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Cite as: [1985] UKHL 10, [1986] AC 785

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JISCBAILII_CASE_TORT

    Parliamentary Archives,
    HL/PO/JU/18/246

    Leigh and Sillavan Limited (Appellants)

    v.

    Aliakraon Shipping Company Limited (Respondents)

    JUDGMENT

    Die Jovis 24° Aprilis 1986

    Upon Report from the Appellate Committee to whom was
    referred the Cause Leigh & Sillavan Limited against Aliakmon
    Shipping Company Limited, That the Committee had heard
    Counsel on Tuesday the 11th, Wednesday the 12th, Thursday the
    13th, Monday the 17th, Tuesday the 18th, Wednesday the 19th,
    Thursday the 20th and Monday the 24th days of February last
    upon the Petition and Appeal of Leigh and Sillavan Limited,
    of Knights' Pool, Windmill Street, Macclesfield, Cheshire,
    praying that the matter of the Order set forth in the
    Schedule thereto, namely an Order of Her Majesty's Court of
    Appeal of 7th December 1984, might be reviewed before Her
    Majesty the Queen in Her Court of Parliament and that the
    said Order might be reversed, varied or altered or that the
    Petitioners might have such other relief in the premises as
    to Her Majesty the Queen in Her Court of Parliament might
    seem meet; as upon the case of Aliakmon Shipping Company
    Limited lodged in answer to the said appeal; and due
    consideration had this day of what was offered on either side
    in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual and
    Temporal in the Court of Parliament of Her Majesty the Queen
    assembled, That the said Order of Her Majesty's Court of
    Appeal (Civil Division) of 7th December 1984 complained of in
    the said Appeal be, and the same is hereby, Affirmed and that
    the said Petition and Appeal be, and the same is hereby,
    dismissed this House: And it is further Ordered, That the
    Appellants do pay or cause to be paid to the said Respondents
    the Costs incurred by them in respect of the said Appeal, the
    amount thereof to be certified by the Clerk of the
    Parliaments if not agreed between the parties.

    Cler: Parliamentor


    Judgment: 24.4.86

    HOUSE OF LORDS

    LEIGH AND SILLAVAN LIMITED
    (APPELLANTS)

    v.

    ALIAKMON SHIPPING COMPANY LIMITED
    (RESPONDENTS)

    Lord Keith of Kinkel
    Lord Brandon of Oakbrook
    Lord Brightman
    Lord Griffiths
    Lord Ackner


    LORD KEITH OF KINKEL

    My Lords,

    My noble and learned friend, Lord Brandon of Oakbrook, is

    to deliver a speech setting out the reasons for which in his view

    this appeal should be dismissed. I agree entirely with his

    reasoning and conclusions, and would dismiss the appeal
    accordingly.

    LORD BRANDON OF OAKBROOK

    My Lords,

    This appeal arises in an action in the Commercial Court in
    which the appellants, who were the c. and f. buyers of goods
    carried in the respondents' ship, the Aliakmon claim damages
    against the latter for damage done to such goods at a time when
    the risk, but not yet the legal property in them, had passed to the
    appellants. The main question to be determined is whether, in the
    circumstances just stated, the respondents owed a duty of care in
    tort to the appellants in respect of the carriage of such goods;
    and, if so, whether and to what extent such duty was qualified by
    the terms of the bill of lading under which the goods were
    carried.

    The appellants' claim was put forward originally in both
    contract and tort. Staughton J. at first instance gave judgment
    for the plaintiffs on their claim in contract, so making it
    unnecessary for him to reach a decision on their further claim in
    tort. However, on appeal by the respondents to the Court of
    Appeal (Sir John Donaldson M.R. and Oliver and Goff L.JJ.), that
    court set aside the judgment of Staughton J. and dismissed the
    appellants' claims in both contract and tort. Sir John Donaldson
    M.R. and Oliver L.3. (as he then was) rejected the claim in tort
    on the ground that the respondents did not at the material time
    owe any duty of care to the appellants. Goff L.J. (as he then
    was) rejected the claim in tort on the ground that, although the
    respondents owed a duty of care to the appellants, they had not,
    on the facts, committed any breach of that duty. The judgment
    of Staughton J. is reported in [1983] 1 Lloyd's Rep. 203 and that
    of the Court of Appeal in [1985] 2 W.L.R. 289.

    My Lords, the facts relating to what I have called the main
    question to be determined are unusual and need to be set out with
    some particularity. By a contract of sale made in July 1976 the
    appellants ("the buyers") agreed to buy from Kinsho-Mataichi
    Corporation ("the sellers") a quantity of steel coils ("the goods") to
    be shipped from Korea to Immingham on c. and f. terms, free out
    Immingham. The price of the goods was to be paid by a 180 day
    bill of exchange to be endorsed by the buyers' bank in return for
    a bill of lading relating to the goods. The buyers, who were
    traders in steel rather than users of it, intended to finance the
    transaction by making a contract for the re-sale of the goods to
    sub-buyers before the bill of lading was tendered by the sellers.

    The goods were loaded on board the "Aliakmon" ("the ship")
    at Inchon in South Korea and a bill of lading dated 14 September
    1976 was issued, in respect of them. The bill of lading showed the
    carrying ship as the "Aliakmon"; the shippers as Illsen Steel Co.
    Ltd; the port of shipment as Inchon; the port of discharge as
    Immingham; and the consignees as the buyers. It is to be inferred
    that Illsen Steel Co. Ltd., in shipping the goods, were acting as
    agents for the sellers. The bill of lading further expressly
    incorporated the Hague Rules.

