Questions four and five - title to sue
139 The issue which arises in relation to these questions is whether, assuming that Sterlite's claim was time barred or as an alternative to Sterlite's claim, JP Morgan is entitled to pursue Ever Rock in an action for negligence for the loss being the amount of money that was paid to Fukada as salvage charges. This issue is also relevant to identifying the holder of the BOL who would be entitled to recover against Ever Rock if any liability exists in relation to unseaworthiness of the ship.
140 As mentioned above, it is common ground that the Sea-Carriage Documents Act 1997 (NSW) applies in the present case in respect of the BOL. By s 5 of that Act the definition of lawful holder of a bill of lading is
… a person who:
(a) has come into possession of the bill, in good faith, as the consignee of the goods, by virtue of being identified in the bill, or
(b) has come into possession of the bill, in good faith, as a result of the completion, by delivery of the bill:
(i) of any endorsement of the bill, or
(ii) in the case of a bearer bill - of any other transfer of the bill, or …
141 Section 8(1) provides for the transfer of all contractual rights to persons who become the holder of a bill of lading:
8 Transfer of rights
(1) All rights under the contract of carriage in relation to which a sea-carriage document is given are transferred to:
(a) in the case of a bill of lading - each successive lawful holder of the bill, or …
142 Importantly for present purposes, s 8(5) provides that the transferee of a bill of lading becomes entitled to recover for any losses sustained by previous holders of the bill:
(5) Where, in relation to a sea-carriage document:
(a) a person with any interest or right in relation to the goods sustains loss or damage in consequence of a breach of the contract of carriage, and
(b) subsection (1) operates to transfer the rights in that contract to another person,
the person to whom the rights in the contract are transferred is entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent that they would be able to be exercised if they were vested in that person.
143 Section 9(1) of that Act is relevant to the question of whether the prior holders of a transferred bill of lading retain any entitlement to pursue any rights of action arising from any breach of the contract of carriage whilst they were the lawful holder. It provides:
(1) Where section 8 operates in relation to a bill of lading to transfer rights under the contract of carriage, the transfer extinguishes any entitlement to those rights which derives from:
(a) a person's having been an original party to the contract of carriage, or
(b) the previous operation of that section.
144 In reliance on the above provisions Ever Rock submits that Tritton did not have title to sue in relation to any of the losses arising in this case because it had transferred the BOL to JP Morgan on 16 November 2011 which was prior to the grounding. There is force in that submission and the plaintiffs did not submit to the contrary. It is difficult to ascertain how Tritton has any rights against Ever Rock arising out of the grounding under the BOL or otherwise.
145 Further, Ever Rock submits that Sterlite became the holder of the BOL on 8 February 2012 as a result of it being endorsed and delivered such that, by reason of ss 8 and 9, it was the only party with any rights under the BOL and the only party entitled to pursue Ever Rock as the ship owner.
146 In response, the plaintiffs submit that JP Morgan was the owner of the cargo and lawful holder of the BOL at the time of the grounding and, at that point in time, damage was sustained because of the need for salvors to be engaged and, further, because Fukada was entitled to seek salvage remuneration from the owners of the laden cargoes at the time that the salvage services were provided. It does not appear to be in contention that, for the whole of the period during which the salvage services were provided, JP Morgan was the lawful holder of the BOL. The plaintiffs, therefore, submit that JP Morgan remained liable for the salvage charges and that the Sea-Carriage Documents Act "does not vary liability to third parties to the contract of carriage with the defendant". Whilst it might be accepted that the Act does not vary the rights and liabilities between the holder of a bill of lading and third parties such that the erstwhile holder, JP Morgan in this case, may have remained liable to the salvors, the real question is whether that erstwhile holder is entitled to pursue the ship owner for damages in respect of that liability to the third party in the light of the operation of ss 8 and 9?
