxes contained the goods as described in the bill of lading. The port authority challenged this. The court held that the bill of lading was a prima facie evidence. Accordingly, the court decided that, since the port authority was not able to disprove it, the port authority was liable for the loss.

OBSERVATION

The court neither considered s. 32 of the Malaysian Evidence Act 1950 nor Art. III(4) of the Hague Rules (applicable in Malaysia by virtue of Carriage of Goods by Sea Act - s. 2) in deciding the case. It is opined that the bill of lading was not in fact prima facie evidence of the contents of the boxes. But rather, it was hearsay evidence, of which admissibility should have been considered under s. 32(1)(b) of the Malaysian Evidence Act 1950 as well as under s. 114 of the Act (read together with illustration (f) thereto).

The s. 32(1)(b) reads as follows:

32. (1) Statements, written or verbal, of relevant facts made by a person ... whose attendance cannot be procured without an amount of delay or expense which under the circumstances of the case appears to the court unreasonable, are themselves relevant facts in the following cases:

(a) ...

(b) when the statement was made by any such person in the ordinary course of business ...  or of a document used in commerce, written or signed by him.

The s. 114 and the illustration (f) read as follows:

The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case.

Illustration

…

(f) that the common course of business has been followed in particular cases

Overview by ARUN KASI

A cargo of steel coils was carried under four bills of lading by The Lehmann Timber. The vessel was first detained by pirates and released by a payment of ransom by the owners. Subsequently, the vessel suffered an engine breakdown, which put the owners to the cost of towing. Finally, the vessel arrived the destination port of St Petersburg. The owners declared general average and appointed the general average adjusters.

The cargo carried under one of the bills were insured, while the other three were uninsured. The general average adjusters, on behalf of the owners, demanded the usual general average bond secured by an insurer’s general average guarantee or cash deposit. The cargo receiver refused to give the bond in respect of any of the bills, while the insurer gave its guarantee in respect of the one bill covered by insurance. The owners exercised the lien over all the cargoes for general average contribution and discharged all the cargo in a nearby warehouse. The owners subsequently claimed the general average contribution as well as the cost of storage.

The dispute was first arbitrated. The arbitral tribunal allowed the owner’s claim. On appeal, Popplewell J held that the owners were entitled to exercise the lien in respect of all the cargoes including the one in respect of which the insurers had given the guarantee as no bond was given by the cargo receiver. However, his lordship held that the owners were not entitled to the storage costs, following the decision of the House of Lords in Somes v British Empire Shipping Co (1860) 8 HL Cas 338 where it was held that an artificer was not entitled to the storage cost when exercising his lien. On further appeal by both parties, Sir Bernard Rix delivering the judgment of the Court of Appeal held that the owners were entitled to exercise the lien in respect of all the cargoes as the guarantee without the bond was insufficient or at least it was reasonable for the owners to require a bond in addition to the guarantee. His lordship also held that Somes principle was not applicable outside the context of an artificer and that in any event it was not applicable in the current context of a lien for general average. Accordingly, his lordship reversed the decision of Popplewell J on this point and held that the owners were entitled to the storage cost, after finding that the conduct of the owners in incurring the storage costs in the circumstances was reasonable.

Sir Bernard Rix observed the significance and benefits of a bond to the owners, which possibly include limitation period running from the date of the bond, law and jurisdiction clause and an undertaking to make payment on interim certificate on account.

It is observed that a guarantee in essence guarantees the discharge of the cargo interests’ obligation under a bond. In Navalmar UK Ltd v Ergo Versicherung AG and another company (The BSLE Sunrise) [2019] EWHC 2860 (Comm), Judge Pelling QC tied up the guarantee with the bond although the guarantee was issued before the bond was issued.

A demise charterer let in 2004 the container vessel The Maersk Neuchatel to a time charterer in liner trade by a charterparty in an amended BIMCO BOXTIME form. The charterparty required the demise charterers to give a temporary security in the event of a general average or salvage, to cover all goods and containers, which may subsequently be replaced with a full security from the interested party. On 20 July 2007, whilst on a laden voyage from South East Asia to various South and West African ports, the vessel grounded off the port of Tema, Ghana. Eight attempts were made to refloat her between 20 July 2007 and 31 August 2007. On 31 August 2007, upon lightered, the vessel was refloated by the salvors. In the course of the attempts to refloat and refloating, the vessel’s bottom suffered serious damage and resulting in numerous attempts to refloat and serious damage to her bottom. On 25 July 2007, general average was declared. Upon this incident, the parties negotiated the terms of the letter of undertaking (LOU) by way of the security to be given by the time charterers to the demise charterers, assisted by their respective solicitors and the general average adjusters. The terms were finalised, and the LOU was issued in September 2007. The relevant terms were that the demise charterer would:

pay the proper proportion of any General Average and/or Special Charges which may hereafter be ascertained to be due from the Cargo … under an Adjustment prepared by the appointed Average Adjusters in accordance with the Charterparty …

make one or more payment(s) on -account of such sum or sum(s) as will be certified by the General Average Adjusters to be due from Cargo …

The LOU included a non-separation agreement. Upon the LOU, the remaining containers were discharged at Tema and the vessel was then put to Gdansk for repairs. The demise charterers, time charterers and the general average adjusters all surveyed/inspected the vessel. In December 2010, the adjusters gave a draft adjustment to the time charterers, whereby about 80% of the bottom damage and 100% of the propeller damage were classified as general average sacrifice resulting from the refloating exercise. The adjusters published the final adjustment in January 2012, whereby about 82% of the bottom damage was classified as general average sacrifice. The total sum ascertained to be due from the cargo interests was about USD6.3 million (including liability under the non-separation agreement). The time charterer contended that the right amount of contribution was only about USD3.5 million. The time charterers, having earlier paid USD2.5 million on a without prejudice basis, made a further payment of about USD1 million as per the time charterer’s account. Hamblen J construed the construction, in strict terms, to mean that the time charterers had agreed to pay the proper portion of whatever sum is ascertained by the adjusters to be due from the Cargo, although the Cargo is not bound by the ascertainment. His lordship treated this as an on-demand guarantee dependent on certification. This was because the usual words like “payable in respect of the goods by the Cargo” was missing. His Lordship distinguished The Jute Express [1961] 2 Lloyd’s Rep 55, where such words appeared in the average bond and Sheen J held that the undertaker only agreed to pay what is legally and properly due and payable. His lordship disagreed with the time charterer’s argument that the mere words “pay proper portion of any General Average” had the effect of usual words like “payable by the Cargo”.

It appears that there was a consensus that if the liability of the Cargo is subsequently established in lesser amount than that ascertained by the adjudicators and paid by the time charterers, then the excess amount can be recovered. But if the ascertained amount turns out to be lesser than that subsequently held due from the Cargo, the demise charterers will have no recourse to the time charterers for the excess amount but have to claim the same from the Cargo. Attempts by the time charterers to have the LOU rectified failed.

It is observed that in Navalmar UK Ltd v Ergo Versicherung AG and another company (The BSLE Sunrise) [2019] EWHC 2860 (Comm), Judge Pelling QC held that the insurers guaranteeing the payment by the cargo interest under a bond was entitled to all defences available to the cargo interests and was in the same position as the cargo interests to challenge the general average adjustment.

The Lady M was on a voyage carrying 62,250 mt of oil from Taman, Russia to Houston, USA under four bills of lading which were subject to the Hague-Visby Rules. On 14 May 2015, the chief engineer deliberately set fire in the engine room. The fire was put out within 36 minutes, however the main electrical switchboard was damaged beyond repair and the vessel being immobilised. This resulted in the owners ordering a salvage tug on LOF on 14 May 2015. On 16 May 2015, the salvage tug Tsavliris Hellas commenced towing the vessel to Las Palmas. The savage tug and the vessel arrived at Las Palmas in the evening of 31 May 2015. The salvors instituted arbitration against “The Owners of M.V. Lady M, Her Cargo, Freight and Bunkers”.

The shipowners and cargo owners settled the salvor’s claim separately. The cargo owners paid about USD3.8 million to the salvors and incurred an expense of about GBP46,000 in investigation and defence. The cargo owners brought the claim to recover the monies paid and spend in connection with salvage and for a declaration that they are not liable for general average contribution. In return, the owners brought a counterclaim for about USD560,000 for general average contribution.

At the High Court, two preliminary issues ordered to be determined, namely whether the chief engineer’s conduct amounted to barratry and whether if so Art IV(2)(b) of the Hague-Visby Rules exempted liability of the owner for that. On the first issue, Popplewell J held that the conduct of the chief engineer may or may not be barratry depending on his mental state at that time. On the second issue, his lordship held that Art IV(2)(b) was capable of exempting the owner for liability for fire barratrously or deliberately caused. (See Glencore Energy UK Ltd and another v Freeport Holdings Ltd (Lady M) [2017] EWHC 3348 (Comm) – High Court – Popplewell J)

On appeal, Simon LJ, with whom Coulson LJ and Sir Geoffrey Vos C agreed, upheld that that Art IV(2)(b) covers fire even if caused deliberately or barratrously as long as that happened without the actual fault or privity of the carrier. However, on the question, his lordship found that the fire was deliberately and barratrously caused by the chief engineer. The result was that the owners were exempted from liability to the cargo owners on the latter’s claim.

The Cape Bonny, a tanker, was carrying oil from Argentina to China. The bill of lading incorporated the Hague-Visby Rules and the York Antwerp Rules. On this voyage, the engine broke down and the vessel was immobilised and adrift at sea on 14 July 2011. At this time, she was seeking to avoid the tropical storm or typhoon MA-ON. The vessel ordered a tug to tow the vessel through a towage and salvage broker. There were three choices of tugs to order, namely Salvage Challenger at a hire of USD40,000 per day, De Da at USD 55,000 per day and Koyo Maru at USD56,656 (or possibly USD57,656) per day. The vessel chose Koyo Maru, seemingly because Koyo Maru could reach faster than the other two, among others. An attempt to put the vessel in a Japanese port of refuge failed as the port authorities were reluctant to allow a laden disabled vessel to enter in. A Chinese port authority, namely Tianjin, allowed the vessel to berth, but the receivers of the cargo refused to receive the cargo at that port. Time was not in favour of the owners to attempt by a court order forcing the receivers to receive the cargo at the Chinese berth. Accordingly, the vessel was towed to Yosu in South Kora and arrived there on 1 August 2021 to transfer the cargo onto another vessel The Cape Bata by STS operation to deliver the cargo at the destination port. Here, the vessel was towed by four harbour tugs to the outer anchorage for the STS operation, which was undertaken on 2 and 3 August 2011. After the STS operation the South Korean authorities were reluctant to allow the vessel to enter the port, hence the vessel was towed by Koyo Maru out to sea in view of the approach of another typhoon MUIFA. After the intervention of the local Pilotage Association, the vessel, now in ballast, was allowed to enter the port. The vessel accordingly was towed back to the outer anchorage by Koyo Maru on 9 August 2011, when Koyo Maru was dismissed. Then the vessel was assisted by four harbour tugs to a layby berth to have the repairs done.

In the meantime, on 28 July 2011, the owners declared general average and the cargo insurers furnished a general average guarantee to facilitate the cargo to be delivered to the cargo interests without a cash deposit. On 13 March 2013, the average adjusters assessed the cargo’s contribution to be about USD2.5 million, which was later amended to about USD2.1 million.

The insurers refused to pay. The owners sued the insurers. The defence of the insurers was that the vessel was unseaworthy at the commencement of the voyage and the owners failed to exercise due diligence to ensure seaworthiness, hence breach of Art III(1) obligation. If this was true, that will relieve the cargo interests, and thus the insurers, from the liability to pay general average contributions, by Rule D of the York Antwerp Rules.

Teare J was satisfied that (i) the vessel was unseaworthy at the commencement of the voyage, (ii) the owners failed to exercise due diligence and (iii) that was the cause of the breakdown. Accordingly, his lordship held that the Rule D was triggered, and the insurers were relieved from the liability to pay general average contributions. The basis of this decision was that the cause of the breakdown was the damage to the main bearing no. 1 caused by foreign particles in the lubricating oil, which should have been removed but not removed. A crankweb deflection reading taken in May 2011 (prior to the current voyage), compared with a reading taken in Nov 2010, showed too large a difference. This would alert a prudent engineer of an abnormal wear of the main bearing no. 1 to undertake necessary remedial action. But this was not done, hence the owners failed in their duty to exercise due diligence to ensure seaworthiness at the commencement of the voyage.

If the general average contribution contributions were payable, which was not the case here, there was a dispute as to the quantum. As a matter of academic interest, Teare J dealt with the question of quantum. His lordship found that, by Rule Paramount, Rule A and Rule E of the York Antwerp Rules, the legal burden of proving that the expenditure was reasonable is on the owners. In the circumstances of the case, his lordship found that it was reasonable for the owners to choose Koyo Maru although it was the most expensive option. His lordship considered that mere immobilisation by engine breakdown, even if the weather is fine, is a danger that needs to be dealt with without delay. More, in this case, the danger was plain due to the risk of MA-ON typhoon. It was found that it was reasonable for the owners to retain the tug, as they did, until the South Korean authorities gave permission to enter the port and the vessel was towed to the outer anchorage on 9 August 2011. It was found equally reasonable for the owners to divert to Yosu to perform STS operation given that the Japanese authorities have refused entry and the receivers have refused the Chinese berth.

The Longchamp was boarded and hijacked by pirates on the Gulf of Aden while carrying cargo under a bill of lading subject to the York Antwerp Rules 1974. The pirates asked for USD6 million ransom to disembark and release the vessel. The owner negotiated over 51 days and reduced the ransom to USD1.85 million, which was paid, and the vessel was released. The cost of operating expenses incurred by the owners during the 51 days was USD160,000, which the owners claimed in general average contribution from the cargo interest together with the ransom paid. A dispute arose as to whether the USD160,000 operating expenses are allowable in general average. Lord Neuberger, who the majority agreed, held that it was allowable in general average under Rule F, which provides:

Any extra expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but only up to the amount of the general average expense avoided.

His lordship construed the Rule F objectively and in the natural context.  and rejected the argument of the cargo interests. His lordship rejected the cargo interests’ argument that the general average contributions in the circumstances are excluded by Rule C, holding that even if the expenditure fell within Rule C, it did not prejudice its allowability under Rule F. Rule C provides:

Only such losses, damages or expenses which are the direct consequence of the general average act shall be allowed as general average. Loss or damage sustained by the ship or cargo through delay, whether on the voyage or subsequently, such as demurrage, and any indirect loss whatsoever, such as loss of market, shall not be admitted as general average.

Following a collision and the consequent expenditure spent by the owners in saving the vessel and the cargo, the owners declared general average. The cargo insurers gave the general average guarantee to pay any due general average contribution payable by the cargo interests. Subsequently, the cargo insurers did not pay, and the owners sued the insurers. The insurers defended with an allegation that there was a breach by the owners of the obligation to exercise due diligence to ensure seaworthiness of the vessel at the commencement of the voyage. This was based on the insurer’s position that the Bessel had no adequate systems in place in relation to passage planning and/or bridge management, resulting in the collision and the following expenditure. Seemingly, if this was true it would be a breach of Hague-Visby Rules Art III(1) obligation, which breach will disentitle the owners to any general contribution under Rule D of the York Antwerp Rules. The insurers produced a report from the Chinese authorities saying there was negligence in look out, failure to proceed at a safe speed and negligence in taking precaution required in special circumstances. An expert, namely a captain, giving expert opinion for the insurers said that it was difficult to see how the collision would have happened in the systems were properly implemented and followed. However, the insurers were not able answer the owners’ question what systems ought to have been maintained. While seemingly the collision here did not happen shortly after the vessel left the port, Knowles J drew attention to the following passage from Scrutton:

The burden of proving unseaworthiness rests upon the party who asserts it and the party intending to rely upon unseaworthiness must plead it with sufficient particularity. But where a ship, shortly after leaving port and without any apparent reason sinks or leaks, the mere facts afford prima facie evidence of unseaworthiness, which must be rebutted.

Knowles J concluded that insurers failed to show some foundation for the allegations of unseaworthiness it made supported by a statement of truth. Hence, his lordship gave a summary judgment for the owners.

The BSLE Sunrise carried a cargo of pipes from Jebel Ali to Antwerp under three bills of lading, which incorporated YAR 1974. En route, the vessel grounded off Valencia on 28 September 2012. The owners had the vessel re-floated and temporary repairs done to continue with the voyage to Antwerp. On 5 October 2012, the owners declared general average.

Insofar as two of the three bills were concerned, on the same day, 5 October, the cargo insurers furnished a general average guarantee on the following terms:

In consideration of the delivery in due course of the goods specified below to the consignees thereof without collection of a deposit, we the undersigned insurers, hereby undertake to pay to the ship owners … on behalf of the various parties to the adventure as their interest may appear any contributions to General Average … which may hereafter be ascertained to be properly due in respect of the said goods.

These are wordings approved by the Association of Average Adjusters and the Institute of London Underwriters.

Thereafter on 8 October 2012, the cargo insurers furnished a general average bond in Lloyd’s form as follows:

In consideration of the delivery to us or our order, on payment of the freight due, of the goods noted above we agree to pay the proper proportion of any … general average … which may hereafter be ascertained to be properly and legally due from the goods or the shippers or owners thereof …”

There was no express reference in the guarantee to the bond. The guarantee was issued before the bond was issued.

Insofar as the other bill was concerned, the bond was issued on 11 October 2012 and the guarantee was issued on 15 October 2012 and there as an express reference in the guarantee to the bond.

The vessel arrived at Antwerp on 26 November 2012 and all the cargo was discharged. The general average adjusters issued general average adjustment whereby the cargo interests were to pay a general average contribution to the owners. The adjusted amount not having been paid, the owners instituted action against both the insurers.

It was the position of the insurers that no general average contribution was payable, by Rule D of the YAR, because the grounding happened as a result of an actionable fault of the owners, namely the failure of the owners to exercise due diligence to ensure the vessel’s seaworthiness at the commencement (i.e. breach of the Hague-Visby Rules Art III(1) obligation). It was the case of the owners that the insurers liable under the guarantee was not entitled to Rule D defence in the event of an actionable fault on the part of the owners, although the cargo interests would be entitled to the defence. Judge Pelling QC rejected the argument of the owners and decided as a preliminary issue that the insurers were entitled to Rule D defence as much as the cargo interest would be entitled. This is so despite, in the case of two of the bills, that the guarantee was issued even before the bond and that no express reference was made in the guarantee to the bond. The judge noted that the guarantee is issued in conjunction with the bond, as it has been done in the past 200 years. The guarantee is for payment of the due general average, while no general average may be due when Rule D is triggered. The guarantee merely replaces the requirement of a cash deposit. In the event a deposit is lodged, the question of liability is always preserved. By the guarantee, the insurers have no commercial interest to confer on the owner any greater benefit than that conferred by the bond.

The CMA CGM Libra loaded cargo at Xiamen. The working chart was defective in that they did not contain a warning of the danger that the depths shown in the chart outside the fairway was not reliable and can be shallower than that shown in the chart. A Notice to Mariners were issued to this effect. The second officer prepared a passage plan that, following the defective chart, did not note the danger. The vessel, seemingly for some reason, was navigated outside the fairway. This resulted in the vessel ending up in a shallow waters and grounding. The owners incurred salvage expenditure and had the vessel re-floated, and claimed a general average contribution from the cargo interests for this pursuant to York-Antwerp Rules in the sum of about USD13 million. While more than 90% of the cargo interest paid the contribution, a small portion of the cargo interests refused to pay. Hence, the owners’ action against the small portion of the cargo interests. The Rule D of the York-Antwerp Rules, while providing that a party will be entitled to the general average contribution for the relevant sacrifices/expenditures made by it even if the sacrifices/expenditures were necessitated by the fault of the party, does not prejudice any remedy available to the party against whom a general average contribution claim has been made against the party fault for that fault. In effect, this excludes general average contribution claim by a party at actionable fault. The arguments of the owners that updating charts and preparing passage plan, though done prior to commencement of the voyage, are matters of navigation, performed by the members of the crew quo navigator rather than the carrier, one-off matters as opposed to systematic failure and not attributes of the vessel were rejected after considering numerous authorities presented on both sides. The court reiterated that the navigation exception in Art IV(2) of the Hague-Visby Rules is not available where the breach is of the Art III(1) obligation to exercise due diligence to ensure seaworthiness up the commencement of the voyage. Flaux LJ, with whom Males LJ and Haddon-Cave LJ agreed, held that the vessel was unseaworthy as a result of carrying defective chart and passage plan. It followed that the owners were not entitled to the general average contribution from the cargo interests, upholding the judgment of Teare J. An extract from the chart used is available at https://www.bailii.org/ew/cases/EWHC/Admlty/2019/481.html.

The Polar was carrying 70,000 mt of fuel oil under a voyage charterparty. Under the V/C, the charterers were to pay for the K&R insurance and War Risks policy. The V/C incorporated YAR. B/Ls were issued incorporating the V/C. The vessel was kidnapped while transiting Gulf of Aden en route St Petersburg to Singapore. A ransom was paid to the pirates to have the vessel and the cargo released. The owners brought a general average contribution claim against the cargo owners under B/Ls pursuant to YAR for the ransom payment. Sir Nigel Teare held that as between the owners and the charterers the insurance provision created a complete code, whereby the charterers will pay the premium and the owners’ only resort is to the insurance fund, thus the charterers are relieved from the obligation to pay general average contribution when the insured risk materialises. The general incorporation clause in the B/L does not put the liability to pay the premium on the B/L holders. It follows that exception from general average contribution is not imported into the B/L. His lordship noted that in Ocean Victory, which concerned safe port warranty, the insurance was taken in the joint names of the owners and charterers. In The Eva No. 2, also a case concerning safe port warranty, the insurance was not in the joint names. In both these cases, the courts held that the insurance provision created a complete code for the owners to recover their losses from the insurer, thus relieving the charterers.

Griffin insured The Free Goddess against kidnap and ransom. The vessel was kidnapped in laden condition en route Egypt to Thailand and taken to Somalia in February 2021. Griffin paid the ramson of USD6.5 million and got her released in October 2021. Then Griffin entered into a settlement agreement with the owners of vessel on terms that (i) vessel will proceed to the destination port and discharge the cargo pursuant to bills of lading issued; (ii) all the rights of the owners to claim general average contribution will be subrogated to Griffin; (iii) the owners will account for any general average contribution that they receive. In breach of the agreement, the owners did not proceed to destination port, instead sold the cargo in Oman. Thereby, Griffin’s potential claim against the cargo interest for general average contribution was practically lost. In addition to that, the owners received USD800,000 which they did not account to Griffin. Griffin sued the owners’ controlling person for inducing breach of the contract and claimed the USD800,000 plus the loss of general average contribution that it would have received from the cargo owners but for the sale of the cargo at Oman. Calver J ordered payment of the USD800,000 and the damages for the loss of general average contribution to be assessed.
Prior to this, A Beltrami QC sitting as the judge of the QBD was satisfied that the service was done pursuant to CPR 6.40 (Griffin Underwriting Ltd v ION G Varouxakis [2019] EWHC 2757 (Comm)). Even if that were not to be so, he was satisfied that the owners have notice of the proceedings and the circumstances warranted dispensation with the service. He further noted that as the owners have given an address for service, it is their responsibility to ensure any documents served at the address is passed to the owners.

Supreme Court, UK

Lord Reed, Lord Wilson Dp, Lord Sumption, Lord Hodge And Lord Kitchin SCJJ

3, 4 October 2018; 5 December 2018

KEYWORDS

Bill of Lading - Cargo Claim - Burden of Proof

FACTS AND DECISION

A cargo of coffee beans was carried from Buenaventura[1] to Bremen[2] on LCL/FCL basis in unventilated containers over a period of time under a few bills of ladings. The carrier was responsible for stuffing the cargo into the containers and did so. The Hague Rules applied by incorporation of the same into the bill of lading. The bill rendered itself subject to English law and jurisdiction.

Coffee bean is a hygroscopic substance that will emit moisture when transferred from a warmer place to a cooler place, as it was in this case. The moisture, when carried on unventilated containers as in this case, will inevitably cause condensation on the walls of the container. The condensation will cause damage the coffee beans. Such damage by condensation will be mitigated by lining the container’s internal walls and roof with card or paper in order that the card or paper will absorb the moisture, which is a common practice. The carrier so lined the walls and roof. However, the cargo arrived damaged by water from condensation. The cargo owners[3] sued the shipowners as carriers for breach of Art. III(2) obligation and for breach of carrier’s duties as bailees, with the conventional proof that goods loaded in good state arrived in damaged condition. The cargo owners also pleaded that the carrier was negligent in not using sufficient or adequate paper. The carrier proved that it had lined the walls and roofs, but did not provide the details of the lining such as how thick the paper used was, how many layers were employed and what was the thickness and layers required in this case. Nor were the cargo owners able to adduce any evidence of them.

