Geofizika DD v MMB International Ltd & Anor [2010] EWCA Civ 459

[2010] EWCA Civ 459Case No A3/2009/1654
IN THE COURT OF APPEAL (CIVIL DIVISION)
[2009] EWHC 1675 (Comm)
ON APPEAL FROM THE LONDON MERCANTILE COURT
HH JUDGE MACKIE QC
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 28/04/2010
Before
THE MASTER OF THE ROLLSPRESIDENT OF THE FAMILY DIVISIONLORD JUSTICE THOMAS
Between
Geofizika DDRespondentMMB International LimitedAppellantGreenshields Cowie & Co LtdAppellant
Richard Lord QC (instructed by Barlow Lyde & Gilbert Llp) for Greenshields Cowie & Co LtdJohn Russell (instructed by Hill Dickinson Llp) for MMB International LtdTim Wormington (instructed by Keates Ferris Solicitors) for RespondentHearing Hearing date: 15 March 2010
Judgment
[1]This appeal arises out of the loss in the course of a voyage of goods sold under a Carriage Insurance Paid (CIP) contract. It concerns the obligations of the seller under the sale contract and the obligations of a freight forwarder to the seller in respect of arranging carriage and insurance. However, the issues on which this appeal turns arise as a result of an unusual combination of circumstances.

The facts

[2]The facts were largely undisputed at the trial before HH Judge Mackie QC. The judge had to make some findings, the most important of which was that, subject to the matters set out in paragraphs 47 and 50 below, there were no oral terms that supplemented either the written agreements or the obligations that ordinarily are imposed by law. I can accordingly summarise the facts and the agreements fairly briefly.[3]In October 2006, the claimants (the buyer) a Croatian geophysical company, agreed to buy on CIP terms Tripoli three four-wheel drive Land Rover ambulances from the defendants (the sellers), a British company which specialised in the provision of such vehicles. The purchase price was £74,952 inclusive of various fees. The CIP terms were those set out in INCOTERMS 2000.[4]The sellers agreed with the Part 20 defendants, freight forwarders based in Surrey, (the freight forwarders) to arrange the shipment to Tripoli and the insurance. The agreement between the freight forwarders and the sellers was on British International Freight Association Standard Trading Conditions 2005 (BIFA terms). The buyers requested that the cargo shipped should be “RO-RO”, roll on, roll off.[5]The freight forwarders sought to arrange the carriage with Brointermed Lines Limited (the carriers) which operated a RO-RO and liner service from northern European ports including Harwich to Libya; the freight forwarders had not used the carriers before. Before the judge, it was contended that the freight forwarders requested RO-RO terms, and this meant carriage under deck. The judge rejected that contention and there was no appeal on that point.[6]On 14 November 2006, the carriers sent the freight forwarders a booking confirmation confirming that the ambulances would be shipped on the Green Island from Harwich with an estimated sailing time of 30 November. The booking confirmation stated:
“ALL VEHICLES WILL BE SHIPPED WITH “ON DECK OPTION” this will be remarked on your original bills of lading.”
A further provision required the freight forwarders to check that the bills of lading were in accordance with their instructions.[7]The three ambulances were shipped on board the Green Island at Harwich for shipment to Tripoli on 29 November 2006. The Green Island was a Portugese general cargo ship of some 7,617GRT built in 1996. Although unsigned copies of the Bills of Lading were sent to the Freight Forwarders on 29 November 2006, signed copies were not sent until 4 December 2006.[8]Clause 7 of the bill of lading contained the more modern standard form of liberty clause relating specifically to deck cargo introduced in the early 1980s, as opposed to the older forms where the right to carry on deck was often contained in the general liberty clause:
“7. Unitization, Optional Stowage (1) Goods may be stowed by the Carrier in containers. (2) Goods, whether or not packed in containers, may be carried on deck or under deck without notice to the Merchant. All such goods (other than live animals) whether carried on deck or under deck, shall participate in general average and shall be deemed to be within the definition of goods for the purpose of the Hague Rules and shall be carried subject to these rules. Notwithstanding the foregoing in the case of goods which are stated on the face hereof as being carried on deck and which are so carried, the Hague Rules shall not apply and the Carrier shall be under no liability whatsoever for loss, damage or delay, howsoever arising.”
The bill of lading was claused on its face with a description of the vehicles as “unpacked (new) vehicles”, other details of the vehicles, two short non-responsibility clauses for loss of moveable parts and matters such as scratches and the following:
“Cargo stored on open area on the quay and, therefore, subject to adverse weather conditions before loading.”
As the shipment was from a UK port, the Hague-Visby Rules as set out in the Carriage of Goods by Sea Act 1971 were compulsorily applicable.[9]On receipt of the original bills of lading on 4 December 2006, the freight forwarders declared the shipment under their open cover with the Royal and Sun Alliance (the insurers); as the cover applied to all shipments within its scope, late declarations were permitted. The open cover provided that loss or damage to motor vehicles would be covered on alternatives:
“In respect of vehicles not exceeding five years old either shipped under deck or on deck stowed in containers of all solid constructions, Institute Cargo Clauses (A)….

