Claims other than in Contract
9.1 This chapter considers claims other those for breach of a contract of carriage. It is concerned principally with claims by those who have an interest in the cargo: this is not necessarily the same thing as those who are owners of the cargo. This class of person will usually wish to bring a claim against someone who is said to be responsible for the loss, damage or delay of cargo. It may, of course, be the other way round; for example in a claim by a carrier involving dangerous cargo. People may bring a claim other than in contract because, for example, (i) there was never a contract of carriage between the person interested in the cargo and the person to be sued, or (ii) the terms of the contract restrict the ability of the potential claimant to recover, because of exemption/indemnity clauses, or limitation of liability clauses and so an attempt is made to evade those, or (iii) the obvious cause of action (such as when there has been conversion of the goods) does not lie in contract.
9.2 Two particular categories of problem are considered:
- (1) First, there is the question of how a party may bring a claim other than under the bill of lading contract, either in tort (e.g., for negligence or wrongful interference with goods) or in bailment. The need to resort to such claims has reduced since the enactment of the Carriage of Goods by Sea Act 1992 (“COGSA”) removed many of the problems, caused by the Bills of Lading Act 1855, in suing in contract.1 But the need may increase with the prevalence of charterer’s bills and an inability of cargo interests to obtain adequate security for their claim except by arrest of the vessel in support of a claim against the owners in tort.
- (2) Secondly, there is the question of the extent to which a party sued (or suing) other than in contract may rely on or be affected by contractual terms, whether by means of “Himalaya” clauses,2 the doctrines of agency, implied contract or bailment on terms, or otherwise.
Although logically these two questions are part of the one wider question of the relationship between parties not (apparently) in direct contractual relations, the latter question is considered separately in section (E) in the light of the analysis in sections (B), (C) and (D).
9.3 The non-contractual causes of action most commonly encountered in a bill of lading context are those alleging negligence, breach of duty as bailee and wrongful interference with goods/conversion. The principles of these three types of claim in the context of carriage of goods by sea are briefly summarised below. Other tort claims may also be relevant, such as the “economic” torts of inducing breach of contract, interference with contractual relations, economic duress and so forth. So for example in The Kallang No. 2 a vessel was arrested at her discharge port in Senegal and proceedings there were commenced by receivers in breach of a London arbitration clause. Cargo insurers were held liable to owners for damage in tort for inducing breach of the arbitration clause.3 Principles of restitution may also be applicable, for example in claims for repayment of freight.
9.4 Issues of rights of suit in tort (principally in bailment or conversion) in a bill of lading context are inextricably bound up with issues over the extent to which possession of the bill gives, in itself, possessory rights over the goods represented by the bill. This issue is discussed in Chapter 5, but is also the subject of two masterly and detailed expositions in articles by Paul Todd4 and Simon Baughen5 respectively.
9.5 The discussion below presupposes that any claim that arises is one governed by English law. This assumption may often be well founded in a claim before the English courts, but each case needs to be looked at on its own facts, and the relevant system of applicable law must be ascertained, as a matter of English conflict of law rules. In relation to claims in tort, these rules were to be found in the provisions of the Private International Law (Miscellaneous Provisions) Act 1995, and are now enshrined in the Rome II Regulation. The conflict of laws issues are discussed in Chapter 14.
9.6 The present chapter considers variations on a basic theme arising where A (a shipper) contracts with B (a carrier, but not necessarily the shipowner) for carriage of goods by sea, and B sub-contracts all or part of his obligations and/or sub-bails the goods to C (who may be a sub-contractor, stevedore, warehouse operator or shipowner). Further A may transfer ownership of, or rights in, the goods to D.
9.7 Almost invariably a claim in tort arising from a set of facts involving a bill of lading will involve parties whose relationship is governed at least in part by a contractual relationship. It has been said that “the law of torts [has] filled gaps left by other causes of action where the interests of justice so required”.7 There is a tension between the courts’ desire to uphold the right to sue in negligence and their anxiety to avoid the danger of subverting, by use of such claims, schemes of rights and obligations agreed contractually. Where a cargo owner and carrier are in contractual relations, a duty of care in tort may exist concurrently with that in contract,8 but the terms of any tortious duty will be influenced by and generally reflect the contractual obligations. This section concentrates on claims between two parties who are not in a contractual relationship with each other: where they are, the rights and liabilities of the parties will be governed by the contract and this cannot be avoided by making a claim in tort or bailment.9
9.8 The right of a cargo owner to sue a shipowner in tort is unsurprising and long established.10 The basic Donoghue v Stevenson11 approach to duty of care has been refined in various ways. In particular a duty of care must be considered not in the abstract but in the context of a duty to take care to avoid a specific category of loss. In deciding whether there is such a duty the court will consider such matters as proximity between the parties, foreseeability of the type of loss concerned and whether it is just and reasonable to impose such a duty.12
9.9 One of the primary elements of proximity that gives rise to the duty of care upon a carrier is that he is generally a bailee.13 However, duties owed in negligence and bailment are distinct, even if the content of the duty is often the same, and even though, as discussed below, the existence of a duty of bailment may preclude the existence of any different duty in negligence between the same parties. The former may be important if, for example, the goods owner is not a bailor (see below) or if the defendant is not a bailee.14 Whereas a bailee is, as set out below, liable to take reasonable care of the goods and to avoid their loss by theft or misdelivery, there is no general duty owed in negligence to prevent loss of goods, as part of the principle that there is in general no liability for omissions or, put another way, no positive duty to intervene to prevent loss.15
9.10 Subject to the qualifications discussed below, we think it is fair to assert that the duty to take reasonable care to avoid damaging another’s property will apply not only to a carrier in the classic sense of the shipowner bailee but to persons such as time charterers, stevedores, other sub-contractors of the carrier and other third parties who are concerned with the business of carriage of goods by sea. All such bodies may, in principle, be sued in negligence for damages by the owner of goods that have suffered physical loss or damage.
