THE "STARSIN"

In the course of a voyage from Malaysian ports to Antwerp and Avonmouth, which began in December 1995, consignments of timber and plywood on board the vessel Starsin became progressively damaged by condensation as a result of negligent stowage. The Starsin was owned by the defendants but was on charter to Continental Pacific Shipping Ltd. ("CPS"). CPS (which subsequently became insolvent) operated a liner service between the Far East and Western Europe. The liner bills of lading which were issued were all on the CPS form, and were signed by port agents "As agent for CPS (The Carrier)", those words being typed or stamped in the signature box on the front of the bills. In addition to the customary "Identity of Carrier" and "Demise" clauses, which sought to provide that the contract evidenced by the bill was to take effect as a contract with the owners or demise charterers of the vessel, the printed conditions on the back of the bills included in clause 1 a statement that the "carrier" was the party on whose behalf the bill had been signed. Having regard to the insolvency of the charterer, the various owners of the damaged consignments pursued their claims against the defendant shipowners.

Identity of the Carrier

At first instance, the Commercial Court judge held that the bills were charterers' bills rather than owners' bills and that the defendant shipowners did not, therefore, have any liability to the cargo claimants in contract. However, in January 2001, that decision was reversed by the Court of Appeal which, by a majority, held that the bills were owners' bills. The shipowners appealed to the House of Lords. Their judgment was handed down in March 2003.

In allowing the shipowners' appeal on this issue and restoring the decision of the Commercial Court, the House of Lords held that the printed identity of carrier and demise clauses on the reverse of the bills were overridden by the words which had been added in the signature box on the front. These, it was said, would have indicated to a shipper or transferee of the bill that CPS, the charterers, were the contractual carriers. In the words of Lord Hobhouse, the typed or stamped words in the signature box "demonstrate a special agreement" by which the parties had agreed that "inconsistent clauses will be overridden".

Their Lordships had great difficulty in accepting that the holder of the bill should have to persevere in reading all the conditions on the back of the bill for the sole purpose of discovering with whom the contract of carriage was made; especially where, as in this case, there was a clear and unambiguous statement on the front identifying the "carrier". (It was observed that this approach to the construction of the document would be consistent with the ICC Uniform Customs and Practice for Documentary Credits which, amongst other things, now requires that the carrier is identified on the face of a bill of lading and, also, makes plain that banks will not examine terms and conditions on the reverse of the bill.) The House of Lords concluded that the bills were charterers' bills. Since they were not the contractual carriers, the shipowners could not be liable for any breach of the contract of carriage.

The Claimants' Title to Sue

Were the shipowners nevertheless liable to the claimants in tort? There was no dispute that the damage to the cargo was caused by the negligence of the owners' employees on the vessel in their stowage of the cargo. However, in order to succeed in any claim in negligence, it was necessary for the various claimants to show that they had title to the goods at the time the damage occurred.

There was no doubt that one of the cargo claimants ("MH") had such a cause of action against the shipowners. This was because MH acquired title to its goods on shipment, before any damage was sustained. In contrast, the other cargo claimants did not acquire title until they had paid the shippers for the goods, by which time the goods had already suffered damage.

The shipowners therefore contended that the cargo claimants (other than MH) had no cause of action in tort in respect of damage that had occurred before the transfer of title to them (relying on The "Aliakmon" [1986] 2 Lloyd's Rep 1). However the Commercial Court judge held that, even though the negligent act was the stowage at the commencement of the voyage and that, once the voyage had begun, progressive damage to the cargo was inevitable, the other cargo owners could recover for that proportion of the damage which had been caused to their consignments after they obtained title.

