Borealis AB v. Stargas Limited and Others And Bergesen DY A/S "Berge Sisar" Dorealis AB v. Stargas Limited and Others (Conjoined Appeals)

Under Carriage of Goods by Sea Act 1992, a bill of lading holder is subject to contractual liabilities only when rights of suit have vested under section 2 and the holder positively elects to enforce the contract of carriage. A demand for delivery under section 3 must be a formal assertion of a contractual right against the carrier. Mere co-operation in berthing, sampling, or discharging a vessel does not suffice.

Taking delivery requires a voluntary transfer of possession. It is distinct from discharge of cargo. The House also held, as a matter of statutory construction, that a holder who has incurred section 3 liability but later transfers the rights of suit by endorsement ceases to bear that liability, subject to special contractual or estoppel-based factors.

A tanker carrying propane for delivery at Borealis's Swedish terminal arrived with cargo contaminated by corrosive compounds. Borealis directed the vessel to its jetty and took routine samples, but rejected the cargo once the contamination was discovered. The cargo was subsequently discharged to another buyer in the Netherlands under the charterers' instructions.

The shipowners, Bergesen, sought cleaning costs from Borealis under section 3 of the Carriage of Goods by Sea Act 1992, after Borealis later received endorsed bills of lading. Waller J had dismissed Saudi Aramco's application to set aside service: [1997] 1 Lloyd's Rep 642. The Court of Appeal, by a majority, allowed the appeal and treated Bergesen's claim as bad in law: [1999] QB 763.

The central issue was whether Borealis had demanded delivery from the carrier within section 3(1)(c), and, if so, whether a later endorsement of the bills released it from section 3 liability.

1. The appeal was dismissed unanimously. Lord Hobhouse of Woodborough delivered the substantive speech. Lords Hoffmann, Mackay of Clashfern and Cooke of Thorndon expressly adopted his reasons. Lord Hope of Craighead specifically agreed that Bergesen had no arguable case that Borealis had demanded delivery within section 3(1)(c) of the Carriage of Goods by Sea Act 1992.

2. Per Lord Hobhouse, section 3(1) imposes liabilities only on a person in whom contractual rights of suit have vested under section 2(1), and who has elected to enforce those rights. A demand for delivery must therefore be a formal demand made to the carrier or its agent which asserts the holder's contractual right to delivery. Similarly, a claim under the contract must formally assert the carrier's legal liability.

3. Taking delivery means a voluntary transfer of possession from carrier to holder. It is not synonymous with discharge. Co-operating in discharge, providing a berth, directing a vessel to a terminal, and conducting routine pre-discharge sampling may assist the shipowner or charterer but do not amount to demanding delivery.

4. On the agreed facts, Borealis did no more than direct the vessel to its jetty and take samples before deciding whether it could safely accept the cargo. It neither asserted a right to delivery nor expressed a willingness to receive the contaminated cargo. It instead refused it. Bergesen therefore failed to establish even an arguable section 3(1)(c) demand, which was decisive.

5. Lord Hobhouse nevertheless addressed the secondary issue. As a matter of construction, and subject to particular agreements, estoppels, or other special facts, section 3 liability depends on the continued vesting of section 2 rights. A holder who transfers those rights by endorsing the bill to another ceases to bear the statutory liabilities. The House considered that this preserved the mutuality principle and the approach in Smurthwaite v Wilkins.

6. The Court of Appeal's order was upheld. Bergesen's claim against Borealis under the contract of carriage was struck out, permission to join Saudi Aramco was set aside, and Bergesen was ordered to pay the costs of both appeals.

• House of Lords: Dismissed Bergesen's appeal and upheld the Court of Appeal's order. Bergesen's claim against Borealis was struck out and leave to join Saudi Aramco was set aside: [2001] UKHL 17 .

• Court of Appeal: By a majority, Sir Brian Neill dissenting, allowed Saudi Aramco's appeal and held that Bergesen's proposed claim against Borealis was bad in law: [1999] QB 763.

• Commercial Court: Waller J dismissed Saudi Aramco's application to set aside service of Borealis's amended writ: [1997] 1 Lloyd's Rep 642.