9.11 There is no universally applicable definition of the phrase “physical loss or damage”, which is so often found in the cases. Many of the cases in which there is discussion of the meaning of this phrase are concerned with insurance issues rather than a claim in tort.16 But in a carriage of goods by sea context there is rarely scope for debate on this. Typically physical damage or loss is caused by dropping, crushing, exposure to fresh or salt water, fire, temperatures which are too high or too low, or the effect of other cargo. “Physical” loss also extends to cases where the owner is effectively deprived of the cargo.17 This covers situations where the cargo is misdelivered, mixed with other goods or lost, stolen or seized.18 A degree of pragmatism is necessary in assessing whether “physical” loss or damage has occurred.19 For example, it is suggested that a cargo of grain in bulk is damaged (even though there is no physical change in it) if mixed with a cargo of rice. But the same may not be true where bags of grain become mixed up with bags of rice.20 Similarly a container of granite slabs that is washed overboard and ends up (otherwise undamaged) at the bottom of the sea may be regarded as lost or damaged, although if it is simply dropped onto the quayside during loading it may not be.21
9.12 The general duty to take reasonable care to avoid foreseeable physical loss or damage to the property of another is not absolute.22 Limitations on the scope of a duty in a carriage of goods by sea context were considered in The Nicholas H,23 where a classification society was sued in negligence by owners of cargo carried on board a vessel that sank shortly after the society had inspected the vessel part of the way through her voyage and recommended that she could continue on her voyage after temporary repairs had been effected. In holding that the society owed no duty of care to the cargo owners, the House of Lords drew a distinction, relevant to the imposition of a duty of care, between “direct” and “indirect” physical loss. Lord Steyn said:24
Counsel for the cargo owners argued that the present case involved the infliction of direct physical loss. At first glance the issue of directness may seem a matter of terminology rather than substance. In truth it is a material factor. The law more readily attaches the consequences of actionable negligence to directly inflicted physical loss than to indirectly inflicted physical loss. For example, if the N.K.K. surveyor had carelessly dropped a lighted cigarette into a cargo hold known to contain a combustible cargo, thereby causing an explosion and the loss of the vessel and cargo, the assertion that the classification society was in breach of a duty of care might have been a strong one. That would be a paradigm case of directly inflicted physical loss…The role of the N.K.K. was a subsidiary one. In my view the carelessness of the N.K.K. surveyor did not involve the direct infliction of physical damage in the relevant sense. That by no means concludes the answer to the general question. But it does introduce the right perspective on one aspect of this case.
9.13 The nature and relevance of the distinction between direct and indirect physical loss has yet to be fully explored in the courts,25 but what was perceived by Lord Steyn “at first glance” has much to commend it.26 Provided that the requirements of proximity and foreseeability are met it is difficult to see why the quality of the negligent act or the nature of the causal chain leading to damage should impact on the nature of the duty of care.27 However, what is clear is that the overriding requirement of “fairness, justice and reasonableness”28 may militate against extension of duties of care to those “peripheral”29 to the carriage of the goods.
9.14 Economic loss that is consequent on physical loss may generally be recovered,30 but in “pure” economic loss cases the duty of care is much more restricted than where there is physical loss or damage. A detailed discussion of this difficult area is beyond the scope of this book, but in essence the duty of care in respect of such a kind of loss is only owed where there is an assumption of responsibility by the defendant or a special relationship between him and the claimant.31 A carrier is thus unlikely to be liable in tort for pure economic loss, such as loss of market when goods are delayed,32 except where there is an element of “reliance”, such as in relation to representations made in a bill of lading.33
9.15 A duty of care is defined not only by the identity of the defendant and the loss he must take care to avoid, but also by the person or class of persons to whom the duty is owed. An important qualification in the case of carriage of goods by sea is that:
in order to enable a person to claim in negligence for loss caused to him by reason of loss of or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have only had contractual rights in relation to such property which have been adversely affected by the loss of or damage to it.34
9.16 Equitable ownership of property will not be sufficient to give title to sue,35 neither will the fact that risk in the property is with the claimant,36 as is often the case with a c.&f. buyer. A time charterer of a vessel has no possessory right to the vessel and thus cannot sue in relation to loss arising from damage caused to it.37 It follows that the time charterer does not, simply by virtue of his status as such, have possession or right to possession of the goods on the vessel. Where, however, he has issued bills of lading in respect of those goods, he may have sufficient interest to sue in negligence38 or be regarded as a bailee of the goods,39 particularly if he has had actual custody of the goods prior to shipment.