    The buyers later found themselves unable to make the
    contract for the re-sale of the goods which they had intended to
    make with the result that their bank declined to back the bill of
    exchange by which payment for the goods was to be made. In
    this situation representatives of the buyers and the sellers met on
    7 October 1976 in an effort to find a solution to the problem.
    Following that meeting the sellers sent the bill of lading to the
    buyers under cover of a letter dated 11 October 1976, and receipt
    of these was acknowledged by the buyers by a letter dated 18
    October 1976. The Court of Appeal has held, and the buyers now
    accept, that the effect of the letters so exchanged was to vary
    the original contract of sale in the following respects. First, the
    sellers, despite delivery of the bill of lading to the buyers, were
    to reserve the right of disposal of the goods represented by it.
    Secondly, while the buyers were to present the bill of lading to
    the ship at Immingham and take delivery of the goods there, they
    were to do so, not as principals on their own account, but solely
    as agents for the sellers. Thirdly, after the goods had been
    discharged, they were to be stored in a covered warehouse to the
    sole order of the sellers.

    On arrival of the ship at Immingham the buyers duly carried
    out the terms of the contract of sale as varied in the manner
    described above. On discharge of the goods they proved to be in
    a damaged condition. Staughton J. found, and his finding has not
    been challenged, that a substantial part of this damage, but not
    all, has been caused by improper stowage of the goods in two
    respects: first, the stowage of steel and timber in the same
    compartment, resulting in condensation from the timber causing
    rusting of the steel; and, secondly, overstowage of the goods in
    such a way as to cause crushing of them. He further assessed the

    - 2 -

    amount of damage at £83,006.07, a figure which is likewise not in
    dispute.

    The buyers subsequently paid the price of the goods to the
    sellers, after certain claims for alleged defects in them had been
    settled. The result of this was that the legal ownership of the
    goods, which had until then remained in the sellers by reason of
    their reservation of the right of disposal of them, finally passed to
    the buyers.

    My Lords, under the usual kind of c.i.f. or c. and f.
    contract of sale, the risk in the goods passes from the seller to
    the buyer on shipment, as is exemplified by the obligation of the
    buyer to take up and pay for the shipping documents even though
    the goods may already have suffered damage or loss during their
    carriage by sea. The property in the goods, however, does not
    pass until the buyer takes up and pays for the shipping documents.
    Those include a bill of lading relating to the goods which has been
    endorsed by the seller in favour of the buyer. By acquiring the
    bill of lading so endorsed the buyer becomes a person to whom the
    property in the goods has passed upon or by reason of such
    endorsement, and so, by virtue of section 1 of the Bills of Lading
    Act 1855, has vested in him all the rights of suit, and is subject
    to the same liabilities in respect of the goods, as if the contract
    contained in the bill of lading had been made with him.

    In terms of the present case this means that, if the buyers
    had completed the c. and f. contract in the manner intended, they
    would have been entitled to sue the shipowners for the damage to
    the goods in contract under the bill of lading, and no question of
    any separate duty of care in tort would have arisen. In the
    events which occurred, however, what had originally been a usual
    kind of c. and f. contract of sale had been varied so as to
    become, in effect, a contract of sale ex-warehouse at Immingham.
    The contract as so varied was, however, unusual in an important
    respect. Under an ordinary contract of sale ex-warehouse both the
    risk and the property in the goods would pass from the seller to
    the buyer at the same time, that time being determined by the
    intention of the parties. Under this varied contract, however, the
    risk had already passed to the buyers on shipment because of the
    original c. and f. terms, and there was nothing in the new terms
    which caused it to revert to the sellers. The buyers, however, did
    not acquire any rights of suit under the bill of lading by virtue of
    section 1 of the Bills of Lading Act 1855. This was because,
    owing to the sellers' reservation of the right of disposal of the
    goods, the property in the goods did not pass to the buyers upon
    or by reason of the endorsement of the bill of lading, but only
    upon payment of the purchase price by the buyers to the sellers
    after the goods had been discharged and warehoused at
    Immingham. Hence the attempt of the buyers to establish a
    separate claim against the shipowners founded in the tort of
    negligence.

    My Lords, there is a long line of authority for a principle
    of law that, in order to enable a person to claim in negligence for
    loss caused to him by reason of loss of or damage to property, he
    must have had either the legal ownership of or a possessory title
    to the property concerned at the time when the loss or damage
    occurred, and it is not enough for him to have only had

    - 3 -

    contractual rights in relation to such property which have been
    adversely affected by the loss of or damage to it. The line of
    authority to which I have referred includes the following cases:
    Cattle v. Stockton Waterworks Co. (1875) L.R. 10 Q.B. 453
    (contractor doing work on another's land unable to recover from a
    waterworks company loss suffered by him by reason of that
    company's want of care in causing or permitting water to leak
    from a water pipe laid and owned by it on the land concerned);
    Simpson & Co. v. Thomson (1877) 3 App. Case 279 (insurers of two
    ships A and B, both owned by C, unable to recover from C loss
    caused to them by want of care in the navigation of ship A in
    consequence of which she collided with and damaged ship B);
    Societe Anonyme de Remorquage a Helice v. Bennetts [1911] 1
    K.B. 243 (tug owners engaged to tow ship A unable to recover
    from owners of ship B loss of towage remuneration caused to them
    by want of care in the navigation of ship B in consequence of
    which she collided with and sank ship A); Chargeurs Reunis
    Compagnie Francaise de Navigation a Vapeur v. English A
    American Steamship Co. (
    1921) 9 Ll.L. R. 464 (time charterer of
    ship A unable to recover from owners of ship B loss caused to
    them by want of care in the navigation of ship B in consequence
    of which she collided with and damaged ship A); The World
    Harmony
    [1967] 341 (same as preceding case). The principle of
    law referred to is further supported by the observations of
    Scrutton L.J. in Elliott Steam Tug Co. Ltd, v. The Shipping
    Controller
    [1922] 1 K.B. 127, 139-140.

