Sze Hai Tong Bank v Rambler Cycle Co
(PC) Privy Council
22 June 1959
[1959] 2 Lloyd's Rep. 114
Summary
Subject: Shipping
Keywords: Bills of lading; Carriage by sea; Contracts; Exclusion clauses; Indemnities; Limit of liability
Catchphrases: Carriage by Sea; bill of lading; production
Abstract: A clause in a bill of lading providing that "the responsibility of the carrier... shall be deemed...
to cease absolutely after the goods are discharged" does not excuse the carrier if, after discharge, he
delivers them to the consignee without production of the bill of lading. A bill of lading required goods to
be delivered "unto order or his or their assigns." Cl.2(c) of the bill of lading provided that "the
responsibility of the carrier, whether as carrier or as custodian or bailee of the goods shall be deemed... to
cease absolutely after they are discharged" from the ship. After discharge the carrier delivered the goods
to the consignee without production of the bill of lading but against an indemnity from the consignee's
bank.
Summary: Held, cl.2(c) did not protect the carrier as it must impliedly be limited so as to give effect to
the main object and intent of the contract; the bank must indemnify the carrier. (Glynn v. Margetson &
Co. [1893] A.C. 351 followed; G H Renton & Co v. Palmyra Trading Corporation of Panama [1957] A.C.
149 followed; and The Cap Palos [1921] P. 458 followed; Bontex Knitting Works v. St. John's Garage
(1943) 60 T.L.R. 44 considered; Alexander v. Railway Executive [1951] 2 K.B. 882 considered; Karsales
(Harrow) v. Wallis [1956] 1 W.L.R. 936 considered; Smackman v. General Steam Navigation Co. (1908)
13 Com. Cas. 196 considered; Ashby v. Tolhurst [1937] 2 K.B. 242 considered; and Swan Hunter and
Wigham Richardson v. France Fenwick Tyne and Wear Co. [1953] 1 W.L.R. 1026 considered; Chartered
Bank of India, Australia and China v. British India Steam Navigation Co. [1909] A.C. 369 distinguished).
Cases Cited
Alexander v Railway Executive, [1951] 2 K.B. 882; [1951] 2 All E.R. 442; [1951] 2 T.L.R. 69; (1951) 95
S.J. 369 (KBD)
Ashby v Tolhurst, [1937] 2 K.B. 242; [1937] 2 All E.R. 837 (CA)
Bontex Knitting Works v St John's Garage, (1943) 60 T.L.R. 44
Chartered Bank of India, Australia and China v British India Steam Navigation Co Ltd, [1909] A.C. 369
(PC)
GH Renton & Co Ltd v Palmyra Trading Corp of Panama (The Caspiana), [1957] A.C. 149; [1957] 2
W.L.R. 45; [1956] 3 All E.R. 957; [1956] 2 Lloyd's Rep. 379 (HL)
Glynn v Margetson & Co, [1893] A.C. 351 (HL)
Karsales (Harrow) Ltd v Wallis, [1956] 1 W.L.R. 936; [1956] 2 All E.R. 866; (1956) 100 S.J. 548 (CA)
Owners of the Cap Palos v Alder, (1920) 5 Ll. L. Rep. 442 (PDAD)
Owners of the Cap Palos v Alder, [1921] P. 458; (1921) 8 Ll. L. Rep. 309 (CA)
Smackman v General Steam Navigation Co, (1908) 13 Com. Cas. 196
Swan Hunter & Wigham Richardson Ltd v France Fenwick Tyne & Wear Co Ltd (The Albion) (No.2),
[1953] 1 W.L.R. 1026; [1953] 2 All E.R. 679; [1953] 2 Lloyd's Rep. 82; (1953) 97 S.J. 524 (CA)
Citations to the Case
Applied by
Anglo Continental Holidays v Typaldos (London), [1967] 2 Lloyd's Rep. 61; (1967) 111 S.J. 599 (CA)
John Carter (Fine Worsteds) Ltd v Hanson Haulage (Leeds) Ltd, [1965] 2 Q.B. 495; [1965] 2 W.L.R.
553; [1965] 1 All E.R. 113; [1965] 1 Lloyd's Rep. 49; (1965) 109 S.J. 47 (CA)
END OF DOCUMENT
Copr. (c) West 2001 No Claim to Orig. Govt. Works
FOR EDUCATIONAL USE ONLY
Sze Hai Tong Bank Ltd. Appellants; v. Rambler Cycle Co. Ltd.