(C) …”

The freight forwarders declared the shipment for cover under the first of these alternatives and issued a certificate of marine insurance under the open cover on 4 December 2006, backdating it to 29 November 2006 as that was when cover incepted. The certificate stated that the ambulances were insured on the terms of the Institute Cargo Clauses (A) and various terms which were not material, but with the following additional condition:
“Warranted shipped under deck.”
Cover on the terms of the all risks (A) clauses is all risks cover and did cover loss by being washed over board; cover on the terms of clauses (C) is much more restricted and does not cover goods being washed over board.[10]The freight forwarders gave the warranty as they considered that the ambulances had been shipped under deck. They had a facility with the insurers which would have enabled them to insure deck cargo for an additional premium. The evidence was that they would have done so if they thought the ambulances had been shipped on deck. However, as the bills of lading had not been claused on their face to show shipment on deck, they considered that they had been shipped under deck.[11]The ambulances were, in fact, shipped on deck, apparently lashed to containers; they were unpacked and unprotected. Two of the three were washed overboard in the course of the voyage in the Bay of Biscay. As the carriers were not the owners of the vessel, the carriers were unable to obtain more information as to how those ambulances were lost. The loss was discovered by the buyers on the arrival of the vessel in Tripoli. As the buyers needed ambulances for their business and they were unavailable at Tripoli, ambulances were hired.

The claims made by the buyers

[12]The buyers initially sought to claim under the insurance for the insured value of the two ambulances (£57,890), but the insurers declined to pay as there had been a breach of the warranty of under deck shipment. The buyers then claimed against the carriers under the bill of lading in Libya. This claim was settled by the carriers paying £50,000 but legal costs of some £25,400 were incurred by the buyers in obtaining this settlement. The payment by the carriers was many times the package limitation under the Hague-Visby Rules.[13]The buyers then brought proceedings against the sellers under their CIP contract in the London Mercantile Court in April 2008 claiming the insured value of the two ambulances (£57,890) and the hiring of replacement vehicles (£91,867.23) but giving credit for the net recovery from the carriers. They claimed that the sellers had failed to procure effective insurance. The sellers joined the freight forwarders as Part 20 defendants.[14]After a trial of some two days, HH Judge Mackie QC found on 10 July 2009 in favour of the buyers in their claim against the sellers and in favour of the sellers in their claim under Part 20 against the freight forwarders. He concluded that: i) The contract of carriage would not be on usual terms if it permitted on deck shipment. The contract of carriage did permit on deck shipment, as the terms of the booking confirmation did not preclude the right of the carrier to carry on deck. The sellers were therefore in breach of their obligation under the contract of sale, but the freight forwarders had been negligent in procuring the contract of carriage on these terms. ii) The freight forwarders should not have given the under deck warranty in the contract of insurance merely on the basis that the bills of lading were not claused; they should have checked the position before giving the warranty. They were therefore in breach of the duty of care they owed to the sellers. iii) The sellers were liable to the buyers as they had failed to provide a valid contract of insurance and that this breach had caused the loss.[15]He awarded damages calculated on the basis of the insured value of the two vehicles lost, the cost of freight and insurance for the replacements and hire for part of the period claimed with credit being ordered against that sum for the amount recovered from the carriers less part of the legal costs. This amounted in total to about £37,000. The freight forwarders appealed by permission of Sir Richard Buxton and the sellers by permission of Longmore LJ; they challenged the judge’s conclusions in relation to both carriage and insurance. It is convenient first to consider the obligations first as between the sellers and the buyers and secondly as between the sellers and the freight forwarders.

