Nissho Iwai Australia Ltd v Malaysian International Shipping Corporation, Berhad

In an action heard in the Admiralty Division of the Supreme Court of New South Wales by Yeldham J., the appellant ("the owner") sued the respondent ("the carrier") for damages for non-delivery of the prawns. His Honour found that the stevedore's system for stacking containers at the terminal was defective. However, Yeldham J. found that the carrier was not guilty of any negligence in relation to the stacking of the container which was stolen. He dismissed the owner's action upon the ground that the carrier was exempted from liability by cl. 8(2)(d) of the bill of lading which provided that the carrier was not liable for or in respect of "any loss or damage to or in connection with Goods arising or resulting at any time from any cause or event which the Carrier could not avoid or the consequences of which the Carrier could not prevent by the exercise of reasonable diligence".

The Court of Appeal of New South Wales (Kirby P., Hope and Clarke JJ.A.) unanimously upheld the finding of Yeldham J. that the carrier was exempted from liability by cl. 8(2)(d) of the bill of lading. But Kirby P. also found that the carrier was protected by cl. 8(2)(a) which provided that the carrier was exempted from liability in respect of "any loss or damage to or in connection with Goods which arises or is due to any occurrence after such Goods have been delivered or made available by or on behalf of the Carrier at the place of delivery". Pursuant to the grant of special leave, the owner now appeals to this Court against the order of the Court of Appeal dismissing its appeal to that Court.

The principal questions in the appeal are whether cl. 8(2) protected the carrier in respect of loss arising from non-delivery of goods and, if so, whether upon the facts found by Yeldham J. the carrier was exempted from liability by cl. 8(2)(a) or (d), or both of them.

By force of cl. 3 of the bill of lading and the place where it was accepted, the contract contained in the bill was subject to the Hague Rules as set out in the Carriage of Goods by Sea Order of the State of Sarawak. As a result, the carrier was subject to the obligations contained in the Hague Rules in respect of the carriage of the goods from the time they were loaded on to the vessel until they were discharged. Otherwise the obligations of the carrier depended upon the terms of the bill of lading and not the Hague Rules.

In the present case the critical provisions of the bill of lading were cll. 8(2) and 8(3) which provided:

(2) Under no circumstances shall the Carrier be liable or responsible in any capacity for or in respect of -

(a) any loss or damage to or in connection with Goods which arises or is due to any occurrence after such Goods have been delivered or made available by or on behalf of the Carrier at the place of delivery,

(b) any loss or damage to or in connection with live animals which are Goods (including mortality of or disease or harm of any description sustained by such live animals),

(c) any loss or damage to or in connection with Goods which are stated on this Bill of Lading to be carried on deck and are carried on the deck of any Vessel, or

(d) any loss or damage to or in connection with Goods arising or resulting at any time from fire not caused by the actual fault or privity of the Carrier, Act of God, act of war, act of public enemies, arrest or restraint of princes, rulers or people, seizure under legal process, quarantine restrictions, act or omission of a Merchant or the agent or representative of a Merchant, strikes, lockouts or stoppage or restraint of labour from whatever cause, and whether partial or general, riots or civil commotions, saving or attempting to save life or property, insufficiency or inadequacy of marks, latent defects in Goods, latent defects in any Vessel, vehicle, Conveyance, Container, cargo carrying equipment or other plant or equipment, terminal, store or premises not discoverable by due diligence, insufficiency of packing, wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of goods, or any cause or event which the Carrier could not avoid or the consequences of which the Carrier could not prevent by the exercise of reasonable diligence.

