Sandeman Coprimar SA v Transitos y Transportes Integrales S.L. & Ors

This is an appeal from the judgment delivered by His Honour Judge Hegarty QC at Liverpool on 6 July 2001 and perfected subsequently. It is brought with the permission of the Judge. It relates to the loss of some unusual goods in the course of international carriage by road. The appellants (‘Seagram’) owned those goods. The Judge held that three of the defendants who were involved in the carriage were responsible for the loss. In consequence of the loss of the goods, Seagram had to pay 113,324,310 pesetas, equivalent to some £420,000, under a guarantee given to the Spanish tax authorities. This represented almost the entirety of their claim. The Judge held that Seagram was entitled to recover this sum from the first defendants (‘TTI’). TTI are, however, insolvent and took no part in the hearing. The Judge held that the second defendants (‘BCT’) and the third defendants (‘Spain-TIR’), while liable to Seagram for loss of the goods, were not liable for this sum. It is against that finding that Seagram appeal. By a cross-appeal Spain-TIR, for their part, deny that they are under any liability at all.

The facts of this case raise many and complex issues. In resolving those issues the judgment appealed against ran to 117 pages. Happily, not all those issues are raised before us. Nonetheless this appeal illustrates the problems that arise when parties to international carriage by road depart from the scheme laid down under the relevant international Convention.

The following facts are extracted from the judgment of Judge Hegarty. They are not contentious.

Seagram is a company incorporated in Spain by the name Sandeman Coprimar S.A. The company trades under the name Seagram Espana. Seagram imports Scotch whisky into Spain.

Spain imposes excise duties on spirits, including whisky, which become payable when the liquor is released from a bonded warehouse or some other similar suspensive regime. Accordingly, where whisky is imported into Spain from the United Kingdom, no United Kingdom duty is payable but Spanish duty is payable on importation into Spain or release from bond. When liquor is released onto the Spanish market, each bottle bears a paper seal of a particular design and bearing a serial number. This is in the form of a strip which is affixed to both sides of the neck of the bottle and runs over the cork or the cap. The technical word for this is ‘precinta’, which can be translated as ‘tax seal’.

The presence of a tax seal on a bottle indicates that excise duty has been paid. Tax seals are issued by the Spanish authorities to producers or importers. No charge is made for these seals and they have no intrinsic value. If used, illicitly, however, these seals can facilitate the evasion of duty. Those to whom they are issued are required to give a guarantee to the tax authorities to guard against this eventuality. If the seals are not used for their proper purpose, namely the sealing of bottles on which duty has been paid, or alternatively returned within six months, the guarantor is called upon to pay the equivalent of the duty that would have been recovered on the bottles to which the seals should, in the normal course of events, have been attached.

At or about the beginning of August 1994 Seagram entered into an oral agreement with TTI that TTI would carry 9 cartons containing a total of 456,000 tax seals from Madrid to the premises of Chivas Brothers Ltd (‘Chivas’) in Paisley, Scotland. On 4 August TTI entered into a sub-contract with Spain-TIR under which the latter agreed to carry 9 cartons of ‘precintas para botellas de licor’ (‘seals for bottles of spirits’) from Madrid to Paisley. TTI arranged for the seals to be collected from Seagram’s agents in Madrid and delivered to Spain-TIR’s premises for the purposes of on-carriage.

Spain-TIR, in their turn, sub-contracted this carriage. They did so in the following manner. Having received the 9 cartons, they consolidated these with other goods bound for the United Kingdom. They then contracted with an English company, B.J. Waters Ltd, to carry the consolidated cargo from their premises in Madrid to the premises of Bradford Cargo Terminal Limited (‘BCT’) in Bradford. Spain-TIR prepared a consignment note in respect of the consolidated cargo covering carriage from their depot in Madrid to BCT’s premises. On this the seals were described as ‘precintos botellas’.

Spain-TIR instructed agents, a company of freight forwarders called Interserve International Freight Plc (‘Interserve’) to arrange for the on-carriage to Paisley. Interserve were, at one stage, joined as fourth defendants to the action, but the claim against them was discontinued. Interserve agreed with BCT that the latter would arrange for the on-carriage of the seals from their premises in Bradford to Paisley. They sent an unloading list to BCT prior to the arrival of the cargo, which described the seals as ‘9 cartons botels’. BCT agreed with Joda Freight (‘Joda’), a transportation company based in Keighley, that they would transport the cartons on to Chivas’ premises in Paisley. Joda were joined as fifth defendants to the action.

