THE OWNERS OF CARGO LATELY AND ANOTHER v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL "MAHKUTAI" (Indonesian flag)

IN THE COURT OF APPEAL

1993, Nos. 24 and 53
(Civil)

Headnote

Admiralty action in rem against owner of ship - application by owner to permanently stay proceedings in Hong Kong on account of 'exclusive jurisdiction' clause in time charterer's bill of lading - 'bailment upon terms' as per Lord Sumner's speech in Elder, Dempster & Co. Ltd. [1924] AC 522 at 564 considered - whether the judge was correct in concluding that there were no 'strong grounds' shown for the proceedings continuing in Hong Kong, in accordance with the principles in The Eleftheria [1970] P.94.

Held (Court of Appeal, by majority): (1) Owner not entitled to rely on 'exclusive jurisdiction' clause, not being a party to, nor named in, the bill of lading; (2) strong cause justifying the proceedings continuing in Hong Kong had been shown.

Note: Observations on court ordering stay upon undertakings given by the defendant to the court concerning conduct of litigation in foreign jurisdiction, and in particular Hunter JA's dicta in Adhiguna Meranti [1987] HKLR 904 at 917-9.

IN THE COURT OF APPEAL

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J U D G M E N T

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Litton, J.A.:

1. The appellants are owners of cargo lately laden on board the "Mahkutai" a vessel registered in Indonesia. The respondents P.T. Pelayaran Nusantara Mahakam, an Indonesian corporation, are the owners of the vessel. On 12 March 1991 the cargo-owners caused a writ of summons to be issued indorsed as follows:

"The plaintiffs' claim is for damages for breach of contract and/or duty and/or for negligence in and about the carriage of 930 bundles of plywood from Tanjung Priok Indonesia to Shantou China and Hong Kong on board the defendants' vessel "Mahkutai" in a voyage which took place in February/March 1991".

2. On 13 March 1991 the vessel was arrested in Hong Kong. In applying for the warrant of arrest the plaintiffs' solicitor made an affidavit pursuant to Order 75 rule 5 para. 10(c) of the Rules of the Supreme Court.

3. Paragraphs 6 and 7 of that affidavit states:

"6. As to paragraph 8(b)(i) of the said rule, the person who would be liable on the claim in an action in personam is P.T. Rejeki Sentosa Shipping of Indonesia, the registered owners of the m.v. Mahkutai.

7. As to paragraph 8(b)(ii) and 8(b)(iii) of the said rule, I verily believe that P.T. Rejeki Sentosa Shipping was when the cause of action arose, the owners of said vessel and at the time of the issuance of the writ they were the beneficial owners of all the shares in the ship .....".

4. The solicitor was mistaken in this regard. The Indonesian company P.T. Rejeki Sentosa Shipping ("Sentosa") was in fact the charterer of the vessel under a time charter dated 11 October 1989 for an initial period of 12 months which was extended for a further term of 12 months by a memorandum dated 16 November 1990. This mistake seems, however, not to have been perceived by the ship-owners, nor their solicitors, as no application for discharge of the warrant of arrest was made. Instead, the shipowners caused a guarantee to be issued by the Standard Chartered Bank in the sum of US$600,000 and pursuant to this, by agreement between the parties, the vessel was released.

5. On 5 December 1991 the shipowners took out a summons for an order that all further proceedings be stayed on the following grounds:

"(i) That the plaintiffs herein have agreed to refer and submit all disputes arising out of or in connection with the matter in respect of which this action is brought to be determined and adjudicated on by the courts of the Republic of Indonesia in accordance with Indonesian Law and/or

(ii) that the Indonesian courts are in all the circumstances the appropriate and natural forum for the trial of this action."

6. This application was heard by Sears J on 4th and 5th February 1993. At the conclusion of the hearing he found in favour of the shipowners and ordered that the proceedings be permanently stayed and that the security provided by the shipowners be discharged. The judge gave his reasons in two parts. In part I, which dealt with paragraph (i) of the shipowners' summons, the judge held that the parties were bound by the exclusive jurisdiction clause, clause 19, in the bill of lading No. JKSH-01 dated 19 January 1991 issued in Jakarta in respect of the 930 bundles of plywood. Clause 19 states:

"19 Jurisdiction Clause The contract evidence by the Bill of Lading shall be governed by the law of Indonesia and any dispute arising hereunder shall be determined by the Indonesian courts according to that law to the exclusion of the jurisdiction of the court of any other country".

7. Part I of Sears J's judgment is now under appeal in Civil Appeal No. 24 of 1993.

8. In part II of his judgment Sears J dealt with paragraph (ii) of the shipowners' summons and, in accordance with the principles set out in "The Eleftheria" [1970] P.94 concluded that, in the exercise of the court's inherent jurisdiction, a permanent stay of the proceedings should be granted. This was, however, upon the basis of an undertaking given by counsel on behalf of the shipowners to the court that Article 474 of the Indonesian Commercial Code - which provides a severe monetary limit on cargo claims in the Indonesian courts - would not be pleaded by the shipowners if the plaintiffs should bring proceedings in those courts for damages. Part II of Sears J's judgment is the subject matter of a separate appeal No. 75 of 1993, but heard at the same time as CA No. 24/93.

Exclusive jurisdiction clause

9. The point made to the judge on behalf of the cargo-owners, and repeated in this court, is this: the exclusive jurisdiction clause, clause 19, appears in a bill of lading ("Jakarta bill of lading") issued by the time charterer Sentosa to which the shipowner was not a party; the cargo-owners' claim in rem is in any case not confined to a claim for damages for breach of the contract of carriage; there is an alternative claim for breach of "duty" which could either be a duty arising from bailment or the tortious duty of care; in respect of their claim for breach of "duty" there can be no question of the plaintiffs having agreed with the defendants to have their claims determined by the Indonesian courts.

