SOUTH AFRICAN MARITIME CORPORATION LTD. v. The NEDLLOYD COLOMBO (OWNERS OF CARGO)

IN THE COURT OF APPEAL

1995 No. 59
(Civil)

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H E A D N O T E

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Application by "Carrier" under a bill of lading to stay proceedings brought by cargo-owners against ship-owners - Damage to goods occurred in the course of carriage by sea in a ship operated by the ship-owners - Cargo-owners had undertaken not to make claims against anyone except the "carrier" named on the face of the bill of lading - Whether the action should be stayed permanently as an abuse of the Court's process.

Held: For the applicants to succeed two questions must be answered in their favour:

(1) Is it clear beyond argument that their rights are being infringed if the cargo-owners' action against the ship-owners remains on foot?

(2) Is it clear beyond argument that the action cannot benefit the cargo-owners because, even if they win, it would simply result in circuitous proceedings, achieving exactly what would be achieved by a stay?

As both questions must, on the evidence, be answered in the applicants' favour, the Court of Appeal allowed the appeal and stayed the action permanently. "The Elbe Maru" [1978] 1 LL LR 206 applied.

Observations on the source of the jurisdiction to entertain the interveners' application.

IN THE COURT OF APPEAL

1995 No. 59
(Civil)

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J U D G M E N T

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Litton, V.-P.:

1. In May 1992, 650 cartons of frozen lobsters, packed in a refrigerated container, were loaded on board the "Nedlloyd Colombo" at Cape Town for carriage by sea to Yokohama. The bill of lading was signed by Saflink for the carrier named on the face of the bill of lading, namely South African Maritime Corporation Limited, known as Safmarine. The bill of lading had the stylized word "Safari" and "SAFARI Service" prominently printed in a box in the top right-hand corner, together with the bill of lading number and the shipper's reference; the significance of this will become clear later. The bill of lading contained the usual statement by the carrier, Safmarine, to the effect that the goods were accepted in apparent good order and condition, and that on presentation of the bill of lading duly endorsed to the carrier, the rights and liabilities arising in accordance with its terms would become binding between Safmarine (the carrier) and the holder as though the contract had been made between them.

2. The carrying vessel named in the bill of lading was the "Nedlloyd Colombo", a vessel not owned by or demised to Safmarine. It was owned by Nedlloyd Lijnen B.V., a company registered in the Netherlands. When the cargo arrived in Japan, it was found damaged. The lobsters had apparently thawed and been refrozen.

3. In November 1993 an action was instituted by the cargo owners against the owners of the "Nedlloyd Colombo" claiming damages (i) in respect of the defendants' alleged breach of the contract of carriage, (ii) as bailees of the cargo and (iii) in tort for negligence in the stowing handling custody and care of the cargo.

4. On 25 November 1993 the solicitor acting for the plaintiffs made an affidavit, in support of an application to arrest the vessel, in which he deposed to his belief that the owners of the "Nedlloyd Colombo" were the carriers of the cargo as defined in clause 1 of the bill of lading appearing on the reverse side of the document.

5. On 31 October 1994 the owners of the vessel lodged their defence. Para (2) states:

"2. As to paragraph 1:-

(a) It is denied that the said bill of lading was issued by or on behalf of the Defendants and/or that the Defendants acknowledged the receipt or shipment of the said cargo ....

(b) the said bill of lading was issued by or on behalf of South African Maritime Corporation Limited ("Safmarine") and acknowledged the shipment of one container said to contain 650 cartons of lobsters;"

6. The defence goes on to aver that the bill of lading was signed by Saflink as agents for Safmarine and that the defendants were not the carriers of the cargo as averred in the statement of claim.

7. There is, at first blush, something very odd about Nedlloyd's defence. The cartons of lobsters were undoubtedly carried to Yokohama on the "Nedlloyd Colombo": a vessel owned and operated by Nedlloyd: so how can it be argued that Nedlloyd was nevertheless not the "carrier" for the purposes of the carriage by sea?

8. The answer to this seeming paradox lies in the terms of a "co-operation agreement" (to which detailed reference will be made later) entered into by substantial ship-owners, including Safmarine and Nedlloyd, by which they agreed to pool resources, make space (or "slots") available in their own ships to each other, undertaking at the same time that they would issue their own bills of lading and be individually responsible for claims in respect of cargo covered by such bills of lading, even though such cargo might be physically carried in a ship not owned and operated by themselves. Obviously, for a scheme like that to work, the document they issue in respect of cargo they have contracted to carry must, in law, amount to a bill of lading. A mere acknowledgment of receipt would not be enough. But since it is common-ground that the bill sued upon in this case, number ECG60910, is in law a bill of lading, and nothing before us suggests otherwise, the case must proceed on the footing that Safmarine undertook to the shippers, in effect, that the cargo would be carried safely to Yokohama in Nedlloyd's ship.