The cartons never reached Chivas. It was common ground that they had got as far as BCT. One of the issues that the Judge had to resolve was whether BCT lost the cartons or whether BCT delivered them to Joda, who then lost them. The Judge found that they were never delivered to Joda, but lost by BCT. There is no appeal against that finding.

English law in relation to international carriage by road was significantly altered by the Carriage of Goods by Road Act 1965. That Act gave statutory effect to the Convention on the Contract for the International Carriage of Goods by Road (‘the CMR’). The effect of the CMR on the rights and liabilities of the parties lies at the root of this appeal. We have annexed the relevant provisions of the CMR to this judgment.

The scheme of the CMR, where successive carriers perform carriage covered by a single contract, is that each successively becomes party to this contract as a result of accepting the goods and the consignment note relating to them – see Article 34 of the CMR. The consignment note sets out the terms of the single contract, and a copy of it travels with the goods.

In the present case TTI never made out a consignment note. In these circumstances the Judge held that there was no privity of contract between Seagram and either Spain-TIR or BCT. We turn to explain the basis upon which the Judge found that each of these three companies was under a liability, albeit not the identical liability, to Seagram.

Although TTI never made out the consignment note required by Article 4 of the CMR, the contract between Seagram and TTI was nonetheless subject to the provisions of the CMR. Articles 1 and 4 so provide. The Judge held that it followed that TTI were liable for the loss of the seals in the course of transit to their contractual destination, namely Paisley. No challenge is made to this conclusion.

The Judge, after a lengthy consideration of the authorities, concluded that Spain-TIR was not brought into contractual relationship with Seagram. Accordingly, they did not rank as a ‘successive carrier’ under Article 34 of the CMR. They took possession of the goods as sub-contractors under their contract with TTI. That contract was, itself, subject to the CMR, by virtue of Article 1, but Seagram were not party to it. In these circumstances the Judge held that

The Judge held that Spain-TIR’s responsibility as bailee for the care of the seals persisted until Spain-TIR delivered the seals to Paisley, in accordance with Spain TIR’s contract with TTI. The transfer of possession of the seals to BCT, under a further sub-contract, did not relieve Spain-TIR of responsibility to Seagram for the care of the seals. The Judge held that it followed that Spain-TIR had the same liability as BCT for the loss of the seals.

The Judge held that:

The Judge held that the only claim that Seagram was entitled to pursue against Spain-TIR and BCT was in bailment. Negligence on the part of BCT was to be inferred from the loss of the seals, and on this basis BCT was in breach of bailment. Furthermore, the loss of the seals by BCT amounted to a conversion of them, both at common law and by virtue of the provisions of section 2(2) of the Torts (Interference with goods) Act 1977. Spain-TIR was in identical breach of duty.

The Judge first considered the measure of damage at common law and then went on to consider the effect of Article 23 of the CMR.

The Judge held that the seals had no intrinsic value at all. Insofar as Seagram were entitled to damages, this was in respect of consequential loss. English principles of remoteness applied. To be recoverable, loss had to be of a type that was reasonably foreseeable. Carriage charges thrown away fell into this category. Each of the three defendants was liable in respect of these. They amounted to 42,550 pesetas, the equivalent of less than £200.

So far as the liability to the Spanish authorities under the guarantee was concerned, the Judge found that TTI were aware of the nature of the seals and the consequences that would attend their loss, so that TTI were liable to Seagram for this. The same was not true of either Spain-TIR or BCT. On the evidence neither of those companies could reasonably have appreciated either the nature of the goods that were in the cartons nor the financial consequences to Seagram of their loss.

Article 23 of the CMR lays down the measure of compensation recoverable where a carrier is liable under the Convention for the loss of the goods carried. The starting point under Article 23.1 is that the carrier is liable for the value of the goods at the place and time at which they were accepted for carriage. In addition, under Article 23.4, ‘Customs duties and other charges incurred in respect of the carriage of the goods shall be refunded’. The Judge held that the sums payable under the guarantee constituted such charges provided, but only provided, that they satisfied the English law test of remoteness. In the case of TTI they did so. It followed from this finding that TTI had a contractual liability under Article 23 that mirrored the common law liability found by the Judge. So far as Spain-TIR and BCT were concerned, if Article 23.4 were to apply to them, it would impose no liability in respect of sums payable under the guarantee for, in their case, these were too remote.

