President of India v. Metcalfe Shipping Co Ltd

[1969] 3 All ER 1549
[1970] 1 QB 289
[1969] 3 WLR 1120

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(Decision by: Lord Denning MR)

President of India v
Metcalfe Shipping Co Ltd

Court:

Judges:
Lord Denning MREdmund Davies
Fenton Atkinson LJJ

Hearing date: 6, 7 October 1969
Judgment date: 8 October 1969

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Decision by:
Lord Denning MR

LORD DENNING MR . We will decide this case on the appeal. We do not propose to go into the cross-notice.

In 1961 the government of India, the charterers,bought a quantity of fertiliser from sellers in Italy. They chartered a British ship, the Dunelmia, to carry the fertiliser from Ancona to Madras. The Italian sellers loaded the fertiliser on to the ship and took a bill of lading to order. They indorsed it in blank. They presented it in due course to the charterers, who paid the price, took the bill of lading and obtained delivery of the goods. But they claimed that there was a shortage on delivery and asked for arbitration in accordance with a clause in the charterparty. The shipowners refused. They said that the carriage was governed not by the charterparty but by the bill of lading which did not contain an arbitration clause. So the question is: which is to govern? the charterparty? or the bill of lading?

For contracts fall for consideration: first, the contract of sale. In February 1961, the Italian sellers, who were called ANIC, agreed to sell to the charterers 8,000 metric tons of a fertiliser called urea. The price was £31 17s 3d per metric ton "net fob stowed port of exit". The phrase "fob vessel port of loading" was defined as meaning that the sellers were to:

"Be responsible for any loss or damage, or both, until goods have been placed actually in board the vessel on the date or within the period fixed and clean on board ocean Bill of Lading is delivered to the [charterers] or the Agent nominated by [charterers]."

By reason of that clause, the arbitrator and the judge ( [1969] 1 All ER 861 at p 865; [1969] 2 QB 123 at p 138) held that the sellers reserved the right of disposal of the goods until the bill of lading was presented to and taken up by the charterers; and accordingly that the property in the goods remained in the sellers until that time, even after the goods were loaded. I am prepared to accept that view, although the shipowners in their cross-notice reserve their right to challenge it.

The second contract is the charterparty of 6 June 1961 under which the shipowners agreed that the Dunelmia would proceed to an Italian port and-

"there load at a safe berth a cargo of 8,000 ... metric tons ... urea in bags ... Being so loaded the Vessel shall proceed with all convenient speed to Madras ... and there deliver the cargo at a safe berth on being paid freight ... 70/- ... nett ... "

I need not go through all the clauses of the charter. Suffice it to mention cl 7, which provides:

"The Master or his agent shall sign Bills of Lading at any rate of freight required by the Charterers or their agents, without prejudice to this charterparty, but at not less than the chartered rate."

And cl 17: "Any dispute arising under this charter shall be settled in accordance with the provisions of the Arbitration Act 1950 in London ... ". In pursuance of that charterparty, the Dunelmia went to Ancona, and loaded the 8,000 tons of fertiliser.

The third contract is the bill of lading of 11 July 1961. The master signed a bill of lading which was on a printed form of the sellers, the ANIC company. It states: "Shipped by ANIC on the Dunelmia to the conveyed to Madras and on safe arrival to be delivered unto order. The goods are described, and then this clause: "All conditions and exceptions as per charterparty stipulated at London on 6 June, 1961." It was issued to the sellers.

The fourth contract is the indorsement and delivery of the bill of lading. The sellers indorsed it in blank and sent it forward with the invoice to the representative of the charterers in London. The price was paid. The bill of lading was released to the charterers, who sent it to Madras, and took delivery of the goods.

The only other matter I need mention is that under the Bills of Lading Act 1855, s 1:

"... every endorsee of a bill of lading, to whom the property in the goods therein mentioned shall pass upon or by reason of such ... endorsement, shall have transferred to an vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself."