    None of these cases concerns a claim by c.i.f. or c. and f.
    buyers of goods to recover from the owners of the ship in which
    the goods are carried loss suffered by reason of want of care in
    the carriage of the goods resulting in their being lost or damaged
    at a time when the risk in the goods, but not yet the legal
    property in them, has passed to such buyers. The question
    whether such a claim would lie, however, came up for decision in
    Margarine Union G.m.b.H_ v. Cambay Prince Steamship Co. Ltd.
    (The Wear Breeze)
    [1969] 1 Q.B. 219. In that case c.i.f. buyers
    had accepted four delivery orders in respect of as yet undivided
    portions of a cargo of copra in bulk shipped under two bills of
    lading. It was common ground that, by doing so, they did not
    acquire either the legal property in, nor a possessory title to, the
    portions of copra concerned: they only acquired the legal property
    later when four portions each of 500 tons were separated from the
    bulk on or shortly after discharge in Hamburg. The copra having
    been damaged by want of care by the shipowners' servants or
    agents in not properly fumigating the holds of the carrying ship
    before loading, the question arose whether the buyers were entitled
    to recover from the shipowners in tort for negligence the loss
    which they had suffered by reason of the copra having been so
    damaged. Roskill J. held that they were not, founding his decision
    largely on the principle of law established by the line of authority
    to which I have referred. He derived further support for his
    decision by reference to Brandt v. Liverpool, Brazil and River
    Plate Steam Navigation Co. Ltd
    . [1924] 1 K.B. 575. In that case
    it was held by the Court of Appeal that, although the plaintiffs
    could not bring themselves within section 1 of the Bills of Lading
    Act 1355 because they were neither consignees named in nor
    endorsees of bills of ladings relating to goods carried in the
    defendant shipowners' ship, nevertheless a contract between the
    plaintiffs and the defendants on the terms of the bills of lading

    - 4 -

    could be implied from the fact that the plaintiffs had themselves
    presented the bills of lading to, and obtained delivery of the goods
    to which they related from, the ship at the port of discharge; and,
    secondly, that the plaintiffs were entitled to sue the defendants
    under such implied contract for loss suffered by them by reason of
    the want of care of the defendants in the carriage of the goods.
    Roskill 3. asked himself the rhetorical question why, if the
    plaintiffs had a right to sue the defendants in tort for negligence,
    should there have been any reason or need for implying a contract
    between them.

    My Lords, counsel for the buyers, Mr. Anthony Clarke, Q.C.,
    did not question any of the cases in the long line of authority to
    which I have referred except The Wear Breeze. He felt obliged to
    accept the continuing correctness of the rest of the cases ("the
    other non-recovery cases") because of the recent decision of the
    Privy Council in Candlewood Navigation Corporation v. Mitsui
    O.S.K. Lines Ltd. (The Mineral Transporter)
    [1986] A.C.1, in which
    those cases were again approved and applied, and to which it will
    be necessary for me to refer more fully later. He contended,
    however, that The Wear Breeze [1969] 1 Q.B. 269 was either
    wrongly decided at the time, or at any rate should be regarded as
    wrongly decided today, and should accordingly be overruled.

    In support of this contention Mr. Clarke relied on five main
    grounds. The first ground was that the characteristics of a c.i.f.
    or c. and f. contract for sale differed materially from the
    characteristics of the contracts concerned in tine other non-
    recovery cases. The second ground was that under a c.i.f. or c.
    and f. contract the buyer acquired immediately on shipment of the
    goods the equitable ownership of them. The third ground was that
    the law of negligence had developed significantly since 1969 when
    The Wear Breeze was decided, in particular as a result of the
    decisions of your Lordships' House in Anns v. Merton London
    Borough Council
    [1975] A.C. 728 and Junior Books Ltd, v. Veitchi
    Co. Ltd.
    [1983] 1 AC 520. In this connection reliance was placed
    on two decisions at first instance in which The Wear, Breeze [1969]
    1 G.B. 269 had either not been followed or treated as no longer
    being good law. The fourth ground was that any rational system
    of law would provide a remedy for persons who suffered the kind
    of loss which the buyers suffered in the present case. The fifth
    ground was the judgment of Goff L.J. in the present case, so far
    as it related to the buyers' right to sue the shipowners in tort for
    negligence. I shall examine each of these grounds in turn.

    Ground (1): difference in characteristics of a c.i.f. or c. and f.

    contract


    My Lords, under this head Mr. Clarke said that in the other
    non-recovery cases the plaintiffs who failed were not persons who
    had contracted to buy the property to which the defendants' want
    of care had caused loss or damage; they were rather persons
    whose contractual rights entitled them either to have the use or
    services of the property concerned and thereby made profits (e.g.
    the time charter cases), or to render services to the property
    concerned and thereby earn remuneration (e.g. the towage cases).
    By contrast buyers under a c.i.f. or c. and f. contract of sale
    were persons to whom it was intended that the legal ownership of
    the goods should later pass, and who were therefore prospectively,
    though not presently, the legal owners of them.