We have used the conditional tense in this last sentence, because the Judge expressed the view that whether or not Article 23 applied was a matter for the election by Spain-TIR and BCT, and it was open to them to exercise that election even after his judgment. This finding was based upon the permissive terms of Article 28.2, which the Judge held applied to each of these defendants. It was up to them whether to invoke the provisions of Article 23. If they did so, they would become subject to all the provisions of that Article.

The following issues arise on this appeal:

Was the Judge correct to hold that the guarantee payment was too remote to be recovered from Spain-TIR or BCT at common law? Seagram contend that he was not. Spain-TIR and BCT support his finding.

If the guarantee payment was not too remote, did it constitute part of the value of the seals? Seagram contends that it did not. Spain-TIR and BCT contend that it did.

Was the Judge correct to hold that the guarantee payment fell within the definition of ‘other charges’ under Article 23.4? Spain-TIR and BCT contend that he was not. Seagram support his finding.

Was the Judge correct to hold that ‘other charges’ under Article 23.4 could only be recovered if not too remote under English law? Seagram contend that he was not. Spain-TIR and BCT support his finding.

Was the Judge correct to hold that Spain-TIR were liable to Seagram as bailees of the seals? Spain-TIR contend that he was not. Seagram support his finding.

Was the Judge correct to hold that BCT were liable to Seagram as bailees of the seals? BCT contend that he was not. Seagram support his finding.

Was the Judge correct to indicate that Spain-TIR and BCT could elect whether to rely on Article 23, but that if they did so would be bound by all its provisions? Seagram contend that Spain-TIR and BCT have no right to elect, but are bound by all the provisions of Article 23. Spain-TIR and BCT contend that they enjoy a right to elect to rely on those provisions of Article 23 which limit their liability.

The Judge cited Overseas Tankship (UK) Limited v Morts Docks and Engineering Co Ltd (‘The Wagon Mound’) [1961] AC 388 as laying down the following test of remoteness in the law of negligence:

So far as the law of conversion is concerned, the Judge adopted the following passage from the decision of the Court of Appeal in Kuwait Airways Corporation v Iraq Airways Co (Nos 4 and 5) [2002] UKHL 19; [2002] 2AC 883 at paragraph 538:

On behalf of Seagram, Mr Nolan did not challenge these tests. He submitted, however, that the Judge had misapplied them. He put his case in a number of ways. First he relied upon the fact that BCT had no idea what was in the cartons. This was of the nature of their business. All kinds of goods came into their possession, often imprecisely described. In these circumstances BCT could not be heard to say that any type of loss was unforeseeable.

There can be problems in applying a test of foreseeability to carriers who handle consolidated containers of many different varieties of goods. Some would argue that one of the objects of the CMR Convention was to make such an exercise superfluous. There is, however, no such problem on the facts of this case. No carrier without specific knowledge of the nature of ‘precintas’ and of the guarantee that has to be given to the Spanish authorities in exchange for their release, could envisage that the loss of a number of cartons could give rise to the type of liability experienced by Seagram in this case. Mr Nolan submitted that the loss in this case was of the same type as the loss that occurs when dutiable spirits are stolen and duty has to be paid on them. We shall be dealing with this suggested analogy in a different context later in this judgment. Suffice it to say that we do not accept it. The liability in this case was not analogous to duty payable on the goods carried.

Mr Nolan submitted that when a number of items are lost, the owner will foreseeably suffer a financial loss in respect of each item. In this case a payment had to be made under the guarantee in respect of each seal. It followed, argued Mr Nolan, that the loss was of a type foreseeable as the consequence of the loss of goods carried. This contention is unsound. The fact that one kind of damage occurs item by item does not render another kind of damage that also occurs item by item similar in type.

Finally, Mr Nolan argued that because the guarantee payment fell within the express definition of ‘other charges’ in Article 23.4, the payment in question was of a type expressly contemplated by the CMR conditions. BCT contracted on CMR conditions and, therefore, could not be heard to suggest that this type of loss was not readily foreseeable. We have yet to deal with the issue of whether the guarantee payment did fall within the definition of ‘other charges’. If the Judge was right that it did, this was only by giving the meaning of that phrase so wide a compass that it embraced liabilities of types that were not reasonably foreseeable. We reject the suggestion that so wide a meaning of ‘charges’ could embrace a single ‘type’ of damage when applying the common law test of remoteness.