10. In the court below the cargo-owners relied heavily upon a bill of lading, bearing the same number as Jakarta bill of lading, but issued in Hong Kong on 25 January 1991 by Aspac Maritime Management Company Limited as "agent of the vessel", purporting to evidence the loading of the 930 bundles of plywood on board the "Mahkutai", that bill of lading stating that the goods were shipped at the port of loading in apparent good order and condition for carriage to Shantou. Curiously, this bill of lading was not exhibited by the plaintiffs; it was exhibited as a photocopy to the affidavit of the solicitor for the defendant shipowners. The defendants strenuously deny the genuineness, validity and legal effect of this purported bill of lading.

11. Sears J was, understandably, extremely skeptical about the value of this so-called bill of lading, issued in Hong Kong six days after the vessel had left Indonesia on its voyage to Shantou. There was no affidavit evidence from the cargo-owners explaining how this bill of lading came about; there was, however, exhibited to the shipowners' solicitors affidavit a photocopy of a letter of indemnity signed by Youngsun Development, one of the cargo-owners, dated 24 January 1991, stating that they were the current holders of the Jakarta bill of lading (No. JKSH-01) and asked Aspac Maritime Management Company Limited, for their "sole convenience only", to issue "fresh sets of bills of lading" which would "co-exist contemporsrily [sic] with B/L No. JKSH-01, and in which quantity of cargo of these fresh sets will be part of that on B/L No. JKSH-01". Conveniently for the cargo-owners, the bill of lading dated 25 January 1991 ("Hong Kong bill of lading") contained no exclusive jurisdiction clause, but applied the Hague-Visby Rules instead.

12. It is clear from Sears J's judgment that much of the hearing before him was concerned with the Hong Kong bills of lading. This coloured much of his conclusion in consequence. No evidence was led to the effect that Aspac Maritime Management Company Limited were the shipowners' agents. The defendants' solicitor's assertion that Aspac Maritime Management Company Limited was not such an agent was never challenged. In these circumstances it is not surprising that the judge placed no reliance upon the photocopies of the Hong Kong bill of lading.

13. On appeal before us, Mr. Geoffrey Ma, QC, counsel for the cargo-owners, places no reliance upon the Hong Kong bill of lading for the purposes of his argument. He says this: assuming for present purposes that the cargo-owners derive their property rights as indorsees and holders of the Jakarta bill of lading, nevertheless the defendants cannot rely on the exclusive jurisdiction clause because they were never parties to that bill of lading; if the cargo-owners had commenced their proceedings in Hong Kong against the despondent owner, Sentosa, in an action in personam, they would of course have been met by the exclusive jurisdiction

clause, since Sentosa as the carrier named in the Jakarta bill of lading is entitled rely on that clause to meet any claim against them for damages for breach of the contract of carriage; but Sentosa is not being sued; a claim against the shipowners in bailment and/or in negligence cannot be met by an exclusive jurisdiction clause appearing in the charterers' bill of lading.

14. To make good his point, Mr. Ma relies heavily on the underlying relationship between the parties as described by Mr. Andrew Charles Wilding, solicitor for the shipowners. The facts, as stated in the affidavit, are these:

(1) In January 1991 the "Mahkutai" was chartered to Sentosa under a time charter.

(2) Sentosa as despondent owners entered into a sub-voyage charter with an Indonesian timber exporter PT Jabar Utama Wood Industry ("Jabar") as charterers to carry a cargo of 1,700 cubic metres of plywood from an Indonesian port to Shantou China. Pursuant to this fixture the vessel was ordered by Sentosa to Tanjung Priok for loading on about 16 January 1991.

(3) On 17 January 1993 the vessel was loaded with the cargo of plywood; pursuant to this Sentosa, through their agents Gesuri Lloyd, issued a shipping order requesting the officer in charge of the vessel to receive from Jabar the plywood and in the same shipping order the master of the "Mahkutai" acknowledged receipt of the cargo on board. (The signature of the master appears alongside a round chop which has the name of the vessel in the middle and the name of the shipowner on the outside).

(4) On 19 January 1991 bills of lading were signed by Gesuri Lloyd on Sentosa's behalf and on Sentosa's form and dated "Jakarta 19 January 1991". The defendants' solicitor in his affidavit went on to say: "it will be seen that the bill was signed by the time charterers' agents Gesuri Lloyd as agent for the carrier, named as Sentosa. Express authority to sign the bill so as to acknowledge receipt of the goods on board of the vessel is to be found at page 20" [emphasis added]; the reference to page 20 is a reference to an authorization letter signed by the master and is in these terms :

" Jakarta, 18th January 1991

Messrs,
P.T. Gesuri Lloyd at Port of To. Prick

Dear Sirs,

Re : Authorization Letter

This is to certify that I, the Master of MV. "MAHKUTAI" under the Indonesian flag, authorize you to sign for and on my behalf the Bill of Lading, in accordance with Mate's Receipts and relevant Charter Party cargo Plywood in Bundles, loaded on my Vessel at the Port of Tanjung Prick, to Hong Kong, Shantou (China).

Yours truly,

The Master of MV. "MAHKUTAI"

(5) The expression "carrier" in the Bill of Lading is defined as "P.T. Rejeki Sentosa Shipping".

15. On these facts, Mr. Ma submits, it is plain that the cargo-owners, as holders of the bill of lading, were only in contractual relationship with the time charterers as carriers under the bill of lading and not with the shipowners; no consideration moved between the shipper and the shipowner; the freight was not payable by the shipper to the shipowner but to Sentosa; from the shipowner's side, the engagement to have the vessel "to be employed for the carry of General Cargo" (Article 1 of the time charter as translated into English) was made to Sentosa by the shipowner, not to the shipper.

16. To reinforce the point, reference is also made to Article 10 of the time charter whereby Sentosa was given express authority to issue bills of lading and the shipowner is absolved of all responsibility thereunder. The document is in Indonesian but a translation of Article 10 has been put before us:

"Article 10

Use of Bill of Lading The charterer shall use its own Bill of Lading/shipping document and shall be liable for any legal consequences that may arise in the future, and the shipowner shall be held harmless of any liability/legal claim".

The shipowners' case

17. As the shipowners invoke the inherent jurisdiction of the court to stay the Hong Kong proceedings, the burden of showing that the cargo-owners have agreed to the exclusive jurisdiction of the Indonesian courts is upon them.