    - 5 -

    I recognise that this difference in the characteristics of a
    c.i.f. or c. and f. contract of sale exists, but I cannot see why it
    should of itself make any difference to the principle of law to be
    applied. In all these cases what the plaintiffs are complaining of
    is that, by reason of their contracts with others, loss of or
    damage to property, to which, when it occurred, they had neither
    a proprietary nor a possessory title, has caused them to suffer
    loss: and the circumstance that, in the case of c.i.f. or c. and f.
    buyers, they are, If the contract of sale is duly completed,
    destined later to acquire legal ownership of the goods after the
    loss or damage has occurred, does not seem to me to constitute a
    material distinction in law.

    Ground (2); equitable ownership

    My Lords, under this head Mr. Clarke put forward two
    propositions of law. The first proposition was that a person who
    has the equitable ownership of goods is entitled to sue in tort for
    negligence anyone who by want of care causes them to be lost or
    damaged without joining the legal owner as a party to the action.
    The second proposition was that a buyer who agrees to buy goods
    in circumstances where, although ascertained goods have been
    appropriated to the contract, their legal ownership remains in the
    seller, acquires upon such appropriation the equitable ownership of
    the goods. Applying those two propositions to the facts of the
    present case, Mr. Clarke submitted that the goods the subject-
    matter of the c. and f. contract had been appropriated to the
    contract on or before shipment at Inchon, and that from then on,
    while the legal ownership of the goods remained in the sellers, the
    buyers became the equitable owners of them, and could therefore
    sue the shipowners in tort for negligence for the damage done to
    them without joining the sellers.

    In my view, the first proposition cannot be supported.
    There may be cases where a person who is the equitable owner of
    certain goods has also a possessory title to them. In such a case
    he is entitled, by virtue of his possessory title rather than his
    equitable ownership, to sue in tort for negligence anyone whose
    want of care has caused loss of or damage to the goods without
    joining the legal owner as a party to the action: see for instance
    Healey v. Healey [1915] 1 K.B. 938. If, however, the person is
    the equitable owner of the goods and no more, then he must join
    the legal owner as a party to the action, either as co-plaintiff if
    he is willing or as co-defendant if he is not. This has always
    been the law in the field of equitable ownership of land and I see
    no reason why it should not also be so in the field of equitable
    ownership of goods.

    With regard to the second proposition, I do not doubt that it
    is possible, in accordance with established equitable principles, for
    equitable interests in goods to be created and to exist. It seems
    to me, however, extremely doubtful whether equitable interests in
    goods can be created or exist within the confines of an ordinary
    contract of sale. The Sale of Goods Act 1893, which must be
    taken to apply to the c. and f. contract of sale in the present
    case, is a complete code of law In respect of contracts for the
    sale of goods. The passing of the property in goods the subject-
    matter of such a contract is fully dealt with in sections 16 to 19

    - 6 -

    of the Act. Those sections draw no distinction between the legal
    and the equitable property in goods, but appear to nave been
    framed on the basis that the expression "property", as used in
    them, is intended to comprise both the legal and the equitable
    title. In this connection I consider that there is much force in
    the observations of Atkin L.J. in In re Wait [1927] 1 Ch. 606, 635-
    636, from which I quote only this short passage:

    "It would have been futile in a code intended for
    commercial men to have created an elaborate structure of
    rules dealing with rights at law, if at the same time it was
    intended to leave, subsisting with the legal rights, equitable
    rights inconsistent with, more extensive, and coming into
    existence earlier than the rights so carefully set out in the
    various sections of the Code."

    These observations of Atkin L.J. were not necessary to the
    decision of the case before him and represented a minority view
    not shared by the other two members of the Court of Appeal.
    Moreover, Atkin L.J. expressly stated that he was not deciding the
    point. If my view on the first proposition of law is correct, it is
    again unnecessary to decide the point in this appeal. I shall,
    therefore, say no more than that my provisional view accords with
    that expressed by Atkin L.J. in In re Wait [1927] 1 Ch. 616, 635-
    636.

    Ground (3); development of the law of negligence since 1969

    My Lords, under this head Mr. Clarke relied principally on
    the well known passage in the speech of Lord Wilberforce in Anns
    v. Merton London Borough Council [1978] AC 728, 751-752. That
    passage reads:

    "Through the trilogy of cases in this House - Donoghue v.
    Stevenson
    [1932] AC 562, Medley Byrne & Co. Ltd, v.
    Heller & Partners Ltd.
    [1964] AC 465, and Dorset Yacht
    Co. Ltd, v. Home Office [1970] AC 1004, the position has
    now been reached that in order to establish that a duty of
    care arises in any particular situation, it is not necessary to
    bring the facts of that situation within those of previous
    situations in which a duty of care has been held to exist.
    Rather the question has to be approached in two stages.
    First one has to ask whether, as between the alleged
    wrongdoer and the person who has suffered damage there is
    a sufficient relationship of proximity or neighbourhood such
    that, in the reasonable contemplation of the former,
    carelessness on his part may be likely to cause damage to
    the latter - in which case a prima facie duty of care arises.
    Secondly, if the first question is answered affirmatively, it
    is necessary to consider whether there are any
    considerations which ought to negative, or to reduce or limit
    the scope of the duty or the class of person to whom it is
    owed or the damages to which a breach of it may give rise.