We are in no doubt that the liability to make the guarantee payment was too remote to be recoverable from Spain-TIR or BCT as damages in negligence or conversion.

The argument that the guarantee payment formed part of the value of the seals was advanced by Spain-TIR and BCT by way of alternative to their primary case that the payment was too remote to be recoverable at all. If this alternative case had succeeded, they would have sought to invoke the limit of liability provided by Article 23.3 of the CMR. Having regard to the answer that we have given to the previous question, this issue does not arise. We will, however, deal with it shortly, for the answer further supports our conclusion that the guarantee payment was too remote to be recovered. The guarantee was exacted to guard against the possibility that the seals might be misused so as to deprive the Spanish authorities of excise duty payable on liquor sold in Spain. The evidence was that, if it could be demonstrated that the seals had been destroyed, the guarantee would not be called. Thus it was not inevitable that loss of the seals would result in payment under the guarantee. For instance, if the seals had been destroyed by fire, no payment would have been exacted. This demonstrates that the liability under the guarantee formed no part of the value of the seals. It arose as a consequence of their loss by reason (i) of the undertaking given under the guarantee and (ii) of the circumstances in which the loss occurred.

In making his finding the Judge held that he was bound to follow the decision of the House of Lords in Buchanan & Co. v Babco Ltd. [1978] AC 141. Mr Coburn, on behalf of Spain-TIR challenged that conclusion, arguing that the Judge felt himself unduly constrained by that decision.

Buchanan v Babco concerned the theft of a consignment of whisky that was being carried under CMR terms, from the plaintiffs’ bonded warehouse in Glasgow to Teheran. Its value, in bond, was £7,000. Had it been exported from the United Kingdom no excise duty would have been payable. It was, however, stolen from a lorry park in London, while in the course of transit. In these circumstances the plaintiffs became liable under section 85 of the Customs and Excise Act 1952 to pay excise duty on the whisky in the sum of some £30,000. The plaintiffs contended that the value of the whisky included the £30,000 duty, so that it could be recovered under Article 23.2 of the CMR. This contention was rejected by both the Court of Appeal and the House of Lords, a result which underpins our conclusion in paragraph 32 above, were underpinning needed.

For present purposes, the crucial issue was that raised by the plaintiffs as an alternative argument. Was the liability to duty recoverable as falling within ‘the carriage charges, Customs duties and other charges incurred in respect of the carriage of the goods’ under Article 23.4? In the absence of authority, we would have answered this question in the negative. It seems to us that one object of the CMR is to make a clear apportionment of risk arising in the course of international carriage by road, so as to facilitate insurance and avoid double insurance. A natural reading of Article 23 would seem to us to impose liability on the carrier for the value of the goods when the carriage begins, subject to the Article 23.3 limit, together with charges incidental to the carriage of the goods, including Customs duties. Such charges, typically, are foreseeable and form an increment to the value of the goods. Article 23.6 refers to entitlement to higher compensation under Articles 24 and 26. Article 26 would seem designed to enable a consignor to impose liability on the carrier for a value exceeding the Article 23.3 limit and for possible consequential loss – a liability compensated for by a surcharge and which, by virtue of being declared, can be insured against by the carrier.

The minority in the House of Lords resolved the issue as we would have done. The majority, however, did not. They upheld the judgment of the Court of Appeal, though not that court’s reasoning, in concluding that the liability to excise duty constituted ‘other charges’ under Article 23.4. Their reasoning can be derived from the following passages.

Each of the majority proceeded on the basis that Article 23 was the only route by which liability for excise tax could be recovered. None made any reference to Article 26. Their speeches extend the meaning of the words ‘in respect of the carriage’ to embrace ‘in consequence of the miscarriage’

The decision in Buchanan v Babco is critically discussed in the third edition of Professor Clarke’s book on International Carriage of Goods by Road: CMR at paragraph 98 and in the 3^rd Edition of Hill & Messent on CMR: Contracts of the International Carriage of Goods by Road at paragraphs 9.25 to 9.34. Each suggests that the approach of the majority of the House of Lords must be subject to some restriction. We shall refer to some of the observations of the authors of these works when we come to address the next issue. Nor is the decision one which lies happily with the approach to the ambit of Article 23 of the courts of most of the other signatories to the Convention, France being an exception. For our part we do not consider that the decision should be applied any more widely by the courts of this country than respect for the doctrine of precedent requires.

