Midland Silicones Ltd v Scruttons Ltd

A person who is not a party to a contract cannot enforce or rely upon its terms merely because the contract was intended to benefit that person. This rule applies whether the contractual term is used as a claim or as a defence.

A stevedore therefore cannot rely upon a carrier’s limitation clause unless an independent legal basis gives it that protection. Agency may suffice where the bill of lading clearly protects the stevedore, the carrier contracts as its agent with authority, and the requirement of consideration is satisfied. The word “carrier”, without more, does not include a stevedore.

The appellants were independent stevedores employed by a sea carrier. By their admitted negligence, they damaged the respondents’ drum of cargo while lowering it on to a lorry. The cargo had been carried under a bill of lading which limited the carrier’s liability to $500 per package unless a higher value had been declared.

The stevedores contended that they could rely on that limitation, although they were not parties to the bill of lading. They relied principally upon Elder, Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] AC 522. They also alleged agency and an implied contract with the cargo owners.

Diplock J and the Court of Appeal unanimously rejected the defence. The central question before the House was whether the stevedores could limit their liability by relying upon contractual provisions made between other parties.

1. Appeal dismissed by a majority of four to one. Viscount Simonds, Lord Reid, Lord Keith of Avonholm and Lord Morris of Borth-y-Gest held that the stevedores could not rely upon the limitation clause. Lord Denning dissented.

2. Per Viscount Simonds, Lord Reid and Lord Morris, the established rule is that a stranger to a contract cannot take advantage of its provisions, even where a provision was intended for that stranger’s benefit. The rule stated in Tweddle v Atkinson and established by Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 applies when the term is invoked as a defence as well as when it is enforced by an action.

3. Per Viscount Simonds and Lord Morris, “carrier” in the bill of lading and the incorporated United States Carriage of Goods by Sea Act 1936 did not include a stevedore. The contractual definition also failed to encompass the appellants. They therefore received no protection from the limitation addressed to the carrier.

4. Per Lord Reid, agency could in principle protect a stevedore if the bill of lading clearly extended the protection to it, the carrier contracted as its agent, the carrier possessed authority or the stevedore ratified the contract, and consideration presented no obstacle. None of those foundations was present. The bill did not identify the appellants, extend the limitation to stevedores or show that the carrier contracted for them.

5. Per Viscount Simonds, Lord Reid and Lord Morris, no contract could be implied between the cargo owners and the stevedores. The cargo owners had no dealings with the stevedores and knew nothing of the stevedoring contract. Such a contract was not necessary to give business efficacy to any relationship between them.

6. Per Viscount Simonds, Lord Reid and Lord Keith, Elder Dempster did not establish a general exception for servants, agents or independent contractors performing a contract of sea carriage. Its obscure reasoning and materially different facts confined it to circumstances not reasonably distinguishable from its own. Any bailment analysis in that decision was irrelevant because the appellants were not bailees.

7. Lord Denning dissented. He considered that Elder Dempster protected subcontractors performing the contract of carriage. Alternatively, he reasoned that the carrier, as bailee, had implied authority to employ stevedores on terms limiting their liability. On that basis he would have allowed the appeal.

1. House of Lords: By a majority of four to one, dismissed the stevedores’ appeal and affirmed the rejection of their limitation defence.
2. Court of Appeal: Unanimously held that the stevedores could not rely upon the bill of lading’s limitation provision.
3. High Court: Diplock J held that the stevedores could not rely upon the limitation provision.