The carrier relied on Art. IV(m) exception, namely inherent vice of the goods. But the question was whether the cargo damage was attributable to inherent vice of the goods or to negligence of the carrier. Following this, the question that the court had to answer was whether the carrier had to prove no negligence on its part in order to successfully rely on the Art. IV(m). In other words, the question was whether as a matter of law[4] the burden was on the cargo owners to prove that the cargo was damaged by negligence rather than by inherent vice was on the cargo owner or the burden was on the carrier to prove that it was not negligence in order to rely on the inherent vice exception.

The court did not doubt that the carrier was a bailee for reward, subject to terms of the bailment, that is, the bill of lading in this case, and turned to the question of burden of proof for purposes associated with Art. IV(2)(m) of the Hague Rules, which will be common for all Art. IV(2)(c)-(q). The carrier argued that once it had proved that damage was caused by an exception, in this case the inherent vice, the burden was on the cargo owners to prove that it was attributable to the negligence of the carrier. The Court of Appeal, following the popular pre-Hague Rules case of The Glendarroch,[5] agreed with the carrier’s argument and held in favour of the carrier. In The Glendorroch, the Court of Appeal held that the burden of proving that an excepted peril had been occasioned by the carrier’s negligence lay on the cargo owner. Lopes LJ said this as follows:

Where a peril of the sea is set up it is sufficient for the defendant to prove the peril relied on, and he need not go on to shew that that was really not caused by him; but if the plaintiff says that it was, then he must set it up in his replication and must prove it.

The Supreme Court overturned the decision and overruled The Glendorroch,[6] holding that the burden of proving both discharge of Art. III(2) obligation and, if any, Art. IV(2) exception was on the carrier. The carrier will not be entitled to the benefit of Art. IV(2)(m) exception unless the carrier proves that the damage was not attributable to any negligence of the carrier. This ratio will apply to all Art. (2)(c)-(q) cases.

In order to arrive at the above conclusion, the court held or observed a number of important matters. First, on the question of exhaustiveness of the rules. The court held that the Hague Rules “are not exhaustive of all matters relating to the legal responsibility of carriers for the cargo”. The court also held that in general “the Rules do not deal with questions of evidence or the mode of proving a breach of the prescribed standard or the application of an exception”. Having held this, the court pointed out that “they are part of the law of evidence and the rules of procedure, which are liable to vary from one jurisdiction to another”. These observations will readily apply also to Hague-Visby Rules cases.

Second, the court observed that “the principle that the custodian of goods has a legal responsibility to justify their loss or redelivery in damaged condition is common to civil law jurisdictions as well” by reference to Scotland, France, Belgium, the Netherlands, Italy, Germany, Norway and Spain.

Third, and importantly, the court observed that at common law the burden was on the bailee for reward to disprove negligence[7] and that the Hague-Rules do not deal with or change this position. The court held that “nothing in the Hague Rules alters the status of a contract of carriage by sea as a species of bailment for reward on terms”.

In deciding the above point, the court found itself supported by, and endorsed, a number of precedents. The court agreed with the ratio of Wright J in the early Hague-Rules case of Gosse Millard v Canadian Government Merchant Marine Ltd.[8] In that case, Wright J held that the carrier liable for damage as a result of an outturn which was not explained, because “because the burden of disproving negligence lay on him”. The Supreme Court also endorsed the statement of Wright J, which was as follows:

I do not think that the terms of article III put the preliminary onus on the owner of the goods to give affirmative evidence that the carrier has been negligent. It is enough if the owner of the goods proves either that the goods have not been delivered, or have been delivered damaged. The carrier is a bailee and it is for him to show that he has taken reasonable care of the goods while they have been in his custody (which includes the custody of his servants or agents on his behalf) and to bring himself, if there be loss or damage, within the specified

immunities. It is, I think, the general rule applicable in English law to the position of bailees that the bailee is bound to restore the subject of the bailment in the same condition as that in which he received it, and it is for him to explain or to offer valid excuse if he has not done so. It is for him to prove that reasonable care had been exercised.

The court endorsed statement of Scrutton LJ in Silver and Layton v Ocean Steamship Co Ltd[9] in which Scrutton LJ agreed with Wright J’s observation that the Hague Rules had made no difference to the incidence of the burden of proof in cases of bailment for carriage.

The court approved the following statement of Hobhouse J in Aktieselskabet de Danske Sukkerfabrikker v Bajamar Compania Naviera SA (The Torenia):[10]

The relationship between the present parties is contractual. It follows … that the question of legal burden of proof has ultimately to be decided by construing the contract between them. … In ascertaining the effect of the contract one must take into account the nature of the contract. The contract here is a contract in a bill of lading; it is a contract of carriage - that is to say, a species of a contract of bailment.

… Nor do the Hague Rules contradict this conclusion.[11]

The court was in favour of Denning LJ in Spurling Ltd v Bradshaw[12] who held:

… A bailor, by pleading and presenting his case properly, can always put on the bailee the burden of proof. In the case of non-delivery, for instance, all he need plead is the contract and a failure to deliver on demand. That puts on the bailee the burden of proving either loss without his fault (which, of course, would be a complete answer at common law) or, if it was due to his fault, it was a fault from which he is excused by the exempting clause.

The court disagreed with Lord Pearce in The Albacora, where Lord Pearce doubted the correctness of Wright J’s view that the burden of disproving negligence lay upon the carrier, without giving reasons.

With the above, the court in effect concluded and pronounced the rule as to burden of proof associated with Art. III(2) and Art. IV(2)(c)-(q) to be that “where cargo was shipped in apparent good order and condition but is discharged damaged the carrier bears the burden of proving that that was not due to its breach of the obligation in article III.2 to take reasonable care”.

In a nutshell, the court regarded Art. III(2) as a codification of the bailor’s substantive duty to take reasonable care of the goods entrusted with it. This means it does not deal with who bears the legal burden of proof, as it quite plainly is the case. Hence, the question of the legal burden is left to the local laws and procedure as to evidence. Under English law, as is the case with most jurisdictions, the legal burden is generally on the party who asserts a fact. However, in the case of bailment, as per the court, the legal burden to disprove negligence is on the bailor, and that remains unaffected by the Rules. Notably, the court is not resorting to the local laws to determine any question of duties of a bailee that has been codified by the Rules, but only for purposes of proving discharge or breach of those duties.

OBSERVATION

Application of Volcafe in Malaysia and Singapore

The Volcafe’s determination as to who bears the legal burden under Articles III(2) and IV(2)(c)-(q) is in the context of local laws of evidence and procedure in England, where there is no Evidence Act or Contract Act covering bailment. In applying this case to Malaysia or Singapore, regard must be had to the provisions of the Contracts Act 1950 and Evidence Act 1950 in Malaysia, and Evidence Act in Singapore.^[13] The discussion earlier as to burden of proof in bailment cases in Malaysia^[14] and Singapore^[15] will be applicable here.

Pre-Volcafe cases in Malaysia and Singapore

In Malaysia, Hague Rules apply by virtue of Carriage of Goods by Sea Act 1950. Hague-Visby Rules have not been ratified. In 1955, in P Odernamall & Co v American President Lines Ltd And Penang Harbour Board (No 1),^[16] the Malaysian High Court followed Gosse Millard, holding “Even if I am wrong in concluding that the loss occurred in the ship then on the alternative possibility that the cause of the damage has not been explained I think that following the case of Gosse Millard … the shipowners are still liable”. This will align the Malaysian position with Volcafe. However, the court made no reference to the Evidence Act 1950 or Contracts Act 1950. Had the court made such reference, the court would have arrived at the same decision.^[17]

In Singapore, Hague-Visby Rules apply by virtue of Carriage of Goods by Sea Act of 1972 (Cap. 33). Prior to this, Hague-Rules applied. Gosse Millard had been followed. In Successors of Moine Comte & Co Ltd v East Asiatic Co Ltd,^[18] the Singapore High Court in 1954 held that “the burden of proof lay upon the [carriers] to show that they were not negligent in carrying and handling the cargo …: Gosse Millard …”. Similarly in Yeo Goon Nyoh and another v Ocean Steamship Co Ltd,^[19] the Singapore High Court in 1967 held as follows:

The plaintiffs sued the defendant claiming damages for breach of contract or duty and/or for negligence in and about the carriage of the plaintiffs goods on the defendant's vessel. The defendant denied any breach of duty or reasonable care on their part in the loading or carriage of the plaintiffs' goods by allowing the goods to come in contact with sea water. The defendant maintained that the plaintiffs must prove not only damage to the goods but that the damage was caused by sea water as specifically pleaded in the statement of claim. It was not in dispute that the goods were damaged. It was also not in dispute that they were shipped in apparent good order and condition.

…

… I am, nevertheless, of the opinion that all the plaintiffs need prove is damage and it is not fatal to their case if the damage was caused other than by sea water. To hold otherwise so it seems to me would be to flout the application of the provisions of the Carriage of Goods by Sea Act 1924 and the rules comprised in the schedule thereto to which of course the bill of lading was subject. Under Article III rule 2 it is enough if the owner of the goods proves either that the goods have not been delivered or have been delivered damaged.

The above decisions will align the Singapore position with Volcafe. However, the court made no reference to the Evidence Act or Contracts Act. Had the court made such reference, the court would have arrived at the same decision.^[20]

Case Overview by ARUN KASI

[1] In Colombia.

[2] In Germany.

[3] Holder of the bills of lading.

[4] When the legal burden is on someone, it is different from a case in which the principle of res ipsa loquitur applies. Res ipsa loquitur does not shift the legal burden, but it only imposes the evidential burden on the party who has knowledge of the facts to speak up. If he does not, then an adverse inference will be drawn against that party. But throughout the case, the legal burden remains on the party who is asking the court for a judgment in its favour.

[5] [1894] P 226.

[6] Literally, the need to overrule The Glenddaroch may not be there as it was a pre-Hague Rules decision.

[7] The duty of a bailee for reward, in general, was well said by Cockburn CJ in Reeve v Palmer (1858) 5 CBNS 84, 90 as this: “The jury have found that he lost it: and I am of opinion that that must be taken to mean, in the absence of any explanation, that he lost it for want of that due and proper care, which it was his duty to apply to the keeping of it, unless it is qualified by circumstances shewing that the loss of the deed could not have been prevented by the application of ordinary care.” This was adopted in the context of carriage of goods by sea by cases such as Joseph Travers & Sons Ltd v Cooper [1915] 1 KB 73 (CA). In this case, Lord Loreburn said “I cannot think it is good law that in such circumstances he should be permitted to saddle upon the parties who have not broken their contract the duty of  explaining how things went wrong. It is for him to explain the loss himself, and if he cannot satisfy the court that it occurred from some cause independent of his own wrong-doing he must make that loss good.” Lord Halsbury said “It appears to me that here there was a bailment made to a particular person, a bailment for hire and reward, and the bailee was bound to shew that he took reasonable and proper care for the due security and proper delivery of that bailment; the proof of that rested upon him.” Atkin LJ in The Ruapehu (1925) 21 Ll L Rep 310, 315 followed the same school of thought.

[8] [1927] 2 KB 432.

[9] [1930] 1 KB 416 (CA), 424-425.

[10] [1983] 2 Lloyd’s Rep 210, 216-217.

[11] Lord Hobhouse repeated this point in Homburg Houtimport BV v Agrosin Pte Ltd [2003] 1 AC 715, at [138].

[12] [1956] 1 WLR 461, 466.

^[13] There is no Contract Act in Singapore, where the common law in relation to contracts is applicable.

^[14] See chapter 2.4(i)(b).

^[15] See chapter 2.4(i)(c).

^[16] [1956] 1 MLJ 6.

^[17] See chapter 2.4(i)(b).

^[18] [1954] MLJ 11317.

^[19] [1965 – 1967] SLR(R) 783; [1967] 2 MLJ 290

^[20] See chapter 2.4(i)(c).

Court, Judges, Date:

Court of Exchequer Chamber, England

Cleasby B, Brett J, Channell B, Bramwell B, Willes J, Kelly CB

15 June 1871

Catchwords:

Charterparty - Bill of lading - Incorporation of charterparty terms into bill of lading - Demurrage - Dead freight - Detention - Liability of transferee of bill to pay demurrage, dead freight, detention

Case Report by:

ARUN KASI

Appeal from:

Court of Queen's Bench

Facts Summary:

A charterparty obliged the charterer to load “full cargo” and conferred a lien on the cargo in favour of the shipowners “for all freight, dead freight, demurrage, and average”. It also provided for “the charterer's responsibility to cease on shipment of the cargo, provided it be of sufficient value to cover the freight and charges on arrival at port of discharge. The demurrage was specified at a certain rate up to 10 days beyond the laytime (50 days). However, the charterparty was silent about any detention charges should the 10-day demurrage period be exceeded. The charters took, for loading, 18 days in addition to the laytime and the demurrage period. The charterer did also not load ‘full cargo’.

The shipowner issued a bill of lading, stating “[the cargo] to be delivered at the port of discharge, as per the aforesaid charterparty… unto order, or to his or their assigns, he or they paying freight and all other conditions or demurrage. Notably, dead freight, unlike demurrage, was not expressly mentioned in the bill of lading, although mentioned in the charterparty, whist detention charges was not even mentioned in the charterparty. The bill was transferred to a subsequent purchaser. Upon arrival at the discharge port, the shipowner sought to recover from the subsequent purchaser, by exercising a lien on the cargo, the payment for the 10-day demurrage, 18-day detention charges and dead freight of an amount unascertained.

Held:

1. Appeal is dismissed (by majority).

• Claim for demurrage is allowed (by majority of 4:2).

• Claim for detention charges is dismissed (unanimously).

• Claim for dead freight is dismissed (by majority of 4:2).

Observation:

In a nutshell, only what was expressly stated in the bill of lading, i.e. demurrage, was held to be incorporated and allowed to be claimed from the holder of the bill of lading.

Counsels & Solicitors:

Watkin Williams and A. L. Smith for the Plaintiff.

Sir G. Honyman, Q.C. and Lanyon for the Defendants.

Shum & Crossman for the Plaintiff.

Thomas & Hollams for the Defendants.

Cases, Legislation, Convention referred to:

Oglesby v. Yglesias

Milvain v. Perez

Pederson v. Lotinga

The Norway

Russell v. Niemann

McLean and Hope v Fleming (1871) LR 6 QB 558, 2 Sc & Div 128, 25 LT 317

Bannister v Breslauer (1867) LR 2 CP 497, 16 LT 418

Fry v Chartered Mercantile Bank of India (1866) LR 1 CP 689, 14 LT 709

Pearson v Göschen 10 LT 758

Kern v Deslandes 5 LT 349

Chappel v Comfort 4 LT 448

Kirchner v Venus

Smith v Sieveking

Wegener v Smith

Birley v Gladstone

Phillips v Rodie

Judgement:

CLEASBY, B: In this case the defendants were the holders of a bill of lading of the cargo of the ship Superior, of which the plaintiff was owner. The vessel had been chartered on a voyage from Sulina to London. Upon the arrival of the ship at the port of discharge the plaintiff claimed a lien upon the cargo for ten days demurrage, for a proper allowance for a further period of detention, and for dead freight. The Court of Queen's Bench held the plaintiff entitled to the claim for demurrage, but disallowed the claim for dead freight and for detention. Error has been brought in this Court, and the case has been fully argued.

I am of opinion that the judgment of the Queen's Bench should be affirmed, so far as relates to the demurrage allowed and the claim for detention disallowed. But it appears to me that the plaintiff is also entitled to the claim for dead freight.

The charterparty is between Gray, the managing owner, and R. Carnegie, of London, charterer, and contains a clause which is now not unusual, viz., that the charterer's responsibilities were to cease on shipment of the cargo, provided it be of sufficient value to cover the freight and charges on arrival at the port of discharge; and gives the owner an absolute lien on the cargo for all freight, dead freight, demurrage, and average. The first question to be considered is, to what extent could the lien be enforced as between the parties to the charterparty. The charterparty allows fifty running days for loading the cargo, which is to be discharged as fast as the ship can put the cargo out, and ten days are to be allowed on demurrage, over and above the laying days, at 8l. per day. Now the word "demurrage" has a known legal meaning, viz., the additional period during which the vessel may remain by agreement of the parties. It was said upon the argument that by the understanding of shipowners and charterers it had a more extensive signification, and embraced the further period beyond the demurrage days during which the vessel was detained. If that be so, evidence that in such a document as a charterparty the word was so usually understood should have been given, and the opinion of the jury taken, but in the absence of all evidence we must give to the word "demurrage" its known legal meaning, and this excludes from the operation of the lien the claim for damages caused by further detention.

As regards the claim for lien in respect of demurrage, I do not see how there can be any doubt about its existing under the charterparty. It appears clear to me that whether the demurrage days are occupied in the loading of the ship or in the discharge of it, the charterer is equally discharged from personal liability as soon as a sufficient cargo is loaded, and that the claim of the owner in respect of it exists only by virtue of the lien which is given by agreement. This is in conformity with the judgment of the Common Pleas in the case of Bannister v. Breslauer.

As regards the lien for dead freight, I can see no sufficient reason why it should not be conferred by the charterparty. Dead freight is an expression having a well-known signification, viz., the freight which would have been payable for that part of the vessel which has not been occupied by merchandise, but ought to have been. I understand the objection to the lien existing in this case to be, that under this charter the claim for dead freight must be a claim for unliquidated damages, and that the expression has found its way into this charter from others where the claim would be for liquidated damages; and that as applied to a claim for unliquidated damages there would be such delay in the delivery of the goods, and such inconvenience in enforcing it, that it must be regarded as applying only to a charter where the claim for dead freight would be in the nature of a debt. This appears to have been the view taken of the subject by the Court of Common Pleas, in the case of Pearson v. Goschen. It was there said that the words "dead freight" were part of a printed form, and ought to be rejected from such a contract as the present one. But the reason given does not apply to the present case. Upon looking at the printed parts of the charter the words which give the lien for dead freight are in print, but so are the words which make the claim for dead freight a claim for unliquidated damages. The printed part provides for the charterer's loading a full cargo of grain, seed, or other stowage goods, and the freight is to be paid at so much per quarter of corn, and for other grain, seed, or stowage goods in proportion, according to the Baltic printed rates; so that one cargo might be more profitable to some extent than another, and the calculation of damages for dead freight would be complicated by that consideration. In the charter as it stands altered in writing the calculation would be simple. It obliges the charterer to load a full cargo, and makes the freight payable at so much per 100 pieces of oak staves and other cargo in fair proportion. It does not make the freight payable in respect of different cargo according to different specified rates, so as to make the freight to be earned vary with the cargo carried. But whatever be the cargo carried it would be paid at the same rate as if all had been oak staves. So that although the claim in form would be as damages for not loading a complete cargo, yet as soon as the capacity of the vessel for carrying oak staves is ascertained, the claim is liquidated by deducting the freight actually carried. The shipowner could at once make his claim for the known capacity of the ship, and he would do so at his peril if he claimed too much, and refused to deliver; and any two captains in the docks could settle the amount.

If there was a serious dispute the cargo would be delivered either upon a deposit of a sum of money at a bankers or upon security by bond. The lien for a general average involves much greater difficulties. It appears to have always existed independent of contract, both by the civil law and our law: Abbott on Shipping, p. 247, 5th ed.; and by the American law (which does not lightly esteem convenience), the captain may detain the goods until a bond to pay the sum contributable is paid, or even until the amount is paid: Kent's Commentaries, vol. iii., p. 339, 10th ed. It is expressly contracted for in the present case. Now we know how many weeks or months the adjustment of a general average claim may take, and what questions arise as to the proper item for allowance, and yet, practically, it never interferes with the delivery of the cargo, proper security being given as a matter of course to pay what in the result is found to be due.

The rule contended for by the defendants, and which is to some extent sanctioned by Pearson v. Goschen, would come to this: that the only case in which there is a lien for dead freight is where the claim is not for dead freight at all. If there is an agreement to pay so much a ton upon the carrying capacity of the ship, it matters not whether the ship is full or empty, the same sum is to be paid by the agreement, and there is nothing like dead freight in the transaction; yet it is said that the clause for dead freight was intended to apply, and can only apply to such a charterparty. But if the agreement is to load a full cargo, and to pay so much a ton for the cargo delivered, then if a short cargo is loaded there is a claim for dead freight, in other words, the freight does not exist, or is dead, which would have existed if the cargo had been loaded, and in this, which is the only real case of dead freight, the agreed lien for dead freight is said not to be applicable, and in that way the agreement of the parties is set aside.

As regards authority, the judgments of all the judges in the case of Birley v. Gladstone may be regarded as almost in point in favour of the view above taken. In that case the freighter engaged to ship a full cargo, and was to pay 2l. 5s. per ton for salt on the voyage out, and 12l. per ton of flax and hemp, and 8l. per ton for tallow, on the voyage home. There was a claim for dead freight, 372l. 12s., in respect of space unoccupied. The question argued was, whether the general clause in the charterparty, by which the shipowner bound the ship and tackle, and the freighter bound the cargo, under a penalty for the due performance of all the covenants, amounted to a contract that the shipowner should have a lien for dead freight. It was held that it did not; and the ground of decision was that this clause was intended to give mutual remedies, and as it could not operate to give the freighter a lien, so it was not intended to give the shipowner a lien. But it was never suggested that if there was a contract for a lien in respect of dead freight, it would not apply to such dead freight as the present because it was unliquidated. The case of Phillips v. Rodie is in entire conformity with this decision. I think it will appear that one of the learned judges who decided the case of Pearson v. Goschen was under an erroneous impression as to the effect of the above two cases, though the error was corrected by the other learned judge, Mr. Justice Willes.

In reality the inconvenience seems to be rather one suggested in the interpretation of the contract than felt by the merchant in acting upon it. I do not think we can upon the ground of inconvenience set aside a contract giving a certain security for dead freight, which must mean the dead freight accruing under the same contract. To do so would be rather adopting that construction which has been much condemned, and which the doctors called "interpretatio viperina," because it destroyed the text.

If the construction of the charterparty which I have arrived at is the proper one, the remaining question is, whether on the bill of lading the right of lien for the demurrage and dead freight is retained as against the holders of that document. Upon the particular words used in this, as in similar documents, such as policies of insurance, there is abundant room for ingenious argument, both as regards the printed part, "he or they paying freight or demurrage, if any should be incurred," and upon the written addition, "and other conditions," coming in so awkwardly as it does between the words "freight" and "demurrage." But, taking it all together, the effect of it seems to me to be clear enough: when given to the charterer it was intended to retain the whole right of lien; and the fair meaning of the words is to do so.

It was contended by the defendants that the words, "if any should be incurred," shewed that the demurrage previously incurred could not be intended. But these words are part of the usual form, and are in general really superfluous, because demurrage cannot be payable unless it has been incurred. It would be unwarrantable to make the effect of such an instrument depend upon the retaining of words generally inoperative. And on the other side, it may be said that the word "demurrage" in the bill of lading must refer to demurrage at the port of lading, because, according to the language of the charterparty, none could be contemplated at the port of discharge. And it may be observed that although the words are generally inoperative as regards the right to demurrage, yet they prevent the bill of lading from containing an admission that demurrage is due; and this would be a good reason for retaining them in the present case, because by the charterparty days of frost are not to be included in the loading days; and it might not be known or agreed how much of the delay was from that cause. It appears to me, however, sufficient to say that the language in the present bill of lading includes all the conditions in the charterparty upon the performance of which the cargo is to be delivered, viz., payment of freight, demurrage, dead freight, and average.

