England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBCMI 97/0421/3

QUEEN'S BENCH DIVISION Royal Courts of Justice

(COMMERCIAL COURT) The Strand

(MR JUSTICE WALLER ) London WC2

Thursday 30th July, 1998

B e f o r e:

LORD JUSTICE MILLETT

LORD JUSTICE SCHIEMANN

SIR BRIAN NEILL

- - - - - -

BOREALIS AB

Plaintiffs/Respondents

- v -

STARGAS LIMITED

1st Defendants

SAUDI ARABIAN OIL COMPANY

2nd Defendants/Appellants

BERGESEN DY A/S

3rd Party

- - - - - -

(Handed down Transcript of Smith Bernal Reporting Ltd

180 Fleet Street, London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

- - - - - -

MR JNC GAISMAN QC and MR S KENNY (Instructed by Messrs Richards Butler, London EC3A 7EE) appeared on behalf of the Appellant

MR A POPPLEWELL QC (Instructed by Messrs Herbert Smith, London EC2A 2HS) appeared on behalf of the Respondent

MR IA MILLIGAN QC and MR SR KVERNDAL (Instructed by Messrs Middleton Potts, London EC1A 7LD) appeared on behalf of the 3rd Party

- - - - - -

J U D G M E N T

(As approved by the Court )

- - - - - -

©Crown Copyright

SIR BRIAN NEILL:

Introduction

This is an appeal by the Saudi Arabian Oil Company ("SA") from the order of Waller J. dated 19 November 1996 dismissing an application by SA to set aside the order of Clarke J. dated 30 October 1995 granting leave pursuant to RSC Order 11 r.1(1)(c) to issue a concurrent writ and serve it on SA as a necessary or proper party in the proceedings. The judgment of Waller J. giving the reasons for his order is reported: see [1997] 1 Lloyds Law Reports 642.

One of the questions raised by this appeal concerns the meaning of section 3 of the Carriage of Goods by Sea Act 1992. I shall come later to the arguments addressed to this question and to the other issues arising on the appeal. First, however, I shall set out the background facts.

The background facts

The plaintiff company is Borealis AB (formerly Petrokemi AB) (formerly Statoil Petrokemi AB) of Stenungsund in Sweden. I shall call the plaintiff company "Borealis". The first defendant company is Stargas Limited ("Stargas"),

a company registered in Jersey.

By a contract dated 13 October 1993 Borealis agreed to buy from Stargas 43,000 m.t. (10% more or less in seller's option) of Field Grade quality fully refrigerated propane on terms CFR Stenungsund. It was an express term of the contract that the cargo should not contain corrosive compounds such as to give a worse result than 1B when measured by the copper strip corrosion test by method ASTM D -1838.

On or about 22 October 1993 the cargo of about 42,500 m.t. of propane was loaded on board the vessel "Berge Sisar" at the plant owned by SA at Yanbu in Saudi Arabia. The Berge Sisar had been chartered to Stargas under an Asbatankvoy charter dated 27 September 1993. The owner of the vessel was Bergesen D.Y. A/S ("Bergesen") of Oslo in Norway.

Stargas had purchased the cargo in part directly from SA and in part from intermediate purchasers who had themselves, either directly or indirectly, purchased the propane from SA. The cargo was shipped under five bills of lading. Each of the bills named SA as the shippers. I shall refer again to the bills of lading later.

On or about 6 November 1993 the vessel arrived at berth at Stenungsund. Shortly thereafter some samples of the cargo were taken and analysed. The analysis disclosed that the quality of the cargo was such that it failed the copper strip corrosion test by method ASTM D -1838. On or about 11 November 1993 Borealis sold the cargo to Dow Europe on terms cif Terneuzen.

There then followed a series of claims and counterclaims by the various parties concerned with the cargo. Save where it is necessary to do otherwise I shall attempt to explain these claims and counterclaims as succinctly as possible.

The subsequent proceedings

On 10 May 1994 Borealis issued a writ in the Commercial Court against Stargas claiming damages for breach of contract. As originally pleaded the claim was based on the contention that the cargo was not of the contractual quality when it was originally loaded on board the Berge Sisar at Yanbu nor at any material time thereafter. Subsequently, and after the service by Stargas of its defence, it was contended in the alternative that, if the cargo became off specification after loading but before the tender of delivery at Stenungsund, Stargas was liable as carrier and was in breach of clause 1 of the Asbatankanvoy charter and section 3 of the United States Carriage of Goods by Sea Act.

On 4 July 1994 Bergesen was joined as third party in the action by a third party notice issued by Stargas. In these third party proceedings Stargas is claiming an indemnity from Bergesen in respect of any liability Stargas may be under to Borealis. Bergesen has served a defence and counterclaim in the third party proceedings and seeks to recover for damage caused to the Berge Sisar by reason of the corrosive compounds in the cargo.

Up to this point the claims and counterclaims are conventional and give rise to no special procedural difficulty. In addition to making a counterclaim against Stargas in the third party proceedings in respect of damage to the vessel, however, Bergesen has also made similar claims against SA and against Borealis. The claim against Stargas was brought under the terms of the charterparty, but the claims against SA and Borealis are based on the alleged liability of these two companies under the bills of lading, it being alleged that SA is liable as the shipper of the cargo and that Borealis is liable as a holder of the bills of lading who demanded or requested delivery of the cargo at Stenungsund.