(i) The contract between the buyers and the sellers

[16]The contract between the buyer and the seller was set out on the seller’s invoices and subject to INCOTERMS 2000. The relevant part of the INCOTERMS provided as follows:
“A3 Contracts of carriage and insurance a) Contract of carriage The seller must contract on usual terms at his own expense for the carriage of the goods to the agreed point at the named place of destination by a usual route and in a customary manner. If a point is not agreed or is not determined by practice, the seller may select the point at the named place of destination which best suits his purpose b) Contract of insurance The seller must obtain at his own expense cargo insurance as agreed in the contract, such that the buyer, or any other person having an insurable interest in the goods, shall be entitled to claim directly from the insurer and provide the buyer with the insurance policy or other evidence of insurance cover. The insurance shall be contracted with the underwriters or an insurance company of good repute and, failing express agreement to the contrary, be in accordance with minimum cover of the Institute Cargo Clauses (Institute of London Underwriters) or any similar set of clauses ………”
The meaning of “minimum cover” was explained: "Since the seller takes out insurance for the benefit of the buyer, he would not know the buyer's precise requirements. Under the Institute Cargo Clauses drafted by the Institute of London Underwriters, insurance is available in "minimum cover" under Clause C, "medium cover" under Clause B and "most extended cover" under Clause A. …Minimum cover is however unsuitable for sale of manufactured goods where the risk of theft, pilferage or improper handling or custody of the goods would require more than the cover available under Clause C. Since CIP, as distinguished from CIF, would normally not be used for the sale of commodities, it would have been feasible to adopt the most extended cover under CIP rather than the minimum cover under CIF. But to vary the seller's insurance obligation under CIF and CIP would lead to confusion and both terms therefore limit the seller's insurance obligation to the minimum cover. It is particularly important for the CIP-buyer to observe this: should additional cover be required, he should agree with the seller that the latter could take out additional insurance or, alternatively, arrange for extended insurance cover himself[17]It was therefore the obligation of the sellers to procure a contract of affreightment on terms usual in the trade for the carriage of the ambulances. The sellers were, subject to the findings of the judge to which I refer at paragraphs 47 and 50 below, under an obligation to obtain a contract of insurance on the Institute Cargo Clauses (C). These were absolute obligations. (ii). The contract between the sellers and the freight forwarders[18]The obligation of the freight forwarders to the sellers was, subject to BIFA terms, to use all proper care in arranging the contract of carriage and insurance in accordance with the requirements of the CIP terms; they were under no obligation to supervise the carriage or the performance of the insurance contract: see Marston Excelsior v Arbuckle Smith & Co [1971] 2 Lloyd’s Rep 306 at 310 and 312; Jones v European & General Express Company Ltd (1920) 4 Lloyd’s Rep 127. Clause 11 of the BIFA terms made express provision for the obtaining of insurance, but it is not necessary to set it out as no issue on the appeal arose on the clause.[19]I next turn to consider whether the parties were in breach of their obligations. Although the buyers’ particulars of claim were not explicit, the trial proceeded on the basis that the sellers were in breach of their obligations to obtain a contract of carriage on usual terms and insurance which enabled them to claim directly from the insurers. If the sellers were in breach, there was no real issue on the liability of the freight forwarders to the sellers, subject to an issue as to whether in respect of the contract of insurance, the buyers had suffered a loss.

Was a contract of carriage obtained on usual terms?

(i) The contention of the freight forwarders and sellers

[20]The buyers contended that the contract was not on usual terms as it permitted on deck shipment. The sellers and the freight forwarders contended that, although the usual terms of the trade would contain a clause relating to deck cargo in terms similar to clause 7(2), their obligation was to procure a contract of carriage which did not permit the option to be exercised in a way that the ambulances would be carried on deck. They concluded they had no obligation to procure a contract that provided for shipment under deck. This semantic difference does not in the result matter.[21]They contended that they had discharged this obligation, as clause 7(2) did not permit the carriers to ship the ambulances on deck, as there was a prior antecedent agreement contained in the booking confirmation. The legal principle was not in dispute. As between the carrier and the shipper (in this case the seller acting through the freight forwarders), the terms although usually evidenced by the terms of bill of lading, can be contained in an antecedent agreement as between the shipper and the carrier: The Ardennes [1951] 1 KB 55, Evans v Andrea Merzario Ltd [1976] 2 Lloyd’s Rep 165. The antecedent agreement was contained in the booking confirmation. The terms of that confirmation were to the effect that on deck shipment was only permitted, if the bill of lading was claused on its face to show on deck shipment.[22]The judge rejected that argument as the prior antecedent agreement was not clear enough to override the terms of clause 7(2). He found (see paragraph 16 of his judgment) that the contract of carriage should have provided that the three ambulances be carried below deck.