Mediterranean Shipping Company SA v Trafigura Beheer BV & Anor

Introduction

The facts are fully and lucidly set out by the judge in his judgment [2007] EWHC 944 (Comm), [2007] 2 All ER (Comm) 149. All that I need to add is that the cargo was discharged in Shanghai on 23rd October 2005, that it was on 24th October 2005 that the shipowners gave the fraudsters the first delivery order and on 25th October 2005 that the cargo-owners presented the true bill of lading against which the shipowners were unable to deliver the goods. The cargo-owners do not say that the shipowners were themselves negligent in any way although they point out that the judge found employees of the ship’s agents in Durban were likely to have been parties to the fraud; conversely the shipowners have never alleged that there were any steps which the cargo-owners could or should have taken to mitigate their loss.

In these circumstances the judge isolated five issues:-

Issue One: Hague Rules v Hague-Visby Rules?

Since the Hague-Visby Rules are part of directly enacted statute law in the United Kingdom in respect of carriage from any Contracting State (Carriage of Goods by Sea Act 1971) and they are also part of directly enacted statute law of the Republic of South Africa in respect of carriage from South Africa (Carriage of Goods by Sea Act 1986), a commercial man might not be surprised to be told that the contract of carriage contained in the bill of lading issued by or on behalf of the shipowners was subject to the Hague-Visby Rules. Unfortunately it is not as simple as that.

Mr Parsons QC for the shipowners fastens on the words “compulsorily” and “compulsory” and submits that the Hague-Visby Rules can only apply if it is “compulsory” to apply them. It can only be “compulsory” to apply the Rules if it is a relevant law that “compels” that application. The only possible laws to which it is necessary (or indeed possible) to look are the law which governs the contract of carriage (English law by virtue of clause 2(a) of the bill of lading) or the lex fori (the law of the place in which the litigation is taking place, also (here) English law). He then says that as a matter of substantive English law the Hague-Visby Rules only apply if:-

The material provisions of the English Carriage of Goods by Sea Act 1971 as amended are:-

Mr Kendrick QC for the cargo-owners accepts that South Africa is not a “contracting State” and that neither Article X(a) nor X(b) can apply. He submits however that the words “compulsorily applicable” indicated that the Hague-Visby Rules were intended to apply if they were applicable by the law in force at the port of shipment. On this point the judge found in his favour. He also submitted (by respondent’s notice) that he could rely on the third phrase of the bill of lading clause, “any compulsory legislation based on” the Hague-Visby Rules, since the South African enactment of those Rules constituted “compulsory legislation” based on the Hague-Visby Rules for the purposes of the clause. On this point the judge held that he was wrong.

For the purposes of analysis it is useful to break the clause down into its constituent parts:-

The judge observed that the most obvious way the HVR would be compulsorily applicable according to English statute law (granted that neither Article X(a) nor Article X(b) could apply) would be if Article X(c) were to apply. He then said (correctly) that the bill of lading did not provide that the Rules applied since it only provided that they applied if they were compulsorily applicable which still left open the question whether they were in fact compulsorily applicable. He then considered the second part of Article X(c) and asked whether the bill of lading provided that the legislation of any State giving effect to the HVR was to govern the contract. He held (again correctly) that it was not enough for the bill of lading to provide generally that the legislation of any State giving effect to the HVR was to govern the contract; it had to identify the legislation of a particular State. Otherwise one could not know which legislation was applicable in any particular case. The position would no doubt be different if the bill of lading had provided that the HVR “as enacted in the country of shipment” were to apply but this bill of lading does, of course, not do so. The judge’s conclusion that English statute law does not render the HVR compulsorily applicable is thus unassailably correct.

The judge nevertheless held that the HVR applied as a matter of contract because in the context of the clause (particularly the use of the words “For . . . trades”) the phrase “compulsorily applicable” included the concept of compulsory application at the port of shipment.