147 The plaintiffs submit that nothing in those sections affects or impedes the right of JP Morgan to pursue Ever Rock in negligence for the losses which were caused as a result of it becoming liable for salvage charges consequent upon the grounding. In support of that proposition they relied upon the decision of the House of Lords in Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] 1 AC 785, 808-809. That decision confirmed that the holder of a bill of lading might pursue claims in contract and tort where, at the time of the occasioning of damage, the holder held legal ownership of or a possessory title to the goods. For present purposes it can be accepted that when the grounding occurred and the salvage services were provided, JP Morgan had title to the goods, even if risk in them had passed, such that an action in tort might have then been pursued. However, that says nothing of the effect of the operation of the Sea-Carriage Documents Act where, after the damage has occurred, the bill of lading has been transferred.
148 The plaintiffs also relied upon The Sanix Ace [1987] 1 Lloyds Rep 465, 470 to the effect that even where the risk had passed to the purchaser, the seller (and holder of a bill of lading) who retains title in the goods can recover for damage sustained to them even though they have received payment of the purchase price. Again, whilst so much may be accepted, it does not impact upon the operation of the Sea-Carriage Documents Act.
149 Each of the above authorities preceded the passing of the Carriage of Goods by Sea Act 1992 (UK) (COGSA (UK)), which was the progenitor of the Sea-Carriage Documents Act, where the rights of holders of bills of lading were modified. In this respect the parties referred to the Report of the UK Law Commissioners, Rights of Suit in Respect of Carriage of Goods by Sea, which preceded the UK Act. The draft bill attached to the Report was enacted in substantially the same form and COGSA (UK). Each of the parties referred to the Report as providing assistance in the interpretation of COGSA (UK) and, indirectly, the New South Wales legislation. Mr Cox for the plaintiffs submitted that the recommendations of the Law Commissioners at paragraphs 2.40-2.41 and 2.45 were that intermediate holders of bills of lading who were on risk after they had parted with the bill should be able to sue in respect of a loss regardless of the transfer of rights of action to the subsequent holder which is effected by the cognate provisions of ss 8 and 9. At paragraph 2.45 the Law Commissioners said:
2.45 The question was raised in the Working Paper whether it might be necessary to exclude or limit rights of suit in tort since our reform might expose the shipowner to double liability. If property in the goods had not passed before they were damaged but in circumstances where a bill of lading had already been transferred, the seller might have a claim in tort as owner of the goods in addition to the claim in contract by the holder of the bill of lading, although there may well be cases where the seller does not have an immediate right to claim possession of the goods on which to found a claim in tort. It is inconceivable that a court would permit double recovery of damages under our proposals any more than it would now. Moreover, to exclude the rights of suit of the owner could produce the anomaly that P, qua owner, was unable to sue where as qua charterer he could. We do not recommend that rights of action in tort should be explicitly excluded from implementing legislation. (footnotes omitted)
150 It follows, so the plaintiffs submit, that the COGSA (UK), which was enacted in accordance with the Law Commissioners' recommendations, should be taken as preserving the right of a former holder of a bill of sale to pursue a claim in tort in respect of damage caused to them by the carrier. They sought to support their submission by reference to Cro Travel Pty Ltd v Australian Capital Financial Management Pty Ltd [2018] NSWCA 153, [232] and [251], which suggests that, whilst all contractual rights under a bill of lading are transferred by delivery and endorsement, causes of action which might derive from possessory claims such as a pledgee or bailor of goods remain. In Cro Travel Ward J held:
[251] CRO contended that the rights of a pledgee of a bill of lading might have been affected by the Sea‐Carriage Documents Act. That submission should be rejected. That Act is concerned only with the contract of carriage to which the bill relates. It was intended to remedy a defect which precluded a lawful holder of a bill of lading from taking rights under the contract of carriage. It would be a perverse outcome if the Act reduced the property rights of a pledgee of the goods referred to in the bill. Mance LJ considered at some length the question whether the equivalent Act in the United Kingdom had reduced the rights of a bailee of the goods in East West Corpn at 1537-1538, saying (emphasis added):
[T]he 1992 Act does not expressly modify any rights other than contractual rights … The mischief at which the 1992 Act was aimed was that rights under the bill of lading contract could remain vested in persons other than those having the property or risk in the goods. This might occur either because the general property did not pass at all, or because it did not pass upon or by reason of the indorsement of the bill, so that the 1855 Act was of no assistance. The remedy adopted by the 1992 Act was to transfer contractual rights to any holder of the bill, as defined in section 5(2). The result is, however, to create a new class of cases in which the bill of lading contract may be vested in a person other than the person at risk.
