Ships’ railing exemption in bill of lading not availing owners for mis-delivery
Bicycle parts where shipped from England to Singapore under bill of lading containing the following provision:
“2(c) … the responsibility of the carrier, whether as carrier or custodian or bailee of the goods shall be deemed … to cease absolutely after they are discharged from the ship”
Shippers drew a bill of exchange on the receivers. The bill of exchange was delivered to shippers’ bank in Singapore with instructions to make payment upon presentation of the original bill of lading.
Upon arrival in Singapore the goods were discharged and placed in storage on the harbour premises. Receivers obtained possession of the goods from the shipowners without producing the bill of lading by providing shipowners with an indemnity from receivers’ bank.
Receivers never paid shippers who sued shipowners for the price of the goods. Owners joined the receivers and their bank as third parties.
The action was tried before Whitton J in the High Court of Singapore who found for the shippers on the main action and for the owners on their claim for an indemnity against the receivers and their bank.
The bank appealed unsuccessfully to the Court of Appeal of Singapore (Knight CJ of Singapore, Thomson CJ of Malaya and Chua J).
A further appeal to the Privy Council (Lords Denning and Jenkins and R T. Hon. L. M. D. de Silva) was also unsuccessful. Lord Denning gave the judgment of the Court.
While recognizing the wide language of the exemption clause he made use of the same argument Sellers LJ (dissenting) employed in John Carter (Fine Worsteds) Ltd v Hanson Haulage (Leeds) Ltd. Lord Denning said:
“The exemption, on the face of it, could hardly be more comprehensive, and it is contended that it is wide enough to absolve the shipping company from responsibility for the act of which the [shipper] complains, that is to say, the delivery of the goods to a person who, to their knowledge, was not entitled to receive them. If the exemption clauseupon 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.”
The outcome in the Privy Council was determined squarely on the application of the now ostensibly defunct doctrine of fundamental breach.
TG. Roche Q.C. for the unsuccessful appellants argued strongly that the clear terms of the exemption clause should have been applied.
Lord Denning’s line of reasoning is probably impermissible: you cannot argue the effect of a clause in the context of an unreal, extreme possibility.
That an exemption clause does not protect a shipowner who delivers without the production of a bill of lading is still good law (Motis Exports Ltd v Dampskibsselskabet – CA, 2002). This is testimony to the hardihood of the fundamental breach principle.
The answer possibly lies in developing a coherent set of principles which take into account both the essence of a contract as a synallagmatic transaction and a modern, wider approach to vicarious liability.
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