Chapter 12: Sub-Contractors and Agents

12.5

Cargo claimants faced by the defences of the carrier in contract, such as the Hague Rules time bar and limits or a clause excluding liability before loading or after discharge, have sought to avoid such protection of the contracting carrier by suing other persons in tort, such as the actual carrier or the servants and agents of the contracting carrier. 5 The Hague Rules contained no provision that was relevant to deciding on the position of persons such as sub-contractors. Article IV bis r.2 of the Hague-Visby Rules now provides that the defences and limits of liability of the carrier shall also be available to a servant or agent of the carrier. In the English text of the Hague-Visby Rules in the Carriage of Goods by Sea Act 1971 there is an express reference to “such servant or agent not being an independent contractor”. A master or member of the crew would be able to have all the defences, but a firm of stevedores would not (even possibly where it was a related or subsidiary entity, but had a separate corporate personality). Under Art. IV bis r.3, the aggregate amount recoverable by any claimant suing the carrier and its servants in separate actions shall not exceed the limits under Art. IV r.5. 6 However, the rights of the servant or agent to limit will be determined by Art. IV bis r.4, which applies to them the same intention and recklessness test used in Art. IV r.5(e). 7

12.6

Where the Hamburg Rules apply, the carrier will be responsible for goods in its charge before loading and after discharge, although it can rely on the limits of liability and time bar under the Hamburg Rules. 8 It could only escape liability under Art. 5.1 if it could show that it, its servants or agents 9 had taken all measures that could reasonably be required to avoid the loss. Under Art. 7.2, the servant or agent of the carrier is entitled to avail itself of all the defences and limits of liability available to the carrier, if it proves that it acted within the scope of its employment. There would thus be little need for a Himalaya clause 10 where the Hamburg Rules applied, except perhaps in relation to those periods of land transit occurring before the goods arrived at the port of loading or after they had left the port of discharge, as Art. 4 does not extend to these periods. 11

12.7

In a decision of the House of Lords which has always been puzzling, Elder Dempster & Co. v. Paterson Zochonis & Co., 12 it was held that an actual carrier was entitled to the benefit of an exception contained in the bill issued on behalf of the charterer (which was the contracting carrier). The decision has a great deal of commercial sense, but it has never been quite clear how the actual carrier could have satisfied the requirements of the doctrine of privity of contract. In some circumstances it may well be possible to regard a shipowner and charterer as joint contracting carriers where the bill is issued by the charterer. 13 But the very format and wording of most bills, and the contractual intentions of the parties, will normally point to only one person assuming contractual responsibilities for the cargo. 14 It is almost impossible to extract a ratio decidendi from the Elder Dempster case and it is unclear whether the case lays down a special rule for shipowners and charterers. What is certainly true is that it does not lay down any general principle entitling sub-contractors to the benefit of exceptions clauses simply because they have somehow participated in a joint operation. 15 However, the Elder Dempster decision can now more easily be explained on the basis of bailment on terms, 16 by which rights and liabilities can arise independently of the law of contract. 17

12.8

In order to meet possible cargo claims against their employees and sub-contractors, carriers have resorted to the inclusion of standard exemption or indemnity clauses in bills of lading designed generally to provide benefits to these third parties. Clauses which extend carrier exemptions to third parties have generally been termed “Himalaya clauses”, for reasons which will be explained in Section 12D.1, below, although this is not really a term of art. Modern combined transport operators have also sought to protect themselves through the use of indemnities, e.g. the “circular indemnity” clause. 18 Finally, carriers and third parties have sought to make use of the legal doctrine of sub-bailment on terms. 19 Before dealing with these issues, it is necessary to consider recent legislation.

12.9

The Contracts (Rights of Third Parties) Act 1999 entered into force on 11 November 1999 and has effected a considerable reform of the general English rules of privity of contract, so far as they prevented a third party from claiming benefits under the contract. 20 The Act implements, with some amendments, the recommendations of the Law Commission in its Report on Privity of Contract: Contracts for the Benefit of Third Parties. 21 The Contracts (Rights of Third Parties) Act 1999 does not apply to contracts made until a further six months has elapsed since its entry into force, i.e. 11 May 2000. This Act reforms the law of privity of contract to give third parties a right, in circumstances set out in s.l, to enforce terms of contracts. In essence, if a contract between a promisor and promisee provides expressly that a third party shall have a benefit conferred on it, the third party can enforce those terms in its own right. It will be a question of construction of the contract whether a benefit was intended. In the present context, the promisor would generally be the cargo interests (e.g. the holder of the bill of lading), while the promisee would be the carrier. The third party would be the servant, agent or sub-contractor of the carrier (e.g. a stevedore, or road/rail haulier).

12.10

Section 2 restricts the circumstances where the terms may be varied or rescinded (by promisor and promisee) to the detriment of the third party, e.g. where the third party has communicated its assent to the term to the promisor, or the promisor is aware that the third party has relied on the term, or the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it. 22

12.11

Section 3 sets out rights of defence and set-off given to the promisor, e.g. to be able to rely on terms that would have been available against the promisee. There is protection against double recovery in s.4, e.g. where the promisor is sued by both promisee and third party.

12.12

Of particular significance for bills of lading is s.6, which sets out exceptions. Section 6(5), (6) and (7) provide that:

• “(5) Section 1 confers no rights on a third party in the case of— (a) a contract for the carriage of goods by sea, or

• (b) a contract for the carriage of goods by rail or road, or for the carriage of cargo by air, which is subject to the rules of the appropriate international transport convention,

except that a third party may in reliance on that section avail himself of an exclusion or limitation of liability in such a contract.

(6) In subsection (5) ‘contract for the carriage of goods by sea’ means a contract of carriage—

1. contained in or evidenced by a bill of lading, sea waybill or a corresponding electronic transaction, or

2. under or for the purposes of which there is given an undertaking which is contained in a ship’s delivery order or a corresponding electronic transaction.

(7) For the purposes of subsection (6)—

1. ‘bill of lading’, ‘sea waybill’ and ‘ship’s delivery order’ have the same meaning as in the Carriage of Goods by Sea Act 1992, and

2. a corresponding electronic transaction is a transaction within section 1 (5) of that Act which corresponds to the issue, indorsement, delivery or transfer of a bill of lading, sea waybill or ship’s delivery order.”

12.13

The effect of s.6 is that third party rights are not generally conferred by the Act in the case of a carriage of goods by sea. The main reason for this is to avoid overlap with the Carriage of Goods by Sea Act 1992 and to exclude contracts covered by that Act. 23 Thus, questions of the rights of suit against carriers by holders of bills of lading (e.g. consignees and indorsees), holders of sea waybills 24 and holders of ship’s delivery orders 25 will continue to be governed by the 1992 Act. It is the 1992 Act which will also apply to any “corresponding electronic transaction” achieved by electronic means. In other words, where there is an electronic bill of lading 26 the rights of any user will be governed by the Carriage of Goods by Sea Act 1992 and not by the Contracts...