9.17 What is “possessory title”?40 This may consist of actual possession of goods, or the immediate right to possession. In Transcontainer v Custodian Security,41 Transcontainer had contracted to carry goods from France to Feltham in England. They never took possession of the goods themselves but sub-contracted part of the carriage to C who left the goods in the defendants’ security park at the East India dock, from where they were stolen. Transcontainer incurred a liability to the owners of the goods and tried to recover from the defendant, suing in tort. The court rejected a submission that Transcontainer had actual possession of the goods, because although there could be possession through an agent, possession by a mere sub-contractor (C) did not suffice. The court also rejected (obiter) a submission, by the defendant, that a mere right to possession was not “possessory title”. Slade L.J. also said (again obiter):
We have been impressed by Mr Aikens’ submission based on long-standing persuasive authority that the general rule (albeit displaceable by contrary agreement) is that the relationship of a carrier of goods to the party who has engaged him is as bailee at will. We have also been impressed by his submission, which he supported by reference to a number of authorities such as Edwards v Newland  1 All E.R. 1072 and Johnson Matthey & Co. Ltd. v Constantine Terminals Ltd. and Another  2 Lloyd’s Rep. 215, that it is in law quite possible for a person to create a relationship of bailor and bailee or sub-bailor and sub-bailee between himself and another party, such as to confer on bailee or sub-bailee the possession of the goods and on himself the immediate right to possession of them, even though he himself has at no time had physical control of the goods. Without deciding these points, we are prepared for present purposes to assume the correctness of both these submissions.42
9.18 Thus, “possessory title” is vested in a bailee or sub-bailee in actual possession of the goods or in possession through an agent (although a mere sub-contractor will not be an agent for this purpose), as well as, possibly, the bailor or sub-bailor on the basis that the bailment is at will, even when the bailor never had physical control of the goods.
9.19 The position is complicated by the confusing terminology sometimes used. The right to immediate possession appears to be synonymous with “constructive possession”, that is, where B has actual possession but holds to the order of A. This is to be distinguished from “symbolic possession” often exemplified by the “key to the warehouse” analogy.43
9.20 A pledgee of goods has sufficient possessory title to sue in tort in respect of its loss or damage.44
9.21 Where a bailee has title to sue in tort (or under a sub-bailment) he may recover damages referable to the full value of the goods, without a limitation imposed by the extent of his own liability for them.45 This right does not extend to the claim of a bailor with a reversionary interest but no immediate right to possession, who may only recover damages in respect of damages to his reversionary interest. Only permanent damage for which the claimant has not been compensated, or damage that has not been remedied and is not going to be remedied, can constitute such damage.46
9.22 The mere fact that a party is a holder of a bill of lading does not imply sufficient possessory interest to sue in tort.47 There is some doubt whether a party with a “bare” proprietary right to the goods without any right to possession may sue in tort.48 A charterer who has issued bills of lading in respect of goods will not without more have title to sue in negligence.49
9.23 If the carrier drops the cargo, then the negligence and damage occur almost simultaneously. What is the position, however, when negligence on day 1 of the voyage either (1) causes damage on day 5, or (2) causes progressive damage over days 2 to 10, and ownership of the cargo changes from A to D on day 4? Who has title to sue in negligence?
9.24 The answer in the second situation is provided by The Starsin,50 where negligent stowage at the commencement of the carriage caused progressive damage thereafter and ownership of the cargo changed during the course of the voyage. D (the buyer who obtained title to the goods after the negligent stowage and the initial damage to those goods) was held unable to sue in negligence because the cause of action was complete and had vested in A. The argument, which had been successful before the judge, that a separate cause of action accrued in relation to each incremental part of the damage caused by negligent stowage was rejected by both the Court of Appeal and the House of Lords. They all held that there was one cause of action that accrued when “when more than insignificant damage”51 or “significant damage”52 was caused by that negligence. Rix L.J. made clear that different considerations would apply if there were separate defects causing damage on separate occasions.53 It is unclear what the position would be when the same negligence leads to separate and discrete instances of damage rather than damage that gets progressively worse, for example, where poor stowage causes some significant but limited damage on day 1 and then on day 10 when the weather becomes heavier, the stow collapses altogether causing different damage to the same cargo. It is submitted that each case will turn on its own facts, but for the reasons discussed in the following paragraph the key question is the timing of the damage and not of the negligence. However, the basic principle is that once there is some damage the cause of action is complete.