    Mr. Clarke submitted that the proper way for your Lordships
    to approach the present case was to ask and answer the two
    questions set out by Lord Wilberforce in that passage. He said
    that the answer to the first question must be that there was, as

    - 7 -

    between the shipowners and the buyers, a sufficient relationship of
    proximity or neighbourhood such that, in the reasonable
    contemplation of the former, want of care on their part might be
    likely to cause damage in the form of pecuniary loss to the latter,
    so that a prima facie duty of care arises. With regard to the
    second question, relating to considerations which ought to limit the
    scope of the duty, he conceded that it would be unjust to the
    shipowners to be liable to the buyers in tort for negligence
    without reference to the terms of the bills of lading under which
    the shipowner carried the goods; and he sought to find a. legal
    rationale for the qualification of the duty of care by reference to
    those terms on the basis that those were the terms of the
    bailment of the goods by the sellers to the shipowners to which
    the buyers had, by entering into a c. and f. contract with the
    sellers, impliedly consented.

    Before examining these submissions it will be convenient to
    refer to two decisions at first instance relating to the question of
    law raised by this appeal, both made alter the decision of your
    Lordships' House in Anns' case [1978] AC 728 and on the basis of
    the passage of Lord Wilberforce's speech in that case which I have
    set out above. The reasoning in those two cases, as will become
    apparent, tended to go further than Mr. Clarke has sought to
    persuade your Lordships to go in the present case.

    The first decision is that of Lloyd 3. in Schiffahrt-und
    Kohlen G.m.b.H. v. Chelsea Maritime Ltd. (The Irene's Success)
    [1982] Q.B. 481. In that case the plaintiffs were c.i.f. buyers of a
    complete cargo of coaking coal carried in the defendants' ship,
    The Irene's Success, from Norfolk, Virginia, to Hamburg. During
    the voyage the cargo was damaged by sea water and the plaintiffs
    alleged that the damage had been caused by want of care by the
    shipowners. The plaintiffs could not sue the shipowners in
    contract because they never became holders of the bill of lading,
    and they therefore sued them in tort for negligence on the basis
    that, although they were not the legal owners of the cargo when
    the damage was done, it was nevertheless at their risk at that
    time. A preliminary question of law was tried as to whether the
    plaintiffs were entitled to sue the shipowners in tort for
    negligence. Both counsel appear to have agreed that the question
    so raised fell to be determined by reference to Lord Wilberforce's
    two questions in Anns' case [1978] AC 728, and Lloyd J. had no
    hesitation in acting on that agreement. He answered Lord
    Wilberforce's first question in the affirmative, on the basis that
    the incidence of risk under a c.i.f. contract was or ought to be
    well known to shipowners. With regard to the second question he
    said, at p. 486:

    "Another possible ground of policy for excluding the duty of
    care in the case of a c.i.f. buyer might be if it enabled him
    to sidestep the carrier's contractual exceptions, including,
    for instance, the rights and immunities conferred on him by
    the Hague Rules. It is difficult to know how far that
    argument would carry the defendants, since the point was
    not canvassed at the hearing. But if I may express my own
    tentative view, it would be that it would require a much
    stronger argument of policy for the duty of care in the
    present case, arising out of so close a relationship as that
    which exists between a carrier and a c.i.f. buyer, to be
    excluded."

    - 8 -

    As I have already indicated, Mr. Clarke, while resisting any
    suggestion that the question of policy- referred to by Lloyd 3.
    should exclude a duty of care altogether, accepted that it would
    be just for such duty to be qualified by the terms of the relevant
    bill of lading.

    The second decision is that of Sheen 3. in The "Nea Tyhi"
    [1982] 1 Lloyd's Rep. 606. In that case the plaintiffs were the
    endorsees of bills of lading relating to a part cargo of plywood
    carried in the defendants' ship, the Nea Tyhi, from Port Kelang to
    Newport. The plywood having been stowed on deck and damaged
    during the voyage, the plaintiffs sued the defendants for the
    damage both in contract on the bills of lading and in tort for
    negligence. Sheen 3. found for the plaintiffs' claim in contract
    and did not therefore need to reach a decision on their alternative
    claim in tort. He indicated, however, that, if it had been
    necessary for him to do so, he would, in relation to the question
    of title to sue, have followed The Irene's Success [1982] Q.B. 481
    rather than The Wear Breeze [1969] 1 Q.B. 219 for the reasons
    given by Lloyd 3. in the former case. He went on to say that
    Lloyd J.'s decision had the advantage, in a case where the legal
    ownership of the goods passed while they were still afloat, and
    damage was done to them progressively during the voyage, of
    obviating the need for a difficult inquiry into how much of the
    damage occurred before, and how much after, the time when the
    ownership passed.

    Having referred to these two cases I now return to consider
    Mr. Clarke's submissions based on what Lord Wilberforce said in
    Anns' case [1978] AC 728. There are two preliminary
    observations which I think that it is necessary to make with regard
    to the passage in Lord Wilberforce's speech on which counsel
    relies. The first observation which I would make is that that
    passage does not provide, and cannot in my view have been
    intended by Lord Wilberforce to provide, a universally applicable
    test of the existence and scope of a duty of care in the law of
    negligence. In this connection I would draw attention to a passage
    in the speech of my noble and learned friend, Lord Keith of
    Kinkel, in Governors of the Peabody Donation Fund v. Sir Lindsay
    Parkinson & Co. Ltd.
    [1985] AC 210. After citing a passage
    from Lord Reid's speech in The Dorset Yacht Co. case [1970] A.C.
    1004, 1027 and then the passage from Lord Wilberforce’s speech in
    Anns' case [1978] AC 728, 751-752 now under discussion, he said,
    at p.240:

    "There has been a tendency in some recent cases to treat
    these passages as being of themselves of a definitive
    character. This is a temptation which should be resisted."

