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|Judgments - Effort Shipping Company Limited v. Linden Management SA and Others
Lord Cooke of Thorndon Lord Clyde
LORD GOFF OF CHIEVELEY
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Lloyd of Berwick. For the reasons he gives I would dismiss this appeal.
LORD LLOYD OF BERWICK
Three questions arise in this case. The first is as to the meaning of the words "goods of an inflammable, explosive or dangerous nature" in Article IV, r. 6 of The Hague Rules. The second is whether the shipper's liability for shipping dangerous goods under Article IV, r. 6 is qualified by the provisions of Article IV, r. 3. The third is whether, if the shipper is otherwise liable to the carrier on the facts of this case, he can escape such liability by relying on section 1 of the Bills of Lading Act 1855.
There is a fourth question. What is the nature and scope of any implied obligation at common law as to the shipment of dangerous goods? For reasons which will appear later, the fourth question does not need to be decided. But as it has been the subject of differing views over many years, and as we have heard full argument on the point, it seems desirable for us to express an opinion. Even though that opinion will not form part of the ratio decidendi, it may at least help to resolve a long-standing controversy.
The relevant facts are all agreed. On 18 November 1990 the appellant shipped a cargo of ground-nut extractions at Dakar, Senegal, for carriage to Rio Haina in the Dominican Republic. The ground-nut cargo was loaded in number 4 hold of the respondents' vessel "Giannis N.K." under a bill of lading which incorporates The Hague Rules. It is agreed that the groundnut cargo was infested with khapra beetle at the time of shipment. But this was unknown to the appellant shippers as well as the respondent carriers.
The vessel had previously loaded a cargo of wheat pellets in numbers 2 and 3 holds for carriage to San Juan, Puerto Rico and Rio Haina. There was no danger of the beetle infestation spreading from the ground-nut cargo in number 4 hold to the wheat cargo in numbers 2 and 3 holds. But the beetle infestation in number 4 hold nevertheless rendered the vessel and its cargo (including the wheat cargo) subject to exclusion from the countries where the cargo was to be discharged.
After discharging part of the wheat cargo at San Juan, the vessel proceeded to Rio Haina where she was placed in quarantine after the discovery of insects in number 4 hold. It was thought that the insects might be khapra beetles. The vessel was fumigated twice. But it did not eradicate the insects. Accordingly on 21 December the vessel was ordered to leave port with all her remaining cargo.
Meanwhile the vessel had been arrested by the receivers. It was only when the arrest was lifted on an undertaking given by the vessels P. & I. Club that the vessel was able to leave port. She returned to San Juan, in an attempt to find a purchaser for the cargo, in accordance with the Club's undertaking. But when she arrived at San Juan, the U.S. authorities identified a khapra beetle and a khapra beetle larva, both dead, in number 4 hold. On 31 January 1991 the U.S. authorities issued a notice requiring the carrier to return the cargo to its country of origin, or to dump it at sea, but at all events to leave U.S. ports. It is common ground that in those circumstances the carrier had no practical alternative but to dump the whole of the cargo at sea, including the wheat cargo. The vessel sailed on 3 February, and the cargo was dumped between 4 and 12 February.
When the vessel returned to San Juan after dumping her cargo there was a further inspection. Eighteen live khapra beetles and khapra beetle larvae were found in number 4 hold. There was a further fumigation. The vessel was eventually cleared to load under her next charter, at Wilmington, North Carolina after a delay of two-and-a-half months. The question is who is to pay for the delay?
Mr. Johnson Q.C., on behalf of the shippers, submits that the loss should lie where it falls. Mr. Schaff, on behalf of the carriers, submits that the carriers are entitled to recover damages for delay to the vessel, and the cost of the fumigations, either under Article IV, r. 6 of The Hague Rules, or by virtue of an implied term at common law. Longmore J. decided all questions in favour of the carriers, and so did the Court of Appeal. The shippers now appeal to the House by leave of your Lordships.
Dangerous goods and The Hague Rules
It is convenient to get two preliminary points out of the way. They are not in dispute.