The charterers said that there was a shortage of cargo delivered. In 1963 they wished to refer the dispute to arbitration in accordance with the clause in the charterparty; but the shipowners said the goods were carried on the terms of the bill of lading, which contained no arbitration clause. The bill of lading said: " ... all conditions and exceptions as per charterparty", but that did not bring in the arbitration clause, see Thomas & Co, Ltd v Portsea Steamship Co, Ltd . If the shipowners are right, it means that the charterers have to sue at law; but it is too late to do so, because the Statute of Limitation has run. So the charterers rely on the charterparty. The shipowners rely on the bill of lading. Which is the governing contract? The shipowners pray in aid some passages in the textbooks. First, Scrutton On Charterparties (17th Edn.) at p 46:

"Where, however, a bill of lading is issued to a shipper, other than the charterer, differing in terms from the charter, and the charterer subsequently becomes indorsee of the bill of lading, the latter is bound by its terms and cannot assert against the shipowner that in his hands the bill of lading is a mere receipt and the charter the only effective contract."

for which is cited Calcutta Steamship Co, Ltd v Andrew Weir & Co and Hogarth Shipping Co, Ltd v Blyth, Greene, Jourdain & Co . Second is Carver on Carriage By Sea, p 340, art 405 (See now British Shipping Laws, Vol 2 (Carriage by Sea) by R P Colinvaux, p 404):

"Where on the other hand bills of lading are given to a shipper, not being the charterer or his agent, and he indorses them to the charterer, the bills of lading become the governing documents in a claimm by the charterer against the shipowners for damage to the goods."

And the same two cases are cited.

Are these statements right? I will first consider the matter on principle. It seems to me that, whenever an issue arises between the charterer and the shipowner, prima facie their relations are governed by the charterparty. The charterparty in not merely a contract for the hire of the use of a ship. It is a contract by which the shipowners agree to carry goods and to deliver them. If the shipowners fail to carry the goods safely, that is a breach of the contract contained in the charterparty; and the charterers can claim for the breach accordingly, unless that contract has been modified or varied by some subsequent agreement between the parties. The signature by the master of a bill of lading is not a modification or variation of it. The master has no authority to modify or vary it. His authority is only to sign bills of lading "without prejudice to the terms of the charterparty". There is a long list of cases on this "without prejudice" clause. In Hansen v Harrold Brothers ([1894] 1 QB at p 619), Lord Esher MR, said:

"The meaning ... is that it is a term of the contract between the charterers and the shipowners that, notwithstanding any engagements made by the bills of lading, that contract shall remain unaltered."

It is sometimes said that the "without prejudice "clause is put in for the benefit of the shipowners only. But that is not correct. It is for the benefit of both shipowners and charterers. In Turner v Haji Goodam Mahoned Azam ( [1904] AC 826 at p 837) Lord Lindley, giving the judgment of the Privy Council, said:

"The words 'without prejudice to this charter' mean that the rights of the shipowners against the time charterers, and vice versa , are to be preserved."

In this case, therefore, the bill of lading did not modify or vary the charcter. And there is nothing else. So the charter governs.

I now turn to Calcutta Steamship Co, Ltd v Andrew Weir & Co , which is said to decide the contrary. The Calcutta was chartered to go from Bombay to Busreh and load a cargo of lawful merchandise. She was put up at Busreh as a general ship. A man called Noats shipped 1,031 boxes of dates on the ship on the terms of a bill of lading. The bill of lading contained a number of exceptions which were not in the charterparty. Whilst the goods were afloat, Mr Noats borrowed some money. He borrowed it from the charterers. Mr Noats indorsed the bill of lading to them as security for the advance they made. They eventually took delivery of the dates but alleged that they were not in good order and condition. The charterers sought to sue the shipowners for the damage to the dates. The charterers said that they were "shipped under the charterparty" which did not contain exceptions. But the shipowners said that the goods were shipped under the bill of lading which contained exceptions. The question was: which contract was to govern? Hamilton J, said ([1910] 1 KB at p 771) that the allegation "shipped under the clarterparty" had not been proved in fact. The dates were not shipped under the charterparty but under the bill of lading. So the remedy was only under the bill of lading. As I understand it, Hamilton J, regarded the bill of lading as a separate contract, which was made by the shipowners with Mr Noats, independent of the charterparty. The goods were shipped under the bill of lading only. And when the charterers took the bill of lading as security for an advance, they took over that contract, just the same as any third person who lent money on the faith of it. They were in no better position than Mr Noats himself.

Contrast that case with the present. The bill of lading here was not separate or severable from the charterparty. It was issued in pursuance of it. The Italian sellers ANIC had already contracted to sell the fertiliser to the charterers; and they had chartered the ship to carry it. The bill of lading was a mere instrument to carry out those contracts. It did not evidence any separate contract at all. As between charterers and shipowners, it was only a receipt for the goods.