These further claims by Bergesen have had the following consequences :

(a) The claim by Bergesen against SA has been referred to arbitration in accordance with an arbitration clause in the bills of lading. It is to be noted that SA, as it was fully entitled to do, has declined to waive the provision for arbitration.

(b) Borealis has amended its claim against Stargas to include, in paragraph 7A of the amended points of claim, a claim for an indemnity against any liability it may be under to Bergesen in respect of the corrosive cargo.

(c) In October 1995 Borealis applied for leave to amend the writ and points of claim and for leave to issue a concurrent writ and serve it upon SA out of the jurisdiction in Saudi Arabia. The application was supported by an affidavit sworn by Mr Charles Baker on 25 October 1995. By order dated 30 October 1995 Clarke J. granted the appropriate leave. It is this claim by Borealis against SA which is the subject of the present interlocutory proceedings. It is a claim brought under the Civil Liability (Contribution) Act 1978 ("the 1978 Act"), and is for an indemnity or contribution in respect of any liability which Borealis may be under to Bergesen under the bills of lading in respect of the corrosive cargo.

The application before Waller J.

On 25 March 1996 SA issued a summons under RSC Order 12, r.8 seeking to set aside the order of Clarke J. In the summons it was asserted that SA was not a necessary or proper party to the claim made in the writ and that in any event the case was not a proper one for service out of the jurisdiction under RSC Order 11. The grounds for contending that the case was not a proper one for service out of the jurisdiction were set out in paragraph 12 of the affidavit of Mr Charles Brown sworn in support of the application to set aside. In addition it was asserted on behalf of SA that the affidavit sworn by Mr Baker was defective and failed to comply with the relevant rule.

The application to set aside came before Waller J. on 9 July 1996. After hearing argument on the broad merits of the matter, Waller J. gave Borealis leave to serve a further affidavit to make good the defects in Mr Baker's first affidavit. He also gave leave to SA to serve a further affidavit in response. The summons under Order 12, r.8 was then adjourned. The judgment of Waller J. on 9 July 1996 is also reported : see [1997] 1 Lloyds Law Reports 635.

The adjourned summons was restored for hearing before Waller J. on 19 November 1996. At that hearing the judge had before him counsel for Borealis and SA and also counsel instructed on behalf of Bergesen, the third party. After hearing argument Waller J. dismissed the application to set aside the order of Clarke J. and refused leave to appeal. He rejected the submission on behalf of SA that the claim by Bergesen against Borealis was not a genuine claim but was brought only for the purpose of bringing SA into the action, and concluded that Bergesen had a bona fide claim against Borealis and that it was convenient that the claim by Borealis against SA for an indemnity or contribution should be heard at the same time as the other claims between the parties.

SA then sought leave to appeal from the single Lord Justice. On March 1997 Phillips L.J. gave leave to appeal. In his reasons for giving leave he said that the case raised issues of principle in relation to the jurisdiction under RSC Order 11 that justified consideration by the Court of Appeal. I turn therefore to the submissions which were put before us by Mr Gaisman Q.C. on behalf of SA. It will be convenient to consider these submissions in two groups - first, the submissions relating to the exercise of the court's discretion on the facts of the present case, and then the submissions directed specifically to the merits of Bergesen's claim against Borealis under section 3 of the Carriage of Goods by Sea Act, 1992. It is important to emphasise that the second group of submissions formed no part of SA's argument before Waller J.

The appeal on the exercise of the court's discretion

Counsel for SA did not dispute that the court had power to grant leave to serve the writ out of the jurisdiction on SA. The issue, he submitted, was whether on the facts of this case the interests of justice required that SA, which was a foreign company, should be brought to England to answer the claim. Counsel developed this submission on the following lines :

(a) The exercise of the jurisdiction under RSC Order 11 is exorbitant. As Lord Simon pointed out in Derby & Co. v. Larsson [1976] 1 WLR 202 at 204, Order 11 "constitutes an invasion of general principles of international law".

(b) In cases where Order 11 r.1(1)(c) is invoked on the basis that the foreign party is a necessary or proper party to a claim brought against someone else the jurisdiction must be exercised with especial care. In support of this proposition reference can be made to a short passage in the judgment of Hoffmann J. in Arab Monetary Fund v. Hashim (No. 4) [1992] 1 WLR 553 at 557:

"... the jurisdiction under rule 1(1)(c) is particularly exorbitant because it enables a foreigner to be impleaded when the dispute may have no connection with this country at all. Hence a need for even greater caution".

(c) In this case there was the additional factor that the claim against SA was contingent and moreover depended on a statutory remedy given to Borealis by the 1978 Act. This Act gives a statutory remedy even in circumstances where the claimant would have no other right of action against the foreign party and where the person who had suffered the damage might not be able to sue the foreign party in England. Furthermore, if the SA remained as a defendant in these proceedings, the liability of SA to Bergesen might be adjudicated upon in an English court despite the fact that the proceedings between SA and Bergesen had been referred to arbitration. It was also to be noted that the claim by Bergesen against Borealis was in the court in England only because Borealis had waived its right to arbitrate.