First, it has been settled law since Chandris v. Isbrandsten-Moller Co. Inc.  1 K.B. 240 that the word "dangerous" in the expression "goods of . . .[a] dangerous nature" must be given a broad meaning. Dangerous goods are not confined to goods of an inflammable or explosive nature, or their like. In Chandris v. Isbrandsten-Moller Co. Inc. the question arose in relation to a consignment of turpentine. In that case the charter party prohibited the shipment of "acids, explosives, arms, ammunition or other dangerous cargo." The shippers argued that "other dangerous cargo" should be given a restricted meaning. This was, they said, indicated by the context in which the words appear. Devlin J. said, at p. 246:
Secondly, goods may be dangerous within the meaning of Article IV, r. 6 if they are dangerous to other goods, even though they are not dangerous to the vessel itself.
What then is the meaning of the word "dangerous" in this context? Mr. Schaff argues that "dangerous" means, or at any rate includes, cargo which is physically dangerous to other cargo. Even though there was no risk of the infestation spreading from the groundnut cargo in number 4 hold to the wheat cargo in numbers 2 and 3 holds, nevertheless the groundnut cargo was physically dangerous to the wheat cargo because the dumping of the wheat cargo at sea was "a natural and not unlikely consequence" of shipping the groundnut cargo infested with khapra beetle: see para. 7(1) of the Agreed Statement of Facts.
Mr. Johnson, on the other hand, while conceding that the groundnut cargo caused physical damage to the wheat cargo in that sense, submits that there was no direct physical damage to the wheat cargo. Cargo is only dangerous within the meaning of Article IV, r. 6 if it causes, or is likely to cause, direct damage to other cargo by its own physical operation, for example, by overheating or leakage. Here, the only physical damage to the wheat resulted from the decision to dump the cargo at sea. That was a decision which was taken for commercial reasons. No doubt the decision was sensible, and perhaps unavoidable. But at the time the wheat was dumped it was sound. It had not been affected in any way by the inherent characteristics of the groundnut cargo.
I prefer Mr. Schaff's argument. I can see no reason to confine the word "dangerous" to goods which are liable to cause direct physical damage to other goods. It is true that goods which explode or catch fire would normally cause direct physical damage to other cargo in the vicinity. But there is no need to qualify the word "dangerous" by reading in the word "directly", which is what Mr. Johnson's argument in effect requires. Indeed the reference to "all damages or expenses directly or indirectly arising out of or resulting from such shipment" point in the other direction.
Longmore J., in an admirably clear and succinct judgment ( 2 Lloyd's Rep. 171), found that the groundnut cargo was of a dangerous nature on shipment, on the ground that it was liable to give rise to the loss of other cargo loaded on the same vessel by dumping at sea. This finding was upheld by Hirst L.J. in the Court of Appeal:  1 Lloyd's Rep. 577. I find myself in complete agreement with their reasoning. Accordingly it is unnecessary to consider a further argument that goods may be of a dangerous nature even though they do not present any physical danger to ship or cargo, but are "legally" dangerous in the sense that they are liable to cause delay to ship and cargo through the operation of some local law.
What are the consequences of the finding that the groundnut cargo was physically dangerous to the wheat cargo? Since the carriers did not consent to the shipment of the groundnut cargo with knowledge of its dangerous character, the shippers are prima facie liable for all damages and expenses suffered by the carriers. But this brings me to the second question. Mr. Johnson argues that the shippers' liability under Article IV, r. 6 is qualified by the provisions of Article IV, r. 3. That rule provides:
It cannot have been intended, says Mr. Johnson, that shippers should incur unlimited liability for the shipment of dangerous goods when they did not know, and had no means of knowing, that the goods were infested. Shippers should only be liable in case of some fault or neglect on their part.
Mr. Schaff, on the other hand, argues that Article IV, r. 6 is a free-standing provision, covering the specific subject matter of dangerous goods. If the shippers' liability under Article IV, r. 6 was to be governed by Article IV, r. 3 one would have expected this to be made clear by the inclusion in Article IV, r. 6 of some expression such as "subject to Article IV, r. 3."
