India» Bank Ltd. >■. Sri Lanka Shipping <'o. Ltd.
1976 Present: Sirimane, J., Vythialmg^am, J., andSharvananda, J.THE INDIAN BANK LIMITED, Appellant, and SRI LANKASHIPPING COIkIPANY LTD., and ANOTHER Respondents.
S C. 287 / 70(F)—D. C. Colombo, 52875 / M
Carriage of Goods by Sec^—Contract—Bills of Lading—Effect of exemp-tion clause—Fundamental breach—Carrier’s liability.
The plaintiff as holder of the Bills of Lading sued the first defen-dant as the Lading Agent and the second defendant as carrier.Certain consignments of onions and chillies were shipped by theMercantile Corporation of Tuticorin in the ship Mahalakshmi interms of the Bills of Lading which contained an exemption clause.The ship arrived in the Port of Colombo with the said consignmentswhich were unloaded into the Customs Warehouse from where theywere delivered to the consignees.
The consignees had not become entitled to the goods as the origi-nal Bills of Lading were at all time material to the action with theplaintiff-Bank. The consignees however, obtained delivery of thesaid goods after obtaining delivery orders from Freudenbergs whowere agents and secretaries of the first defendant. It was contendedon behalf of the plaintiff that the first defendant as agent of thesecond defendant, acting by and through its servants, agents oremployees who were acting within the scope of and in the courseof their employment under the first defendant wrongfully gavedelivery of the said goods to persons other than the holder of theBills cf Lading and/or enabled persons other than the holder toobtain delivery or possession of the said goods and thus caused theplaintiff the holder of the Bills of Lading loss and damage.
Held: (1) That the first defendant was liable for the loss causedto the plaintiff.
(Vythialingam, J. dissenting) That though the first defenda.nt'3
servants issued the delivery orders without production of theBills of Lading to persons who. to their knowledge, wereother than those entitled under the Bills of Lading to receivethem, the 2nd defendant is not liable for the non-delivery ofthe goods as he was protected by the exemption clause inthe Bills of Lading. The plaintiff has failed show anyfundamental breach of his contract of affreigtment committedby the 2nd defendant to disentitle him of the benefit of theexemption clause.
That a party to a contract may be precluded from relying upon
an exemption clause where such parties have been guilty ofa fundamental breach of contract or of a breach of a funda-mental term. A fundamental breach disentitling the partyfrom relying on an exemption clause occurs if an act amount-ing to a complete departure from the contract is done whichcan be imputed to the contracting party himself as opposedto an act for which the contracting party is vicariously res-ponsible as having been committed by one of his servants.
Cases referred to :
Chartered Bank v. British India Steam Navigation Co. (1909)A C. 369.
Sze Hai Tong Bank Ltd. v .Rambler Cycle Co. (1599) 3 AllE. R. 182 ; (1959) A.C. 576.
John Carter Ltd. v. Hanson Haulage Ltd. (1965) 1 All E. R. 113.Sri Lanka Shipping Co. Ltd. v. The Indian Bank Ltd., 71N. L. R. 365.
Alagasundaram Chettiar et al v. The Indian Bank Ltd., 72N. L. R. 1.
1*- A 0824,97
Indian Banlc Ltd. r. Sri Lanka Shipping Co- Ltd.
Nagalingam v. Ledchumipillai 55 N. L. R. 280.
Colonial Sugar Refining Co. v. Irving (1905) A.C. 369.
Garikapathi v. Subbiah Chowdry. (1957) A.IR. (S.C.) 540.
Verana v. Chinna VenkOnna, (1953) A.I.R. Madras 878.
Healey v. Minister of Health. (1954) 3 W.L.R. 815.
Carson & Co. v. British India Navigation Co., 4 S.C.C. 67.
Lloyd v. Grace, Smith & Co., (1912) A.C. 716.
Barvick v. English. Joint Stock Bank, (3867) L.R. 2 Ex. 259.
British Mutual Banking Co. v. Chamwood F°rest Rly. Co.,(1887) 18 Q.B.D. 714.
Ruben v. Great Frigal Consolidated, (1906) A.C. 439.
J. Spurting Ltd., v. Bradshaw, (1956) 1 W.LJi. 461.
Hain S.S. & Co. Ltd. v. Tate & Lyle, (1936) 2 All E.R. 59.Karsales (Harrow) Ltd. v. Wallis (1956) 2 All E.R. 866.
Suisse Atlantique Socicte d’ Armament Maritime S. A. v.N. V. Rotterdamsche Kolen Centraie (1966) 2 All E.R. 61.(1967) 1 A.C. 361.
U. G. S. Finance Ltd. v. National Mortgage Bank of GreeceS. A. (1964) 1 Lloyds Rep. 446.
Harbutt’s Plasticine Ltd. v. Wayne Tank & Pump Co. Ltd.,(1970) 1 Q.B. 447 ; (1970) 2 W.L.R. 198.
Farnworth Finance Facilities v. Altryde ; (1970) 1 W.L.R. 1053.
Council of the City of Sydney v. West, (1965-66) 39 A.J.L.R.,323.
Maurice Roche Ltd. v. Port Cargo Corporation, Colombo71 NSj.R. 195.
Hunt & Winterbottom Ltd. v. B. R. S. (Parcels) Ltd., (1962) 1All E.R. 111.
The Cap Palos, (1921) All E.R. 249; 37 T.L.R. 921.
Hollins v. J. Davy Ltd., (1963) 1 All E.R. 570.
Hall v. Brookla-nds Auto-Racing Club, (1933) 1 K.B. 205.Adler v. Dickson, (1954) 3 All E. R. 397.
Scruttons Ltd., v. Midland Silicones Ltd., (1962) A.C. 446.
Appeal, from a judgment of the District Court, Colombo.
H. W. Jayewardene, Q.C., with K N. Choksy, Miss K.Wickramasinghe and Mrs. S. Fernando for the plaintiff-appellant.
N. D. M. Samarakoon, Q.C., with Paul Perera for the 1stdefendant-respondent.
C. Thiagalingam, Q.C., with C. E. Jayewardene and Mrs. S.Kalyanasunderam for the 2nd defenadnt-respondent.
Cur. adv. vault.
SIRIMAKE, J.—Indian Bank Ltd. v. Sri Lanka Shipping Go. Ltd.
February 2, 1976, Sirimane, J.—
At the conclusion of the argument in this case my brothersand I were of the view that the 2nd defendant was not liableOn further consideration, however, Vythiyalingam, J. was of theview that the 2nd defendant was also liable. I have had theadvantage of reading the judgments prepared by my brothersVythialingam, J- and Sharvananda, J, which set out all the factsand the matters for decision and their conclusions thereon. Ihave carefully considered the judgement of Vythialingam, J, butI have not been able to persuade myself to change my originalview and I therefore adhere to the view that the 2nd defendantis not liable and agree with the judgment qf Sharvananda, J.
The facts and the relevant cases have been set down andreferred to in the judgments of my brothers and I need notrepeat them here. I wish, however, to set down briefly my ownobservations as regards the liability of the 2nd defendant.Mr. Thiagalingam’s submission on behalf of the 2nd defendantcarrier was that the carrier’s liability ceased as soon as the goodswere lifted off the ship’s side, in view of Clause 10 of the Billsof Lading which reads—
‘‘ In all cases the carrier's liability has to case as soon asthe goods are lifted from and leave the ship’s deck.”
He submitted that if it is sought to make the carrier liable forsome act after the goods had left the ship’s deck, then it mustbe shown that the carrier himself did some act or knowinglyor deliberately suffered or acquiesced in the doing of some actwhich defeated the fundamental obligation of the contract. Hereadily conceded that if there had been such a “ fundamentalbreach ” by the carrier, the exclusive clause above referred towould be of no avail for a carrier cannot be permitted underthe cloak of an exclusion clause to defeat the very purpose ofthe contract- Indeed if there was such a breach by the carrierthere is a repudiation of the whole contract including theexclusion clause. So that the real question is where there is allexemption, or exclusion clause whether a carrier is liable in allcases of misdelivery by his agent on the ground that the carrierhas thereby committed a breach of a fundamental obligation inthe contract or whether it is necessary in such cases to show thatthe carrier knowingly acquiescer or did some deliberate actfrom which it can be inferred that the carrier himself “ had ahand ”, as it were, in such misdelivery and his agent’s act cantherefore be properly imputed to him.
I think the two cases sited by Mr. Thiagalingam namelyChartered Bank vs. British India Steam Navigation Co., (1909)A. C. 369 and Sze Hai Tong Bank Ltd. vs- Rambler Cycle Co.,
SIEIilANE, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co. Ltd.
(1959) 3 A.E.R. 182 bring out this distinction. In the former thecarrier was protected by the exclusion Clause whilst in thelatter he was not. In the former it was held
“ That although there had been no delivery under the billsof lading, yet the provision as to cesser of the defendant’sliability directly the goods were ‘ free of the ship’s tackle ’was perfectly clear, and that it must be held to be operativeand effectual to protect them- ”
In that case the landing agent appointed by the carrier fraudu-lently delivered the goods to a third party. In the latter case itwas held—
‘ That a ship owner who delivers without producton ofthe bill of lading does so at his peril. In delivering thegoods, without production of the bill of lading, to a personwho, to its knowledge, was other than one entitled underthe bill of lading to receive them, the carrier was liable forbreach of contract and for converson, and was not protectedby the exception clause 2 (c). ”
The facts in the latter case reveal that the shipping company’sagent delivered the goods without the production of the Billsof Lading but after having obtained a Bank indemnity. Thiswas the common practice and the shipping company was pre-sumably aware of this and had acquiesced in it. In other words,the shipping company tacitly sanctioned the delivery of goodsotherwise than on the production of the Bills of Lading providedthere was a Bank indemnity. This is shown in the circumstancesof that case as the shipping company, when sued, joined theindemnifying Bank and the person to whom the goods weredelivered thus adopting the agent’s acts as its own and notdisowning them. In these circumstances, the ship owner washeld to be liable for his agent’s misdelivery. The agent’s acts(in those circumstances) were the acts of the shipping companyitself. They were so placed that their state of mind could beproperly regarded as the state of mind of the shipping companyitself. As was observed by Lord Justice Davies in the case ofJohn Carter vs. Hanson Haulage. (1965) 1 A. E. R. 113 at 123referring to the judgment of Lord Denning in the Rambler Cyclecase—
“ It would appear that a fundamental breach disentitlingthe party from relying on an exemption clause occurs ifan act amounting to a complete departure from the contractis done, which can be imputed to the contracting partyhimself as opposed to an act by which the contracting partyis vicariously responsible as having been committed by one
VYTKIAJLINGAM, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd.
of his servants. In other words, there must be somethingamounting to a deliberate breach of the contract whichcan be imputed to the contracting party personally. ”Every act of misdelivery by an agent without the productionof the original Bills of Lading does not necessarily mean thatthere has been a breach of a fundamental obligation of thecontract by the principal. There must be in addition to such anact of the agent some circumstance from which it can bereasonably inferred that such act can properly be imputed tothe principal who alone could commit a “ fundamental breach
There is no material or circumstances in the instant case toattribute to the 2nd defendant the act of the 1st defendant indelivering the goods without the Bills of Lading except purelyon vicarious grounds, and in those circumstances the 2nddefendant is entitled to plead the benefit of the exclusionclause and avoid liability as in the Chartered Bank case.Except on the question of the liability of the 2nd defendanton the grounds referred to above (where I agree with thejudgment of Sharvananda, J.) I am in complete agreementwith the judgment of Vythialingarn, J. in respect of the liabilityof the 1st defendant.
