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Judgments - Borealis Ab (Formerly Borealis Petrokemi Ab and Statoil Petrokemi Ab) V Stargas Limited and Others and Bergesen D.Y. A/S "Berge Sisar"


Lord Hoffmann Lord Mackay of Clashfern Lord Cooke of Thorndon Lord Hope of Craighead Lord Hobhouse of Wood-borough



















ON 22 MARCH 2001

[2001] UKHL 17


My Lords,

    1. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hobhouse of Woodborough. For the reasons, which he gives, I would dismiss the appeal by Bergesen, and make the other orders that he has proposed


My Lords,

    2. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hobhouse of Woodborough. For the reasons, which he gives, I would dismiss the appeal by Bergesen, and make the other orders that he has proposed


My Lords,

    3. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hobhouse of Woodborough. For the reasons given by him, I would dismiss the appeal by Bergesen and make the other orders that he has proposed.


My Lords,

    4. I have had the advantage of reading in draft the speech to be given by my noble and learned friend Lord Hobhouse of Woodborough. I agree with him that on the agreed primary facts Bergesen have failed to make out an arguable case that Borealis demanded the delivery of the cargo from the vessel into the terminal at Stenungsund within the meaning of section 3(1)(c) of the Carriage of Goods by Sea Act 1992. For the reasons that he has given I would dismiss the appeal by Bergesen, and I make the other orders that he has proposed.


My Lords

    5. On 23rd October 1993, the Norwegian flag LPG tanker Berge Sisar loaded a cargo of about 42,500 metric tons of liquid propane at the terminal of the Saudi Arabian Oil Company at Yanbu. The vessel sailed to Stenungsund in Sweden arriving there on 6th November. On arrival, the vessel went alongside the intended receivers' jetty and routine samples were taken from the ship's tanks and analysed. The analysis showed that the cargo had been contaminated by corrosive hydrogen sulphide compounds. The intended receivers, Borealis AB, rejected the cargo and the vessel was not allowed to discharge the contaminated propane at Stenungsund. The terminal at Stenungsund was not able to handle the contaminated cargo. The vessel was diverted back to Terneuzen in Holland where the necessary facilities existed for dealing with a contaminated cargo. The cargo was discharged into the Dow terminal at Terneuzen between 17th and 24th November. The vessel's tanks and lines had then to be cleaned so that subsequent cargoes would not be contaminated.

    6. The financial consequences were substantial. There were the wasted costs at Stenungsund, the costs of diverting back to Terneusen and discharging there, the delay to the vessel, the reduced value of the contaminated cargo in comparison with a sound cargo and the cost of the clean-up. These events led to the making of claims and cross-claims by and against the various parties involved in the venture and has given rise to disputes between them. Factually, the disputes primarily relate to the time at which and the reason why the propane became contaminated. Legally, the disputes relate to the division of responsibility and risk between those parties. The relevant contracts governing the various relationships were of two different types. Firstly there were the contracts covering the sales and purchases of the propane. Secondly, there were the contracts covering the employment of the vessel and the carriage of the cargo.

    7. The chain of sellers and buyers started with the producers of the propane, the Saudi Arabian Oil Company ('Saudi Aramco'). Part of the propane it sold direct to the first buyer, Stargas Ltd of St Helier, Jersey, and part to various intermediaries who on-sold to Stargas. These contracts were on FOB Yanbu terms with a quality/description condition. Stargas on-sold the propane to Borealis AB of Stenungsund (then called Statoil Petrokemi AB) on CFR terms, one safe berth Stenungsund, with the liberty to the buyer to nominate a different discharging port within the range nominated by the seller (with an adjustment to the price). The date of the contract was 13th October 1993 and there was an English law and jurisdiction clause. Title, beneficial ownership and risk were to pass at ship's manifold at the loading port. The contract also provided that, after transfer of title to the buyer, the product was to be carried by the seller as carrier on the terms of the ASBATANKVOY charter party. It is alleged that the specification included a requirement that the cargo should not contain corrosive compounds such as to give rise to a result worse than 1B when measured by the copper corrosion test method ASTM D-1838.

    8. Borealis were the intended receivers of the cargo. The terminal at Stenungsund was theirs and had not the contamination been discovered, the cargo would have been discharged there. On the discovery of the contamination, Borealis refused to take the contaminated cargo and sold it to Dow Europe at a much reduced price; the contract was dated 11th November at which time the vessel was lying in the anchorage off Stenungsund, having been ordered off Borealis's jetty the previous day. The terms were CIF Terneuzen with the quality as per the analysis of the Stenungsund samples. The payment terms were essentially cash against documents (letter of indemnity acceptable) and there was an English law and jurisdiction clause.