(3) The Carrier shall not under any circumstances be liable or responsible in any capacity for or in respect of any non-delivery or mis-delivery of Goods, delay, or loss or damage of any kind which arises out of or in connection with the carriage covered by this Bill of Lading or anything done or not done by the Carrier or any Carrier's employee to or in respect of Goods save only that subject to sub-clause 8(2) and all other provisions of these Clauses whereby liability or responsibility on the part of the Carrier is negated, excluded, restricted or limited, the liability and responsibility of the Carrier for loss or damage to or in connection with Goods shall be as follows: -

(a) upon proof that such loss or damage arose out of carriage of the Goods by sea under cover of this Bill of Lading, the Carrier shall be liable to the extent provided under the Hague Rules, which shall apply;

(b) upon proof that loss or damage to or in connection with Goods not falling within sub-clause 8(3)(a) arose during or howsoever otherwise out of the transportation, loading, unloading, storage or handling of the Goods by a sub-contractor of or independent contractor engaged by the Carrier, the liability of the Carrier shall be limited to the amount if any which at the time of such proof is recoverable by the Carrier from that sub-contractor or independent Contractor in respect of that loss or damage, and

(c) in any case not falling within sub-clause 8(3)(a) or (b) the Carrier shall be liable to the extent provided by the Hague Rules and for this purpose the loss or damage shall be deemed conclusively to have arisen out of the carriage of the Goods by sea.

Nothing in this clause imposes on the Carrier any liability or responsibility additional to or greater than the liabilities and responsibilities which the Carrier would have if this clause was not contained in this Bill of Lading.

In this clause the expression "loss or damage of any kind" includes loss and damage to or in connection with Goods, financial and consequential loss and damage, and loss and damage of every other description whatsoever.

"Goods" were defined to mean "the articles or other cargo received from the Shipper for transportation and/or forwarding, being the articles or other cargo in respect of which this Bill of Lading is issued": cl. 1.

The language of cl. 8(2)(d) indicates that its source was probably Art. IV, par. 2(b)-(q) of the Hague Rules. While there are important distinctions between cl. 8(2)(d) and Art. IV, par. 2(b)-(q), there is sufficient identity between them to suggest that the purpose of cl. 8(2)(d) was to give the carrier the same protection in respect of loss or damage to goods occurring before loading or after discharge as it would have if the Hague Rules applied to loss or damage occurring at those points. Upon that hypothesis, the meaning of Art. IV, par. 2 of the Hague Rules might have shed some light on the meaning of cl. 8(2) and in particular on cl. 8(2)(d). However, neither party placed any reliance on Art. IV, par. 2 as an aid to the construction of cl. 8(2).

Does cl. 8(2) cover the case of non-delivery of goods?

The first question in the appeal is whether cl. 8(2) exempted the carrier from liability in respect of the non-delivery of the goods. Mr. Emmett Q.C. for the owner submitted that the main object of the contract of carriage was the delivery of the goods to the owner at Sydney and that to construe cl. 8(2) as exempting the carrier from liability for loss or damage for non-delivery would defeat that object. He submitted that in any event the phrase "loss or damage to or in connection with Goods" in cl. 8(2) was not apt to cover the case of non-delivery of goods which he contended was a matter dealt with only by cl. 8(3).

In Darlington Futures Ltd. v Delco Australia Pty. Ltd. [1] this Court said that:

the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. 1. (1986) 161 C.L.R. 500, at p. 510.

The context in which cl. 8(2) has to be construed includes, as Mr. Emmett submitted, the carrier's agreement to deliver the goods to the owner at Sydney. But, relevant as that object is in the construction of cl. 8(2), the meaning of that provision ultimately depends on its language, read in context, and not on any a priori notion that the non-delivery of goods was not intended to be protected. In determining whether an exemption clause should be construed so as to apply to an event which has defeated the main object of the contract, much must depend upon the nature of the events which the clause identifies as giving rise to the exemption from liability. If the happening of a stipulated event will always result in the defeat of the main object of the contract, there will be no scope for holding that that object requires the conclusion that the exempting clause is not applicable to that event. But even in cases where the occurrence of the events stipulated in the exemption clause will not always defeat the main object of the contract, the nature of those events may nevertheless give rise to the inference that the clause was intended to apply to those events even when they occur in circumstances which defeat the main object of the contract.