For these reasons we are of the unanimous view that judgmentshould be entered for the plaintiff as prayed for with costs bothhere and below against the 1st defendant and the majority ofus are of the view that the plaintiff’s action should be dismissedas against the 2nd defendant with costs both here and below.Vythialingam, J.—
The plaintiff-appellant sued the first defendant as the agentand the 2nd defendant as the owner of the ship S- S. Maha-lakshmi for the non-delivery of certain consignment of chilliesand onions shipped on the vessel from Tuticorin for deliveryin the port of Colombo and in respect of which the plaintiff-appellant was the holder of the original Bills of Lading. Aftertrial 'he Learned District Judge entered judgment in favour ofthe plaintiff in respect of the onions but not the chillies, as thedelivery orders alleged to have been issued by the first defen-dant in respect of the chillies were not produced in the caseand in his view, the plaintiff had not proved, on a balance ofprobabilities, that the first defendant gave any authority orissued any document to enable the release of the twoconsignments of chillies.
The plaintiff-appellant has appealed against that part of thejudgment denying it damages in respect of the consignment ofchillies. The 2nd defendant whom I shall hereinafter refer toas the carrier has also filed objections against the decree againsthim. under section 772 of the Civil Procedure Code. The main
6 VYTHIAL1NQAM, J.—Indian Bank hid. v. Sri Lanka Shipping Co., Lid.
facts in the case are not in dispute. The onions and chillies wereshipped by the Mercantile Corporation in Tuticorin on the vesselMahalakshmi of which the 2nd defendant was admittedly theowner. The chillies were consigned to Meenakshi Stores andthe onions to Starline Trades. The goods duly arrived inColombo and under the regulations prevailing in Colombo thePort Cargo Corporation unloaded the goods into the Customswarehouse, from where they were delivered to the consignees.
The consignees in this case were not entitled to the goods asthe original Bills of Lading which are documents of title tothe goods were at all times material to the action with theplaintiff-appellants and they were therefore entitled to thedelivery of the goods- What the consignees should have donewas to have gone to the plaintiff Bank, paid the money dueon the Bills of Lading, and thereafter obtained delivery ordersfrom the first defendant on surrendering to them the Billsof Lading. They did not pay the Bank the money due on theBills of Lading. Nor did they obtain the original Bills of Ladingfrom the Bank.
Instead, however, according to Vivekanandan who was anemployee of both Meenakshi Stores and Starline Trades andone of whose functions was to clear goods from the Customswarehouses on behalf of his employers, he had gone toFreudenburgs and obtained particulars from copies of Bills ofLading and obtained delivery orders from them and on thastrength of these delivery orders obtained delivery of the goodsfrom the Customs authorities. Admittedly Freudenburgs werethe agents and secretaries of the first defendant. The uncontra-dicted evidence in the case is that the Customs authoritieswould not deliver the goods without delivery orders from theships’ agents or an endorsement by them either on the CustomsBill of Entry or on the original Bills of Lading.
It was not also seriously disputed that the first defendant inColombo was the agent for the ships belonging to the seconddefendant including the s.s. Mahalakshmi the vessel concernedin the case. T. I. Syms, a Director of the first defendant Companysaid that when original Bills of Lading were produced theytook charge of them and issued delivery orders for the deliveryof the goods, which would then take the place of the Bills ofLading as a symbol of the right of property in the goods specifiedtherein. He said that sometimes they issued delivery orders onBank guarantees even without the production of the originalBills of Lading. In the instant case there was no question ofdelivery orders having been issued as against Bank guarantees
J.—Indian Xiatuc Asia. v. &n j^anka snipping l o., i^ia.
and it is not necessary to consider this matter any further. Norwas there any question of endorsements by the first defendantcompany or its agents on the Customs Bill of Entry or on theoriginal Bills of Lading. They were all produced in the case,except in the case of Customs Bill of Entry P15 where a certifiedcopy only was produced, and they bear no such endorsement.
The plaintiff’s position is that the first defendant as agents ofthe 2nd defendant, acting by and through its servants, agentsor employees who were acting within the scope and in thecourse of their employment under the first defendant, wrong-fully and unlawfully gave delivery of the said goods to personsother than the plaintiff and/or enabled persons other than theplaintiff to obtain delivery or possession of the said goods andthus caused the plaintiff loss and damage. This it said was doneby the issue of delivery orders to the consignees without theproduction of the original Bills of Lading. The first defendant’sposition was that no delivery orders were issued to any personby them in respect of the said goods and that they were alwaysready and willing to issue delivery orders on the productionof the original Bills of Lading.
In respect of the two consignments of chillies the two deliveryorders P17 and P31 were produced- Both have been signed byone Abeyanaike on a rubber stamp which bears the legend “ Forand on behalf of Sri Lanka Shipping Co. Ltd. Freudenburgs& C'.. (Ceylon Ltd.) Agents and Secretaries.’’ Syms admittedthat the shape, design and the dimensions and wording of therubber stamp were similar to the stamp used by Freudenburgs.He also admitted that at that time Abeynaike was an employeeof both the first defendant as well as Freudenburgs, and thatthe signature appeared to be like that of Abeynaike but hecould not identify it as his. Abeynaike was a person who wasworking directly under the control and supervision of Syms andtwo other Directors, and had his desk a bare ten feet away fromthat of Syms. It is incredible that he should not have been ableto identify his signature-
Syms also said that Abeynaike had no authority to sign deliveryorders and that the rubber stamp was freely available in theoffice. In regard to his evidence the learned District Judge whofound Syms’ evidence unreliable in other respects as well, said“ I am unable to accept the evidence of Syms that Abeynaikedid not act in the course of his duties in placing the seal on docu-ments P17 and P31. I have no doubt on the evidence of Vive-kanandan that it was Abeynaike who placed the stamp on
those documents and thereafter signed them. ” The evidence ofVivekanandan was that Abeynaike works in the departmentin Freudenburgijs who Delivery Orders are issued and that heobtained Abeynaike’s signature on the delivery orders. Therewas ample material for the findings of the learned DistrictJudge that Abeynaike issued the delivery orders P 17 and P 31and in so doing had acted in the c curse of his employment underthe first defendant.
In respect of the consignment of chillies the Delivery Ordersalleged to have been issued by Freudenburgs were not produced.The evidence in the case is tha+ the delivery orders are returnedto the consignees after delivery is made and after being cancelled.That this was the practice adopted by the port authorities hasbeen accepted by the learned District Judge who has commentedon the practice as being unsatisfactory and has pointed out thatthese delivery orders should be retained by the Port CargoCorporation. Apparently the method adopted of cancelling thesedelivery orders was to enter the number of the Customs Bill ofEntry and initial and date the3n. Both P17 and P31 bear such anendorsement and the Customs Officer who gave evidence identi-fied these endorsements as having been made by Customs Officersalthough he was unable to say whose initials they were.
Vivekanandan’s evidence was that he returned the deliveryorders to the respective consignees, P17 and P31 to StarlineTrades and the others to Meenakshi Stores. The proprietor ofStarline Trades is a Ceylonese and was in Ceylon and that wasprobably why the delivery orders P 17 and P 31 were readilyavailable. On the other hand, the two partners of MeenakshiStores were Indian nationals and the evidence was that shortlyafter the delivery of the goods, they sold their business and wentoff to India. It is for this reason perhaps that the delivery ordersin respect of the consignment of chillies were not available, andso the plaintiffs sought to prove that delivery orders in respectof chillies were also issued, by other evidence.
The evidence of Vivekanandan was that it was he who clearedall the items consigned on the S.S. Mahalakshmi to MeenakshiStores and that on each occasion he obtained a delivery orderfrom Abeyanaike of Freudenburgs. As I pointed out earlier hesaid that in regard to P 17 and P 31 he obtained Abeyanaike’ssignature on the delivery orders. The learned trial Judge hasaccepted this evidence. Even in regard to the delivery ordersin respect of the consignment of chillies the trial Judge has notrejected his evidence. He however said that “ considering thefact that chillies, unlike onions, are not perishable articles and
VYTH1ALINQAM, J.—Indian Bank Ltd. t>. Sri Lanka Shipping Co., Ltd. y
that no delivery orders were issued without production of theoriginal bills of lading. I am unable to act on the oral evidenceof Vivekanandan, that the first defendant issued delivery ordersin respect of the two consignment of chillies- ”
What the trial Judge meant was that since onions were peri-shable articles P17 and P31 could have been issued without theproduction of the original Bills of Lading. Whereas chillies beingclassed as non perishables no delivery orders would be issuedwithout the original Bills of Lading in respect of them and so inthe absence of the delivery orders he could not act on the oralevidence of Vivekanandan. But if I may say so, with all respectto the trial Judge, this does not necessarily follow. Whether thegoods were delivered or not as against delivery orders issuedby the first defendant and/or his agents, servants or employeesis'a question of fact to be proved by evidence. If the deliveryorders were in fact produced then the question would be whetherthey were genuine or not. If they were not available they couldbe proved by other evidence. They are not documents of thekind like, original Bills of Lading, without the production ofwhich title to the goods cannot be established, or the questionat issue resolved.
When Vivekanandan says that he obtained the delivery ordersin respect of the consignment of chillies from Abeyanaike ofFreudenbergs and that he obtained delivery of the chillies fromthe Customs by producing the delivery orders the question iswhether he is speaking the truth or not. This has to be assessedin the normal way in which the credibility of witnesses aretested. Merely because he is unable to produce the delivery ordersit does not mean that his evidence cannot be acted upon, parti-cularly so as there is a ready explanation for the non availabilityof the documents. Nowhere in his judgment has the trial Judgedoubted the truthfulness of Vivekanandan’s evidence.
Moreover it was never the case for the defendants that theyhad issued delivery orders in respect of the onions without theproduction of the original Bills of Lading because they wereperishables. Their case was that they did not issue any deliveryorders at all either in respect of the onions or chillies. In factSyms’ evidence in regard to this was categorical and he repea-tedly said that they did not issue delivery orders without theproduction of the original Bills of Lading or Bank guarantees.He did not say that they did or might have issued delivery ordersin respect of the onions because they were perishables. In factquite early in the proceedings when the Bank by their letter of4.12.1959 (P69) inquired as to what the position was in regardto the consignment of onions the first defendant by Their letter—1 ** A —82497
10 VYTHIAX.INGAM, J. —Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd.
of 10.12.1959 (P70) replied that they had not issued any deliveryorders in respect of the said goods but stated that they could notexclude the possibility of the shippers having taken delivery atthe Wharf as the goods were of a perishable nature. The obviousimplication was that the customs authorities had delivered thegoods without the production of the delivery orders as they wereperishable goods. Indeed in keeping with this line of defence.Abeyaratne the witness from the Port Cargo Corporation wasasked, in the course of cross-examination by learned Counselfor the first defendant, whether there was a rule whereby 75per cent of the perishables were delivered almost immediatelywithout any kind of formality and he said that he was not awareof any such rule.