This construction is in conformity with the authorities which have been decided upon the effect of the word "conditions" in such a document. In Wegener v. Smith the words of the bill of lading were, "and other conditions, as per charterparty," and the Court of Common Pleas held that the word "conditions" made demurrage due under the charterparty payable upon delivery. And this decision was entirely approved of by the Court of Queen's Bench, in Smith v. Sieveking, though in that case, the only words being "paying for the goods as per charterparty," the Court held the fair meaning of those words was payment of freight at the rate in charterparty. Error was brought into the Exchequer Chamber, and the case was considered too clear for argument. A remark was made referring to the demurrage incurred before the signing of the bill of lading not being covered by the language, but this was not the ground of decision, which Parke, B., stated to be, that the words "paying for the goods" meant payment for the carriage of the goods. There is no authority giving a different meaning to the word "conditions," and it is the only rational meaning of the word, coupled as it is with "freight and demurrage," and thus signifying those payments provided for by the charter to be made on delivery, or as a condition for delivery. It must be taken by the reference in the bill of lading to the charterparty that the defendant had notice of the contents of the charterparty, it indeed was admitted upon the case that he had received a copy of it, so that he knew all the conditions upon which the cargo was deliverable.

I am therefore of opinion that the Queen's Bench were right in giving the plaintiff the demurrage, that they were right in withholding the damages for the detention, but that they would have been right in giving the dead freight, and that their judgment must be corrected to that extent.

I will only add, that from what we were told took place upon the argument of this case in the court below, there is no reason for supposing that the Court of Queen's Bench would not have given the dead freight if they had not felt bound by the decision in Pearson v. Goschen.

I am informed that in such a case as the present the House of Lords has decided very lately that the lien for dead freight applies. Some of my learned Brothers have seen a note of the case, and will refer to the name and particulars of it. If there was any authorized report of the case I should, of course, have referred to it and corrected my judgment by it, if necessary; so far as I can collect no correction would have been necessary.

BRETT, J: This is a special case stated in an action in which the plaintiff sued the defendants for dead freight and demurrage.

The plaintiff was the owner of a ship called the Superior. The defendants were merchants in London, and consignees of certain timber shipped on board the ship. The plaintiff had chartered the ship to one Carnegie. By the charterparty the ship was with all convenient speed to sail and proceed to Sulina, and there load from the factors of the freighter a full and complete cargo of staves and/or grain, seed, or stowage goods, or lawful merchandise, which the merchant bound himself to ship, and being so loaded should therewith proceed to London, and deliver the same on being paid freight (according to certain specified rates). The freight to be paid in cash on unloading and right delivery of the cargo - fifty running days, not to count before 15th October, if required by merchants' agents, are to be allowed, if the ship is not sooner despatched, for loading; and to be discharged as fast as ship can put the cargo out; and ten days on demurrage over and above the said laying days at 8l. per day; the owners to have an absolute lien on the cargo for all freight, dead freight, demurrage, and average; and the charterer's responsibilities to cease on shipment of the cargo, provided it be of sufficient value to cover the freight and charges on arrival at port of discharge. The ship proceeded to Sulina, and loaded a short cargo. The cargo was shipped by the charterer's agents. A bill of lading was signed by the captain for 283,682 staves to be delivered at the port of discharge as per charterparty, unto order or assigns, he or they paying freight, and all other conditions, or demurrage, if any should be incurred, for the said goods as per charterparty. The claim for cargo short shipped (claimed as dead freight) was 364l. 19s. 5d. The claim for demurrage in respect of the ship being detained ten days on demurrage proper at the port of loading, was 80l. And there was a further claim of reasonable damages for eighteen days detention at the port of loading beyond the ten demurrage days. The defendants were the consignees of the goods named in the bill of lading, and the property in the goods vested in them upon and by virtue of the consignment. The plaintiff claimed a lien on the goods mentioned in the bill of lading for the dead freight and demurrage, and damages in nature of demurrage, which he alleged to be due.

It was argued on behalf of the plaintiff that he would have had by virtue of the charterparty a lien on the goods shipped for the dead freight, demurrage, and damages, if the cargo had not been of sufficient value to cover freight and charges, &c.; but as the cargo was of sufficient value, the charterer's responsibility under the charterparty had ceased; and that consequently the bill of lading ought to be construed more favourably for the shipowner, and that the plaintiff had a lien on the goods to be delivered according to the bill of lading, because the bill of lading by reference imposed upon the goods to be delivered under it at the port of discharge the lien from which the charterer was relieved under the charterparty, and authorized the plaintiff to exercise that lien in respect of what had occurred at the port of loading against the defendants, the holders at the port of discharge of the bill of lading, and the owners of the goods mentioned in it.

It was contended on behalf of the defendants that the printed words in the charterparty, which were supposed to give a lien for dead freight, had no effect, because no charge for dead freight was stipulated for in the charterparty; that the non-responsibility of the charterers was applicable only to defaults which might occur after the sailing of the ship from the port of loading; that the bill of lading incorporated only such stipulations of the charterparty as were applicable to the goods mentioned in it, and which might take effect in respect of those goods only; and that the claims of the plaintiff in the present action, even though they come within the terms of the charterparty, were not such claims as were imposed on the defendants by the bill of lading.

These arguments raise two questions, namely, first, what is the right construction of the charterparty; and, secondly, what is the right construction of the bill of lading?

As to the charterparty, I am of opinion, in the first place, that it gave no lien to the shipowner for dead freight. It seems to me that a charterparty which leaves damages to be recovered in respect of short loading unspecified, and therefore at large, gives no claim for dead freight properly so called. Such a claim for unliquidated damages is not dead freight: per Williams and Willes, JJ., in Pearson v. Goschen; and, as I have always understood, was intended by Lord Ellenborough in Phillips v. Rodie. I always thought that that great judge was pointing out that, although many people called unascertained damages for not loading a full cargo dead freight, they were wrong. And inasmuch as the charterparty gives an express lien in terms for dead freight only, it is not to be construed as giving it for unliquidated damages for not loading a full and complete cargo. Speaking of a similar claim in respect of pre-paid freight, which was not freight in its ordinary sense, Lord Kingsdown laid it down that "where parties, instead of trusting to the general rule of law with respect to freight, have made a special contract for themselves for a payment which is not freight, it must depend upon the terms of that contract whether a lien does or does not exist; and that when the contract made gives no lien, the law will not supply one by implication:" Kirchner v. Venus. (1) And the application of this doctrine to the present case is not affected by the printed clause, which would, if there had been any dead freight stipulated for by the charterparty, have given an absolute lien for it: Pearson v. Goschen. That case seems to me, if I may be allowed to say so, rightly, and according to the true mode in which the courts ought to deal with mercantile business, to point out a necessary and timely modification of the older rule of construction as to giving, if possible, a meaning to every term in the contract, in cases where a modern mercantile instrument is known to be in a printed and general form, with parts of it to be filled up in writing to apply it to particular transactions.

As to the second point argued with regard to the charterparty, namely, that the liability of the charterer, in respect of damages for short loading, and for demurrage, and damages for detaining the ship at the port of loading beyond the demurrage days, ceased on the loading on board the ship of a cargo of sufficient value, and that as a consequence the bill of lading ought to be construed in favour of the shipowner, so as to throw the burden of the lien on the consignee under the bill of lading at the port of discharge. I cannot agree that the second proposition could properly be affirmed, merely because the first were made good. But further, I do not think that the first proposition is sound. With all respect for the judges who decided Bannister v. Breslauer, I think that their interpretation of the charterparty was too severe. The case was decided on demurrer. The judges relied much on the lien given in respect of demurrage, which they assumed was for delay at the port of loading. But if by other terms of the charterparty than those which were before the court, demurrage was stipulated for in respect of delay in unloading at the port of discharge, the chief ground on which they based their interpretation would be cut away. I cannot but think that the safer and juster and more correct construction of the clause then and now under discussion is, that it absolves the charterer, when once cargo of sufficient value is on board, from all liabilities, which, but for it, he might incur in respect of anything happening after the sailing of the ship, or, more properly speaking, after the bill of lading is given, as it were, to replace the charterparty.

The next question is, what is the true construction of the bill of lading? Even if the charterparty does give to the shipowner the alleged lien with regard to the alleged dead freight, the demurrage, and damages in nature of demurrage, is such lien imposed upon the goods mentioned in the bill of lading as against the defendants, the owners of such goods, and consignees of them under the bill of lading? The answer, as it seems to me, depends entirely on the construction to be put on the terms of the bill of lading. Upon that construction alone depends the question whether there is any evidence from which a contract between the plaintiff and the defendants to the effect contended for by the plaintiff can be implied. The rule or canon of construction is to be deduced from the cases which have been cited. In Smith v. Sieveking, the action was brought against the consignee at the port of discharge under the bill of lading for demurrage incurred at the port of loading. By the terms of the bill of lading, which was for the whole cargo, the goods were to be delivered in London to order, &c., he or they paying for the said goods as per charterparty. By the charterparty an ascertained sum of 5l. per clay was stipulated for as demurrage for delay at the ports of loading and discharge; and it was agreed and understood that for the payment of all freight and demurrage the captain should have an absolute lien and charge on the cargo. The Court of Queen's Bench decided in favour of the defendants. And Parke, B., in affirming that decision in the Court of Error, said: "In this case you must contend that the consignee at the port of discharge contracted to pay for the antecedent delay of the charterer, which occurred at the port of loading before the consignee had anything to do with either goods or ship. Such a contract is one which requires strong evidence to support it; for it is, to say the least, not a reasonable one."

In Chappel v. Comfort the action was against the indorsees of the bill of lading for demurrage at the port of discharge. By the charterparty sixteen lay days were allowed for loading and unloading, and there was demurrage at 2l. per day for any detention beyond that time. By the bill of lading the goods were deliverable to order, "paying freight as per charterparty;" and there was a memorandum written in the margin, "there are eight working days for unloading in London." Upon this memorandum the claim was founded. The Court gave judgment for the defendants, Willes, J. says, "It may be, and it often does happen, that the person who receives the goods intends to pay all the charges mentioned in the charterparty. But when it is intended that such an obligation should be imposed on him, it should be done in plain words, as was done in Wegener v. Smith, and other cases, where by the terms of the bill of lading the goods were made deliverable to order 'against payment of the agreed freight and other conditions as per charterparty.'" And at the end of his judgment he says, "There must be a plain intention expressed that the consignee of the bill of lading is to pay demurrage before he can be charged with it. This is an established rule, to which it is highly important to adhere."

So in Fry v. Chartered Bank of India, the charterparty made the goods deliverable on payment of freight at 3l. 10s. per ton, the ship to have a lien on cargo for freight. The terms of the bill of lading were "Freight for the said --- payable in Liverpool as per charterparty." It was contended that the defendants, the holders of the bill of lading, were liable for the unpaid freight of the whole cargo. The Court decided against the claim. "The charterparty," says Erle, C.J., "also contains the clause, 'ship to have a lien on the cargo for freight,' and it is said that this entitles the shipowner to a lien on each part of the cargo for the whole freight. I think the judgment of Willes, J., in Chappel v. Comfort applies in terms to this case, and I agree with it, that if it is wished to include more of the terms of the charterparty," - i.e., more than to make the freight payable as per charterparty, - "words ought to be introduced into the bill of lading which would shew that intention more plainly." The plaintiffs counsel, however, relied strongly on the case of Wegener v. Smith. The case, as reported, states that the action was for demurrage, without saying whether for delay at the port of loading or discharge. The charterparty provided for the delivery of the cargo at a certain measurement freight; and in case of detention the captain to be paid 5l. for every proveable lay-day. The bill of lading made the goods deliverable to order "against payment of the agreed freight and other conditions as per charterparty." The Court held that by the words "and other conditions," the liability to pay demurrage was incorporated into the bill of lading, and they decided in favour of the plaintiff. This would be a strong case in favour of the present plaintiff if the demurrage therein claimed had been in respect of delay at the commencement of the voyage; "but it has been ascertained on inquiry," says Lord Campbell in Smith v. Sieveking that "the demurrage sued for in that case had accrued in the port of delivery, and had arisen from the default of the defendant in not sooner receiving the goods." And upon the case being again cited in the Court of Error, Jervis, C.J., remarked, that "the action was for demurrage accruing from his (the defendant's) own delay in the port of discharge." These remarks were intended to point out that the case is not inconsistent with the doctrine laid down in Smith v. Sieveking. The case of Kern v. Deslandes was also relied on. And certainly in it effect was given to a claim for a lien as being introduced from the charterparty into the bill of lading, though the words of the bill of lading were only "he or they paying freight for the said goods as usual." Great stress was laid by the Court in that case on the fact that the defendants, the consignees claiming under the bill of lading, were mere agents of the charterers. Unless the decision can be supported on that ground, which it seems unnecessary at present to determine, I think it cannot be supported at all. It is stated with some significance by the learned reporters at the end of the case, that "Error was brought upon this judgment; but the matter was compromised before argument." The rule or canon of construction seems then to be that which is laid down by Willes, J., in Chappel v. Comfort, namely, no liability other than such as naturally attaches in respect of the carriage of the particular goods is to be held to be imposed on a consignee of goods mentioned in a bill of lading, unless such liability is clearly imposed by plain words. Applying that rule to the bill of lading in the present case, it seems to me that we ought not to hold that any liability attached against the defendants in respect of dead freight, demurrage, or damages in the nature of demurrage, incurred at the port of loading. The words, "and all other conditions or demurrage, if any should be incurred," are satisfied by making them applicable to damages in the nature of demurrage for any delay which may occur through the default of the consignee at the port of discharge. Indeed, they are rather apt to such a liability in the present case; because by the charterparty no specified number of lay days is allowed at the port of discharge, and no demurrage strictly so called is provided for. The ship is to be discharged as fast as ship can put the cargo out. The bill of lading may therefore be construed as if the phrase, "conditions or demurrage" were intentionally alternative, that is to say, applicable to a claim which may more properly be called a condition in the nature of demurrage. The proposed construction also gives full value to the words "for the said goods." At all events the bill of lading does not clearly and plainly apply to claims made in respect of transactions which occurred before the particular goods were on board, and not in respect of those goods, and which claims, therefore, when made against persons in the position of the defendants are, to say the least, not reasonable.

I therefore am of opinion that the judgment below ought to have been wholly in favour of the defendants. I think that the part of the judgment which was in favour of the plaintiff for 80l. for demurrage ought to be reversed, and the part of the judgment which was in favour of the defendants as to dead freight and damages ought to be affirmed.

Since this case was argued, and since this judgment was written, our attention has been called to the case of McLean v. Fleming, in the House of Lords, and if I had thought that that case overruled anything I have said in this I should have willingly bowed to it. But in that case, as I understand the judgment, the charterparty was in respect of the carriage of a uniform cargo, and the freight was payable at a fixed sum per ton, and the charterparty ascertained the amount of the cargo that was to be loaded. It then put upon the charterers the liability of loading a full cargo, and gave a lien to the shipowner for dead freight. Now, under those circumstances it was pointed out by some, if not all of the learned Lords who took part in the judgment, that the damages for not loading a full cargo were, in point of fact, ascertained, because they would be the specified amount per ton upon the quantity that was really ascertained; and if that were so, that would properly be dead freight within the ordinary meaning of the term, and the lien being given in terms for dead freight, that case would be within the recognised rule; and, as I understand their Lordships, they declined to overrule the case of Kirchner v. Venus, and expressly declined to overrule the case of Pearson v. Goschen, which I think is decided on valuable principles that ought to be generally applied. I therefore do not consider that that case overrules what I have said of this charterparty.

With regard to the question on the bill of lading, even although the charter in this case did give a lien for dead freight, it seems to me that the authority in the House of Lords leaves the case untouched, because the House of Lords, in the case before it, came to the conclusion that the action was between those who were virtually the charterers and the shipowner, and therefore they decided the case on the charterparty alone, and held only that the fact of bills of lading being given to a charterer cannot alter or affect his liability under the charterparty. They seem to me to have decided the case on the charterparty alone. It therefore seems to me that that case does not affect this case, and I adhere to the judgment which I had already written.

The case seems to me to be one of great importance, because bills of lading are the documents on which goods are bought and sold before ships arrive, and if the value of the bill of lading is to be dependent on an unascertained amount to be paid in respect of antecedent transactions which cannot be known, any legitimate, in the sense of wholesome, traffic in such a document cannot be undertaken. This consideration leads to the same conclusion as the legal reasoning which has been before applied.

CHANNELL, B: In this case I think the judgment of the Queen's Bench should be affirmed.

The question is, whether the plaintiff, who is a shipowner, has a lien on certain timber carried in his ship, as against the defendants, who are indorsees of a bill of lading relating to the timber, for all or any of three distinct claims.

These claims are, first, 80l. for demurrage incurred by the detention of the ship at the port of loading for ten days, during which, according to the terms of the charterparty, the charterer, if he detained the ship, was to pay 8l. per day demurrage; secondly, a further claim for damages for the ship's detention for a further period of eighteen days beyond the ten days; and thirdly, a claim for what is called dead freight, which is said to be incurred in consequence of a full cargo not having been loaded. It is clear that the plaintiff can only have a lien for any of these claims by express contract, inasmuch as the lien which, as shipowner, he would have independently of any contract would only extend to the actual freight of the goods carried: Phillips v. Rodie; Birley v. Gladstone. Further, although the charterparty may contain an express contract giving him such a lien on the goods as against the charterer, yet he could not have the lien as against the indorsee of a bill of lading, unless it is stipulated for in the bill of lading, either by the incorporation of the clause in the charterparty, or by its being expressly mentioned. The question what lien a shipowner has against the holder of a bill of lading therefore reduces itself into a question of construction, either of the bill of lading alone, or of the bill of lading and the incorporated charterparty combined, as the case may be: see Wegener v. Smith; Smith v. Sieveking.

It is important, however, in construing these documents, to consider both the nature of a lien and the nature of the demands in respect of which a lien is claimed. In Phillips v. Rodie, the difficulties which would be created by a lien for an uncertain amount are pointed out. Where the amount of the demand in respect of which the lien is claimed is capable of being calculated, the holder of the bill of lading will know what to tender; but where the demand is for unliquidated damages no tender can be made; and therefore, except by some arrangement between the parties, such as was arrived at in the present case, but which could not be possible where the solvency of the holders of the bill of lading was at all doubtful, the goods must be detained until these damages have been ascertained. In the very probable case of the parties as against whom the damages have to be fixed being foreigners, or, indeed, in any case, it is obvious that very considerable delay must take place. In the mean time the goods may deteriorate in value. The greatest inconvenience would therefore be caused by construing the shipowner's lien to extend to unliquidated damages for breach of the charterparty; and although it is not, of course, impossible for the parties to contract for a lien for such damages, unless there was in the contract a very clear expression of their intention to do so, the Court would not so construe the contract.

In the present case both the charterparty and the bill of lading mention a lien for "demurrage." I think there can be no question that this extends to the 80l. claimed for the ten days during which the charterers detained the ship, as provided for by the charterparty. The plaintiff is therefore entitled to this amount, as decided by the Queen's Bench.

As regards the further detention for eighteen days, the damages for this are not demurrage at all, properly so called. Demurrage is a sum agreed to be paid for the detention of a vessel, and the term is not applicable to the damages caused by detaining her contrary to agreement. I have therefore no doubt at all that the plaintiff is not entitled to any lien for the damages caused by the further detention for eighteen days.

The point of most difficulty in the case is that relating to what is called "dead freight." The charterparty gives the shipowner a lien for "dead freight," it does not, however, in any other way mention any dead freight, nor does it contain any covenant that full freight shall be paid on all the ship could carry, whether a full cargo is loaded or not. The bill of lading provides that the holder shall pay "freight and all other conditions and demurrage (if any be incurred) for the said goods as per the said charterparty." I think this sufficiently incorporates the charterparty to entitle the shipowner to insist as against the defendants on any lien which he would have under the charterparty for what there is called "dead freight:" see Wegener v. Smith. The question, however, is, what is the true meaning of the expression "dead freight," so used in the charterparty, and does it cover the claim in the present case, which, as pointed out by Lord Ellenborough in Phillips v. Rodie, is not freight at all, but is unliquidated damages for the loss of the freight? In that case, Lord Ellenborough says, that in order to give the lien claimed, "the covenant should have been to pay full freight as if the goods had been actually loaded on board, and that the master should have the same lien upon goods actually on board as if the ship had been fully laden with all goods covenanted to be loaded." In the present case, the latter part of the suggested covenant, or something like it, is found, but not the former. It is true that, if we hold that "dead freight" in the charterparty does not include unliquidated damages for loss of freight, we give no effect to the expression at all. I agree, however, with what was said on this point by Williams and Willes, JJ., in Pearson v. Goschen, that when these words occur in an ordinary clause in a mercantile contract it is not necessary to find an application for them in the particular case. If the charterparty had provided for any dead freight, strictly so called, being payable, the clause would have taken effect and conferred a lien, but as it is, it does not take effect, because there is nothing for it to apply to. In the case last referred to, the point in the present case was really decided, as the Court held that a clause giving a lien for "dead freight" was wholly inapplicable to a claim for damages in respect to the charterers having failed to load a full cargo. In this Court we should not be bound by that decision if we did not agree with it; but I do agree with it, and adopt the reasoning on which it proceeds.

We have been pressed in the argument with the clause in the charterparty that the charterers' responsibilities are to cease on shipment of the cargo, provided it be of sufficient value to cover the freight and charges on arrival at the port of discharge. It has been contended that all the charterers' responsibilities for all breaches of contract were to cease on shipment; and that therefore it must have been intended that there should be a lien on the goods, otherwise the shipowner would be without remedy. It is not, of course, necessary for us to decide whether the charterers were or were not relieved from responsibility in respect of the claims which we now decide the shipowner cannot maintain against the defendants. As at present advised, however, I think this clause does not apply. At all events, it contains nothing to induce me to put a different construction on the previous clause than I otherwise should. Probably the charterers' responsibilities which are to cease are the responsibilities in respect of those matters for which a lien is created; but the difficulties in the way of creating a lien for unliquidated damages, and the stipulation that the cargo is to be of sufficient value to cover the freight and charges only, and not the freight charges and all damages, afford a stronger argument for holding that there is no lien and therefore no cesser of responsibility of the charterers as regards the damages, than for holding that there is a cesser, and therefore a lien. A case of Bannister v. Breslauer has been quoted, in which it was held that, under somewhat similar though stronger words in a charterparty, the charterers' responsibility for demurrage did cease. If the demurrage there referred to was demurrage properly so called, then I agree with the decision. If, however, as certainly rather appears to have been the case from the report, it was merely unliquidated damages for detention of the ship, then I think the decision somewhat doubtful, and to be supported, if at all, by the fact that the words as to the cesser of responsibility were stronger there than here. The attention of the Court there does not appear to have been drawn to the fact that the demurrage there claimed was not demurrage, properly so called, but only unliquidated damages, and therefore the opinion of the judges that a lien was created for this so-called demurrage, is not entitled to the same weight as I should be disposed to give it, if the point had appeared to have been carefully considered. Besides which, it was merely an opinion not absolutely essential to the decision of the case, for although unlikely, it is not impossible, that the parties should so contract as to make the responsibility of the charterer cease, although no lien was effectually created. In such cases where damages have been incurred prior to the shipment, it would be prudent for the master to refuse to sign any bills of lading which did not give express notice to the indorsee of the claim for damages which had accrued, and stipulate for its payment.

For these reasons, I am of opinion that the judgment of the Queen's Bench should be affirmed on all points.

After the argument of this case, and I had written what I have read as my judgment on the point of dead freight, our attention was called to the case of McLean v. Fleming, decided by the House of Lords on the 3rd of April last. The delivery of the judgment of this Court was postponed till we had an opportunity of inquiring into the case of McLean v. Fleming. My Brother Bramwell considers the decision in the House of Lords governs this case, and must govern him, whatever his opinion otherwise would have been. My Brother Brett, for reasons he has given, considers that McLean v. Fleming does not apply. Other of the judges, including myself, take the same view of the effect of the decision in McLean v. Fleming. If I considered the decision of the House of Lords as one which governs the present case, of course I should be bound by it, and should withdraw so much of the judgment respecting the point of dead freight as I had prepared and have read; but thinking that the decision of the House of Lords does not govern the present case, I abide by the opinion that the plaintiff cannot recover his claim for dead freight; and I therefore think the judgment of the Court of Queen's Bench should be affirmed on all points.

BRAMWELL, B: The questions in this case depend on the construction of the bill of lading and charterparty. The former refers to the latter; the captain is "bound to consign his cargo as per charterparty dated London, 18th August, 1866," and payment is to be made as "per the aforesaid charterparty." A copy of this charterparty was sent to the defendants with the original bill of lading. The bill of lading, then, must be construed in connection with the charterparty and the surrounding circumstances; - perhaps, as the bill of lading is negotiable, not all the surrounding circumstances that would be applicable as between charterer and owner; but one, at least, must be borne in mind, viz., that the defendants were consignees of the whole cargo.

