Charterers’ indemnity – Bills of lading issued by charterers exposing shipowner to greater liability than that contained in voyage charterparty – charterers held liable on breach of contract.
Rice was shipped from India to South America under a voyage charterparty exempting the shipowners from liability for errors in navigation.
Bills of lading containing a clause incorporating “all other conditions as per charterparty” were presented to the master for signature. Both the master and the charterers mistakenly believed that the exemption for errors in navigation would be incorporated into the bill of lading contract.
The vessel struck a reef and was totally lost with her cargo. The loss was due to an error in navigation.
The owners were held liable to the bill of lading holders for the loss of the cargo.
The shipowners sued the charterers in tort, alternatively, on an implied contract (separate from the charterparty) to indemnify them for the consequences of the master signing the bill of lading in its particular form.
The court of first instance (Phillimore J) found that the charterers owed the shipowners no general duty of care but found that where A requests B to do something which will involve him to liability to C, there is an implied contract between A and B that A will indemnify B from the consequences of his carrying out the act.
The Court of Appeal (Sir Gorell Barnes, Farwell and Buckley LJJ) affirmed the decision.
Sir Gorell Barnes found an implied term in the charterparty itself that the charterers would not expose the shipowners to a greater liability in the bills of lading than that contained in the charterparty.
He pointed out that the bills of lading were generated entirely for the benefit of the charterers to enable them to raise finance or to sell the cargo to third parties. It was a necessary implication in the charterparty itself that the master had no authority to expose the shipowners to any liability not contained in the charterparty.
The House of Lords (Loreburn LC, the Earl of Halsbury and Lords Hereford and Atkinson – short speeches by Loreburn LC, the Earl of Halsbury, Lord Hereford and Lord Atkinson all without reference to authority, affirmed the decision of the Court of Appeal.
The main judgment in the Court of Appeal, delivered by Sir Gorell Barnes, analyses the interaction between the master, the shipowner and the voyage charterer. The judgment focuses on the intention of the parties.
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