I do not agree with that conclusion for three reasons. In the first place it seems to me inconsistent with the judge’s own reasoning for rejecting the application of the second part of article X(c) as a matter of the application of English statute law. If the words “legislation of any State” require the legislation of a particular state to be specified, why does the same not apply to a clause of a bill of lading which likewise refers to “legislation based on” the HVR. The bill of lading does, of course, state that such legislation is to be “compulsory” but, if any legislation will do, one will again not know what legislation is applicable in any particular case. The fact that the phrase “for . . . trades” is used does not, in my view, help. A trade does, of course, start from a particular port but it also goes to a particular port. If (as is usual) those ports are in different countries, one will still not know whether it is the country of shipment or the country of destination whose application of the Rules is to be regarded as “compulsory”. One still has to ask ‘compulsory according to which system of law?’ The only sensible answer is compulsory by the proper law of the contract. It is fair to say that the lex fori will also have to be considered but that is incidental. If the law of the place where the action is brought compels the application of the HVR that will be the end of the matter merely because the relevant court happens to be sitting where the HVR compulsorily apply. But that incidental fact cannot afford a complete answer. The judge has correctly held that English statute law does not make the HVR applicable but they could still be compulsorily applicable if the proper law of the contract so required. Here it does not.

Secondly the words “compulsorily applicable” have consistently, as a matter of English law, been given the meaning of “applicable according to the proper law of contract”. It may be said that this is a matter of assumption rather than direct decision at the level of this court but it is only necessary to refer to Holland Colombo Trading Society Ltd v Alawdeen & ors [1954] 2 Lloyds Rep 45 at page 53, Nea Agrex SA v Baltic Shipping Co Ltd [1976] QB 968 D-H per Goff LJ, The Komninos S [1991] 1 Lloyds Rep 370 (where, although there was no reference to compulsory applicability, a reference to English law was held to be insufficient to incorporate the HVR) and The Happy Ranger [2001] 2 Lloyds Rep 530, 540 para. 34 per Tomlinson J and [2002] EWCA Civ 694, [2002] 2 Lloyds Rep 357, 361-2, para. 20 per Tuckey LJ. It would not be right for this court to depart from this frequently expressed view held by the courts unless the clause clearly requires some other view to be taken as a matter of construction. The addition of the word “For . . . . trades” is not enough for the purpose.

Thirdly, although the judge claimed to derive support from the judgment of Rix LJ in The Happy Ranger, that support is illusory. It is true that Rix LJ relied on the words “In trades” or the phrase “In trades where . . . . the Hague-Visby Rules – apply compulsorily” to reach his conclusion that the HVR could, with manipulation, apply to a contract which looked more like a charterparty than a bill of lading. But in the first place his judgment was a dissenting one on this particular point and in the second place he still accepted that the application of the HVR had to be compulsory. That compulsion was present by virtue of Article X(b) of the Rules because Italy (where the goods were shipped) was a contracting State. That element of compulsion is not present in our case since South Africa is not a contracting State.

In his authorial capacity the judge has described the ratio of Rix LJ in the Happy Ranger as being that on the wording of the particular clause in that case any construction, other than that the parties intended the HVR to apply, made no commercial sense and he does not disguise his preference for the judgment of Rix LJ to that of the majority, see Aikens, Bills of Lading (2006) para. 10.39. But for the reasons I have given, I do not consider that this approach is open to this court in the present case.

I, therefore, agree with Mr Parsons that the scheme of the bill of lading in the present case is that the Owners, as a matter of contract, accept Hague Rules (1924) obligations but only accept HVR obligations if they are forced to do so. They can only be forced to do so if the proper law of the contract compels it (or, if the place where the cargo-owners choose to sue them, compels it). Neither law compels it on the facts of the present case and they are not contractually obliged further than the law compels. Whether that is an attractive way for a shipowner to do business 40 years after the Hague-Visby Protocol was internationally agreed is a different matter and cannot be of any relevance to the construction of this contract of carriage.