(d) The claim for contribution was for a comparatively small amount and was out of proportion to the costs which SA would incur if it had to take part in the English proceedings.

(e) Any claims which might be brought against SA under the sales contracts would be subject to Saudi law and would be determined in Saudi Arabia. The outcome of the present proceedings would have no effect on any proceedings which might be brought in Saudi Arabia. Moreover, any enquiry into the source of the alleged contamination would be better and more conveniently conducted in Saudi Arabia rather than in London.

(f) The judge should have concluded that the real purpose of the joinder of SA was to obtain discovery for use in inter alia the main claim by Borealis against Stargas and should have taken this fact into account.

(g) A further and very important reason for allowing the appeal was that the claim by Bergesen against Borealis was almost certain to fail. As, however, I propose to examine the validity of the claim by Bergesen against Borealis later in this judgment I do not propose to deal with this point at this stage.

It is apparent from the judgments given by Waller J. in July and November 1996 that, though counsel for SA threw doubt on the bona fides of the claim by Bergesen against Borealis, no argument was addressed to him as to the meaning and effect of section 3 of the Carriage of Goods by Sea Act 1992. In his November judgment the judge rejected the suggestion that the claim by Bergesen was in some way improper, and affirmed the provisional conclusion that he had reached in July that the order of Clarke J. should be upheld. It is therefore convenient to refer to part of the judgment of Waller J. in July 1996 when he dealt with the exercise of his discretion : see [1997] 1 Lloyds Law Reports 635 at 639-641. At 640 he said:

" In my view, if Bergesen have a genuine claim against Borealis, the argument in favour of allowing Saudi Aramco to be joined has very great force. If it is a genuinely arguable claim, then, since Borealis are at risk if Saudi Aramco are not bound by the relevant findings, and if Borealis are for some reason unable to recover from Stargas (or even not recover 100 per cent. in an as yet unpleaded contribution claim), there must be a very strong case for bringing Saudi Aramco into the action. On the basis that Bergesen has a genuine claim against Borealis the answer to various of the points made by Mr Gaisman QC would be as follows :

In relation to the jurisdiction of the Saudi Courts, and the distinct possibility that proceedings may take place in those Courts in any event; first, there is no agreement between Borealis and Saudi Aramco that the Saudi Courts should have jurisdiction over any dispute between them, and it would be the very fact that there would a risk of inconsistent findings which would make it just and convenient for Saudi Aramco to be joined and thus bound by those findings which may render Borealis liable.

In relation to arbitration, once again Borealis is not bound vis-à-vis Saudi Aramco to arbitrate disputes as to contribution, there is furthermore an action proceeding in the English Court which on this basis puts Borealis at risk. Justice would point to Borealis being entitled to have Saudi Aramco bound by those findings which would render Borealis itself liable.

Inconvenient forum: an action is being fought in this country in any event. The issues to which [Mr Gaisman points] as being ones which would be more conveniently tried in Saudi Arabia, will in fact be tried in London. There will be some inconvenience to Saudi Aramco being forced to bring its witnesses here and being forced to take part in that trial here, but, as against that, Saudi Aramco would have been bound to come to London to arbitrate the same issues, and thus physical inconvenience is not something on which they would they should be entitled to place strong reliance."

It is clear from an earlier passage in the July judgment at 639 that Waller J. was well aware that the jurisdiction which he was exercising was an exorbitant one and that he also had in mind the fact that the claim by Borealis was based on the 1978 Act. It will be seen therefore that, apart from the argument on the 1992 Act to which I shall soon turn, the submissions on discretion put before us were substantially the same as those before Waller J. These submissions are formidable and they were attractively presented but I have come to the firm conclusion that they must be rejected. An appellate court should be very careful not to interfere with the exercise of a judge's discretion unless the appellate court can detect an error of principle or is satisfied that the judge's decision was plainly wrong. It seems to me that this case was near the borderline, but I think that the judge was entitled to reach the conclusion that he did and I cannot see any error of principle.

The Carriage of Goods by Sea Act 1992

The claim by Bergesen against Borealis was set out in the Notice dated July 1995. In summary it was therein alleged :

(1) That the five bills of lading relating to the cargo incorporated the terms of the charter party.

(2) That on the arrival of the vessel at the discharge port on or about 5 November 1993 Borealis, as lawful holders of the bills of lading, requested delivery of the cargo but, after taking samples, thereafter rejected it.

(3) That on the arrival of the vessel at Ostend on or about 12 November 1993 Borealis, as lawful holders of the bills of lading, requested delivery of the cargo into the Dow terminal and the cargo was duly discharged there.

(4) That in the circumstances and by reason of section 3 of the Carriage of Goods by Sea Act 1992, Borealis became subject to the same liabilities under the contracts contained in the bills of lading as if it had originally been a party to those contracts and the shipper of the cargo.