9. To resume the narrative, on the same date as the filing of the defence, Safmarine took out a summons in the action for an order that they be granted leave to intervene for the purpose of seeking a permanent stay of all proceedings brought against the defendants. The jurisdiction they invoked is as follows: firstly, under RSC Order 15 rule 6(2)(b)(ii); secondly, under s16(3) of the Supreme Court Ordinance; and thirdly, under the inherent jurisdiction of the court. The ground for the application is that the plaintiffs have undertaken by the contract contained in or evidenced by the bill of lading not to make the claim for damages against the defendants or any vessel owned by them as had been made in the action.

10. The contractual provision which Safmarine invokes is clause 4(3) of the bill of lading which (as relevant) reads:

"(3) The [shipper] undertakes that no claim or allegation shall be made against any ... person or body whomsoever by whom the Carriage or any part of the Carriage is performed or undertaken (other than the Carrier) which imposes or attempts to impose upon any such person, or any vessel owned by any such person, any liability whatsoever in connection with the Goods, whether or not arising out of negligence on the part of such person, and if any such claim or allegation should nevertheless be made, to indemnify the Carrier against all consequences thereof."

11. By his decision of 22 February 1995, Rogers J dismissed Safmarine's application with costs. Hence Safmarine's appeal to this court.

Who was the "Carrier"?

12. Safmarine was the "Carrier" named on the face of the bill of lading. Saflink purported to sign the bill of lading for Safmarine as the carrier and no one else. Unless the contractual provisions gave rise to a secondary meaning of the word "Carrier", then Safmarine remained the carrier as far as the contractual rights and obligations are concerned. In this case, there can be no doubt that, if one confined the meaning of "Carrier" to the carrier named on the face of the bill of lading, then, pursuant to clause 4(3), the plaintiffs had undertaken to look to Safmarine and no one else with regard to the due discharge of the obligations concerning the carriage of the cargo from Cape Town to Yokohama.

13. It is the plaintiff's case that by virtue of the extended definition of "Carrier" in clause 1 of the bill of lading, "Carrier" means the owner or demise charterer of the carrying vessel: that is to say, the defendants in the action.

14. Clause 1 reads:

"(1) DEFINITION

Carrier means the party named on the face of this document as being the Carrier for this consignment, on whose behalf this Bill of Lading has been signed and who for the purpose of Combined Transport is the Combined Transport operator, provided that where there shall be such a sub-contract as is mentioned in the first sentence of Clause 4(2), then as regards the whole or (as the case may be) that part of the Carriage by sea to which such sub-contract applies, Carrier means the owner or demise charterer of the carrying vessel."

Sub-contract

15. As is clear, the plaintiffs' whole case depends upon the proposition that there was indeed "such a sub-contract as is mentioned in the first sentence of clause 4(2)".

16. I will examine a little more closely later what the parties meant by "such a sub-contract as is mentioned in the first sentence of clause 4(2)"; but looking at the position more generally, what Mr Geoffrey Ma, Q.C., counsel for the plaintiffs says is this: If Safmarine did not themselves assume the contractual obligations under the bill of lading but the defendants did, it must follow that there has been some form of sub-contract by Safmarine to the defendants. It was this broad proposition which the judge accepted, and formed the basis of his judgment in the plaintiffs' favour.

The Co-operation Agreement

17. The proposition, as a general proposition, may be correct. But it does not address the real issue in this case. As I have mentioned earlier, the bill of lading, on its face, has the logo "Safari" and the words "Safari Service" prominently printed in the top right-hand corner. This refers to the service which Safmarine, Nedlloyd and three other parties offer to shippers under a pooling arrangement embodied in the "Safari Service Co-operation Agreement" referred to earlier. The parties have put together a "core-fleet" of five compatible vessels, of which the "Nedlloyd Colombo" is one, all capable of carrying "reefer" (refrigerated) containers for service between South Africa and East Asia. In essence, the parties (called in the agreement "Lines") undertook to provide "slots" in each others' vessels, available in accordance with agreed proportions. The provision of these "slots" is regulated by the terms of a "cross-charter party" (schedule 5 to the agreement) which gives to each of the Lines the right to the allocation of space in each others' vessels, as if they were time charterers.

18. The effect is this. When Safmarine caused the container with the 650 cartons of lobsters to be loaded on board the "Nedlloyd Colombo" at Cape Town in May 1992 it was doing no more than to assert its contractual right to utilize "slots" under the Safari agreement. There is no question of Safmarine having to "sub-contract" with the defendants in order to render the services it had undertaken to the cargo-owners under the bill of lading. It simply took up space already allocated, upon terms agreed with the defendants long before. To fulfill its obligations of sea carriage to the shippers, Safmarine did not need to enter into a sub-contract with the defendant.