Mr Kendrick developed an argument to the effect that the bill of lading should, as a matter of contract, be construed to apply to the HVR if compulsorily applied by the law of the country of shipment, because that was the only way in which the shipowners could preserve their (ex hypothesi desirable) exclusive choice of English law and jurisdiction. He pointed out that a particular feature of the HVR (at any rate as enacted in England) was their mandatory effect. If a claim was brought in England but the proper law of the contract applied a less favourable limit than the HVR (eg the Hague Rules limit) any choice of jurisdiction for the courts which applied the proper law would be defeated by the requirement of the lex fori that the Rules be mandatorily applied. This was made clear in The Hollandia [1983] 1 AC 565 where the English courts refused to stay an action brought in England even though the parties had agreed Dutch law and jurisdiction because a claim brought in Holland would have been subject to the Hague Rules 1924 limit and not the HVR limit. So, argued Mr Kendrick, any bill of lading subject to English law should be construed, if possible, to provide for the application of the HVR.

This argument puts the contractual cart before the legal horse. If a set of Rules is applicable only if compulsorily applicable one has to look to the proper law of the contract to determine if they are applicable. One cannot say that the proper law of the contract would apply the Rules compulsorily if a claim were brought in England and then say that the Rules must therefore apply contractually if the fact of the matter is that the Rules are not compulsorily applicable. The only reason why the Rules are not compulsorily applicable is that, although South Africa has enacted the Rules, it is for some reason not a “contracting State”. The reason for this is puzzling but irrelevant. The fact is that the HVR are not compulsorily applicable and that is the end of the matter. Of course if the claim had been brought in South Africa and if South African law were the same as that declared by the House of Lords in The Hollandia, then the South African courts might not have stayed any action brought by the claimants, on the ground that English law would not apply the HVR and that would be contrary to the mandatory provisions of South African law. But that would be a different case, not this case.

The Respondent’s Notice

Issue Two: Application of either set of Rules after discharge?

Articles II and III rule 2 of the Hague Rules (as also of HVR) provide as follows:-

Shortly after the Carriage of Goods by Sea Act 1924 was enacted in the United Kingdom, Wright J in Gosse Millard v Canadian Government Merchant Marine Ltd [1927] 2 KB 432 said of the Hague Rules (page 434):-

It must follow from this that the parties are free to agree on terms other than the Hague Rules (or the HVR) for periods outside the actual period of the carriage. No doubt if no agreement is made for the period after discharge, it might be easy to say that the parties have impliedly agreed that the obligations and immunities contained in the Hague Rules continue after actual discharge until the goods are taken into the custody of the receiver. That is the view expressed by Carver on Bills of Lading, 2nd edition (2005) by Sir Guenther Treitel QC and Professor Francis Reynolds QC, para. 9-130 and Mr Parsons submits that that should be the position in this case.

Like the judge I consider that this submission is inconsistent with the express terms of the bill of lading. This has to be ascertained from what Wright J might have called “elaborate and mostly illegible conditions” but their elaborateness and illegibility does not mean that it is appropriate to ignore them if they do indeed provide that the obligations and immunities of the Hague Rules do not apply after discharge of the goods carried. Clauses 4(ii) and (iii) provide:-

Mr Parsons emphasised the words “in any event” in Article IV rule 5 as being apt to extend the Hague Rules period in respect of the package limitation. Article IV rule 5 begins with the words:-

On this issue I agree with the judge.

Issue 3: Limit if HR or HVR apply

Issue 4: The contractual position after discharge

Mr Parsons accepts, however, that the exclusions contained in these clauses do not apply to the misdelivery which occurred in this case whether such misdelivery is constituted by the wrongful giving of a delivery order to the fraudsters or by the refusal to hand over the goods on production of an original, genuine, bill of lading. The reason why he accepts this is that there is a long line of authority which says that very clear words are required to exclude such a serious breach of duty. The importance of the obligation to deliver the goods against an original bill of lading stems from the negotiable nature of a bill of lading. It is itself a document of title, indorsement and transfer of which operates to pass title in the goods to which it relates.

