Primary remedies

Chapter 13

Primary Remedies

13.1 This chapter considers in outline the principal “primary” remedies available to a party to a bill of lading dispute. These may in principle be available after a full trial or on application for summary judgment. The description “primary” is used to distinguish the substantive remedy that a party is ultimately likely to be seeking from ancillary, interim or procedural remedies that are considered in the next chapter. These primary remedies consist of:

1. (1) damages, by far the most important remedy in practical terms;
   
2. (2) injunctions; and
   
3. (3) other equitable remedies such as specific performance, rectification and declarations.

(A) Damages

13.2 In the vast majority of claims that come before courts or arbitrators, the remedy sought for the wrong alleged will be damages. A characteristic claim will be for damages for loss of or damage to cargo.¹ The cause of action may be for simple breach of contract of carriage, but there may also be claims for negligence, conversion and breach of duty as bailee either by themselves or cumulatively.

13.3 The measure of damages will be ascertained by application of common law principles (assuming that English law applies) as modified by Article IV rule 5(b) of the Hague-Visby Rules,² if applicable.

13.4 The principles applicable spring from three fundamental rules of the general English law of damages:

1. (1) the basic measure of damages is “that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in had he not sustained the wrong for which he is now getting his compensation or reparation”.³ This rule is subject to the qualification that where the claim is for breach of contract, the object of a damages award is not to put a party back to the position where he started, but to put him in the position he would have been in had the contract been performed in accordance with its terms. This is an important qualification in the present context, since in the paradigm claim for breach of contract of carriage by the carrier the allegation will be that he has, for one reason or another, failed to deliver the cargo in the right place or in the right condition or at the right time.
   
2. (2) Only damages caused by the breach of contract or tortious act complained of can be recovered. Causation is a complex subject, but essentially the breach of contract or tort is causative if it is “an effective cause” of the loss or damage.⁴ Related to the concept of causation is that of remoteness. For policy reasons damage is not recoverable if too “remote”. Broadly, a defendant found liable in negligence will have to compensate a claimant for damage of a kind that was a reasonably foreseeable consequence of his negligence. In a breach of contract claim, the contract breaker will be liable to compensate for damage of a kind that the defaulting party should reasonably have contemplated would flow from the breach.⁵ The difference between the tests for these two causes of action is rarely of significance in bill of lading cases. The court will take a pragmatic view and draw the necessary inferences on such questions as the knowledge or presumed knowledge of a carrier as to the practice in the trade in which he is involved and thus the possible consequences of a breach of contract.⁶
   
3. (3) Also related to the concept of causation is that of mitigation. A party is under a “duty”⁷ to act reasonably to avoid or minimise loss although the duty imposed is not an exacting one. This is because “…where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty”.⁸

Non-delivery of cargo and delivery of damaged cargo

13.5 These two important categories are taken together as the principles applicable are similar. The discussion focuses on contractual claims. In theory there are different criteria for the recovery of damages in each of contract, negligence and conversion. While these differences may be important in claims for consequential loss,⁹ they will not in practice affect the basic measure of damages for cargo not delivered, or for cargo that has been delivered in a damaged condition.

13.6 Where cargo is not delivered at all, the prima facie measure of damages, reflecting the fundamental principle that damages are those that may “fairly and reasonably be considered as arising naturally according to the usual course of things from the breach of contract”, is their market value at the time and place at which they should have been delivered.¹⁰ This is often referred to as “sound arrived value”. That is the position at least where there is an available market for such goods, which assumes that the goods owner may purchase a replacement for those lost or damaged (see below).

13.7 The same principles are applicable in relation to damaged cargo, although here the loss is the sound arrived value less the actual value of the damaged cargo. This is so even if the cargo owner had contracted to sell the cargo at a price different from actual market value,¹¹ because “the value is to be taken independently of any circumstances peculiar to the plaintiff”¹² and “the irrelevance of the receiver’s means of avoiding actual pecuniary loss has long been recognised”.¹³ For similar reasons a cargo owner is entitled to recover full damages for his loss even if he has been paid in full by a purchaser from him, although he will hold any damages received on trust for the purchaser.¹⁴ Thus, the arrangements whereby a claimant has agreed to sell or deal with the cargo are generally irrelevant to the claim for loss of value of the cargo, being characterised by the law as “res inter alia actos” (which can be labelled “legally irrelevant acts”), although as discussed below they may be relevant to claims for consequential loss.