The evidence of Vivekanandan was that he obtained all thedelivery orders both in respect of the chillies as well as onionsfrom Abeynaike without the production of the original Bills ofLading. At no time did he say that P17 and P31 were issued tohim without the production of the original Bills of Ladingbecause of the perishable nature of the goods referred totherein. Nor was it ever suggested to him in the course of thecross-examination that such was the case. He said he was awarethat ship’s agents would not issue delivery orders without theproduction of the original Bills of Lading but he said he thoughtthat this was done in this case in pursuance of some arrange-ment made by his “ mudalalis ” with the agents. His evidencewas uncontradieted by any other evidence or circumstance.
On the other hand the other evidence and documents supportthe evidence of Vivekanandan that delivery was made againstdelivery orders in respect of the chillies as well. The officer fromthe Customs department said that no delivery would be madewithout the production of the delivery order or the Agents’endorsements on the original Bill of Lading or the Customsentries. He pointed out to the fact that in all the Customs entriesP9 to P14 in respect of the consignments of chillies the lettersD. O. with some initials and date are endorsed in each of them.He said that this showed the Customs Officer who released thearticles had seen the Delivery orders and that they had beenproduced before him.
So that, the fact that the chillies were also released for deliveryagainst delivery orders is, I think, clearly established by thisevidence and the endorsements on P9 to P14 and this lendssupport to Vivekanandan’s evidence on the point. Of coursethe fact that these delivery orders were issued by Abeynaike ofPreudenbergs rests only on the evidence of Vivekanandan and
VYTHIALINGAM, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd. 11
as I pointed out earlier there is no reason to doubt his evidenceon this point. He had obtained the delivery orders in respectof the onions from Abeynaike and there is nothing to show whyhe could not have similarly obtained the delivery orders in respectof the chillies also. At that time there was no suspicion or querybecause the Bank’s inquiry was first made only on 4.12.1959—many days after delivery had been completed- Besides, theCustoms authorities were aware from P17 and P31 who theAgents were and from whom the delivery orders were to bebrought. Both these documents were prior to the delivery of thechillies and the Customs Officers would have made no mistakein regard to the delivery orders for the chillies. Nor was anysuggestion made that the delivery orders were not genuine orthat they were forged.
But the suggestion which was in fact made was that if thecourt finds that the delivery orders F17 and P18 in respect ofthe onions and delivery orders in respect of chillies were issuedby Freudenbergs for and on behalf of the first defendant then itwas submitted that they were obtained after the goods hadbeen delivered in order to cover up the negligence or fraudof the Customs officer concerned. At first it was based on thefact that the dates appearing on the Customs Bills of EntriesP9 to P16 were in each case a few days after the bulk of thegoods referred to in the respective Bill of Entry had beendelivered. In each case the forms had been filled up in copyingpencil including the month November and * 59 ’ while the dateon which they were signed is entered in ink but not in thesame ink as was used by the person who signed them. Nobodycould say who wrote the dates or when, where and how it wasdone.
The suggestion was made to the Customs Officer who gaveevidence and he denied it. He said that he could not explain whythe dates were so entered. He also said that the Bills of Entrieshad gone to the landing waiter on the very dates on which thebulk of the goods were in each case delivered- He however wasnot the landing waiter who effected the deliveries. But by thetime Vivekanandan gave evidence the position was slightlychanged and his cross-examination on this point is as follows : —“Q. You and your proprietor cleared these goods withoutthe proper documents from the harbour ?
A. I removed them by producing the necessary documents.
Q. When the Bank started querying you and your proprie-tor obtained disposal orders from Abeynaike of Freu-denberg and Company ?
12 VYTHIALINGAM, J.~ Indian Hank Ltd, v. Sri Lanka Hhippiiu/ Vo. Ltd.
A. I have not done anything. It was on the arrangementof the proprietor that this was done.
Q. These documents were produced at the Customs to cheat(protect) the Customs officers ?
A- No. ”
In each case there are several endorsements made by differentCustoms Officers on the Bill of entries P9 to PIG which areinitialled and dated on the very day on which the bulk of thegoods were delivered. In some eases the “satisfied” entries,which means that all Customs dues had been paid and every-thing was in order was made after that date. But that wasbecause the Customs authorities permit the removal of perish-able goods without those formalities. But in no case would thegoods be delivered without the delivery orders, or the endorse-ments on the Bill of Entry or the original Bill of Lading by theship’s agents. If it were otherwise consignees of perishablescould easily remove them even though title to the goods was insomeone else to whom they had transferred them.
There was therefore no basis for this submission. It remainedthroughout a mere suggestion which was not even plausible.This submission was also made in the lower Court and wasquite rightly rejected by the learned District Judge. For thesereasons I hold that both the consignment of onions as wellas the consignment of chillies were delivered to the respectiveconsignees on delivery orders issued by Freudenburgs actingfor and on behalf of the first defendant without the productionby the consignees of the original Bills of Lading which werethe symbols of the right of property in the goods specified therein.
Mr- Thiagalingam for the 2nd defendant took up two legaldefences. The first was based on article III Rule 6 of the HagueRules which were given statutory effect by Ordinance No. 18 of1926 (Cap. 85) and which are set out in the schedule to thatOrdinance. Paragraph three of that Rule sets out that “ In anyevent the carrier and the ship shall be discharged from all lia-bility in respect of loss or damage unless suit is brought withinone year after delivery of the goods or the date when the goodsshould have been delivered. ” Mr. Thiagalingam’s submissionwas that the goods in this instant case should have been deli-vered at the very latest by the first week in December, 1959 andthat after the first week of December, 1960 the carrier was interms of that rule discharged from all liability in respect of the
VYTHIAX. INGAM, ■!.- -Indian Bank Lid. v. Bri Lanka Shipping Co. Ltd. 13
loss or damage to the goods. He submits that since this actionwas filed on 17th May, 1961, there was no liability on the part ofthe carrier-
The issue in respect of this matter are : —
“ 17. Has this action been brought within one year of the dateon which the goods should have been delivered ?
18. If the answer to issue No. 17 is in the negative, is thepresent suit time barred ?
24. In any event is the 2nd defendant discharged from anyliability to the plaintiff in respect of loss or damagesustained by him as more than one year has elapsedfrom the date on which the goods should have beendelivered ? ”
These and three other issues were tried as preliminary issues oflaw and were decided against the defendants by the trial Judge.
The defendants appealed from that order and the SupremeCourt affirmed the order of the District Judge and dismissed theappeal. H. N. G. Fernando, C.J., with Wijayatilaka, J., agreeingheld that the Rule relied on did not apply to a case where thecarriage contemplated in the Bill of Lading has been duly com-pleted by the discharge of the shipment consigned to Ceylon,but applied only in relation to the stage of loading, handling,storage, carriage, custody, care and discharge of the goods. Norwas the time limitation in Rule 6 applicable to a case where thecarrier or h's agent has caused a complete misdelivery of thegoods to some person other than the person entitled to delivery.In doing so the Supreme Court affirmed its earlier decision tothe same effect in the case of Sri Lanka Shipping Co. JL/td. vsThe Indian Bank Ltd.. 71 N.L.R. 361 which it was invited tohold had been wrongly decided. Alagasunderam Chettiar et alvs. The Indian Bank Ltd., 72 N.L.R. 1.
In this appeal Mr. Thiagalingam once again sought to can-vass the correctness of that decision. Ordinarily a decision ona matter at one stage of a proceeding is binding between theparties at every subsequent stage of the action—Nagalingam vs.Ledehumipilloi 55 N.L.R. 280. Mr. Thiagalingam sought to escapefrom this position in two ways. Firstly he argued that his rightto canvass that decision was expressly reserved to him by theSupreme Court. I find no such reservat:on. What happened we/-1hat Mr. Thiagalinpnm who argued that appeal expressed thefear that if no appeal to the Privy Council war. taken from thejudgment at that stage they would run the risk of being precludefrom ultimately appealing against that judgment on the pointwhich had been decided by that judgment.
14 VYTHIALll-.GAM, J.—Indian Hank Ltd. c. Sri Lanka Shipping Co. Ltd.
The Court then said that in any appeal which may ultimatelybe preferred fi;om the final determination of the Supreme Courtin the action the defence would be entitled to rely upon thelimitation clause in Rule 6. In other words the Court said thatthe defence would not be precluded from relying on the limita-tion in any appeal to a higher Court from the final determina-tion of the action by the Supreme Court. However that theparties would be bound by that decision both in the DistrictCourt and in the Supreme Court was made perfectly clear byH. N. G. Fernando, C.J. when he said at page 6 “ I must addtherefore that although the present judgment will be bindingupon both the District Court and this court in any further pro-ceeding in the present action, the defence will be entitled to relyupon the limitation clause in Rule 6 in any appeal which mayultimately be preferred from the final determination of thisCourt of the present action This appeal is such a “ furtherproceeding in the present action ” and not an appeal from afinal determination of the action by the Supreme Court.
Mr. Thiagalingam’s second submission was that at the timethis action was commenced the defendants had a right of appealfrom the decision of the Supreme Court to the Privy Counciland later to the Court of Appeal. Now that the appeals to theseCourts have been abolished and this Court was established asthe final Court of Appeal in Sri Lanka Mr. Thiagalingam arguedthat it was open to us to review that decision. It is true that aright of appeal is not a mere matter of procedure but a subs-tantive right—Colonial Sugar Refining Company vs. Irving,(1905) A.C. 369. It accrues to the litigant from the date of thecommencement of the lis, and is preserved to them till the restof the career of the suit Gariknpathi vs. M. Subbiah Chow dry,(1957) A. I. R. (S. C.) 540.
However, such a right can be taken away by statute eitherexpressly or by necessary intendment In the case of Verannavs. Chinna Venkanna, (1953) A.I.R. Madras 878, Rajamannar,C.J. said “ It must now be taken as well established that theinstitution of a suit carried with it the implication that allappeals then in force are preserved to the parties thereto till therest of the career of the suit. But there are exceptions to theapplication of his rule. One exception is whereby competentenactment such a right of appeal is expressly or impliedly takenaway with retrospective effect. Another exception is that a rightof appeal is lost if the Court to which an appeal then lay thatis, at the time of the institutJon of the suit, is subsequentlyabolished ” Although the decision in that case in regard to theapplicability of Article 133 of the Indian Constitution to appeals
V YTHIALINGAM, J.—Indian Bank L/td. V. Bn Banka Btapping (Jo. Bid. 15
against orders of the High Court made before the commence-ment of the Constitution was held by the Indian Supreme Courtnot to be correct, the statement of the law as set- out above wasnot affected.
