Shipowners' Liabilities: Elder Dempster

Shipowners' Liabilities: Elder Dempster Revisited¹

HAYLIN LOW

INTRODUCTION

Carriage of goods by sea by its very character makes it very difficult to clearly define its parties and thus the positions of the parties. This is evidenced in the relationship between carrier and shipper. The carrier enters into the contract with the shipper² by undertaking to carry goods from one port to another. However, it is usually not the shipper who receives the goods at the destination, but the consignee.

Even though the consignee is not a party to the original contract of carriage between the carrier and the shipper, there are instances when a contractual relationship can sometimes be established between him and the carrier. An example of this is where a contract contained in a bill of lading can be transferred to the consignee, when he receives the document³. An implied contract can also be established between the carrier and the consignee when the later claims the goods at the destination⁴. Contracts can also be established between the carrier and consignee through an "agency clause"⁵ or "third parties" clauses⁶ in certain jurisdictions.

Within the shipping business the way in which goods are transferred is of importance to the shipowner. Throughout the centuries the use of ships to carry goods from one destination to tile other has been regarded as a joint venture between the ship and her cargo. The ship was the shipowner's contribution to that venture; e.g. the name of the ship was, and still is, clearly mentioned in the onboard bill of lading.

Within the English legal system, it depended upon the documents and circumstances in each case. The question posed was whether the carrier was deemed to be the charterer or the shipowner⁷. Usually, the liable party would be a contracting party otherwise it would have been against the doctrine of privity of contract.

However in England, as in the rest of the world, the master of the ship personally signed the bill of lading when the goods were delivered on board by the shipper. Often this action helped determine the carrier, since the master was regarded as the agent of the owners⁸. This constituted prima facie evidence that the master signed the bill of lading on behalf of his principal, the shipowner, and therefore the contract of carriage of goods by sea was made with the owner of the ship⁹ that is to say, the owner has the prima facie responsibility for goods on board his ship¹⁰.

The so-called "general ships" did not have any planned schedules¹¹ and thus much depended upon market conditions which made the ships' routes irregular. The master role was that of the owner's agent in foreign ports¹² and to find shipments in order to fill the ship's holds. He was usually also responsible for signing the bill of lading and gave it to the shipper after the goods had been loaded ' on board the ship. As a result the shipper became closely linked with the ship and her master.

This presumption has changed with the modem situation of liner companies. The routes are advertised or announced in advance. The carrying vessel usually has set routes. However that is not the main factor. The emphasis lies on the promise to carry particular goods between particular ports as advertised by the liner company. Shippers enter into the contract with the liner company or its agent or brokers¹³ as is confirmed by using a form of bill of lading marked with the liner's identity regardless of whether the carrying vessel belongs to the liner or is a chartered ship.¹⁴

The goods are not necessarily delivered along the ship's side. They can be left at the liner's or broker's offices or quarters far away from the port area. The identity of the vessel is not necessarily any longer stated in the document, as for instance is the case with the received bill of lading and most of the sea way bills. The signature of the bill of lading or other documents is now hardly ever carried out by the master. Usually it is done by the shipowner's office staff or senior members of the agent's or broker's staff and it is delivered to the shipper after the ship has left the port.

The liner companies as such have also undergone some developments. They used to be shipowning companies and temporarily added chartered vessels to their fleets. Now it has become more common, due to economic reasons, that they do not own the ships, but instead run a fleet of (time) chartered ships.

Thus the presumption that the shipowner is the carrier no longer exists, since most of the contracts of carriage of goods by sea today are undertaken by liners¹⁵, even if from time to time they have to add to their normal fleets some ships under charterparties (voyage or time) in order to satisfy their business commitments.

Forwarding agents, whose original tasks were agency and other companies have begun to undertake carriage of goods as principals by consolidating several cargoes belonging to different shippers into one container. They issue normal sea transport documents like a bill of lading but they also issue house bill of lading and combined transport documents¹⁶. These principals have no connections with the carrying vessel in that sense, being neither her owner nor her charterer. However, they enter into a contract of carriage with the charterer or shipowner, who become the carriers. On the other hand there is no contractual relationship between the previous named shippers (the original ones) and the charterer or the shipowner.

In spite of these changes, there is a tendency to regard or define the shipowner as a carrier and a reluctance to deem someone else to be a carrier. It is sometimes stated in the printed forms of bills of lading that it is signed on behalf of the master¹⁷. However, there are instances where the shipowner is not defined as the carrier and it is in these cases where the position of the shipowner is even more difficult to determine. In such a situation where the shipowner is no longer defined as the carrier, what responsibilities and obligations rest with the shipowner having regard to bills of lading and goods at sea contracts? This paper shall attempt to examine the position of the shipowner when not defined as, the carrier with reference to case law and in particular Elder Dempster.