It now seems clear from the evidence contained in the exhibits to the fourth affidavit of Mr Andrew Pursell sworn on 1 July 1998 (which we admitted on the resumed hearing of the appeal on 2 July 1998) that the bills of lading were not sent to Borealis until 18 January 1994 and that they did not reach Borealis until 19 or 20 January 1994 when they were forwarded to Dow Europe who had bought the cargo from Borealis. However, it is accepted on behalf of SA that, though Borealis was not, or may not have been, the holder of the bills on the date or dates when delivery of the cargo was requested, it was for a short period of perhaps 24 hours liable on the bills by reason of section 3(1)(c) of the Carriage of Goods by Sea Act 1992 ("CoGSA 1992"). The contention on behalf of SA is that this liability ceased when the bills were indorsed to Dow Europe on or about 20 January 1994 and that therefore Bergesen has no valid claim against Borealis. It is also accepted by SA for the purposes of this appeal that the request for the delivery of samples of the cargo for the purpose of testing at Stenungsund was a sufficient "demand" to satisfy section 3(1)(c) of CoGSA 1992.

When this appeal came on for hearing in the Court of Appeal on 13 February 1998 Bergesen was not represented by counsel, though it had appeared before Waller J. at the hearing before him on 19 November 1996. As the argument developed in this Court, however, it became clear that a central plank of the argument by SA in support of the appeal was that Bergesen's claim against Borealis had no legal foundation and that therefore any claim for an indemnity by Borealis was otiose. This argument had not been anticipated by Bergesen and indeed had not been even adumbrated before Waller J. The argument appeared for the first time in the skeleton argument produced for the hearing on 13 February 1998. Counsel for Borealis, acting as amicus, assisted the Court by outlining the arguments which Bergesen might have wished to deploy, and the Court was very grateful to him for that assistance. In the end, however, the Court concluded that, as Bergesen might be affected by any decision the Court might reach on the important submissions of law by SA, Bergesen itself should be given an opportunity to address the Court on the matter. Accordingly, on Monday 16 February 1998 the hearing of the appeal was adjourned so that Bergesen could consider whether it wished to be represented. Later that day a letter setting out with admirable clarity the points which had been debated before the Court of Appeal was sent by the solicitors for SA to the solicitors for Bergesen.

Unfortunately, it did not prove possible to arrange a further hearing before the Court until 2 July 1998 when counsel for SA and Bergesen put forward their respective submissions. Before considering these submissions, however, I should say something about the history of CoGSA 1992 and set out the relevant provisions of the Act.

At common law and before the enactment of the Bills of Lading Act 1855 a buyer of goods was unable to sue or be sued on a contract of carriage made between the shipper and the carrier even where a document of title had been transferred to him and he thus had constructive possession of the goods. The doctrine of privity of contract stood in the way. Section 1 of the Bills of Lading Act 1855 was passed to remedy this situation. The section provided, in essence, that the transfer of a bill of lading also effected the transfer of the contract of carriage. But the section gave rise to difficulties because the shipper's rights and liabilities passed to the consignee or indorsee of the bill of lading only if the property in the goods passed "upon or by reason of" the consignment or indorsement. Thus, for example, a buyer to whom the risk of loss had passed on shipment might find he had no remedy in contract against the carrier if under the contract of sale the property in the goods passed independently of consignment.

The question of rights of suit in respect of carriage of goods by sea was referred to the Law Commission and the Scottish Law Commission, who produced a joint Report which was laid before Parliament on 19 March1991. Appendix A to the Report contained a draft Bill which subsequently became the Carriage of Goods by Sea Act 1992 ("CoGSA 1992). CoGSA 1992, which came into force on 16 September 1992, was designed to deal with a number of shortcomings in the Bills of Lading Act 1855. In particular it provided that contractual rights could be asserted by the holder of a bill of lading against the carrier of goods irrespective of the passing of the property. It is to be remembered, however, that in the present case we are concerned the liabilities of a holder of a bill of lading rather than with his rights. I must turn next therefore to the relevant text of CoGSA 1992.

Section 2 of the Act is concerned with rights under shipping documents. So far is material it is these terms :

"(1) Subject to the following provisions of this section, a person who becomes -

the lawful holder of a bill of lading:

.....

shall (by virtue of becoming the holder of the bill ..... ) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.

(2) Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill -

(a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to possession of the bill; or

(b) as a result of the rejection to that person by another person of goods or documents delivered to the other person in pursuance of any such arrangements.

(3) .....

(4) Where, in the case of any document to which this Act applies -

(a) a person with any interest or right in or in relation to goods to which the document relates sustains loss or damage in consequence of a breach of the contract of carriage; but

(b) subsection (1) above operates in relation to that document so that rights of suit in respect of that breach are vested in another person,

the other person shall be entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised.

(5) Where rights are transferred by virtue of the operation of subsection (1) above in relation to any document, the transfer for which that subsection provides shall extinguish any entitlement to those rights which derives -

(a) where that document is a bill of lading , from a person's having been an original party to the contract of carriage; or

(b) in the case of any document to which this Act applies, from the previous operation of that subsection in relation to that document;

..... "

It is to be noted that by section 5(1) of CoGSA 1992 "holder" in relation to a bill of lading is to be construed in accordance with section 5(2), and that section 5(2) provides that a person is to be regarded for the purposes of the Act as having become "the lawful holder of a bill of lading wherever he has become the holder of the bill in good faith".