9.25 In The Starsin argument was also addressed to the first situation, that is, where ownership changes between the time of the negligence and the time of damage. Colman J. considered54 that in such cases the transferee (D) can sue in negligence, on the basis that the key element was the damage, and that a duty of care was owed to the owner and those who might become owners whilst the cargo was stowed on board. In the Court of Appeal Rix L.J. reviewed the authorities, decided that none of them addressed the issue, and left the point open as unnecessary to decide.55 It is suggested that Colman J.’s conclusion was right. The carrier’s “neighbours” should include not only existing owners but those who might become owners prior to the relevant negligence causing damage (i.e., in practice, during the period of the carriage). Such a result is consistent with an application of the basic principles outlined above: in that (a) the physical damage as a result of the negligent acts for which the shipowner is responsible is foreseeable; (b) such future owners would be sufficiently within a shipowner’s foresight to be sufficiently proximate; and (c) it is fair, just and reasonable in all the circumstances. But in each case the cargo owner would have to prove, expressly, that he had become the owner of the goods at the time of the first significant damage that results from the negligence.
9.26 Thus, a party who acquires title to the goods after the negligence occurs but before it occasions damage may sue. In one sense this may be said to reflect a principle that a duty of care is owed not only to actual owners but to future owners in respect (in either case) of loss suffered in their capacity as owners. But it is really only an application of the rule that the cause of action in negligence is only complete when damage occurs.56
9.27 If a contractual “chain” exists from A through B to C, this may be a reason for not imposing a duty of care on C in relation to damage to goods owned by A.57 This analysis has been relied on more in cases where there has been a claim for “pure” economic loss rather than physical loss and damage.58 The rationale is that the “usual procedure” is for claims to be passed up and down the contractual chain, so that to construct a duty of care in tort between those who are not in a direct contractual relationship will subvert the parties’ contractual arrangements and will be unjust. The leading case supporting the restriction of a duty of care, owed by C to A by reference to contractual terms between A and B is the House of Lords decision in Junior Books v Veitchi.59 Although it has never been expressly overruled, this case has however met with almost universal disapproval. In The Aliakmon Lord Brandon (who had dissented in Junior Books) expressly disapproved, in a carriage of goods context, the approach of Lord Roskill in that case. Carver suggests,60 when considering C’s duty to A, that a term in a contract between B and C is more likely to be relevant, as C is a party and it may provide what he has do so, than one in a contract between A and B, but either contract might, depending on the facts, be relevant to qualification of a duty of care.
9.28 A similar argument applies where the relationship between all the parties are (broadly speaking) intended to be covered by an internationally accepted regime, such as that under the Hague Rules. Where these rules apply to the contract of carriage, there are powerful policy considerations for preventing their circumvention by tort claims.61 However it is difficult to specify how far such considerations might operate, and on what analytical basis. Whilst it is open to the courts to use the “catch-all” requirement of fairness, justice and reasonableness to deny the existence of a duty, there is no instance of this occurring simply on the basis of the existence of a Hague Rules regime in one of the relevant contracts. Furthermore, the argument that carriers may be exposed to unlimited liability by claims in tort can be met in part by the carrier having a right of indemnity against such liability from the contracting counterparty.62
9.29 It has been suggested that any duty of care in negligence may be modified to reflect the scope of any duty in bailment. But it has been held, in The Aliakmon,63 that it is not feasible to synthesise the complex terms of a bailment on Hague Rules terms into a duty of care in tort. This approach might be said to be unnecessarily inflexible, and it makes it more difficult for the courts to achieve what many would consider the fair result of preventing the “outflanking” of the Hague Rules regime by suit in negligence.
9.30 One of the reasons why the Hague Rules cannot be synthesised into a duty of care is the substantive difference between the common law standard of care and the Hague Rules scheme.64 Over and above this are possible differences in burden of proof65 and limitation provisions such as the package limitation in Article IV rule 5 and the time bar provision in Article III rule 6.
9.31 The differences work mainly in favour of the carrier, in particular because of the exemptions from liability for his negligence under Article IV rule 2(a) and (b).