Respondents.
Judicial Committee
PC
Lord Denning, Lord Jenkins and RT. Hon. L. M. D. de Silva
1959 June 22.
On Appeal from the Court of Appeal of the Colony of Singapore.
Contract--Exceptions clause--Conversion--Cargo released to consignee against indemnity without
production of bill of lading--"Responsibility of ... carrier ... to cease absolutely after" discharge--Whether
carrier liable.
Conversion.
Shipping--Bill of lading--Release of goods without production of--Exceptions clause--Responsibility of
carrier to "cease absolutely" after discharge-- Construction--Implied limitation--Subject to primary
contractual obligation to deliver only against production of bill of lading.
Singapore--Shipping.
The respondent manufacturer shipped from England to Singapore bicycle parts to the value of about
<<PoundsSterling>>3,000 under a bill of lading requiring the goods to be delivered "unto order or his or
their assigns," and which, by clause 2, provided that "(c) ... the responsibility of the carrier ... shall be
deemed ... to cease absolutely after the goods are discharged" from the ship.
After the goods had been discharged in Singapore the carrier's authorised agent, in accordance with what
was alleged to be the common practice there, released them to the consignee against a written indemnity
by the latter's bank in favour of the carrier, but without production of the bill of lading. The consignee
never paid for the goods, and on a claim by the respondent against the carrier for damages for breach of
contract or for conversion the latter brought in the consignee and the indemnifying bank as third parties,
claiming to be entitled to be indemnified by them. The bank - the present appellant - admitted liability to
indemnify the carrier if the latter were held liable:Held, that a shipowner who delivers without production of the bill of lading does so at his peril. In
delivering the goods, without production of the bill of lading, to a person who, to its knowledge, was
other than one entitled under the bill og lading to receive them, the carrier was liable for breach of
contract and for conversion, and was not protected by the exception clause 2 (c). The extreme width of
that clause must be cut down by an implied limitation, it must be limited and modified to the extent
necessary to enable effect to be given to the main object and intent of the contract, and at least so as not to
permit the carrier deliberately to disregard its obligation as to delivery - to deliver against production of
the bill of lading.
Glynn v. Margetson & Co. [1893] A.C. 351 at 357; 9 T.L.R. 437; G. H. Renton & Co. Ltd. v. Palmyra
Trading Corporation of Panama [1957] A.C. 149 at 164; [1957] 2 W.L.R. 45; [1956] 3 All E.R. 957;
affirming [1956] 1 Q.B. 462 at 501; [1956] 2 W.L.R. 232; [1956] 1 All E.R. 209; The Cap Palos [1921] P.
458 at 471; 37 T.L.R. 921 applied.
Chartered Bank of India, Australia and China v. British India Steam Navigation Co. Ltd. [1909] A.C.
369; 25 T.L.R. 480 distinguished.
Judgment of the Court of Appeal of Singapore affirmed.
APPEAL (No. 20 of 1958) from a judgment of the Court of Appeal of the Colony of Singapore
(September 30, 1957) affirming a judgment of the High Court of Singapore (January 17, 1957).
The following facts are taken from the judgment of the Judicial Committee: The Rambler Cycle Company
Limited manufactured bicycles in England and exported them to various parts of the world, and in
particular to Singapore, where they had customers called the Southern Trading Company. In 1954 those
customers ordered bicycle parts to the value of nearly <<PoundsSterling>>3,000 from the Rambler Cycle
Company. Payment was to be 90 days, documents against payment. The Rambler Cycle Company made
the goods and sent them off to Singapore. They shipped the goods on the S.S. Glengarry, which belonged
to Glen Line Limited, and they paid the freight in advance. The steamship company issued a bill of lading
dated July 30, 1954, in which they acknowledged that the goods were shipped by the Rambler Cycle
Company and were to be conveyed by the Glengarry and were to be delivered at the port of Singapore
"unto order or his or their assigns." There was noted on the bill of lading a request by the Rambler Cycle
Company saying: "Notify: Southern Trading Company, C Short Street Singapore. " The Rambler Cycle
Company insured the goods through Lloyd's and obtained an insurance certificate. That covered the goods
during the voyage and for 90 days thereafter. The Rambler Cycle Company also drew a bill of exchange
on the Southern Trading Company for the amount due. That was payable 90 days after acceptance. The
Rambler Cycle Company also made out an invoice for the goods. The Rambler Cycle Company took all
those documents to the Bank of China in London, who passed them on to their branch in Singapore. That
branch was to hold the until the bill of exchange was paid and also any charges.