This being so, it seems to me that the best way to examine the matter is first to ascertain the meaning of the charterparty. It was said by the plaintiff that the effect of it was, that on the loading of the cargo the responsibility of the charterer ceased; as well for all things future as for those past; and that therefore a right must be taken to be given, against the person entitled to receive the goods under the bill of lading, to withhold them till satisfied all claims which otherwise would have been enforced against the charterer. It is not strictly necessary to decide this, perhaps, because it may be that from the form of the bill of lading no right is given against the defendants, although all rights are lost against the charterer; and on the other hand it may be, that by the terms of the charterparty, rights remain against the charterer, while by those of the bill of lading they are given against the defendants. But the argument is so important, an answer one way to the question would be so cogent in favour of the plaintiff, that it is necessary to consider it minutely. It seems to me that the plaintiff is wrong in his contention on this point. I do not think that the parties intended, nor that they have expressed an intention, that the charterer's responsibilities for causes of action then accrued should be extinguished on shipment. Agreements should be construed on the principle that parties when making them contemplate keeping, not breaking them. I do not think this charter contemplated that the charterer will break his contract. It is true the words "dead freight" are used, which certainly are unmeaning in this case, except they provide for the case of a short cargo contrary to the charter. What meaning, if any, is to be given to them, I shall have to examine presently; but I think they are not sufficient to shew that "responsibilities" mean "responsibilities for past breaches of agreement." Again, the charterer's "responsibilities" are to "cease." It is a verbal criticism, but the right words would be "be extinguished" as to accrued claims. Further, they are "to cease on shipment of the cargo, provided it be of sufficient value to cover the freight and charges on arrival at port of discharge." So that it must be of sufficient value to cover the freight and charges. But why should the shipment of a cargo of sufficient value to cover freight and charges extinguish an already incurred claim for short loading, demurrage, and detention over the demurrage days? Again, it must be of that value "on arrival at port of discharge." So that if damaged on the voyage to a less value, the other responsibilities would exist. Further, they are to cease on shipment of the cargo, i.e., a full cargo. That is a good reason why the responsibility to ship a full cargo should cease, viz., because it has been done; but why is it a reason why responsibility for delay in loading should cease? Why should shipping a short cargo not only be a cause of action in itself, but also keep alive the cause of action for delay in shipping? It is also certain that all breaches of contract by the charterer are not provided for by a remedy against the person entitled under the bill of lading. For if there was no advance at the port of loading, an action would lie against the charterer; but clearly there is no lien on the goods for the damages thereby recoverable. Of course that is not decisive; it may have been overlooked. But it is an argument. I am of opinion on this part of the case that the responsibilities which are to cease are those which the shipowner, without loss to himself, may render unnecessary in the case supposed, viz., responsibilities for the freight and charges to cover which the cargo is of sufficient value on arrival at port of discharge. The clause should be read thus: "and on shipment of the cargo, provided it is of sufficient value to cover the freight and charges on arrival at port of discharge, the charterer's responsibilities to cease, for such freight and charges." It is said this opinion is inconsistent with the case of Bannister v. Breslauer. If so, I respectfully intimate my doubt of that decision. But it is to be observed that every case such as this, where no general principle of law is involved, but only the meaning of careless and slovenly documents, must depend on its own particular words. I may observe that in one sense this question does not arise. For if the plaintiff is right "the cargo" has not been shipped, but something short of the cargo. However, to help the construction of the bill of lading the question does arise; but for the reasons I have given, it should, I think, be answered unfavourably to the plaintiff.

Putting this meaning on this part of the charterparty, it is next convenient to examine what lien by the charterparty would be reserved against the party entitled to the goods, whom I will call "consignee." The owners are to have an absolute lien for all freight, dead freight, demurrage, and average. The doubts are as to dead freight and demurrage. First, does dead freight include short loading? In strictness, it does not. Dead freight apparently, in strictness, means some agreed sum, fixed or capable of calculation, for short loading. Now, it is certain that general damages, which are all the plaintiff could recover here, are something very different from that. Here the plaintiff might recover more than a sum equal to the charter freight for goods carried; or less, if he filled up advantageously elsewhere. Why, then, are these words, which do not naturally signify damages for short loading, to be held to do so in this case? The burthen of shewing this is on the plaintiff. The argument he uses is, that, unless so interpreted, the words "dead freight" have no application; that a meaning ought to be given to them if they are capable of it; that damages for short loading are often called "dead freight"; that words may be construed in a secondary sense when not applicable in their primary sense; that otherwise no lien is given for dead freight, though the parties intended to give very extensive liens. This argument is, I think, of great force; still its value must be tried and compared with arguments the other way. Those arguments seem to be these: That the parties might have said "damages for short loading" in so many words if they had thought fit; that, as they have not done so, those who have to decide on the charter ought not to say so, without almost a necessity for so doing; that no such necessity exists here: for that, although it is a rule that a meaning should be given to all words if they are capable of one, there is no rule that it must be done in all cases; and that when it is remembered that the forms of these documents are prepared in the same words in print, whatever particular stipulations may be introduced in each, it is more right and more natural to add the words "if any" to all such general words as those in question (as was done in the case of Cross v. Pagliano), than to give any such secondary meaning; for that where a secondary meaning is given to words incapable of their primary meaning the words properly have that secondary meaning, as where "son" is held to mean "illegitimate son" where there is no legitimate son. Further, to suppose that a lien is given for damages for short loading is to suppose that the parties contemplated that the agreement would be broken, not kept, which is a wrong way of construing agreements, as, presumably, parties making them contemplate keeping them. Now, when dead freight is agreed to be paid, the charterer has the right to load a short cargo on paying the dead freight. Another argument against the plaintiff is, that the construction he contends for is inconvenient; that it is not likely a merchant would charter a ship in such terms that he would not be entitled to a bill of lading without the goods in it being liable to a thing so uncertain and open to dispute as a claim for short freight; and that, though in this case there is but one bill of lading, there might have been several, and the goods in each subject to this claim. Which of these reasonings should prevail might be matter of much doubt but for the case of McLean v. Fleming, recently decided in the House of Lords, where a lien for "dead freight," under circumstances very similar to those of this case, was held to give a lien for damages for short loading. Pearson v. Goschen is, no doubt, the other way, though certainly there the matter was rather assumed than determined. Anyhow, if it conflicts with McLean v. Fleming, of course the latter must prevail.

It remains to consider, as to this point, whether, the shipowner having a right to this lien, that right has been preserved in the bill of lading. But I will first examine what other liens are given by the charterparty. Analogous considerations to the foregoing shew, to my mind, that "demurrage" means demurrage strictly so called. In the first place, demurrage, though sometimes used to signify any undue delay in loading, is an expression in common use to signify an agreed time, and is so used in this charterparty. Demurrage proper is contemplated by this charter, and the word therefore is satisfied; so that, if the plaintiff is right, "demurrage" would have two meanings, viz., "demurrage proper," and "damages for detention," which may be at a greater or less rate than the agreed demurrage. In the next place, there is the argument that the parties are not to be taken to contemplate breaking their agreement. In the result, then, I think the charterparty enables the owner to insist on a lien for demurrage strictly so called, but not for delay in loading ultra the demurrage days.

If, then, these are the proper constructions of the charterparty, what is that of the bill of lading? If the master has not reserved the liens he was entitled to, or has stipulated for those to which he was not entitled, why has he? Shortly, the meaning to be expected in the bill of lading is one in conformity with the charterparty. Let us examine it. The goods "are to be delivered unto order or his or their assigns, he or they paying freight and all other conditions or demurrage if any should be incurred for the said goods, as per the aforesaid charterparty." It is certainly impossible to speak with confidence as to the meaning to be put on this document. In the first place, the word is "or" demurrage. Of course this must be read "and." Then the words are, "if any should be incurred." This means, on the face of it, I suppose, "should thereafter be incurred." But when it is remembered that the charter "per" which this is to be paid makes no provision for demurrage at the port of discharge (and it certainly does not), while it does for demurrage at the port of loading, and when it is remembered how commonly the mistake is made of using the "should" or "shall be" for "shall have been" to comprehend possible past and future, must not this be read as a bit of bad grammar for "if any shall have been incurred"? It seems to me it must be so read, especially when read in conjunction with the words "he or they paying freight, and all other conditions."

These words I now have to consider in reference to the remaining question, viz., is there a lien under the bill of lading for the damages for short loading? But for the words "all other conditions" there clearly would not be. But those words must be read as "performing or satisfying all other conditions" for the said goods as per the aforesaid charterparty: for "paying" conditions is insensible. But if I am right in my construction of the charterparty, one of the conditions the consignee might be required per the charterparty to satisfy in order to have the goods is paying damages for short loading under the name of "dead freight"; for it seems to me that the word "conditions" has no application, unless it is to secure the liens to which the shipowner is entitled by the charterparty. It supposes the performance of some condition precedent or concurrent by the consignee. What? What is he to do by the charterparty? Pay freight? That is expressly provided for. Unload as fast as the ship can put the cargo out? But that is not a condition precedent or concurrent to or with his having the cargo. He may be bound so to unload, but not for "the goods"; for he must have them, whether he unload at that rate or otherwise. Besides, that would only be one condition, and not conditions. The clause about heated or damaged condition does not create any condition to be performed, but provides for a way in which, in a certain event, the freight is to be computed.

It seems to me, then, that by the charterparty there is a right to insert in the bill of lading a lien for the demurrage and dead freight, or damages for short loading; that there is no reason to suppose the captain intended to give up that right; that there are words sufficient to carry it; that those words have no application unless they have that effect; and that consequently they have that effect, and the plaintiff is entitled to his lien for those damages and demurrage. It is said that the words are "paying for the goods." I think that the words must be read "paying and satisfying all other conditions for the goods"; for "paying conditions" for the goods is insensible. Even then it is argued that the paying and satisfying are to be "for the goods," which means "for the carriage of the goods." I do not think so. It means "to have the goods." Demurrage is not paid for the carriage of the goods, but for delay in loading, nor is average; yet, by the bill of lading, demurrage and average may have to be paid for the goods, which must mean "to have them." Smith v. Sieveking is cited to shew that those words "for the goods" are to be so understood; and certainly that case tends that way. But Wegener v. Smith is an authority the other way. And it seems to me clear that each of those cases must depend on the very words used. Here, again, the argument is used, that if there were several consignees and several bills of lading it would be impossible to construe them in this way; that either there would be liens on small parcels for large damages, or other difficulties would arise. I doubt the difficulty practically. But the question does not arise. There is only one bill of lading. It may be if there were several it would be impossible so to construe them, though I do not think so. But, if so, the conclusion to be drawn is, that in that case the bills of lading would have been differently framed. In this particular case (if such a matter may be noticed) the fact is, that "all other conditions" are inserted in writing in an otherwise printed form obviously for some important purpose. While the clause about demurrage, "if any should be incurred," is in print, and good enough, at the time of printing, to comprehend all demurrage, whether incurred before or after the signing of the bill of lading.

Supposing that by the words "demurrage, if any should be incurred," no lien for the demurrage anterior to the bill of lading would be given, I think it would be given by the words "all other conditions." I think those words, for the reasons I have given, would suffice without express mention of demurrage, and I think that express mention does not lessen their effect.

In conclusion, I think the plaintiff entitled to a lien for the demurrage, and the dead freight or damages for short loading; and that the judgment should be affirmed as to the former, and reversed as to the latter. But I speak with great doubt, seeing the state of the authorities, and knowing the different opinions entertained on the questions, and considering what they are, viz., what meaning is to be put on loose and careless expressions? But I cannot help thinking that if we decide against the plaintiff, he will lose a benefit he clearly meant to have, and the charterers intended he should have. The questions ought to have no importance except to the parties interested, and except as a warning to others not to let them arise again.

WILLES, J. I entirely concur with the judgment delivered by my Brother Brett - a judgment written with such fresh and accurate acquaintance with the mercantile and maritime law applicable to the subject, that I will not attempt to add anything.

KELLY, C.B. Three questions arise upon this appeal. One, and the most important, for it governs the entire case, is whether the words interlined in the bill of lading so far incorporate into that instrument the conditions in the charterparty as to entitle the plaintiff to a lien upon the cargo, of which the defendants have become the owners under the indorsement of the bill of lading. The first point is as to demurrage in respect of the ten days from the 8th to the 18th of December, amounting to £80. Under the bill of lading the cargo was to be consigned "as per charterparty," and the cargo is to be delivered "as per charterparty unto order or assigns, he or they paging freight and all other conditions"

[these words being interlined in writing in the printed bill of lading]

"or demurrage, if any should be incurred for the said goods, as per the aforesaid charterparty." This must be read as paying freight and demurrage, if any; and the question is, how much of the charterparty is imported into the bill of lading by the words interlined in the bill of lading, "and all other conditions?" These words must be read "performing all other conditions," to make them intelligible and sensible. When we look to the charterparty, we find after the provision for the payment of the freight on unloading, and for fifty lay days from the 15th of October, and ten days on demurrage at 8l. per day, the charterparty proceeds thus: "The owners to have an absolute lien on the cargo for all freight, dead freight, demurrage, and average, and the charterer's responsibilities to cease upon shipment of the cargo, provided it be of sufficient value to cover the freight and the charges upon arrival at the port of discharge." And the question is, whether this condition is binding upon the defendants under the words "and all other conditions" interlined as before mentioned.

I think it is. First, because these words cannot be treated as words of form and superfluous, or as having no meaning or effect, seeing that they are introduced expressly and in writing by interlineation in the printed bill of lading, and must, therefore, point to something intended and distinctly agreed upon between the parties; and I see no other condition to which they can apply, but the very important one that the owner was to have a lien upon the cargo for all freight, dead freight, and demurrage.

It has been contended that the words apply only to any condition touching these goods, the freight payable under the bill of lading being the freight only for this shipment; but I think the reasonable interpretation is, that any and every condition is imported which affects in any way the interests of the owner, or of the defendants in relation to the cargo thus consigned. I do not say that notice of the contents of the charterparty would have bound the defendants by this condition, but assuming the words to mean "performing all other conditions," I think the only reasonable effect to be given to them is to preserve to the owner the lien for which he had stipulated upon the cargo consigned to the defendants, which otherwise they would not have been liable to satisfy. It is unnecessary to determine whether, upon the shipment of this cargo, the liability of the charterer and the lien of the owner altogether ceased, as well in respect of demurrage already incurred, as of any species of liability that might afterwards arise; for whether such liability wholly or in part continued or ceased, the owner might claim the benefit of his lien against the consignee of the cargo, either as a substituted or an additional or a collateral security for the freight and demurrage. No case has been decided in which the question has turned upon words like these; we must, therefore, decide this case according to what we believe to have been the intention of the parties, to be collected from the language of the two instruments taken together. It is true that, had the two constituted but one contract between the owner and the consignees, it is most unlikely that the consignees would have allowed their cargo to stand as a security for demurrage already incurred, and not by reason of any act or default of theirs; but we must remember that the charterparty was entered into between the owner and the charterer before it could be known what compensation the owner would become entitled to, whether in respect of freight or demurrage, or any other incident of the adventure. I think, therefore, that the verdict for the plaintiff for 80l. ought to stand, and the judgment of the Court of Queen's Bench upon this point should be affirmed.

The next question is, whether the lien extends to the compensation claimed for the detention of the ship after the lapse of ten days on demurrage. Now the words are, "freight, dead freight, demurrage, and average;" and it seems to me impossible that this claim should come within either of these words. I think, therefore, the judgment below must also be affirmed upon this point.

It remains to be considered whether the claim to unliquidated damages for the not having shipped a complete cargo can be claimed as dead freight, and so brought within the lien to which the owner was entitled. Now, inasmuch as we have no means of ascertaining the amount of these damages, except by consent or by the verdict of a jury, they cannot be brought within the strict legal meaning of the term "dead freight," which must be a sum ascertained or ascertainable by the charterparty itself, as where a complete cargo is agreed to be 1000 tons at a specific sum, as 20s. per ton; and, therefore, the term "dead freight" in this condition must mean the unliquidated damages for not shipping a full cargo, or it has no meaning at all with reference to the whole effect of this charterparty. But we often find words in these printed instruments which are so framed and introduced as to be applicable to a great variety of different cases, and which have no application at all, and therefore no meaning and effect whatever in the particular case in which such a question as this arises. I am far from saying that a different construction is to be put upon words in print and words in writing; but it may be in an instrument of either character, but more especially where it is in a printed form, that a word or term of this description must be read with the implied addition of the words "if any." After all, we are in this case to draw our own inferences as to the meaning of the parties in the use of these words, and if they are doubtful, and there be no evidence on the one side or the other of their bearing a particular meaning among commercial men, we must put such a construction upon them as we think calculated to give effect to the real intention of the parties; and if they are of a doubtful import, they should have a reasonable interpretation; and it certainly does not seem reasonable that these parties should have agreed upon a lien like this, the effect of which would be, that whenever the cargo becomes deliverable upon the arrival of the ship, it will be impossible for the consignees to satisfy the lien and to obtain possession of their property, unless by agreement between the parties as to the amount of damages claimed by reason of the deficiency of the cargo, a matter upon which they are very unlikely to agree, or by means of the verdict of a jury or the award of an arbitrator, which might not be obtained for months, or even for years, after the arrival of the vessel.

I may add, that if we are to put a strictly literal construction upon these words, a claim to damages by reason of the shipment of a deficient cargo cannot be brought within the true meaning of the word "freight," which imports a sum certain to be paid in respect of the conveyance of goods in a ship, and therefore the term "dead freight," as well observed by Lord Ellenborough in the case of Phillips v. Rodie, cannot be properly used as designating the unliquidated damages recoverable by reason of the breach of a contract to ship a full and complete cargo. And this view of the question last raised being supported by the case of Pearson v. Goschen, I think that the plaintiff cannot be entitled to a lien for a short shipment, as in this case, under the term "dead freight." I have, indeed, great difficulty in understanding how a lien can exist for a sum of money, not ascertained at the time when the goods upon which the lien is supposed to attach are deliverable according to the contract, nor capable of being ascertained but by the award of an arbitrator or the verdict of a jury. But since this case was argued, we have been informed of the judgment delivered by the House of Lords in a case of McLean v. Fleming, and in which it was held that damages by reason of the shipment of less than a full cargo might be recovered as dead freight, and we are no doubt bound by that decision. In that case, however, the amount of the damages was capable of being at once ascertained, inasmuch as the short shipment was of the specific quantity of 210 tons of bones, the stipulated freight being 35s. per ton. This is in the nature of dead freight, strictly so called, and is thus distinguishable from the case now before the Court. Upon the whole, therefore, I am of opinion that the judgment of the Court of Queen's Bench should be affirmed.

Appeal dismissed.

Court, Judges, Date:

House of Lords, UK

Lord Diplock, Lord Scarman, Lord Roskill, Lord Brandon of Oakbrook and Lord Brightman

11 April 1984; 24 May 1984

Catchwords:

Charterparty - Bill of lading - Incorporation of charterparty terms into bill of lading - Demurrage - Liability of transferee of bill to pay demurrage

Case Report by:

ARUN KASI

Appeal from:

Court of Appeal

Facts Summary:

A charterparty (in Exxonvoy 1969 form) provided that “[c]harterer shall pay demurrage”. The bill of lading incorporated the charterparty with a general incorporation clause stating “[t]his shipment is carried under and pursuant to the terms of the charter … and all the terms whatsoever of the said charter except the rate and payment of freight specified therein apply …"

The charterer defaulted in payment to the shipowner. The shipowner sought to recover demurrage due under charterparty from an holder of bill of lading. The shipowner argued that the terms of the demurrage clause in the charterparty was incorporated into the bill of lading and the holder of the bill was liable to pay the demurrage, by virtue of the above said incorporation clause.

Court of Appeal held that the holder of the bill was not liable to pay the demurrage.

Hence, this appeal by shipowners against consignees.

Held:

1. Appeal is dismissed.

• The word ‘charterer’ in the demurrage clause in the charterparty should not be manipulated to refer to the ‘holder of the bill’ in the context of the bill of lading

• Hence, the holder of the bill is not liable for the demurrage.

• Courts should be reluctant to hold the transferee of the bill liable on the demurrage clause as that it would impose a ‘liability of an unknown extent’, as it would be contrary to good commercial sense for a transferee to take such liability in the absence of clear words to that effect in the bill of lading.

Observation:

A similar conclusion was arrived at by the Court of Appeal in Spiros C [2000] 2 Lloyd’s Rep 550 (CA), where the demurrage clause in the charterparty, incorporated into a bill of lading, specifically obliged the charterer to pay the demurrage, hence no liability on the transferee of the bill to pay.

Comparatively, when a charterparty says in neutral tone that ‘freight to be paid’, courts have held that a general incorporation clause would bind the transferee of the bill: The Constanza M [1980] 1 Lloyd’s Rep 505 (QB).

Counsels & Solicitors:

Johan Steyn Q.C. and M. G. Collins for Appellants.

Gordon Pollock Q.C. and Charles MacDonald for Respondents.

Holman, Fenwick & Willan for Appellants.

Waltons & Morse for Respondents.

Cases, Legislation, Convention referred to:

Gray v. Carr (1871) L.R. 6 Q.B. 522

Porteus v. Watney (1878) 3 Q.B.D. 534, C.A.

The Merak [1965] P. 223, C.A.

The Annefield [1971] P. 168, C.A.

Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. [1959] A.C. 133; [1958] 2 W.L.R. 688; [1958] 1 All E.R. 725, H.L.(E.)

Annefield, The [1971] P. 168; [1971] 2 W.L.R. 320; [1971] 1 All E.R. 394, Brandon J. and C.A.

Gray v. Carr (1871) L.R. 6 Q.B. 522

Merak, The [1965] P. 223; [1965] 2 W.L.R. 250; [1964] 3 All E.R. 638; [1965] 1 All E.R. 230; Scarman J. and C.A.

Porteus v. Watney (1978) 3 Q.B.D. 534, C.A.

Thomas (T. W.) & Co. Ltd. v. Portsea Steamship Co. Ltd. [1912] A.C. 1, H.L.(E.)

Judgement:

LORD DIPLOCK: My Lords, the question before your Lordships' House in this appeal is a short and, in my view, very simple question of construction of a bill of lading issued pursuant to and in the form annexed to a tanker voyage charter-party in the standard form known as "Exxonvoy 1969" which is widely used in the tanker trade. More specifically the question is whether the provision in the bill of lading which purports to incorporate terms of the charter-party renders the respondents ("the consignees") as holders of the bill of lading when the cargo was discharged, personally liable to the appellants ("the owners") for demurrage payable under the terms of the charter-party to the owners by S.E.A. Petrochem Pte. Ltd., Singapore ("the charterers") who are in liquidation and insolvent.

At the trial of the action before Mustill J., there were other issues between the parties with which neither the Court of Appeal nor your Lordships have been concerned. Although the amount of the demurrage in issue is of the order of U.S.$250,000, the principal purpose of the parties in pursuing the appeal from that part of Mustill J.'s judgment that held that the consignees were not liable to the owners for demurrage, was to obtain an authoritative ruling on the question whether the holder of a bill of lading in the form ("the Exxonvoy bill of lading") annexed to a charter-party in the Exxonvoy 1969 standard form, if he were not himself the charterer, was nevertheless personally liable to the shipowner for the full amount of demurrage payable by the charterer under the terms of the charter-party. Neither party has contended either in the Court of Appeal or in this House that the answer to this question depended upon the particular fact that in the instant case there was only one bill of lading and this covered a complete cargo of petroleum products carried in the Miramar from Singapore to Trincomalee in 1980. Exxonvoy 1969 contemplates that, at charterer's option, there may be more than one loading port and more than one discharging port and that separate bills of lading may be issued, and must be issued if the charterer so requests, for shipments forming parts of the complete cargo loaded, it may be, at different loading ports for carriage to different discharging ports. The words in the Exxonvoy bill of lading upon which this appeal turns are the same irrespective of whether it is issued in respect of a complete or a part of the cargo, received on board at the first or any subsequent loading port for carriage to and discharge at the last or any previous discharging port. There must be ascribed to the words a meaning that would make good commercial sense if the Exxonvoy bill of lading were issued in any of these situations, and not some meaning that imposed upon a transferee to whom the bill of lading for goods afloat was negotiated, a financial liability of unknown extent that no business man in his senses would be willing to incur.

The Court of Appeal [1984] 1 Lloyd's Rep. 142 in a judgment delivered by Sir John Donaldson M.R., upheld Mustill J.'s rejection of the personal liability of the consignees to the owners for demurrage although the reasons preferred by him for so doing differed somewhat, at any rate in emphasis, from those of Mustill J.