9.32 In one context however the claimant may find a claim in negligence more difficult than one under the Hague Rules. By virtue of Article III rule 1 of the Hague Rules, a carrier is under a non-delegable duty to use due diligence to make the vessel seaworthy before and at the start of the voyage. Subject to the defence of having used due diligence, the carrier is liable for any acts or omissions of independent sub-contractors that have resulted in the ship being unseaworthy.66 But, in common law negligence claims the defendant is not generally liable for the negligence of independent subcontractors.67
9.33 To what extent does a bailee owe a duty of care in tort independent of any duty in bailment? This issue is of practical importance, because any independent duty of care in tort may be said not to be subject to terms of bailment. In The Kapetan Marcos69 Mustill L.J. refers to duties in negligence and in bailment co-existing. However, the approach in East West Corp. v DKBS AF 1912 A/S reduces the scope for a claim in negligence against a bailee, partly by widening duties in bailment beyond those created by direct or sub-bailment70 and partly by doubting whether any independent duty is owed in negligence by a bailee.71 The view of Mance L.J. appears to be that if there is a relationship of bailment then that will determine the scope of the duty owed by the bailee to the owner of the goods or the person who is entitled to immediate possession of the goods; and there is no need to consider whether there is any further duty in tort.72 But if there is no relationship of bailment, then the usual rules for the imposition of a duty of care in tort will have to be considered.73
9.34 It has been suggested74 that where A does not need to rely on a bailment to found a cause of action, he is not bound by its terms. This suggestion, however, echoes the approach to bailment on terms espoused in Johnson Matthey v Constantine75 but disapproved in The Pioneer Container.76 It also gives rise to serious practical difficulties. If C owes duties as a sub-bailee to A, the goods owner, but on terms of a contract between B and C that limits liability and C damages the goods by dropping other goods on them, A may sue C in negligence without reference to C’s status as bailee. It would, however, emasculate the doctrine of bailment on terms if A could recover damages in full. The better view is that where a duty in bailment is owed by C to A (because of a bailment and sub-bailment) its existence precludes the existence of any greater duty in negligence to A, and possibly excludes the existence of any independent duty in tort at all.77 However, duties to anyone by C other than the bailor will be unaffected. So, for example, in The Captain Gregos (No. 2),78 where the claim against the carrier was by sellers and buyers of the cargo for wrongful interference with the goods (not negligence), the buyers of the cargo were bound, under an implied contract, by the one-year time bar in the Hague Rules. But the sellers were not party to any bailment on such terms and their claim was not time barred.
9.35 Where there is no relationship of bailment between claimant and defendant, then any duty of care in negligence will exist unaffected by any other relationship of bailment. So, for example, sub-contractors of the carrier including stevedores, and suppliers of parts or labour for repairing or maintaining the vessel will also be liable for loss of or damage to cargo caused by their negligence.
9.36 Where the defendant is not fulfilling any part of the carrier’s obligation under the contract of carriage, there is even less justification for excluding a duty of care, on the basis of other related relationships of bailment. So, for example:
- (1) If a vessel is carrying A’s goods, a time charterer who negligently orders a vessel to an unsafe port en route to load additional cargo belonging to B may (subject to questions of foreseeability, causation etc.) be liable to A if his cargo is lost or damaged as a result.79
- (2) Subject to the special position of classification societies as set out in The Nicholas H, and the extension of its approach to other similar situations, surveyors, port authorities and other regulatory or similar bodies may also be liable for loss of cargo resulting from their negligence.
9.37 It will, however, be open to the courts to rely on the “catch all” requirement of “justice” to qualify or negate such a duty,80 as in The Nicholas H.
9.38 In summary, the conventional approach is that a duty of care in negligence exists in relation to the physical safety of the goods, irrespective of whether there are contractual relationships (other than between the claimant and defendant) on Hague Rules terms. Thus, it remains the case that, subject to issues of statutory regulation, contractual protection by Himalaya clauses and bailment on terms (discussed below) a stranger to the contract suing in tort can neither rely on or have invoked against him contractual terms.81 The relevance of a relationship of bailment or sub-bailment depends on whether it exists between the claimant and the defendant.
9.39 The classification of “bailment” as a species of cause of action is of little practical interest, except to note that it counts as a tortious and not a contractual claim for the purposes of founding jurisdiction under CPR 6.20.83 However, it is debatable whether a claim in bailment would be characterised as one in tort for the purposes of the Private International Law (Miscellaneous Provisions) Act 1995, or “Rome II”, which replaced it,84 in circumstances where bailment is essentially consensual even when not contractual.
9.40 A person who voluntarily takes another person’s goods into his custody holds them as bailee85 of that person.86 Bailment may arise pursuant to a contract, but the creation of the relationship is not dependent on the existence of a contract. In cases of carriage of goods by sea the bailee is generally the shipowner or bareboat charterer. A time charterer is not in physical control of the vessel although he may give orders as to its employment and is not a bailee of the vessel.87 The orthodox view is thus that the time charterer is not a bailee of the goods, although as discussed below there are suggestions that he may have a role as an intermediate bailee.
9.41 Bailment is sometimes classified into different types,88 such as gratuitous bailment, bailment for reward and involuntary bailment.89 The distinctions are of little importance for present purposes as in at least the most common types of bailment the standard of care to be shown by the bailee is that which is reasonable in all the circumstances.90 Many of the earlier cases concern common carriers who owe stringent duties, akin to those of an insurer, but it is now very rare to have a carriage of goods by sea by a common carrier, as there will nearly always be a “special contract”, to use the old terminology.