    The second observation which I would make is that Lord
    Wilberforce was dealing, as is clear from what he said, with the
    approach to the questions of the existence and scope of a duty of
    care in a novel type of factual situation which was not analagous
    to any factual situation in which the existence of such a duty had
    already been held to exist. He was not, as I understand the
    passage, suggesting that the same approach should be adopted to
    the existence of a duty of care in a factual situation in which the
    existence of such a duty had repeatedly been held not to exist.

    - 9 -

    It is at this point that I think it is helpful to examine The
    Mineral Transporter
    [1986] A.C.I, which I mentioned earlier. The
    facts of that case were familiar enough. A collision took place
    between ships A and B solely by reason of want of care in the
    navigation of ship B. As a result of the collision ship A was
    damaged and had to be repaired, and during the period of repair
    the first plaintiff, who was the time charterer of ship A, suffered
    loss in the form of wasted payments of hire and loss of profits.
    The Supreme Court of New South Wales held that the first
    plaintiff was entitled to recover his loss from the owners of ship
    B. On appeal to the Privy Council that decision was reversed and
    it was held that the first plaintiff had no right of suit in respect
    of his loss. It was urged on the Board that the rule against
    admitting claims for loss arising solely from a contractual
    relationship between a plaintiff and the victim of a negligent third
    party could no longer be supported, and that it was enough that
    the loss was a direct result of a wrongful act and that it was
    foreseeable. The judgment of the Board was given by Lord Fraser
    of Tullybelton who rejected this contention. He made a full
    examination of the long line of English authority to which I
    referred earlier, and also of certain Scottish, Australian, Canadian
    and American decisions. He expressed the conclusion of the Board
    at p. 25 as follows:

    "Their Lordships consider that some limit or control
    mechanism has to be imposed upon the liability of a
    wrongdoer towards those who have suffered economic
    damage in consequence of his negligence , . . The common
    law limitation which has been generally accepted is that
    stated by Scrutton L.3. in Elliott Steam Tug Co. Ltd, v.
    Shipping Controller
    [1922] 1 K.B. 127, 139-140 ... Not only
    has the rule been generally accepted in many countries
    including the United Kingdom, Canada, the United States of
    America and until now Australia, but it has the merit of
    drawing a definite and ascertainable line. It should enable
    legal practitioners to advise their clients as to their rights
    with reasonable certainty, and their Lordships are not aware
    of any widespread dissatisfaction with the rule. These
    considerations operate to limit the scope of the duty owed
    by a wrongdoer, and they do so at the second stage
    mentioned by Lord Wilberforce in the passage cited above
    from his speech in Anns v. Merton Borough Council [1978]
    A.C. 728, 751-752."

    Although, as I indicated earlier, I do not think that Lord
    Wilberforce, in formulating the two questions which he did
    formulate in his speech in Anns' case, was intending them to be
    used as a means of re-opening issues relating to the existence of a
    duty of care long settled by past decisions, it will be observed
    that in The Mineral Transporter [1986] AC 1 the Privy Council
    was content to test the first plaintiffs' liability by reference to
    those two questions, and to exclude a duty of care on the basis of
    the answer given to the second question.

    Mr. Clarke said, rightly in my view, that the policy reason
    for excluding a duty of care in cases like The Mineral Transporter
    and what I earlier called the other non-recovery cases was to
    avoid the opening of the floodgates so as to expose a person guilty
    of want of care to unlimited liability to an indefinite number of

    - 10 -

    other persons whose contractual rights have been adversely
    affected by such want of care. Mr. Clarke went on to argue that
    recognition by the law of a duty of care owed by shipowners to a
    c.i.f. or c. and f. buyer, to whom the risk but not yet the
    property in the goods carried in such shipowners' ship has passed,
    would not of itself open any floodgates of the kind described. It
    would, he said, only create a strictly limited exception to the
    general rule, based on the circumstance that the considerations of
    policy on which that general rule was founded did not apply to
    that particular case. I do not accept that argument. If an
    exception to the general rule were to be made in the field of
    carriage by sea, it would no doubt have to be extended to the
    field of carriage by land, and I do not think that it is possible to
    say that no undue increase in the scope of a person's liability for
    want of care would follow. In any event, where a general rule,
    which is simple to understand and easy to apply, has been
    established by a long line of authority over many years, I do not
    think that the law should allow special pleading in a particular
    case within the general rule to detract from its application. If
    such detraction were to be permitted in one particular case, it
    would lead to attempts to have it permitted in a variety of other
    particular cases, and the result would be that the certainty, which
    the application of the general rule presently provides, would be
    seriously undermined. Yet certainty of the law is of the utmost
    importance, especially but by no means only, in commercial
    matters. I therefore think that the general rule, re-affirmed as it
    has been so recently by the Privy Council in The Mineral
    Transporter
    [1986] AC 1, ought to apply to a case like the
    present one, and that there is nothing in what Lord Wilberforce
    said in Anns' case [1973] A.C. 728 which would compel a different
    conclusion.