Clause 2 of the bill of lading provided: "(c) ... the responsibility of the carrier, whether as carrier or as
custodian or bailee of the goods shall be deemed ... to cease absolutely after they are discharged" from the
ship.
On September 1, 1954, the Glengarry arrived in Singapore. The shipowners had agents there called
Boustead and Company, who acted for them in every way. On the authority of those agents, on
September 2 and 3, 1954, the goods were discharged from the ship and placed in the go-downs of the
Singapore Harbour Board. (That was done, no doubt, under clause 10 of the bill of lading "at the risk and
expense of the owners of the goods.") Those shipping agents also wrote to the Southern Trading
Company to notify them of the arrival of the goods. The Southern Trading Company wished to get
possession of the goods but did not want to pay for them at that time. So they went along to their own
bank, the Sze Hai Tong Bank Limited, and got that bank to sign a form of indemnity in favour of the
shipowners, agreeing that, if the goods were released to the Southern Trading Company, they would
indemnify the shipping company against any loss thereby occasioned. The indemnity was signed both by
the Southern Trading Company and the Sze Hai Tong Bank and dated September 3, 1954. When the
shipping company's agents received that indemnity, they authorised the Harbour Board to deliver the
goods to the Southern Trading Company. The shipping company's agents never saw the bill of lading. It
was not produced to them. It was, of course, still in the hands of the Bank of China, who would not
deliver it except against payment. Yet the shipping company's agents issued a delivery order for the goods
in favour of the Southern Trading Company. On September 4 and 6, 1954, the goods were removed from
the Harbour Board premises by the Southern Trading Company.
The Southern Trading Company never did pay for the goods. They did not pay the draft. The Rambler
Cycle Company did not know the goods had been delivered to the Southern Trading Company. They
assumed that the goods had remained in warehouse at Singapore. They arranged for the insurance to be
extended beyond the 90 days for two further periods of 30 days each consecutively. Eventually, in
January, 1955, they discovered what had happened and in August, 1955, they brought an action against
the shipping company claiming damages for breach of contract or for conversion. The shipping company
brought in the Southern Trading Company and the Sze Hai Tong Bank as third parties, claiming that they
were entitled to be indemnified by them.
The action was tried by Whitton J. in the High Court of Singapore. He gave judgment for the cycle
company against the shipping company for << PoundsSterling>>3,005 11s. 6d., and also made a
declaration that the shipping company were entitled to be indemnified by the third parties. The shipping
company did not appeal but the Sze Hai Tong Bank did so. The Court of Appeal of Singapore (Knight
Ag.C.J. of Singapore, Thomson C.J. of Malaya, and Chua J.) dismissed the appeal. The Sze Hai Tong
Bank now appealed to Her Majesty in Council. The contest before the Board was solely whether
judgment was properly entered against the shipping company: for if it was, the Sze Hai Tong Bank
recognised that they were bound to indemnify the shipping company.
1959. May 6, 7, 8. T. G. Roche Q.C. and G. R. F. Morris Q.C. for the appellants. There are only two
effective parties before the Board - the appellant bank and the respondents, the Rambler Cycle Company and there is only one issue - the construction of the bill of lading. There is in Singapore a practice
whereby the ship's agents will always release goods without production of the bill of lading providing
they are protected by an indemnity, and in this case the appellant bank gave the indemnity. The main
defence to the action was that the bill of lading by its express terms limited the liability of the Glen Line
to the period from the time the goods were taken on board to the time of discharge from the ship, and
reliance was placed on the decision of this Board in Chartered Bank of India, Australia and China v.
British India Steam Navigation Co. Ltd., [FN1] where, on a very similar clause, it was held that the
shipowners were not responsible. It is submitted (1) that clause 2 is not an exceptions clause at all, and (2)
that misdelivery is not a fundamental breach but a breach in the course of the execution of the contract.
But the main question is on the construction of the bill of lading as to the effect of the contract. The Court
of Appeal below distinguished the Chartered Bank case [FN2] on the ground that here the Glen Line
through their agents had reassumed dominion over the goods. No such point was pleaded, or taken in the
court below, or argued in either court, and is not supported by any evidence, and it is submitted that the
point should not be open here.
FN1 [1909] A.C. 369; 25 T.L.R. 480.
FN2 [1909] A.C. 369; 25 T.L.R. 480.