9.42 A bailee of goods is a person (other than the goods owner) who is in possession of the goods. The scope of “possession” is, however, a vexed subject and the concept may include actual, constructive or even symbolic possession. In straightforward cases the person in possession is the person with actual custody of the goods but a more sophisticated analysis may be necessary:
- (1) The courts have sometimes rejected a submission that a person with custody of the goods is in possession of them so as to create a relationship of bailment. In Midland Silicones Diplock J. rejected the argument (at first instance) that the stevedores were bailees of the drum of chemicals that they dropped, on the basis that their physical control of the goods was as agent for the carrier91 and this approach was upheld in the House of Lords.92
- (2) Sometimes the courts have held that someone is acting as the agent of another and it is the principal in those circumstances who has the actual or constructive possession of the goods. The word “agent” is fraught with difficulty in this as in other areas of the law. A person may have custody or control of goods as an agent only if he has a purely ministerial function (for example, the bank in East West), but it is more difficult to apply the concept of possession as an agent to a sub-contractor such as a stevedore, especially when the paradigm case of creation of a sub-bailment is the transfer of possession to a sub-contractor.93
- (3) Conversely it is possible to be a bailee of goods without ever having actual physical possession of them.94
- (4) The law draws a distinction between bailment of a chattel from A to B and a licence granted by B allowing A to store his goods in a particular place, but the line between the two is a fine one. A licence lacks the two key elements of bailment, viz.: a transfer of possession and voluntary acceptance of a duty of safekeeping.95
9.43 Thus, actual physical possession or control is neither a necessary nor sufficient test as to whether a person is a bailee. What is required is to ascertain who has such physical custody and then consider whether he has it as agent for another in which case the latter may be the (only) bailee.96 There is no reason why two parties with different roles may not both be bailees after a single act of transfer of possession.97
9.44 If A bails goods to B and then A transfers property in the goods to D this does not in itself create the relationship of bailment between B and D.98
attornment by a bailee consists in an acknowledgment that someone other than the original bailor now has title to the goods and is entitled to delivery of them. There may be an attornment sub modo; in other words, the bailee acknowledges the right to delivery but only on terms. That a bailee will naturally do for his own protection in many instances. And if there is an attornment on terms, the new bailor can also rely on the terms if he wishes to do so.
9.46 A’s consent is not necessary to effect an attornment by B to D101 in the sense of creating an obligation owed by B to D. However, without such consent B will be liable to A for breach of the original terms of the bailment if he delivers to D’s order not A’s order, and in practice B’s action in attorning to D will almost invariably be at the direction of A.102 Attornment operates as an estoppel as between B and D rather than a form of “novation” of the relationship of bailment. The attornment gives D, who becomes a bailor for this purpose, rights (at least) to damages as against B, but gives no absolute right to the goods.
9.47 Attornment is only effective if the “acknowledgement” is communicated to D.103 If A delivers goods to B with an instruction to deliver to D104 this may make D the original bailor if A acts as D’s agent but these facts do not in themselves constitute attornment.105
9.48 The effect of attornment is that D irrevocably becomes the bailor in substitution for A,106 and B is estopped from denying D’s rights in relation to the goods.
9.49 There is no reason why in general the simple act of attornment should mean that B’s new relationship as bailee of D should be on the same terms as the original relationship as bailee of A. However, in The Aliakmon and Compania Portorafti Commerciale S.A. v Ultramar Panama Inc. (The Captain Gregos) (No. 2) the courts considered that any attornment would be on the bill of lading terms. Apart from the consideration of commercial expediency, it has been suggested this could be justified on the basis of a normal assignment, incorporation of terms by reference or bailment on terms.107 This question is bound up with that of bailment on terms, considered below. If originally there is a bailment on terms, then the relationship between the attornor (B) and the attornee (D) can in principle be on the same terms but only if D consents, expressly or impliedly, to those terms.
9.50 In The Aliakmon Lord Brandon pointed out108 that the mere transfer of a bill of lading did not itself constitute an attornment. But in The Berge Sisar Lord Hobhouse stated that a bill “carried with it a transferable attornment”.109 The Court of Appeal in East West described this subject as “a difficult area”.110 Plainly the act of attornment cannot be “transferable” in the normal sense. Lord Hobhouse is more likely to have meant by that phrase that if the carrier, as bailee, issues an “order” bill, it acknowledges that its transfer will operate in a way akin to an attornment in the sense that it may transfer to the transferee the transferor’s right to possession of the cargo as against the carrier. Such a transfer may occur numerous times where a cargo is sold several times during a voyage. This concept has also been referred to as “attornment in advance”.111
9.51 The two primary (and related) duties of the bailee are to take reasonable care of the goods112 and to redeliver them to the bailor or his order on demand or in accordance with the terms of the bailment.113 As pointed out above the duty of a bailee goes beyond that owed under a duty of care in tort by a non-bailee. The latter owes only a duty not to damage goods, whereas the former owes a duty to protect goods bailed to it from damage or loss.114
9.52 There is an important if sometimes elusive distinction in principle between taking inadequate care of the cargo and dealing with it in an unauthorised manner. The two most common examples of the latter are parting with possession to a sub-contractor or sub-bailee (for example by transhipment) and storing the goods in an unauthorised place (such as on deck). Although liability in such circumstances will depend on the terms of the bailment, the bailee may be either deprived of contractual exceptions on the basis that he has gone outside “the four corners of the contract” and so render himself strictly liable for loss and damage,115 thus losing the benefit of exemptions he might have if he had merely taken inadequate care of the cargo.