A DUTY OF CARE: ELDER DEMPSTER ANALYSED

In Elder, Dempster & Co. and Others v Zochonis & Co.¹⁸ a well-known shipping company ran a line of cargo steamers from England to West Africa. The shipping company, Elder, Dempster Co¹⁹ required an additional ship for their regular business and they chartered a ship from another shipping company²⁰ on a time-charter basis. The Elder, Dempster Co. were also managers for the African Steamship Co. and the British and African Steam Navigation Co. The bills of lading were issued in the name of all these companies and signed by the master. The form of the bills of lading it is assumed were in the usual form issued.²¹ All these companies were sued in addition to the shipowners by the shipper who was also the holder of the bills of lading for alleged damage to the goods due to bad stowage.

The courts also considered the legal position of the defendants in relation to the plaintiff, particularly if the shipowner was not deemed to be the carrier, could he nonetheless rely on the terms of the bill of lading.

Rowlatt J., at first instance, had no doubts who the carrier was under these circumstances:

In the first place, it seems to be that there is a contract with the African Steamship Co. on this bill of lading. This is a case where a well-known line of ships found it necessary to supplement its fleet by getting in another upon a time charter; and people in the commercial world who use the line know nothing at all about that. They think they are shipping by this line; and unless it is clear to the contrary the contract should be regarded as being made with the line.²²

This part of Rowlatt J's judgment was not amended by the subsequent decisions of the Court of Appeal²³ and House of Lords.²⁴

In the Court of Appeal both Bankes LJ.²⁵ and Scrutton LJ.²⁶ expressed that the charterers were parties to the contract contained in the bill of lading.²⁷ In the House of Lords none of their Lordships commented directly upon this issue. Nonetheless, it is clear from their Lordships' judgments, that all of them presumed the charterers were the carrier.²⁸The shipowner was not regarded as a party to the bill of lading's contract and the Court decided, if the owner was liable in tort or was entitled to rely on the terms of the bill of lading. The only possible parties to the contract of carriage were either the charterers or the shipowner. Since it was not the shipowner, it must therefore have been the charterers. Lord Sumner²⁹ went further. He pointed out that whilst considering the shipowner's position against the shipper, the ship was temporarily placed in a well-known line, trading under a well-known form of a bill of lading.³⁰ Apparently his Lordship was aware of these circumstances, under which he regarded the charterers, but not the shipowner, as the carrier. But the shipowners were held liable accordance with the terms of the bill of lading, not on the basis of law of tort.

In the Court of Appeal Bankes L.J. said on this issue:

With regard to the owners I cannot see how they can be in a better position than the charters and grantors of the bills of lading.³¹

Scrutton L.J. stated the following point:

My view is that the shipowner is not in possession as a bailee, but as the agent of a person, the charterer, with whom the owner of the goods has a contract defining his liability, and that the owner as servant as of the charterer can claim the same protection as the charterer. Were it otherwise there would be an easy way round the bill of lading in the case of every chartered ship; the owner of the goods would simply sue the owner of the ship and ignore the bill of lading exceptions, though he had contracted with the charterer for carriage on those terms and the owner had only received the goods as agent for the charterer. In Hayn v. Culliford, referred to by the Court, the charterer was not protected by his bill of lading, and it was useless for the owner to claim the benefit of the bill of lading, or say he held its terms. If he held on the terms of the bill of lading its terms did not protect him.³²

His Lordship was proposing tile doctrine of vicarious immunity, that is servants, or agents, could claim the same contractual immunities as their master in spite of the fact that they were not contracting parties to the charterparty. This rule would, of course, be in an absolute contrast to the doctrine of privity of contract and its application would not be confined just to contracts of carriage of goods by sea, but would apply to all Contracts.³³

The House of Lords made the unanimous decision that the owner should be entitled to rely on the same contractual immunities as the carrier, but their Lordships did not agree among themselves.

Viscount Cave gave the following opinion:

It was stipulated in the bills of lading that "the shipowners" should not be liable for any damage arising from other goods by stowage or contact with the goods shipped under the bills of lading; and it appears to me that this was intended to be a stipulation on behalf of all the persons interested in the ship, that is to say, charterers and owners alike. It may be that the owners were not directly parties to the contract; but they took possession of the goods on behalf of the charterers, and so can claim the same protection as their principals.³⁴

His Lordship noted that the bills of lading were not issued only on behalf of the charterers but also on behalf of the shipowners, the so-called "express contract theory".³⁵ Alternatively, Viscount Cave was prepared to base his decision on the theory of vicarious immunity from liability in torts in the same way as Scrutton L.J.