It will be seen that the broad effect of section 2 is that the rights of suit under a contract of carriage are vested in the lawful holder of the bill for the time being, and that both the shipper and any intermediate holder of the bill loses their rights where the rights of suit have been transferred under subsection (1), though, by virtue of subsection (4), if such a person with an interest in the goods suffers loss in consequence of a breach of the contract of carriage, the holder of the bill can bring an action for his benefit.

I come then to the crucial section in CoGSA 1992, which is section 3. This section deals with liabilities under shipping documents. It is in these terms :

" (1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection -

(a) takes or demands delivery from the carrier of any of the goods to which the document relates;

(b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or

(c) is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,

that person shall(by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.

(2) Where the goods to which a ship's delivery order relates form a part only of the goods to which the contract of carriage relates, the liabilities to which any person is subject by virtue of the operation of this section in relation to that order shall exclude liabilities in respect of any goods to which the order does not relate.

(3) This section, so far as it imposes liabilities under any contract on any person, shall be without prejudice to the liabilities under the contract of any person as an original party to the contract."

The submissions on CoGSA 1992

I turn now to the submissions advanced on behalf of SA in support of the proposition that the claim by Bergesen was bound to fail and that therefore there was no basis for the joinder of SA at the suit of Borealis. These submissions were developed as follows :

(1) On the Indorsement of the bills of lading to Dow Europe on or about 19 January 1994 Dow Europe became the lawful holder of the bills by virtue of section 2(1) of the CoGSA 1992.

(2) At that point Borealis, as the intermediate holder of the bills, lost its contractual rights which it had held for a short time during the period of about 24 hours between the receipt of the bills from Stargas and their indorsement to Dow Europe. The loss of contractual rights was brought about by section 2(5) of CoGSA 1992 and was in conformity with the conclusions reached in the Joint Report of the Law Commissions ("the Report"), paras. 2.40 and 2.41.

(3) The Report expressly recognised and accepted the linkage between contractual rights and liabilities in bills of sale contracts: see paras. 3.9, 3.10 and 3.17 of the Report.

(4) Section 3 of CoGSA 1992 specifies the persons who are subject to the liabilities of a bill of sale contract. To be liable a person has first to be a person "in whom rights are vested" under section 2(1). [It will be convenient to call these persons members of "the section 2(1) class".] But section 3 also makes it clear that only some persons of the section 2(1) class are subject to these liabilities. These are persons who in addition to being members of the section 2(1) class satisfy one or more of the further conditions specified in paragraphs (a), (b) and (c) of section 3(1). (5) These further conditions are designed to exclude such persons as pledgees of bills or bankers.

(6) Section 3(1) is not concerned with what the position was at the time of, for example, a demand for delivery, but with the status of the final holder of the bill. The final holder is the person in whom alone the rights are vested.

(7) Accordingly, CoGSA 1992 transfers both rights and liabilities to the final holder. This was the position before 1992, as was recognised in para. 2.40 of the Report.

Furthermore, such a result makes good sense. In Smurthwaite v. Wilkins (1862) 11 C.B. (N.S.) 842 the contention that an intermediate holder of a bill remained liable for freight although he had parted with all interest in the goods and had indorsed the bill of lading to a third party was described by Erle C.J as "monstrous" and "clearly repugnant to one's notion of justice". The decision in Smurthwaite was cited with apparent approval by Lord Lloyd in Effort Shipping v. Linden Management S.A. [1998] 2 WLR 206 at 215,

(8) There is a special exception in the case of the original shipper which is provided for in section 3(3) of CoGSA 1992. This exception was explained in para. 3.24 of the Report. There is no similar provision preserving any liabilities of intermediate holders.

Counsel for Bergesen contested this approach. He argued that the scheme of CoGSA 1992 was to provide that once liability had been triggered by some event falling within paragraphs (a), (b) or (c) of section 3(1) the holder at that moment became liable and remained liable. By taking or demanding delivery or by making a claim the holder thereupon became "subject to the same liabilities under [the] contract as if he had been a party to that contract." There was no provision in section 3 or elsewhere in CoGSA 1992 for the transfer or extinction of liabilities comparable to the provision for the extinction of rights in section 2(5). Indeed it would be very surprising if a holder could relieve himself of some accrued liability, particularly if incurred during the period while he was the holder of the bill, by an indorsement of the bill to a third party.

The effect of section 3 of CoGSA 1992 in the present case

By section 1 of the Bills of Lading Act 1855 the indorsee of a bill of lading had liabilities under the bill transferred to him at the same time as he acquired rights under it. But the same link between rights and liabilities has not been preserved in CoGSA 1992. It may also be noted that under the general law an assignee of a chose in action does not automatically become liable on a contract solely by reason of the fact that he acquires rights under it.

Another distinction between the 1855 Act and CoGSA 1992 is to be found in the fact that, whereas under section 1 of the 1855 Act rights of suit and liabilities under the contract contained in the bill of lading were only transferred to a consignee or indorsee to whom the property in the goods mentioned in the bill of lading passed upon or by reason of such consignment or indorsement, the persons who may acquire rights of suit under section 2(1) of CoGSA 1992 form a wider class and can include persons who become lawful holders of bills only by way of security.