[252] Mance LJ concluded (at 1538):
If it were necessary, however, I would conclude that the sole effect of the 1992 Act is on contractual rights, and, where there is no intention to pass any possessory right, possessory rights sounding in bailment remain unaffected. But in my view it is unnecessary even to reach any such conclusion. Whatever the position in that regard, I do not consider that the 1992 Act can be treated as working an automatic transfer of any rights in bailment, so that they enure exclusively to the person entitled under its provisions to exercise the contractual rights.
151 In the course of final addresses Mr Cox of counsel submitted that it was common ground between the parties that rights in tort sit outside of COGSA and the Sea-Carriage Documents Act. That would appear to be correct from a theoretical perspective, however, Mr Stewart SC's post hearing written submissions suggest that, even if such a cause of action were available, it would be futile to allow JP Morgan leave to amend the Statement of Claim so as to pursue it. He submitted that the effect of the operation of the Sea-Carriage Documents Act in the circumstances of the present case is that on or about 8 February 2012, when Sterlite came into possession of the BOL as a result of its endorsement and delivery, it became the lawful holder within the definition in s 5 and was the only party with any interest in the cargo and with any rights under the BOL who might bring an action on it. The plaintiffs did not appear to dispute this submission to the extent to which it was limited to the bringing of actions under the BOL.
152 The difficulty which arises is that the grounding occurred on 19 December 2011, at which time JP Morgan was the holder of the BOL and had title to the goods even though risk had passed to Sterlite. It would also appear not to be in contention that the salvage services were provided before the transfer of the BOL to Sterlite and the costs and expenses which are now part of the general average contribution were also incurred. In these circumstances JP Morgan claims that it is entitled to pursue an action in negligence against Ever Rock founded upon its title to the goods and Ever Rock exposing it to liability for salvage charges by its mismanagement of the ship. In other words, it claims to be entitled to pursue an action which is not based on its rights under the contract of carriage. It is noted that JP Morgan does not appear to claim any loss by reason of the general average contribution which it accepts is a liability of Sterlite by reason of s 10 of the Sea-Carriage Documents Act.
153 In response Ever Rock submitted that the Sea-Carriage Documents Act and the COGSA (UK) do not condition the rights of the lawful holders upon the acquisition of title to the property in the cargo. It relied upon the observations of Thomas J in Aegean Sea Traders Corporation v Repsol Petroleo SA (The "Aegean Sea") [1998] 2 Lloyds Rep 39 at 60 and Teare J in Standard Chartered Bank v Dorchester LNG (2) Ltd (The "Erin Schulte") [2013] 2 Lloyds Rep 338, [41] and [52]. However, neither of those cases address the specific issue which arises in the present case. They were concerned with the operation of the COGSA (UK) and the effect of the complete delivery of the bill of lading which was effective to pass title to sue regardless of the passing of property under the contract of sale. Under COGSA (UK) and the Sea-Carriage Documents Act, for an action on the bill there is no need to undertake any inquiry as to whom and when property in the goods passed or what was the contractual position between the transferor and the transferee of the bill. These two cases were concerned with the title to sue of the deliveree and were not concerned with what, if any, remnant rights remained with the temporal owner of goods who suffered loss as a result of the ship owner's conduct.
154 The plaintiffs submit, in this alternative case, that JP Morgan, as owner of the goods at the time the salvage services were provided, was required to pay the salvage charges to Fukada and it is entitled to pursue Ever Rock in an action in negligence in respect of that loss. There is sufficient support in the authorities identified for the proposition. That action does not arise under the bill of lading and is not transferred by force of the Sea-Carriage Documents Act.