9.53 The duty of a bailee is non-delegable. Therefore, a bailee is liable for the defaults of its independent sub-contractors.116 It has been suggested that this principle applies only in the case of contractual bailment.117 The non-delegability of the duty of the bailee has been held to extend to a “quasi-bailee”.118
9.54 At common law if the bailor proves that damage to the goods has occurred during the bailment, the burden of proof is on the bailee to show that this was caused without any fault on his part.119 This position may be modified under Article III rule 2 and Article IV rule 2 of the Hague Rules120 or where the carrier prima facie brings himself within an exception.
9.55 In most cases concerning the carriage of goods by sea the carrier will be in the position of a bailee for reward. The duties of the bailee to protect the goods from damage and to return them to the bailor on demand will be modified or negated in certain situations. For example:
- (1) Where the vessel is imperilled, it may jettison cargo, and the consequences are governed by the law of average.
- (2) In an emergency the doctrine of agency of necessity may be invoked. In The Winson121 Lord Simon said:
- where A is in possession of goods the property of B, and an emergency arises which places those goods in imminent jeopardy: If A cannot obtain instructions from B as to how he should act in such circumstances, A is bound to take without authority such action in relation to the goods as B, as a prudent owner, would himself have taken in the circumstances. The relationship between A and B is then known as an “agency of necessity”, A being the agent and B the principal. This was the situation described by Lloyd J. and denied by the Court of Appeal. Issues as to agency of necessity generally arise forensically when A enters into a contract with C in relation to the goods, the question being whether B is bound by that contract. The purely terminological suggestion that, in order to avoid confusion, “agent of necessity” should be confined to such contractual situations does not involve that other relevant general incidents of agency are excluded from the relationship between A and B. In particular, if A incurs reasonable expenses in safeguarding B’s goods in a situation of emergency, A is entitled to be reimbursed by B.122
- (3) Under the Torts (Interference with Goods) Act 1977 (“TIGA”), section 12, a carrier may acquire a statutory right to sell goods of which the bailor refuses to accept redelivery, although the section was not aimed specifically at carriage of goods by sea. The requirement of at least three months’ notice of intended sale if any moneys are owing by the bailor, and the further restrictions on sale where there is a dispute over this (see Sch. I) make the procedure cumbersome and of little practical use. A court-authorised sale under section 13 of TIGA or CPR 25.1(1)(c)(v) and (2) is likely to be a more useful remedy.
- (4) The doctrine of agency of bailment “of necessity” may also be invoked to permit a bailee to sell goods where the bailor is in breach of an obligation to take redelivery of them.123
- (5) Under Article IV rule 6 of the Hague Rules,124 the carrier may land or destroy or render innocuous dangerous goods rather than deliver them as specified in the contract.
- (4) The doctrine of agency of bailment “of necessity” may also be invoked to permit a bailee to sell goods where the bailor is in breach of an obligation to take redelivery of them.123
9.56 Where the bailor fails to take redelivery of the goods the bailee is likely to remain under a duty to take reasonable care of them as a gratuitous bailee. As such he has a correlative right to charge for the storage of the goods.125 This principle was reflected and discussed126 in the recent Supreme Court decision in The Kos. Owners withdrew the vessel from a timecharter for non-payment of hire at a time when the vessel was part way through loading charterers’ cargo. Owners claimed for the time lost while the cargo was discharged. They relied upon various causes of action, including a claim in bailment. Lord Sumption observed127 that after withdrawal the bailment was (or remained) consensual but not contractual. He then considered and approved the reasoning in Cargo ex Argos and The Winson, to the effect that the bailee had a continuing duty to care for the cargo that provided the basis for a duty on the cargo owner to pay. The owners’ attempt to invoke this principle in The Bulk Chile was rejected on the basis that in that case the owners’ obligations remained governed by the bill of lading contracts that subsisted.128
9.57 A point left open in The Kos is the precise basis on which the bailee should in these circumstances be remunerated. Neither party sought in that case to draw a distinction between actual expenditure by the owners and reasonable remuneration, It is submitted that as a matter of principle129 the latter basis is generally appropriate because a cargo vessel is a profit-earning chattel. Neither was it argued in The Kos that because the cargo on board was only a part cargo a reduced remuneration should be paid. It could be argued by cargo, where for example only a small parcel remained on board, that the reasonable remuneration would be by reference to the relevant freight rate. Owners could no doubt counter that where in the circumstances the whole vessel was reasonably detained in caring for such a parcel, it is the market rate for the vessel not the cargo that applied.