Part III of the Report is headed "The Separation of Contractual Rights and Duties", and one sees in the recommendations between paras.3.15 and 3.24 a number of statements to the effect that contractual liabilities are not to be imposed automatically on every holder of a bill of lading but only on those holders who seek to enforce rights conferred on them. This approach was foreshadowed in para. 2.31 of the Report where it was stated that " ... in accordance with [the] recommendations that there should not be an automatic linking of contractual rights and liabilities, pledgees and others holding the bill merely as security would not be liable for such matters as freight and demurrage unless they sought to enforce their security."

One sees therefore that, leaving aside the special position of the shipper, it was the policy of those who were responsible for drafting CoGSA 1992 to restrict the persons who were subject to liabilities under the bills of lading to a narrower class than those who obtained rights under the bills.

Accordingly I now turn to section 3(1) which sets out the circumstances in which a person can become subject to liabilities as the holder under a bill of lading. These circumstances can be listed as follows :

The relevant bill of lading is one to which CoGSA 1992 applies : see sections 1(1) and (2).

Section 2(1) operates in relation to the bill. This means (a) that the holder of the bill is and has become the holder of the bill in good faith so as to be the lawful holder of the bill; and (b) that by virtue of becoming the holder of the bill all rights of suit have been transferred to and vested in him.

(1) At the time when he is the holder of the bill and is the person in whom rights are vested by virtue of section 2(1), he either (a) takes one of the steps specified in paragraphs (a) and (b) of section 3(1), or (b) is a person who has previously taken or demanded delivery from the carrier of any of the goods to which the bill of lading related.

It is important to notice the present tense in section 3(1) because, in order to fulfil any of the conditions specified in paragraphs (a), (b) and (c), the relevant person has to be, at the moment of fulfilment, the person in whom rights are vested by virtue of section 2(1). Nevertheless it seems to me to follow that, though it is the policy of CoGSA 1992 to restrict the class of persons liable under a bill of lading to a narrower class than those who have rights under the contract, a holder will attract liability if at the time when he is the holder he fulfils one of the conditions in paragraphs (a), (b) and (c) of section 3(1). In this context I would draw attention, by way of example, to two passages in the Report :

"We see, in general no unfairness in making the person who either claims delivery or who takes delivery of the goods, from being subject to the terms of the contract of carriage, since in both cases the person is enforcing or at least attempting to enforce rights under the contract of carriage." (3.18)

" Furthermore, it is unfair that the carrier should be denied redress against the indorsee of the bill of lading who seeks to take the benefit of the contract of carriage without the corresponding burdens." (3.22)

I turn therefore to apply sections 2 and 3 of CoGSA 1992 to the facts of the present case.

It will be remembered that by virtue of section 2(2) of CoGSA 1992 if, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives the right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of section 2(1) unless he becomes the holder of the bill in one or other of the ways specified in paragraphs (a) and (b) of section 2(2) In the present case, however, it has been conceded that for a short period in January 1994 rights of suit under the bills of lading were vested in Borealis by virtue of section 2(1), and in any event it seems that Borealis became the a holder of the bills by virtue of a contractual arrangement made before the right to possession of the cargo ceased to attach to possession of the bills, and thus in the way specified in paragraph (a) of section 2(2). In other words, the fact that by 19 January 1994 the bills may have been "spent" bills did not prevent Borealis from qualifying at that date as " a person in whom rights are vested" by virtue of subsection 2(1).

I see the force of the argument on the facts of the present case that the demand for delivery made by Borealis in Stenungsund was not irrevocable and that its effect was expunged when delivery of the bulk was declined and the cargo was resold. But I have been unable to find in the Report or in CoGSA 1992 itself any indication either (a) that apart from the shipper, no one should be subject to liabilities under a bill of sale contract other than the ultimate holder, or (b) that once a person has become subject to such liabilities in one of the ways stipulated in paragraphs (a), (b) and (c) of section 3(1), that liability ceases on a subsequent transfer of the bill.

The facts of the present case are unusual and it does not seem that they were within the contemplation of those who drafted CoGSA 1992. But, though Borealis was the holder of the bills for only a short period, I do not see any escape from the conclusion that by seeking to enforce prospective rights under the bills and then becoming the holder of them it became subject to their liabilities. Once those liabilities attached, as it is conceded they did, it seems to me that it would require clear words in the statute to effect a transfer or extinction of them. It may be said that the special provision in section 3(3) relating to the original shipper indicates sub silentio that an intermediate holder is no longer liable after indorsement of the bill, but I do not find this argument a sufficient ground for construing section 3(1) so as to bring about a statutory transfer or extinction of accrued liabilities.

In my judgment the decision in Smurthwaite v. Wilkins (supra) is not affected by section 3(1). The intermediate holder who does not seek to enforce the contract of carriage does not come within any of the paragraphs in section 3(1) which act as triggers for the attachment of liability. The Report makes it clear that only a restricted class of holders will be "subject to the same liabilities under [the contract of carriage] as if he had been a party to that contract". But that class includes those who seek to enforce the contract .