13.8 In Exportadora Valle de Colina v Maersk Line,¹⁵ allegations were made of loss and damage to large numbers of grapes carried from Chile to Europe. The grapes were carried in different sized boxes. The claim was calculated by reference to a sound arrived value, itself assessed by reference to different categories of cargo, including not only actually sound cargo, but cargo that was not physically sound even though no claim was brought in respect of it. This resulted in the claimants’ loss being understated. In addition the claim was initially calculated based on an average value taken across all sizes of cartons, even though smaller cartons had a more significantly reduced value than larger ones. The court allowed the claimants to amend their claim, but the facts illustrate the need for care in calculating an appropriate figure for sound arrived value.

13.9 There is a difference between benefit to a claimant arising from res inter alia actos and that arising from an act of mitigation. In the first case, the benefit is not taken into account in the computation of damages because there is no relevant causal connection between the incurring of the benefit and the breach of contract or commission of a tort; whereas in the second case, the benefit results from fulfilling the obligation that arises out of the fact that there has been a breach and loss. So where the claimant cargo owner has suffered damage because the cargo was damaged and lost value as a result, the facts that his purchaser paid him nevertheless,¹⁶ or he was insured against damage are irrelevant.¹⁷ However, in the second case, where the cargo is rejected by the purchaser but the claimant finds an alternative purchaser pursuant to his obligation to mitigate loss, the obligation to go out and try to find another purchaser at a lower price arises because of the breach, and any benefit obtained mitigates the damage.¹⁸

13.10 Cargo claims are often brought as subrogated actions after the cargo insurer has paid the claimant under the cargo policy.¹⁹ The insured value of the cargo is not, however, the relevant value for purposes of calculating damages.

13.11 If the cargo owner has saved the cost that he would have incurred in getting the cargo to the place of delivery (such as where freight has not been paid and is not payable), that cost must be deducted from the damages.²⁰

13.12 The assessment of market value may not be straightforward. A market implies the ability to buy a commodity or cargo as well as sell it.²¹ The price at which a party had actually agreed to sell cargo may or may not be evidence as to market value, depending on the circumstances.²² There may be no market for the goods in question, either because of their nature or because a “command economy” rather than a market economy exists at the intended destination of the goods. That was the case in The Athenian Harmony,²³ where the cargo was jet kerosene that was contaminated while being carried to Iran. The cargo owners sued the carriers in tort. The carriers argued that there was no market for kerosene in Iran and thus no evidence of loss of value. This argument was rejected. Colman J., having observed that the principle for assessment of damages in such cases was the same whether the claim was in contract or tort, said:²⁴

13.13 In The Ocean Dynamic,²⁵ a cargo of cherries was found to be contaminated by fragments of broken glass. It was common ground that as the cherries were intended to be used in pies, the whole consignment of over 3,000 cartons was to be regarded as damaged notwithstanding that the “damage” was limited to a few fragments of a broken whisky bottle that had been found within a small number of cartons. It was held that the sound arrived value of the consignment was to be assessed by including the customs duties payable at the time the goods arrived, and that this should be the duty payable as at the arrival date rather than the lesser amount that had actually been paid on the basis of a lower price agreed when the market was lower.²⁶

13.14 The relevant value is the value to the cargo owner and damages are thus expressed in the currency in which the loss was suffered by the claimant.²⁷ So where, for example, a claimant suing for loss of deck cargo was an Italian company that had purchased replacement cargo in Italian lira, it was nevertheless entitled to damages expressed in US dollars because the claimant was part of a US group of companies whose involvement in the transaction that led to the shipment was pursuant to a contract whose currency was dollars.²⁸ Thus, in such situations the claimant takes the risk (and benefit) of currency fluctuation between the date of breach and the date of judgment.

13.15 “Remoteness” arguments rarely avail a carrier in the context of claims concerning the diminution in the value of damaged cargo. However, in the chemical carriage trade, in particular, very slight contamination of the cargo (which may only be in the order of a few parts per million or less) caused by residues of previous cargo or from a tank coating, may contaminate the cargo in the sense of effecting a physical change that renders the cargo less valuable to the claimant. Sometimes the cargo is reduced in value because the claimant had intended a particular use for it, or because the contamination means that the cargo is in breach of a certain specification in a sale contract. In either case it is reasonable for the carrier to be aware of the position. In such circumstances the carrier ought in principle to be able to argue that it could not be contemplated or foreseen that the presence of minute quantities of “contaminant” would result in the loss alleged by the claimant. There are, however, no reported cases in which this argument has succeeded, no doubt because in general terms a carrier is to be taken to have the requisite knowledge of the cargo being carried and because seaworthiness and cargo care obligations are assessed by reference to the cargo in question and not in the abstract.²⁹