Two 19th century cases in this long line of authority are Glyn, Mills Currie & Co v East and West India Dock Co (1882) 7 App Cas 591 and The Stettin (1889) 14 PD 142. Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576 is a famous 20th century example. In that case a manufacturer shipped bicycle parts under a bill of lading which required the goods to be delivered “unto order or his or their assigns” and also provided that “the responsibility of the carrier . . . . shall be deemed . . . . to cease absolutely after the goods are discharged”. After discharge the shipowners’ agent released the bicycle parts to the consignee without production of the bill of lading but obtained a letter of indemnity against any liability from the consignee’s bank. The consignee never paid and the manufacturer sued the shipowners for breach of contract and conversion. The shipowner relied on the exclusion clause. Lord Denning, delivering the advice of the Judicial Committee, said (pp 526-7):-

In Motis v Dampskibsselskabet af 1912 [2000] 1 Lloyds Rep 211 a fraudster had presented forged bills of lading (as in the present case) and the shipowners or their agents had issued delivery orders on presentation of the forged bills. There was a similarly wide exemption clause “for loss or damage . . . . however caused” on which the shipowners relied, saying that the events should be categorised as theft without negligence on their part and so should fall within the clause. Stuart-Smith LJ said (page 216):-

If, therefore, the only relevant clauses of the bill of lading were clause 4(ii) and (iii) and 7, there can be no doubt that they would not suffice to excuse the shipowners from their act of conversion and their breach of contract in issuing delivery orders to the fraudsters without the production of the bill of lading. That is all the more the case when one reads the last provision on the front page of the bill of lading which states that 3 original bills of lading covering the cargo have been issued and then provides that if the bill of lading is negotiable (which it was)

It is in these circumstances that Mr Parsons seeks to rely on another clause of the bill of lading altogether. Again it is elaborate and scarcely legible. It provides:-

I have set out the entirety of the clause so that the reader can see its full import. In fact Mr Parsons only relies on the 5th and 7th sentences but that immediately raises the question whether it was likely to have been the intention of the parties that liability for failure to perform obligations of such importance as the obligation to deliver the goods against presentation of a properly indorsed original bill of lading should be limited by sentences buried within a clause of such length and complexity.

It is, in my view, so unlikely as not to be the case. At first sight the clause seems to be concerned with the quantum of non-delivery (not misdelivery) claims. The first sentence says that the carrier has the option of limiting such claims to the invoice value, except in the United States of America. The second sentence limits that figure by reference to the sound market value at the place and time of shipment. The third sentence then says that the invoice value is to prevail if lower than the sound market value. The fourth sentence is almost incomprehensible but still applies to the quantification of claims for non-delivery. Then, without any reference to misdelivery, the clause continues in its fifth sentence by providing for the Hague (or Hague/Visby) package limitation “in any event”. The natural reading is to apply that to non-delivery as with the previous 4 sentences. The sixth sentence relates to declaration of value for the purpose of calculating freight. The seventh sentence then provides for the package limitation to apply

Mr Kendrick went so far as to submit that the entirety of clause 22 was intended to apply only to claims that arose between loading and discharge which could be categorised as arising “during the carriage”. The fifteenth sentence is a good indicator that that could be the case. The judge seems to have agreed with the submission since he held that, since all liability had been excluded after discharge by clause 4 and since discharge was deemed to be delivery under clause 7, there could not have been any intention to limit liability for claims which arose after discharge had taken place. This is a neat way of disposing of the clause. But I consider it goes too far. If the Hague Rules apply to the actual carriage up to and including discharge, clause 22 must be intended to deal with matters arising before or after the Hague Rules period save where (as in the case of the time-bar) it expressly provides otherwise.