I should mention one further matter. After the conclusion of the hearing on 2 July 1998 counsel drew our attention to the decision of Thomas J. in The Aegean Sea [1998] 2 Lloyds Law Reports 39. It is not necessary to set out the facts of the case; it is sufficient to refer to a short passage in the judgment at page 52 :

"Owners contended if Repsol had become lawful holders and had demanded delivery of the oil, then the subsequent transfer of the bill of lading to ROIL would not have discharged them from the liabilities that they had assumed by demanding delivery. Although CoGSA 1992 makes express provision by section 2(5) that the intermediate holder loses his rights to sue when he transfers the bill, no express provision is made that a person who becomes under liabilities ceases to be under those liabilities if he ceases to be the lawful holder. In view of the conclusions to which I have come, it is not necessary for me to express a concluded view; my preliminary view is that if a person who is , at the time he makes the demand for delivery the lawful holder, then the conditions in section 3 are satisfied as he is at that time the person in whom "rights are vested" under section 2 and liabilities are therefore imposed on him under section 3 and they remain with him."

It seems clear that the impact of section 3 on an intermediate holder of a bill was not argued at such length before Thomas J as before us and he was expressing only a preliminary view, but Thomas J has great experience in this branch of the law and I find it satisfactory that his preliminary view accords with the conclusion which I have reached after more detailed examination of the problem.

For the reasons I have endeavoured to outline I would dismiss the appeal.

LORD JUSTICE MILLETT: I have had the advantage of reading in draft the judgment of Sir Brian Neill. Save in one respect I am in complete agreement with it. I have the misfortune, however, to differ from him in the true construction of Section 3 of the Carriage of Goods by Sea Act 1992 (“the 1992 Act”).

A bill of lading is both a document of title to goods and evidence of the contract of carriage. Before the Bills of Lading Act 1855 (“the 1855 Act”) property in the goods was transferable by endorsement of the bill of lading but the contractual rights of the consignor under the contract of carriage were not. Liability for freight and other liabilities under the contract of carriage, on the other hand, were not transferable, but the consignee or final holder of the bill who took delivery of the goods was considered to be subject to such liabilities. This was not by virtue of the original contract of carriage or endorsement of the bill of lading, but by virtue of a new contract implied from his acceptance of the goods: see Smurthwaite v Wilkins (1862) 11 C.B. (N.S.) 842. The result was that the consignor remained liable under the express contract of carriage, the consignee or final holder of the bill who accepted delivery of the goods became subject to the same liabilities under a separate but implied contract, and intermediate holders of the bill of lading were not liable at all.

As appeared from the preamble to the 1855 Act, one of the purposes of the Act was to make the rights under the contract of carriage pass with the property in the goods. Section 1 of the Act provided:

"1. Every consignee of goods named in a bill of lading, and 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 and 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 Section has been considered in a number of cases, most recently by the House of Lords in Effort Shipping Co. Ltd. v Linden Management SA [1998] 2 WLR 206. Lord Lloyd pointed out that Section 1 dealt with the rights and the liabilities under the contract of carriage differently. Whereas the rights were transferred with the property in the goods, the liabilities were not. They were vested directly in the endorsee by force of the Section, not by assignment. The consignor remained liable, and the holder of the bill of lading came under the same liability as the consignor. His liability was by way of addition, not substitution.

Lord Lloyd said nothing, however, to cast doubt on Erle J's decision in Smurthwaite v Wilkins ( supra) that the 1855 Act did not work the "most glaring injustice" of leaving the liabilities with the intermediate holder of the bill of lading after he had parted with the property in the goods. In this respect the law was unchanged by the 1855 Act. The liability of an endorsee was by way of addition to that of the consignor but by way of substitution for that of a previous endorsee. Although different mechanisms were employed in relation to the vesting of rights and liabilities, they were closely linked; it was only the consignee or endorsee who had the rights of suit who was subject to liabilities.

The 1992 Act was enacted to give effect to the Report of the Law Commission and the Scottish Law Commission 1991 on Rights of Suit in respect of Carriage of Goods by Sea (Law Com. No.196; Scot. Law Com. No. 130) and is in the terms of the draft Bill annexed to the Report. One of the main defects in the pre-existing law to which the recommendations of the Law Commissions were directed was that the rights under the contract of carriage were transferred by endorsement of the bill of lading only where the property in the goods was also transferred. The rights were not transferred if no property passed by reason of the endorsement or if the property passed independently of the endorsement. This had the beneficial consequence that banks and others holding the bill of lading by way of security could not be made liable for freight, demurrage and other charges: Sewell v Burdick (1884), 10 App. Cas. 74. But it also meant that they could not sue the carrier under the 1855 Act when they were enforcing their security.

The two Law Commissions recommended that the transfer of contractual rights should be separated from the passing of the property. Rights of suit should be made transferable by endorsement of the bill of lading regardless of the passage of property in the goods to which the bill related. Extension of the rights of suit in this way without more, however, would expose banks and other persons holding the bill by way of security to liability for freight, demurrage and other charges. This would reverse the decision of the House of Lords in Sewell v Burdick ( supra) and would be commercially undesirable.

Accordingly the Commissions were compelled to reconsider the link between rights and liabilities. They rejected the extreme view that the link should be broken and opted for a solution which kept the link between rights and liabilities intact but stipulated that only the holder who enforced any rights conferred on him under the contract of carriage should be liable under the contract.