The conditions upon which cl. 8(2)(d) operates are causal events which have the common characteristic that ordinarily they will occur without any fault on the part of the carrier. The event which gives rise to the operation of cl. 8(2)(a) will also usually occur without any fault on the part of the carrier. Similarly, the events which give rise to the operation of cl. 8(2)(b) and (c) will often occur in circumstances where there has been no fault on the part of the carrier. The loss and damage in respect of which cl. 8(2) gives exemption, therefore, depend on events against the consequences of which a carrier might reasonably be expected to seek protection notwithstanding that those events might cause the non-delivery of goods accepted by the carrier for transportation or forwarding to the place of delivery. Moreover, the occurrence of many of the events described in sub-cl. (2) would be just as likely to result in the total destruction and consequent non-delivery of goods accepted for carriage as in their partial loss or damage. It is difficult to understand, therefore, why the parties would have intended that the carrier's exemption from liability should be confined to partial loss of or damage to goods. Indeed it borders on the absurd to suggest that, while the carrier might have had protection under cl. 8(2)(d) in the present case if 600 cartons of the frozen prawns had been stolen, it has no protection because the whole 700 cartons were stolen. In the circumstances of this case, the main object of the contract provides no ground for concluding that non-delivery of the goods was outside the protection of cl. 8(2).

The expressions "loss to goods" and "loss in connection with goods" would not perhaps ordinarily comprehend a "loss of goods", though a "loss caused by a loss of goods" may well amount to a "loss in connection with goods". Accordingly, the draftsman may well have proceeded on the footing that the words "loss or damage to or in connection with Goods" did not cover a loss of goods as such. In cl. 4(5) he used the formula "loss of or damage to or in connection with Goods". The use in cl. 8(3) of the phrase "loss or damage to or in connection with Goods" would then be explicable on the basis that the specific reference in that sub-clause to "non-delivery" was intended to cover "loss of goods" making it unnecessary to use the formula adopted in cl. 4(5). The argument that the words "loss or damage to or in connection with Goods" in cl. 8(2)(d) do not cover "loss of goods", based on these textual considerations, is not without force. However, as we have already pointed out, the argument, if accepted, would result in a construction of cl. 8(2)(d) producing unacceptable consequences. Likewise, the argument would yield a construction of cl. 8(3) which is out of harmony with the general scheme of liability on the part of the carrier for which the bill of lading provides. That provision, rather than cl. 8(2)(d), would govern the situation in which goods were completely lost. The opening words of cl. 8(3) would not exclude the carrier's liability where there was a complete loss of the goods arising neither in connexion with their carriage nor in connexion with anything done or not done by the carrier or its employees. Such a result would not sit well with cl. 8(2), where the exclusion of liability on the part of the carrier is generally associated with absence of fault on its part.

Accordingly, the words "loss in connection with Goods" in cl. 8(2)(d) should be read as covering "loss caused by loss of goods", that is, indirect, consequential or financial loss arising from the loss of the goods. The Court of Appeal and Yeldham J., therefore, were correct in holding that cl. 8(2) exempted the carrier from loss or damage resulting from non-delivery of the goods.

Mr. Emmett then submitted that, even if cl. 8(2)(d) applied to the case of non-delivery, the carrier could not rely on the protection of the paragraph. He contended that Carrier in cl. 8(2)(d) included agents and sub-contractors. Hence the carrier could not rely on that paragraph because it had not established that its agent or sub-contractor, the stevedore, could not have prevented the loss of the goods "by the exercise of reasonable diligence". Mr. Emmett pointed out that the carrier could sub-contract to any person or entrust to any servant or agent or independent contractor "the whole or any part of the carriage covered" by the bill of lading: cl. 4(1). He argued that to construe the term "Carrier" as not including a sub-contractor would enable the carrier to avoid liability by adopting the permitted course of sub-contracting the whole of the carriage of the goods.

