52. A N Satterthwaite & Co Ltd v New Zealand Shipping Company Ltd (The “Eurymedon”) [1971] 2 Lloyd’s Rep 399; [1972] 2 Lloyd’s Rep 544; [1974] 1 Lloyd’s Rep 534

Bill of lading – effectiveness of Himalaya clause

The facts

A drilling machine was shipped from Liverpool to Wellington under a bill of lading incorporating the Hague Rules.

The bill of lading contained a package limitation and a one year time bar.

In addition, the bill of lading contained a Himalaya clause purporting to excuse agents of the carrier from any liability whatsoever and “without prejudice to the generality of the aforegoing” to afford such agent every exemption, limitation, condition and liberty available to the carrier.

During the course of unloading, the machine was dropped and damaged. The cost of repair significantly exceeded the package limitation.

The consignees sued the stevedores in tort for the full cost of repair.

Action was instituted outside the one year time bar and the stevedores claimed reliance on the time bar, alternatively, the package limitation.

Findings

The court of first instance (Mr Justice Beattie) considered the four requirements laid down by Lord Reid in Scruttons v Midland Silicones and found that the first three requirements were comfortably satisfied.

The element which presented difficulty was that of consideration.

The court distinguished between executed and executory consideration and found that there was no executory consideration. In other words, the court found that there was no consideration to support the executory promise on the part of the shipper to provide the stevedores with an exemption (ie. no consideration passing from the stevedores).

The court found, however, that once the stevedores had performed, they had by their performance accepted an offer from the shipper conveyed to them through the agency of the carrier. The performance by the stevedores satisfied the requirement of consideration.

Accordingly, the court dismissed the consignee’s action.

A unanimous New Zealand Court of Appeal (Sir Alexander Turner P, Mr Justice Richmond and Mr Justice Perry) held that, as an exemption clause, the Himalaya provision was required to be interpreted strictly. On a strict interpretation, the clause suggested a completed agreement between the shippers and the stevedores and was not open to interpretation as an offer which could later be accepted by performance.

An added difficulty considered by the judges was that, on their view of the clause having to be construed as a completed agreement, the consignees could not be seen as party to this agreement. The New Zealand equivalent of the Bill of the Lading Act did not assist the consignees as the contract between the shippers and the stevedores was stillborn, no consideration from the stevedores having passed at the time of the issuing of the bill of lading.

The Privy Council (Lords Wilberforce, Hodson, Salmon concurring, Viscount Dillhorne, Lord Simon of Glaisdale dissenting) re-instated the decision of the court of first instance.

The opinion of the majority was delivered by Lord Wilberforce who saw a commercial need for extending the carrier’s immunities to its agents. He agreed with the analysis of the court of first instance with regard to executed consideration on the part of the stevedores.

The dissenting Lords each delivered a judgment in which they echoed the sentiment in the New Zealand Court of Appeal that the exemption clause had to be strictly interpreted and that it did not constitute a contract between the shippers and the stevedores in the terms in which it was couched.

Commentary

Lords Simon and Viscount Dilhorne commented on the argument presented before them that the solution to the problem lay in tort but such an approach, they held, was contrary to Scruttons v Mildands Silicones and therefore impermissible.

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