The first contention is that the trial judge was right in saying that "conditions 2 and 10 protect the
defendants from liability, and to succeed I think the plaintiffs must show that these conditions are not
enforceable in the circumstances of this case, and this involves the proposition that the Chartered Bank
case [FN3] is not applicable." The second question is whether the trial judge was right in saying that he
was compelled by authority to disregard clause 2 - which he held was an exceptions clause. Recent
authorities will be referred to in support of the submission that the judge entirely misunderstood the
position. Then there are the points whether the shipowners have been guilty of a fundamental breach, and
whether clause 2 is an exceptions clause on which they can rely. They are really all points of construction.
FN3 [1909] A.C. 369.
With regard to the first point, the Court of Appeal distinguished the Chartered Bank case [FN4] on a
ground which simply cannot hold water. Here the carriers are not liable as bailees. They are liable up to
the time of discharge, but if the consignees do not collect the goods, then under the contract the carriers
are not liable; there cannot be imposed on them some contract which they had never undertaken at all. In
the Chartered Bank case [FN5] the Board said that the clause there was clear and unambiguous and
should be applied. The ratio decidendi of that case was not any question of acting outside the scope of
authority - they said that it was immaterial to decide that, and they clearly relied on the clause. In the
present case the carriers have to avail themselves of the final words of clause 2 (c), "the responsibility of
the carrier ... shall be deemed ... to cease absolutely after [the goods] are discharged" from the ship.
FN4 [1909] A.C. 369.
FN5 [1909] A.C. 369.
The important paragraph of the statement of claim states that "notwithstanding the demands of the
plaintiffs for the delivery of the said goods in accordance with the provisions of the said bill of lading the
defendants have ... failed to deliver the said goods or any of them to the plaintiffs ..." It is quite clear that
the demands were subsequent to the misdelivery. There is no evidence of any demand while the goods
were in the custody of the carriers. [Reference was made to Smith v. Young. [FN6]]
FN6 (1808) 1 Camp. 439, 440.
Next, the trial judge was right in saying that clauses 2 and 10 on their ordinary construction effectively
protected the carriers. Taking it first as a question of principle, it is impossible to say that a party cannot
as it were contract out of a fundamental obligation; that all depends on what is fundamental, and that
depends on the contract. In the absence of a statute the parties can make any contract they choose; what is
a fundamental breach depends on what is the obligation: Nelson Line (Liverpool) Ltd. v. James Nelson &
Sons Ltd. [FN7] One must read the contract as a whole to find out what is a fundamental breach and look
at the clause in question to see what it provides: Gibaud v. Great Eastern Railway Co. [FN8]; Smeaton
Hanscomb & Co. Ltd. v. Sassoon I. Setty, Son & Co. (No. 1) [FN9]; J. Spurling Ltd. v. Bradshaw
[FN10]; Karsales (Harrow) Ltd. v. Wallis. [FN11] Originally the carriers had a duty to take care of the
goods which, it is assumed, ran on until delivered; that arose because they were carriers, custodians or
bailees, and under the contract which makes them that it is said that their responsibility as such shall cease
after discharge. Clause 2 is not an exceptions clause. The duty to take care is an important part of
bailment, and this clause limits the time under which they are to be responsible, and all responsibility
thereafter ceases. That is defining a period of time. The responsibility having ended, one cannot say that it
revives because subsequently something which would have been a breach of contract occurred.
[Reference was made to Carver's Carriage of Goods by Sea, 10th ed., p. 690, and to Heugh v. London and
North Western Railway Co. [FN12]]
FN7 [1908] A.C. 16; 24 T.L.R. 114.
FN8 [1921] 2 K.B. 426, 435; 37 T.L.R. 422.
FN9 [1953] 1 W.L.R. 1468, 1470; [1953] 2 All E.R. 1471.
FN10 [1956] 1 W.L.R. 461, 464; [1956] 2 All E.R. 121.
FN11 [1956] 1 W.L.R. 936, 940; [1956] 2 All E.R. 866.
FN12 (1870) L.R. 5 Ex. 51.
Here the contract absolves the carriers from the resulting liability as bailees after the carriage is done.
