TT Talk - Hong Kong - how can a carrier exclude liability for misdelivery?

The other big issue in the Hong Kong case of Carewins v Bright Fortune Shipping was the carrier's attempt to exclude liability for misdelivery. Clause 2(a) of the carrier's bill of lading stipulated liability subject to US COGSA 1936 for the period between loading onto and discharge from a seagoing vessel. Clause 2(b) excluded liability by saying:

In contrast to Stone J at first instance, who deemed the words of clause 2(b) clear and unambiguous, Mr Justice Ribeiro held, in a rationale very similar to the one used by the Court of Appeal, that clause 2(b) was 'susceptible to more than one meaning', depending on whether or not there was a 'conscious disregard' by the carrier of the presentation rule. Mr Justice Ribeiro did this by considering three different 'levels' of misdelivery:

(1) No negligence on the part of the carrier, for example: a well executed fraudulent bill;

(2) An 'accident' involving negligence on the part of the carrier, for example: delivery under a bill to the wrong address; and

(3) Deliberate disregard by the carrier of its obligation to deliver against an original bill, as was the case here.

Mr Justice Ribeiro considered that clause 2(b) could be given 'adequate content' if it was construed to allow the carrier to avoid liability in cases (1) and (2) only, which were not breaches of fundamental importance. But clause 2(b) with its qualification 'whether or not through negligence' was insufficiently explicit to justify its extension to case (3) where the carrier delivered the goods consciously, i.e. where the question was not whether or not the carrier acted negligently.

Mr Justice Ribeiro reaffirmed the principle that, if wide words of exemption would effectively deprive the contract of any compulsory content, the exemption should be given a narrower meaning that sustains the purpose and legal effect of the contract. As the requirement of delivery only against production was a 'cardinal purpose' of a bill of lading, he held that exempting the carrier in all circumstances of liability for misdelivery would mean to seriously undermine the purpose of bills of lading (incidentally, this 'presentation rule' based reasoning would naturally not directly apply to sea waybills).

Carewins v Bright Fortune Shipping illustrates the very considerable difficulties carriers face when drafting causes that exempt them from liability for misdelivery. The phrase 'whether or not through the negligence of the carrier' might have been added with the intention of making doubly sure that the carrier escapes liability, possibly in knowledge of Lord Wilberforce's judgement in Ailsa Craig Fishing v Malvern Fishing (1983) that an exemption clause had to be worded most clearly and unambiguously' in order to exclude liability for negligence. Unfortunately for the carrier, this additional phrase in fact weakened clause 2(b).

For good measure, Mr Justice Ribeiro added that the word 'misdelivery' itself could be seen as ambiguous, meaning either nothing more than inadvertent misdelivery, or referring to any kind of incorrect delivery, including 'deliberate misdelivery'. Should the carrier define the term 'misdelivery' in the definition clause of his bill of lading, or would this create only more ambiguities? It seems he is caught in the dilemma of 'I've said too much, I haven't said enough'.

This case is a rather extreme application of the 'contra proferentem' rule; maybe the carrier's chances would have been better had his liability for misdelivery not been excluded, but merely limited. Great thought must be given to wording such clauses.

'Save as provided in (a) hereof, the carrier shall be under no liability in any capacity whatsoever for loss or misdelivery of or damage to the goods howsoever caused whether or not through the negligence of the carrier (...)'.

While loss or damage can occur either during or before/after the period defined in clause 2(a), misdelivery would not take place before discharge from the vessel, i.e. is invariably subject to clause 2(b).

Stone J in the High Court (2006) held that the exclusion of liability protected the carrier as it was 'couched in clear terms, with express reference to misdelivery howsoever caused'. He admitted that he did not find this conclusion an attractive result 'in light of the merits as I perceive them', but felt unable to ignore what these words said 'clearly and unambiguously'. He concluded that it was difficult to disagree with the carrier that if the latter could not rely on the exemption in clause 2(b), 'it is not easy to conceive of any clause which could exclude liability for misdelivery'.

The Court of Appeal (2007) felt that clause 2(b) might have been sufficiently clear in this case had it simply excluded liability for 'misdelivery (...) however caused'. However, it held that the further phrase 'whether or not through negligence' qualified the words 'however caused', i.e. curtailed their scope, because misdelivery could also occur intentionally, i.e. without consideration of 'negligence or non-negligence'.

In its judgement of 12 May 2009, the Court of Final Appeal of Hong Kong SAR held, like the Court of Appeal, that the carrier could not rely on clause 2(b). For the proper approach of interpreting clause 2(b), Lord Justice Ribeiro (in the leading judgement) cited Lord Wilberforce who said in Ailsa Craig Fishing v Malvern Fishing (1983) that the effectiveness of a clause limiting liability was 'a question of construction of that clause in the context of the contract as a whole' and in Suisse Atlantique (1967) that contractual intention was to be ascertained 'not just grammatically from the words used, but by consideration of the words used in relation to commercial purpose'.

Then Mr Justice Ribeiro cited Lord Diplock who held in Photo Production v Securicor (1980) that a court was not entitled to reject an exclusion clause, however unreasonable the court itself may think the clause was, provided the words were 'clear and fairly susceptible of one meaning only'. A following case, Motis v Dampskibsselskabet af 1912 (2000), applied this to the context of delivery against a forged bill of lading. There Stuart-Smith LJ held that the court would lean against a clause excluding liability for a breach of fundamental importance if 'as a matter of construction (...) adequate content can be given to the clause'.

Staff Author

TT Club