18. Their present predicament stems from this fact : the arrest of the vessel in March 1991, on the basis of the plaintiffs' solicitor's affidavit, was plainly wrong. Those solicitors, through no fault of theirs, believed that Sentosa was the owner of the vessel at the time of the issuance of the writ and was the beneficial owner of all the shares in the ship, and was therefore "the relevant person" for the purposes of Order 75 r5(8)(b)(ii) of the Rules of the Supreme Court. This paragraph states:

"(8) An affidavit required by paragraph (4) must state -

(b) in the case of a claim against a ship ........

(i) the name of the person who would be liable on the claim in an action in personam ("the relevant person"); and

(ii) that the relevant person was when the cause of action arose the owner or charterer of, or in possession or in control of, the ship in connection with which the claim arose; and

(iii) that at the time of the issue of the writ the relevant person was either the beneficial owner of all the shares in the ship in respect of which the warrant is required or (where appropriate) the charterer of it under a charter by demise...."

19. Unfortunately for the shipowners, these defects in the proceedings were not perceived and, instead of applying to have the warrant of arrest discharged, security was put up by them for the cargo-owner's claims. It can be seen therefore that the present set of facts is most unusual: the "Mahkutai" belonging to the defendants was arrested in respect of a claim targeted not directly at them but at Sentosa; but the defendants nevertheless put up security for the claim, in order to have the vessel released; it is obviously far too late for them now to challenge the legality of the arrest in the first place.

20. For the shipowners, Mr. Michael Thomas QC makes the following points.

Shipowners as principals

21. First, the evidence as a whole shows that the Jakarta bill of lading was issued by Gesuri Lloyd for the charterers on behalf of the owners/master of "Mahkutai". For this argument, Mr. Thomas relies heavily on the authorisation letter where the master says: "I, the master of M.V. "Mahkutai" under the Indonesian flag, authorise you [Gesuri Lloyd] to sign for and on my behalf the Bill of Lading in accordance with Mate's Receipts and relevant Charter Party cargo Plywood in Bundles, loaded on my Vessel ... to Hong Kong, Shantou (China) ....". In my judgment, there are at least two substantial objections to this argument: (a) It contradicts the express terms of the bill of lading which plainly identifies Sentosa as the carrier and not someone else. (b) It contradicts Article 10 of the time charter.

22. The bill of lading was delivered to the shipper Jabar in exchange for the Mate's Receipts ("shipping order") which plainly operated as a receipt for the goods; nothing suggests that the master, by the authorisation letter, intended the bill of lading to operate as more than a receipt for the goods loaded on board his ship.

23. As a variation on the same theme Mr. Thomas also relies upon the definition of "carrier" in the bill of lading as including "subsidiary companies on whose behalf the bill of lading has been signed". The argument is that the shipowner should, for the purposes of this definition, be regarded as a "subsidiary company". This argument stretches the meaning of that expression beyond all limits and is, in my judgment, unsound.

24. In my view the defendants were not principals to the contract of carriage evidenced by the Jakarta bill of lading and Mr. Thomas' first argument fails.

Himalaya clause

25. Second, Mr. Thomas argues that if the shipowner was not a party to the contract of carriage, it was nevertheless entitled to the benefit of the exclusive jurisdiction clause by reason of clause 4 of the bill of lading which reads:

"Sub-contracting

(i) The Carrier shall be entitled to sub-contract on any terms the whole or any part of the carriage, loading, unloading, storing, warehousing, handling and any and all the duties whatsoever undertaken by the Carrier in relation to the Goods.

(ii) The Merchant undertakes that no claim or allegation shall be made against any servant, agent or sub-contractor of the Carrier, including but not limited to stevedores and terminal operators, which imposes or attempts to impose upon any of them or any vessel owned by any of them any liability whatsoever in connection with the Goods, and, if any such claim or allegation should nevertheless be made, to indemnify the Carrier against all consequence thereof. Without prejudice to the foregoing, every such servant, agent and sub-contractor shall have the benefit of all exceptions, limitations; provision, conditions and liberties herein benefiting the Carrier as if such provisions were expressly made for their benefit, and, in entering into this contract, the Carrier, to the extent of these provisions, does so not only on his own behalf, but also as agent and trustee for such servants, agents and sub-contractors. The Carrier shall be entitled to be paid by the Merchant on demand any sum recovered or recoverable by such Merchant from any such servant, agent or sub-contractor of the Carrier for any loss, damage, delay or otherwise.

(iii) The expression "Sub-Contractor" in this clause shall include direct and indirect sub-contractors and their respective servants and agents."

26. This "Himalaya clause", as Mr. Thomas argues, has the effect of extending the benefit of defences and immunities conferred by the bill of lading on the carrier Sentosa to "subcontractors" and "agents" and he relies on Port Jackson Ltd. v. Salmond and Spraggon Ltd. [1981]1 WLR 138 at 142 for this purpose.

27. The argument boils down to this: the carriage of the goods was effected by the master and crew operating the ship; the master and crew were servants of the shipowners and, for this purpose, are to be treated as the shipowners; Sentosa as the carrier is therefore to be treated as having either sub-contracted or delegated to the shipowners the obligations of carriage of the goods.

28. This argument, as can be seen, is highly artificial. It contradicts the first argument where, it is said, the shipowner was a principal party to the contract of carriage and therefore not subcontractor or agent.

29. In the course of argument reference was made to be case of Midland Silicones Ltd. v. Scruttons Ltd. (1962) AC 446 where the House of Lords left open the question whether stevedores could be protected by an exemption clause contained in a contract of carriage to which they were not parties if the carrier contracted as agent on their behalf. Their Lordships held that, as a matter of construction, there was nothing in the bill of lading which could lead to the conclusion that the parties intended the limitation of liabilities to extend to the stevedores. Lord Reid at 474 said he could see the possibility of the agency argument succeeding if four conditions were satisfied:

(1) The bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability;

(2) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore;

(3) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice; and

(4) that any difficulties about consideration moving from the stevedore were overcome.