The Judge held that:

The Judge adopted and applied the following passage from Professor Clarke’s work at p.371:

Hill & Messent at paragraph 9.31 make a similar suggestion that the ‘width of expression’ used by the House of Lords should only be applied to expenses that were within the actual or constructive knowledge of the carrier ‘so they could be held liable without offending the normal rules of remoteness’.

Because we have distinguished Buchanan v Babco it is not necessary for us to rule whether these expressions of view are correct and we shall not do so. We sympathise with the perceived need to restrict the scope of Buchanan v Babco. At the same time we think it unfortunate if that decision imports the application of English principles of remoteness. This does not seem appropriate, for the scheme of the CMR contemplates an identical liability imposed on a succession of carriers. On the facts of the present case, the Judge found that TTI were liable in respect of the guarantee payment, but that Spain-TIR and BCT were not. Had they all been linked to a single CMR contract this would have led to problems when Article 38 fell to be applied.

This issue arises on a cross-appeal by Spain-TIR. Only the liability for the carriage charges now turns on the issue, and that is a liability which seems likely ultimately to fall on BCT. The issue is, however, an important one because, together with the seventh issue, it calls for consideration of the legal nature of a sub-bailment on terms. This takes us into deep waters.

The starting point is to review the circumstances in which Spain-TIR became involved with the carriage of the seals. This requires some elaboration of the facts that we set out at the beginning of this judgment.

The head contract of carriage was between Seagram and TTI and it was, by operation of law, subject to the CMR. Spain-TIR agreed with TTI to carry the seals from Madrid to Paisley. This contract also was subject to the CMR by operation of law. TTI gave Spain-TIR written instructions which identified the sender as Seagram and the consignee as Chivas. Spain-TIR issued a CMR consignment note which named the sender as Spain-TIR and the consignee as BCT. Spain-TIR sub-contracted to BJ Waters the carriage from their depot to BCT’s premises in Bradford. This contract, also, was subject to the CMR by operation of law. Interserve, as Spain-TIR’s agents agreed with BCT that BCT would carry the seals to their destination at Paisley. This agreement was on CMR terms, both because the contract between Interserve and BCT so provided and because BCT received the seals with and on the terms of the consignment note prepared by Spain-TIR.

The Judge recorded the concession by Mr Nolan on behalf of Seagram that Spain-TIR were entitled to invoke Article 28 of the CMR and avail themselves of those provisions of the CMR which fixed or limited the compensation due. The Judge held that, in the light of this concession, it was not necessary for him to decide whether Spain-TIR would have been entitled to rely upon those provisions under the doctrine of ‘bailment on terms’. Findings made by the Judge in relation to BCT bear, however, on that question.

The Judge found that TTI must be regarded as having, at least by implication, authorised Spain-TIR to sub-contract to BCT performance of the last leg of the journey. Mr Nolan conceded that BCT also were entitled to invoke Article 28 of the CMR. The Judge went on to hold:

In our judgment the Judge was justified for the reasons that he gave in concluding that both Spain-TIR and BCT had taken possession of the goods as bailees on terms of the CMR. It remains to consider the implications of this.

Mr Coburn submitted that it was not open to Seagram to sue Spain-TIR for breach of bailment for two reasons. He submitted that, under principles of common law Spain-TIR were not liable for breach of bailment because they were not in possession of the seals at the time of their loss. He further submitted that because both the contract between Seagram and TTI and the contract between TTI and Spain-TIR were governed by the CMR, the CMR applied generally to regulate the rights and liabilities of these three parties. In these circumstances Article 36 applied and Spain-TIR could not be sued by Seagram because they were not the first carrier, the last carrier or the carrier performing that portion of the carriage during which the event causing the loss occurred.

Turning to the position in common law, Mr Coburn submitted that where a contractual bailee of goods sub-bails them to A, who in turn sub-sub-bails them to B, who loses them, the bailee will be liable to the owner for breach of a non-delegable duty of care, but A will have no liability, being neither in possession of the goods at the time of their loss nor party to the contract under which they were bailed.

The basis upon which the Judge found Spain-TIR liable as bailees was that, having voluntarily accepted possession of the goods for onward carriage to Paisley, and entrusted to BCT part of the responsibilities that they had assumed they were liable for the loss of the goods caused by the default of BCT.