Both judgments, however, took as their starting point what had been said by Russell L.J. in The Merak [1965] P. 223, 260, and restated by Lord Denning M.R. in The Annefield [1971] P. 168, 184. Those two cases were concerned with whether or not the presence of a clause expressed to incorporate the terms of the charter-party in the bill of lading annexed, in The Merak to a charter-party in the Newbaltwood standard form, and in The Annefield in the Centrocon standard form, was effective to make the arbitration clause in the charter-party binding upon a holder of the bill of lading other than the charterer himself. Although the incorporation clauses in the bills of lading used with the Newbaltwood, the Centrocon and the Exxonvoy 1969 charterparties respectively are not in identical words, there is no distinction to be drawn between them that is relevant to the instant appeal.

In strictness, what was said by Russell L.J. and Lord Denning M.R. in The Merak [1965] P. 223 and The Annefield [1971] P. 168 was obiter as respects the correct approach to the extent to which incorporation clauses in bills of lading issued in standard forms annexed to charterparties, are effective to impose upon the bill of lading holder personal liability for non-performance of obligations undertaken by the charterer that are contained in clauses of the charter-party, other than an arbitration clause. Nevertheless, those dicta drew a clear distinction as respects incorporation in the bill of lading between an arbitration clause in the charter-party and a clause therein "which is directly germane to the shipment, carriage and delivery of goods." A clause that falls within this latter category, it was said, is to be treated as incorporated in the bill of lading even though it may involve a degree of "manipulation" of the words in order to fit exactly a bill of lading.

The manipulation in the instant case for which the owners argued was of the words "charterer" in the demurrage clause (clause 8) of Exxonvoy 1969, so as to substitute for it "consignee" or "bill of lading holder" when clause 8 was incorporated in the Exxonvoy bill of lading. Mustill J. and Sir John Donaldson M.R. were able to find reasons for holding such substitution impermissible notwithstanding that a demurrage clause is one which is germane to the shipment, carriage and delivery of goods.

The owners' application for leave to appeal from the Court of Appeal's judgment was refused by that court, but was subsequently granted by an appeal committee of this House. As was explained to the petitioners at the hearing of the petition, leave was granted not because their Lordships had, at that stage, reached a state of prima facie doubt as to the correctness of the result reached by the Court of Appeal, but in order to give this House an opportunity of dealing with the extent, if any, to which it is permissible to indulge in what in the dicta to which I have referred was described as "verbal manipulation" of clauses in charterparties in order, by means of an incorporation clause in a bill of lading, to impose upon the holder of the bill of lading personal liability for non-performance of obligations which under the express terms of the charter-party are undertaken by "the charterer" under that designation alone and are not therein referred to as being obligations of any other persons interested in the shipment.

The incorporation clause in the Exxonvoy bill of lading reads:

"This shipment is carried under and pursuant to the terms of the charter dated … between … and … charterer, and all the terms whatsoever of the said charter except the rate and payment of freight specified therein apply to and govern the rights of the parties concerned in this shipment."

The effect of the clauses in Exxonvoy 1969, which deal with laytime, clause 5 "Lay days," clause 6 "Notice of readiness" and clause 7 "Hours for loading and discharging," is to provide a combined total of 72 running hours of laytime for loading and discharge at loading and discharging port or ports, starting at each port six hours after receipt by the charterer or his agent of notice of readiness to load or to discharge, as the case may be. Clause 8, "Demurrage," should be set out in full:

"8. DEMURRAGE. Charterer shall pay demurrage per running hour and pro rata for a part thereof at the rate specified in Part I for all time that loading and discharging and used laytime as elsewhere herein provided exceeds the allowed laytime elsewhere herein specified. If, however, demurrage shall be incurred at ports of loading and/or discharge by reason of fire, explosion, storm or by a strike, lockout, stoppage or restraint of labor or by breakdown of machinery or equipment in or about the plant of the charterer, supplier, shipper or consignee of the cargo, the rate of demurrage shall be reduced one-half of the amount stated in Part I per running hour or pro rata for part of an hour for demurrage so incurred. The charterer shall not be liable for any demurrage for delay caused by strike, lock-out, stoppage or restraint of labor for master, officers and crew of the vessel or tugboat or pilots."

The incorporation clause in the Exxonvoy bill of lading, it is argued for the owners, requires one to treat the bill of lading as if it included the provisions contained in clause 8 of Exxonvoy 1969, not verbatim as they appear in that clause itself, but with the substitution by verbal manipulation of "consignee under a bill of lading issued in respect of the whole or any part of the cargo" in place of the word "charterer."

My Lords, before I come to any refinements of semantics, I draw attention to the various combinations of circumstances affecting the using up of laytime and the accrual of liability to pay demurrage in which a bill of lading for some part of the cargo may be issued by the master on behalf of the owners or after having been issued may be negotiated by the holder of the bill. Laytime may have been exhausted and the vessel may already be on demurrage before any cargo has been shipped at the first loading port, let alone subsequent loading ports if the charter-party gives an option for more than one. After completion of loading of the full cargo any unused laytime will start running again on arrival at the first discharging port and will continue to run until either (i) the cargo has been completely discharged there or at subsequent discharging ports if there be more than one, or (ii) the laytime is exhausted and liability for demurrage starts to accrue.

So if the owners are right in their contention as to the construction of the incorporation clause in the Exxonvoy bill of lading, clause 8 read in conjunction with clauses 5 to 7 of Exxonvoy 1969, has the effect that every consignee to whom a bill of lading covering any part of the cargo is negotiated, is not only accepting personal liability to pay to the owners freight, as stated in the bill of lading, but is also accepting blindfold a potential liability to pay an unknown and wholly unpredictable sum for demurrage which may, unknown to him, already have accrued or may subsequently accrue without any ability on his own part to prevent it, even though that sum may actually exceed the delivered value of the goods to which the bill of lading gives title.

My Lords, I venture to assert that no business man who had not taken leave of his senses would intentionally enter into a contract which exposed him to a potential liability of this kind; and this, in itself, I find to be an overwhelming reason for not indulging in verbal manipulation of the actual contractual words used in the charter-party so as to give to them this effect when they are treated as incorporated in the bill of lading. I may add that to do so would raise a whole host of questions as to how the liability is to operate as between different consignees of different parts of the cargo, to which questions no attempt has been made to vouchsafe any answer, let alone a plausible one. To give some examples: is any personal liability for demurrage incurred by consignees of cargo which has been discharged before the expiry of laytime? If the discharge of a consignee's cargo takes place after the vessel is on demurrage is his liability to pay demurrage limited to the amount of demurrage accrued after the expiry of laytime and up to the time when the discharge of his part of the cargo is complete? Is each consignee liable for all demurrage accrued while his cargo remains on board? Is the liability of each consignee to pay demurrage several? If the shipowner chooses to sue one consignee of part of the cargo for the full amount of demurrage has that consignee any right of contribution against consignees of other parts of the cargo and, if so, against which of them and upon what basis?

My Lords, I bear in mind that in the 19th century case of Gray v. Carr (1871) L.R. 6 Q.B. 522, the argument based on business common sense although it appealed to those two outstanding nineteenth century jurists, Brett J. (later Lord Esher) and Willes J., did not prevent the other members of the Court of Exchequer Chamber from concluding that by the incorporation clause contained in a bill of lading issued for the complete cargo loaded under the particular form of charter-party in that case, there was incorporated in the bill of lading a clause appearing in the charter-party that provided for the payment of demurrage after expiry of agreed total laytime used at loading and discharging ports combined. The demurrage clause in the charter-party in question used the passive voice and thus did not expressly designate the person by whom such demurrage was to be paid; and the majority of the court (Kelly C.B., Bramwell, Channell and Cleasby BB.) held that by virtue of the incorporation clause in the bill of lading the consignee who was the holder of it was liable for demurrage that had accrued at the loading port before the cargo had been loaded and the bill of lading issued as well as demurrage that accrued at the discharging port thereafter.

The construction placed by the majority of the Court of Exchequer Chamber in Gray v. Carr upon the demurrage clause in the charter-party and the incorporation clause in the bill of lading was followed by the Court of Appeal in Porteus v. Watney (1878) 3 Q.B.D. 534, where it was applied to a bill of lading for part of the cargo only. Brett L.J., who was a member of the court, regarded the reasoning of the majority in the earlier case from which he had dissented, as incapable of leading to a different conclusion where the bill of lading was for part of the cargo only.

These two cases, however, were decided by applying a literalist construction to the actual words appearing in particular clauses in a charter-party and a bill of lading which were in very different terms from those with which your Lordships are concerned in this appeal. No "verbal manipulation" was called for, and your Lordships are not called upon to decide whether these decisions ought to be treated as formally overruled; but, for my part, I have little doubt that both those cases and some other relatively old cases that followed them would, by the application of reasons based upon commercial considerations to which I have already alluded, have been decided differently if they had been tried in the last two or three decades.

I turn now to the terms of Exxonvoy 1969 which it is provided by the incorporation clause in the Exxonvoy bill of lading, are to "apply to and govern the rights of the parties concerned in this shipment." As there is no cesser clause in Exxonvoy 1969 such parties include the charterers until completion of discharge of the vessel, as well as the holders of the Exxonvoy bill of lading as consignees.

Exxonvoy 1969 comprises a preamble which states the parties, described as "owner" and "charterer" respectively, and the vessel's name. This is followed by Part I in which particulars of the chartered voyage are to be inserted including, what is most directly relevant to the instant appeal, total laytime in running hours and the rate of demurrage. Part II, which is in standard printed form, consists of 26 numbered clauses to which there is annexed the Exxonvoy bill of lading.

The obligation on the master to sign bills of lading in this form is referred to in clause 1, and is expressly imposed by clause 20 "Issuance and terms of bills of lading," which sets out in seven sub-paragraphs specific terms commonly included in bills of lading including the clause paramount. Clause 20 goes on to provide:

"(b) The carriage of goods under this charter-party and under all bills of lading issued for the cargo shall be subject to the statutory provisions and other terms specified in sub-paragraphs (i) through (vii) of this clause and such terms shall be incorporated verbatim or be deemed to be incorporated by reference in any such bill of lading."

The seven sub-paragraphs comprise (i) a clause paramount; (ii) a Jason clause; (iii) a general average clause; (iv) a "both to blame" clause; (v) a limitation of liability clause; (vi) a war risks clause, and (vii) a deviation clause. There is nothing here to impose upon a consignee or bill of lading holder any personal liability for demurrage: and parenthetically I draw attention to the fact that the passage in paragraph (b) of clause 20, for which I have myself supplied the emphasis, draws a distinction between carriage under the charter-party and carriage under bills of lading. It recognises the co-existence of a plurality of contracts for the carriage of the same goods in the vessel; the charter-party is one, a bill of lading issued for those goods after it has been negotiated is the other.

My Lords, in 22 of the 26 clauses in Part II there are express references to contractual rights or obligations of "the charterer" under that designation. For my part, I can see no business reason for verbal manipulation of that designation in any of those clauses so as to substitute for the words "the charterer", or to include within that expression, "the consignee" or "holder of a bill of lading" even if the whole of Part II of Exxonvoy 1969 were set out verbatim in the Exxonvoy bill of lading issued pursuant to clause 20.

I see no justification for resort to the maxim of construction falsa demonstratio non nocet cum de corpore constat, such as induced this House in Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. [1959] A.C. 133, to treat the words "This bill of lading" as if they were "This charter-party." This part of the Adamastos case, upon which, unlike other issues in the same case the House was unanimous, provided as good an elementary text-book example of the application of this Latin maxim as the classic one in which the intended corpus which is "Blackacre" is, by an obvious mistake described as "Whiteacre." In the instant case, however, every reference to "the charterer" by that designation in Exxonvoy 1969 although it would not necessarily affect directly legal obligations as between the owner and the consignee would nevertheless make perfectly good sense, when incorporated verbatim in the Exxonvoy bill of lading, if it meant the person designated as "the charterer" in the charter-party and no-one else.

If further reasons were needed (and for my part I do not think that any are) for treating "the charterer" as meaning only the person referred to in the preamble to Exxonvoy 1969 as the charterer and no-one else, a good semantic reason may be found in the fact that in four clauses in Part II, of which one is clause 8, the demurrage clause itself, and the other three are: clause 10 "Pumping in and out," clause 14 "Ice," and clause 19 "General exceptions clause," there are specific references to "consignee" under that express designation in the very same sentence as a separate reference to "the charterer."

Mustill J.'s main reason for rejecting the argument that the word "charterer" in the first sentence of clause 8 should be read as incorporated in the Exxonvoy bill of lading as meaning or including "bill of lading holders," an expression which he took from clause 21 of Exxonvoy 1969, the lien clause, was the presence in the charter-party of the lien clause itself, which is in the following terms:

"21. LIEN. The owner shall have an absolute lien on the cargo for all freight, deadfreight, demurrage and costs, including attorney fees, of recovering the same, which lien shall continue after delivery of the cargo into the possession of the charterer, or of holders of any bills of lading covering the same or of any storageman."

This clause he regarded as providing the owners with a sufficient remedy against loss resulting from failure of the charterers to pay demurrage and so rendered unnecessary any verbal manipulation of the word "charterer" in the first sentence of clause 8.

My Lords, I deliberately refrain from expressing any view upon the effect of this curiously drafted lien clause, except to say that the time may be ripe for this House to re-examine this and other standard forms of lien clauses around which there seems to have accumulated a mystique which cries out for clarification and simplification. But the question of a lien for demurrage under the Exxonvoy bill of lading in the instant case, although it arose at the trial, is not the subject of appeal to the Court of Appeal or to your Lordships' House. So this does not afford the occasion for this House to embark upon this topic.

In the Court of Appeal, Sir John Donaldson M.R. relied more particularly upon the semantic argument based upon the presence of the express reference to "consignee" distinguishing him from "charterer" in the second sentence of clause 8 itself, under which the owners' claim for demurrage was brought, and he relied also upon the inclusion of clause 20, issuance and terms of bills of lading, to which I have referred in some detail earlier in this speech. I agree, with respect, that both of these are convincing reasons for rejecting the owners' argument based on the incorporation of clause 8 in the Exxonvoy bill of lading by means of the incorporation clause; I regard it, however, as more important that this House should take this opportunity of stating unequivocally that, where in a bill of lading there is included a clause which purports to incorporate the terms of a specified charter-party, there is not any rule of construction that clauses in that charter-party which are directly germane to the shipment, carriage or delivery of goods and impose obligations upon the "charterer" under that designation, are presumed to be incorporated in the bill of lading with the substitution of (where there is a cesser clause), or inclusion in (where there is no cesser clause), the designation "charterer," the designation "consignee of the cargo" or "bill of lading holder."

For the reasons that I have given I would dismiss this appeal.

LORD SCARMAN: My Lords, I have had the advantage of reading in draft the speech delivered by my noble and learned friend, Lord Diplock. I agree with it and for the reasons he gives I would dismiss the appeal.

LORD ROSKILL: My Lords, I have had the advantage of reading in draft the speech delivered by my noble and learned friend, Lord Diplock. For the reasons he gives I would dismiss this appeal.

LORD BRANDON OF OAKBROOK: My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Diplock. I agree with it, and for the reasons which he gives I would dismiss this appeal.

LORD BRIGHTMAN: My Lords, I agree that this appeal should be dismissed for the reasons given by my noble and learned friend, Lord Diplock.

Appeal dismissed.

Court, Judges, Date:

Privy Council, UK

Lord Atkin, Lord Macmillan, Lord Wright, Sir John Wallis, Sir Lancelot Sanderson

17, 19, 20 July 1934

Catchwords:

Railway Receipt - Document of Title - Finance by Bank - Pledge and Equitable Charge in favour of Bank for value - Goods not divisible among Creditors upon Insolvency of Buyer - Insolvency Administrator (Official Assignee) not entitled to goods or proceeds of sale

Case Report by:

ARUN KASI

Appeal from:

High Court of Judicature of Madras, Appellate Jurisdiction (Sir Owen Beasley CJ, Stone J)

Facts Summary:

A buyer pledged railway receipts of ground nuts in transit to its bank. The practice was that the bank would, upon arrival of the goods, indorse and return the receipts to the buyer on certain terms to enable the latter to present the receipts to the railway for collection of the goods. While the goods were in transit, the buyer became insolvent and all its assets became vested in the insolvency administrator.[ Known as ‘official assignee.] The insolvency administrator claimed entitlement to the goods, and when they were sold by order of court, so that they will be divisible among the creditors. The bank claimed its priority interest over the goods and later the proceeds, as the pledgee or equitable chargee.

The High Court found for the bank.

Hence, this appeal by the insolvency administrator against the bank.

Held:

1. Appeal is dismissed.

• The railway receipts were documents of title (by specific reference to the then s. 178 of the Indian Contracts Act 1872, which provided “A person who is in possession of any goods, or of any bill of lading. order for delivery, or any other document of title to goods, may make a valid pledge of such goods, or documents …”).

• The bank was pledgee and equitable chargee of the goods.

• The insolvency administrator merely stood in the borrower’s shoes and was bound by the pledge and equitable charge for value.

• The goods were not assets divisible among creditors, as they were pledged to the bank. The insolvency administrator was not entitled to the proceeds.

Observation:

-

Counsels & Solicitors:

Van den Berg KC, Walter H Moresby, and Henry Hope for the Appellant.

Stuart Bevan, KC, and Sir Thomas Strangman for the Respondent.

Linklaters & Paines agents for Drew & Napier for Appellants.

Coward Chance agents for Allen & Gledhill for Respondents.

Cases, Legislation, Convention referred to:

1. Ramdas Vithaldas Durbar v S Amerchand & Co, (1916) LR 43 Ind App 164; 85 LJPC 214; 39 Digest 634, q.

2. North Western Bank v Poynter, Son and Macdonalds, [1895] AC 56; 64 LJPC 27; 72 LT 93; 11 R 125, HL; 11 Digest (Repl) 386, 464.

3. Re David Allester, ltd, [1922] 2 Ch 211; 91 LJ Ch 797; 127 LT 434; 38 TLR 611; 66 Sol Jo 486; [1922] B & CR 190; 10 Digest (Repl) 814, 5281.

4. Re Slee, Ex parte North Western Bank (1872) LR 15 Eq 69; 42 LJ Bcy 6; 27 LT 461; 21 WR 69; 7 Digest 27, 135.

5. Re Hamilton, Young & Co, Ex parte Carter, [1905] 2 KB 772; 74 LJKB 905; [1934] All ER Rep 237 at 239 93 LT 591; 54 WR 260; 21 TLR 757; 12 Mans 365, CA; 7 Digest 27, 138.

6. Brandt & Co v Dunlop Rubber Co, [1905] AC 454; 74 LJKB 898; 93 LT 495; 21 TLR 710; 11 Com Cas 1, HL; 8 Digest (Repl) 573, 230.

7. Fakeerappa v Thippanna (1913) TLR 38 Mad 664.

8. Re Couston & Co, Ex parte Watkins (1873) 8 Ch App 520; 42 LJ Bcy 50; 28 LT 793; 21 WR 530, LC & LJ; 5 Digest 803, 6863.

9. Spear v Travers (1815) 4 Camp 251; 171 ER 80, NP; 39 Digest 523, 1378.

10. McEwan v Smith (1849) 2 HL Cas 309; 13 Jur 265; 9 ER 1109, HL; 39 Digest 522, 1367.

11. Inglis v Roberts and Baxter, [1898] AC 616; 67 LJPC 108; 79 LT 224; 14 TLR 517, HL; 11 Digest (Repl) 387, 471.

12. Dublin City Distillery, Ltd v Doherty, [1914] AC 823; 83 LJPC 265; 111 LT 81; 58 Sol Jo 413, HL; 10 Digest (Repl) 814, 5285.

13. Re Ambrose Summers (1896) ILR 23 Calc 592.

Judgement:

LORD WRIGHT: The appellant is the Official Assignee of Madras in whom the property vested on insolvency of CK Narayana Ayyar & Sons (who will be referred to hereafter as the borrowers); the question in the appeal is whether the appellant or the respondent lenders are entitled to the proceeds of certain consignments of ground nuts; the primary issue is whether the lenders who had advanced moneys on the security of the railway receipts in respect of these ground nuts obtained a valid pledge of the goods. Certain further or alternative questions will be dealt with subsequently.

The official assignee succeeded before WALLER, J; his decision was, however, reversed on appeal by the High Court of Judicature of Madras, Appellate Jurisdiction; the official assignee now appeals to His Majesty in Council.

There is little dispute about the facts. The borrowers did a large business in ground nuts, which they purchased from the up-country growers: the nuts were then despatched by rail and arrived in Madras by one or other of two railways, the Madras and Southern Mahratta Railway or the South Indian Railway. There was a working arrangement between these railways and the Madras Port Trust, which worked its own railway system within the port and took over the consignments of nuts when they arrived at the port. The Port Trust had its transit sheds, but there were also on its premises godowns leased to traders. One such godown, referred to as the X warehouse, was leased to the borrowers, but there was on it a signboard bearing the name of the lenders.

For many years the lenders had financed the consignments of nuts purchased and consigned by the borrowers; their method was to grant loans against particular consignments. The general course of business was for the borrowers to obtain from the railway companies in respect of each consignment or wagon load a railway receipt which will later be more particularly described; sometimes, however, the up-country seller appeared as consignor and consignee, in which event the receipt was endorsed and delivered to the borrowers; sometimes the seller was named on the receipt as consignor, while the borrowers were consignees; in other cases the borrowers were named on the receipt both as consignors and consignees. Each receipt gave full particulars relating to the goods, the wagon number, the marks of the bags, the number, and so forth. It contained the following condition:

"That the railway receipt given by the NGS Rail Co for the articles delivered for conveyance must be given up at destination by the consignee to the railway company or the railway may refuse to deliver, and the signature of the consignee or his agent in the delivery book at destination shall be evidence of complete delivery. If the consignee does not himself attend to take delivery he must endorse on the receipt a request for delivery to the person to whom he wishes it made, and if the receipt is not produced the delivery of the good's may, at the discretion of the railway company, be withheld until the person entitled in its opinion to receive them has given an indemnity to the satisfaction of the railway company."

The condition recognises a practice of allowing delivery without production of the receipt analogous to that often followed in the case of bills of lading, whereby delivery is made on an. indemnity if bills of lading are not forthcoming. As in general the borrowers wanted loans against consignments their practice was to bring or send to the lenders the railway receipts, duly endorsed by them in blank, with a letter of hypothecation and a promissory note, and, if the values were satisfactory and the transaction was in order, the loan was granted, the borrowers executing a promissory note for the amount and the letter of hypothecation, which was duly completed with full particulars of the security. The railway companies were, no doubt, aware of this general course of business, but were not notified that it had been followed in respect of any particular transaction. When the goods arrived at the port, delivery was taken from the Port Trust against the railway receipts; these the lenders had retained, but in order to enable them to obtain delivery the practice was to hand the receipts to the representative of the borrowers, who paid freight and unloaded the goods from the wagons into the X warehouse where they came into the actual possession of the lenders.

The borrowers were adjudicated bankrupt on 11 February 1929, the date of the insolvency being 7 February 1929. At that latter date the goods, which are the subject of this appeal, consisted of 7,993 bags of ground nuts, represented by forty- six railway receipts; all the goods were at the time either in transit on the railway or in the transit sheds or godowns of the Port Trust. Of the forty-six receipts, fourteen representing 2,975 bags, had been presented on 7 February 1929, to the Port Trust by the borrowers, who had received them from the lenders, in accordance with the method and for the purpose described above, but the Port Trust refused to give delivery and unloaded these bags into its own sheds or godowns because payment of the freight was not forthcoming; the remaining thirty-two receipts were presented by the lenders after the insolvency; in view, however, of the dispute which culminated in the present suit, delivery was refused by the Port Trust, and all the goods were eventually sold under orders of the court, the proceeds being held by the lenders to abide the result of these proceedings.

The main question (putting aside for the moment any consideration of the letter of hypothecation) is whether the pledging of the railway receipts was a pledge of the goods represented by them or merely a pledge of the actual documents, that is, what has been called a pledge of the ipsa corpora of the documents. The solution of the question depends on the true effect of s 178 of the Indian Contract Act, 1872, as then in force; that section which has since been repealed by the Indian Contract (Amendment) Act, 1930, and replaced by a now s 178, was in the following terms:

"A person who is in possession of any goods or of any bill of lading, dock warrant, warehouse keeper's certificate, wharfinger's certificate or warrant or order for delivery or any other document of title to goods, may make a valid pledge of such goods or documents: Provided that the pawnee acts in good faith and under circumstances which are not such as to raise a reasonable presumption that the pawnor is acting improperly: Provided also that such goods or documents have not been obtained from their lawful owner or from any person, in lawful custody of them by means of an offence or fraud."