19. Subject to the "discretion" point which I will consider later, this is sufficient to dispose of the appeal in Safmarine's favour.

20. In fact, Mr Michael Thomas, QC, counsel for Safmarine, goes further. To succeed, he says, the plaintiffs must not only show that there was in fact a "sub-contract", but one of the kind contemplated by clause 4(2) of the bill of lading; that is what the proviso to the definition of "Carrier" in clause 1 says. To appreciate Mr Thomas's point, it is necessary to set out the provisions of clause 4(2) in full:

"(2) In the event that the carrier shall sub-contract the whole or part of the Carriage by sea, it shall so sub-contract as agent for and on behalf of the [shipper] and the said sub-contract shall take effect exclusively as a contract between the [shipper] and the owner or demise charterer of the carrying vessel."

21. What it boils down to is this: in the event that Safmarine consider it expedient to sub-contract the operations and services undertaken by them in relation to the cargo, they must do so exclusively for the shipper, acting as agent for the shipper in sub-contracting with the owner of the carrying vessel. Where, Mr Thomas asks rhetorically, is the least evidence of such a sub-contract in relation to the 650 cartons of lobsters in this case?

22. The judge never specifically addressed this issue and seemed content to accept the general proposition that there must have been a "sub-contract" for the goods to have been physically conveyed in the defendants' vessel. Whilst superficially attractive, this conclusion is inconsistent with what the parties have sought to achieve by their written contracts. In my view, the judge was wrong in this regard. The exercise by Safmarine of their contractual right under the Safari agreement to utilise "slots" in the "Nedlloyd Colombo" for the carriage of the 650 cartons of lobsters is wholly inconsistent with the notion that they had "sub-contracted" their obligations under the bill of lading. Far less has there been "such a sub-contract as is mentioned in the first sentence of clause 4(2)".

Should there be a stay of the action?

23. The only proper basis upon which the action, as between the cargo owners and the ship-owners, could be stayed upon the intervention of Safmarine is this: to allow the action to continue would, in effect, amount to an abuse of the court's process. This is a strong remedy. At first blush, it seems a startling proposition that in suing the actual carrier for damage to their goods the cargo-owners could be abusing the court's process. On the face of the pleadings, the plaintiffs have a viable cause of action. Equally, the ship-owners appear to have a viable defence. Why should the action not go to trial? It is not suggested that the ship-owners, as the defendants in the action, would be able successfully to apply to the court, either under RSC Order 18 rule 19(1) or in reliance upon the inherent jurisdiction of the court, to have the action stayed on the ground that it is an abuse of process. How, then, is Safmarine, a stranger to the litigation, in a better position than the defendants themselves?

24. The argument for Safmarine runs thus:

(i) Safmarine is and remains throughout the "Carrier" under the bill of lading.

(ii) By clause 4(3) of the bill of lading the cargo-owners undertook to make no claim against anyone, including Nedlloyd (by whom the carriage by sea was performed), other than Safmarine themselves, for loss of or damage to the cargo.

(iii) Under the Safari agreement Safmarine had agreed with Nedlloyd that each of the Lines would individually be responsible for claims in respect of damage to the cargo carried under their bills of lading: clause 15.1; and when slots in each others' vessels are taken up, the Lines are governed by the terms of the cross-charter party (schedule 5 to the co-operation agreement): by the provisions of clause 6(a) of schedule 5 Safmarine undertook that no claim or allegation would be made against Nedlloyd and in the event of such claim or allegation nevertheless being made Safmarine would indemnify Nedlloyd against all consequences whatsoever.

(iv) The result of all this is that even if the plaintiffs should succeed in recovering damages and costs in the action against the defendants, the defendants would have a clear right of indemnity against Safmarine and Safmarine, in turn, would be able to seek an indemnity against the plaintiffs under clause 4(3) of the bill of lading.

(v) In other words, the action brought by the plaintiffs (a) is in clear breach of the plaintiffs' undertaking to Safmarine not to make any claim or allegation against anyone other than Safmarine itself and (b) is in any case futile since, by the terms of the co-operation agreement and clause 4(3) of the bill of lading, the plaintiffs, even if they succeeded in the action against the defendants, will in the end get nothing.

Source of the jurisdiction

25. These are formidable arguments. But, before dealing with the case law which illustrates the exercise of the power to stay proceedings on the intervention of a third party, it is necessary to identify the source of the jurisdiction. Section 16(3) of the Supreme Court Ordinance states:

"(3) Nothing in this Ordinance shall affect the power of the Court of Appeal or the High Court to stay any proceedings before it, where it thinks fit to do so, either of its own motion or on the application of any person, whether or not a party to the proceedings."