155 Ever Rock submitted that no such claim could arise because, as between JP Morgan and Sterlite, the risk passed to the latter once the cargo passed the ship's rails. However, the contractual apportioning of risk as between an owner and purchaser did not affect JP Morgan's title to the goods which was sufficient to ground a claim in tort against Ever Rock.
156 Ever Rock also submitted that JP Morgan suffered no loss as a result of the grounding because it had passed the benefit of the AEGIS insurance policy to Sterlite which had subsequently been paid the full purchase price and obtained title to the goods. It also submits that JP Morgan was paid in full for the cargo on its sale to Sterlite and there was no discount or adjustment consequent upon the liability to meet a proportion of the salvage costs. These submissions cannot be accepted. Whether a plaintiff carries insurance in respect of the loss or damage inflicted by a third party does not affect the third party's liability or the quantum of the damages for which they are liable. Additionally, once the grounding had occurred, JP Morgan, as owner, became liable for the charges which would be incurred in the salvage of the ship: Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd [1984] 1 AC 226 at 234; Kennedy & Rose Law of Salvage (Sweet & Maxwell 7th ed) [17.016], [17.040]-[17.041]. Consequently, its cargo became subject to the imposition of a lien in respect of its portion of the charges. Had it not, through AEGIS, provided security for the cost of salvage the salvor's lien would have taken effect over the cargo and diminished it in value. That security had the consequence of the salvage charges being subsequently paid by AEGIS on behalf of its insured, JP Morgan, when the amount of the charge was ascertained. Without the security being provided in substitute for the salvors' lien, the rights in the cargo would have diminished to the extent that the lien arose. It is axiomatic the provision of the security had the consequence the salvors would not and did not exercise their lien.
157 The above conclusion that JP Morgan might pursue a claim in negligence is supported by the view adopted in some authorities that the imposition of the salvor's lien on a cargo constitutes damage to the property: The "Breydon Merchant" [1992] 1 Lloyds Rep 373, 376 which was followed in Qenos Pty Ltd v Ship "APL Sydney" (2009) 187 FCR 282, 290 [27]. The effect of the imposition of the lien on the cargo is that its value is reduced as are the proprietary rights of cargo owners which are diminished to the extent to which the lien attaches. The lien and accompanying rights of the salvors causes a loss of property to the cargo owners. To this extent the loss is not merely a diminution in the value of the goods, but it includes a loss of property or property rights in the goods. In this respect the cause of action in tort as sought to be formulated in the proposed amended statement of claim is one for property damage to the cargo and consequential loss. Mr Stewart SC submitted that all that occurred was that the fiscal value of the cargo was diminished and its physical integrity remained unchanged. This led to the submission that the tortious claim was for pure economic loss with the consequence that additional requirements would need to be established before liability could be imposed. As this submission went to the question of whether leave ought to be given to amend the pleading, it is not a question that needs to be definitively answered. That said, the consequence of the conduct of which JP Morgan complains is not merely a diminution in the value of the cargo. It is the loss of proprietary rights over and with respect to it by the crystallisation of the salvors' lien. Whilst the consequence of that might be that a sum of money needs to be paid to remove the lien and restore full ownership rights, it is more than arguable that the loss is property damage rather than pure economic loss. For the purposes of an application to amend the statement of claim, the proposed amendment is not legally futile on the basis that it is a claim for pure economic loss only.