30. In my judgment the shipowner here falls at the first hurdle. The Jakarta bill of lading does not make it clear that the shipowner is intended to be protected by clause 19. Quite the reverse. The carrier Sentosa is the party who undertook to carry out the primary obligations of the contract of carriage vis-a-viz the shipper Jabar; and, as regards the shipowner Sentosa as the carrier was simply exercising its rights as disponent owner under the terms of the time charter. Under the terms of that contract the shipowner provided the ship, arranged for annual docking and other matters to keep the vessel's class certificate, paid the salary and other allowances of the master and crew and provided fresh water and lubricating oil. All other costs and disbursements, including fuel costs, were on the charterer's account. The charterer gave instructions to the master regarding the pick-up of cargo in ports and directed the ship's destination. The charterer arranged, through port agents, the procedures for entering and clearing port and paid all port dues. And, of course, it was the charterer who solicited from shippers the cargo to be carried in the first place. Nothing suggests that the shipowners intended that the time-charterers should enter into contracts for the carriage of goods on their behalf, acting as their agents. What the time charter does envisage

is that the shipowners might act as Sentosa's port agents : see Article 6 of the English translation. This reinforces the argument that the primary obligation vis-a-viz the shipper to have the cargo carried to Shantou was not intended to be delegated to the shipowner.

31. It would, in my judgment, be highly artificial and contrary to the parties' intentions to regard the owner as either the charterer's subcontractor or its agent for the purposes of discharging the charterer's obligations under the contract of carriage. Nothing in the Jakarta bill of lading admits of such a construction.

32. It is worth recalling what the Privy Council said in New Zealand Shipping v. Satterthwaite Ltd. [1975] AC 154 at 166 concerning Midland Silicones : "There is no need to question or even to qualify that case in so far as it affirms the general proposition that a contract between two parties cannot be sued on by a third person even though the contract is expressed to be for his benefit". Here the exclusive jurisdiction clause in the bill of lading is not expressed to be for the shipowners' benefit.

Bailment upon terms

33. Third, Mr. Thomas argues that the relationship as between Jabar and the shipowner in relation to the plywood loaded on board the vessel was that of bailor and bailee; the goods were bailed to the shipowner, acting through its servant the master, on terms of the Jakarta bill of lading; as bailee, the shipowner attorns to anyone who is the lawful holder of the bill of lading and has the right to demand possession of the goods. For this purpose Mr. Thomas relies in particular upon a passage of the judgment of Lord Sumner in Elder, Dempster and Co. Ltd. v. Paterson, Zochonis & Co. [1924] AC 522 at 564 to this effect:

"It may be, that in the circumstances of this case the obligations to be inferred from the reception of the cargo for carriage to the United Kingdom amount to a bailment upon terms, which include the exceptions and limitations of liability stipulated in the known and contemplated form of bill of lading. It may be, that the vessel being placed in the Elder, Dempster & Co.'s line, the captain signs the bills of lading and takes possession of the cargo only as agent for the charterers, though the time charter recognizes the ship's possessory lien for hire. The former I regard as the preferable view, but, be this as it may, I cannot find here any such bald bailment with unrestricted liability, or such tortious handling entirely independent of contract, as would be necessary to support the contention."

34. This passage was considered recently by this court in The Owners of Cargo Lately Laden on Board the vessel "KH Enterprise" v. Owners of the vessel "Pioneer Container" (CA No. 79/91, Cons V.-P., Power JA and Godfrey J, 10 April 1992, unreported). This court there said that the passage in Lord Sumner's judgment above was "the first hint that a bailee might be affected by terms to which he was not contractually a party": see p.13 of the judgment. After reviewing the authorities, this court came to the view that Lord Sumner's proposition in Elder, Dempster and Co. Ltd. had become part of our law.

35. The argument runs thus: Bailment is distinct from contract and therefore not fettered by the doctrine of consideration; "the legal concept of bailment as creating a relationship which gives rise to duties owed by a bailee to a bailor is derived from Roman law and is older in our common law than the legal concept of parol contract as giving rise to legal duties owed by one party to the other party thereto" per Diplock LJ in Morris v. Martin at 731. The bailee as a "stranger" to the contract of carriage might therefore benefit from the exceptions and limitation in that contract without being in contractual relationship with the owner of the goods.

36. How, then, does the proposition work in practice in the context of a case such as this? It might, I suggest, be as follows:

(i) A (the bailor) delivers possession of his goods to B (the bailee) for certain purposes and expressly or impliedly consents to B entrusting those goods to C (the sub-bailee). Clearly, there is no contractual relationship between A and C.

(ii) In the contract of sub-bailment C has stipulated for certain terms for his own protection, such as limitations of liability. A knows nothing of those terms.

(iii) In proceedings by A against C for loss or for damage to the goods, C is entitled to invoke the sub-bailment terms and conditions in defence to A's suit.

37. The proposition is clearly set out in Lord Denning's judgment in Morris v. C.W. Martin & Sons [1966]1 QB 716 at 729-30, developing the same line of reasoning in his own dissenting judgment in Midland Silicones at 489:

"One special feature of the law of bailment is that the bailee can make a contract in regard to the goods which will bind the owner, although the owner is no party to the contract and cannot sue or be sued upon it. The contract must, no doubt, be of a category which the owner impliedly authorised the bailee to make, such as a contract for repair, storage, loading, unloading or removal; but, provided it is impliedly authorised, the true owner is bound by it. (By "authorised" in this context I do not mean authorised so as to make the owner the principal to the contract. I mean only that the owner impliedly consented to the bailee making the contract on his (the bailee's) own behalf.)".

38. The case of Singer Co. v. Tees and Hartlepool Port Authority (1988)2 L1LR 164 provides an example of the application of this principle. Singer Co., the owner and bailor of the goods, had delivered them to freight-forwarders who in turn entrusted the goods to the Port Authority. The parties were dealing with each other upon a principal to principal basis. The goods were damaged in the course of handling by the Port Authority. In the contract of sub-bailment, as between the freight-forwarder and the Port Authority, there were conditions limiting the Port Authority's liability. Steyn J held that the bailor, Singer Co., was bound by the Port Authority's conditions as it had impliedly consented to the bailee (the freight-forwarder) making a sub-bailment containing those terms.