[23]Although it was common ground that the term in the booking confirmation expressly permitted on deck shipment and therefore confirmed the rights under clause 7(2) of the bill of lading, the argument before the judge and in this court was directed to whether it only permitted on deck shipment if the bills of lading were so claused on their face. (ii). The meaning of clause 7(2) of the bill of lading and the booking confirmation[24]In my view the construction of the term in the booking confirmation has to be approached with an understanding of the meaning of a liberty clause in the terms of clause 7(2) of the bill of lading, as the few words in the booking confirmation were intended to take effect in that context. Although neither the buyers nor the freight forwarders were aware of the precise wording of that clause, it was in a standard form.[25]It was common ground that the first part of clause 7(2) permitted shipment on deck without notice to the shipper or consignee, as the goods so carried were made subject to the Hague Rules (no point being taken that the Hague-Visby Rules should have been stipulated, presumably as the clause paramount on the face on the Bill of Lading would have overridden this clause). In Svenska Traktor v Maritime Agencies (Southampton) Ltd [1953] 2 QB 295, a case that has been accepted as good authority for over 50 years, Pilcher J decided that a liberty clause that permitted carriage on deck without the carrier incurring responsibility was void in so far as it exempted the carriers from liability by reason of Article III Rule 8 of the Hague Rules which were compulsorily applicable to the shipment. However the part of the clause that gave the carrier liberty to carry on deck did permit the carrier to do so, subject to the obligations under the Hague Rules; the right of the carrier to carry on deck, without deviation, under a standard liberty clause had been accepted by McCardie J in Armour v Walford [1921] 3 KB 473, a decision also long accepted to be correct. It was common ground on this basis that the first part of clause 7(2) permitted on deck carriage.[26]It was also common ground that the second part of clause 7(2) permitted carriage on deck without responsibility of the carrier under the Hague-Visby Rules, if the bills of lading were claused on their face to the effect that the ambulances were carried on deck; that followed from the definition of goods under Article I (c) of the Rules. (iii). Did the terms of the booking confirmation circumscribe the exercise of clause 7 as between the sellers and the carrier?[27]Against the background, I therefore turn to consider whether the agreement contained in the booking note operated to prevent the carrier from exercising the liberty under the first part of clause 7(2) to carry on deck?[28]Though the judge accepted there could be a prior antecedent agreement, he concluded that the term in the booking note was not clear enough to override the written terms of clause 7(2). He considered that the reference to “shipped” and the use of capital letters created at the very least doubt about what was intended. The buyers supported this finding, contending that the clause in the booking confirmation could be read simply to mean the words in block capitals would be stated on the bill of lading and thus emphasise the right to ship on deck. It was also contended by the buyers that the statements on the front of a bill of lading dealt with factual matters and did not override the terms of clause 7(2).[29]I cannot accept either the judge’s conclusion or the buyers’ arguments advanced to support it. It is long standing practice that if goods are shipped on deck, a statement to that effect will ordinarily be found on the face of the bill of lading. Indeed the terms of clause 7(2) so contemplated. Although no doubt the booking note could have been drafted in clearer terms, in my judgement anyone in the trade reading the booking confirmation would have understood it to mean that if the goods were to be placed on deck, the face of the bill of lading would be so claused.[30]I therefore conclude that there was a prior antecedent agreement to the effect that if the vehicles were to be carried on deck, that would be noted on the face of the bill of lading and to that extent, therefore, the liberty to ship on deck without notice to the shipper was circumscribed. Under the contract of affreightment between the carrier and the shipper there was no right to carry on deck.[31]It is therefore not necessary to consider the further submission that the carrier would not have been entitled to exercise the right under clause 7(2), on the grounds that a liberty cannot be exercised if doing so would have been a breach of the duty under Article III; it would have been a breach to carry on deck as the ambulances were not packaged or containerised for deck carriage. The judge did not decide the point, as he declined to do so without further submissions. It is unnecessary for me to lengthen this judgment by so doing in the light of the clear conclusion I have reached on the terms of the contract. (iv). Did the terms of the booking confirmation circumscribe the exercise of the option as between the carrier and the buyer?[32]The contract of carriage which the seller was bound to provide was a contract enforceable as between the carrier and the consignee. As is set out in paragraph 25 above, it was common ground that clause 7 permitted carriage under deck and there was nothing on the face of the bill of lading to indicate otherwise.[33]It was not, however, argued by the buyers that the contract upon which the consignee, in this case the buyer, would expect to receive and upon which he would rely was the contract contained solely in the bill of lading. The question whether this issue should be considered by the Court on the appeal was expressly raised; we were told that no such argument had been advanced before the Judge. The buyers did not seek to raise it before us in those circumstances. It is therefore not apposite for this court to consider whether under the provisions of the Carriage of Goods by Sea Act 1971 the contract of carriage that the buyer in fact had with the carrier was that contained in clause 7 of the bill of lading unmodified by the agreement as between the seller (as shipper) and the carrier, or, whether, if it was unmodified, such a contract conformed to the obligation under INCOTERMS 2000.[34]On this first issue, therefore, I conclude that the appeal of the sellers and the freight forwarders should succeed.

