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When loss or damage to cargo occurs in the context of carriage of goods by sea, under English law a cargo claimant may have three choices as to the legal basis for a claim.He can either start a claim based on his contract of carriage with the carrier, he can claim in tort or he can claim in bailment.

The Principle of Bailment under English Law
A bailment arises when one person (the bailor) hands over his goods to the care of another (the bailee).A bailment may be created for various reasons for example the bailee may have the possession of the goods as a security for a loan, for carriage or to carry out repairs.The property in the goods remains with the bailor, and the possession with the bailee.

A bailment is an independent legal transaction and need not necessarily originate in a contract.When A hands goods to B under a bailment, B has certain duties with regard to the care of the goods even though there may be no contract between the parties.Bailment may be gratuitous or for reward.A bailee must take reasonable care of the goods according to the circumstances of the particular case.What is deemed "reasonable" in any particular case may vary depending on whether the bailment is gratuitous or for reward. It is therefore sometimes perceived that a bailment for reward requires a higher standard of care than a bailment without reward.In contrast to the tort of negligence, the burden of proof is on the bailee to show he exercised reasonable care, although in practice this difference may be of little significance.

If the bailment is created by virtue of a contract, then the bailee is able to avail himself of the protections afforded by the terms of the contract.

Depending on the nature of the bailment and the terms of the particular contract, a bailee may be able to delegate performance of the contract to another (sub-bailment).When such delegation occurs (whether it is known to the bailor or not), the delegate himself becomes a bailee (sub-bailee).A legal relationship is created between bailor and sub-bailee by the sub-bailee voluntarily accepting possession of the bailor’s goods and therefore the sub-bailee owes a duty of care directly to the bailor.

In English Contract law, the doctrine of privity of contract provides that only a party to a contract may be bound by or rely on its terms.However, in a sub-bailment situation, in certain circumstances, the sub-bailee may rely on the terms in his own contract of bailment or, in other circumstances, on the contract of bailment between the bailor and bailee.This is the doctrine of sub-bailment on terms.

The Principle applied to Through Transport
As explained elsewhere in this edition of Gard News, in the operation of through transport a carrier (hereinafter called "TT carrier") may sub-contract parts of the carriage to other carriers (hereinafter called "feeders").In this scenario cargo interests employ a contractor (the TT carrier), who in turn sub-contracts to the feeders.

As noted above, in the absence of a contract of carriage between cargo interests and a carrier, under English law cargo interests still have two possible legal grounds to start a claim for shortage or damage to cargo against the carrier: tort or bailment.

Where the owners of goods lost or damaged during carriage in a through transport situation choose to file a claim against the feeder directly on the basis of bailment (in this case "sub-bailment"), a question arises as to whether the feeder may rely on the terms of his contract with a third party (the TT carrier) to defend the claim filed by the cargo owners.

In some cases, the sub-contractor has been allowed to rely on the terms of the main contract between the TT carrier and cargo interests by virtue of the fact that the contracts created a sub-bailment on terms.1However, the feeder may prefer to rely on the terms of his own contract (with the TT carrier), which were the terms agreed by him to perform the carriage.Can he do so?

In 1994 this question came before the Privy Council, acting in its capacity as the final Court of Appeal of Hong Kong.

The "K.H. ENTERPRISE"2
The facts of the case are quite simple.TT carriers had contracted with cargo interests to carry one cargo from the US to Hong Kong via Taiwan and another cargo from Taiwan to the Middle East/Europe via Hong Kong.The bills of lading issued by the TT carriers for both sets of cargo contained clauses conferring a liberty on them to sub-contract the whole or any part of the carriage of the goods.3

The carriage of both cargoes from Taiwan to Hong Kong was sub-contracted to the feeder "K.H.ENTERPRISE".The feeder issued bills of lading to the TT carriers, which contained a Taiwanese jurisdiction clause.The cargo was lost while in the feeder’s custody.

Cargo interests started proceedings in Hong Kong against the feeder as bailee, establishing jurisdiction through the arrest of the "PIONEER CONTAINER", a sister-ship of the "K.H. ENTERPRISE".The feeder claimed the Hong Kong proceedings should be stayed on the basis of the jurisdiction clause in his bill of lading.

In considering the case the Privy Council agreed that on receipt of the goods on board his vessel the feeder became bailee of them, owing a duty of care to the actual owners of the goods (i.e. the feeder became a sub-bailee)4, and that he was a bailee for reward.This gave the owners of the goods the right to sue the sub-bailee directly for the loss of the cargo.

The Court then had to decide whether the sub-bailee (the feeder) could rely on the jurisdiction clause in the contract of sub-bailment (the feeder bill of lading agreed between TT carrier and feeder).This would depend on whether the terms on which the sub-bailment had been contracted had been authorised by the bailor (cargo interests). It was held that a sub-bailee can only rely on a term of the sub-bailment if the principal bailor (in this case, cargo interests) has expressly or impliedly consented to that term or if the principal bailee (the TT carrier in this case) has ostensible authority to include the term in the sub-bailment.

The Court found that the clauses in the bills issued by the TT carriers conferring a liberty on them to sub-contract the whole or any part of the carriage of the goods gave them a very wide authority to sub-contract on any terms.Considering that the sub-contracting of the whole or part of the carriage would normally involve sub-bailment of the goods, the Court concluded that by entering into the contract with the TT carriers the cargo interests had expressly consented to the sub-bailment of their goods to another carrier on any terms.

Accordingly, the sub-bailee (the feeder) could rely on the terms of his bill of lading, which had been expressly authorised by the claimants.The Court considered that only unusual or unreasonable clauses would be excluded from the ambit of such a widely worded provision.The relevant jurisdiction clause in this case was neither unusual nor unreasonable.

The Court did not have to consider the question of "implied consent", since in this case the Court considered that the consent had been express.However, it should be noted that in some cases it may be possible to imply consent to sub-contract on certain terms, thereby allowing the sub-bailee to rely on the terms of the sub-bailment.
1Midland Silicons Limited v. Scruttons Limited 1961 1 Lloyd’s Rep. 365.
2(1994) 1 Lloyd's Rep. 593.
3The liberty clause read:
"The Carrier shall be entitled to sub-contract on any terms the whole or any part of the ... carriage of the Goods and any and all duties whatsoever undertaken by the Carrier in relation to the Goods..."
4The Court rejected the view that bailment is founded on the consent of bailor and bailee, and expressed preference for the view that it is the bailee’s voluntary taking into his possession the property of another which creates the bailment relationship. The Court was of the opinion that a sub-bailee voluntarily takes possession of the goods of another if he has sufficient notice that a person other than the bailee is interested in the goods and therefore the sub-bailee assumes responsibility as a bailee to that other person.1994 1 Lloyd’s Rep. p 206 col 1 per Lord Goff.