Viscount Finley gave the following statement on this issue:

It is said that... this wrongful act..., committed by their servants, the shipowners are liable, apart from contract altogether, so that the plaintiffs, in claiming from the shipowners, would not be hampered by the conditions of the bill of lading. The contention seems to me to overlook the fact that the act complained of was done in the course of the stowage under the bill of lading, and that the bill of lading provided that the owners are not to be liable for bad stowage. If the act complained of had been an independent tort unconnected with the performance of the contract evidenced by the bill of lading, the case would have been different. But, when the act is done in the course of rendering the very service provided for in the bill of lading, the limitation of liability therein contained must attach, whatever the form of the action and whether the owner or charterer be sued. It would be absurd that the owner of the goods could get rid of the protective clauses of the bill of lading, in respect of all stowage, by suing the owner of the ship in tort. The Court of Appeal were, in my opinion, right in rejecting this contention, which would lead to results so extraordinary as these referred to by Scrutton L.J. in his judgment.³⁶

Viscount Finley seems to have supposed, that when the shippers delivered possession of the goods to the shipowners an implied contract or bailment was thereby made between them and the shipowners. The latter should carry the goods on the terms of the bill of lading. This is the "implied contract theory"³⁷ or the bailment theory, which was also favoured by Lord Sumner.³⁸

Lord Sumner's first and preferred reason was the implied contract of bailment upon the terms of the bill of lading. But alternatively, Lord Sumner suggested, that the master, whose negligence was the cause of the damage, was not acting as an agent for the shipowners, but was acting as the charterers' agent and the shipowners would therefore not be vicariously liable for his negligence.

Lord Dunedin agreed with Lord Sumner,³⁹ but Lord Carson agreed with both Lord Sumner and Viscount Cave,⁴⁰ thus endorsing four separate reasons for the decision. These different opinions make it very difficult to establish the actual ratio decidendi in relation to the shipowner's position.⁴¹

Four judges, Lord Dunedin, Lord Sumner, Lord Carson in addition to Viscount Finley approved the implied contract or bailment theory. Three judges, Lord Sumner, Lord Dunedin and Lord Carson, as second choice, preferred the theory that the master was not the servant or agent of the shipowner but was acting as the agent of the charterer. Two judges Lord Carson and Viscount Cave, or possibly three if Lord Finley can be included, adopted the express contract theory, but only two, Lord Carson and Viscount Cave, adopted the vicarious immunity theory.⁴²

This particular aspect of the case has been described as compressed⁴³ or very obscure⁴⁴. Donaldson J. (as he then was) described the case as "something of a judicial nightmare".⁴⁵Due to this complexity of the case, it has for a long time been a subject for dispute, both among judges and writers as to the grounds on which their Lordships actually based their opinions, or what was the actual ratio decidendi of the case.

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Notes

1 This essay won the Morella Calder Prize for 1997 [Ed].

2 Some authors prefer to use the term "freighter".

3 The Bills ofLading Act 1855 (UK) and its Australian equivalents.

4 Brandt v Liverpool Brazil and River Plate Steam Navigation Co. Ltd. [1924] 1 K.B. 575

5 New Zealand Shipping Co. Ltd v. A.M. Satterthwaite & Co. Ltd (The Eurymedon) [1975] AC 154

6 Rejected within the English legal system.

7 Samuel v West Hartlepool Steam Navigation (1906) 11 Com. Cas. 115 at 125. Steamship Calcutta Co. Ltd v Andrew Weir and Co. (1925) 31 Com. Cas. 111 at 111-112

8 Samuel v West Hartlepool Steam Navigation (1906) 11 Com. Cas. 115 at 125. Steamship Calcutta Co. Ltd v Andrew Weir and Co. (1925) 31 Com. Cas. 111 at 111-112. See also some cases such as Grant v Norway (1851) 10 C.B. 665; 138 E.R. 263 and Stumore v Green (1868) L.R. 2 QB. 86 at 98.

9 Schuster v McKeller (1857) 7 E. & B. 704 at 723 and Sandemann v Scurr (1866) L.R. 2 QB. 86 at 98.

10 The St. Cloud (1863) B. & L. 4 at p 15. This presumption of the shipowner as a carrier fitted very well into the existing circumstances until the liner traffic commenced during the middle of the nineteenth century.