Was a contract of insurance obtained as required by the CIP terms?

[35]On the written terms of INCOTERMS 2000 the insurance cover that the buyers were obliged to provide was cover on the terms of the Institute Cargo clauses (C). It is not necessary to set these out, as it is common ground that they did not cover loss by being washed overboard by perils of the sea.[36]However the insurance in fact provided was insurance on all risks (A) clauses, but subject to the warranty of under deck shipment. As the ambulances were shipped on deck, the warranty should not have been given as the warranty was broken. There was accordingly never any valid insurance in force under which the buyers could have claimed from the insurers. Even though this put the sellers in breach of their obligation to provide a valid insurance, the sellers and the freight forwarders contended that this caused the buyers no loss, as the buyers were only entitled to cover on the terms of the (C) clauses which would not have covered the loss. It is first convenient to consider whether the freight forwarders were in breach of their duty of care to the sellers by giving the warranty. (i). Were the freight forwarders in breach of their duty of care to the sellers?[37]It is clear that the freight forwarders acting with due care and a seller discharging its obligation under INCOTERMS 2000 should not have given that warranty, unless the contract of carriage provided clearly for under deck shipment or prohibited on deck shipment. As I have set out above, I consider that the contract prohibited carriage on deck.[38]But should they also have checked with the carrier before giving the warranty? The judge found that they should have done.[39]It was contended by the freight forwarders that there was no need for the freight forwarders to have checked with the carriers before giving the warranty because not only was it clear on receipt of the bill of lading that the option to carry on deck had not been exercised by the carriers but that they cannot reasonably have anticipated that the carriers would have done so, because to carry on deck would have been a breach of the Article III obligation under the Hague-Visby Rules carefully to carry and stow the ambulances.[40]They made that submission because in the first place the ambulances were new and unpacked and therefore would on a voyage in winter be at obvious risk of damage from salt spray; therefore they could not conceive that a careful carrier would ship on deck. Secondly the bills of lading were claused as set out in paragraph 8 above to the effect that cargo was stored in an open area. They contend that with such a statement in the bill of lading making it clear that there was that risk, it was reasonable for them to infer that the vehicles must have been stowed under deck.[41]The judge found that no-one at the freight forwarders did anything to check before giving the warranty that the vehicles were shipped under deck. He also found that the position could and should have been checked before the warranty was given, in circumstances where the freight forwarders had not dealt with the carriers before and where the terms of the booking note were ambiguous. As the sellers made clear in their skeleton argument on the appeal, “The whole sorry saga could have been avoided if the freight forwarders had exercised more care and had double-checked with the carriers that the vehicles would not be carried on deck rather than operating on the assumption that because the service was described as RO-RO, they would not be so carried”.[42]It is clear that the giving of a warranty involves the maker of that warranty guaranteeing to the insurance company that the state of affairs contained in the warranty is in fact true. If the statement is not true, even if it is not causative of the loss, the law is clear that the insurer is discharged from liability as from the date of the breach (see s. 33 of the Marine Insurance Act 1906).[43]Was the judge right on the facts of this case to find that the freight forwarders in breach of their duty of care in giving that warranty simply in reliance upon the contract they had made with the carriers and their assumption that the carriers would carefully perform that contract?[44]I approach this question on the basis that it is clear that the freight forwarders’ duty is to procure a contract of carriage in accordance with the instructions of the client and that the freight forwarders are not in any way responsible for the supervision of the carriers’ performance of the contract of carriage or for the carriers’ failure to perform it. Nonetheless, in the circumstances of this case, in my view, the judge was right. The freight forwarders were negligent in giving the warranty. It seems to me clear that it was incumbent on the freight forwarders, who were in no different a position to insurance brokers, to check that the facts they were warranting were true were in fact true. Although I have not reached the same view as the judge in relation to meaning of the booking confirmation, I nonetheless conclude that the judge was, in my view right, to find that in circumstances where they had not dealt with the carriers before, they simply could not rely upon the fact that they had arranged a contract with the carriers that, if performed in accordance with its terms, would have resulted in the matters warranted being true being true. The consequences of a breach of warranty are so severe, the warranty should not have been given without due care being taken to check that the cargo was under deck. This conclusion does not involve any guarantee by the freight forwarder that the carrier will perform his contract or any supervision by the freight forwarders of the carrier’s obligation. It is a conclusion simply that on the facts of this case, the judge was entitled to conclude that the freight forwarders should not have given a warranty in relation to a fact without taking reasonable steps to check that that fact was accurate. (ii). Did the sellers’ breach of their obligation in respect of the provision of insurance cause any loss?[45]However, even though the freight forwarders were negligent in giving the warranty, and the sellers in breach by not providing a valid insurance (as it contained the warranty which had been immediately broken), they both contended that there was no loss. Under INCOTERMS the sellers were only obliged to provide cover on Institute Clauses (C) which, as I have set out, would not have covered the loss that in fact occurred. Thus, even though an invalid insurance had been provided, a valid insurance would not have covered the loss and so the breach had caused no loss. For the reasons already given, the sellers were not responsible for the carriers’ breach of the contract of carriage in stowing the ambulances on deck.[46]The judge, however found that the sellers were in breach of their obligation to provide insurance on two separate bases. First the judge found that the sellers were in breach because they failed to obtain a contract of insurance that matched the contract of carriage. He relied on a passage in Benjamin’s Sale of Goods 7th edition at paragraph 19-049 where the editors after referring to the decision of the Court of Appeal in Belgian Grain & Product Co v Cox & Co (France) Ltd (1919) 1 Lloyd’s Rep 256 state:
“the seller must procure a contract of insurance which, so to speak, matches the contract of affreightment”
. The decision of the Court of Appeal concerned a question of whether an insurance contract presented under a letter of credit provided cover for the whole of a voyage where transhipment was contemplated. I do not consider that either the decision itself or the proposal in Benjamin suggests that the obligation of the seller, where there is an express contractual stipulation as to the terms of the insurance to be obtained, is to obtain insurance that in fact matches the carriage actually performed. The obligation of the sellers in this case, subject to an express finding which the judge made, was the obligation set out in the INCOTERMS CIP terms. There was therefore an express obligation which overrode any implied obligation. I cannot therefore accept this first basis.[47]The second basis on which the judge found that the sellers were in breach can be summarised as follows. He found, on the basis of the witness statement of Mr Milardovic of the buyers, that he could not conclude that the buyers did not seek any insurance beyond the minimum cover. He accepted the evidence of Mr Milardovic that the sellers had assured him that the freight forwarders would make the necessary arrangements for protection under the insurance for the usual risks of the voyage to be undertaken.[48]The judge considered that, as the buyers had in this way put themselves into the hands of sellers who had then procured insurance on all risks (A) clauses as opposed to the more restricted (C) clauses, it could be inferred that either (1) the sellers acknowledged an obligation to ensure that the carriage actually being performed and the insurance actually obtained matched or (2) conduct evidencing an agreement to provide more than the minimum cover, that is to say cover on all risks (A) clauses.[49]I find great difficulty in seeing how the first inference can be drawn. In procuring insurance terms, the sellers, even assuming that their obligation was one to match (whatever that might mean), were not matching the carriage and the insurance as they did not know (either themselves or through the freight forwarders) that the cargo was not under deck and needed all risks cover.[50]However, the judge might well have been entitled to draw the second inference on the facts of the case. As the passage in the INCOTERMS document giving an explanation of the term “Minimum Cover” (set out at paragraph 16 above) makes clear, cover on (C) clauses is not suitable for manufactured goods. The documents showed that the price was calculated with insurance on all risks (A) clauses and this is what the buyers paid. In my view it might well have been right to infer that cover on all risks (A) clauses was in fact essential for such valuable goods and the sellers would not have sought such cover unless they considered that they were obliged to do so after their conversation with Mr Milardovic. The judge might, on the evidence placed before him, therefore have been entitled to draw the inference that there was an agreement to provide cover on all risks (A) clauses and not merely on (C) clauses.[51]However, it was submitted by the sellers it was not open to the judge to make this finding as Mr Milardovic’s evidence in his statement had not asserted that more than the CIP minimum was required and the buyers had expressly not pursued the point. The buyers maintained that it was open to the judge to make the finding he did.[52]In their opening skeleton, the buyers had defined as an issue in the case the question as to whether the buyers were in any event entitled to cover on the all risks (A) clauses, but had also stated that they were not pursuing that argument at trial. During the buyers’ closing submissions the judge asked whether the issue as to whether the buyers were entitled to cover on all risk (A) terms was a live issue. The buyers told him that it was not, but added that it was clear that cover on the all risks (A) clauses was always intended.[53]Although on a full reading of Mr Milardovic’s statement the judge might well have been able to take the view he did of it, it is important to note that Mr Milardovic was not cross examined on that part of his statement, presumably because there was not thought to be any issue on the terms of the insurance obligation. Thus it would be unsafe to place reliance on the statement, when he had not been cross examined on that part. Furthermore, it is very difficult to see how the judge was entitled to decide this issue against the sellers when the buyers in their closing submissions had made clear that it was no longer an issue. Although the point may well have been a good point decisive of the case, in the light of the conduct of the case by the buyers, it is not a point on which the judge should have decided the case in their favour.[54]I therefore conclude that the appeal should be allowed on the second issue.