This view is supported by a case in the House of Lords, for which we are indebted to junior counsel for the charterers. It does not appear in any textbooks and was newly found for this court. It is the Scottish case of Love and Stewart, Ltd v Routor Steamship Co, Ltd . Love and Stewart contracted to buy a large parcel of pit props from a gentleman named Grankull in Finland for delivery fob Kristinesad in Finland. The purchasers chartered a steamship to go to Kristinesed and load the pit props and carry them to Newport in south Wales. The charterparty allowed 13 days for loading and 13 days for discharging. In point of fact, Mr Grankull managed to load the pit props in nine days, thus saving four days in loading. By the terms of the charterparty those days were "reversible", that is, the four days saved in the loading could be added on to the 13 days for discharging, making altogether 17 days allowable for discharging. The master issued a bill of lading for those pit props, making them deliverable to Mr Grankull's order, but in the margin of the bill of lading there was written the words, apparently by agreement between the parties: "thirteen days used for loading" whereas in fact only nine days had been used. (Those words were untrue but were inserted in an endeavour to say that only 13 days were allowable for discharging instead of 17 days.) Mr Grankull indorsed the bill of lading in blank; he presented it with an invoice to the charterers, Love and Stewart, while the goods were still afloat. They paid the invoice, got the bill of lading, and on arrival of the ship, they took delivery. It took 17 and a half days to discharge the pit props. The shipowners claimed for 4 and a half days demurrage excess over 13 days. The charterers said that they were only liable for half a day demurrage (excess over 17 days). The shipowners said the charterers were bound by the words in the bill of lading: "thirteen days used for loading". The Court of Session upheld this contention. The Lord Justice (Lord Scott Dickson) relied on the case of Calcutta Steamship Co, Ltd v Andrew Weir & Co . He said (1916 SC at pp 236, 237):

"The [charterers] were not shippers of the cargo, and, therefore, the present case does not fall under the principle which has been applied where the holder of a bill of lading is both shipper and charterer, even accepting that principle as broadly as it has been stated in some of the decisions. The statement of the law in Gullischen v. Stewart Brothers and Calcutta Steamship Co, Ltd. v. Andrew Weir & Co . appears to me to apply to the present case. I am, therefore, of opinion that the [charterers] are bound by the terms of the bill of lading and must be held to have received the cargo on the footing that only thirteen days remained for discharge."

So the Court of Session, applying Calcutta v Weir thought that the terms of the bill of lading governed. But the House of Lords reversed the Court of Session. It was held that the shipowners could only claim for half a day demurrage. They were bound by the "reversible" clause in the charterparty, and could not rely on the "13-day" clause in the bill of lading. Lord Sumner himself, giving the only judgment, made it clear that the position was governed by the charterparty and not by the bill of lading. He said ([1916] 2 AC at p 540):

"Furthermore, in presenting the bill of lading the [charterers] merely did what they must needs do in order to get delivery of their cargo. They received it from Grankull [the seller] under the contract of sale as the symbol of the delivery of goods while afloat. Nothing had occurred by which any contract for the carriage of the goods arose between them and the shipowners other than the charter itself. No new bargain had been made, under which the [shipowners] carried for the [charterers] under a bill of lading instead of a charter. The freight earned was chartered freight and the bill of lading in the [charters'] hands was only the ship's receipt for the goods. This is the ordinary effect of documents such as these under such circumstances, and the cases cited do not bear upon them."

Clearly Lord Sumner thought that Calcutta v Weir had no relevance to that case.

I see no difference between the House of Lords case and this case. In each there is: (i) a contract of sale; (ii) a charter taken out in order to implement that sale; (iii) a bill of lading taken by the seller; and (iv) soon afterwards an indorsement over to the charterer.

Similarly in Hogarth Shipping Co, Ltd v Blyth, Greene, Jourdain & Co , there was a charterparty. A bill of lading was issued to shippers and indorsed to the charterers. Scrutton LJ, did not think that the charterparty was ousted by the bill of lading. He said (17 [1917] 2 KB at p 550) "... I think it is, to say the least, very arguable that the charterer here might sue on the charter for failure to deliver ... " But, as the charterer had limited his claim to the bill of lading, the case was dealt with on that footing.

My conclusion is that the statements in the textbooks are wrong. They must be revised in the light of the decision of the House of Lords and of our present case. The writers of textbooks suffer under the impediment that they do not have the full argument and discussion which we have. After full consideration, I am prepared to hold that in a case such as this the relations between shipowner and charterer are governed by the charterparty. Even though the charterer is not the shipper and takes as indorsee of a bill of lading, nevertheless their relations are governed by the charter, at any rate when the master is only authorised to sign bills of lading without prejudice to the charter. I think that Megaw J, was right. I would dismiss the appeal.