We have difficulty with the Judge’s analysis, having regard to his finding that Seagram authorised Spain-TIR to sub-contract to BCT. The basis of this finding was that Seagram consented to a chain of sub-contracts that was a typical feature of CMR carriage. Why in these circumstances should a greater liability be imposed upon Spain-TIR than that incidental to being a link in the chain of successive carriers under a single CMR contract? Why should Spain-TIR not be entitled to rely on Article 36?

This question requires consideration of the manner in which a sub-bailment on terms operates. The doctrine was first clearly stated by Lord Denning MR in Morris v Martin [1966] 1 QB 717. That case involved the sub-bailment to the defendants, with the consent of the owner, the plaintiff, of a fur stole that had been delivered to the bailee for cleaning. The fur stole was converted by a servant of the sub-bailee. The contract between the bailee and the sub-bailee contained exempting conditions. The Court of Appeal held that the defendants, as sub-bailees for reward, owed the plaintiff the same duty to take reasonable care of the fur that was owed by the bailee. They were liable for the default of their servant. The exempting conditions did not, on their true construction, exempt from liability for the loss. In these circumstances it was unnecessary to decide whether they applied as between the plaintiff and the defendants. Lord Denning expressed the view that in such circumstances the owner was bound by the conditions as if he had expressly or impliedly consented to the bailee making a sub-bailment containing those conditions, but not otherwise.

This doctrine was approved and applied by Steyn J. in Singer Co. (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep. 164. It also received approval by members of the Court of Appeal in The Kapetan Marcos NL (No 2) [1987] 2 Lloyd’s Rep 321 and The Captain Gregos (No 2) [1990] 2 Lloyd’s Rep. 395.

In Johnson Matthey & Co. Ltd v Constantine Terminals [1976] 2 Lloyd’s Rep. 215, Donaldson J. adopted a different approach to the entitlement of a sub-bailee to rely, as against the bailor, upon the terms upon which the bailee had sub-bailed the goods to him. The sub-bailees in that case sought to rely upon their standard conditions to provide a defence in respect of their loss of a consignment of silver belonging to the plaintiffs. Donaldson J. first observed that it was probably possible to hold, following the approach of Lord Denning in Morris v Martin, that there had been a bailment on terms with the consent of the plaintiffs. He went on to hold, however, that such consent was unnecessary. He explained the basis of this at p.222:

Morris v Martin and Johnson Matthey v Constantine Terminals received detailed analysis in the decision of the Privy Council, delivered by Lord Goff The Pioneer Container[1994] 2 AC 324. In that case the plaintiffs engaged carriers to ship goods by sea under bills of lading which gave the carriers authority to sub-contract ‘on any terms’. The carriers sub-contracted to the defendant ship owners on terms which included a Taiwanese exclusive jurisdiction clause. The issue was whether this clause was binding as between the plaintiffs and the defendants.

Lord Goff first considered the relationship between the plaintiffs and the sub-bailee. On this he found authoritative guidance in the decision of the Privy Council in Gilchrist Watt and Sanderson Pty. Ltd. v York Products Ltd [1970] 1 WLR 1262. There the defendants were stevedores who had lost two cases of clocks that they had received as sub-bailees of the shipowners, who owed a duty to deliver them to the plaintiffs under the bills of lading. The Privy Council held that the defendants were liable to the plaintiffs, in that, as Lord Pearson observed at p.1267, they:

Following this decision, Lord Goff held that there was a ‘collateral bailment’ between the plaintiffs and the defendant shipowners. He then turned to consider the terms of this bailment. He approved the doctrine formulated by Lord Denning in Morris v Martin, adding at p.339 this comment on the relevance of ‘consent’:

Lord Goff went on to state that this doctrine did not turn on estoppel, nor on contract:

Lord Goff then turned to the decision in Johnson Matthey v Constantine Terminals. He held that the analysis of Donaldson J. was unsound, being contrary to Morris v Martin and the Gilchrist Watt case. The exposition of the law that followed merits citation in full:

Thus far the cases that we have considered have been those in which the sub-bailee has sought to rely upon conditions which reduced his liability or, in the Pioneer Container, were beneficial to him. What if some of the terms agreed between the bailee and the sub-bailee increase the liability of the sub-bailee beyond that arising under the common law? Can the bailor enforce such conditions against the sub-bailee? Professor Palmer addresses this question at p.1329 of the second edition of his work on Bailment:

We draw attention to the observations of Lord Goff in the passage cited above that, were it correct that consent of the bailor was a prerequisite of a bailment, any resulting bailment would be subject to ‘all the terms of the sub-bailment, warts and all’. It seems to us that it must follow from this, and indeed that it should logically be the case, that where a bailor consents to and thereby authorises a sub-bailment on terms, all the terms agreed between the bailee and the sub-bailee, insofar as these are applicable to the relationship of the bailor and the sub-bailee, apply as between the bailor and the sub-bailee.