They are excused from that liability which would otherwise arise by law. So, it is submitted, it is not an
exception; and it is not a fundamental breach; there cannot be a fundamental breach unless there is a
contractual duty, and there is not. Suppose this were, contrary to the above submission, an exceptions
clause and a fundamental breach, the words of this contract are so clear that there is no room for cutting
them down by implying a term that they do not apply: Ashby v. Tolhurst. [FN13] Compania Importadora
di Arroces Collette y Kamp S.A. v. P. & O. Steam Navigation Co., [FN14] where the shipowner was held
liable for misdelivery at the ship's side, is an entirely different case, because conversion occurred when
the shipowner was undoubtedly a bailee. There is complete freedom to make whatever contract one likes
after discharge, and the carriers did so; clause 2 (c) is so clear that there is no further room for controversy.
Not delivering against a bill of lading is not an absolute obligation. No distinction can be drawn between
the present and the Chartered Bank case. [FN15]
FN13 [1937] 2 K.B. 242; 53 T.L.R. 770; [1937] 2 All E.R. 837.
FN14 (1927) 28 Ll.L.Rep. 63.
FN15 [1909] A.C. 369.
To extend the duration of the contract one must vary it, and to do that one must create a new contract, and
to do so there must be parties. There is no breath of that in the pleadings and the point was not taken in
the first court and should not be open now: North Staffordshire Railway Co. v. Edge [FN16]; The
Tasmania. [FN17] The question of repudiation, which was dealt with by the trial judge, is really
immaterial in this case. [Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [FN18] was referred to.]
FN16 [1920] A.C. 254, 268; 36 T.L.R. 115.
FN17 (1890) 15 App.Cas. 223, 225.
FN18 [1926] A.C. 497, 509; 42 T.L.R. 359.
On the true construction of the contract, and in particular of clause 2 (c), and on the facts, Glen Line were
not liable to the respondents.
Sir David Cairns Q.C. and Michael Kerr for the respondents. The respondents put the case on the basis
that the act of the appellants and of the shipowners in delivering the goods to the Southern Trading
Company was a fundamental breach of this contract and a conversion. That involves seeing what this
contract fundamentally was. The bill of lading is a contract to carry the goods to Singapore and to deliver
them to order, and the contract continues in force up to the time of delivery to order. It is true that under
certain exceptions clauses the responsibilities of the carriers may be varied in certain ways, but the
contract is not one which comes to an end until delivery to order has taken place, unless, of course, there
is some frustrating event or repudiation and acceptance of repudiation which brings it to an end at an
earlier date. In the absence of anything of that kind it is a contract which continues up to the time of
delivery to order, and one of the fundamental obligations under the contract is to deliver to order. If that is
so, then it is clearly established that the delivery to a person other than the person to whom delivery is
authorised by the shipper is a breach of contract and a conversion: Glyn Mills Currie & Co. v. East and
West India Dock Co. [FN19] states the general principle. See also on this The Stettin [FN20]; Bristol and
West of England Bank v. Midland Railway Co. [FN21]; Hannam v. Arp [FN22] and Skibsaktieselskapet
Thor Thoresens Linje v. H. Tyrer & Co. Ltd. [FN23]
FN19 (1882) 7 App.Cas. 591, 611.
FN20 (1889) 14 P.D. 142, 147; 5 T.L.R. 581.
FN21 [1891] 2 Q.B. 653, 662; 7 T.L.R. 627.
FN22 (1928) 30 Ll.L.Rep. 306, 308.
FN23 (1929) 35 Ll.L.Rep. 163, 170.
Admittedly this is finally a question of construction. From the authorities the law has been developed
along two apparently rather different lines, one on the basis of construction and one on the basis of an
overriding rule of law that an exceptions clause is not to be construed in such a way as to provide
protection against a fundamental breach of the contract. It is conceded that if an exceptions clause is
sufficiently clear and precise in its terms it can be protection against even a fundamental breach: The Cap
Palos. [FN24] Under the construction submitted for the appellants the goods could be delivered to a
stranger. The first submission in relation to the construction is that before an exceptions clause can be
given that sort of effect it has to be in language which admits of no other interpretation. A clause of this
kind is to be given not the widest interpretation but a narrow one having regard to the fundamental
purpose of the contract: London and North Western Railway Co. v. Neilson. [FN25] Woolmer v. Delmer
Price Ltd., [FN26] cited with approval in J. Spurling Ltd. v. Bradshaw, [FN27] is a strong case, in which
McNair J. said that the onus is on the defendants to bring themselves within the clause and to show
affirmatively that the loss of the goods was not due to some fundamental breach of contract. It is a much
easier position here, because it is established on the evidence that there was a fundamental breach of the
contract. In Alexander v. Railway Executive [FN28] Devlin J. referred to the bailee's duty of care. It may
be that in the circumstances of this case, because of clause 2 (c), the position is different in relation to the
duty of care. It may be that under clause 2 (c) the ordinary duty which would rest on the carrier would be
excepted. But it still remains that so far as delivery of the goods to the right person, or refraining from
delivery to the wrong person, is concerned, that is something which remains fundamental to this contract.