When the action was commenced on 17th May, 1961 thedefendants acquired a right cf appeal to the Privy Councilagainst any determination by the Supreme Court. The right ofappeals to the Privy Council was abolished in 1971 by the Courtof Appeal Act No. 44 of 1971 which set up a Court of Appeal towhich the defendants could then have had recourse. But theAdministration of Justice Law No. 44 of 1973 abolished the Courtof Appeal as also the right of a second appeal. Thereafter therewas only one appeal to this Court. The defendants thereforelost their right of appeal since the Court to which that appeallay was abolished except to the limited extent to which it waspreserved by the Administration of Justice Law. Section 53 (1)of the Administration of Justice Law only preserved the rightof appeal in cases where appellate proceedings were pending inthe Court of Appeal on the day preceding the appointed dateand such proceedings stood removed to this Court which wasgiven jurisdiction to hear and determine the same. In the instantcase no such proceedings were pending in the Court of Appealon the relevant date.
The Administration of Justice Law abolished second appealsexcept in the case of such appeals which were pending in theCourt of Appeal on the relevant date. The Court has no powerto extend that reservation for, to do so would be to give our-selves a jurisdiction, which we do not possess. For, as pointedout by Morris, L. J. in Healey vs. Minister of Health, (1954) 3W.L.R. 815 at 821. “ But the Court cannot invent a right of appealwhere none is given. The Courts will not invent an appellatejurisdiction where none is created. ” Parties therefore are boundby the decision of the Supreme Court and it is unnecessary forme to consider the applicability of the limitation clause in Rule 6.
Mr. Thiagalingam’s second legal submission was that in termsof the contract the carrier’s .liability ceased as soon as goodswere lifted over the ship’s side. This submission was based onclause 10 of the Bills of Lading all of which are identical andin printed form and which deals with the discharge of thecargo. It is there stated that “ In all cases the carrier’s liabilityis to cease as soon as the goods are lifted from and leave theship’s deck. ” The goods were shipped by the Mercantile Corpo-ration “ to be discharged, subject to the exceptions, conditionsand provisions hereafter contained, in the like good order and
lf>VYTHJALINGAM. J.—Indian Bank Ltd
condition, but the carrier’s liability ceases as soon as goods are
lifted from and leave the ship’s deck at the port of
Colombo . . . unto order or to his or their assigns. ”
Mr. Jayewardene on the other hand submitted that the funda-mental obligation of the carrier under the contract was to carrythe goods forthwith to their destination without any unneces-sary deviation or delay and there deliver them to the personentitled to receive them. Where there is a failure to do so as inthe instant case there is a fundamental breach of the contractand the contract is at an end and with it the exception clausesalso fall away and cannot be of any avail to the carrier.
In support of his position Mr Thiagalingam relied in themain, on two cases. The first was the case of Carson & Co. vsBritish India Steam Navigation Co., 4 S.C.C. 67. In that casethe relevant portion of the Bill of Lading was “ the ship’s respon-sibility… ceasing when delivery into lighter when the goods areover the ship’s side level with the rail. ” While the goods werebeing discharged over the ship’s side into the lighters by meansof a crane and sling on chains, a wave lifted the lighter so highas to cause it to bump up against the bales and thereby loosenthe slings in which they were held, with the result the balesslipped out of these, fell into the sea and were lost. In an actionby the consignees against the carrier for non delivery of thegoods it was held that the proviso in the Bill of Lading affordeda good answer to the consignees’ action for non delivery of thegoods.
That case is easily distinguishable from the facts of the instantcase. The judgment of Berwick, D. J. which is set out fully inthe report of the case shows that delivery was being effectedinto the consignee’s lightens. Delivery there was to the personentitled to receive the goods and in the process of being sodelivered they were lost. There was no question in that casedelivery having been made to a person not entitled to receivethem, as in the instant case.
The second case on which Mr. Thiagalingam placed verygreat reliance was the case of Chartered Bank vs. British IndiaSteam Navigation Company, (1909) A.C. 369 decided by thePrivy Council in 1909. The relevant portion of the Bill of Ladingwas as follows. “ In all cases and under all circumstances theliability of the company shall absolutely cease when the goodsare free of the ship’s tackle for all purposes and in every respectof the shipper or consignee ”. The goods were duly discharged bythe landing agents into warehouses in the Jetty and while therehad been fraudulantly and in collusion with the consignees,
VYTHIAX.JNGAM, J-—Indian Bank Ltd. u. Sri Lanka Shipping Co. Ltd. 17
delivered to them without the production of the original, Billsof Lading which were at all times with the plaintiff Bank whowere holders for value.
The majority of the Supreme Court affirmed the dismissal ofthe action in the lower court. The Chief Justice was of opinionthat though the respondent’s obligation to deliver was not dis-charged. until delivery to the consignees yet they had on the trueconstruction of the said clause contracted themselves out. ofliability as soon as the goods were free of the ship’s tackle. Fisher,J. dissenting held that the respondent’s liability as carrierscontinued after the goods were landed and stored, in view of thefact that the respondents retained their lien and in view ofthe further fact that the appellants could not, except in veryexceptional circumstances get delivery of their goods by mereproduction of the Bill of Lading, but were obliged for thatpurpose to obtain the endorsement thereon of a delivery orderby the agents of the respondents.
The Privy Council agreed with the Learned Chief Justice thatthe clause afforded complete protection to the respondentCompany. In doing so the Privy Council appears to have accep-ted the argument of Counsel for the respondents that the cessorof liability clause was clear and unambiguous and that'full effectshould be given to it as to an essential provision of the contractFor Lord Macnaghten who delivered the judgment of the Boardsaid at page 375, “ But their Lordships do not recognise anyvery close analogy between a case where it is sought to get ridof a legal obligation, which is presumed to be the basis of everycontract of carriage by sea and a case like this where the partiesare perfectly free to make any stipulation they please, unem-harassed by any implied condition or any original underlyingobligation. ”
Again at the same page he said “ But their Lordships cannotthink that there is any ambiguity in the clause providing forcessor of liability. It seems to be perfectly clear. There is noreason why it should not be held operative and effectual in thepresent case. ” In other words the case appears to have beendecided on the substantial ground that the exemption clausehad become an essential provision of the contract, that is, thatit was a definition of the primary obligation, and not anexemption clause.
However, in view of recent d-welopments of the law in regardto fundamental breach of contract and the liability of principalsfor the fraudulent acts of their agents and servants committedfor their own benefit, though acting in the course, and within thescope of, their employment, the decision in the Chartered Bank1 *** — A 082497
lfc> VYTHIAJjINGAM, J.— Indian Bank Ltd. v. tiri Lanka /Shipping Co., Ltd.
case if I may say so with great respect, cannot be regarded asbeing entirely satisfactory today. At the time the CharteredBank case was decided the view was current that a principalwas not liable for the fraud of his agent unless the fraud iscommitted for the benefit of the principal. Although this aspectof the matter was not adverted to in the judgment in theChartered Bank case nevertheless it w'ould have been presentin the minds of their Lordships. In fact it was submitted by thecounsel for the carrier in that case that they were not liable forthe criminal misappropriation of the servant of the landing agentswho moreover, was then acting as warehouse man.
In 1912 the House of Lords decided in the case of Lloyd vs.Grace, Smith & Co., (1912) A.C. 716 that a principal is liable forthe fraud of his agent acting within the scope of his authority,whether the fraud was committed for the benefit of the principalor for the benefit of the agent. Tn that case it was contented thatBarwick vs. English Joint Stock. Bank (L.R. 2 Ex. 259) was anauthority for the proposition +hat a principal is not liable forthe fraud of his agent unless the fraud was committed for thebenefit of the principal. The House held that it was not and alsodissented from the dicta to the contrary of Lord Bowen inBritish Mutual Banking Co. vs Charnwood Forest Rly. Co.,(1887) 18 Q.B.D. 714 at 718 and Lord Davey in Ruben vs. GreatFrigal Consolidated (1906) A.C. 439 at 465.
The doctrine of fundamental breach of contract is a recentdevelopment although the rule in regard to frustration ofcontract was known much earlier and was due to the increasinguse of standard form contracts which has led to the decline offreedom of contract. These standard forms are in use in a widevariety of matters such as contracts for carriage of goods byland and sea, hire purchase agreements, sale of goods, contractsof bailment, loan agreements, public utility and other services,such as for the supply of electricity and so on. One of the principalproblems concerning standard form contracts are exclusionclauses which seek to exclude wholly or to limit, the liabilityof one party.
These exclusion clauses are generally hidden away in smallprint amidst a host of legal verbiage. Generally they are notread and if read, their full implications little understood.Even where they are read and understood the other party tothe contract has little opportunity to get it corrected for if heshould ask that this should be done, he would be told to takeit or leave it. If then he chose to go to another he wouldbe met with the same position. Tlius he has no choice at all andit would he futile to say that “ parties are perfectly free tomake any stipulation they please
VYTHIAJLIJNGAM, J.—-Indian Batik Ltd. v. Sri Lanka Shipping Co., Ltd. 19
In this sense it would be illogical to speak of freedom, ofcontract, and the courts have sought to restore the balance infavour of the party against whom it is aimed in a variety of waysand none has been more successful than the doctrine of thefundamental term or of fundamental breach. In its simplest formit means that “ A party who has been guilty of a fundamentalbreach of contract cannot rely on an exemption cause insertedin the contract to protect him”. A G. Guest—(1961) 77 The LawQuarterly Review 98. Every contract contains a “ core ” orfundamental obligation which must be performed. If one partyfails to perform this fundamental obligation, he will be guiltyof a breach of the contract, whether or not any exempting clausehas been inserted which purports to protect him. Closely alliedwith this principle is yet another : that a party will only beprotected by an exemption clause in a contract while performingthat contract and not when he has deviated from it in asubstantial manner.
In J. Spurling Ltd. vs. Bradshaw, (1956) 1 W.L.R. 461, DenningL.J. said at page 465 : “ These exemption clauses are nowadaysall held to be subject to the overriding proviso that they onlyavail to exejmpt a party when he is carrying out his contract,not when he is deviating from it or is guilty of a breach whichgoes to the root of it. Just as a party who is guilty of a radicalbreach is disentitled from insisting on the further performanceby the other, so also he is disentitled from relying on an exemp-tion clause That was a case of bailment in which the ware-houseman was held to be protected from loss or damage instoring the goods even where such loss was occasioned by theirnegligence, because negligence without more was not a breachwhich went to the root of the contract. It would have beendifferent “ if he stores them in a different place or if he con-sumes or destroys them instead of storing them, or if he sellsthem, or delivers them without excuse to somebody else, he isguilty of a breach which goes to the root of the contract, and hecannot rely on the exempting clause ”. (ibid).