13.16 There may be a failure to deliver even though the goods remain undamaged. The Good Friend³⁰ involved a cargo of soya beans purchased by the claimants, a Cuban company. Discharge of the cargo in Havana was refused in July by the Cuban authorities because of the presence of insects, although the cargo was not itself damaged. There was a significant delay before the claimant resold the cargo in September and it was ultimately discharged in Tenerife. The carriers were held liable for the presence of insects, and the claimants’ claim was formulated by reference to the market value of the cargo as evidenced by the cost of purchasing a replacement in October, less the net proceeds of resale. The carriers argued that, on a rising market, the claimants had acted unreasonably in delaying the resale and repurchase and that the purchase and resale prices were respectively too high and too low. The judge appeared to accept that the relevant test was by reference to market value in July, but was “not too concerned” about delay to September, as changes to that date affected repurchase and resale equally. The extra amount claimed by reference to the rise in the market between September and October was not recoverable as it was not “fairly within the contemplation of the parties” however reasonable the claimants’ conduct. This case is to be treated as an example of judicial pragmatism, rather than an erosion of the principle that the relevant value is the value (or diminution in value) when the cargo should have been delivered, although this is in any event only a prima facie rule.³¹ It was clearly within the contemplation of the parties that if discharge could not be effected due to breach by the carrier the claimant might suffer losses in disposing of the cargo and finding a replacement.

13.17 In appropriate circumstances the loss claimed may include elements of subsidy lost or duty or tax forfeited.³²

13.18 One species of non-delivery is delivery in the wrong place, that is, at B instead of A. There are two possible measures of damages in such cases. In the first the claim will be for the value of the goods at A, albeit giving credit for the value of the goods at B. Alternatively, the claimant may be able to claim the cost of getting the goods from B to A. In such cases, if the claimant acts unreasonably and adopts the costlier option between replacing the goods at A or shipping the goods from B to A, this may constitute a failure to mitigate, and the claimant would only be able to recover the lower cost.³³

13.19 Particular problems arise in the case of undivided bulk cargoes. The effect of section 20A of the Sale of Goods Act 1979 is that buyers of such a cargo become owners in common of the bulk and are thus entitled to a pro rata share of it. One of the triggers for operation of the section is payment of the price, and complex questions may arise when the time of that payment (and so the passing of property) has an effect in relation to which party has a cause of action against the carrier.

Late delivery

13.20 In cases other than loss of or damage to goods, the sound arrived value may be an ingredient in the calculation of damages. However, it is not the defining measure, and the particular arrangements entered into by the claimant may affect the measure of damages recoverable.

13.21 A common complaint is late delivery of cargo. Late delivery may mean that the cargo is worth less when it arrives than when it should have arrived, due to a fall in the relevant market. It may alternatively cause the wastage of expenditure by the cargo owner who may, for example, have booked a crane for a specific period to unload and move heavy cargo. Whether such losses are recoverable depends on whether “damage actually caused by the breach [is such] as the defaulting party should reasonably have contemplated would flow from the breach”.³⁴

13.22 In practice, because carriers know that commodity markets fluctuate and cargo owners make arrangements to handle and deal with cargo, it is rare for a carrier to argue successfully that such losses are too remote. The prima facie measure of damages is the difference in value between that when they were delivered and that when they should have been delivered.³⁵

13.23 Similarly it is possible that loss of profits may be recovered if, in the particular case, they fall within the general remoteness test. In The Pegase,³⁶ there was a delay of 65 days in the claimants obtaining their cargo of chromite sand, and in consequence they claimed loss of profits on sales that would otherwise have been made to customers. (This was in addition to claims for having to purchase replacement material at a high price and for loss of goodwill.) Goff J. explained that such claims for loss of profits are not usually made out because any loss of profits is normally reflected in adopting the market value test. But he held that there was no rule of policy excluding or limiting the recovery of that type of damages against a carrier. He remitted the award concerned to the arbitrators for further findings on the extent to which the carriers should have contemplated that the receivers would need the cargo for immediate resale. However, he rejected the claim for loss of goodwill for lack of any evidence that it fell within the “contemplation” test.

Failure by carrier to ship cargo

13.24 The consequences of a carrier failing to ship goods are the same as those for failing to deliver them in the sense that what the claimant is deprived of is the presence of his goods at their contractual destination by the contractual delivery date. In The Kriti Rex³⁷ the carrier failed, in breach of contract, to ship cargoes of bananas, which, because of their perishable nature, could no longer be shipped at a later stage. Moore-Bick J. summarised the relevant principles for the assessment of damages for failure to ship cargo as follows:³⁸