    9. The vessel was owned by Bergesen DY A/S of Oslo. By a voyage charter party dated London 27th September 1993 on the ASBATANKVOY form, Bergesen chartered the vessel to Stargas for a voyage from Yanbu to one or two safe ports at charterers' option, one safe berth each port, out of Le Havre - Hamburg range (including UK and Stenungsund) or other options with a cargo of fully refrigerated propane and/or butane. The charter party included a clause paramount and a London arbitration clause. It also provided that: "The master shall upon request sign bills of lading in the form [printed at the foot of the charter party] for all cargo shipped but without prejudice to the rights of the owner and charterer under the terms of this charter."

    10. Five bills of lading were issued at Yanbu dated 23rd October 1993 signed for and on behalf of the master. They acknowledged the receipt on board in apparent good order and condition of various tonnages of A-140 liquefied petroleum gas shipped by Saudi Aramco for carriage to one or more safe ports Netherlands and delivery there. The consignees named in the bills of lading were respectively the parties who had bought the relevant quantity of propane from Saudi Aramco. Thus, two named Banque Paribas for account of Stargas or order, one Banque Indosuez for account of Dendron Ltd BVI or order, one Chevron International or order and one Trammo Gas or order. The bills of lading incorporated the terms of the charter party, including the arbitration clause.

    11. The naming of the banks in three of the bills of lading was no doubt because they were the bankers through whom the relevant buyers were to pay Saudi Aramco. The passing of the bills of lading down the line took some time and on 27 October, in the expectation that the vessel would arrive in northern Europe before the bills of lading, the charterers' agents (that is to say Stargas's agents) telexed the shipowners' agents, referring to the charter party and the forthcoming discharge in Stenungsund, stating that the relevant bills of lading had not yet arrived and requesting the shipowners to deliver the cargo to Borealis without production of the bills of lading. In consideration of the shipowners complying with this request, the charterers, Stargas, undertook to indemnify the shipowners for any consequent liability or loss. The charter party gave them this option. By the letter of indemnity, the charterers also gave the usual undertaking "as soon as all the original bills of lading for the above goods shall have arrived and/or come into our possession, to produce and deliver the same to you whereupon our liability hereunder shall cease". The telex concluded by charterers confirming their orders that the vessel was "to proceed to Stenungsund to discharge the entire b/l quantity for the account of receivers [Borealis]" and requesting the shipowners' agents to instruct the master accordingly. By a telex later the same day, the shipowners confirmed their receipt and acceptance of the charterers' letter of indemnity for discharge of the cargo without presentation of the original bills of lading at the declared discharge port, Stenungsund, and that they, the shipowners, had instructed the master to deliver the cargo to Borealis.

    12. The vessel arrived at the anchorage at Marstrand fjord off Stenungsund on the evening of 5th November after darkness had fallen. She proceeded into Stenungsund the following morning arriving at 0923 and finished berthing at 1020. The master's notice of readiness (tendering the vessel to Borealis as being ready to commence discharge) was timed at 1800 on the 5th but was recorded as having been received at 0925 on the 6th. No bills of lading were presented at Stenungsund. The on-carriage of the cargo by the vessel to Terneuzen was arranged by Stargas apparently under the option to nominate a second discharge port given to them in the charter party and Stargas gave the shipowners a further letter of indemnity for the vessel to deliver the cargo there to Dow Europe without production of the bills of lading. It was under the instructions of Stargas as charterers that the vessel sailed from Stenungsund to Terneuzen and delivered the cargo there to Dow Europe. As previously stated, the discharge of the cargo at Terneuzen was completed on 24th November.

    13. The evidence about what happened to the original bills of lading was somewhat exiguous but it is agreed by the parties to this appeal (on the basis of what is said in the affidavit of the solicitor acting for Borealis) that on 18th January 1994 Stargas forwarded the bills of lading to Borealis who received them on the 19th or 20th and that Borealis forwarded them on to Dow Europe on the 20th. They were then presumably surrendered by Dow Europe or Stargas to the shipowners or their agents in accordance with the undertaking in the charterers' letter of indemnity. The photocopies of the original bills of lading in the papers before the House show that the bills of lading were endorsed by each party in the line to the next so that each holder of the relevant bill of lading when he received it held it as an endorsee from the preceding holder.