158 Even if the claim for damages for negligence which JP Morgan sought to advance was one for pure economic loss, it cannot be said that it would be obviously futile. Ever Rock advanced a number of submissions why it claimed the cause of action was one for pure economic loss and would not be one recognised by the Courts. However, either taken alone or in combination, they cannot be said to make it clear to the necessary degree that the claim is hopeless. Importantly, in terms of the seaworthiness of the ship, it is arguable that the cargo owners were vulnerable to loss. In this respect the plaintiffs submitted that they have no way of checking or ensuring the seaworthiness or safe navigation of the vessel and they are also subject to the agency of the master in relation to the securing of salvage services. In addition, intermediate holders of the bill of lading have no ability to negotiate or alter the contractual terms of shipping which have been put in place by the shipper and the ship owner. Conversely, it is not beyond argument that the ship owner can be taken as assuming responsibility for loss caused to the cargo owners, albeit within the scope of the area of responsibility as defined by the bill of lading. Whilst Ever Rock submitted that liability should not be imposed on the ship owner beyond that which is levied by the terms of the BOL and the international shipping agreements which are adopted in COGSA and other relevant legislation, as the discussion concerning the Sea-Carriage Documents Act disclosed, the availability of a cause of action in tort for a prior holder of a bill of lading was unaffected and remains extant. That being so, there is no reason not to accord a party in the position of JP Morgan the full panoply of rights which the common law might provide. It must also be kept in mind that the liability of Ever Rock to JP Morgan on its negligence claim will be no greater than or more onerous than the contractual duty which existed under the BOL. The vessel owner's duty to exercise due diligence to render the vessel seaworthy is the same in tort and contract and is subject to the defences in Articles III and IV.
159 The above is sufficient to reach the conclusion that the proposed tortious cause of action is not necessarily futile or has no reasonable prospects of success on the basis that it is a claim is one for pure economic loss and, as such, could not succeed. Those issues can be more properly ventilated at trial when the matter is fully argued.
160 It might also be added that no prejudice in the litigation would seem to arise by allowing JP Morgan's proposed amendment. If, as Ever Rock submits, the cause of action under the BOL for loss arising from the obligation to pay the salvors' charges vested in Sterlite, that entity is entitled to pursue it in these proceedings and no additional evidence will be incurred by JP Morgan's concurrent claim.
161 The submission that JP Morgan would have suffered no loss because risk passed to Sterlite under the BOL once the cargo passed the ship's rails also cannot be sustained. As JP Morgan retained title to the goods when the salvage services were provided, it became subject to the liability to contribute to the salvage charges and the liability has been discharged. That liability was unaffected by the transfer of the BOL to Sterlite. Even if it were the case that each of Sterlite and JP Morgan may have a cause of action against Ever Rock in respect of that liability; JP Morgan in tort and Sterlite under the BOL; it is plain that double recovery would not be permitted.
162 Ever Rock also submitted that any claim which might be pursued by JP Morgan in negligence would necessarily rely upon the terms of the BOL and the Amended HVR which would circumscribe or limit the scope of any duty of care: The Aliakmon [1986] 1 AC 785 at 814G, 818CF. Whilst that may be accepted, it does not follow that the cause of action should not be permitted and that is particularly so because the proposed negligence plea relies upon the existing allegations of unseaworthiness and, as such, it is not fundamentally in conflict with any contractual claim: cf Carver on Bills of Lading (4th ed), Sweet & Maxwell, 2017, [5-134]. It might also be observed that, in the circumstances of the case, JP Morgan is not entitled to pursue concurrent causes of action in contract and tort.
163 Ever Rock also relied upon the operation of the time bar in Art III r 6 of the Amended HVR which, it submits, applies to claims against the ship owner, whether arising in tort or contract. It relies upon Art 4bis r 1 which provides:
1. The defences and limits of liability provided for in these Rules shall apply in any action against the carrier in respect of loss or damage to goods covered by a contract of carriage whether the action be founded in contract or in tort.
164 This provision would prevent the holder of a bill of lading from pursuing an action in tort in an attempt to avoid the time bar and, similarly, an action brought in tort against the ship owner in respect of goods carried is a "suit" within Art III r 6, and if brought within time negates the operation of the time bar: Anglo Irish Beef Processors International v Federated Stevedores Geelong [1997] 2 VR 676, 691 [35]-[45]. Again, assuming all of the above, the suit by JP Morgan in tort is not to avoid the operation of the time bar. Ever Rock admits that it extended time in favour of JP Morgan and the proceeding commenced is within time.
165 It follows that the proposed cause of action in negligence has not been shown to be without sufficient merit that leave to amend the statement of claim to allow its inclusion should be refused. Leave shall be granted to include a cause of action in negligence at the suit of JP Morgan in substantially the same form as that which was admitted into evidence as Exhibit 1.