26. There is a similar provision in the Supreme Court Act 1981: s41(3). As mentioned in paragraph 5204 of Volume II of the 1995 Supreme Court Practice, this takes the form, not of conferring a power on the court to order a stay of proceedings, but of statutorily recognising or preserving such a power which the court has and has exercised for a long time; the jurisdiction is stated by Lord Blackburn in Metropolitan Bank v. Poolley (1885) 10 App. Cas 210 at 220-221 as follows:

"At common law originally the judgment of the Court was always obtained either by a demurrer or any other proceeding which upon the record gave a judgment, or an issue was taken of fact and a verdict was found, and then a judgment was given upon the record. But from early times (I rather think, though I have not looked at it enough to say, from the earliest times) the court had inherently in its power the right to see that its process was not abused by a proceeding without reasonable grounds, so as to be vexatious and harassing - the court had the right to protect itself against such an abuse; but that was not done upon demurrer, or upon the record, or upon the verdict of a jury or evidence taken in that way, but it was done by the court informing its conscience upon affidavits, and by a summary order to stay the action which was brought under such circumstances as to be an abuse of the process of the court; and in a proper case they did stay the action."

The procedure for applying for a stay

27. Where it is a matter of the court "informing its conscience", no particular procedure is required. Here what happened was that Safmarine took out a summons under RSC Order 15 rule 6(2)(b)(ii) and, at the same time, invoked the court's jurisdiction under s16(3) of the Supreme Court Ordinance and the inherent jurisdiction of the court. No point was taken in the court below that Order 15 r6, which deals with the misjoinder and non-joinder of parties, was inappropriate in this case, as Safmarine was seeking to do the opposite of joining in the action as a party: it was not seeking to participate in the litigation: it asked to intervene for the sole purpose of having the action permanently stayed. But nothing turns on this point.

Exercise of jurisdiction

28. Leaving aside the question of procedure, and coming to the exercise of the jurisdiction itself, it is clear from the authorities that this jurisdiction is sparingly used. The reason is obvious. If Safmarine's application is successful, it means, in effect, that the plaintiffs would be permanently "driven from the judgment seat": a consequence which, as between the parties, the courts would seek to avoid unless the cause of action is "obviously bad and almost incontestably bad": see observations of Fletcher-Moulton LJ in Dyson v. AG [1911] 1 KB 410 at 419.

29. An instance of where the court has exercised this robust power at the instance of a stranger to the litigation is seen in the case of "The Elbe Maru" [1978] 1 LL LR 206. There, the argument was advanced that, despite an undertaking to bring no claim in terms rather similar to clause 4(3) in this case, the action should, as a matter of discretion, be allowed to proceed. As to this Ackner J said:

"... the suggestion that the Court should not exercise its discretion but should allow the action to proceed, then to be followed by a claim against the applicants and then to be followed by the applicants claiming against the respondent seems to me to ignore the well established proposition ... that there should be an end of useless litigation. If the action ought not to be brought, then the court should intervene and stop it rather than allow a series of circuitous action which ultimately end up achieving exactly what the stay sought would achieve, apart from the disbursement of a quite unnecessary amount of costs."

Conclusion

30. There are, at the end of the day, two questions which must be answered in the applicant's favour if it hopes to succeed in having the action permanently stayed: (1) Is it clear beyond argument that the applicant's rights are being infringed if the plaintiffs' action remains on foot? (2) Is it clear beyond argument that the outcome of the action cannot benefit the plaintiffs because, even if they win, it would simply result in circuitous proceedings, achieving exactly what would be achieved by a stay?

31. As to (1), the terms of clause 4(3) of the bill of lading leave it in no doubt that the action infringes Safmarine's rights, once it is accepted that it is Safmarine and not Nedlloyd which is the "Carrier" under the bill of lading. As to (2), clause 6(a) of Schedule 5 of the Safari agreement gives Nedlloyd a clear right of indemnity against Safmarine for the damages and costs in the action, and Safmarine in turn can seek an indemnity from the cargo-owners in respect of the same liability.

32. Having reached this point, it seems to me clear that Safmarine must succeed and the appeal must be allowed. I would discharge Rogers J's order and order instead that, upon Safmarine's intervention in the action being allowed, there should be a stay of all proceedings. I would also make an order nisi that the costs of the appeal and of the proceedings in the lower court be paid by the plaintiffs to Safmarine.

Godfrey, J.A.:

33. I agree.

Liu, J.A.:

34. I agree that the appeal should be allowed and agree with the orders as proposed.