Nevertheless this mélée (or perhaps congeries) of provisions contained in clause 22 is not, in my judgment, apt to limit liability for the essential obligation to deliver against original bills of lading. Any exemption or limitation of liability for such a breach has to be clearly expressed and clause 22 does not clearly do so. (It may be noted that the exception clause in The New York Star [1981] 1 WLR 138, 146G expressly referred to “misdelivery”.) There are other obligations to which the fifth and seventh provisions can apply, particularly if one were to conclude that the exclusion in clauses 4 and 7 were not apt to exclude cases where a claimant could show that the shipowners had been negligent. In these circumstances the shipowners’ construction of the clause would (to use the words of Mance LJ in para. 8 of his judgment in Motis) “appear to undervalue the importance which both parties must be taken to have attached to the ship’s obligation to deliver against presentation of original bills of lading”. On this part of the case I agree with the conclusions of the judge.

Issue 5: Value at date of breach not date of judgment

Mr Parsons submitted that this judgment effectively gives the cargo-owners their hedging losses under the guise of the value of the cargo at the date of judgment and that, for this reason, it is not right to award the judgment value. I do not agree. The hedging losses claimed which the judge held to be too remote for recovery have no relevance to the question whether the claimants are more fairly compensated for their loss by reference to the date of conversion (24th or 25th October 2005) or the value at the date of judgment (26th April 2007). The issue is an important one since the value of copper has risen steadily since the date of conversion. But it seems to me that the judge was, in principle, correct. The figures are somewhat stark because of the inevitable delay before the judgement of the court was given but the starkness of the figures cannot influence the decision on this issue.

If the events of which the claimant cargo-owners complain had all happened in England, an order would probably have been made for the sale of the cargo pendente lite and no doubt judgment would have been given for the figure fetched at the time of sale (together with interest). The fact that such an arrangement has not occurred in China and that the goods cannot, apparently, be released until a decision of the Chinese court is obtained (facilitated or otherwise by the judgment in these English proceedings) is not suggested to be the fault of the claimants. Indeed no suggestion has ever been made that the claimants have failed to mitigate their loss whatever that loss may have been. Once judgment is satisfied, the shipowners will have title to the goods and can sell them to the fraudsters or any one else and they will no doubt obtain the value at the time of that sale. In these circumstances I agree with the judge that the fairest way to compensate the claimants is to award them the value of the cargo at the time when he gave his judgment.

Even if the judge had awarded damages based on the value of the cargo at the date of conversion, he would have been able to award the difference in value between the date of conversion and the date of judgment as loss consequential on the shipowners’ breach of duty. This is expressly authorised by section 3(2)(b) of the 1977 Act. It is true that, as the judge remarked, the statute does not elaborate on the expression “consequential damages” in the sub-section but it is the sort of loss which the common law contemplated in Sachs v Miklos [1948] 2 KB 23 and there is no reason to think that the statute has changed the position. This consequential loss could equally be described as damages for loss of use of copper between the date of conversion and the date of judgment and ought to be recoverable as such, provided that there is no allegation that the claimants have failed to mitigate their loss.

On top of this the judge also awarded the claimants interest on the invoice value of the goods between the date of conversion and the date of judgment on the basis that, for that period, the claimants had been out of their money.

I cannot think that that is right because that will give the claimants a double benefit. The basis of an award of the value of the goods at the date of judgment is that, although the claimants did not have the money when they expected to have it, they will be compensated for that by the increase in the value of the copper cargo.

There is, as it seems to me, a compelling analogy with cases about damages for the loss of use of a chattel or of land. It would be surprising for a claimant to be able both to recover damages for not having had the use of a chattel or the use of land and to recover interest for not having had the money which represents the value of the chattel or the land. It was on this basis that Chitty J declined to award interest on damages which he gave for the wrongful use of land in Whitman v Westminster Brymbo Co [1896] 1 Ch 894, 899, see McGregor Damages 17th ed (2003) para 15-037 note 78. I consider that the same principle is applicable where a court awards the value of chattels at the date of judgment and I would therefore delete the first two and a half lines of paragraph 3 of the judge’s order of 26th April 2007.

Conclusion