39. In so deciding, Steyn J in Singer Co. v. Tees and Hartlepool Port Authority followed the reasoning in Lord Denning's judgment in Morris v. Martin (1966)1 QB 716 at 729-30.

40. The doubts and reservations harboured by successive generations of common law judges in accepting "bailment upon terms" as an established principle of law are understandable. If A the bailor has entrusted his goods to B the bailee, and B has imposed no limitations on liability, why should the conditions of the sub-bailment as between B and C, to which A was not a party, be binding upon A? The answer seems to be this: it is not a consequence imposed by law; the court would only hold A bound if he has expressly or impliedly consented to a sub-bailment containing those conditions. This immediately circumscribes the scope of this doctrine. In Morris v. Martin for instance, the owner of the fur was told by the furrier (the bailee) that he did not do cleaning himself and it was agreed that the fur should be sent to the defendants, well-known cleaners. The standard terms of trade were well-known to the furrier. There is no difficulty there in imputing to the owner her acceptance of those terms. Where the terms of the sub-bailment are usual in the trade and are ones which A might reasonably be presumed to have known about, a finding that A is bound would not seem unjust. At the other end of the spectrum are instances of unusual and oppressive terms, where the imputation of knowledge on A's part would not be made.

41. How do these principles apply in the present case? Mr. Thomas' argument runs along these lines:

(i) Jabar entrusted the goods to the shipowners as bailees; (Mr. Thomas expressly disclaimed the suggestion that the shipowners were sub-bailees, taking the goods from Sentosa as bailees);

(ii) the bailment was upon the terms of the Jakarta bill of lading;

(iii) any one deriving title to the goods from Jabar would be bound by the same terms of bailment.

42. The problem with this argument, as I see it, is that it is not an application of the principle in Lord Denning's judgment in Morris v. Martin, as adopted by this court in The Pioneer Container CA 79/91. In those cases where the "bailment upon terms" argument has succeeded, the sub-bailee C has taken the goods from the bailee B upon terms, and it is those terms which are said to bind A the bailor. Here, it matters not whether one regards the shipowners as bailees or sub-bailees; they had imposed no terms on anyone. Not having imposed any terms, I cannot how they can take advantage of them, once it is found that the terms were not made for their benefit: in other words, that the "Himalaya clause" argument fails.

43. Mr. Thomas relies heavily on Johnson Matthey v. Constantine Terminals [1976]2 L1LR 215 where a consignment of silver grain was entrusted to forwarding agents who in turn entrusted the consignment to Constantine Terminals for temporary storage. Donaldson J's findings were these:

(i) The plaintiffs, in entrusting the consignment to the forwarders, knew that it would be in the custody of Constantine Terminals for a time during the journey.

(ii) The plaintiffs knew that the forwarders traded on certain standard terms, as they did themselves.

(iii) The plaintiffs' shipping manager admitted in evidence that it would not have surprised him if Constantine Terminals had traded on the same terms, and that it was normal to trade on such terms.

(iv) Constantine Terminals' conditions, limiting liability, were not materially different from the forwarder's standard terms.

44. On these facts, Donaldson J inferred that the plaintiffs consented to a sub-bailment on Constantine Terminals' conditions.

45. As it appears to me, Johnson Matthey v. Constantine Terminals is a classic illustration of what Lord Denning meant by bailment on terms in his judgment in Morris v. Martin and in Midland Silicones.

46. The passage in Johnson Matthey v. Constantine, at p.222, upon which Mr. Thomas particularly relies is this:

"But the plaintiffs cannot prove the bailment upon which, in my judgment, they must rely, without referring to terms upon which the silver was received by Constantine Terminals from International Express [the forwarders]. These terms established (a) that Constantine Terminals were bailees for reward but also (b) that the implied duties of such bailees were qualified by exceptions."

47. I cannot see how this passage helps the shipowners in this case. Whether they were bailees, receiving the goods direct from the shipper Jabar, or sub-bailees, receiving the goods from the charterers Sentosa, they, unlike Constantine Terminals, had imposed no terms. The closest which Mr. Thomas gets to equating the facts of the present case with those in Johnson Matthey v. Constantine Terminals is by referring to the authorisation letter dated 18 January 1991, where the master of the "Mahkutai" authorized Gesuri Lloyd to sign for and on his behalf the bill of lading. In my judgment, it is not possible to construe that arrangement as incorporating all the terms and conditions of the bill of lading, as if those were the terms and conditions of the bailment, without doing violence to the language of that document. As I have already held, the sole effect of the authorisation letter is to authorise Gesuri Lloyd to acknowledge receipt of the goods, in exchange for the Mate's Receipt: the Mate's Receipt, by definition, is no more than an acknowledgment of the receipt of the goods on board and has nothing to do with the contract of carriage.

48. In my judgment, the shipowners were bailees pure and simple and in proceedings based upon bailment they must disprove negligence in relation to the damage to the goods by seawater. In this regard, they are not entitled to take advantage of any of the terms and conditions in the charterer's bill of lading.

49. In my judgment, the argument based upon bailment on terms fails as well.

Conclusion

50. We have had the benefit of far fuller arguments than the judge did in the court below. Much of the consideration of the case by the judge turned on whether the Hong Kong or the Jakarta bills of lading governed the relationship of the parties. The judge concluded that the Jakarta bill of lading was an owner's bill of lading. I am satisfied that, in this regard, he was in error. The shipowners were strangers to that contract of carriage and, in my judgment, cannot assert that as between themselves and the cargo-owners, the latter have agreed to be bound by the exclusive jurisdiction clause.