The term fundamental breach of contract was probably firstused in the House of Lords in Hain S. S. & Co., Ltd. vs Tate- &Lyle, (1936) 2 All E.R. 59 where the House described the devia-tion from the contract route as a fundamental breach, and therequirement that the vessel should follow the contract route asa fundamental condition of the contract. By the mid-fifties thedoctrine had been so developed that it achieved the status of arule of law. In Karsales (Harrow) Ltd. vs. Wallis, (1956) 2 AllE. R. P66. Denning, L. J. said at page 868,“ Notwithstanding
earlier cases which might suggest the contrary it is now settled
20 VltTHTAT.TNGAM, J.—Indian Bank Lid. v. Sri Lanka Shipping Co., Ltd.
that exemption clauses of this kind, no matter how widely theyare expressed only avail a party when he is carrying out hiscontract in all its as essential respects. He is not allowed to usethem as a cover for misconduct or indifference, or to enable himto turn a blind eye to his obligations. They dc not avail himwhen he is guilty of a breach which goes to the root of thecontract. ” And Parker, L.J. said at page 871, “ In my judgment,however extensive the exception clause may be it has noapplication if there has been a breach of fundamental term ”.It is unnecessary to refer to the other cases in which this rulewas applied to strike down exception clauses in their entirety orto limit their applicability, where there has been a fundamentalbroach.
However, in 1966 the juristic basis for the theory was assailedat the highest judicial level. In the case of Suisse AtlantiqueSociete d! Armament Maritime S.A. vs. N. V. RotterdamscheKolen Centrale, (1966) 2 All E.R. 61, the House of Lords unani-mously held that there was no such rule of law prohibiting ornullifying an exemption clause for a fundamental breach ofcontract or breach of a fundamental term, for such a rule of lawwould involve a restrcition on the freedom of contract.Referring to the passages from Karsales cited above Lord Reidsaid at page 73 “ This is a clear statement of a rule of law M andat page 76 “ In my view no such rule of law ought to be adopted ”.But he did recognise the existence of the problem created byobjectionable exception clauses in complex standard formcontracts and that in such cases there is very little bargainingor freedom of choice. But he said that “ This is a complexproblem which intimately affects millions of people and it seemsto me that its solution should be left to Parliament”, (ibid).
But they did hold that as a rule an exception clause does notapply to a situation created by a fundamental breach and that itwas a matter of the true construction of the contract as a whole,and that exception clauses should be strictly construed TheHouse approved for this purpose the formulation by Pearson, L.J.in U.G S. Finance Ltd. vs. National Mortgage Bank of GreeceS.A., (1964) 1 Lloyds Rep : at page 453, where he said “ As to thequestion of ‘ fundamental breach ’ I think there is a rude ofconstruction that normally an exception clause or similarprovision in a contract should be construed as not applying to asituation created by a fundamental breach of contract. This isnot an independent rule of law imposed by the Court on theparties willy-nilly in disregard of their contractual intention.On the contrary it is a rule of construction based on the presumedintention of the contracting parties. It involves the implicationof a term to give the contract that business efficacy which the
WTTTT AT.TXfrAM. J.—Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd. 21
parties as reasonable men must have intended it to have. Thisrule of construction is not new in principle blit it has becomeprominent in recent years in consequence of the tendency to havestandard forms of contract containing exemption clauses drawnin sxtravagantly wide terms which would produce absurdresults if applied literally. ’’
The House unanimously agreed, however that normally anexception clause will not be construed as apply to a situationcreated by a fundamental breach. After citing some casesLord Dilhome said at page 67. These are all cases whichillustrate the principle that where there has been a fundamentalbreach—and deviation is a fundamental breach—or a breach ofa fundamental term— the party guilty of the breach cannotsuccessfully rely on the provisions in the contract designed for
his protection in the performance of the contractIn
the cases I have cited above, I think that, on a construction ofthe contract as a whole, it is apparent that the exempting clauseswere not intended to give exemption from the consequences of afundamental breach. Any provision that does so must beexpressed in clear and unambiguous terms. ”
Lord Hudson put the matter thus at page 78 Sometimes ithas been declared that, where a fundamental breach of contracthas occurred, an exception clause could not as a matter of lawbe relied on, but the better view on the authorities and thataccepted by both sides before Your Lordships, is that as a matterof construction normally an exception or exclusion clause orsimilar provision in a contract should be construed as notapplying to a situation created by a fundamental breach ofcontract. ”
Dealing with contracts where performance is possible afterthe breach and the injured party has an election whether or notto affirm the contract Lord Reid said at page 71. “ If fundamen-tal breach is established, the next question is what effect, if any,that has on the applicability of the other terms of the contract.This question has often arisen with regard to clauses excludingliability in whole or in part, of the party in breach. I do notthink that there is generally much difficulty where the innocentparty has elected to treat the breach as a repudiation, bringthe contract to an end and sue for damages. Then the whole
contract has ceased to exist including the exclusion clause
The position would be the same where the breach itself bringsa contract to an end, as in the instant case, and the party hasno opportunity to elect whether or not to affirm the contract.
22 VYTHIAJLLNGAM, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd.
In recent years attempts have been made by the Court ofAppeal to restrict the application of the Suisse Atlantique caseto contracts where, after the breach, performance was stillpossible and the injured, can despite the breach, elect to affirmthe contract or not—Harbutt’s Plasticine Ltd. vs. Wayne Tank& Pump Co., Ltd., (1970) 1, Q. B. 447 and Famworth FinanceFacilities vs. Altryde, (1970) 1 W. B. R. 1053. But it is unneces-sary for us to consider this aspect of the matter. For the purposesof the instant case I am content to accept the position that it isa quesion of the construction of the contract as a whole includ-ing the exception clause.
This is also the view adopted by the High Court of Australia.In the case of the Council of the City of Sydney vs. West (1965-66) 39 A.J.L.R. 323, the plaintiff had left his car for the day ata municipal parking station upon terms set out on a printedticket handed to him as he entered the premises. During theday a person entered the parking station and claiming to havelost his ticket, obtained a duplicate parking ticket and with itdrove away in the plaintiff's car despite the fact that the numbergiven in the duplicate ticket was not the number of the plaintiff’scar. The car was never recovered.
For the Council it was claimed that the exemption clause onthe ticket protected them. That clause was as follows : “ TheCouncil does not accept any responsibility for the loss or damageto any vehicle or for loss or damage to any article or thing inor about any vehicle or for any injury to any person howeversuch loss, damage or injury may arise or be caused.” Therewere also provisions to the effect that the car would besurrendered only upon presentation of the ticket. It was heldthat the Council was not protected.
Although two out of the five judges dissented each of the fivejudges treated the case as being one of the construction or inter-pretation of the contract. In their joint judgment Brawick, C J.,and Taylor, J. said “ There is no doubt, of course, that in thecase where a contract of bailment contains an exempting clausesuch as we have to consider, the protection afforded by theclause will be lost if the goods the subject of the bailment arestored in a place or in a manner other than that authorised bythe contract or if the bailee consumes or destroys them insteadof storing them or if he sells them. But we would deny theapplication of such a clause in those circumstances upon theinterpretation of the clause itself. ”
VYTHXALING AM, J.—Indian Bank Lid. v. Sri Lanin Shipping Oo., Ltd. 23
They held for the plaintiff on the basis that the exemptionclause before them did not contemplate or provide an excusefor negligence on the part of the Council’s servants in doingsomething which it was neither authorised nor permitted to doby the terms of the contract. Parties can by agreement contractout of any liability. As Lord Atkin pointed out in The CapPalos (1921) All E.R. at page ?54. “I am far from saying'thata contractor may not make a valid contract that he is not to beliable for any failure to perform the contract, including evenwilful default ; but he must use very clear words to express
that purpose ’. The question which arises in the instant
case is whether the parties have done so.
The main object of the contract was to transport the goodsto Colombo and there deliver to “ The order or to his or theiragents ”, against the production of the Bills of Lading. Has thecarrier then discharged this primary obligation under the con-tract when the goods were lifted over the side of the ship ? Didthe parties intend that this should be so by the exemptionclause ? This question was emphatically answered in the nega-tive by the Privy Council in Sze Hai Tong Bank vs. RamblerCycle Co. Ltd., (1959) 3 All E.R. 182 where there was a similarexemption clause and where also the goods had been deliveredby the agent to the consignee without the production of theBill or Lading but on Bank guarantees.
The exemption clause was as follows ; “ in all other cases theresponsibility of the carrier, whether as carrier or as custodianor bailee of the goods shall be deemed to commence only whenthe goods are loaded and to cease absolutely after they aredischarged therefrom ”, In delivering the judgment of the Board,Lord Denning said at page 185 “ The exemption on the face ofit, could hardly be more comprehensive and it is contended thatit is wide enough to absolve the shipping company for responsi-bility for the act of which the respondents complain that is tosay, the delivery of the goods to a person who, to their know-ledge was not entitled to receive them. If the exemption clause,on its true construction, absolved the shipping company froman act such as that, it seems that by party of reasoning, theywould have been absolved if they had given the goods awayto some passerby, or had burnt them or thrown them into thesea. If it had been suggested to the parties that the – conditionexempted the shipping company in such a case they wouldboth have said “ Of course not ”. There is therefore an impliedlimitation in the clause which cuts down the extreme width ofit ; and as a matter of construction their Lordships decline toattribute to it the unreasonable effect contended for. ”
1*4 VYTHIALlHGAM, J.—Indian Hank Ltd. c. Sri Lanka Shipping Co., Ltd.
The Board also went further and said that if extreme widthwere given to the exemption clause it would defeat the mainobject: of: the contract which was the proper delivery of theshipping company, unto order or his or their assigns againstproduction of the Bill of Lading and that the clause must there-fore be limited and modified to the extent necessary to enableeffect to be given to the main object and intent of the contract.The Board also distinguished the Chartered Band case on thesimple ground that the action of the fraudulent servant therecould in no wise be imputed to the shipping Company whereasin the present case the action of the shipping agents at Singaporecan properly be treated as the action of the shipping companyitself.
Mr. Thiagalingam conceded that some limitation should beplaced on the extreme width of the exemption clause in theinstant case and agreed that the carrier could not deliver thegoods to any passerby or throw the goods away cr dump theminto the sea. But he contended that tc be liable the carriershould have had knowledge of the act of the agent or should beshown to have approved of or acquiesced in such act. He reliedstrongly on the words of Lord Denning where he said at page185 “ They (the agents) were so placed that their state of mindcan properly be regarded as the state of mind of the shippingCompany itself.”
But there Lord Denning was not dealing with the state ofknowledge of the shipping company but of the nature of theact of the agent and contrasting it with the act of the fraudu-lent shipping agent in the Chartered Bank case. There the actof the agent was in fraud of the true owner of the good as wellas of the shipping company itself and it could not therefore besaid to be imputed to the shipping company. “ His act was notits act. His state of mind was not its state of mind.” Whereashere the shipping agent deliberately enabled the consignee toremove the goods without the production of the original Billsof Lading but on bank guarantees. Lord Denning pointed outthat “The shipping Company’s agents in Singapore acknow-ledged : ‘ We are doing something we know we should not do. ’Yet they did it, and they did it as agents in such circumstancesthat their acts were the acts of the shipping company itself. ”Nowhere in the judgment is there anything to show that theshipping company had knowledge of or had approved of oracquiesced in the practice adopted by their agents in Singapore.The knowledge was that of the agents that they were doing
VYTHIAL1NGAM, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd. 26
something which they were not entitled to do and this oughtto be imputed to the shipping company.