11 See Scrutton on Charterparties (19^th ed - 1984), p 1: "When the ship is put up for a particular voyage to carry goods of any persons who may be willing to ship her for that voyage, she is said to be 'put on berth' or employed as a general ship"; but Thompson: Outline of the Law relating to Bills of Lading, (London 1925), p 3 uses the phrase general ship when the ship is not chartered and prepared to carry the goods of anyone who may offer them shipment.

12 See for instance Grant v Norway (1851) 10 C.B. 665; 138 ER 263, The St. Cloud (1863) B. & L. 4, The Figlia Maggiore (1868) 2 A. & E. 106, Sandemann v Scurr (1866) L.R. 2 QB. 86, Stumore v Green (1868) L.R. 2 Q. B. 86.

13 "All the regular shipping lines operating from the United Kingdom appear to entrust the business of arranging the cargo to a loading broker. He advertised the date of sailing in shipping paper or elsewhere, and generally prepares and circulates to his customers a sailing card. It is his business to supervise the arrangements for loading, through the actual storage is decided by the cargo superintendent. It is the broker's business also to sign the bill of lading. and issue it to the shipper of his agent in exchange for the freight": DevIin J. (as he then was) in the case of Reskell v Continental Express Ltd. [1950] 1 All E.R. 1033 at 1037.

14 See for instance McLaughlin: "The Evolution of the Ocean Bill of Lading" (1925) 35 Yale Law Journal 548 at 563-564.

15 See for instance, Ramberg: "Cancellation of Contract of Affreightment on Account of War and similar Circumstances" and "The Time-Charterer's Liability against the Bill of Lading Holders" (1966) ETL 874 at 882.

16 See generally about this development for instance by Holloway: "Troubled Waters: The Liability of a Freight Forwarders as a Principal under Anglo- Canadian Law" (1986) 17 JMLC at 243-260 and Tetley: "Responsibility of Freight Forwarders" (1987) ETL 79 at pp. 79-80.

17 See for instance forms of a bill of lading from Uni-Fedder and Container Service AS: "In Witness whereof the Master of the said vessel has signed the number of the original Bills of Lading stated below"; in the forms from for instance DFDA, Central American Service.

18 [1924]1 A.C. 522 (hereinafter referred to as the Elder, Dempster case)

19 Hereinafter referred to as the charterers.

20 Hereinafter referred to as the shipowners.

21 Lord Sumner in [1924] A.C. 522 at 564 said the bills of lading had been on a "well-known" form.

22 (1922) Ll. L. Rep 69 at 71.

23 (1923) 1 K.B. 420.

24 [1924] A.C. 522.

25 [1923] 1 K.B. 420 at 436.

26 Ibid at 443.

27 Nothing similar can be read in this respect in the judgment, of the remaining judge, Eve J. at 446-447.

28 Viscount Cave [1924] A.C. at 533-534, Viscount Finley ibid 547-548, Lord Sumner ibid. 564-565; Lord Dunedin agreed with Lord Sumner ibid 548 and Lord Carson agreed with both Lord Cave and Lord Sumner.

29 With whom Lord Dunedin and Lord Carson agreed.

30 [1924] A.C. 522 at 564.

31 [1923] 1 K B. 420 at 436.

32 Ibid. at 441-442.

33 See later Mersey Transport Co. Ltd. v Rea Ltd. (1925) 21 Ll. L. Rep. 375 and the Australian case of the so-called stevedores' problems: Gilbert Stokes Kerr Pty. Ltd. v Dalgety & Co Ltd (1948) 48 SR (NSW) 435.

34 [1924] A.C. 522 at 534.

35 Diplock J. (as he then was) in Midland Silicones Ltd v Scruttons [1959] 2 Q.B. 170 at 186.

36 [1924] A.C. 522 at 547-548.

37 [1959] 2 Q.B. 170 at 187, per Diplock J.

38 Ibid.

39 [1924] A.C. 522 at 522-523.

40 Ibid. at 548.

41 Ibid. at 565.

42 See for instance Lord Keith of Avonholm in Midland Silicones Ltd v Scruttons [1962] A.C. 446 at 481.

43 [1959] 2 QB. 170 at 187, per Diplock J.

44 Adler vDickson [1954] 1 Q.B 158 at 182, per Lord Denning.

45 Johnson Matthey & Co. v Constantine Terminals Ltd. [1976] 2 Lloyd's Rep. 215 at 219.