The Court of Appeal was unanimous in rejecting this conclusion. Apart from the MH parcel, all the damaged goods had been treated as having already suffered condensation damage before the transfer of title in them took place. Any negligence had occurred before the start of the voyage, at the latest. All subsequent condensation damage suffered after the transfer of title was merely the continuation and progression of the damage already suffered. There was no new negligence or mechanism of damage after the transfer of title. The cause of action in respect of the negligent stowage was completed once and for all when more than insignificant damage was caused by that negligence to the respective parcels of timber. On the judge's findings that would have been not long after the voyage began. In the circumstances, the Court of Appeal concluded that the shipowners had no liability in tort to any of the cargo claimants other than MH.

The House of Lords agreed unanimously with the Court of Appeal's conclusion that there was a single cause of action - and that this accrued to the persons who owned the cargo at the time when the negligent stowage caused it any significant damage. That cause of action comprised all damage caused by the bad stowage, even if some of that damage did not manifest itself until after those persons had parted with ownership. As significant damage was suffered by the consignments of timber before title had passed to the cargo claimants (other than MH), the House of Lords concluded that the Court of Appeal had been right to decide that, with the exception of MH, the cargo claimants had no cause of action in tort against the shipowners.

The Himalaya Clause

The shipowners argued that even the claim of MH was excluded by an exemption clause on the back of the bill of lading. The clause in question (known as a Himalaya clause) purported to confer on servants, agents and independent contractors employed by the carriers an immunity from any liability to cargo interests.

The judge at first instance agreed that, in the circumstances of this case, the shipowners were "independent contractors" within the meaning of the Himalaya clause. However he concluded that, as a matter of construction, the clause only protected the owners to the same extent that CPS, the contractual carriers, were themselves protected by the bill of lading provisions. Since CPS would not be exempt from liability for negligent stowage it followed that, as independent contractors, the shipowners could not be exempt either. The Court of Appeal agreed.

The House of Lords were unanimous in agreeing that, since they were not the contractual carriers, the shipowners were "independent contractors" within the meaning of the Himalaya clause. Nevertheless, they could not accept that the protection available to the shipowners was limited in the way that the Court of Appeal and the judge had held. However, their Lordships' views differed as to whether the shipowners were entitled to the complete immunity from liability to the cargo claimants which, the owners contended, the clause conferred on them.

Himalaya clauses were devised to circumvent the decision in Midland Silicones Ltd v Scruttons Ltd [1961] 2 Lloyd's Rep 365, in which it was decided that stevedores employed by the carrier could not limit their liability under the terms of a bill of lading contract because the stevedores were not parties to that contract. In his speech in that case, Lord Reid indicated that the difficulty created by the English law doctrine of privity of contract might be overcome by a provision enabling the contractual carrier to contract with the cargo owner as agent for the stevedore or other third party. In The "Eurymedon" [1974] 1 Lloyd's Rep 534, all members of the Judicial Committee of the Privy Council agreed that such third parties could be protected by an appropriately worded clause, and the majority held that the clause in question in that case did protect the stevedore. Lord Wilberforce explained that the bill of lading "brought into existence a bargain initially unilateral but capable of becoming mutual between the shipper and the [stevedore], made through the carrier as agent. This became a full contract when the [stevedore] performed the services by discharging the goods". The combined effect of the clause and the conduct of the parties was to bring about a direct contractual relationship between the shipper (or a consignee of the goods to whom the shipper's rights had passed) and the carrier's servants, agents or independent contractors.

As the Starsin bills of lading incorporated the Hague Rules ("the Rules") the cargo claimants contended that, under the contract with the the shipowners which had come into existence in the manner described by Lord Wilberforce, the shipowners could be in no better position than the contractual carriers - because the effect of Article III rule 8 of the Rules was to render null and void any clause which lessens the carrier's liability otherwise than as provided in the Rules. It was recognised, however, that the correctness of that proposition depended on whether this resulting contract with the shipowners was to be regarded as "a contract of carriage" for the purposes of the Rules.

This question plainly caused their Lordships a great deal of difficulty. Two of them admitted to changing their minds during the case and, in the event, unanimity was not achieved.