There is therefore no basis for this submission of Mr. Thiaga-lingam in the judgment of Lord Denning. At one stage in theargument I was impressed by this submission but on a verycareful examination of the judgment I can find no support forit there. All that was said there was t; And they deliberatelydisregarded one of the prime obligations of the contract. Nocourt can allow so fundamental a breach to pass unnoticed underthe cloak of a general exemption clause.”
Nor can the submission be supported on principle or precedent.No other authority was referred to in support of it. Mr. Thiaga-lingam referred to the fact that under the regulations nowprevailing in the port of Colombo since 1.8.1958 the carrier wasbound to discharge the cargo to the Port Cargo Corporation whohad under the Port Cargo Corporation Act No. 13 of 1958 thesole monopoly of discharging goods from ships in the Port ofColombo and that once he had handed over the goods he was nolonger liable. It may be that while the goods are in the custodyof the Port Cargo Corporation it is liable subject to the statutoryexceptions for any loss or damage to the cargo : Maurice RocheLtd. vs. Port Cargo Corporation, Colombo, 71 N.L.R. 195. Butneither the Port Cargo Corporation nor the Customs will releasethe g«ods without authority from the carrier or his agent. TheCustoms make no inquiry as to the right of possession of aconsignment of goods and release the goods upon the faith ofthe ship’s agents’ authorisation.
It is for the carrier or his agent to satisfy himself that theperson to whom it gives its authorisation is the person who isentitled to the delivery of the goods. To this extent the carrier’sobligation under the contract continues. This was conceded evenin the Chartered Bank case where Lord Macnaghten said atpage 375 (supra) “ Now it may be conceded that the good inquestion were not delivered according to the exigency of theBills of Lading by being placed in the hands of the landingagents, and it may be admitted that Bills of Lading cannot besaid to be spent or exhausted until the goods covered by themare placed under the absolute dominion and control of theconsignees.”
If the carrier chooses to delegate the function of issuing theauthorisation for the delivery of the goods to his agents he can-not escape the consequences of a wrongful delivery to personsnot entitled to them by merely pointing to his delegation. Heis as liable for such non or misdelivery as if he had done it byhis own act. Here no question of fraud of the agent as in theChartered Bank case or mere inadvertence or negligence in the
26 VYTHIALINQAM, J.—-Indian Bank Ltd. v. Sri Lanka Shipping Go., Ltd.
carrying out of* the contract arises for none has been pleadedor raised as issued. Nor was there any evidence in regard tothese matters. The defendants’ case was simply that no deliveryorders were issued by the first defendant or alternatively thatthey were issued after the delivery had been effected, not toenaore the delivery to be made, but to cover up the negligenceor worse of the Customs officer.
There was an earlier case between the same parties in respectof a shipment of cane jaggery in another ship of which the firstdefendant was the charterer. There too the goods had beendelivered to the consignees on delivery orders issued by Freuden-bergs signed by Abeynaike, as agents of the first defendant.The same exception clause was relied on in that case also andthe Supreme Court held that there was a fundamental breachof the defendant’s contractual obligation to deliver the shipmentof jaggery to the plaintiff, which obligation the defendant wasunable to perform because its local agents had already authoriseddelivery to be made to some other person and that being so, thequestion whether any liability based in delict arose in that casedid not need to be decided, 71 N.L.R. 631.
In that case also the defence taken, up was that the defendantthrough its agents did not issue any delivery orders. H. N. G.Fernando, C.J. said at page 365 “In the final paragraph of hisjudgment (in the Sze Hai Tong case) Lord Denning refers tothe possibility that a Shipping Company might be excused fora failure of delivery on the ground of the negligence or inadver-tance of a servant or agent ; let me assume also that fraud onthe part of a servant or agent might be a ground for excuse. Inthe present case, however, there was no evidence to establishnegligence or inadvertance or fraud on the part of Abeyanaike,who issued the disposal order. The position taken up in thedefendants’ answer was that no delivery orders relating to thesegoods were issued by it and the defendants’ Manager in hisevidence denied both the possibility that Abeyanaike could havesigned the disposal order in this case and the authenticity of theseal which the disposal orders bearsIf it was the defen-
dants’ case that Abeynaike had acted negligently or inadver-tently, or fraudulently there should have been both an issue onthe point and some evidence in support of it ’’. The position isidentical in the instant case.
One other case may be noted in regard to a breach of a funda-mental obligation under the contract. In the case of TownCouncil, Chavakachcheri vs. Devabalan, 68 N. L. R. 10 theplaintiff who was the proprietor of a theatre sued the defendantcouncil for failure to maintain an efficient and continuous supply
V YTHIALINGAM, J.—Indian Bank Lid. v. Sri Lanka Shipping Co., Ltd. '2 <
of electric current. The District Judge held with the plaintiffand awarded him damages. In appeal reliance was placed on anexemption clause which was as follows : —“ Every means andprecaution will be taken to ensure an efficient and continuoussupply of energy to consumers between the hours of 6 p.m. and12 m.n. but the Town Council will not be held responsible forany interruption nor shall the Town Council be held liable to theconsumer for any loss or damage occasioned, directly or indirect-ly by the total or partial interruption of supply.”
It was argued that the first part of the clause was only anassurance from which no legal obligations flowed in view ofthe second part. It was held that if the exemption clause, ascontended for by the appellant means that the appellant is notliable for any interruption of supply, even a deliberate andwrongful interruption without any cause, it would undoubtedlyrun counter to the main object and intent of the contract. It wassaid that there was no need to read the clause with any impliedlimitation because the parties had expressly stipulated that theexemption should apply only where the first part was compliedwith. But the case is important because of the rejection of awide interpretation as it would go counter to the main objectand intent of the contract and because it followed the Sze HaiTong case (supra).
For these reasons I hold that the defendants by enabling thegoods to be delivered to persons not entitled to received them bydelivering to them delivery orders through the first defendant,agent of the second defendant, had failed to perform their funda-mental obligation under the contract to deliver the goods to theperson entitled to received them, namely the plaintiffs as holdersof the Bills of Lading and are liable to the plaintiff in damages.No other matters were raised or argued in the appeal and it isunnecessary for me to decide the other issues in the case.
I accordingly set aside the judgment and decree of the DistrictCourt an*- enter judgment for the plaintiff as prayed for withcosts of appeal and in the Court below.
I agree with Vythialingam, J. in allowing the appeal of theplaintiff-appellant against the 1st defendant for the reasons setout by him. But I regret my inability to agree with his conclu-sions against the 2nd defendant. The 2nd defendant has field across-appeal. For the reasons set out below, I allow the 2nddefendant’s cross-appeal and dismiss the plaintiff’s action againsthim with costs.
r£ SHAKVANAKDA, J. -Indian Hank Ltd. v. Sri Lanka Shipping Co., Ltd.
A party to a contract may be precluded from relying upon anexemption clause contained in it where he has been guilty of afundamental breach of contract or of a breach of a fundament-al term. There are, in every contract, certain terms which arefundamental, the breach of which amounts to a complete non-performance of the contract. They form the core of the con-tract and breach of such terms by one party is such as to go tothe root of the contract which entitles the other party to treatsuch breach as a repudiation of the whole contract. Whethersuch breach or breaches do constitute a fundamental breachdepends upon the construction of the contract and on all(Harrow) Ltd. vs. Wallis (1956) 2 A.E.R. 866 that by a ruleof law, no excluding or limiting term may operate to protecta party who is in fundamental breach of his contract. Accordingto his view, no agreement of parties ca^ avoid this rule of law.But, in U. G. S. Finance Ltd. vs. National Mortgage Bank ofGreece (1964) 1 Lloyds Rep. 446 at 450, Pearson, L. J. stated :As to the question of fundamental breach. I think there is arule of construction that normally an exception or exclusiveclause or similar provisions in a contract should be construedas not applying to a situation created by a fundamentalbread- of contraci. This is net an independent rule of lawimposed by the Court on the parties willy-niliy in disregardof their contractual intention. On the contrary, it is arule of construction based on the presumed intention of theparties ”. In the case of Suisse Atlantique Societe d’ ArmamentMaritime S. A. vs. N. V. Rottcrdamasche Kolen Ce.-’tmla <1967')1 A.C. 361, the House of Lords unanimously approved the app-roach to the problem of fundamental breach preferred byPearson, L. J. and laid down that the principal of fundamentalbreach is a matter of construction and not a substantive rule oflaw. In that case, the ship-owners sued the charterers of a shipfor damages for delays in loading and unloading the charteredvessel. The charterers relied on the usual demurrage clause inthe charter party as establishing the full measure of their lia-bility, but the ship-owners contended that this cls.4se did notprotect the charterers since the breaches of contract whichcaused the delays amounted to a fundamental breach of contractand claimed damages at large. The House of Lords rejected theclaim of the ship-owners. Their Lordships held that the demurr-age clause, if it was treated as an exemption clause, plainly cover-ed the breach alleged, whether or not this breach was funda-mental in the sense that it would have entitled the ship-ownersto be discharged. Exemption clause cover broadly such clausesin a contract as profess to exclude or limit the liability
SHARVANANDA, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co,. Ltd. 29
of the party in default. Such a clause reflects the intention ofthe parties that a breach of contract may be committed andmakes provision for the regulation of consequent liability. It isa question of contractual intention whether a particular breachis covered or not. Every exemption clause will be interpreted,in case of ambiguity, contra proferentem, and only in theclearest circumstances will general words of exclusion be in-terpreted to cover important terms or liability for serious brea-ches. The more important the terms or the breach, thecleaner those circumstances must be. One muse look at thenature of the contract the character of the breach and its effecton future performance contemplated by the contract. Basic tothese rules of construction is the proviso that exception clausesare to be interpreted consistently Math the main object of thecontract. These cannons of construction of exception clauses aredevised to discover the real intention of the parties to becollected from the language they have used. Effect is to begiven, if possible, to every word used which has to be interpretedaccording to its natural and ordinary meaning, unless suchconstruction would be contrary to the manifest intention of theparties, or would necessarily lead to some contradiction orabsurdity.
It is fox the plaintiff to make out a prima facie case against thedefendant. If he succeeds in that task, it is for the defendant to)lead and prove some special plea, such as an excluding orlimiting term. The burden must then pass back to the plaintiffwho must show some reason why the term is to be disregarded.If the plaintiff wants to establish that the breach was arepudiatory breach, he would have to plead this and establishthe facts which made it so. He will have to show that thedefendant, the beneficiary under the exemption clause, hasdisentitled himself from availing himself of that clause bj' hisdeliberate disregard of his bounden obiligations. Lord Buck-master, dealing with an argument in a. similar situation that itis for the defendant to prove that he did not repudiate thecontract sued on by the plaintiff, summed up as follows inSmith Ltd. sv. Great Western Py. Co., (1922) 1 A.C. 178 at 188 : —*■ Counsel for the plaintiffs has suggested that it wouldhave been sufficient to have claimed that the goods weredelivered for carriage, that they were not delivered to theconsignee and that liability consequent by attached. But. if,in fact, the defendant set up. as they do, the terms of thecontract in answer to that claim, it would be essential thatthe plaintiff should, unless he was fix a position to deny ‘hecontract or the delivery of the goods upon its terms, acceptthe defence, or he would be suing outside the only contractupon which he would have been entitled to recover.