By s 172 a pledge is defined as "a bailment of goods as security for payment of a debt or performance of a promise."

The first matter to be decided is whether a railway receipt such as those in question is a document of title to the goods within the section. Their Lordships are of opinion that it is. In Ramdas Vithaldas Durbar v S Amerchand Co, this Board held that a railway receipt was an "instrument of title" within s 103 of the Contract Act: the board said in that case that no distinction could be drawn between the term "document of title" and the term "instrument of title"; and accordingly also held that the railway receipts were documents of title to goods within 178. Their Lordships likewise in the present case see no reason for giving a different meaning to the term in s 178 from that given to the terms in ss 102 and 103: in addition a railway receipt is specifically included in the definition of "mercantile document of title to goods " by s 137 of the Transfer of Property Act, 1882, which, in virtue of s 4 of the Act, is to be taken as part of the Contract Act as being a section relating to contracts. A railway receipt is now included in the definition of documents of title to goods in s 2(4) of the Indian Sale of Goods Act, 1930.

The two questions which next arise on s 178 are (1) Whether the words "a person who is in possession of any goods or of any bill of lading," &c, include the owner, and (2) whether a pledge of the documents is a pledge of the goods as distinct from the documents. The questions must be separately considered; both depend on the words of the section read in connection with the rest of the Act.

However, the arguments advanced, on behalf of the official assignee have sought to treat the matter as concluded by the history and present state of the relevant law in England, which will now be briefly summarised. At the common law a pledge could not be created except by a delivery of possession of the thing pledged, either actual or constructive. It involved a bailment. If the pledger had the actual goods in his physical possession, he could effect the pledge by actual delivery; in other cases he could give possession by some symbolic act, such as handing over the key of the store in which they were. If, however, the goods were in the custody of a third person, who held for the bailor so that in law his possession was that of the bailor, the pledge could be effected by a change of the possession of the third party, that is by an order to him from the pledger to hold for the pledgee, the change being perfected by the third party attorning to the pledgee, that is acknowledging that he thereupon held for him; there was thus a change of possession and a constructive delivery: the goods in the hands of the third party became by this process in the possession constructively of the pledgee. But where goods were represented by documents the transfer of the documents did not change the possession of the goods, save for one exception, unless the custodier (carrier, warehouseman or such) was notified of the transfer and agreed to hold in future as bailee for the pledgee. The one exception was the case of bills of lading, the transfer of which by the law merchant operated as a transfer of the possession of, as well as the property in, the goods. This exception has been explained on the ground that the goods being at sea the master could not be notified; the true explanation may be that it was a rule of the law merchant, developed in order to facilitate mercantile transactions, whereas the process of pledging goods on land was regulated by the narrower rule of the common law, and the matter remained stereotyped in the form which it had taken before the importance of documents of title in mercantile transactions was realised. So things have remained in the English law: a pledge of documents is not in general to be deemed a pledge of the goods; a pledge of the documents (always excepting a bill of lading) is merely a pledge of the ipsa corpora of them; the common law continued to regard them as merely tokens of an authority to receive possession, though from time to time representations were made by special juries that in the ordinary practice of merchants transfers of documents were understood to pass possession, as for instance in 1815, in Spear v Travers. The common law rule was stated by the House of Lords in McEwan v Smith. The position of the English law has been fully explained also more recently in Inglis v Robertson and Baxter and in Dublin City Distillery, Ltd v Doherty.

However, there also grew up that legislation which is compendiously described as the Factors Acts, the first in 1823, then an Act in 1825, then an Act in 1842, then an Act in 1877, and finally, the Act in 1889 now in force. The purpose of these Acts was to protect bankers who made advances to mercantile agents: that purpose was effected by means of an inroad on the common law rule that no one could give a better title to goods than he himself had. The persons to whom the Acts applied were defined as agents who had in the customary course of their business as such authority to sell goods or to consign goods for sale or raise money on the security of goods; in the case of such persons thus entrusted with possession of the goods or the documents of title to the goods, the possession of the goods or documents of title to the goods was treated in effect as evidence of a right to pledge them, so that parties bona fide and without notice of any irregularity advancing money to such mercantile agents on the goods or documents were held entitled to a good pledge, even though such mercantile agents were acting in fraud of the true owner. Section 3 of the Factors Act, 1889, provides that "a pledge of document of title to goods shall be deemed to be a pledge of the goods." It has been held that this section only applies to transactions within the Factors Act (Inglis v Robertson, and Baxter).

Thus the curious and anomalous position was established that a mercantile agent acting it may be in fraud of the true owner, can do that which the real owner cannot do, that is, obtain a loan on the security of a pledge of the goods by a pledge of the documents, without the further process being necessary of giving notice of the pledge to the warehouseman or other custodier and obtaining the latter's attornment to the change of possession. But it is obvious that the ordinary process of financing transactions in goods is much facilitated by ability to pledge the goods by the simple process of pledging the documents of title. It need not be repeated that bills of lading stand apart, nor need it be observed here that some warehousing companies have, by means of private Acts, assimilated their warrants or delivery orders to bills of lading for this purpose.

It has been strenuously contended on behalf of the official assignee that s 178 of the Contract Act of 1872 must be construed as embodying the same principles as those of English law, that is, as being limited to mercantile agents, or at any rate to persons other than the owner of the goods. The Indian Factors Act, 1844, which extended to India the provisions of the English Factors Act, 1842, was invoked in argument on both sides, particular reliance being placed on s 4 of that Act. That section defines documents of title in the same terms as the English Act, and proceeds to enact that any agent duly entrusted and possessed of any such documents of title shall be deemed to have been -entrusted with the possession of the goods represented by it, and that all pledges of, and liens upon, the documents shall be deemed to be pledges of, and liens upon, the goods to which the same relate. The latter provision is the same in substance as that which is now reproduced in s 3 of the English Act of 1889.

However, s 178 of the Contract Act, 1872, has omitted the word "agent," and has without express qualification made the section apply to "a person who is in possession of any goods or of any bill of lading, &c." The Appellate Court have decided that these unqualified words are wide enough to cover the owner as well as any mercantile agent. Their Lordships agree with that ruling. It was pointed out by this Board in Ramdas's Case that the Act of 1872 was an amending as well as a consolidating Act, and that beyond the reasonable interpretation of its provisions, there is no means of determining whether any particular section is intended to consolidate or amend the previously existing law. Their Lordships did not in that case see any improbability in the Indian legislature having taken the lead in a legal reform.

It may well have seemed that it was impossible to justify a restriction on the owner's power to pledge which was not imposed on the like powers of the mercantile agent. The same observation may well be true in regard to the words now being considered. The reasonableness of any such change in the law is well illustrated by the facts of the present case, where it was clearly intended to pledge the goods and not merely the railway receipts and the lenders have paid in cash the advances they made on that footing. In these circumstances, it would be indeed a hardship that they should lose their security. That such a hardship would still be experienced in England in the like case is no argument against their Lordships' conclusion, nor is it an argument that s 178, as subsequently amended in 1930 and now in force, has in terms limited the privileges under it to the case of pledges by mercantile agents. The construction of the section now in question must depend on its precise words; these words would, no doubt, include cases where the pledger was a mercantile agent, but there is nothing in the section requiring its scope to be be limited or to exclude the owner from its operation. The Indian legislature may well have appreciated in 1872 the exigencies of business, even though in 1930 they recanted. Or perhaps they did not appreciate fully the effect of the actual words of the section. But these words must be construed as they stand. There has been, in fact, no decision in India contrary to the view that "any person, &c," includes owner; the decisions appear to have turned on the meaning of the word "possession," and on such distinctions as that between mere custody and juridical possession. An examination of ss 103 and 108 of the Act seems rather to strengthen than to weaken the construction which the respondents contend for, and which appears to their Lordships to be right.

The other question arising under s 178, namely, whether under its terms a pledge of the documents amounts to a pledge of the goods should also, in their Lordships' judgment, be answered as it was by the Appellate Court, in favour of the lenders. The principle that goods might be pledged by pledging the documents of title had been fully established by the Act of 1844, as already explained; the actual words of s 178 are susceptible of being construed as meaning that under that section the same rule was intended. No doubt the language of s 178 is abbreviated; but "a valid pledge of such goods or documents," may more properly be interpreted as identifying the pledging of one with the pledging of the other. It is to be noted that the list of documents enumerated is headed by "bill of lading," the pledging of which admittedly involves a pledging of the goods, and it seems that as the language of the section applies equally to bills of lading and all the other documents, all these documents are intended to be assimilated for purposes of pledge, so that the pledging of any one of the classes of documents enumerated has the same effect as the pledging of a bill of lading. This was the view adopted in regard to railway receipts in Ramdas Case (1). In that case it was held that the pledging of a railway receipt had the same effect on the right of stoppage in transitu under s 103 as a pledging of the goods; the railway receipt quoad this matter was assimilated to a bill of lading. It seems difficult to deny the same consequence under s 178 to a pledge of the documents, especially as the board held in Ramdas's Case that documents and instruments of title had the same meaning in both sections. A "pledge" is defined as stated above to be a bailment of goods as security (s 172) hence it seems that s 178, the marginal note to which is "pledge by the possessor of goods or of documentary title to goods," can only be dealing with pledges of goods, though the section uses the words "pledge of such goods or documents." In other words, it is describing a pledge of goods, either by pledging the goods eo nomine or by pledging the relative documents.

On this construction of s 178 the lenders were, on the facts of the case, entitled to their security in the ground nuts represented by the forty-six railway receipts as being validly pledged to them.

It was contended that even on this view the goods represented by the fourteen railway receipts presented on 7 February 1929, were in a different position, because, it was said, the lenders had parted with their pledge on these goods by giving back possession of the railway receipts to the borrowers. In their Lordships' judgment this contention is based on a misuse of the word "possession." The borrowers did not part with the possession of the goods or receipts in the juridical sense of that word; they merely parted with the custody, by entrusting the receipts to the borrowers as their agents or mandatories for the special purpose of convenient dealing with the goods by collecting them from the Port Trust and unloading them from the railway wagons or transit sheds and putting them into the X godown warehouse on behalf of the borrowers. Such action does not involve a parting with possession and accordingly, it does not in any way affect rights of pledge; the re-delivery by the pledgee to the pledger for a limited purpose without the pledgee thereby losing his right, is illustrated by North Western Bank v Pointer and others and the more recent case of Re David Allester, Ltd. In both these cases the limited purpose was in order that the goods should be realised by the pledgers as experts in that class of business. In this case the limited purpose was that the goods should he handled, not by the lenders, who were bankers, but by those whose business it was to do so. Such procedure is in the usual course of business, and is obviously either necessary, or at least convenient, for the conduct of the business in question. This point also fails the official assignee.

The above conclusions are sufficient to dispose of the appeal, but a further point taken on behalf of the lenders would in itself, in the opinion of the Board, be sufficient to decide the appeal in their favour. Reference has already been made to the letter of hypothecation, which, in the case of each advance, was completed by the borrowers. The finding of the trial judge on this point is that "in order to finance the transaction the borrowers took the railway receipts to the bank with promissory notes and letters of hypothecation."

The letter of hypothecation was in terms an acknowledgment by the borrowers, that they had deposited the property documents and securities thereunder-mentioned as collateral security for the advance, with a power of sale in the case of default and various ancillary provisions. This letter, in their Lordships' judgment, constitutes a good equitable charge which is binding between the borrowers and the lenders, and is equally binding on the official assignee who, for this purpose, merely stands in the borrowers' shoes, and has as against the lenders no higher or better right than the insolvent had at the date of the insolvency. An analogous case was considered in Re Slee, Ex parte North Western Bank where a letter of lien over wools of the bankrupt which were in his warehouse was held to create a good equitable charge in favour of bankers who had made advances; no delivery of the warrant for wools had been made; but it was held that the bankers had a good title against the trustee in bankruptcy. This authority was followed and approved in Re Hamilton, Young, & Co, Ex parte Carter. In that case the traders who had obtained advances from bankers on the security of cloth of the traders then in the hands of bleachers, gave letters of lien to the bankers accompanied by the bleachers' receipts for the goods. The Court of Appeal rejected the argument that the letters of lien were void under the Bills of Sale Acta: such matters are not here material because in India there is no legislation corresponding to the Bills of Sale Acts. Apart from that question, VAUGHAN WILLIAMS, LJ, thus summed up the general position ([1905] 2 KB at p 784):

"The result of the practice detailed seems to be that, in respect of the matter and preparation and shipment of the goods, the management and direction of these goods, for the purposes of bleaching, dyeing, and shipping, until the bills of lading wore handed over, rested entirely with [the debtors], and that no property, other than by way of a lien or charge, would pass to the bank until the bills of lading were handed over, but that the bank had in equity a right to an injunction restraining [the debtors] from doing anything inconsistent with their holding the goods on account of the bank and under lien to the bank."

There was in that case notice by the bank of their lien to the bleachers shortly before the insolvency, but the statement of the bankers' rights in equity as against the debtors, and consequently as against the trustee in bankruptcy, is not made with reference to any question of notice. The rights between the immediate parties do not depend on notice, just as in the case of an equitable assignment of a debt notice is not necessary to complete the equitable light as between assignor and assignee. Thus in Brandt & Co v Dunlop Rubber Co it is clear that there was a good equitable assignment as between the merchants as assignors and the financiers as assignees, though the assignment was not completed in the sense that the debtors to the merchants were bound by it or bound to pay the assignees, without receiving notice of it. Thus LORD MACNAGHTEN says ([1905] AC at p 462):

"As between Kramrisch & Co [the merchants] and Brandts' [the bankers] the assignment was perfect without them."

(sc the documents giving notice to the debtors). In the same way, in the present case, although it is true that no third party holding the goods or dealing with them without notice of the lenders' lien would be affected by that lien, this is a consideration which is irrelevant to the equitable rights constituted as between the lenders and the borrowers. In this case nobody's rights are concerned except the rights as between these immediate parties: the appellant merely stands in the borrowers' shoes.

A similar course of reasoning has been applied in India, for instance, in Re Ambrose, Summers.

Some objection was raised on the hearing of the appeal that the question of the effect of the letters of hypothecation bad not been an issue in the courts below, and indeed that the letters of hypothecation had not been proved except in general terms. But both in the first court and in the Appellate Court this issue is referred to, and the trial judge finds the facts. Before this board the point was argued as an alternative, and in view of the conclusions stated above as to the application of s 178 of the Contract Act, it may be regarded as not calling for decision. But this point by itself would be enough to decide the case against the official assignee, even if he were right in the construction of s 178, for which he has contended.

A still further point was raised on behalf of the lenders; it was argued that, if under s 178 the lenders did not get a good pledge at law by the delivery of the railway receipts, still that delivery, considered on all the facts of the case, was evidence of a good equitable charge at least as between the immediate parties even ignoring the accompanying letters of hypothecation. That argument found favour with the Appellate Court, and their Lordships think it is well founded. Even if the documents of title are regarded as merely tokens of an authority to receive possession, it seems that their transfer for value by way of security for advances must at least raise an equity as between transferor and transferee entitling the latter to an order restraining the former from himself claiming delivery of the relative goods without producing the receipts. If so, the official assignee must be subject to the same equity.

There still remains for consideration a final point raised on behalf of the official assignee, which is that on any view of the case the consignments of nuts in question constitute property divisible among the creditors in virtue of s 52(2)(c) of the Presidency Towns Insolvency Act, 1909, which corresponds with s 38(c) of the English Bankruptcy Act, 1914, as

"goods being at the commencement of the insolvency in the possession order and disposition of the insolvent, in his trade or business by the consent and permission of the true owner under such circumstances that he is the reputed owner thereof."

This point can be shortly here disposed of. If the goods in question were validly pledged under s 178 as their Lordships have held, they were not in the possession of the borrowers, because the railway company held the goods as bailees of the lenders, the possession by the lenders of the documents of title being equivalent to the possession of the goods: hence these goods were not within the possession order and disposition of the borrowers at all; it is the lenders who were entitled to obtain delivery of the ground nuts from the railway company. A similar conclusion was arrived at on analogous facts in Fakeerappa v Thippanna. It was argued that a distinction must be drawn in this connection in regard to goods represented by the fourteen railway receipts that were handed over to the borrowers' representative for the special purpose explained above, of unloading the goods into the X warehouse. Their Lordships, however, do not think that these goods are in any different position from the remainder for this purpose.

The pledge was not affected by the handing over of the railway receipts for the limited purpose; it was only for that purpose that the borrowers had the temporary possession, or rather custody, of the railway receipts, and, that being so, there is no ground for saying that the goods were in the possession order and disposition of the borrowers, still less that they were so with the consent of the true owners, that is the lenders, as pledgees. Nor could it be said, either as to the consignments as a whole or as to the fourteen consignments, that the circumstances were such as to make the borrowers the reputed owners. Reputation in this connection has reference to a hypothetical individual who is assumed to know

"those facts which are capable of being generally known to those who make inquiry on the subject,"

in the sense explained by LORD SELBORNE in Re Couston & Co, Ex parte Watkins (LR 8 ch at p 528): the general course of business and the relationship of the interested parties to the consignments and, in particular, the purpose for which the borrowers had custody of the fourteen receipts were inconsistent with any reputation of ownership in that sense. Reference may be made in this connection to the English cases of Re Slee, Ex parte North Western Bank and Re Hamilton, Young, & Co. The whole question under the clause is a question of fact, and their Lordships agree with the reasoning of the Appellate Court on this point also.

In the result the appeal should, in their Lordships' opinion, be dismissed with costs. They will humbly so advise His Majesty.

Appeal dismissed.

Court, Judges, Case No., Date:

Privy Council, UK

Lord Keith of Kinkel, Lord Fraser of Tulleybelton, Lord Roskill, Lord Brandon of Oakbrook, Lord Mackay of Clashfern

Appeal No. 25 of 1983

21 October 1985; 22 October 1985; 18 November 1985

Catchwords:

Bill of lading - Misdelivery - Conversion - Delivery by shipowner without presentation of bill - Cargo claim by pledgee as holder of bill - Measure of damages - value of goods at place and time of delivery or financing cost of pledgee - burden of proof of market value

Case Report by:

ARUN KASI

Appeal from:

Court of Appeal, Singapore ([1982-1983] 1 SLR 103; [1983] 1 MLJ 58)

Facts Summary:

Salt was shipped from Tuticorin in India to Chittagong in Bangladesh on board vessel Jag Dhir under a bill of lading. The bills were indorsed to a pledgee who financed the transaction. The cargo was misdelivered by the shipowner. The pledgee brought action for damages. The right of the pledgee to possession of the cargo was not disputed. The pledgee commenced an in rem action against a sister ship of Jag Dhir, namely Jag Shakti. The litigation centred around measure of damages.

The Court of Appeal gave an award of damages on the basis of the sums expended by the pledgee in financing the transaction, and refused to award damages on the basis of market value of the cargo at the time and place of delivery.

The pledgee was dissatisfied with the award and claimed a higher sum based on an alleged sub-sale of the cargo. Hence, this appeal by the pledgee against the shipowner.

Held:

1. Appeal is dismissed.

• The correct measure of damages is the market value of the cargo at the time and place of delivery (or when and where delivery should have been made), and not the cost of financing.

• However, the burden is on the claimant to prove the market value, which the claimant failed, as there was no reliable evidence of the alleged sub-sale.

• Although the Court of Appeal based its decision on a wrong basis of measurement, that is the only award that can be justifiably made as the pledgee failed to discharge its burden of proving the market value.

Observation:

-

Counsels & Solicitors:

Anthony Colman QC and C Arul for the Appellant.

Timothy Walker QC for the Respondent.

Philip Conway Thomas & Co for the Appellant.

Clyde & Co for the Respondent.

Cases, Legislation, Convention referred to:

Sewell v Burdick (1884) 10 App Cas 74

Swire v Leach (1865) 18 CBNS 479; 144 ER 53

The Winkfield [1902] P 42

Claridge v South Staffordshire Tramway Co [1892] 1 QB 422

London Joint Stock Bank Ltd v British Amsterdam Maritime Agency Ltd (1910) 16 Com Cas 102

Chinery v Viall (1860) 5 H & N 288, 157 ER 1192

Johnson v Lancashire and Yorkshire Rly Co (1878) 3 CPD 499

Judgement:

LORD BRANDON OF OAKBROOK (delivering the judgment of the Board): This appeal arises out of a claim by Chabbra Corp Pte Ltd (Chabbra) against the owners of the ship Jag Dhir (the shipowners) for failure to deliver a cargo of salt carried by that ship from Tuticorin in India to Chittagong in Bangladesh in July 1977.

The claim was raised by an action in rem against the ship Jag Shakti, a ship in the same ownership as the Jag Dhir, begun in the High Court of Singapore on 29 April 1978 in accordance with the Admiralty jurisdiction conferred on that court by statute. The action was tried by Rajah J who, by an order dated 16 March 1981, awarded Chabbra damages of $S389,117.62 with interest at 12% per annum from 27 July 1977 and costs.

The shipowners appealed to the Court of Appeal of Singapore (Wee Chong Jin CJ, Chua and Lai Kew Chai JJ) on the ground that the damages awarded were too high. Chabbra cross-appealed on the ground that they were too low. The Court of Appeal, by an order dated 19 August 1982, varied the award of damages made by Rajah J by sustituting for the amount awarded by him the lower amount of $S275,620.82 with interest at 12% per annum from 5 August 1977. The Court of Appeal at the same time dismissed Chabbra's cross-appeal.

Chabbra now appeal, with the leave of the Court of Appeal, to this Board, contending that the judgment of the Court of Appeal reducing the amount of damages awarded to them by the trial judge should be set aside, and the award made by him should be restored. There is no cross-appeal to the Board by the shipowners.

Before their Lordships both sides accepted the facts of the case as found by the Court of Appeal. These facts, amplified to some extent by reference to the documents and to other findings by the trial judge also accepted by both sides, are as follows. (1) By a written contract dated 20 May 1977 Indian Overseas Corp of Calcutta, India (IOC), agreed to sell to Mumtazzudin & Sons of Dhaka, Bangladesh (Mumtazzudin) 7,000 metric tons of edible salt at $US22 per metric ton c & f Chittagong/Chalna. (2) The suppliers of the salt were Bihar Supply Syndicate also of Calcutta (BSS), who had contracted in writing to sell to IOC 21,000 metric tons of salt plus or minus 10% at $US22 per metric ton c & f Chittagong/Chalna by three shiploads of 7,000 metric tons per ship. (3) The fact that IOC were not making a profit on the sale was because they were permitted, by reason of the export of the goods, to import certain scheduled goods into India to the value of one third of the value of the goods so exported. (4) There was a business firm in Singapore called Atlas Enterprises (Atlas) having two partners, one K C (Sharma) and the other his wife. Sharma agreed with Mumtazzudin that Atlas would finance Mumtazzudin's contract of sale with IOC by causing transferable letters of credit to be opened by banks in Singapore in favour of IOC to pay for the salt bought by Mumtazzudin from the latter. (5) Atlas subsequently caused two transferable letters of credit to be opened in favour of IOC. One was opened with the Singapore branch of the United Commercial Bank for $US30,800 to pay for 1,400 metric tons of salt at $US22 per metric ton. The other was opened with the Singapore branch of the Banque Nationale de Paris for $US79,200 to pay for 3,600 metric tons at the same price. (6) The total amount expended by Atlas in financing the purchase of the salt by Mumtazzudin from IOC, including the opening of the letters of credit, bank charges and premiums for the insurance of the salt in transit, amounted to $S275,620.82. (7) Through the means of the two transferable letters of credit BSS were in due course paid for 5,000 metric tons of salt supplied by them to IOC. The payments were made by certain paying banks in India at the request of the opening banks in Singapore. (8) BSS, pursuant to their contract with IOC, shipped 5,000 metric tons of salt on board the ship Jag Dhir (the ship) at Tuticorin for carriage to Chittagong. (9) The shipowners' agents at Tuticorin issued two shipped on board bills of lading, numbered 1 and 2 respectively and both dated 15 July 1977, in respect of the salt so shipped. Bill of lading no 1 covered 1,400 metric tons and bill of lading no 2 covered 3,600 metric tons, making 5,000 metric tons in all. BSS were named as shippers in the two bills of lading, which provided for consignment to order or assigns. Mumtazzudin was named as the party to be notified. (10) BSS, having been paid the price of the salt shipped by means of the transferable letters of credit, indorsed the two bills of lading generally and handed them to the paying banks who later forwarded them to the opening banks. (11) Atlas, having paid the opening banks and thereby obtained the two bills of lading, caused them to be indorsed over to Chabbra for value. (12) On 23 July 1977 Mumtazzudin were notified that the ship would shortly be arriving at Chittagong. (13) On 26 July 1977 the ship arrived at Chittagong ready to discharge. Although Mumtazzudin were not in a position to present the two bills of lading, they persuaded the master or the ship's agents to deliver the whole of the 5,000 metric tons of salt to them without such presentation, in consideration of an indemnity signed on behalf of Mumtazzudin and countersigned on behalf of the Rupali Bank. (14) In order to obtain the countersignature of the Rupali Bank, Mumtazzudin were obliged to deposit, and did deposit, a sum of 2.7m takas, equivalent to $S389,117.62, with the bank concerned. (15) Chabbra, although not the sellers of the goods, invoiced Mumtazzudin for $US220,000, and sent the bills of lading through their bankers for collection by that firm. (16) Mumtazzudin refused to take up and pay for the documents tendered to them by Chabbra. Chabbra accordingly took the decision to bring proceedings against the shipowners.