In his dissenting judgment, Lord Steyn concluded that there was no contract with the shipowners which could properly be termed "a contract of carriage" within the meaning of Article III rule 8. This provision did not, therefore, nullify the effect of the immunity conferred by the Himalaya clause. In his opinion, therefore, the shipowners were protected from any liability in tort to MH.

The other four Law Lords disagreed. In their view, the exemption in the Himalaya clause was subject to the invalidating effect of Article III rule 8.

Lord Hobhouse, with whom Lord Hoffman agreed, found that "The bill of lading previously contained an inchoate contract of carriage - or 'arrangement' - capable of becoming an enforceable contract when the shipowners enter upon the carriage of the shipper's goods. The shipowners have thus entered into a contract of carriage with the shipper. To deny that it is a contract of carriage is to ignore the fact that the service being provided (and which makes the contract enforceable between them) and its subject matter is the carriage of the goods by the shipowners for the goods owners".

Lord Millett was initially of the view that it would be an abuse of language "to describe a person as being party to a contract of carriage because he is a party to a contract which is such a contract only because someone else undertakes obligations of carriage thereunder." In the end, however, he concluded that one had to accept that "the owner or demise charterer of the ship can become a party to a contract of carriage covered by a bill of lading even though it is a contract under which it does not itself undertake any obligations of carriage."

Lord Bingham's view was that: "If the act performance of which brings a contract into existence between the shipowner and the cargo owners is the carrying of the cargo owners' goods it would seem anomalous to give the shipowner the benefit of [the Himalaya clause] but take no account of Article III rule 8 ...".

By a majority, therefore, the House of Lords reached the same conclusion as had been reached by the judge and the Court of Appeal, albeit by a different route. It held that the immunity from liability that the Himalaya clause conferred on the shipowners (as independent contractors) was struck down by the invalidating effect of Article III rule 8 of the Rules. MH's claim against the owners was therefore succesful.

Comment

One can only sympathize with the following comment made by Lord Millett during the course of his judgment: "As the trial judge observed, it would strike anyone unfamiliar with maritime law as quite extraordinary that there should have grown up an immense body of decided cases devoted to [the identity of the carrier]. For my own part, I regard it as not only extraordinary but lamentable."

The difficulty in this case was that the bills of lading were clearly prepared and intended for use as owners' bills. On the front of each bill was printed a testimonium for signature by the Master (who would, of course, be signing as agent for the shipowners or demise charterers). The detailed terms on the reverse of the forms also provided that the party which was undertaking the contract of carriage was the ship owner or demise charterer. In the event, however, the bills of lading were not signed by or on behalf of the Master. Rather, they were signed by port agents on behalf of CPS who, in addition, were described as the carrier. It was only the manner in which the bills of lading were signed on their front which caused them to become charterers' bills, constituting the charterer as the party undertaking the contract of carriage.

Had the claimants been able to establish a contractual cause of action against the shipowners, the title to sue arguments mentioned above would have been irrelevant, by virtue of the Carriage of Goods by Sea Act 1992. It was only because they were confined to a claim against the owners in negligence that it was necessary for the claimants to establish that they had title to the goods before any appreciable damage was sustained.

Finally, it should be noted that facts which gave rise to the disputes in The "Starsin" occurred before the Contracts (Rights of Third Parties Act) 1999 came into force. The purpose of this Act is to enable a person who is not a party to a contract to enforce a term of the contract if certain conditions are satisfied. Although the Act confers no such rights on a third party in the case of a contract for the carriage of goods by sea, this is subject to an exception that entitles the third party "to avail himself of an exclusion or limitation of liability in such a contract".

Nevertheless the Act provides that, in the context of any proceedings against the third party, he may not rely upon any such exclusion or limitation clause "if he could not have done so (whether by reason of any particular circumstances relating to him or otherwise) had he been a party to the contract". On its particular facts, therefore, the outcome of The "Starsin" would have been the same even had the 1999 Act applied: the shipowners would still have had no defence to MH's claim.

April 2003