    Mr. Clarke sought to rely also on Junior Books Ltd, v.
    Veitchi Co. Ltd.
    [1983] 1 AC 520. That was a case in which it
    was held by a majority of your Lordships' House that, when a
    nominated sub-contractor was employed by a head contractor under
    the standard form of R.I.B.A. building contract, the sub-contractor
    was not only under a contractual obligation to the head contractor,
    under the sub-contract between them, not to lay a defective
    factory floor, but also owed a duty of care in tort to the building
    owner not to do so and thereby cause him economic loss. The
    decision is of no direct help to the buyers in the present case, for
    the plaintiffs who were held to have a good cause of action in
    negligence in respect of a defective floor were the legal owners of
    it. But Mr. Clarke relied on certain observations in the speech of
    Lord Roskill as supporting the proposition that a duty of care in
    tort might, as he submitted it should be in the present case, be
    qualified by reference to the terms of a contract to which the
    defendant was not a party. In this connection Lord Roskill said,
    at p. 546:

    "During the argument it was asked what the position would
    be in a case when there was a relevant exclusion clause in
    the main contract. My Lords, that question does not arise
    for decision in the instant appeal, but in principle I would
    venture the view that such a claim according to the manner
    in which it was worded might in some circumstances limit
    the duty of care just as in the Hedley Byrne case the
    plaintiffs were ultimately defeated by the defendants'
    disclaimer of responsibility."

    - 11 -

    As is apparent this observation was no more than an obiter
    dictum Moreover, with great respect to Lord Roskill there is no
    analogy between the disclaimer in the Hedley Byrne case [1964]
    A.C. 465 which operated directly between the plaintiffs and the
    defendants, and an exclusion of liability clause in a contract to
    which the plaintiff is a party but the defendant is not. I do not
    therefore find in the observation of Lord Roskill relied on any
    convincing legal basis for qualifying a duty of care owed by A to
    B by reference to a contract to which A is, but B is not, a party.

    As I said earlier, Mr. Clarke submitted that your Lordships
    should hold that a duty of care did exist in the present case, but
    that it was subject to the terms of the bill of lading. With
    regard to this suggestion Sir John Donaldson M.R. said in the
    present case [1935] 2 W.L.R. 289 at p. 301:

    "I "have, of course, considered whether any duty of care in
    tort to the buyer could in some way be equated to the
    contractual duty of care owed to the shipper, but . do not
    see how this could be done. The commonest form of
    carriage by sea is one on the terms of the Hague Rules.
    But this is an intricate blend of responsibilities and
    liabilities (Article III), right and immunities (Article IV),
    limitations in the amount of damages recoverable (Article
    IV, r.5), time bars (Article III, r.6), evidential provisions
    (Article III, rr.4 and 6), indemnities (Article III, r.5 and
    Article IV, r.6) and liberties (Article IV, rr,4 and 6). I am
    quite unable to see how these can be synthesised into a
    standard of care."

    I find myself suffering from the same inability to understand how
    the necessary synthesis could be made as the learned Master of
    the Rolls.

    As I also said earlier, Mr. Clarke sought to rely on the
    concept of a bailment on terms as a legal basis for qualifying the
    duty of care for which he contended by reference to the terms of
    the bill of lading. He argued that the buyers, by entering into a
    c. and f. contract with the sellers, had impliedly consented to the
    sellers bailing the goods to the shipowners on the terms of a usual
    bill of lading which would include a paramount clause incorporating
    the Hague Rules. I do not consider that this theory is sound.
    The only bailment of the goods was one by the sellers to the
    shipowners. That bailment was certainly on the terms of a usual
    bill of lading incorporating the Hague Rules. But, so long as the
    sellers remained the bailors, those terms only had effect as
    between the sellers and the shipowners. If the shipowners as
    bailors had ever attorned to the buyers, so that they became the
    bailors in place of the sellers, the terms of the bailment would
    then have taken effect as between the shipowners and the buyers.
    Because of what happened, however, the bill of lading never was
    negotiated by the sellers to the buyers and no attornment by the
    shipowners ever took place. I would add that, if the argument for
    the buyers on terms of bailment were correct, there would never
    have been any need for the Bills of Lading Act 1855 or for the
    decision of the Court of Appeal in Brandt v. Liverpool, Brazil and
    River Plate Steam Navigation Co. Ltd.
    [1924] 1 K.B. 575 to which
    I referred earlier.

    - 12 -

    Ground (4); the requirements of a rational system of law

    My Lords, under this head Mr. Clarke submitted that any
    rational system of law ought to provide a remedy for persons who
    suffered the kind of loss which the buyers suffered in the present
    case, with the clear implication that, if your Lordships' House
    were to hold that the remedy for which he contended was not
    available, it would be lending its authority to an irrational feature
    of English law. I do not agree with this submission for, as I shall
    endeavour to show, English law does, in all normal cases, provide a
    fair and adequate remedy for loss of or damage to goods the
    subject-matter of a c.i.f. or c. and f. contract, and the buyers in
    this case could easily, if properly advised at the time when they
    agreed to the variation of the original c. and f. contract, have
    secured to themselves the benefit of such a remedy.

    As I indicated earlier, under the usual c.i.f. or c. and f.
    contract the bill of lading issued in respect of the goods is
    endorsed and delivered by the seller to the buyer against payment
    by the buyer of the price. When that happens, the property in the
    goods passes from the sellers to the buyers upon or by reason of
    such endorsement, and the buyer is entitled, by virtue of section 1
    of the Bills of Lading Act 1855, to sue the shipowners for loss of
    or damage to the goods on the contract contained in the bill of
    lading. The remedy so available to the buyer is adequate and fair
    to both parties, and there is no need for any parallel or .
    alternative remedy in tort for negligence. In the present case, as
    I also indicated earlier, the variation of the original c. and f.
    contract agreed between the sellers and the buyers produced a
    hybrid contract of an extremely unusual character. It was
    extremely unusual in that what had originally been an ordinary c.
    and f. contract became, in effect, a sale ex-warehouse at
    Immingham, but the risk in the goods during their carriage by sea
    remained with the buyers as if the sale had still been or. a c. and
    f. basis. In this situation the persons who had a right to sue the
    shipowners for loss of or damage to the goods on the contract
    contained in the bill of lading were the sellers, and the buyers, if
    properly advised, should have made it a further term of the
    variation that the sellers should either exercise this right for their
    account (see The Albazero [1977] A.C. 774) or assign such right to
    them to exercise for themselves. If either of these two
    precautions had been taken, the law would have provided the
    buyers with a fair and adequate remedy for their loss.