    14. The litigation to which this state of affairs gave rise began with an action started by Borealis against Stargas in the Commercial Court in London. This was in accordance with the jurisdiction clause in their sale contract. The cause of action relied upon in the writ as issued was that the propane had not complied with the contract specification at the time of shipment; ie their factual case was that the contamination had occurred before loading at Yanbu. The response of Stargas was to deny that there had been any contamination of the propane before loading and to allege that it had occurred on board the vessel and was not their responsibility. They joined Bergesen (the shipowners) as third parties claiming an indemnity from them in the event that they, Stargas, might be held liable to Borealis for post-shipment contamination. The causes of action alleged were breach of the charter party or breach of duty as bailee.

    15. Bergesen then counterclaimed in the third party proceedings against Stargas for the cost of cleaning the vessel's tanks, pumps and lines; this was on the basis that the cargo was already contaminated before shipment. The cause of action alleged was damages for the breach of a term of the charter party warranting the fitness of the cargo for carriage upon the vessel. But Bergesen, by a notice served under RSC O.18 r.8, also made a claim for these costs from Borealis on the basis that Bergesen was entitled to recover them from Borealis as the holder of the bills of lading liable under the Carriage of Goods by Sea Act 1992 for the breach of the shipper's, that is Saudi Aramco's, obligation under Article IV rule 6 of the amended Hague Rules not to ship a dangerous cargo. The nature and extent of this obligation is discussed in the speech of Lord Lloyd of Berwick in Effort Shipping v Linden Management [1998] AC 605. Bergesen have made a corresponding claim directly against Saudi Aramco and this has, at Saudi Aramco's insistence, proceeded in arbitration in London in accordance with the arbitration clause incorporated in the bills of lading. Borealis have not sought to refer the claim against them to arbitration and have responded to it by denying that it was a party liable to Bergesen under the bills of lading. In the alternative, if it was liable to Bergesen under the bills of lading, Borealis claimed damages against Bergesen for breach of contract or duty as carriers. Borealis also further amended their writ and Points of Claim to join Saudi Aramco and claimed an indemnity and/or contribution under s.1 of the Civil Liability (Contribution) Act 1978 in respect of any liability which Borealis might be held to be under to Bergesen. Borealis have also added to their claim against Stargas under the sale contract a claim in respect of any sum they may be adjudged liable to pay Bergesen in respect of the clean up costs.

    16. Saudi Aramco applied to the Commercial Judge to set aside the service of the amended writ upon them. Waller J [1997] 1 Lloyd's Rep 642 dismissed the application. Saudi Aramco appealed to the Court of Appeal arguing additionally that the claim of Bergesen against Borealis could not succeed and therefore there was no proper basis for the claim over of Borealis against them. Bergesen were therefore invited to address the Court of Appeal as well as Borealis and Aramco and the hearing was adjourned to enable them to do so. Bergesen put in additional evidence and further amended their notice of claim against Borealis. The issue to be decided developed into one of assessing whether Bergesen had a good arguable case against Borealis. If they had not, then the claim of Bergesen against Borealis should be struck out; but, if they did, then it was appropriate that Borealis should be allowed to join Saudi Aramco. The Court of Appeal by a majority, Sir Brian Neill dissenting, allowed the appeal, [1999] QB 763. The point upon which Saudi Aramco succeeded was that which they had raised for the first time in the Court of Appeal, that Bergesen's claim against Borealis was bad in law. It followed from this that the justification for joining Saudi Aramco also failed. Bergesen have appealed to your Lordships' House. The response to the appeal has been argued in the name of Borealis, it being sensibly agreed that Saudi Aramco should abide by the outcome of the appeal. The argument on this appeal has been confined to the questions of law raised and their application to the facts of this case. But again the focus of the argument has changed. Borealis has been allowed to withdraw a factual concession made in the Court of Appeal and a legal question which was not in controversy in the Court of Appeal has now come to the forefront of the case.