Longmore J. and the Court of Appeal rejected Mr. Johnson's argument, and so would I. The very breadth of Article IV, r. 3 ("shall not be responsible for loss or damage . . . arising or resulting from any cause . . .") makes it unlikely that it was intended to qualify the specific provisions of Article IV, r. 6: generalia specialibus non derogant. If Article IV, r. 3 was intended to have overriding effect, the framers of the rule had appropriate language to hand: see Article II which is expressly made subject to Article VI, and Article VI, which applies "notwithstanding the provisions of the preceding Articles." No such qualifying language is found in either Article IV, r. 6 or in Article III, r. 5.
But there is a more fundamental reason for rejecting Mr. Johnson's argument. The first half of the first sentence of Article IV, r. 6 gives the carrier the right to destroy or render innocuous dangerous goods which have been shipped without his knowing their dangerous nature. Obviously that right cannot be dependent in any way on whether the shipper has knowledge of the dangerous nature of the goods. Yet the sentence continues, without a break, "and the shipper of such goods shall be liable . . ." It is natural to read the two halves of the first sentence as being two sides of the same coin. If so, then the shippers' liability for shipping dangerous goods cannot be made to depend on the state of his knowledge. His liability is not confined to cases where he is at fault.
Mr. Johnson rightly drew our attention to the law on this point in the United States. In Serrano v. U.S. Lines Co.  A.M.C. 1038 the United States District Court for the Southern District of New York held that Article IV, r. 3 had laid down "a general principle of non-liability of the shipper in the absence of fault." But there was no reference to Article IV, r. 6 in that case, perhaps because on the facts (a trailer with a defective tyre) the goods were not regarded as being dangerous goods. So the case does not help on whether Article IV, r. 6 is subject to Article IV, r. 3. Williamson v. Compania Anonima Venezolana de Navigacion  A.M.C. 2083, a decision of the U.S. Second Circuit Court of Appeals, is another case of the same kind. It did not occur to anyone to argue that the defective slat in the cargo crate which gave rise to the personal injury in that case meant that the goods were dangerous goods. So no question arose as to whether Article IV, r. 6 was subject to Article IV, r. 3.
The point might have arisen in General S.A., General Trades Enterprises and Agencies v. P. Consorcio Pesquero del Peru S.A.  A.M.C. 2343, a case concerning a cargo of bagged fishmeal. The cargo caught fire in the course of a voyage from Peru to East Germany. The goods were clearly dangerous goods. But it was held that the shipowners could not recover for damage to the ship, since they knew that the fishmeal was liable to spontaneous combustion, and had expressly consented to its carriage. So the question whether Article IV, r. 6 was subject to Article IV, r. 3 did not have to be decided. It is true that the court approved the Serrano and the Williamson cases. But, as already explained, there was no suggestion in either of those cases that the goods were dangerous goods within Article IV, r. 6.
Thus there appear to be no U.S. cases in which the relationship between Article IV, r. 3 and Article IV, r. 6 has fallen for decision, as indeed Mr. Johnson conceded. I am not forgetting that in the Athanasia Comninos  1 Lloyd's Rep. 277 Mustill J. considered that the U.S. cases to which I have referred answered the point in issue in favour of the shippers. But with respect I do not regard that as a correct reading of those cases.
Mr. Johnson pointed out how important it is that provisions of an international convention should, so far as possible, be given the same construction by the courts of different countries: see Riverstone Meat Co. Pty. v. Lancashire Shipping Co. Ltd.  A.C. 807 per Viscount Simonds at p. 840. This is an argument which would carry great weight with me, if there were what Viscount Simonds called "prevailing harmony" on the other side of the Atlantic. But such is not the case. There is no generally prevailing view on the precise point in issue, either in the U.S. or in Canada: see Heath Steel Mines Ltd. v. The "Erwin Schroder"  Ex. Cr. 426. Nor were we referred to any cases decided in other maritime jurisdictions.
