Geofizika DD v MMB International Ltd & Anor

Under a CIP sale contract, the seller must arrange carriage on usual trade terms and obtain the insurance expressly required by the contract. A prior booking agreement may restrict a standard bill-of-lading liberty to carry goods on deck. Where the booking note makes on-deck carriage conditional on an appropriate bill-of-lading notation, unclaused bills mean that the carrier has no contractual right to carry on deck. A freight forwarder giving an insurance warranty must take reasonable steps to verify the warranted fact, particularly where the carrier is unfamiliar and the documents are ambiguous. However, damages require loss caused by the breach. An express obligation to obtain minimum insurance cover is not replaced by an implied duty to match insurance to the carriage actually performed.

A Croatian geophysical company bought three ambulances from a British seller on CIP terms. The seller instructed Surrey freight forwarders to arrange carriage and insurance. A booking note referred to an on-deck option to be recorded on the bills of lading. The vehicles were nevertheless shipped on deck, and two were lost. The forwarders declared all-risks cover subject to an under-deck warranty, which insurers declined after the warranty was breached.

The buyer sued the seller for the insured value and replacement-hire costs, giving credit for recovery from the carrier. The seller joined the forwarders as Part 20 defendants. HH Judge Mackie QC, in [2009] EWHC 1675 (Comm), found the seller liable for failing to provide effective insurance and the forwarders liable in negligence. Both appealed. The central issues were whether the carriage terms permitted on-deck shipment, the scope and effect of the insurance obligation, and whether the forwarders’ breach caused recoverable loss.

Disposition. Thomas LJ gave the leading judgment. Sir Nicholas Wall P and Lord Neuberger MR agreed. The sellers’ appeal and the freight forwarders’ appeal were allowed.

1. Carriage. Under the CIP terms, the seller had to procure a contract of affreightment on usual trade terms. Terms of carriage may be contained in a prior agreement between shipper and carrier and may qualify the later bill of lading: The Ardennes and Evans v Andrea Merzario Ltd. Although clause 7(2) of the bill of lading ordinarily permitted on-deck carriage, the booking note meant that such carriage was permitted only if the bills were claused accordingly. As the bills were unclaused, the carrier had no right to carry the ambulances on deck under the contract with the shipper. The sellers therefore did not breach the sale contract. The court did not decide the unargued question whether the buyer’s contract with the carrier was modified by the antecedent agreement under the Carriage of Goods by Sea Act 1971.
2. Insurance. The express CIP obligation required minimum cover under Institute Cargo Clauses (C). The actual all-risks cover was subject to an under-deck warranty, which was false and therefore invalid. Under section 33 of the Marine Insurance Act 1906, breach of warranty discharged the insurer from liability from the date of breach. The judge’s first basis for requiring insurance that matched the carriage actually performed was rejected because an implied term cannot contradict the express insurance obligation. Belgian Grain & Product Co v Cox & Co (France) Ltd did not establish such a general obligation. Although an inference of an agreement for all-risks cover might have been available, the issue had been withdrawn and the relevant evidence had not been tested in cross-examination. It was unsafe and procedurally impermissible to decide the case on that basis.
3. Freight forwarders. Their duty under the BIFA terms was to exercise proper care in arranging carriage and insurance in accordance with the CIP requirements. It did not extend to supervising the carrier’s performance: Marston Excelsior v Arbuckle Smith & Co and Jones v European & General Express Company Ltd. Nevertheless, given the unfamiliar carrier, ambiguity in the booking note and severe consequences of a warranty breach, the forwarders should have taken reasonable steps to check that the ambulances were under deck before giving the warranty. They were therefore negligent.
4. Loss. The negligence and the invalid insurance caused no recoverable loss because the cover contractually required under the CIP terms would not have covered loss by being washed overboard. The sellers and forwarders were accordingly not liable in damages.

• Court of Appeal (Civil Division) — In [2010] EWCA Civ 459, the appeals of the seller and freight forwarders were allowed.
• London Mercantile Court — HH Judge Mackie QC, in [2009] EWHC 1675 (Comm), found for the buyer against the seller and for the seller against the freight forwarders, awarding approximately £37,000.