    17. The question raised by Borealis's joinder of Saudi Aramco is whether Bergesen has a good arguable case in contract against Borealis. The question breaks down into two subsidiary questions. First, did Borealis ever become liable to Bergesen under s.3 of the Carriage of Goods by Sea Act 1992. It is the case of Bergesen that Borealis became liable when they received the endorsed bills of lading from Stargas on 19th or 20th January 1994. (This is the question which was covered by the concession.) If the answer to this question is in the affirmative, the second subsidiary question is whether Borealis ceased to be so liable when they endorsed the bills of lading over to Dow Europe on the 20th. Bergesen submit that, once liable, Borealis remained liable under s.3(1) of the Act notwithstanding that they had endorsed the bills of lading over to another. Borealis submitted that they did cease to be liable. It was on this last point that there was the difference of opinion in the Court of Appeal, Sir Brian Neill preferring the view that their liability continued, the majority, Millett and Schiemann LJJ, holding that it did not. Both of these subsidiary questions involve the construction of the 1992 Act. Their unanimous answer to the first of these questions was effectively predetermined by the concession made during the hearing there by counsel for Saudi Aramco.

    The 1992 Act: Its Genesis:

    18. The predecessor of the Act of 1992 was the Bills of Lading Act 1855. It was a short Act consisting of only three sections, of which only the first two are of present relevance. The preamble explained why it had been passed:

    "Whereas by the custom of merchants a bill of lading of goods being transferable by endorsement the property in the goods may thereby pass to the endorsee but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner, and it is expedient that such rights should pass with the property; "

Endorsed bills of lading were recognised by the law merchant to be symbols of the goods by the delivery of which the goods covered by the bill of lading could likewise be delivered. This was an application of the principles of bailment and attornment. (Sanders v Maclean (1883) 11 QBD 327; Dublin City Distillery v Doherty [1914] AC 823.) In Sanders v Maclean Bowen LJ said at p.341:

    "The law as to the indorsement of bills of lading is as clear as in my opinion the practice of all European merchants is thoroughly understood. A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is universally recognised as its symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of the cargo. Property in the goods passes by such indorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass, just as under similar circumstances the property would pass by an actual delivery of the goods. And for the purpose of passing such property in the goods and completing the title of the indorsee to full possession thereof, the bill of lading, until complete delivery of the cargo has been made on shore to some one rightfully claiming under it, remains in force as a symbol, and carries with it ... the full ownership of the goods. … It is a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be."

The bill of lading acknowledges the receipt of the goods from the shipper for carriage to a destination and delivery there to the consignee. It therefore evidences a bailment with the carrier who has issued the bill of lading as the bailee and the consignee as bailor. This analysis was already well recognised before 1855 as is demonstrated by Bryans v Nix (1839) 4 M&W 775 and Evans v Nichol (1841) 3 M&G 614 . But the consignee need not be named and the bill of lading may simply say "deliver to the bearer" or to "order" or "to order or assigns" or similar words. The contribution of the law merchant had been to recognise the attornment as transferrable and therefore the indorsement and delivery of the bill of lading as capable of transferring the endorser's right to the possession of the goods to the endorsee. (Lickbarrow v Mason (1794) 5 Term Rep 683; Kum v Wah Tat Bank [1971] 1 Lloyd's 439, at pp.446-9, per Lord Devlin.) What effect this would have on the title to the goods depended on the circumstances and the intention of the transferor and transferee. (Sewell v Burdick (1884)10 App Cas 74;Glynn Mills v E and W India Dock Co (1880) 6 QBD 475.)

    19. However, as the preamble stated, the law merchant had not recognised any similar transfer of the contractual rights. (Thompson v Dominy (1845) 14 M&W 403 ) The bill of lading evidences a contract of carriage. The parties to that contract are the issuing carrier, usually the shipowner although it may be a charterer, and the shipper or his principal. Where there is a named consignee it may be inferred that the contracting party is the consignee not the shipper: Dawes v Peck (1799) 8 Term Rep 330 and the other cases cited by Brandon J in The Albazero, [1977] AC 774 at p 786A-B. But, where the principal was the shipper, the contract was with him and remained with him. The rights and obligations in contract became separated from the right of the endorsee to the possession, and to demand the delivery up, of the goods.

    20. There was a qualification of this. The bill of lading evidenced a bailment upon terms, typically conditions which qualified the obligation to deliver up the goods to the bailor, including the discharge of liens or the performance of any requirements for unloading the goods from the ship. These conditions would be stated in the bill of lading or incorporated from a charter party. For liens which are common law liens, eg the lien for freight or for general average, unless the bill of lading contained words waiving or negativing the lien (as by stamping the bill of lading "freight prepaid"), the bill of lading holder had no right to the possession of the goods without first discharging the liens. At the time of the passing of the Act of 1855, the recognition of the carrier's liens as a qualification of the rights of the endorsee against the shipowner was well established: Cock v Taylor (1811) 13 East 399, Sanders v Vanzeller (1843) 4 QB 260, Stindt v Roberts (1848) 5 D&L 460 and Young v Moeller (1855) 5 E&B 755. It took a bit longer fully to work out all the contractual implications. In 1883, Cave J, following the earlier decisions, said in Allen v Coltart (1883) 11 QBD 782 at p 785:

    "Where goods are deliverable to the holder of a bill of lading on certain conditions being complied with, the act of demanding delivery is evidence of an offer on his part to comply with those conditions, and the delivery accordingly by the master is evidence of his acceptance of that offer."