FN24 [1921] P. 458, 470; 37 T.L.R. 921.
FN25 [1922] 2 A.C. 263, 271, 275; 38 T.L.R. 653.
FN26 [1955] 1 Q.B. 291, 294; [1955] 2 W.L.R. 329; [1955] 1 All E.R. 377.
FN27 [1956] 1 W.L.R. 461.
FN28 [1951] 2 K.B. 882, 887; [1951] 2 T.L.R. 69; [1951] 2 All E.R. 442.
On the evidence here the agents acted as agents of the Glen Line. It must therefore be taken that the
delivery of the goods to the Southern Trading Company was the act of the Glen Line themselves. The first
distinction between this case and the Chartered Bank case [FN29] is that in the latter the act which
deprived the true owners of the possession of the goods was the act of the landing agents done in fraud of
the true owners and in fraud of their own principals. It would seem that there is no case which shows that
the fraudulent act of the agent, even if it be shown to be committed in the course of his employment, is for
all purposes the act of the principal: see Lloyd v. Grace, Smith & Co. [FN30] A further ground on which
it can be said that the agent's act in the Chartered Bank case [FN31] was not the act of the principal was
that it could not be said that it was an act in the course of the employment. On those grounds the
Chartered Bank case [FN32] is quite clearly distinguishable from the facts of this case, and it cannot be of
very much assistance here. It would be an overstraining of the doctrine of stare decisis to apply it here in
the circumstances. If that case cannot be distinguished it would, it is submitted, be decided differently
today. So far as the Compania Importadora case [FN33] is concerned, it was there said: "It seems that
such a clause has never been extended to a simple case of misdelivery." This present case is a simple one
of misdelivery. This clause must be read in such a way that it is not to be deemed to be a protection
against the fundamental obligation under the contract - to deliver against the bill of lading. And, further,
in giving the delivery order in the circumstances the carriers are guilty of a conversion which is quite
independent of their duties under the contract of carriage. It is simply a tortious act. A clause of this kind
will not be held to cover negligence unless negligence is specifically mentioned. It was said in Ashby v.
Tolhurst [FN34] that "the county court judge found that he could imply in this contract a term to the effect
that the car should not be handed over without production of the ticket. I myself think that it was not
legitimate to imply any such term." In the present case there is such a term, not an implied term but an
express term, that the goods are to be delivered to order. Somewhat similar considerations apply to Heugh
v. London and North Western Railway Co. [FN35] The present case is not one in which the shipowners
were in the position of involuntary bailees.
FN29 [1909] A.C. 369.
FN30 [1912] A.C. 716, 724, 726; 28 T.L.R. 547.
FN31 [1909] A.C. 369.
FN32 [1909] A.C. 369.
FN33 28 Ll.L.Rep. 63, 69.
FN34 [1937] 2 K.B. 242, 253.
FN35 L.R. 5 Ex. 51.
With regard to the contention for the appellants that clause 2 (c) is not an exceptions clause, the only way
in which one can test whether or not a clause is an exceptions clause is to look at the remainder of the
contract to see what the obligation would be thereunder and then see whether this particular clause limits
the obligation in some way. Clause 2 (a) and (b) are definitely exceptions clauses, and it would be
extraordinary if (c) were not. On the tests laid down in any of the recent cases this is a fundamental
breach: Smeaton Hanscomb's case, [FN36] Spurling's case [FN37] and the Karsales case. [FN38]
FN36 [1953] 1 W.L.R. 1468, 1471.
FN37 [1956] 1 W.L.R. 461.
FN38 [1956] 1 W.L.R. 936, 940.
Roche Q.C. in reply. Five cases were cited for the respondents for the proposition that a shipowner who
delivers to the wrong person is guilty of a breach of contract. But the whole point is that there is a clause
2 (c); all liability ceases on discharge; and that clause protected the shipowner. The Chartered Bank case
[FN39] is a decision that the responsibility in conversion was one which ceased because the parties
agreed that it should cease; and that is just the position here. The respondents must ask the Board to
overrule the Chartered Bank case, [FN40] which has stood for half a century, and it is no mean thing to
ask that when it has been the basis of hundreds of thousands of bills of lading. That case is
indistinguishable.