51. As regards the plaintiffs' claim against the defendants as bailees, the judge placed reliance on Elder, Dempster & Co. Ltd., but the facts of that case are different, and it is only the brief passage in Lord Sumner's judgment at 564 which could be said to lend support to this proposition. In Elder. Demnster & Co. Ltd. the bills of lading expressly stipulated that the shipowners should not be liable for any damage arising from other goods by stowage or contact with the goods shipped under the bills of lading. The view of the majority in the House of Lords seems to be that although the owners were not directly parties to the contract of carriage, they took possession of the goods on behalf of and as the agents of the charterers, and were therefore entitled to claim the same protection as their principals: see, for example, Vicount Cave at 534.

52. In my judgment, the judge erred in concluding that clause 19 in the Jakarta bill of lading prevented the plaintiffs from pursuing their claim in the Hong Kong courts.

53. Having reached this point, it is not necessary to deal with Part II of Sears J's judgment, namely, the exercise of the discretion to order a stay of the Hong Kong proceedings in accordance with the principles set out in The Eleftheria; this exercise of discretion only becomes relevant where the court concludes that the plaintiffs have agreed to exclusive jurisdiction being conferred on the Indonesian courts and seek to show "strong cause" to justify the proceedings continuing in Hong Kong. As the point has been argued before us I will for the sake of completeness deal with it. In this regard it should be borne in mind that many factors go into the equation and this is an exercise of judicial discretion which should not be lightly disturbed: see Lord Templeman in The "Spiliada" [1987]1 AC 460 at 465F-G.

54. The judge, however, did not order the stay of the Hong Kong proceedings unconditionally; he ordered the stay upon the basis of an undertaking given by the shipowners that Article 474 of the Indonesian Commercial Code would not be pleaded in the event of the claim being pursued in the Indonesian Courts. The effect of the evidence is that if Article 474 were not relied on by the defendants, the monetary limit, based on the application by the Indonesian Courts of the Hague Rules, was likely to be US$280,000. Upon the strict application of Article 474 of the Indonesian Commercial Code, the claim would be limited to barely US$1,500. The justice of such an undertaking being required is readily apparent.

55. The point which concerns me, however, is this: What is the effect of such an undertaking, given to a Hong Kong court, in proceedings in Indonesia? What are the sanctions in Indonesian law for breach of such an undertaking? The evidence is wholly silent on the point. Hunter JA expressed misgivings concerning such undertakings

given in Hong Kong proceedings in the Adhiguna Meranti [1987] HKLR 904 at 917-9. It is no answer to say that contempt proceedings could be initiated in Hong Kong in the event of a breach of that undertaking since by the time such occasion should arise the security put up by the defendants in the Hong Kong proceedings would have been long discharged. There is no evidence that the defendants have any assets within the jurisdiction. In making the remarks as I have done concerning the undertaking not to plead Article 474 I am not unmindful of the remarks of this court in "The Lanka Muditha" CA 101/90 (7 March 1991, unreported) where undertakings were given. This court concluded that the judge erred in holding that it was inappropriate to attach undertakings to an order for stay, and in disregarding the undertakings given, particularly the undertaking to submit to the jurisdiction of the New York court.

56. In exercising his discretion, the judge referred to a number of factors showing a strong link with Indonesia. What the judge did not elaborate upon is the relevance of such factors to the proper trial of the action. The cause of the damage to the cargo, as alleged by the plaintiff, is the incursion of seawater into the holds whilst the ship was in the South China Sea and she deviated from her voyage to Manila for repairs. The cargo of plywood was eventually discharged in Shantou, China. The evidence most likely to be of relevance is that relating to the survey, if such be performed, and repairs in Manila, and the state of the cargo upon discharge in Shantou. None of this has connection with Indonesia as such.

57. As has been pointed out by counsel for the appellants, most of the documents in this case is in English, including the exchange of telexes between the parties.

58. The point which appears to me to be strongly in favour of the proceedings continuing in Hong Kong is the existence of security in the form of the bank guarantee provided by the Standard Chartered Bank. It is in these terms:

"To:

The Owners of and/or other persons interested in the cargo (hereinafter referred to as the "cargo owners")

In consideration of you releasing from arrest the M.V. "Mahkutai" and provided A.J. Folio 71 of 1991 is not stayed, you refraining from re-arresting the M.V. "Mahkutai" or taking any other action of whatever nature for the purpose of founding jurisdiction and/or obtaining security and/or enforcing any judgment or settlement in respect of any claim arising out of the above mentioned voyage against the owners, on behalf and at the request of CIC - Union Europeenne Int's ET CIE, Singapore branch acting for the owners, we Standard Chartered Bank of 14th floor, 4-4A Des Voeux Road Central, Hong Kong hereby undertake to pay to you on your written demand such sum as may be adjudged by the Supreme Court of Hong Kong or as may be agreed to be due to you from the owners of demise charterers in respect of the said claim inclusive of interest and costs provided that the total of our liability hereunder shall not 'exceed the sum of United States Dollars Six Hundred Thousand (USD600,000).

Any claims under this guarantee shall be in writing and addressed to Standard Chartered Bank, Import and Export Department, Hong Kong Main Office.

This guarantee shall be a continuing guarantee and shall be subject to determination at our sole discretion by giving you one month's notice in writing".

59. No evidence has been put before the court that the defendants have any assets in Indonesia or anywhere else apart from the ship itself.

60. The bank guarantee clearly does not cover proceedings in Indonesia. The security provided by the bank guarantee would be of no value to the plaintiffs once the

61. Hong Kong proceedings are permanently stayed. To pursue reliefs in Indonesia may well be totally in vain.

62. It seems to me that these are powerful considerations which argue in favour of the proceedings continuing in Hong Kong. Of course, as far as the limitation of liability, in accordance with Indonesian law, is concerned, the plaintiffs will derive no great advantage in having the proceedings continuing in Hong Kong since Indonesian law would apply to govern the terms of the contract. But as regards the plaintiffs' alternative claims in bailment and for tortious liability in negligence Indonesian law will not apply.