30 SHARVANANDA, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd.
Whichever way the matter is approach, in the end theplaintiff must face the actual circumstances in which thesegoods were despatched ; that is, that they were taken forcarriage under the special terms of the special contractwhich enabled him to have them taken at the lower rate.If he desires to show that the contract was repudiated, itis then incumbent upon him to bring evidence to establishthat repudiation, and it certainly is not incumbent upon thedefendants to go into the box to prove that they did notrepudiate it. ”
By parity of reasoning, if the plaintiffs wish to contend, notfor repudiation it is true but for a fundamental breach of thecontract by the defendants, they must alleged it and prove it.The benefit of an exemption clause can always be invoked by acarrier to resist the plaintiff’s claim, unless the plaintiff succeedsin showing that the carrier has disentitled himself from doing soby his committing a fundamental breach of the contract. Thequestion of burden of proof was raised in Hunt and WinterbottomLtd. as B.R.S. (Parcels) Ltd., (1962) 1 A.E.R. 111. The defendantscontracted with the plaintiffs to carry 15 parcels of woollen goodsto Manchester. Only 12 parcels arrived. The plaintiffs sued thedefendants for damages equal to the value of the 3 lost parcels,and the defendants pleaded a term of the contract limiting theamount which might be claimed for any such loss ‘ howeversustained ’. The plaintiffs alleged negligence, but did not, intheir pleadings, alleged a fundamental breach. The defendantsoffered no evidence to explain why or where the parcels hadbeen lost. The Court of Appeal gave judgment for thedefendants. On the assumption that the defendants had, in fact,been guilty of negligence, the term protected them unless theyhad committed a fundamental breach of contract. The vitalquestion was to determine the onus of proof. The Court heldthat the burden lay upon the plaintiffs and that they had notdischarged it.
In the present case, the plaintiff, as holder, sued the 2nddefendant, the carrier, on certain Bills of Lading marked PI toP8. The Bills of Lading contain the contract of freight, theterms on which the goods were carried by the 2nd defendant.The terms of Bills specifically provided that : “ In ell cases thecarrier’s liability is to cease as soon as the goods are lifted ,’rom.'and leave the ship’s deck, ” The liability of the 2nd defendantwas to have the goods “ discharged subject to the exceptions,conditions and provisions hereinafter contained in the like goodorder and condition, but the carrier’s liability ceases as soon as
the goods are lifted from and leave the ship’s deck
at the port of Colombounto order or to his
or their assigns’’. In its plaint, the plaintiff specially stated that
SHARVAJNANDA, J.—Indian Bank Lid. v. Sri Lanka Shipping Co., Ltd. 31
the 2nd defendant’s ship ‘ Mahalakshmi ’ arrived in the port ofColombo and that the goods referred to in the e Bills of Ladingwere duly landed ashore in Colombo, but that the 2nd defendantdid not give delivery of the said goods to the plaintiff, and thatthe 1st defendant wrongfully gave delivery of the said goods topersons other than the plaintiff. The plaintiff averred that itv/as the duty as business of the 2nd defendant and/or the 1stdefendant acting as agent and/or for and on behalf of the saidship and/or the 2nd defendant its owner to give delivery of thesaid goods in terms of the said Bills of Lading to the plaintiffand that delivery or possession of the said goods were given toother persons by the 1st defendant and/or its agents, servantsor employees fraudulently and/or negligently and/or in breachof the duty in regard to delivery ”, The plaintiff pleaded that inthe premises, the 2nd defendant is also liable in law to theplaintiff for the negligence or fraud or breach of duty aforesaidand/or for the failure to give delivery to the plaintiff and/or forenabling other persons to obtain delivery. The 2nd defendantdenied liability. The case proceeded to trial on various issues.The position of the 2nd defendant was that he is exempted fromliability in terms of the clauses of the Bills of Lading referredto above. The cesser clause relieves him from all claims anddemands of whatever kind, that is to say, without exception, onthe goods leaving the ship’s deck. The clause was operative andeffectual to protect the carrier as long as the exception clauseapplied and was not displaced by any fundamental breach ofthe contract. The exemption is comprehensive. Counselcontended that it is wide enough to absolve the 2nd defendantfrom responsibility for the acts of the 1st defendant of which theplaintiff complaints. Mr. Thiagalingam, founding his submissionson the case Sze Hai Tong Bank. vs. Rambler Cycle Co. (1959) 3A.E.R. 182 (P.C.) conceded that there is an implied limitation onthat clause which cuts down the extreme width of it, so as thateffect could be given to the main object and intent of thecontract. The clause must be modified, in the words ofLord Denning, so as not to permit the Shipping Companydeliberately to disregard its obligations as to delivery TheShipping Company must not do anything to defeat the funda-mental object of the contract, i.e. o make proper delivery of thegoods to the person entitled to receive them under the Bill ofLading. The onus rests on the plaintiff who complains ofnon-delivery of the goods to prove, in the first instance, that thenon-delivery arose from the deliberate disregard by the ShippingCompany of its obligation as to delivery. In the face of theexemption clause, the plaintiff, in order to succeed, has to allegedand prove a fundamental breach of the contract on the par ofthe carrier.
32 SHARVAJNANDA, J.-—-Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd.
It is to be noted that the plaintiff, apart from pleadingnon-delivery of goods, never alleged in the plaint nor raised anyissue that the 2nd defendant committed a fundamental breach ofthe contract as to preclude him from relying on the exemptionclause. Counsel for the 2nd defendant quite properly posited inthe forefront of his case the issues 21 and 22 which were asfollows : —
Were the goods covered by the Bills of Lading, PI toP7 and P8, duly delivered in the port of Colombo–
in accord with the terms contained in such Bills of
in accord with the customs of the port of Colombo and
the laws, rules and regulations pertaining to suchport ?
Jf issue 21 is answered in the affirmative can theplaintiff have and maintain action ?
Counsel for the plaintiff did not raise any issue to counterthese issues framed on the basis of the exception clausecontained in the Bills of Lading PI to P8. The exception clause,prima jacie, operated to protect the 2nd defendant. On theplaintiff’s own admissions in the plaint that the goods were dulylanded ashore in Colombo, the 2nd defendant’s liability ceasedin terms of the Bills of Lading. The burden rested on theplaintiff to plead and establish a fundamental breach of thecontraci by the defendant to render inoperative the exemptionclause providing for cessation of liability. In order to resist thisplea, the 2nd defendant might have shown that his agent, the1st defendant, acted negligently or inadvertantly or fraudulentlyand that, the action of the Shipping Agents cannot, on the facts,be treated as the action of the carrier, their principal. However,the case of the plaintiff, as reflected in its plaint, was that the1st defendant, i.e. the Shipping Agent acted negligently orfraudulently, or in breach of its duties in regard to delivery ofthe said goods. There is a tacit admission that the 2nd defendantdid nothing deliberately to disregard his obligations as todelivery, such as giving away the goods to some passer-by orhad thrown them into the sea. On the plaintiff's admissionscontained in the plaint and on the evidence led by it, the learnedDistrict Judge had no difficulty in answering the aforesaid issue21, raised by the 2nd defendant, in the affirmative. Issue 22should ’hen have been answered in the negative as the plaintiffnever pleaded repudiation of the contract by the 2nd defendant,nor was any allegation made by the plaintiff of a fundamentalbreach of contract as the cause of loss
The question of fundamental breach of contract, though notraised specifically, loomed large in the argument, and it is
•)-—inawn Bank Ltd. v. Sri Lanka Shipping Co., Lt'-.33
necessary to consider whether the 2nd defendant was, in facr,guilty of any fundamental breach of contract a§ to have createda new situation where the exception clause . could not beconstrued to apply.
The authorities in which the doctrine of fundamental breachhas been applied to disentitle a party from relying ona protective provision in the contract have generally been caseswhere the breach was in some way the fault of the deleridant ;and where the nature of the fault, or the seriousness of itsconsequences, or both were such that the relevant protectiveprovision in the contract could, on i*s true construction, not berelied on to excuse the breach. If the breach of one partyevinced ‘‘ a deliberate disregard to his bounden obligations ” (perLord Lening in the Rambler Cycle Co. Ltd, case. (1959) A.C.576 at 588, it would not be covered by an exemption clause. Anegligent or accidental breach, on the other hand, does not havethis effect, unless the negligence amounted to recklessness. Thecase law indicates that the deliberate breach had to be one whichcould be attributed to the contracting party personally. If itcould only be imputed to him vicariously, i.e. through hisservants or agents, it would not consfitute such a departurefrom the terms of the contract as to prevent him from relying onan exemption clause. Thus, in The Chartered Bank of India vs.Hr. India, (1909) A.C. 359, goods were shipped to Penang there' to order or assigns ’ under Bills of Lading which contained thecondition that “ in all cases and under all circumstances, theliability of the company shall absolutely cease when the goodsare free “of the ship’s tackle, and thereupon the goods shall beat the risk, for all purposes and in every respect, of theshipper or consignee ”, The Landing Agents appointed by thedefendants fraudulently delivered the goods to persons otherthan the consignees. It was held by the Privy Council that.aPhough there had been no delivery under the Bill of Lading,the above clause was operative and effectual to protect theship-owner.
