51. Salmond & Spraggon (Australia) (Pty) Ltd v Joint Cargo Services (Pty) Ltd & Another (The “New York Star”) [1977] 1 Lloyd’s Rep 445; [1979] 1 Lloyd’s Rep 298; [1980] 2 Lloyd’s Rep 317

Bill of lading – Himalaya Clause – stevedores given benefit of time bar

The facts

Cartons of razor blades were shipped from a port in Canda to Sydney under a bill of lading.

The bill of lading contained a standard Himalaya clause absolving servants or agents of the carrier from all liability and “without prejudice to the generality of the foregoing” to the immunities contained in the bill.

The bill of lading contained a one year time bar.

Furthermore, the bill of lading contained two clauses deeming delivery to take place upon discharge over the ship’s rail with a proviso that should the carrier remain in possession of the goods thereafter, its liability would be on the basis of a common bailee.

After discharge, the stevedores negligently allowed a thief to obtain possession of the goods under false pretenses and without presenting a bill of lading.

The consignees sued the ship’s agent and the stevedoes in tort.

The action was brought outside the one year time limit.

Findings

The court of first instance (Mr Justice Sheppard) found that no liability attached to the ship’s agent, a finding in which the consignees acquiesced.

The court of first instance found that the stevedores were protected by the Himalaya clause and therefore entitled to the benefit of the one year time bar.

The New South Wales Court of Appeal (Hutley, Glass and Mahoney JJ) found that, in principle, the Himalaya clause could afford protection to the stevedore. The court found, however, that there was no evidence that by tendering their services to the shippers they were doing so in response to the shipper’s offer of exemption in terms of the Himalaya clause and not merely in terms of the collateral agreement between the carrier and the stevedores pursuant to which the stevedores regularly off-loaded and stored the goods from the carrier’s ships.

In passing, the Court of Appeal endorsed the finding of the court of the first instance that although the stevedores had been guilty of fundamental breach by releasing the goods without the production of a bill of lading, that the benefit of the time bar stood outside the bi-lateral obligations neutralized by the fundamental breach.

The majority in the High Court of Australia (Stephen, Mason, Jacobs and Murphy, JJ – Barwick, CJ dissenting) found that upon proper construction of the bill of lading, the carrier was not entitled to the benefits (immunities, exceptions and defences) in the bill of lading and therefore, neither were the stevedores (the corollary of the rule in Elder Dempster). The carrier’s liability in terms of the bill of lading was held to terminate upon discharge.

Mr Justice Stephen and Mr Justice Murphy were critical of the majority of the House of Lords in the Eurymedon. Mr Justice Stephen pointed out that the Himalaya clause in the Eurymedon (similar to the present clause) ante-dated the decision in the Scruttons v Midlands Silicones and did not achieve the effect proposed by Lord Reid. In his view, the Himalaya contract failed for want of consideration. In this, his view was similar to that of the New Zealand Court of Appeal in the Eurymedon. Consideration had to be present at the time of entering the contract and could not be supplied at a later date by the stevedores’ tendering their services.

Mr Justice Murphy was fundamentally opposed to “conjuring up” a contract to extend immunity to persons not a party to the contract evidenced by the bill of lading.

Mason and Jacobs JJ agreed with the Eurymedon but held, as was pointed out above, that the carriers and consequently the stevedores were not entitled to the immunities in the bill of lading for their handling of the goods outside of the contractual period of the bill of lading.

Chief Justice Barwick positively supported the Eurymedon and held that the construction of the bill of lading allowed the immunities and protections to both carrier and stevedore after discharge of the goods notwithstanding they were acting as common bailees. Although no consideration passed at the time of the issue of the bill of lading, the Himalaya relationship could ripen into a “full contract” when the stevedores performed thereby supplying consideration.

Lord Wilberforce who delivered the majority opinion in the Eurymedon (with two dissentients), delivered a unanimous opinion of the Privy Council consistent with the Eurymedon, upholding the appeal of the stevedores and restoring the order of the judge of first instance.

Commentary

The significant number of articulate judgments critical of the capacity of contract of law to achieve the extension of immunities to third parties lends support to the argument that the true solution to the problem is found in the law of tort and, more particularly in the policy orientated element of unlawfulness.

Consideration may serve a useful purpose in the law of contract as a touchstone to distinguish between binding commercial bargains and social arrangements but looms as an insuperable obstacle to extending immunities of the carrier to the stevedores in contract law.

To extend immunity, three solutions present themselves:

1. To dispense with consideration as a requirement in the law of contract. In theory, consideration does not fit with any executory contract and, as such, is a phantom requirement.

2. To recognise an undertaking contained in the bill of lading as a bar to recovery in tort on the basis of lack of unlawfulness as per Mr Justice Herron in the Eurymedon.

3. The solution of Lord Denning in his dissenting judgment in Scruttons v Midlands Silicones was to find the answer in the law of bailment, quasi ex contractu. Lord Denning’s solution is the common sense observation that the contractual immunity given to a party should automatically extend to his agents carrying out contractual obligations on his behalf. In essence, this solution is the same as the solution in tort ie. if all the parties have expressed their desire for the extension of immunities, their desire should be given effect to. A stipulatio alteri is the only solution.

Final note on consideration

The real consideration provided by the shippers is the payment of freight. If there is no negligence, immunity may never be required and to suggest that it constitutes consideration is specious.

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