9.58 The main emphasis in carriage of goods cases is on the duty of the bailee, but the duty of the bailor to accept redelivery of the goods130 is also important, particularly where goods that have been rejected or damaged are left in a vessel. In practice the position is frequently complicated by allegations that the damage or rejection arises from the carrier’s fault or breach of contract and/or because the difficulty may arise after the contract of carriage has terminated.131 If goods are left on board the vessel, the bailee may have a right to remuneration on a quantum meruit basis for storage/carriage. The bailee may also have the right to damages for breach of the bailor’s obligation to take redelivery of the goods.132 In the case of a cargo of prawns or cement which could respectively rot or solidify, the economic consequences of such liability could be significant. Even non-perishable cargo may be a liability rather than an asset if it is rejected by the receiver and the ship lies idle while arguments rage over what to do with it.133 It is uncertain to what extent the bailee can enforce any rights to damages in bailment and independently of contractual rights, whether against a “direct” bailor, a “head” bailor, or an attornee.134 The analysis above in relation to remuneration contemplates a situation where the cargo on board is discharged at the earliest reasonable opportunity, and there has been no breach of duty by bailor or bailee. A situation could arise however where the bailor wrongly refuses to take delivery at such a time, adding to the loss or costs sustained by the bailee and, in such a situation, in principle that breach should sound in damages.
9.59 A bailor has, by definition of the relationship of bailment, a right to sue the bailee in bailment.135 In cases of sub-bailment, however, the head bailor may sue the sub-bailee in bailment notwithstanding that the only person with immediate right to possession against the sub-bailee is the intermediate bailee. It would appear to follow that in a chain of bailments, from A through to Z, each party has the right to sue any other bailee or sub-bailee further down the chain.
9.60 The conventional rule is that only the bailor may sue in bailment. Thus, if A bails goods to B and then sells them to C, C cannot sue B in bailment merely by the fact of his ownership.136 This principle is subject to at least two exceptions. First, if there is an attornment (see above) by the bailee to a third party, the duties in bailment are then owed to the attornee instead of the original bailor.137 Secondly a duty in bailment is owed by the ultimate sub-bailee not only to the sub-bailor but to the head bailor (see below). There is possibly a third exception. In East West Mance L.J. stated that the bailee owes duties to “an owner and head bailor of the goods” subject to the possible negation of such a duty where the bailee is ignorant of the interest of anyone other than the immediate bailor. Mance L.J. appears to be directing his remarks at a person who is both owner and head bailor. He might, however, have in mind an owner with some sort of reversionary interest, but a suggestion that a duty is owed to an owner who is not a bailor at all would be contrary to principle.
9.61 In many situations of bailment, outside the context of carriage, the bailor is generally the party who transfers possession to the bailee. In the case of carriage of goods by sea the position is more complicated. This is because although the party that transfers possession of the goods is usually the shipper or his agent, the question of whether the shipper is to be regarded as the bailor will often depend on the contractual arrangements for the sale of the cargo. As pointed out in East West138 whether the shipper or consignee is to be treated as the bailor depends largely on the terms of the arrangements between them, of which the carrier may well be ignorant. The following are examples: (1) where the shipper ships goods for his own account or reserves the right to redirect or deal with the goods vis-à-vis the consignee, he is to be regarded as the bailor;139 (2) a c.&f. seller will, in general,140 be regarded as a bailor; and (3) where the consignee is an f.o.b. buyer the general presumption is that the shipper acts or contracts as agent for the consignee who is considered the bailor.141
9.62 In The Berge Sisar142 Lord Hobhouse opined that a bill of lading “evidences a bailment with the carrier who has issued the bill of lading as the bailee and the consignee as bailor”. It is respectfully suggested that Carver is right in concluding143 that this dictum is, at least in unqualified form, too wide and contrary to the reasoning in The Aliakmon,144 which is to be preferred.145
9.63 The transfer of the bill of lading to a new holder will not terminate the transferor’s right to sue in bailment even if it transfers contractual rights of suit,146 although any surviving right in bailment remains subject to the bill of lading terms.
9.64 Sub-bailment occurs classically where A bails goods to B who then bails them to C.147 C owes the obligations of a bailee to B on the terms of the sub-bailment (see below) and also to A, at least if C has sufficient notice that a party other than B is interested in the goods.148 The terms governing the relationship of sub-bailment are discussed below. According to The Winson149 “a sub-bailee is one to whom actual possession of goods is transferred by someone who is not himself the owner of the goods but has a present right to possession of them as bailee of the owner”.