The above case was distinguished in Sze Hai Tong Bank vs.Rambler Cycle Co. Ltd. (1959) A.C. 576 which was heavily reliedon by Counsel for the plaintiff, and was the sheet-anchor of hissubmission to nullify the 2nd respondants claim for exemptionIn that case, an English Company had sold bicycle parts toimporters in Singapore. The goods were shipped in thes.s. ‘ Glengarry 1 which belonged to the Glen Line Ltd. Thesellers instructed the Bank of China to collecf the proceeds andrelease the Bills of Lading to the buyers on payment. Thebuyers, however, induced the carriers* agent, in accordance withwhat was alleged to be the common practice there, to deliverthe goods to them, without Bills of Lading, on an indemnity
34 SHAKVANTANT>,4, J. -Indian Bank Bid. v. Sri Banka snipping
given by the buyers and their Bank, the Sze Hai Tong Bank.The buyers never paid for the goods. When the sellers discoveredwhat had happened, they brought proceedings in the High Courtof Singapore against the carriers for damages for breach ofcontract and conversion, and the carriers, brought in as thirdparties the buyers and the Sze Hai Bank, claiming that theywere entitled to be indemnified by the third parties. The HighCourt of Singapore held the carriers to be liable and held furtherthat the Bank should indemnify them. The Bank appealed tothe Privy Council. The relevant Bills of Lading required thegoods to be delivered “unto order or his or their assigns and
provided that the responsibility of the carrier
shall be deemedto cease absolutely after the goods
are discharged from, the shipIn dismissing the appeal.Lord Denning stated :
“It is perfectly clear law that a ship-owner who deliverswithout production of the Bill of Lading does so at his peril.The contract is to deliver, on production of the Bill of Lading, tothe person entitled to receive under the Bill of Lading. In thiscase, it was ‘ unto order or his or their assigns that is to say,to the order of the Rambler Cycle Co. if they bad not assignedthe Bill of Lading, or to their assigns if they did. The ShippingCompany did not deliver to any such person. They are thereforeliable for breach of contract, unless there is some term in theBill of Lading protecting them. And they delivered the goods,without production of the Bills of Lading, to a person who wasnot entitled to receive them. They are therefore liable in
conversion unless likewise protectedIn order to escape
the consequences of the misdelivery, the appellants say that theShipping Company is protected by clause 2 of the Bill of Lading
The exemption, on the face of it, could hardly be
more comprehensive, and it is contended that it is wide enoughto absolve the Shipping Company from responsibility for the actof which the Rambler Cycle Company complains, that is to say,the delivery of the goods to a person who, to their knowledge,was not entitled to receive them. If the exemption clause, uponits true construction, absolved the Shipping Company from anact such as that, it seems that by parity of reasoning they wouldhave been absolved if they had given the goods away to some
passer-by, or had burnt them or thrown them into the sea
There is therefore an implied limitation on the clause
which cuts down the extreme width of itThe clause
must therefore be limited and modified to the extent necessaryto enable effect to be given to 1he main object and intent of thecontract. ” He held that the clause must be at least be modified“ so as not to permit the Shipping Company deliberately to
SHARVANANDA. J. —Indian Bank, Ltd. v. Sri Lanka Shipping Co., Ltd. 35-
disregard its obligations as to delivery. For that was whathappened there ”. The Shipping Company’s agentsin Singapore ackowledged :“ We are doing something
We know we should not do Yet, they did it. As the agentstestified ; “ We get indemnity because we are doing somethingwe know we should not do, but it is common practice. It is anevery day occurrence. We rely on the Bank’s guarantee ’. On thefacts of the case, Lord Denning held that “ they did it as agentsin such circumstances that their acts were the acts of the Ship-ping Company itself. They were so placed that their state ofmind can properly be regarded as the state of mind of the Ship-ping Company itself. And they deliberately disregarded one ofthe prime obligations of the contract. No Court can allow sofundamental a breach to pass unnoticed under the cloak of ageneral exception clause. ” The Chartered Bank case (1909) A.C.369, was distinguished on the basis that the action of thefraudulent servant there could in no wise be imputed to theShipping Company. “ His act was not its act. His state of mindwas not its state of mind. It is true that, in the absence of anexemption clause, the Shipping Company might have been heldliable for his fraud. But that would have been solely a vicariousliability. Whereas, in the present case, the action of the ShippingAgents at Singapore can properly be treated as the action ofthe Shipping Company itself. ” Lord Denning, on a review of thecase law, concluded that, in cases where the action of the servantor agent could properly be treated as the action of the principaland where such servant or agent deliberately disregarded oneof the prime obiligations of the cantract, the principal could nettake advantage of the exemption clause. He observed that itmight have different if he servant or agent had been merelynegligent or inadvertent. In the Singapore case, there was nosuggestion that the Shipping Agents in Singapore, though theyacted deliberately, acted fraudulently in disregarding the obliga-tions under the Bills. They acted in conformity with the commonpractice prevailing in that port. Their principals in London wereprotected by Bank indemnity. In the circumstances, the Courtconcluded that their acts were the acts of their London principals.The agents, when they released the goods against letters ofindemnity provided by the Bank, without insisting on the produc-tion of the Bills of Lading, were not doing anything calculated toprejudice the interests of their principals though they were notexecuting the shipping contract entered into by their principalin terms of its letter. They securred the carrier’s position bygetting an indemnity which was valid and enforceable by thecarrier. No commercial risk was involved by such course. Com-mercial expediency justified such a practice, though it involveda departure from the terms of the contract. Such practice,
36 SHAKY ANANDA, J.—Indian bank Ltd. v. Sri Lanka Shipping Co., Lid.
though reprehensible in law, had its use in trade and did not goouiside reasonable limits. It is to be remembered that trust is thefoundation of trade and risk is the price of such trust. Indemnity,like insurance, is an instrument designed to eliminate allmercantile risks and promote commerce. It is relevant to notethat the Shipping Company, when they were sued by the plain-tiff, brought the Sze Hai Tong Bank as a third party claimingthat they were entitled to be indemnified by them. They thusadopted the action of their agents in taking the indemmity fromthe Bank and delivering the goods without the production ofthe Bills of Lading. In hat context, the agent’s act could beattributed to the principal. The Shipping Company did not appealfrom the order of the High Court, but significantly, it was theindemnifying Bank that appealed to the Court of Appeal inSingapore, and, from the decision of that Court, to the PrivyCouncil on the ground that judgement was not properly enteredagainst the Shipping Company.
InHollins vs. J. Davy Ltd. (1963) 1 A.E.R. 570, the plaintiffgaraged his car on tne terms of a written contract with thedefendants who carried on business as garage proprietors. A maincame to the garage and told the defendants’ servant that he hadbeen, sent by the plaintiff to collect the plaintiff’s car. Theservamt, honestly believing this to be true, allowed the man todrive the car away. It was conceded that in so doing, theservant was negligent. The man stole the car- By condition (A)of the contract, the plaintiff relieved the defendants of allliability for loss of or damage to his car, however caused ; and,by condition (B), the defendants set out that they did not acceptresponsibility for loss or misdelivery of any vehicle whilst intheir hands for any purpose arising from any cause, includingneghgcnce. It was held that the defendants were protected. Aninnocent but mistaken and negligent act of the garage atten-dant was covered by the exemption clause. Any delivery madein error to a wrong person or to a wrong place would be inclu-ded in the word ‘ misdelivery ’ But, delivery to a wrong per-son or to a wrong place made deliberately would appear to beexcluded unless the construction compels otherwise. The viewwas exnressed in the Rambler Cycle Co. case, (1959) , A. C. 576that whereas a neiigent breach could be covered by an ex-emption clause, a wilful or deliberate breach rarely, if ev^r,could be. The House of Lords, in the Suisse Atlantique case(1967) 1 A. C- 361 at 435, firmly rejected the view that deli-berate acts necessarily fell outside the scope of an exemptionclause. ‘ Some deliberate breache may on construc-
tion, within an exemption clause. ”—per Lord .Vilberforce- It isall a matter of construction. T+ may be possible to say thatparties never contemplated that such a breach would be
SHAKVANANDA, J.—Indian Bank Ltd. v. Sri Lanka Shipping Co., Ltd. 37
excused or limited. The deliberate character of* the act is one ofthe elements in reaching a conclusion, but not in itself decisive.
As Lord Justice Davies observed in John Carter vs HansonHaulage (1965), 1 A.E.R. 113 at 123: “From the observationsof Lord Denning in that case (Rambler Cycle Co. case (1959),A. C- 576), it would appear that a fundamental breach disen-titling the party from relaying on an exemption clause occursif an act amounting to a complete depature from the contract isdone which can be imputed to the contracting party himself asopposed to an act for which the contracting party is vicariouslyresponsible as having been committed by one of his servants. Inother words, there must be something amounting to a deliberatebreach of the contract which can be imputed to the contractingparty personally.” With reference to this aspect of the questionLord Justice Russel remarked at page 128 : “To say that becausea master is liable in damages for theft of his servant, he mustbe regarded by virtue of that theft as repudiating the contractand with it an exception clause directed to such an event is anassertion which in my view cannot find support either in princi-ple or authority An intention to repudiate the contract isspelt out of a breach by the carrier of his fundamental obliga-tions. No such intention can be imputed to the carrier fro mhisagent’s default without more.
For ithe reasons set out above, in my view, though the firstdefendant’s servants issued the delivery orders without produc-tion of the Bills of Lading to persons who, to their knowledge,were other than those entitled under the Bills of Lading toreceive them the second defendant is not liable for the non-delivery, as he was protected by the exception clause providedin the Bills of Lading. The plaintiff has failed to show anyfundamental breach of his contract of affreightment on the partof the second defendant.
A person whose goods are lost during transit has alternativeremedier against the carier either for breach of contract or fortort. “ The declaration against a carrier may be framed eitherupon the contract charging the injury as a breach of contract,or refer the duty imposed by law charging the injury as a breachof duty or wrong. ”—Bullen and Leake, 11th Ed. (1959) at page156. “ This does not mean that, if the contract contains exemptionclauses, the plaintiff can disregard the contract and allege awider liability in tort. ”—per Scrution, L.J. in Hall vs, Brook-lands Auto-Racing Club (1933), 1 K.B. 205 at 213. “On thisassumotion the plaintiff, while lawfully using the gangway, wasinjured by the tortious acts or omission of the defendants whowere servants of the Company which had contracted with theplaintiff to carry her as passenger. If her contract with the
36 SHAlt V’ANAXDA, J.— Indian Bank Ltd. v. Sri Lanka Shii>piny Go., Ltd.
Company had no exempting provisions the plaintiff would, as Iunderstand the law, have had separate and distinct rights ofaction : (a) against the Company for breach of contract, oralternatively, in tort on the principle of responded superior and(b) against the defendants as the persons actually guilty of thetortious acts or omissions which caused the damage. The plain-tiff’s right of action against the Company is clearly taken awayby the exempting provisions of the contract but I fail to see howthat can have the effect of depriving her also or her separateand distinct right of action against the defendants as the actualtort-feasors. ”—per Lord Justice Jenkings in Adler vs. Dickson397 at 403. The 1st defendant is a stranger to the contract ofcarriage, though it is the agent of the carrier, the 2nd defendant.Even it the excluding term is an integral partof the contract anci even if its language is apt to meet the situa-tion that has occurred, it may be used only by the contractingparty. No stranger may seek the shelter of its protection. TheBills of Lading PI to P8‘ exclude only the liability of the 2nddefendant and not that of his servants or agents ; but even if thecontract had contained words purporting to exclude the liabilityof the 2nd defendant s servants or agents, non constat that the1st defendant could successfully rely on that exclusion for the1st defendant was not a party to the contract and can neithersued or be sued on that contract—Scruttons Ltd. vs. MidlandSilicones Ltd. (1962), A.C. 446. Since the exemption clause in theBills of Lading cannot relieve the 1st defendant from the con-sequence of the tort of conversion committed by it against theplaintiff the 1st defendant will be liable for the loss sustainedby the plaintiff.
In view of the fact that I hold with Mr. Thiagalingam that the2nd defendant can successfully invoke the exemption clause inthe Bills of Lading, I do not think it necessary to examine thevalidity of his other submissions and I express no opinion onthem. I
I accordingly allow tthe cross-appeal of the 2nd defendant andset aside the judgment and decree entered against him anddismiss the plaintiff’s action against him with costs in bothCourts. I agree with Vythialingam, J. that judgment should beentered for the plaintiff against the 1st defendant as prayed forwith costs in both Courts.
Appeal of plaintiff-appellant against1st defendant allowed. Cross-appealof 2nd defendant allowed andplaintiff’s action against 2nddefendant dismissed.
THE INDIAN BANK LIMITED, Appellant, and SRI LANKA SHIPPING COMPANY LTD., and A