FN39 [1909] A.C. 369.
FN40 [1909] A.C. 369.
The cases cited for the respondents on the fundamental breach point were all cases where there was a
general duty to take care, and the action was brought for breach of that. There cannot be a fundamental
breach of contract unless a breach of contract is first established; there cannot be a breach of contract
unless there is a duty. Here all responsibility ceases as from a given event. At the time the fundamental
breach is alleged, the carriers' duties under the contract had ceased - the contract was still there, but the
responsibility under it had ceased. The whole bill of lading is made subject to the condition. The operative
word here is "cease."
June 22. The judgment of their Lordships was delivered by LORD DENNING,
who stated the facts set out above and continued: The shipping company's agents were quite frank about
what they did. Their representative said in evidence: "In issuing delivery orders and in everything we do
we act as agents for the Glen Line. It is an accepted fact that, in absence of bills of lading, goods are
released on an indemnity. I agree we are supposed to deliver on the bill of lading being produced to us. I
agree that, when we do not have the bill of lading produced, we cover ourselves by getting an indemnity.
When it is suggested to me that we get these indemnities because we know we are doing what we should
not do, I say that if no risk, we would not need indemnity. I agree we get indemnity because we are doing
something we know we should not do, but it is common practice. It is an everyday occurrence. We rely
on the bank's guarantee."
It is perfectly clear law that a shipowner who delivers without production of the bill of lading does so at
his peril. The contract is to deliver, on production of the bill of lading, to the person entitled under the bill
of lading. In this case it was "unto order or his or their assigns," that is to say, to the order of the Rambler
Cycle Company, if they had not assigned the bill of lading, or to their assigns, if they had. The shipping
company did not deliver the goods to any such person. They are therefore liable for breach of contract
unless there is some term in the bill of lading protecting them. and they delivered the goods, without
production of the bill of lading, to a person who was not entitled to receive them. They are therefore liable
in conversion unless likewise so protected.
In order to escape the consequences of the misdelivery, the appellants say that the shipping company is
protected by clause 2 of the bill of lading, which says that: "During the period before the goods are loaded
on or after they are discharged from the ship on which they are carried by sea, the following terms and
conditions shall apply to the exclusion of any other provisions in this bill of lading that may be
inconsistent therewith, viz., (a) so long as the goods remain in the actual custody of the carrier or his
servants" (here follows a specified exception); "(b) whilst the goods are being transported to or from the
ship" (here follows another specified exemption); "(c) in all other cases the responsibility of the carrier,
whether as carrier or as custodian or bailee of the goods, shall be deemed to commence only when the
goods are loaded on the ship and to cease absolutely after they are discharged therefrom."
The exemption, on the face of it, could hardly be more comprehensive, and it is contended that it is wide
enough to absolve the shipping company from responsibility for the act of which the Rambler Cycle
Company complains, that is to say, the delivery of the goods to a person who, to their knowledge, was not
entitled to receive them. If the exemption clause upon its true construction absolved the shipping
company from an act such as that, it seems that by parity of reasoning they would have been absolved if
they had given the goods away to some passer-by or had burnt them or thrown them into the sea. If it had
been suggested to the parties that the condition exempted the shipping company in such a case, they
would both have said: "Of course not." There is, therefore, an implied limitation on the clause, which cuts
down the extreme width of it: and, as a matter of construction, their Lordships decline to attribute to it the
unreasonable effect contended for.
But their Lordships go further. If such an extreme width were given to the exemption clause, it would run
counter to the main object and intent of the contract. For the contract, as it seems to their Lordships, has,
as one of its main objects, the proper delivery of the goods by the shipping company, "unto order or his or
their assigns," against production of the bill of lading. It would defeat this object entirely if the shipping
company was at liberty, at its own will and pleasure, to deliver the goods to somebody else, to someone
not entitled at all, without being liable for the consequences. The clause must therefore be limited and
modified to the extent necessary to enable effect to be given to the main object and intent of the contract:
see Glynn v. Margetson & Co. [FN41]; G. H. Renton & Co. Ltd. v. Palmyra Trading Corporation of
Panama. [FN42]
FN41 [1893] A.C. 351, 357; 9 T.L.R. 437.