    These considerations show, in my opinion, not that there is
    some lacuna in English law relating to these matters, but only that
    the buyers, when they agreed to the variation of the original
    contract of sale, did not take the steps to protect themselves
    which, if properly advised, they should have done. To put the
    matter quite simply the buyers, by the variation to which they
    agreed, were depriving themselves of the right of suit under
    section 1 of the Bills of Lading Act 1855 which they would
    otherwise have had, and commercial good sense required that they
    should obtain the benefit of an equivalent right in one or other of
    the two different ways which I have suggested.

    Ground (5): the judgment of Goff L.J.

    - 13 -

    My Lords, after a full examination of numerous authorities
    relating to the law of negligence Goff L.J. (now Lord Goff of
    Chieveley) said [1985] 2 W.L.R. 289, 330:

    "In my judgment, there is no good reason in principle or in
    policy, why the c. and f. buyer should not have ... a
    direct cause of action. The factors which I have already
    listed point strongly towards liability. I am particularly
    influenced by the fact that the loss in question is of a
    character which will ordinarily fall on the goods owner who
    will have a good claim against the shipowner, but in a case
    such as the present the loss may, in practical terms, fall on
    the buyer. If seems to me that the policy reasons pointing
    towards a direct right of action by the buyer against the
    shipowner in a case of this kind outweigh the policy reasons
    which generally preclude recovery for purely economic loss.
    There is here no question of any wide or indeterminate
    liability being imposed on wrongdoers; on the contrary, the
    shipowner is simply held liable to the buyer in damages for
    loss for which he would ordinarily be liable to the goods
    owner. There is a recognised principle underlying the
    imposition of liability, which can be called the principle of
    transferred loss. Furthermore, that principle can be
    formulated. For the purposes of the present case, I would
    formulate it in the following deliberately narrow terms,
    while recognising that it may require modification in the
    light of experience. Where A owes a duty of care in tort
    not to cause physical damage to B's property, and commits
    a breach of that duty in circumstances in which the loss of
    or physical damage to the property will ordinarily fall on B
    but (as is reasonably foreseable by A) such loss or damage,
    by reason of a contractual relationship between B and C,
    falls upon C, then C will be entitled, subject to the terms
    of any contract restricting A's liability to B, to bring an
    action in tort against A in respect of such loss or damage
    to the extent that it falls on him, C. To that proposition
    there must be exceptions. In particular, there must, for the
    reasons I have given, be an exception in the case of
    contracts of insurance. I have also attempted so to draw
    the principle as to exclude the case of the time charterer
    who remains liable for hire for the chartered ship while
    under repair following collision damage, though this could if
    necessary be treated as another exception having regard to
    the present state of the authorities."

    With the greatest possible respect to Lord Goff the principle
    of transferred loss which he there enunciated, however useful in
    dealing with special factual situations it may be in theory, is not
    only not supported by authority, but is on the contrary inconsistent
    with it. Even if it were necessary to introduce such a principle in
    order to fill a genuine lacuna in the law, I should myself, perhaps
    because am more faint-hearted than Lord Goff, be reluctant to
    do so. As I have tried to show earlier, however, there is in truth
    no such lacuna in the law which requires to be filled. Neither Sir
    John Donaldson M.R. nor Oliver L.J. (now Lord Oliver of
    Aylmerton) was prepared to accept the introduction of such a
    principle and I find myself entirely in agreement with their
    unwillingness to do so.

    - 14 -

    My Lords, I have now examined and rejected all the five
    grounds on which Mr. Clarke relied in support of his contention
    that The Wear Breeze [1969] 1 Q.B. 219 was either wrongly decided
    at the time, or at any rate should be regarded as wrongly decided
    today, and should accordingly be overruled. The conclusion which I
    have reached is that The Wear Breeze was good law at the time
    when it was decided and remains good law today. It follows that
    I consider that the decision of Lloyd J. in The Irene's Success
    [1982] Q.B. 481, which even Mr. Clarke did not seek to support in
    its entirety, was wrong and should be overruled, and the
    observations of Sheen J. with regard to it in the The Nea Tyhi
    [1982] 1 Lloyd's Rep. 606 should be disapproved.

    My Lords, if I had reached a different conclusion on the
    main question of the existence of a duty of care, and held that
    such a duty of care, qualified by the terms of the bill of lading,
    did exist, it would have been necessary to consider the further
    question whether, on the rather special facts of this case, the
    shipowners committed any breach of such duty. As it is, however,
    an answer to that further question is not required.

    For the reasons which I have given, I would affirm the
    decision of the Court of Appeal and dismiss the appeal with costs.

    LORD BRIGHTMAN

    My Lords,

    For the reasons contained in the speech of my noble and
    learned friend, Lord Brandon of Oakbrook, I also would dismiss this
    appeal.

    LORD GRIFFITHS
    My Lords,

    For the reasons contained in the speech of my noble and
    learned friend, Lord Brandon of Oakbrook, I also would dismiss this
    appeal.

    LORD ACKNER

    My Lords,

    I have had the advantage of reading in draft the speech of
    my noble and learned friend, Lord Brandon of Oakbrook, and for
    the reasons which he gives I too would dismiss this appeal.

    - 15 -


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