Conclusion

[55]For these reasons, I have been unable to uphold the judge’s findings on the issues of wider importance in this case in relation to the bills of lading and the matching of insurance and the contract of affreightment. Although in my view the warranty should not have been given in the contract of insurance and the freight forwarders were negligent, this caused no loss, as I have been unable to uphold the judge’s decision that the sellers had agreed to provide cover on all risks (A) clauses. It is a conclusion I have reached with regret, as the litigation has brought about costs out of all proportion to the sums at stake and, as the sellers observed, it could all so easily have been avoided.

Sir Nicholas Wall, President of the Family Division:

[56]I have had the advantage of reading in draft the judgments of my Lords, Thomas LJ and the Master of the Rolls. For the reasons they give, I too would allow the sellers appeal and the freight forwarders appeal.[57]Like my Lords, I reach that conclusion with regret, not least because I agree with Thomas LJ’s description of the freight forwarders’ conduct contained in paragraph 55 of his judgment. To the untutored eye, the freight forwarders were the experts: they had not used this particular carrier before, and at first blush it seems odd that they should be able to escape the consequences of their negligence.[58]Equally, as a relative stranger to this category of litigation, it never ceases to surprise me that apparently acute men of business, who are sufficiently affluent to be able to afford good advice and who deal with substantial sums of money are so careless with language as to require this court to tell them the meaning and effect of critical words in their dealings with each other. Accordingly, I particularly associate myself with the first sentence of paragraph 76 of the Master of the Rolls’ judgment.[59]Speaking for myself, I would have liked to have found the judge right, albeit for different reasons. Having read and reflected on my Lords’ judgments, however, I realise that this would be an impermissible exercise, and that these appeals must be allowed. Lord Neuberger, The Master of the Rolls: Introductory

Lord Neuberger, The Master of the Rolls:

[60]I agree with Thomas LJ that the sellers’ appeal and the freight forwarders’ appeal should be allowed. Like Thomas LJ, I reach this conclusion with regret, and will therefore briefly give my reasons.[61]The facts are fully and clearly set out in paragraphs 2 to 19 and 35 to 36 above, and it is therefore unnecessary to repeat them.[62]As against the sellers, the buyers effectively have two points. The first point is that their contract with the sellers was on usual terms, which did not permit on deck shipment, and the sellers were in breach of contract as the contract of carriage permitted the carriers to ship the ambulances on deck. The question to which this first point gives rise is whether the Judge was right to conclude that the sellers were in breach of contract as alleged. The buyers’ second point is that the insurance which the sellers obtained was void, and therefore, in breach of the terms of the contract between the buyers and sellers, the ambulances were not insured while being shipped. The question to which this second point raises is whether the buyers suffered any loss as a result of this breach.[63]The freight forwarders’ appeal raises issues which effectively mirror the issues between the buyers and the sellers, and therefore it gives rise to the same two questions. I shall consider those questions in turn as between the buyers and sellers, and will then turn to the position of the freight forwarders.