FN42 [1956] 1 Q.B. 462, 501; [1956] 2 W.L.R. 232; [1956] 1 All E.R. 209; [1957] A.C. 149, 164; [1957]
2 W.L.R. 45; [1956] 3 All E.R. 957.
To what extent is it necessary to limit or modify the clause? It must at least be modified so as not to
permit the shipping company deliberately to disregard its obligations as to delivery. For that is what has
happened here. The shipping company's agents in Singapore acknowledged: "We are doing something we
know we should not do." Yet they did it. and they did it as agents in such circumstances that their acts
were the acts of the shipping company itself. They were so placed that their state of mind can properly be
regarded as the state of mind of the shipping company itself. and they deliberately disregarded one of the
prime obligations of the contract. No court can allow so fundamental a breach to pass unnoticed under the
cloak of a general exemption clause: see The Cap Palos. [FN43]
FN43 [1921] P. 458, 471; 37 T.L.R. 921.
The appellants placed much reliance, however, on a case which came before their Lordships' Board in
1909, Chartered Bank of India, Australia and China v. British India Steam Navigation Co. Ltd. [FN44]
There was there a clause which said that in all cases and under all circumstances the liability of the
company shall absolutely cease when the goods are free of the ship's tackle. " The goods were discharged
at Penang and placed in a shed on the jetty. Whilst there a servant of the landing agents fraudulently
misappropriated them in collusion with the consignees. Their Lordships' Board held that the shipping
company were protected by the clause from any liability.
FN44 [1909] A.C. 369; 25 T.L.R. 480.
Their Lordships are of opinion that that case is readily distinguishable from the present, as the courts
below distinguished it, on the simple ground that the action of the fraudulent servant there could in no
wise be imputed to the shipping company. His act was not its act. His state of mhnd was not its state of
mind. It is true that, in the absence of an exemption clause, the shipping company might have been held
liable for his fraud, see United Africa Co. Ltd. v. Saka Owoade. [FN45] But that would have been solely
a vicarious liability. Whereas in the present case the action of the shipping agents at Singapore can
properly be treated as the action of the shipping company itself.
FN45 [1955] A.C. 130; [1955] 2 W.L.R. 13; [1957] 3 All E.R. 216.
The self-same distinction runs through all the cases where a fundamental breach has disentitled a party
from relying on an exemption clause. In each of them there will be found a breach which evinces a
deliberate disregard of his bounden obligations. Thus, in Bontex Knitting Works Ltd. v. St. John's Garage,
[FN46] the lorry driver left the lorry unattendel for an hour, in breach of an express agreement for
immediate delivery. In Alexander v. Railway Executive [FN47] the cloak-room official allowed an
unauthorised person to have access to the goods, in breach of the regulations in that behalf. In Karsales
(Harrow) Ltd. v. Wallis [FN48] the agent of the finance company delivered a car which would not go at
all, in breach of its obligation to deliver one that would go. In each of those cases it could reasonably be
inferred that the servant or agent deliberately disregarded one of the prime obligations of the contract. He
was entrusted by the principal with the performance of the contract on his behalf: and his action could
properly be treated as the action of his principal. In each case it was held that the principal could not take
advantage of the exemption clause. It might have been different if the servant or agent had been merely
negligent or inadvertent: see Smackman v. General Steam Navigation Co. [FN49]; Ashby v. Tolhurst,
[FN50] by Sir Wilfrid Greene M.R., and Swan, Hunter and Wigham Richardson Ltd. v. France Fenwick
Tyne and Wear Co. Ltd. [FN51]
FN46 (1943) 60 T.L.R. 44, 253.
FN47 [1951] 2 K.B. 882; [1951] 2 T.L.R. 69; [1951] 2 All E.R. 442.
FN48 [1956] 1 W.L.R. 936; [1956] 2 All E.R. 866.
FN49 (1908) 13 Com.Cas. 196.
FN50 [1937] 2 K.B. 242, 253; 53 T.L.R. 770; [1937] 2 All E.R. 837.
FN51 [1953] 1 W.L.R. 1026, 1030-1032; [1953] 2 All E.R. 679.
For these reasons their Lordships will humbly advise Her Majesty that this appeal should be dismissed.
The appellants must pay the costs.
Representation
Solicitors: Lawrance, Messer & Co.; Ingledew, Brown, Bennison & Garrett.
(C. C. )
(c) Incorporated Council of Law Reporting For England & Wales
[1959] A.C. 576
END OF DOCUMENT
Copr. (c) West 2001 No Claim to Orig. Govt. Works