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Tuesday, October 11, 2016

Can Third Party seek protection under an exclusion in the Original Contract - Cargo logistics caselaw

In  the debut test (for the ground) at Holkar, with only two wickets falling on day 2 –there was a natural expectation that visitors would do well – and they did well too with an opening partnership of 118.  Latham and Guptill where playing well – and then  Ravichandran Ashwin found Latham's leading edge.  From then it was the mastery of the man, who is staking claims for the best spinner to represent India –t he land of spinners.  With six wickets, and a hand  in two run-outs, he had contributed to all but two of New Zealand's wickets. Kane Williamson is struggling to read him. In every innings in this series, Ashwin has gotten Williamson in a manner that would have fellow off-spinners going weak in the legs. This was bowled wide that Umpire would have felt the desire to show wide, had it not nipped back so much !!

It was my desire to make a post on NZ (White Ferns) medium facer -  Amy Satterthwaite, and her feat of taking 4 wickets making Proteas eat humble pie that stumbled upon this case interesting marine case law.   For the uninformed (about Marine and logistics) – a Bill of lading is the most important document, issued by a carrier (or his agent) to acknowledge receipt of a shipment of cargo.  This is a negotiable document serving the functions of being a conclusive receipt of entrusted cargo, that of cargo having been loaded on the conveyance and – the document of title to the goods.  It is assignable !.

My search on the Kiwi pacer led me to a case on contract law decided by the Privy Council. It is - New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1974], or The Eurymedon,  one  on contract law by the Judicial Committee of the Privy Council. The Council gave conditions as to when a third party may seek protection of an exclusion clause in a contract between two parties.

The subject matter was cargo – an  expensive drill shipped from Liverpool to Wellington aboard vessel  “Eurymedon”.  The case brought about on appeal  by New Zealand Shipping Co  against the respondent -  the consignee of the drill. The appellant,  carried out all stevedoring work in Wellington, in respect of the ships owned by the carrier. The carrier was a wholly owned subsidiary of the stevedore. The drill was damaged during unloading as a result of the stevedore’s negligence.

The carriage document – the Bill of lading stipulated that servants or agents of the carrier would not be held liable to any shipper, consignee or owner for loss or damage of the goods.  This clause is often referred to as "Himalaya clause".  Though the drill was damaged whilst unloading due to negligence, the stevedores claimed protection of the immunity clause in the contract between the carrier and Satterthwaite.
illustrative picture ~ from my archives.

The owner of the machine brought an action against the stevedore after the limitation period specified in the contract. The stevedore sought to rely upon the clause in order to escape liability. The owner of the machine argued that the stevedores could not rely on the clause as they were not privy to the contract and had not provided them with any consideration.

The general rule is that a contract between two parties cannot be sued on by a third person even though the contract is expressed to be for his benefit.  The carrier assumed an obligation to transport the goods and discharge them at port of arrival.
It was held that the  unilateral contract (between A M Satterthwaite (shippers and original plaintiffs)) and the stevedores (NZ Shipping Co Ltd) was activated by performance (unloading of the drill) and relied on the pre-existing contractual obligation between the stevedores and the carrier to provide good consideration; at the point of performance the unilateral contract become a mutual (synallagmatic) contract.

Lord Wilberforce stated: “the Bill of Lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shippers and the appellants (NZ Shipping Co Ltd), made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the Bill of Lading.”

In their  Lordships' opinion, consideration may quite well be provided by the appellant, as suggested, even though (or if) it was already under an obligation to discharge to the carrier...  it was ruled that the stevedores were fully protected under the damage exclusion clause. The stevedores had protection from the limitation clause as was available to the original contracting party and the  claimant's action was unsuccessful.

There are learnings everywhere !

With regards – S. Sampathkumar

11th Oct 2016.

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