The first issue: were the carriers entitled to ship the ambulances on deck?

[64]The pivotal question on which the first issue turns, in the light of the points which were respectively argued or not in dispute, is the meaning and effect of the statement (“the statement”) in the booking note of 14 November 2006, referred to in paragraph 6 above, and which was in these terms:
“ALL VEHICLES WILL BE SHIPPED WITH “ON DECK OPTION” this will be remarked on your original bills of lading.”
[65]The sellers, supported by the freight forwarders, contend that the correct interpretation of the statement is that vehicles can be shipped on deck, but only if that is “remarked” on the relevant bills of lading – i.e. if the bills are so claused. If that is right, then the ambulances in this case could not have been shipped on deck as the relevant bills (“the Bills”) were not claused.[66]The buyers contend that the statement means that vehicles can be shipped on deck, whether or not the relevant bills are claused, on the basis that the first half of the statement is an unqualified provision, and the second half is a description of future fact, or of intention. If that is right, then the ambulances could be shipped on deck, irrespective of whether the Bills were claused.[67]As I read his judgment, HH Judge Mackie QC either accepted the buyers’ case, or held that the statement was ambiguous and that therefore the terms of clause 7 of the Bills sent to the freight forwarders on 29 November, and signed on 4 December, 2006, as set out in paragraph 8 above, prevailed.[68]In my view, the contention of the sellers is to be preferred. I understand, indeed I share, the Judge’s view that the statement is inartistically worded, but it seems to me to be a counsel of despair to hide behind that fact, to the extent of concluding that it is therefore contractually ineffective or meaningless. The statement was clearly intended to have contractual effect, and it would therefore have to be effectively impossible to give it any meaning before one could properly ignore it, which is what, on one view of his judgment, the Judge did. So I turn to the statement, with a view to seeing how it would have been understood, in the light of the words it uses and the documentary and commercial context in which it would have been read.[69]On any view, the statement envisages that the carriers have a right, or option, to ship vehicles on deck, and that the right should be remarked, or claused, on the relevant bills of lading. The question is whether the right and the recording are connected, as the sellers say, by the right being validly exercised only if the bills are claused, or whether the right and the clausing are effectively independent of each other, as the buyers contend.[70]As a matter of initial impression, the sellers’ interpretation seems the more natural. First impression can be a dangerous guide to meaning: it is liable to be subjective, it is normally impossible to explain, and it not infrequently turns out to be wrong. However, as the purpose of interpretation is to work out what meaning the words in question convey, the initial impression they make on the tribunal charged with interpretation is often of relevance – not least in a case such as this, where the recipient of the document concerned will, in practice, read its provisions pretty quickly (if at all).[71]In terms of common sense, the sellers’ case is stronger. There seems little practical point in requiring the on-deck shipping option to be “remarked” on the relevant bills, if the right can be exercised irrespective of whether clausing occurs. On the sellers’ case, the clausing requirement in the second half of the statement performs a vital function. On the buyers’ case, the only purpose of the latter half of the statement is to repeat on the relevant bills that which has already been agreed through the statement.[72]In terms of commercial purpose, the sellers’ case also makes better sense. If, as is demonstrated by the evidence given in this case (summarised in paragraph 10 above), the bills are claused, then the sellers or freight forwarders can arrange for the appropriate insurance – i.e. a higher premium, or at least an appropriate declaration to the insurer – because they would thereby know that the vehicles were being shipped on deck. Unless the sellers or freight forwarders could be sure from the existence of clausing (or absence of clausing) on the bills that the vehicles were being shipped on deck (or, respectively, under deck), then they would have to arrange for insurance on the assumption that they were being shipped on deck – a potentially unnecessarily expensive exercise if they were being shipped under deck.[73]Normal trade practice is also relevant. So far as that is concerned, I understand that, as Thomas LJ says in paragraph 29 above, it is a longstanding practice that, if any cargo is shipped on deck, it is normally recorded in terms on the relevant bills of lading. (That is supported by the evidence in this case, including the terms of clause 7(2) of the bills, set out in paragraph 8 above.) The statement, made as it is in a booking confirmation provided by the carriers to freight forwarders, should be read with that well established practice in mind. Particularly as the statement is both shortly expressed and poorly worded, it seems to me that it is a fair inference that it was intended, and would have been understood, to mean that the normal practice applied.[74]Turning to the appearance of the statement, it is hard to know what to make of the use of capital letters in the first part, especially as other statements in the booking note also use a somewhat idiosyncratic, even apparently arbitrary, combination of upper and lower case phrases. I do not consider that the use of the upper case in the first half of the statement assists in the present dispute. The two concepts of actual shipping and the contents of the bills can be said to be separated by the change from upper to lower case, but that does not throw light on the issue dividing the parties: on any view, the shipping and the bills are different concepts: the issue between the parties is how, if at all, they interrelate.[75]As a matter of language, the statement strikes one as being, at best, inelegantly phrased even before one considers precisely what it means. On a closer analysis, there are problems with both interpretations. The inverted commas in the statement seem to me, pretty plainly, to indicate that the words “on deck option” will actually be “remarked” on the relevant bills of lading. That does not accord well with the buyers’ contention that the first part of the statement simply gives the right to the carrier to ship on deck. On the other hand, the sellers’ interpretation involves implying words such as “if the vehicles are to be shipped on deck” at the end of the statement. Each of the rival interpretations is possible, but linguistically somewhat unsatisfactory.[76]In conclusion on this aspect, the position seems to me to be as follows. In terms of pure language, the wording of the statement leaves much to be desired and it does not accommodate either of the proffered interpretations wholly satisfactorily. Accordingly, this is one of those cases where any analysis of the words of the sentence in issue is of little help in resolving the dispute. First impression, common sense, business efficacy and trade practice, however, all point in the same direction, namely in favour of the sellers’ construction. Accordingly, I have reached the same view on the central issue on the first point in this appeal as that reached by Thomas LJ.[77]Once one reaches the conclusion that the statement in the booking note means that the carriers can only ship vehicles on deck if the relevant bills of lading are claused to that effect, the buyers’ case on the first issue can be disposed of shortly.[78]The terms and effect of clause 7(2) of the bill of lading cannot be of determinative significance, because, as the Judge rightly accepted, they are liable to be overridden by any inconsistent prior antecedent agreement, such as that arising from the statement in the booking note. Thus, however unqualified the carrier’s right to ship vehicles on deck may have been under clause 7(2), that right was circumscribed to the extent stipulated in the statement. Accordingly, as the bill of lading was not claused, as contemplated by the statement, the ambulances should not, under the contract between the sellers (acting through the freight forwarders) and the carriers, have been shipped on deck. Therefore, the sellers were not in breach of their contract with the buyers, contrary to what the buyers allege and to what the Judge accepted.