At the trial before Rajah J in the High Court, Chabbra contended that Atlas had themselves bought the salt from IOC and resold it to Mumtazzudin for $US220,000, twice the price paid for it to IOC. On this basis Chabbra claimed, as assignees of Atlas through the indorsement and delivery to them of the bills of lading, damages of $S512,380, calculated by reference to a rate of exchange of $S2.3290= $US1.

Rajah J rejected this contention of Chabbra about a sub-sale and held that the damages should be related to the invoice value of the goods shipped, by which their Lordships understand him to have meant, in effect, the market value of the goods on delivery at Chittagong. The judge went on to say that, in the absence of reliable evidence as to what such value was, he had decided to take the amount of 2.7m takas, the sum deposited by Mumtazzudin with the Rupali Bank in order to obtain that bank's countersignature to the indemnity given by Mumtazzudin to the shipowners for the purpose of attaining delivery of the salt from the ship without presentation of the bills of lading. That sum, as indicated earlier, was equivalent to $S389,117.62, and that was the capital sum awarded by the judge as damages to Chabbra by his order dated 16 March 1981. The judge did not go into the question whether Chabbra's entitlement to such damages lay in contract or in the tort of conversion or both.

In the Court of Appeal Chabbra, by their cross-appeal, sought to have the damages awarded to them increased to $S512,380 on the basis of the alleged sub-sale unsuccessfully relied on by them in the High Court. The Court of Appeal, however, like Rajah J, rejected Chabbra's case about a sub-sale, on the ground that there was no evidence to support it. The Court of Appeal accordingly dismissed Chabbra's cross-appeal, and, as indicated earlier, Chabbra do not appeal to the Board against that decision.

With regard to the shipowners' appeal the Court of Appeal held that Chabbra were entitled to recover damages from them both for breach of their contract to deliver and in tort for conversion. They held further, however, that the proper measure of damages in law, on either basis, was not the market value of the salt on delivery at Chittagong, but only the amount which Atlas had themselves expended in the transaction, in respect of the opening of the two letters of credit, bank charges and insurance premiums to cover the salt in transit. That sum, as stated in finding no (6) above, was $S275,620.82, and the Court of Appeal varied the order of Rajah J by reducing the award of damages to that amount. The ground of this decision appears to have been that Atlas were only pledgees of the bills of lading; that as such pledgees they only had a special, as distinct from a general, right of property in the goods represented by the bills of lading; and that they were, accordingly, not entitled to recover as damages the market value of the salt, but only the amount expended by them in financing the transaction, that being the amount secured to them by the pledging to them of the bills of lading.

Before their Lordships it was conceded by counsel for Chabbra that the Court of Appeal had been in error in holding that Chabbra could recover in contract, and accepted that they could only recover in tort for conversion. In their Lordships' opinion, having regard to the decision of the House of Lords in Sewell v Burdick (1884) 10 App Cas 74 , [1881–5] All ER Rep 223 , this concession was properly made. That case shows that, where indorsement and delivery of a bill of lading to a party are made with the intention, not of passing to that party the general property in the goods represented by the bills of lading, but only a special property in such goods by way of pledge, the Bills of Lading Act 1855 does not have the effect of transferring to such party either the rights or the liabilities under the contract contained in the bill of lading so indorsed and delivered. In the present case Atlas were, as found by the Court of Appeal, only pledgees of the bills of lading, and as such obtained only a special property in the goods represented by them.

This very proper concession by counsel for Chabbra was matched by an equally proper concession by counsel for the shipowners that, even though Chabbra could not recover from the shipowners in contract, they nevertheless had a good cause of action against the latter in tort for conversion.

Having regard to these two concessions made by counsel on either side, only two questions remain for actual or potential decision by the Board. The first question, which needs to be decided in any event, is whether the proper measure in law of the damages recoverable by Chabbra is (a) the full market value of the salt on delivery at Chittagong, as held by Rajah J, or (b) the total amount expended by Atlas in financing the purchase of salt by Mumtazzudin from IOC, as held by the Court of Appeal. If the answer to the first question is (b), no further question arises for decision. If the answer is (a), however, a second question arises for decision, namely what Chabbra proved, on the evidence adduced before Rajah J, to have been the full market value of the salt on delivery at Chittagong.

So far as the first question is concerned, it is not in dispute that the pledgee of a bill of lading is entitled, on presentation of it to the ship at the port of discharge, to the possession of the goods represented by it. It has further, in their Lordships' opinion, been established, by authority of long standing, that where one person, A, who has or is entitled to have the possession of goods, is deprived of such possession by the tortious conduct of another person, B, whether such conduct consists in conversion or negligence, the proper measure in law of the damages recoverable by A from B is the full market value of the goods at the time when and the place where possession of them should have been given. For this purpose it is irrelevant whether A has the general property in the goods as the outright owner of them, or only a special property in them as pledgee, or only possession or a right to possession of them as a bailee. Furthermore, the circumstance that, if A recovers the full market value of the goods from B, he may be liable to account for the whole or part of what he has recovered to a third party, C is also irrelevant, as being res inter alios acta.

The only exception to the general principle just stated is when B has one or more cross-claims against A arising out of the same or some connected transaction. In that case B may be entitled to set off or deduct the amount of any such cross-claim or cross-claims from the full market value of the goods in arriving at the amount of the damages recoverable from him by A: see McGregor on Damages (14th edn, 1980) paras 1075–1080. In the present case, however, there is no suggestion even that the shipowners had any cross-claim against Atlas arising out of the same or any connected transaction. It is, therefore, unnecessary to consider what the rights of Chabbra, claiming through Atlas, against the shipowners might otherwise have been.

In their Lordships' view it is sufficient, in order to illustrate the authority of long standing referred to above, to cite two cases only. The first case is Swire v Leach (1865) 18 CBNS 479 , [1861–73] All ER Rep 768 . In that case the plaintiff, who was a pawnbroker, had seized from him by the defendant, in purported execution of a distress warrant for arrears of rent, a quantity of unredeemed pledges which he had in his possession in the ordinary course of his trade. It was held by the Court of Common Pleas, first, that goods deposited with a pawnbroker, were privileged from distress; and, second, that the proper measure of damages for conversion was the full market value of the goods and not merely the value of the plaintiff's interest in them. With regard to this second part of the decision Erle CJ said (18 CBNS 479 at 492, cf [1861–73] All ER Rep 768 at 769 ):

'In distraining these goods, the defendant was an absolute wrong-doer. The landlord had no colour of right to take them. The bailee, therefore, is entitled to the full value of the goods.'

The second case is The Winkfield [1902] P 42 , [1900–3] All ER Rep 346 . In that case there had been a collision between two ships, the Mexican and the Winkfield, in consequence of which the Mexican sank. The owners of the Winkfield admitted that their ship was half to blame for the collision, and, following such admission, successfully

[1986] 1 All ER 480 [1986] 1 All ER 480 at 485

brought proceedings to limit their liability under s 503 of the Merchant Shipping Act 1894. Various claims were made against the limitation fund in court, including in particular two claims by the Postmaster General for the loss of postal parcels, mail and registered letters of which he was not the owner. In respect of some of these items the owners of them had made claims on the Postmaster General and given him written authority to represent them in the proceedings for distribution of the limitation fund. In respect of others of these items no claims had been made by their owners against the Postmaster General nor had any instructions been given by them to him. He had, however, undertaken to distribute any moneys recovered to the owners, and to indemnify the court against any claims which might later be put forward by them.

The Admiralty registrar allowed the claim of the Postmaster General in respect of the first group of items referred to above but disallowed his claim in respect of the second such group. An objection to the disallowance made by motion to Jeune P) was overruled, and the Postmaster General then appealed to the Court of Appeal. That court (Collins MR, Stirling and Mathew LJJ) allowed the appeal, holding that the Postmaster General, on the basis, accepted before the registrar and Jeune P, that he was the bailee of all the parcels, mail and registered letters concerned, was entitled to claim in his own name against the limitation fund forthe full value of those items.

Collins MR, with whose judgment the two other members of the Court of Appeal agreed, made a full review of the relevant authorities, including Swire v Leach, which he treated as correctly decided, and Claridge v South Staffordshire Tramway Co [1892] 1 QB 422 , which he regarded as wrongly decided and which was therefore overruled. Later he said ([1902] P 42 at 60–61, [1900–3] All ER Rep 346 at 352 ):

'Therefore, as I said at the outset, and as I think have now shewn by authority, the root principle of the whole discussion is that, as against a wrongdoer, possession is title. The chattel that has been converted or damaged is deemed to be the chattel of the possessor and of no other, and therefore its loss or deterioration is his loss, and to him, if he demands it, it must be recouped. His obligation to account to the bailor is really not ad rem in the discussion. It only comes in after he has carried his legal position to its logical consequence against a wrongdoer, and serves to soothe a mind disconcerted by the notion that a person who is not himself the complete owner should be entitled to receive back the full value of the chattel converted or destroyed. There is no inconsistency between the two positions; the one is the complement of the other. As between bailee and stranger possession gives title—that is, not a limited interest, but absolute and complete ownership, and he is entitled to receive back a complete equivalent for the whole loss or deterioration of the thing itself. As between bailor and bailee the real interests of each must be inquired into, and, as the bailee has to account for the thing bailed, so he must account for that which has become its equivalent and now represents it. What he has received above his own interest he has received to the use of his bailor. The wrongdoer, having once paid full damages to the bailee, has an answer to any action by the bailor.'

In support of the view that Chabbra could recover by way of damages no more than the amount of the limited interest secured to Atlas by the pledge to them of the bills of lading the Court of Appeal of Singapore relied on the decision of Channell J in London Joint Stock Bank Ltd v British Amsterdam Maritime Agency Ltd (1910) 16 Com Cas 102. The facts of that case were these. A contract provided for the sale by Dutch vendors of certain oil fob to Palmer & Co on the terms of cash against documents. The oil concerned was shipped by a firm, Messrs J E de Beer & Zoon, on the ship Maesstroom for carriage from Amsterdam to London under a bill of lading dated 29 April 1910, which was made out in the name of Palmer & Co as shippers and which made the oil deliverable to their order or assigns. The oil was poured into drums belonging to Palmer & Co The bill of lading, together with a draft attached to it, were then sold by the vendors to certain bill brokers and they in turn sold them to an Amsterdam bank which had an account with the plaintiffs. The Amsterdam bank sent the bill of lading, together with the draft attached to it, to the plaintiffs for collection, and the plaintiffs, on receiving them, credited the Amsterdam bank on 2 May 1910 with the amount of the draft. When the Maesstroom arrived in London, Palmer & Co approached the defendants, who were the London agents of the owners of that ship, and informed them that they had not received the bill of lading for the oil, but that, if they could have delivery of the oil, they (Palmer & Co) would give them an indemnity; and on these terms delivery of the oil was given to Palmer & Co. Subsequently, Palmer & Co went to the plaintiffs, with whom they had business connections, and asked for an advance on the consignment of oil; and on 4 May 1910 this loan was arranged, and Palmer & Co indorsed the bill of lading, which was still in the plaintiffs' possession, and gave them a charge. Some days later, on the plaintiffs' representative applying to the defendants for the oil, they were informed that it had already been delivered to Palmer & Co who had disposed of it. The plaintiffs then sued the defendants for damages for wrongful delivery of the oil to Palmer & Co.

Channell J said (at 108):

'The general result, therefore, is that the plaintiffs are entitled to succeed in their action of trover. In an action like this between parties, each of whom has an interest in the subject matter, the plaintiffs are not necessarily entitled to the full value. In this case the amount having been reduced by payments off on other securities the plaintiffs are only entitled to the amount for which they held the bill of lading, and there will be judgment for the plaintiffs for that amount.'

It is not clear from the report of the case what were 'the other securities', the payment off of which Channell J considered that the defendants were entitled to deduct from the full value of the oil. If the payment off of these other securities brought the case within the exception of a cross-claim or cross-claims by the defendants against the plaintiffs arising out of or connected with the same transaction, to which reference was made earlier, the decision may be supportable on its particular facts. Otherwise the case must, in their Lordships' opinion, so far as the measure of damages is concerned, have been wrongly decided and ought not to be followed.

Applying the general principle laid down in Swire v Leach and The Winkfield to the present case, their Lordships reach the following result. Firstly, Chabbra, as holders and indorsees for value of the bills of lading, had a right to delivery of the salt to them at Chittagong. Secondly, that right entitled Chabbra to recover from the shipowners, who had wrongfully converted the salt by delivering it to Mumtazzudin, the full value of the salt on delivery at Chittagong. Thirdly, the circumstance that Chabbra, having recovered from the shipowners the full value of the salt, might, after taking out of the sum recovered the sums expended by them in financing the purchase of the salt by Mumtazzudin from IOC, have to account, in whole or in part, for the balance to Mumtazzudin was, as between Chabbra and the shipowners, wholly irrelevant.

On the basis that the first of the two questions referred to earlier falls to be answered by saying that the proper measure in law of the damages recoverable by Chabbra from the shipowners for conversion of the salt was the full value of the salt on delivery at Chittagong, it becomes necessary for their Lordships to answer also the second question referred to earlier, namely what Chabbra proved, on the evidence adduced by them before Rajah J, to have been that value.

In relation to this question, counsel for Chabbra put forward two alternative contentions. The first contention was that Rajah J was entitled to assess the damages recoverable by Chabbra by reference to the amount deposited by Mumtazzudin with the Rupali Bank in order to obtain the countersignature on behalf of that bank of the indemnity given by Mumtazzudin to the shipowners. The second and alternative contention was that there was other evidence given at the trial which supported a market value on delivery at Chittagong of at least the same amount.

Counsel for the shipowners met these two contentions as follows. With regard to the first, he submitted that the amount of the deposit could not be taken as a proper basis for the assessment of the damages, because it was intended to cover an adverse claim against the shipowners by a third party and would therefore include not only the damages which such third party might recover on the basis of the value of the salt, but also the costs of both the third party and the bank in dealing with such a claim. It was further to be assumed that the bank, in accordance with ordinary commercial practice, would require the deposit to include a fee for the bank and a substantial margin for contingencies. With regard to the second contention, counsel for the shipowners stressed the fact that Rajah J stated expressly in his judgment (as he did) that he had only turned to the amount of the deposit as a basis for assessing damages because there was no evidence of market value which he regarded as reliable. That being so, it would not be right, counsel said, for the Board to make its own assessment of the amount of damages recoverable by reference to the written record of evidence which the trial judge had expressly found to be unreliable.

In their Lordships' judgment, the arguments put forward by counsel for the shipowners are unanswerable and must prevail. The amount of the deposit could not, for the reasons given by him, be regarded as a proper basis for assessing the amount of the damages recoverable by Chabbra. Similarly, evidence of the market value of the goods which the trial judge, who saw and heard the witnesses who gave it, found to be unreliable could not justifiably be used to found a fresh assessment of the market value of the salt by the Board.

The burden of proving the market value of the salt on delivery at Chittagong was on Chabbra. In the event, while it is probable that such value exceeded the sums of money expended by Atlas in financing the transaction of sale between IOC and Mumtazzudin, Chabbra failed to adduce any reliable evidence to prove what the amount of that excess was.

For these reasons their Lordships feel obliged to conclude that the amount of damages awarded by the Court of Appeal, although arrived at on a basis which they consider was incorrect in law, is nevertheless the only amount that they can justifiably arrive at on the different legal basis which they have already indicated that they consider to be correct.

In the result the victory which Chabbra have won in relation to the proper basis in law for assessing the amount of the damages recoverable by them turns out to be a fruitless victory which avails them nothing.The judgment of their Lordships therefore is that the appeal should be dismissed with costs.

Appeal dismissed.

Court, Judges, Case No., Date:

Privy Council, UK

Lord Upjohn, Lord Devlin, Lord Pearson

Appeal No. 6 of 1969

29 March 1971

Catchwords:

Bill of lading - Other similar document - Mercantile custom and trade usage to treat mate’s receipt like bill of lading and document of title - Mate’s receipt marked ‘Not negotiable’ - Bank named as consignee in mate’s receipt - Mate’s receipt pledged to bank - Delivery by shipowner to shipper upon letter of indemnity, without indorsement from bank - Shipowner knew of bank’s interest - Rights of bank under mate’s receipt - Possessory rights of bank as pledgee - Liability of shipowner to the bank for conversion

Case Report by:

ARUN KASI

Appeal from:

Federal Court, Singapore ([1967] 2 MLJ 263)

Facts Summary:

A shipper shipped cargo from Sibu (Malaysia) to Singapore. Upon shipment, the shipowners issued mate’s receipts, and there were no bills of lading. The mate’s receipts named a bank as the consignee and marked as “Not negotiable”. The mate’s receipts were pledged by the shipper to the bank in return for financing the transaction. The arrangement and practice was that the bank would return the mate’s receipts in Singapore upon payment with indorsement in favour of the shipper, so that the shipper could collect the cargo from the shipowner.

It was mercantile custom and trade usage for shipowners to issue mate’s receipt in place of bill of lading in carriage of goods between Sibu and Singapore.

In breach of the arrangement and practice, the shipper collected the goods from the shipowner in return for a letter of undertaking, without presentation of the mate’s receipts, whilst the shipowner knew of the bank’s interest. The shipper defaulted in payment to the bank. The bank, holding the mate’s receipts, thus sued the shipowner for delivering the cargo without presentation of the mate’s receipts.

The Federal Court of Singapore found for the bank.

Hence, this appeal by the shipowners against the bank.

Held:

1. Appeal is dismissed.

• A good and established custom 'obtains the force of a law, and is, in effect, the common law within that place to which it extends'. Thus the custom in this case, if proved, takes effect as part of the common law of Singapore. As such it will be applied by any court dealing with any matter which that court treats as governed by the law of Singapore. In this sense it is binding not only in Singapore but on anyone anywhere in the world.

• The custom was proved. However, only because the mate’s receipts were marked “Non-negotiable”, they lost the characteristics as bill of lading and document of title.

• Because the mate’s receipts were not negotiable and the bank was not a party to it, it had no rights of suit under it although named as the consignee. In fact, the shipper can at any time change the consignee.

• However, the bank acquired a possessory right over the cargo. It was the intention of the shipper and the bank that the bank would finance the transaction and the shipper would pledge the cargo to the bank. In order for the bank to acquire possessory title, there must be delivery of the cargo and pledge of the same to the bank. In this case, the shipment of the cargo was considered delivery of it to the bank. Delivery of the mate’s receipts to the bank completed the pledge of the cargo. Thus the bank acquired the possesory right, that in turn gave it the right to sue for conversion.

• As the shipowner delivered the cargo to the shipper, knowing of the bank’s interest but without indorsement from the bank, the shipowner is liable in conversion to the bank.

Observation:

Bills of Lading Act 1855 does not define ‘bill of lading’. This Act is still applicable in Malaysia, by virtue of s. 5 of the Civil Law Act 1956.

Carriage of Goods by Sea Act 1992, which has been mirrored almost identically in the Singapore Bills of Lading Act, defines ‘bill of lading’ on an open basis in s. 1(2)(a) as follows:

(2) References in this Act to a bill of lading — (a) do not include references to a document which is incapable of transfer either by indorsement or, as a bearer bill, by delivery without indorsement; …

In line with the above, Art. I(b) of the Hague and Hague-Visby Rules provide as follows:

‘Contract of carriage' applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea,’

Accordingly, if there is an accepted custom of using any other documents such as a mate’s receipts in place of bill of lading, the same will fit within the 1992 Act scheme for bills of lading.

Counsels & Solicitors:

RJ Parker QC, MJ Mustill QC and KA O'Conner for the Appellants.

JC Le Quesne QC, J Hobhouse and M Karthigesu for the Respondents.

Linklaters & Paines agents for Drew & Napier for Appellants.

Coward Chance agents for Allen & Gledhill for Respondents.

Cases, Legislation, Convention referred to:

Hathesing v Laing (1873) LR 17 Eq 92

Nippon Yusen Kaisha v Ramjiban Serowgee [1938] AC 429

Bryans v Nix (1839) 4 M & W 775; 150 ER 1634

Evans v Nichol (1841) 3 M & G 614; 133 ER 1286

Lickbarrow v Mason (1794) 5 TR 683; 101 ER 380

Fraser v Evans (1867) 6 NSW 325

Merchant Banking Company of London v Phoenix Bessemer Steel Company (1877) 5 Ch D 205

Lockwood v Wood (1844) 6 QB 50; 115 ER 19

Dublin City Distillery Ltd v Doherty [1914] AC 823

Official Assignee of Madras v Mercantile Bank of India, Limited [1935] AC 53

The Odessa [1916] AC 145

Judgement:

LORD DEVLIN (delivering the judgment of the Board): The respondents in this case, plaintiffs at first instance, are two banks. The first is the Wah Tat Bank who carried on business in Sibu in Sarawak and who financed shipments from that port to Singapore made by merchants called Tiang Seng Chan (Singapore) Limited. The other bank is the Oversea-Chinese Banking Corporation Ltd. who acted as Wah Tat's correspondents and agents in Singapore. For the purposes of this case no distinction need be drawn between the two banks who can be referred to compendiously as "the bank".

The arrangement whereby the bank financed the shippers was made orally but its terms were not in dispute. The bank advanced the money to pay the produce merchants who sold the goods to the shippers and the shippers agreed to pledge the goods to the bank. The shippers, when they shipped the goods from Sibu to Singapore, obtained from the ship a mate's receipt in which the bank was named as consignee and delivered it to the bank together with other documents for which the bank stipulated, such as an insurance policy and a bill of exchange for the amount of the advance. The bill was presented for payment on arrival of the goods at Singapore and on payment the bank handed back the mate's receipt endorsed to the shippers so that they could get delivery of the goods.

In May and June 1961 the shippers, who were evidently in financial difficulties, in breach of this arrangement instructed the ship to deliver to them on arrival four consignments of pepper and rubber covered by 20 mate's receipts; and the ship did so against an indemnity and without production of the mate's receipts. These are the circumstances in which the bank sue the shipowners, the defendants at first instance and the appellants before the Board, for conversion of the four consignments.

The bank's agreement with the shippers was, it is conceded by the appellants, such as to constitute them equitable pledgees of the goods. Had they given notice of their interest to the ship and had they intervened in time, they might have succeeded in restraining the ship from parting with the goods. But they gave no notice; and anyway by suing in trover are relying only on their rights at common law. At common law a pledge of goods is not complete without delivery. Delivery is likewise necessary to give the bank the possessory right without which they cannot sustain an action for conversion. So the question in this appeal is simply whether there has been delivery, actual or constructive, of the goods to the bank.