It seems to us that this result also follows from the application of the principles of the law of contract. Lord Goff’s authoritative analysis in the Pioneer Container traces the origin of ‘bailment on terms’ to principles of the law of bailment that do not turn on contract, but this does not exclude the possibility that the law of contract may have a role to play in this area. The principles of the law of bailment have always overlapped with those of the law of contract, for bailment and contract often go hand in hand. Where a bailee has the consent, and thus the authority, of the bailor to enter into a sub-bailment on particular terms and does so, and where those terms purport to govern the relationship not merely between the sub-bailee and the bailee, but between the sub-bailee and the bailor, it seems to us that all the elements of a collateral contract binding the sub-bailee and the bailor will be present, for there will be privity, via the agency of the bailee, and no difficulty in identifying consideration, at least if the terms are capable of resulting in benefit to each of the parties. It is easier to identify a contract in such circumstances than in the circumstances which led the Privy Council to identify one in The Eurymedon [1975] AC 154.

These considerations are very relevant in the present case. The Judge has found that Seagram implicitly authorised the conclusion of a chain of contracts on CMR terms. The CMR conditions, which applied as between Seagram and TTI required that, if there was such a contractual chain, all links in it should be welded to a single contract by transfer of the goods and the consignment note. TTI produced no consignment note but, as each link in the chain was formed, there was agreement between the immediate parties that the contract should be on CMR terms. It seems to us that in these circumstances the sub-bailment of each party in the chain was on terms of all the CMR conditions, whether by application of the doctrine of bailment on terms or under principles of the law of contract.

Thus we consider that the Judge was correct to rule that Spain-TIR and BCT could not rely upon those of the CMR conditions which limited or fixed their liability without being bound by other relevant CMR conditions. On our analysis, however, no right to elect was open to them. The CMR conditions were applicable as a consequence of the seals being bailed to them on the terms of those conditions.

On this basis, we find that Mr Coburn was correct to submit that Article 36 applied. It was not open to Seagram to sue Spain-TIR in that Spain-TIR was not the first carrier, the last carrier or the carrier performing that portion of the carriage during which the loss occurred. They came into possession of the goods in circumstances where they were authorised to sub-bail them on CMR terms. Seagram cannot, in these circumstances, contend that Spain-TIR remains susceptible to suit in relation to loss of the seals after they had been transferred to a successive carrier.

BCT did not challenge the finding that they were liable for the carriage costs of the cartons containing the seals. By their Respondents’ Notice they contended, however, that, if liability for the guarantee payment was imposed by virtue of Article 23.4, they were not liable for this because they were not bailees of the seals themselves. This argument was based upon the proposition that a person who comes into possession of goods will not be constituted bailee of them if, unknown to him, they have properties which give them an unforeseeably elevated value – see the discussion in Palmer at p.436 and following. As we have held that BCT is under no liability in respect of the guarantee payment, either under the terms of the CMR or at common law, this issue does not arise. We would add that the terms of Article 23 do not seem to us to give any scope for the application of the doctrine in question.

We have already answered this question in paragraph 65 above. The Judge approached the question on the premise that Spain-TIR and BCT fell into the category of persons for whom Article 28.2 makes provision. On our analysis, any liability falling on Spain-TIR or BCT was not ‘extra-contractual’ within the meaning of that term in Article 28.2, but arose because they were subject, whether by contract or the law of bailment, to those provisions of the CMR which both impose and restrict liability.

For the reasons that we have given, Seagram’s appeal will be dismissed and Spain-TIR’s cross-appeal will be allowed.

Appeal Dismissed

Cross-appeal allowed

Judge’s order to be set aside as per counsel’s draft order

claimants to pay second defendants 90 per cent of their costs of appeal

Claimants pay 3^rd Defendants their costs of appeal and cross-appeal

All costs to be subject to detailed assessment if not agreed.