63. The exercise of this jurisdiction involves a great number of factors, some highly complex. It is not clear how many of these factors were argued before the judge. He had much material to contend with. But, as there are a number of relevant considerations which appear not to have been considered by him, I feel that we are justified in exercising the discretion afresh. Taking all the factors into consideration, I am persuaded that strong cause has been shown in this case for denying a stay. I would therefore allow the appeal on this point as well.

Civil Appeal No. 53/93

64. This appeal is against the order made by Sears J on 29 March 1993 requiring the plaintiffs to deliver to the defendants the Standard Chartered Bank guarantee, following the permanent stay of the Hong Kong proceedings which he had previously ordered. To enable a meaningful appeal against this order to be pursued, he stayed the effect of his own order pending the hearing of the appeal. The plaintiffs lodged their notice of appeal on 31 March 1993 and this is CA No. 53 of 1993.

65. The plaintiffs' argument in a nut-shell, is as follows:

(a) The bank guarantee was a matter of private arrangement between the

parties, leading to the plaintiffs consenting to the vessel being released; the court had therefore no jurisdiction to order its discharge and the return of the instrument to the defendants;

(b) in any case it was a wrongful exercise of the judge's discretion since, at the time when he made the order on 29 March 1993, the Notice of Appeal in CA No. 24/93 had already been lodged.

66. It would be convenient to deal with point in para (b) first, to clear the deck for the more substantial point in para (a). In my judgment, the judge took a robust and sensible course. Coming to a clear view, as he did, that the Hong Kong proceedings should be permanently stayed, it was logical to order the discharge of the security and the return of the instrument, if he had the jurisdiction to do so. The evidence was that so long as the bank guarantee was in place, the defendants incurred loss by way of interest on the amount represented by the bank guarantee: US$600,000. I would not therefore consider point (b) a valid argument.

67. As regards (a), the context in which the judge made his order is important. The security put up by the defendants was inextricably linked with the plaintiffs' action in rem. The arrangements between the parties, which led to the defendants causing the Standard Chartered Bank to give the bank guarantee, must contain by implication an agreement that the Admiralty Court should have jurisdiction

to order its cancellation release or surrender in circumstances in which the court would release a bail bond or order the payment out of money paid into court by way of security. A similar power was exercised by the court in The "Vasso" (formerly "Andria") (1984) QB 477 where the P&I Club had given a contractual undertaking to secure the release of The "Vasso" from arrest; the court ordered the release of the P&I Club from its undertaking upon holding that the arrest was an abuse of the process of the court. See also generally Andrews and Millett Law of Guarantees p.396.

68. In my judgment Sears J had jurisdiction to make the order and correctly exercised his discretion in so doing. I would dismiss the appeal.

Conclusion : CA 24/93 and CA 53/93

69. In conclusion I would allow the appeal in CA 24/93, discharge Sear J's orders and make an order nisi that the respondents pay the costs in this court and in the court below. I would dismiss the appeal in CA 53/93 with costs.

Bokhary, J.A.:

Bailment upon terms

70. Complaining of wet damage and suing as owners of cargo lately laden on board the ship which they arrested, Jabar, Youngsun and Longhu put themselves forward as, in the words of their counsel, "the relevant plaintiffs for the purpose of this appeal". Their attempt to set up a Hong Kong bill of lading has been rejected by the learned judge. Such rejection has not been challenged before us. That leaves the Jakarta bill of lading issued by the time charterers, Sentosa. Jabar are named as shippers in the Jakarta bill. Youngsun and Longhu are named as notify parties therein.

71. While the Jakarta bill, with its exclusive jurisdiction clause, is crucial to the stance adopted by the defendant shipowners, it is not something upon which the plaintiffs seek to sue. Seeking to sue in Hong Kong, they naturally wish to put as much distance as possible between themselves and a clause conferring exclusive jurisdiction upon the Indonesian courts. So, independently of contract, they sue the shipowners as bailees for reward.

72. The shipowners accept that there was a bailment. They say that it was a bailment upon terms. In particular, they say that it was a bailment upon the terms that they, an Indonesian concern, were entitled to the protection against being sued abroad conferred under the Jakarta bill.

73. The plaintiffs deny that the bailment was upon those or any other terms. So if they are right, it would have been a bald bailment. And that brings me to the decision of the House of Lords in Elder, Dempster & Co. Ltd v. Patterson, Zochronis & Co. Ltd [1924] AC 522.

74. As to what was decided in that case, I can find no clearer statement than this one in Lord Reid's speech in Scruttons Ltd v. Midland Silicones Ltd [1962] AC 446 at p. 475: "The ship was under time charter, the bill of lading made by the shippers and the charterers provided for exemption from liability in the event which happened, and this exemption was held to enure to the benefit of the shipowners who were not parties to the bill of lading but whose servant the master caused damage to the shippers' goods by his negligence."

75. And as to why that was decided, I can find no clearer statement than this one by Fullagar J in a case in the High Court of Australia, Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd (1955) 95 CLR 43 at p. 78 (which statement was adopted by Lord Simonds in Scruttons Ltd v. Midland Silicones Ltd (supra) at p. 470): "In my opinion, what the Elder, Dempster case decided, and all that it decided, is that in such a case, the master having signed the bill of lading, the proper inference is that the shipowner, when he receives the goods into his possession, receives them on the terms of the bill of lading. The same inference might perhaps be drawn in some cases even if the charterer himself signed the bill of lading, but it is unnecessary to consider any such question."

76. In the Elder, Dempster case (supra) Lord Sumner's preferred view was one which he stated in these terms (at p. 564): "in the circumstances of this case the obligations to be inferred from the reception of the cargo for carriage to the United Kingdom amount to a bailment upon terms, which include the exceptions and limitations of liability stipulated in the known and contemplated form of bill of lading". That bears out Fullagar J's formulation. Lords Dunedin and Carson agreed with Lord Sumner's speech. So his view is the majority view. And that bears out Fullagar J's formulation as one which portrays the decision of the House of Lords.

77. The Jakarta bill was signed on behalf of the master, who was the shipowner's servant. And even if the signing agent's authority was - as the plaintiffs contend and the shipowners deny - limited to signing the bill of lading as a receipt for the cargo, that comes within the decision in the Elder, Dempster case (supra). For, as we have seen, Lord Sumner speaks of what was "to be inferred from reception of the cargo". And, consistently with that, Fullagar J's formulation centres around receiving the cargo into possession.