Recommendation (4) was in the following terms:

"(4). Where the holder of a bill of lading, or any other person entitled to sue under our recommendations, takes or demands delivery of the goods, or otherwise makes a claim under the contract of carriage against the carrier, he should become subject to any contractual liabilities as if he had been a party to the contract of carriage, without prejudice to the liabilities under the contract of carriage of the original shipper."

Rights of suit are dealt with by Section 2 of the 1992 Act. Section 2(1) provides:

"(1) Subject to the following provisions of this section, a person who becomes-

(a) the lawful holder of a bill of lading shall (by virtue of becoming the holder of the bill....) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract.

This re-enacts that part of Section 1 of the 1855 Act which dealt with rights while separating the transfer of rights of suit from the passing of the property in the goods. The important point for present purposes is that it retains the mechanism of transfer.

Section 2(1) is subject to Section 2(5) which provides:

"(5). Where rights are transferred by virtue of the operation of subsection (1) above in relation to any document, the transfer for which that subsection provides shall extinguish any entitlement to those rights which derives -

(a)...from a person's having been an original party to the contract of carriage; or

(b) ...from the previous operation of that subsection...

It may be doubted whether paragraph (b) is strictly necessary, since it is the inevitable consequence of the mechanism of transfer. Rights which are transferred to a transferee (and not simply vested in him without a transfer) are not retained by the transferor.

Liabilities are dealt with by Section 3. This gives effect to Recommendation (4) which I have quoted above. Section 3(1) and (3) are in the following terms:

"3.(1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection-

(a) takes or demands delivery from the carrier of any of the goods to which the document relates;

(b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or

(c) is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods, that person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.

(3) This section, so far as it imposes liabilities under any contract on any person, shall be without prejudice to the liabilities under the contract of any person as an original party to that contract."

The question for decision is whether the lawful holder of a bill of lading who has taken one of the steps specified in Section 3(1) in relation to any goods and afterwards endorses the bill of lading and transfers the goods to a third party is thereby discharged from liability under the contract of carriage. This question was not considered by the Law Commissions. They drew no distinction between a claim or demand for delivery of the goods, which may be withdrawn or abandoned, and actual delivery of the goods which, once taken, is irreversible.

In my opinion he is. Intermediate holders of a bill of lading remain potentially liable under the contract of carriage, and become actually liable if they take any of the steps mentioned in Section 3(1). But unless and until they take actual delivery of the goods their position is not irreversible; they may, for example, withdraw the claim or demand and endorse the bill to a third party purchaser instead. If he then demands or takes delivery of the goods it is appropriate that he should become subject to the liabilities under the contract of carriage. But there is no good reason why his liability should be additional to instead of in substitution for the liability of the previous holder of the bill; or why the latter should remain liable merely because he made a claim or demand which he has since withdrawn. The Commissions did not recommend the reversal of the decision in Smurthwaite v Wilkins, and it was no part of the purpose of the 1992 Act to do so.

The Report of the Law Commissions, and the structure of the 1992 Act, show that the provisions of paragraphs (a) (b) and (c) of Section 3(1) are intended to limit the class of persons who are subject to liability under the contract of carriage, not to extend it. Formerly limited to holders of the bill of lading who had the property in the goods, the class is now limited to holders of the bill who take steps to enforce rights under the contract of carriage. But the class never included intermediate, that is to say previous, holders of the bill, who drop out when a later holder takes delivery. In my judgment, a holder of the bill who is entitled to the contractual rights under the contract of carriage, and who fulfils the additional conditions for liability, does not become irrevocably liable under the contract of carriage, but is in the same position as a holder for the time being of the bill was under the 1855 Act, that is to say, liable unless and until he endorses the bill to someone who also fulfils the conditions of liability.

This conclusion can be reached by a simple process. If the words which limit the class by imposing additional conditions for liability are omitted, the Section reads:

"Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies...that person shall...become subject to the same liabilities under that contract as if he had been a party to that contract."

This, in effect, re-enacts that part of Section 1 of the 1855 Act which dealt with liabilities. It employs the same mechanism of direct vesting and describes the consequences in the same terms. Likewise it contains nothing to exonerate the holder of the bill who has once become subject to liability. Yet under the 1855 Act the liability did not remain irrevocably with the holder; if he transferred the goods by endorsement it attached to the transferee in exoneration of the transferor. The position is, in my opinion, the same under the 1992 Act. Liability does not remain irrevocably with the holder of the bill who takes any of the steps mentioned in the Section unless, of course, the nature of those steps precludes any further dealing with the goods. If not, and the holder endorses the bill in favour of a third party who becomes liable, the previous holder is exonerated.

It was argued that the absence of any divesting provision in Section 3 corresponding to Section 2(5) led to the opposite conclusion. But in my judgment the divestment operates automatically. Section 3(1) imposes liability only upon those holders of the bill who have contractual rights vested in them by virtue of Section 2(1). Save in the case of the original consignor, such rights are vested by transfer from the previous holder, who does not retain the rights which he is taken to have transferred (a result which is confirmed by Section 2(5) to which Section 2(1) is expressly made subject). After endorsement of the bill, the endorser no longer qualifies as a person in whom the liabilities are vested by the opening words of Section 3(1). The fact that he did so previously and at a time when he satisfied the further conditions of liability specified in Section 3(1) subjected him to liability but, in my opinion, only until he transferred the rights to a new holder.