If the mate's receipt had been a bill of lading, the legal position would be beyond dispute. Not only is the bill of lading a document of title, but delivery of it is symbolic delivery of the goods. But the mate's receipt is not ordinarily anything more than evidence that the goods have been received on board. This is so firmly settled by Hathesing v Laing (1873) LR 17 Eq 92 and Nippon Yusen Kaisha v Ramjiban Serowgee [1938] AC 429 that the respondents have not sought to argue otherwise. Their contention is that a mate's receipt must in this case be treated as a document of title equivalent to a bill of lading by virtue of a custom in the trade in which it was issued. In the alternative, they seek to establish delivery on various other grounds based on attornment, estoppel and appropriation. The action failed at first instance in the High Court of Singapore, Kulasekaram J. giving judgment against the plaintiffs on December 30, 1965. This judgment was reversed in the Federal Court of Malaysia on 7th July 1967. The Chief Justice, who delivered the judgment of the court, found the alleged custom to be good in fact and in law and held consequently that as holders of the mate's receipts the bank had the right to possession from the ship. He held also that the ship was estopped from denying the bank's right to possession; and further that there had been an appropriation of the goods by the shippers to the bank by virtue of which on the authority of Bryans v Nix (1839) 4 M & W 775; 150 ER 1634 and Evans v Nichol (1841) 3 M & G 614; 133 ER 1286 the bank could make good its claim.

Their Lordships have concluded that the action should succeed upon the comparatively simple ground that in the circumstances of this case the shipment of the goods was a delivery to the ship as bailee for the bank so that thereby the pledge was completed and the bank given the possessory title on which it relies. This makes the plea of estoppel superfluous and their Lordships need not deal with it. Nor need their Lordships discuss the pleas of attornment and appropriation. Furthermore their Lordships' conclusion, since it is immaterial to it whether or not the mate's receipt was by local custom a document of title, makes it, strictly speaking, unnecessary for them to deal with the issue which was the chief matter in debate in the courts below as well as before the Board. But since the allegation of custom has been so fully explored in evidence and in argument and in the judgments of the courts below and since it is obviously a matter of some importance in the port of Singapore, their Lordships think it right that they should reach and state a conclusion upon it; and it is convenient that they should begin by considering it.

He who sets up a custom must first prove as a matter of fact the existence of a practice that is sufficiently widespread within the area in which it is alleged to exist, to make it part of the local usage; and then he must show that the practice he has established conforms with the law's requirements for a valid custom. A great deal of evidence for and against the existence of the practice was called at the trial. The trial judge made no finding of fact because he took the view that the custom, if proved, would inevitably be bad in law. On appeal it was agreed that the Federal Court was in as good a position as the trial judge to assess the value of the oral evidence. The court concluded that a custom was proved which the Chief Justice expressed in the following terms:

"I am accordingly of the opinion that the appellants have proved that it is a custom of the trade relating to shipment of goods between Sarawak ports and Singapore that mate's receipts such as those to which this present action relates are treated as documents of title to the goods thereby covered, in the same way as bills of lading".

The Board would hesitate long before it reversed on the facts a finding of this character by the Supreme Court of the State. It is satisfied in this case that there was ample evidence to justify the conclusion of fact. It has been suggested that the Chief Justice's finding was intended to apply only to the trade from Sarawak to Singapore and not to the trade in the opposite direction and the Board has been referred to earlier passages in the judgment which seem to support this suggestion. The finding in the narrower form is sufficient for the respondents in this case which is concerned with shipments from Sarawak to Singapore. But as the point is of general importance, their Lordships will express their opinion that the evidence is sufficient to justify the wider finding. The difference between the two is that the evidence shows that from Sarawak to Singapore between 90 per cent and 95 per cent of the traffic was being carried on mate's receipt without a bill of lading whereas in the opposite direction the percentage was between 75 per cent and 80 per cent. But the custom alleged was not one which excluded the use of a bill of lading. There was shown to be a minority who for one reason or another, mainly when cargoes from Sarawak were being transhipped at Singapore for onward carriage across the seas, demanded a bill of lading in the usual way in exchange for the mate's receipt. Of course if a number of shippers concerned solely with the local trade had demanded a bill of lading, it would be difficult to show any sufficiently widespread usage in relation to the mate's receipt. But, once it is established that the great preponderance of such traffic is carried on mate's receipt alone, the issue turns on what the evidence shows about the treatment of the mate's receipt. The evidence on this point does not differentiate between traffic from Sarawak to Singapore and traffic from Singapore to Sarawak. In the one category as much as in the other the mate's receipt was regularly negotiated in the same way as a bill of lading.

The trial judge expressed as follows his reasons for disregarding the evidence on custom.

"no amount of custom as that described in this case can change the character of this document so as to confer any additional rights and thus make the mate's receipt equivalent to documents of title. A local custom however strong can never achieve this effect".

It could be achieved, he said, only if the custom had been proved "to be applicable all over the world". What otherwise, he asked, would be the position of a new carrier who came into the trade.

Certainly there have not been many cases since the famous case of Lickbarrow v Mason (1974) 5 TR 683; 101 ER 380 (which declared that by the custom of merchants bills of lading were negotiable and transferable) in which custom has created a document of title. The point was entertained but not decided in Bryans v. Nix. Mr. Le Quesne has cited two cases in which a custom to treat warehouse certificates or warrants as documents of title was held good: Fraser v Evans (1867) 6 NSW 325 and Merchant Banking Company of London v Phoenix Bessemer Steel Company (1877) 5 Ch D 205. In the only case however in which a mate's receipt has been considered, the allegation that it was by custom a document of title failed. This is the case already referred to of Hathesing v. Laing in which the plaintiffs sought to prove a custom at Bombay. As an authority for its main proposition that a mate's receipt is not under the ordinary law a document of title, Hathesing v. Laing has stood unquestioned for nearly a century and is now unassailable. But as a decision on custom it turns on its own facts. Bacon V-C. was apparently not satisfied that a custom was proved in fact; at page 104 he described the evidence as showing possibly a "pernicious and loose habit". There are thereafter observations in his judgment which might be read as going either to the weight of the evidence or as designed to show that the custom, if proved, would have been bad in law. If intended to fall under the latter head, their Lordships could not accept them all as criteria of general application for determining the validity of a custom.

Their Lordships can see no reason in principle why a document of title should not be created by local custom. As the Chief Justice pointed out in the Federal Court, a custom is unlikely to be "applicable all over the world" until it has first been applied in various localities. The test imposed by the trial judge, their Lordships consider with respect, shows a misunderstanding of the nature and effect of a mercantile custom. On the other side a somewhat similar misunderstanding is shown in the respondents' notice of appeal to the Federal Court in which the custom or practice contended for is described as one "whereby merchants, bankers and carriers by sea acknowledged and accepted that mate's receipts were documents of title". Their Lordships will consider these two matters together.

In speaking of a custom of merchants the law has not in mind merchants in the narrow sense of buyers and sellers of goods. A mercantile custom affects transactions either in a particular trade or in a particular place, such as a market or a port, and binds all those who participate in such transactions, whatever the nature of their callings. It is true that a document relating to goods carried by sea and said to be negotiated through banks could hardly be recognised as a document of title if the evidence did not show it to be treated as such by shipowners, shippers and bankers. But the limits of the custom, if it be established, are not to be defined by reference to categories of traders or professional men; if established, it binds everyone who does business in whatever capacity. To describe a custom as belonging to particular callings diverts attention from its true character which consists in its attachment to a trade or place.

Universality, as a requirement of custom, raises not a question of law but a question of fact. There must be proof in the first place that the custom is generally accepted by those who habitually do business in the trade or market concerned. Moreover, the custom must be so generally known that an outsider who makes reasonable enquiries could not fail to be made aware of it. The size of the market or the extent of the trade affected is neither here nor there. It does not matter that the custom alleged in this case applies only to part of the shipping trade within the State of Singapore, so long as the part can be ascertained with certainty, as it can here, as the carriage of goods by sea between Sarawak and Singapore. A good and established custom "obtains the force of a law, and is, in effect, the common law within that place to which it extends": Lockwood v Wood (1844) 6 QB 50; 115 ER 19, per Tindal C.J. at p. 64. Thus the custom in this case, if proved, takes effect as part of the common law of Singapore. As such it will be applied by any court dealing with any matter which that court treats as governed by the law of Singapore. In this sense it is binding not only in Singapore but on anyone anywhere in the world.

The common law of Singapore is in mercantile matters the same as the common law of England, this being enacted in the Laws of Singapore (1955) Chapter 24 section 5(1). Accordingly, the question whether the alleged custom, if proved in fact as their Lordships hold that it is, is good in law must be determined in accordance with the requirements of the English common law. These are that the custom should be certain, reasonable and not repugnant. It would be repugnant if it were inconsistent with any express term in any document it affects, whether that document be regarded as a contract or as a document of title.

In their Lordships' opinion the custom alleged is neither uncertain nor unreasonable. The form of mate's receipt used is similar to a bill of lading and there is no difficulty about treating it as an equivalent. In this respect it may be contrasted with the form considered in Hathesing v. Laing which appears to have been a receipt and nothing more and not to have named a consignee. Their Lordships can see nothing unreasonable in using the mate's receipt in this case as a document of title. The law knows that to require the physical delivery of goods whenever they change hands in trade would be unreasonable and recognises the need of merchants for a document that will represent the goods. It was by the custom of merchants that the bill of lading became such a document. But no documentary form is immutable. It is quite a natural development first for the mate's receipt to become more elaborate and then for merchants to feel that in certain cases the bill of lading can be dispensed with. The function of the commercial law is to allow, so far as it can, commercial men to do business in the way in which they want to do it and not to require them to stick to forms that they may think to be outmoded. The common law law is not bureaucratic.

There would be uncertainty or unreasonableness if in relation to the same consignment a bill of lading and a mate's receipt, both documents of title, could be in circulation at the same time. The evidence was however unanimous that the bill of lading, when it was issued in this trade, was issued only in exchange for the appropriate mate's receipt. This is indeed the normal practice throughout the world, but, so long as possession of the mate's receipt is only evidence of title (the mate's receipt not being a document of title), the master must be at liberty at his peril to issue the bill of lading on such other evidence as he chooses to accept. The establishment of the mate's receipt as a document of title would necessarily deprive the master of this degree of liberty, for he would then be as much at fault in issuing a bill of lading without the delivery up of the mate's receipt as he would be if he issued a second set of bills of lading without delivery up of the first. It has not however been argued, – rightly so, their Lordships think, – that in this respect the treatment of the mate's receipt as a document of title would be repugnant to any principle of law.

Up to this stage their Lordships find themselves entirely in agreement with the judgment of the Chief Justice. The factor that in the end compels them to differ from his conclusion is the presence on the mate's receipt of the words "Not negotiable".

These words are part of the printed form. Their presence on a mate's receipt which is to be used simply as such may be superfluous, but it is not incongruous. The only meaning, whether it be a popular or a legal meaning, that can be given to this marking is that the document is not to pass title by endorsement and delivery. Unfortunately businessmen frequently do not trouble themselves about such points. These documents were from the beginning of the practice, which goes back at least forty years, handled just as if they were negotiable and transferable by endorsement. In 1959, that is, two years or less before the events which the Board is considering, a third shipping line went into the Singapore/Sarawak trade which up to then had been divided between two shipping companies. The manager of this third line, understanding that it was customary in the Sarawak trade to effect delivery on a mate's receipt, omitted the words "Not negotiable" from the top copy which was given to the shipper. There is no evidence as to what proportion of the mate's receipts subsequently in circulation was issued by this line, but it is clear that the custom had already been established entirely in relation to documents marked "Not negotiable".

Nearly all the witnesses were asked their view of this marking. The minority, who did not treat the mate's receipt as a document of title, naturally found the marking appropriate. Those in the majority expressed their view in different words which all amounted to much the same thing, – that they had never considered what the marking meant, that they paid no attention to it, that it meant nothing, that it was unimportant: and one witness said that the words had lost all significance and were purposeless. The Chief Justice found "that everybody connected with this trade has ignored these printed words".

The question is whether a court of law can also ignore them. The courts are well aware of the tendency of businessmen to retain in the documents they use inapplicable or outmoded expressions; and they endeavour, albeit with reluctance since the retention is inevitably a source of confusion – to give effect to what they take to be the true nature of the document. There are well established rules of construction which permit the court to disregard printed words when they are inconsistent with written words or with the paramount object which the document appears from its language to be designed to achieve. But these rules can be used only when there is a conflict between one part of the document and another or between the effect of a part and the effect of the whole. They are rules for reconciling different expressions in or of the document itself. They cannot be used to introduce into the document, either by implication or by force of custom, what is outside it. The rule is plain and clear that inconsistency with the document defeats the custom. If this document had "Negotiable" printed in the right hand corner and "Not negotiable" in the left, the argument could begin. But if the right hand corner is blank, custom cannot be used to fill it. Whichever way the argument for the respondents is put, it amounts in the end to a submission that the force of custom should expel from the document words that are on it: this is not permissible by law.

The custom, in the terms in which it is pleaded and found by the Chief Justice, is a custom to treat the mate's receipt as equivalent to the bill of lading. Is it permissible to put the evidence supporting the custom into two compartments? Unless negotiability is an essential characteristic of a bill of lading, then a custom to treat a mate's receipt as a bill of lading that is, as a non-negotiable bill of lading where so marked and otherwise as negotiable, would be unobjectionable. This would be sufficient for the bank in this case since they were named as consignees on the bill of lading and so did not obtain their title by endorsement. This way of putting the case on custom raises two questions. The first is whether a non-negotiable bill of lading would pass a good title to the consignee, though not beyond; and the second whether the evidence can be divided, part being effective to prove the custom pleaded and the remainder being ineffective to alter the meaning of the words "Not negotiable".

It is well settled that "Negotiable", when used in relation to a bill of lading, means simply transferable. A negotiable bill of lading is not negotiable in the strict sense; it cannot, as can be done by the negotiation of a bill of exchange, give to the transferee a better title than the transferor has got, but it can by endorsement and delivery give as good a title. But it has never been settled whether delivery of a non-negotiable bill of lading transfers title or possession at all. The bill of lading obtains its symbolic quality from the custom found in Lickbarrow v Mason (1794) 5 TR 683; 101 ER 380 and that is a custom which makes bills of lading "Negotiable and Transferable" by endorsement and delivery or transmission. To the same effect the Bills of Lading Act 1855 recites that a bill of lading is by the custom of merchants "transferable by endorsement". There appears to be no authority on the effect of a non-negotiable bill of lading. This is not surprising. When consignor and consignee are also seller and buyer, as they most frequently are, the shipment ordinarily serves as delivery [Sale of Goods Act 1893, section 32(1)] and also as an unconditional appropriation of the goods [section 18 rule 5(2)] which passes the property. So as between seller and buyer it does not usually matter whether the bill of lading is a document of title or not.

Their Lordships have explored this question up to this point because it has a bearing on their ultimate decision. They do not consider it further since they are satisfied that the evidence in this case cannot be treated as proving only a truncated custom. The custom was well established before 1959 and it was not until then that, so far as is known, some unmarked receipts came into circulation. The custom does not operate upon a mate's receipt in abstraction. A mate's receipt may take different forms; it may or may not, for example, specify a consignee. The custom operates, not upon the idea of a mate's receipt whatever form it may take, but on the form of document actually in use. The form in use in this trade was marked "Non-negotiable". It is perhaps not so much a question of dividing the custom as of dividing the form. But any way on the evidence in this case neither can be done and both custom and form must stand or fall as a whole. As a whole the custom as applied to this form is bad in law.

Their Lordships will turn now to the issue on which they decide this case, that is, the contention by the bank that, whether or not the mate's receipt was a document of title, the shipment of the goods was delivery to the ship as bailee for the bank, and thereby the pledge was completed. The appellants point out that the bank was not a party to the contract of carriage evidenced by the mate's receipt. Naming the bank as consignee gave it no contractual rights. The ship would in the ordinary way deliver the goods to the bank as consignee, not in acknowledgment of the bank's right to have them but because it was under contract to the shipper to deliver as instructed. The instructions they say were not irrevocable; and when the shipper changed them, the bank, never having had any rights of its own against the ship, cannot make good its complaint.

This way of looking at the issue may help to clarify it but does not change it. It brings it back to the same point which is whether there was delivery to the bank on shipment. If there was, the bank alone have the right to possession and the ship, whether innocently or otherwise, converted the goods when she parted with them to the shipper, the fact that she was acting in accordance with the contract of carriage being no defence. If there was not, the bank fails; and it is hardly necessary to point out that it has no rights under a contract on which it is not suing.

As their Lordships have already observed, if this was a contract of sale, the legal position would be clear enough. Prima facie shipment would be delivery. This was well established before 1893 and section 32 merely codifies the law on the point. What then is the position in a contract of pledge? The two authorities cited on this point are Bryans v. Nix and Evans v. Nichol. They are considered in detail in the judgment of the Chief Justice, but before the Board Mr. Le Quesne has relied upon them for the rather different purpose of showing that, in pledge as in sale, shipment is prima facie delivery under the contract. In both these cases there was a contract of pledge, a shipment, a delivery of a mate's receipt to the plaintiff and the delivery of goods to the defendant; and in both the plaintiffs' suit in trover succeeded. Mr. Parker has invited the Board to disregard these cases, which he submits cannot stand with later authorities, such as Dublin City Distillery Ltd v Doherty [1914] AC 823 and Official Assignee of Madras v Mercantile Bank of India, Limited [1935] AC 53 which make it abundantly clear that transfer of possession is the essence of pledge.

Their Lordships agree that the need for delivery and the transfer of possession was not apparently so well understood in 1840 as it is today. The courts in Bryans v. Nix and Evans v. Nichols both handled the problem before them as raising questions of property rather than possession. A pledgee is said to have a special property in the goods. Mr. Parker referring to The Odessa [1916] AC 145 has rightly pointed out that this is not property in the ordinary sense; the pledgee has not even temporarily the use and enjoyment of the goods but simply the right to retain them until the pledge is honoured and, if it is not, to sell them and reimburse himself out of the proceeds. Are the rules relating to appropriation really applicable? Their Lordships do not propose to discuss this question. As the law stands today, appropriation without delivery will not create a pledge. If, as is very likely, the act of appropriation and the act of delivery are one and the same, it is simpler and clearer in relation to a pledge to speak of it solely as delivery; if they are not the same, then appropriation by itself is insufficient.

In Bryans v. Nix the judgment speaks of property, absolute or special, and the intention to pass it. But the relevant act of appropriation was the placing of the goods "in the hands of a depositary", i.e., delivery to the boat. When the loading was completed the shipper obtained a receipt naming the plaintiff as consignee; and then wrote to the plaintiff enclosing a bill drawn on him, which some days later he accepted. Baron Parke said:

"If the intention of the parties to pass the property, whether absolute or special, in certain ascertained chattels, is established, and they are placed in the hands of a depositary, no matter whether such depositary be a common carrier, or ship-master, employed by the consignor, or a third person, and the chattels are so placed on account of the person who is to have that property; and the depositary assents; it is enough: and it matters not by what documents this is effected;"

The court treated the shipment as a conditional appropriation which became absolute on the acceptance of the bill.

Consideration of the case of Evans v Nichol (1841) 3 M & G 614; 133 ER 1286 is complicated by the fact that there are three differing reports of the judgments. The report in 3 Man. & G. 614, which is also in 133 E.R. 1286 and which was cited in the Federal Court omits some important passages. The fullest report, which their Lordships will use is in 4 Scotts New Reports at 43. The decision of the Court of Common Pleas is best expressed in the judgment of Maule J. at 54:

"It is admitted that the plaintiffs' right to recover would have been indisputable had the relation between Clapham and the plaintiffs been that of vendor and vendees, instead of pawner and pawnees. But the goods having been shipped by Clapham to the order of the plaintiffs upon their acceptance on the 500 l. bill, and the defendants having received them for the purpose of being delivered to the plaintiffs, and Clapham not having revoked the consignment, it appears to me that the plaintiffs acquired such an interest in the property and right to the possession as to entitle them to maintain trover against the defendants."

The value of this case to the respondents is that it puts sale and pledge on the same footing. Its value to the appellants is that it appears to recognize, in the case of pledge at any rate, the right to revoke a consignment. This is what the appellants say the shippers lawfully did when they changed their instructions to the ship and demanded delivery themselves.

On the latter point Evans v. Nichol is one among a number of authorities for the contention that shipment to a named consignee is not per se irrevocable; it does not necessarily amount to delivery to the consignee or to an appropriation of the property in the goods. Delivery and appropriation both depend upon the intention with which the shipment is made. The intention may be to retain both property and the right to possession; or it may be to deliver and appropriate either absolutely or conditionally. If the intention is to retain, the consignment can be revoked or changed at any time. If it is to deliver or appropriate absolutely, it cannot be revoked: if conditionally, the power of revocation depends upon the nature and terms of the condition. All the judges in Evans v. Nichol referred to the fact that the shipper, Clapham, had not revoked his instructions, and therefore the court did not have to consider what the position would have been if Clapham had done so or purported to do so during the carriage of the goods, as happened in this case.

Bryans v. Nix and Evans v. Nichol are on the whole for rather than against the respondents' argument. But the absence of clear authority leaves the question as one which must be decided on principle. In principle it is difficult to see why in the effect that is given to shipment there should be any difference between the contract of sale and the contract of pledge. Both contracts must provide for some means of delivery of the goods in order to complete the sale or the pledge as the case may be. The parties are free in either case to make what terms they like about delivery; but if the contract is silent and it is left to the court to interpret their intentions, it is difficult to see why the same presumption should not be made in both cases. In either case shipment would seem to be the most convenient place and time for delivery.

The existence of a prima facie rule does not of course absolve the court from considering carefully the circumstances of the particular case to see what they indicate about the intention to deliver. Their Lordships consider that the circumstances of this case, far from displacing the prima facie rule, speak strongly in support of its application.

The circumstances may allow of three possible occasions for delivery to the pledgee, the first on shipment, the second by attornment during the voyage, and the third by physical delivery at the conclusion of the voyage. The factors which make shipment the natural occasion for the delivery of the goods to the pledgee are all present in this case. Since the bank had already advanced the money, it would naturally want – and the shipper naturally be presumed ready to give – as soon as possible the possession without which the security would not be complete. Moreover, if delivery were to be delayed beyond shipment, it could not by either of the other two methods be done as easily and as conveniently.

As to the first of the two, attornment is a convenient, and indeed an inevitable, method when the contract to be implemented is made during transit. But if it is made before transit it is difficult to see any commercial sense in first making the carrier the bailee of the consignor and then turning him by attornment into the bailee of the consignee. Fresh instructions would have to be given to the carrier and his acceptance of them communicated to the consignee; this simply adds unnecessary documentation.

As to the third method, to delay delivery until arrival means that constructive delivery would be no longer possible and that a bank, which has no use for the goods in the way of trade, would have to take physical delivery of them, not so as to enforce its security but merely so as to obtain it. This general consideration is particularly applicable in the circumstances of this case. The course of business between the shipper and the bank shows that the shipper was expected to honour on arrival of the goods the bill presented for payment, receiving back in exchange the mate's receipt which would enable him to take delivery This was in fact what generally happened; it was only if the shipper failed to pay or delayed payment unduly that the bank would have to take physical delivery. Thus, if under the arrangement between the parties the pledge was not to be completed until physical delivery, it would have the curious result that there was a contract of pledge whereunder in the ordinary course of business and if it worked out as contemplated a pledge was never given at all.

There is no doubt at all that the arrangement between the parties required the delivery to the bank of the mate's receipt. Mr. Parker has argued from this that since all the parties believed, albeit erroneously, that the mate's receipt was a document of title, they must have intended to effect delivery by it and not upon shipment. Their Lordships do not agree. They consider that for the reasons they have already given the function of a bill of lading or similar document of title is not normally to give delivery as between consignor and consignee. This has usually already happened on shipment and its real function is to give the consignee a document which he can immediately negotiate. Accordingly, the delivery of such a document as the mate's receipt was supposed to be is inconsistent with the notion that the pledge was still incomplete.

Their Lordships also attach importance to the finding of fact by the trial judge and sustained in the Federal Court that all parties knew what was going on. In other words, the ship knew of the bank's interest in the goods; and so of the risk she was taking, and for which she covered herself by an indemnity, in delivering the goods otherwise than to the named consignee.

For these reasons their Lordships have concluded that in this case delivery of the goods to the bank was made on shipment, that the pledge of them to the bank was thereby completed and that the bank succeeds in its claim for conversion. Their Lordships therefore dismiss the appellants' appeal. With regard to costs it is to be observed that the major issue both in the evidence and in the argument before all courts was that of the alleged custom, and the respondents have failed on that issue, but they have on other grounds successfully resisted the appeal. Their Lordships vary the Federal Court's order as to costs so as to provide that the appellants pay two-thirds of the respondents' costs in the court below. The appellants must also pay two-thirds of the respondents' costs of this appeal.

Appeal dismissed. Order as to costs varied.