Turning to the English cases, Mustill J. in The Athanasia Comninos  1 Lloyd's Rep. 277 expressed the view, obiter, that Article IV, r. 6 is not qualified by Article IV, r. 3. In Mediterranean Freight Services Ltd. v. B.P. Oil International Ltd. (the Fiona)  1 Lloyd's Rep. 257 Judge Diamond Q.C., sitting as a deputy Commercial Court judge, with all his great experience of this branch of the law, expressed the same view. I agree with those views, and accept Mr. Schaff's formulation as a correct statement of the law. Article IV, r. 6 is a free standing provision dealing with a specific subject matter. It is neither expressly, nor by implication, subject to Article IV, r. 3. It imposes strict liability on shippers in relation to the shipment of dangerous goods, irrespective of fault or neglect on their part.
If I am right so far, it becomes unnecessary to consider the meaning of the word "act" in the phrase "act fault or neglect of the shipper" in Article IV, r. 3. In the Fiona Judge Diamond held that the shipment of dangerous goods is an act of the shipper, whether or not the shipment of such goods was due to his fault or neglect. This would, if correct, afford an alternative ground for a decision in favour of the carriers in this case. However, in the United States it has been said that COGSA is a negligence statute, and not a strict liability statute, and that fault is therefore a prerequisite for recovery: see Sea-Land Service Inc. v. The Purdy Company of Washington  A.M.C. 1593 cited with approval in Excel Shipping Corp. v. Seatrain International S.A. (1984) 584 F. Supp. 734 at p. 748. On this view the shipment of dangerous goods would not be an "act" of the shipper unless accompanied by fault or neglect. I prefer not to express an opinion as to which of these two views is correct. Since I have held that Article IV, r. 6 is not in any event subject to Article IV, r. 3, the point does not arise for decision.
Mr. Johnson referred us to the travaux preparatoires, which pointed, he said, clearly and indisputably to a definite intention among the framers of the convention that shippers should not be liable in any circumstances whatever without their fault or neglect. I hope he will forgive me if I do not follow him down that path. It does not seem to me that the history of the negotiations throws any light on the meaning of Article IV, r. 6. There was very little discussion of the Article, and no mention at all of whether it was intended to be subject to Article IV, r. 3.
Bills of Lading Act 1855
I now turn to the third question. Assuming against himself that the shippers were otherwise liable to the carrier for the shipment of the infested groundnuts, that liability was, says Mr. Johnson, divested when the property in the groundnuts passed to the receivers by endorsement of the bill of lading. In order to understand the argument it is necessary to set out verbatim the preamble and sections 1 and 2 of the Bills of Lading Act 1855.
The Act of 1855 has been repealed and replaced by the Carriage of Goods by Sea Act 1992. The point at issue is now expressly covered by section 3(3) of the Act of 1992. But we were told that there were a number of outstanding cases which are still governed by the Act of 1855.
The mischief to which the Act of 1855 was directed appears clearly enough from the preamble. A bill of lading is both a document of title and evidence of the contract of carriage. Whereas property in the goods will pass by virtue of the consignment or endorsement of the bill of lading, rights under the contract of carriage could not be enforced by the receiver of the goods by reason of the peculiar rule of English law that prohibits jus quaesitum tertio. Cases in the early part of the 19th century illustrate the inconvenience of the rule and the efforts of the courts to get round it. In the end it proved necessary for Parliament to take a hand.
It will be noticed that whereas the preamble refers, as one would expect, to the passing of rights under the contract, it says nothing about the passing of liabilities. One finds the same contrast in section 1. It provides for all rights of suit to be "transferred to and vested in" the holder of the bill of lading; it does not provide for the transfer of liabilities. Instead it provides for the holder of the bill of lading to be subject to the same liabilities as the shipper. It seems clear that this difference of language was intentional. Whereas a statutory assignment of rights under the bill of lading contract would represent but a modest step forward in pursuit of commercial convenience, a statutory novation, depriving the carriers of their rights against the shippers, and substituting rights against an unknown receiver, would have represented a much more radical change in the established course of business.
The legislative solution was ingenious. Whereas the rights under the contract of carriage were to be transferred, the liabilities were not. The shippers were to remain liable, but the holder of the bill of lading was to come under the same liability as the shippers. His liability was to be by way of addition, not substitution.