78. It is true that the clause in the time charterers' bill of lading relied upon by the shipowners in the Elder, Dempster case referred to shipowners while the clause in the time charterers' bill of lading relied upon by the shipowners in the present case does not. Whether the bailee is referred to in a clause is relevant to whether the proper inference is that the bailment is upon the terms contained in that clause. The presence of such a reference strengthens, but does not necessarily dictate, that inference. Its absence weakens, but does not necessarily rule out, such inference. All the circumstances have to be taken into account. The question is whether, looking at what it is properly to be inferred that the bailor and bailee intended, the bailment was upon certain terms. It is not whether those terms, shaking off the constraints of the doctrines of privicy and consideration, have leapt from the clause in which they were contained and fastened upon a bailment or any other relationship. If it were the latter, I can see why reference to the bailee would be a necessary springboard for such a leap. But that is not the way in which it works at all. The Elder, Dempster case (supra) does not overturn either of those doctrines; and attempts to use it to overcome them have consistently been repelled by the courts.

79. What is the proper inference to be drawn in the present case: that the bailment was a bald one, as the plaintiffs contend, or that it was one upon the terms contended for by the shipowners? I regard those as the choices. With a view to showing that the shipowners cannot be right, the plaintiffs ask the rhetorical question, why not a bailment upon the terms of the voyage charterparty? Unlike the Jakarta bill which was signed on behalf of the master, even if only as a receipt for the cargo, the voyage charterparty has no connection whatsoever with the shipowners. I do not regard a bailment upon the terms of that charterparty as a real contender. Nor do I consider the asking of that rhetorical question as capable of weakening the shipowners' argument.

80. In my judgment, the proper inference to be drawn, upon a commercial approach to all the circumstances of the present case, is that the bailment was upon the terms contended for by the shipowners. In the Elder, Dempster case (supra) Lord Sumner said (at p. 564): "I cannot find here any such bald bailment with unrestricted liability ...". So that great commercial lawyer did not seem to think that bald bailments in cases such as these were prima facie to be inferred. One has to look at all the circumstances to see if it is such a bailment or some other one which, by a process of inference, is properly to be found.

81. The shipowners are Indonesian. They have ships, this one and others, which persons suing as cargo owners might arrest anywhere. It appears to me to be inherently more probable than not that they would wish any claim against them, if there is to be one, to be litigated in the Indonesian courts rather than in the courts of any other place where any of their ships may happen to be arrested. That view is fortified, if it needs fortification, by the fact that the time charterparty calls for determination in those courts of any dispute which may arise and prove beyond the reach of amicable settlement.

82. Each of the plaintiffs are named in the Jakarta bill. None were entitled to the cargo save upon presentation of that bill of lading. As against the time charterers, each plaintiff would be bound by the exclusive jurisdiction clause therein. It seems to me to be unlikely that they would, at the time of loading, have contemplated litigation against the shipowners in a venue different from

that of litigation against the time charterers. That view of their state of mind at that time is not diminished by the fact that they have since sued the shipowners here. Quite apart from anything else, they attempted to do that principally upon a bill of lading, the Hong Kong bill, the genuineness of which the learned judge, whose decision on the point has not been challenged on appeal, did not accept. Thus, what they did later can hardly be taken to shed any light on what they genuinely had in mind at the beginning, which is the time which matters.

83. In my judgment, the plaintiffs' claim in our courts is, as the learned judge held, pursued in breach of a term binding upon them which confers exclusive jurisdiction on Indonesian courts.

Strong cause

84. Such claim is to be stayed unless the plaintiffs can show strong cause for permitting them to sue here in breach of an obligation to sue elsewhere if they sue at all. I agree with the learned judge that they have not discharged that burden.

85. It is not, in my view, open to us to assume that a judgment obtained in Indonesia against these Indonesian shipowners would be an empty one. And, in any event, I do not think that it would be right to refuse a stay in order to allow the plaintiffs to retain the benefit of security which they obtained here as a result of suing here in breach of an obligation not to sue save in Indonesia. That would be to enable them to benefit by their own wrong. And it would encourage others to sue here in breach of such obligations.

86. Accordingly, I would dismiss the plaintiffs' appeal against the stay, with an order nisi for costs in favour of the respondent shipowners. In so doing, I should add this.

87. Having seen their judgments in draft, I am aware that my Lords take a view different from the one which I share with the learned judge and, indeed, that Mayo J believes that I have extended the decision in the Elder, Dempster case (supra). Even in the company of the learned judge, I differ from my Lords only after pausing long. And, in light of the nature of the Elder, Dempster decision, I would not support, as I do, the learned judge's finding of a bailment upon terms if I thought that such finding involved an extension of that decision as opposed to an application of it to the circumstances of the present case.

CIVIL APPEAL NO. 53 OF 1993: THE DELIVERY UP OF THE BANK GUARANTEE

88. I would also dismiss the plaintiffs' appeal against the order for the delivery up of the bank guarantee, also with an order nisi for costs in favour of the respondent shipowners. Everything which I wish to say in support of that course is contained in the judgment given by my Lord.

Mayo, J.:

89. I have had the advantage of reading in draft the judgments of my Lords Litton and Bokhary.

90. I do not consider that a Bailment upon terms arises in this case. I agree with Litton J.A.'s analysis in his judgment that it is only in limited circumstances the "bailment on terms" argument can be successfully maintained. Certainly the facts in this case are entirely different to those which were arose in Johnson Matthly v. Constantine which Mr. Thomas placed heavy reliance upon.

91. With the greatest respect to Bokhary J.A. I do not think that the decision in Elder Dempster & Co. Ltd. v. Patterson Zrchronis & Co. Ltd. can be extended in the manner he suggests.

92. For the reasons which have been given by Litton J.A. I consider that the appeal in 24 of 1993 should be allowed and the appeal in 53 of 1993 should be dismissed.