Borealis AB v Stargas Limited and Others and Bergesen D.Y. A/S

The House of Lords construed sections 2 and 3 of the Carriage of Goods by Sea Act 1992. It held that a holder of a bill of lading becomes subject to contractual liabilities under s.3(1) only when he elects to enforce the contractual rights vested in him by s.2(1), by formally taking or demanding delivery or by making a formal claim under the contract of carriage. The court read the statutory words "demands delivery" and "makes a claim" as referring to formal acts of enforcement with an element of finality, not to routine cooperative acts incidental to discharge or tentative inquiries. Applying that test to the agreed facts, Borealis did not make a demand for delivery within s.3(1)(c) and therefore did not become liable to the shipowners under the 1992 Act. The court also held, as a matter of construction, that where an endorsee who has incurred liabilities under s.3(1) subsequently endorses the bill of lading to another so as to transfer his rights, the mutuality of rights and liabilities is lost and the endorsing party ceases to be subject to those liabilities (subject to estoppel or other special factors).

This was an appeal concerning liability under the Carriage of Goods by Sea Act 1992 arising from contaminated LPG shipped in October 1993 and intended to be discharged at Borealis's terminal at Stenungsund. The cargo was found to be contaminated on arrival and was refused by Borealis; it was later discharged at Terneuzen. Substantial costs and losses arose from discharge, diversion, diminution in value and tank cleaning. The commercial litigation involved buyers and sellers in the sale chain, the charterer Stargas and the shipowner Bergesen.

Nature of the claim:

• Bergesen (shipowner) claimed cleaning costs against Borealis on the basis that Borealis, as holder of the bills of lading in January 1994, was liable under s.3 of the Carriage of Goods by Sea Act 1992 for breach of the shipper's obligation not to ship dangerous goods; Bergesen sought contribution or recovery of the cleaning costs.

Procedural history:

• Proceedings began in the Commercial Court (Waller J). The litigation involved cross-claims and joinders, and Saudi Aramco sought to set aside service; Waller J dismissed that application ([1997] 1 Lloyd's Rep 642).
• The Court of Appeal allowed Saudi Aramco's appeal on a point raised for the first time in that court and held that Bergesen's claim against Borealis could not succeed; the Court of Appeal decision is reported at [1999] QB 763 (majority, Sir Brian Neill dissenting).
• Bergesen appealed to the House of Lords.

Issues framed by the House of Lords:

• Whether, on the agreed primary facts, Borealis had "demanded delivery" of the cargo within s.3(1)(c) of the 1992 Act and thereby become subject to liabilities to the carrier.
• If Borealis had become liable under s.3(1), whether endorsement of the bills of lading over to Dow Europe thereafter extinguished Borealis's liabilities.

Court’s reasoning:

• The House examined the historical background (Bills of Lading Act 1855), the Law Commission report and the structure and language of the 1992 Act. It emphasised the statutory choice to separate rights (s.2) from liabilities (s.3) and the principle of mutuality: a holder who enforces rights should accept corresponding liabilities.
• The court interpreted "demands delivery" and "makes a claim" as requiring formal, unequivocal acts of enforcement that carry an element of finality; routine cooperative acts (such as permitting sampling and berthing) do not constitute a demand for delivery under s.3(1)(c).
• On the facts, Borealis merely cooperated in sampling and did not express willingness to receive the cargo into its terminal; once the contamination was known, Borealis refused to accept the cargo. Therefore Bergesen failed to show even an arguable case that Borealis demanded delivery.
• On the secondary statutory question, the court concluded that the draftsman had intended to preserve the mutuality principle of earlier authority (notably Smurthwaite v Wilkins) so that where the rights vest in an endorsee by s.2(1) but later that person endorses the bill to another, the original endorsee ceases to be subject to liabilities imposed by s.3(1) because the mutuality of rights and obligations has gone (subject to estoppel or special circumstances).

Result: The House dismissed Bergesen's appeal, upheld the Court of Appeal order, struck out Bergesen's claim against Borealis under the contract of carriage, set aside leave to join Saudi Aramco and ordered Bergesen to pay the costs of the appeals.

Appeal dismissed. The House of Lords held that Borealis had not "demanded delivery" within s.3(1)(c) of the Carriage of Goods by Sea Act 1992 on the agreed primary facts, and therefore did not become liable to Bergesen under that section. The court further held that, as a matter of construction, an endorsee who ceases to have the rights vested in him (by endorsing the bill to another) will ordinarily cease to be subject to the liabilities imposed by s.3(1), because the mutuality of rights and liabilities is lost. Consequently Bergesen's claim against Borealis was struck out and leave to join Saudi Aramco was set aside.

Commercial Court (Waller J) – proceedings and refusal to set aside service ([1997] 1 Lloyd's Rep 642); Court of Appeal – majority allowed Saudi Aramco's appeal and held Bergesen's claim unsustainable ([1999] QB 763, majority; Sir Brian Neill dissenting); House of Lords – appeal dismissed ([2001] UKHL 17).