The second issue: did the buyers suffer loss due to the defective insurance?

[79]I turn to the buyers’ case on the second issue, namely that the sellers failed to obtain valid insurance in accordance with their obligations under the CIP contract. In this connection, it seems clear that, contrary to the sellers’ obligation, there was no valid insurance, as the warranty given by the freight forwarders (as set out in paragraph 9 above – “the warranty”) that the ambulances were to be shipped under deck was broken by virtue of the very fact that the ambulances were shipped on deck.[80]The problem for the buyers in this connection is that the contract between the buyers and sellers was subject to INCOTERMS 2000, which included the provision set out in paragraph 16 above. As the Judge rightly found, this meant that the insurance cover which the sellers were obliged to obtain was on the terms of Institute Cargo Clauses (C), and such cover does not extend to loss suffered as a result of cargo being washed overboard by perils of the sea. Subject to any other argument, therefore, the Judge should have concluded that the buyers had failed to establish any loss resulting from the failure of the sellers, through the freight forwarders, to obtain valid insurance, as the insurance contracted for would not have covered the loss actually suffered.[81]The Judge gave two reasons for avoiding this conclusion. The first was that the sellers should have obtained a contract of insurance which precisely matched the contract of carriage, and therefore required the sellers to obtain cover for on-deck shipment. I do not agree. While there is obviously a very powerful case for saying that this is the extent of the insurance obligation under a CIP contract which is silent as to the extent of the obligation, such a case cannot be maintained if the contract actually spells out that the sellers’ insurance obligation is more limited in its extent. To hold otherwise would fall foul of the general principle that a term cannot be implied into a contract if it is inconsistent with an express term of the contract. Quite apart from this, given the conclusion that, because the bill of lading was not claused, the ambulances could not be shipped on deck, I would have thought that it follows that the terms of the insurance did match the terms of the contract of carriage.[82]The Judge’s second reason for holding the sellers liable for substantial damages for not having obtained appropriate insurance, turned on his interpretation and application of the evidence of Mr Milardovic of the buyers. This evidence and the Judge’s approach to it are summarised in paragraphs 47 and 48 above, and I have nothing to add to the reasons given by Thomas LJ in paragraphs 49 to 53 as to why the Judge’s conclusion cannot stand.

The position of the freight forwarders

[83]The freight forwarders gave the warranty because they believed that the fact that the bills of lading were not claused meant that the ambulances were being shipped under deck. In the light of the terms of the statement as discussed above, that was a view which appears to have been justified.[84]However, the Judge found that the freight forwarders were in breach of duty of care by giving the warranty, on the grounds explained in paragraphs 38 to 42 above; for the reasons given by Thomas LJ in paragraph 44, it seems to me that the Judge was entitled to reach that conclusion. However, that breach of duty cannot sound in damages for the same reason that the buyers have no claim against the sellers for the failure to obtain valid insurance.

Conclusion

[85]For these reasons, and in agreement with the more fully expressed reasons of Thomas LJ, I would allow the appeals of the sellers and the freight forwarders. As already mentioned, like Thomas LJ, I reach this conclusion with some regret, not least because the costs which must have been expended on this litigation are wholly disproportionate to the amount at issue.