However, both the definition of "Carrier" and the context of cl. 8(2) indicate that in cl. 8(2)(d) "Carrier" was not intended to include a sub-contractor or agent, or even an employee. By cl. 1, "Carrier" was defined to mean "the carrier named on the front of this Bill of Lading for and on behalf of whom this Bill of Lading has been signed and issued". The carrier named on the front of the bill of lading was the respondent, Malaysian International Shipping Corporation, Berhad. Further, in cl. 8(2) reference was made to "the Carrier" and not to "the Carrier or any Carrier's employee" as occurred in cl. 8(3). Moreover, cl. 4(1), which gave the carrier the right to sub-contract, provided that in "sub-clauses 4(2), (3), (4) and (5) and sub-clauses 8(3) and (6) "Carrier's employee" means any person who is a sub-contractor, servant or agent of the Carrier or an independent contractor engaged by the Carrier and any servant or agent of any such person". This definition and the contrast between the Carrier in cl. 8(2) and "the Carrier or any Carrier's employee" in cl. 8(3) make it clear that in cl. 8(2) the carrier could obtain the protection of that provision even though one of its own employees or a sub-contractor could have avoided the relevant cause, event or consequence. The protection given by cl. 8(2)(d) was lost only if the lack of reasonable diligence was to be attributed to the company itself by reason of an act or omission of an officer or employee of the company whose act or omission was the act or omission of the company itself. That is to say, the company was only liable if the lack of reasonable diligence were to be attributed to "those natural persons who by the memorandum and articles of association or as a result of action taken by the directors, or by the company in general meeting pursuant to the articles, are entrusted with the exercise of the powers of the company": Tesco Ltd. v Nattrass [2] , per Lord Diplock.

Upon the findings of fact in the courts below, the carrier was entitled to the protection of cl. 8(2)(d). The appeal must be dismissed.

However, one further matter should be mentioned. The carrier also relied on the provisions of cl. 8(2)(a) which exonerated it from liability in respect of "any loss or damage to or in connection with Goods which arises or is due to any occurrence after such Goods have been delivered or made available by or on behalf of the Carrier at the place of delivery". Yeldham J. held that "delivered or made available" in the context meant delivered or made available to the owner and that the goods were never delivered or made available to the owner. Consequently, his Honour held that the carrier could not rely on cl. 8(2)(a). In the Court of Appeal, however, Kirby P. held that, in the context and having regard to the purpose of the contract, the words "delivered or made available" meant discharged from the ship. Accordingly, the learned President held that the carrier was protected by cl. 8(2)(a) as well as cl. 8(2)(d).

With great respect, however, we can see nothing in the bill of lading which supports the notion that "delivered or made available at the place of delivery" meant discharged from the ship. Indeed the terms of cl. 19 which dealt with notification and delivery are quite inconsistent with the notion that goods were "delivered or made available" for the purpose of cl. 8(2) when they were discharged from the ship. The clause preserved the obligation of the carrier to deliver the goods, defined that obligation and made provision for the circumstances in which that obligation was to be fully discharged and the liability and responsibility of the carrier would cease. Clause 19(1) gave the carrier the right to deliver goods "at any time from or at a Vessel's side wharf, quay or other place or point designated by the Carrier at or in the vicinity of the place of delivery". Clause 19(3) then provided that delivery of the goods to the holder of the bill of lading or other person mentioned in the sub-clause "at the Carrier's terminal or elsewhere designated by the Carrier at or in the vicinity of the place of delivery as provided in sub-clause 19(1) shall constitute complete and final discharge of the Carrier's obligations hereunder and the Carrier's liability and responsibility ". These provisions fall far short of providing that discharge of the goods from the ship amounts to delivery and are inconsistent with that proposition.

Mr. Rayment Q.C., who appeared for the carrier, submitted, however, that the evidence did establish that the goods were "made available" to the owner before their theft and that the carrier was protected by cl. 8(2)(a) as well as cl. 8(2)(d). Since the carrier has succeeded in respect of its defence based on cl. 8(2)(d), it is unnecessary to examine the correctness of the contrary finding of fact which was made by Yeldham J. and which caused him to reject the defence based on cl. 8(2)(a).

In conclusion, we should mention that the Court granted special leave to appeal in this case because it was thought that the policy considerations referred to by Stephen and Murphy JJ. in Port Jackson Stevedoring Pty. Ltd. v Salmond & Spraggon (Aust.) Pty. Ltd. [3] would arise for examination and because the interpretation placed by Kirby P. on cl. 8(2)(a) was at variance with the established character of a bill of lading as a document of title. As it happens, we have been able to resolve the critical questions of interpretation without finding it necessary to deal specifically with the policy considerations referred to by Stephen and Murphy JJ.