In 1923, the Court of Appeal authoritatively expanded the inferred contract as fully encompassing the rights and obligations of the carrier on the terms of the bill of lading: Brandt v Liverpool, Brazil and River Plate Steam Navigation Co Ltd [1924] 1 KB 575, Bankes, Scrutton and Atkin LJJ, affirming a decision of Greer J (a combination of unparalleled distinction in this field). The plaintiff was a person who was claiming damages from the shipowner for negligence in the carriage of a consignment of goods. He was not able to bring himself within the terms of the 1855 Act but he succeeded on the contract to be inferred from the presentation of the bill of lading and the delivery of the goods against it. At pages 598-9 Atkin LJ outlined the route by which the law had developed. He referred to the inferred undertaking by the bill of lading holder to pay the sums due in respect of the carriage of the goods and asked whether there was any corresponding obligation on the part of the shipowner in that inferred contract. He continued at p.599:

    "It appears to me that just as plainly the assignee is bound by an implied contract, so is the shipowner, and the shipowner's obligation in the case where freight has in fact been paid by the holder of the bill of lading, is that he will deliver the goods. … Is it a contract to deliver the goods on the terms of the bill of lading? Shipowners would be surprised to hear it suggested that having undertaken to carry goods upon terms in their bill of lading qualifying and limiting their liability they are nevertheless under an absolute obligation to deliver the goods and not an obligation qualified by the exceptions in the bill of lading…no other contract could be properly inferred."

The inferred contract is not a fiction. It is a contract which the court concludes has come into existence because that is the proper finding of fact to make on the evidence in the case. Thus there has to be the requisite element of offer and acceptance and mutuality. This has been stressed in the modern authorities such as The Aramis [1989] 1 Lloyd's 213 and The Gudermes [1993] 1 Lloyd's 311 ; if the facts do not justify it, the court will decline to find that there was a contract.

    21. The common law was thus able, without the assistance of statute, to accommodate the contractual position of the consignee who was the person for whom the shipper was entrusting the goods to the carrier and the position of the holder of the bill of lading who was taking delivery from the carrier at destination against presentation of the bill of lading. The 1855 Act was primarily concerned with the position of endorsees who did not come into either category but the drafting was sufficiently wide to be all embracing. Sections 1 and 2 provided:

    "1. Every consignee of goods named in a bill of lading and every endorsee of a bill of lading of a bill of lading to whom the property in the goods therein mentioned shall pass, upon or by reason of such consignment or endorsement, shall have transferred and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods, as if the contract contained in the bill of lading had been made with himself.

    2. Nothing herein contained shall prejudice or affect any right of stoppage in transitu, or any right to claim freight against the original shipper or owner, or any liability of the consignee or endorsee by reason or in consequence of his being such consignee or endorsee, or of his receipt of the goods by reason or in consequence of such consignment or endorsement."

The drafting of the Act gave rise to criticisms and difficulties. Two of them are presently relevant and of importance to the understanding of the 1992 Act.

The Passing of "Property" "upon or by Reason of" the Endorsement:

22. This problem was the subject of the decision of your Lordships' House in Sewell v Burdick (1884) 10 App Cas 74. It has two aspects. The first is what does the word "property" encompass. Is it limited to the general property in the goods, that is, the legal title to the goods as is transferred by a sale? Or does it include the special property which signifies the right to possession? In Sewell v Burdick it was decided that it should be limited to the passing of the general property. The primary reason for reaching that conclusion was that bills of lading are as often as not used as security documents facilitating the financing by banks of merchants' sale transactions (eg under documentary letters of credit). A bank's interest is to use the possessory right to the document and the goods it represents as security; its interest is not to enter into contractual relations with the carrier, still less, to undertake contractual obligations towards the carrier. The decision in Sewell v Burdick was that a transaction of pledge accompanied by the endorsement of the bill of lading over to the pledgee did not come within the scope of s.1 and did not transfer to the pledgee any contractual rights nor subject the pledgee to any contractual liabilities under the bill of lading.