Thursday 28 April 2011

Q: Can you Avoid Contractual Exclusions and Limitations by Issuing Proceedings in Tort?

Often, thanks to the precise drafting of legal contracts, the parties to a dispute concerning shipping law find their remedies severely limited or excluded as a result of the wording of the contract. A common question to shipping lawyers is therefore whether a party can avoid the unhelpful exclusion or limitation by issuing proceedings under another cause of action, say in bailment or tort. 

Although generally the Claimant is free to take their choice of multiple causes of action, where there are multiple causes, in these circumstances the answer would usually be no. The reasoning for this and the fine detail of this area of law is extremely nuanced and complicated (known as 'concurrent liabilities') and has remained the cause of continued debate and confusion for some time. However, A short guide to my understanding of the English law position, with examples, follows.

Were a cargo Claimant to wish to avoid the weight limitation in a cargo claim they may consider issuing proceedings in Bailment (a cause of action which arises where someone is in possession of goods which belong to another and fail to care for them appropriately causing them to be damaged). 

If some cargo is in the care of a shipowner during carriage and it is damaged the owner of that cargo may issue proceedings under Bailment, but to do so would essentially be pointless. I say this because a claim for bailment would be more difficult to prove then a breach of contract claim and the court would allow the terms of the contract of carriage to be written into the bailment claim in any case (known as 'bailment on terms') allowing the limitation to apply anyway.* 

Cargo claimants also sometimes refer to issuing proceedings in tort to avoid contractual defences and limitations. Although there is not the same legal precedence for 'tort on terms' such a claim would not get out of the starting blocks in English law because of the provisions of the Hague Visby Rules. The Rules have force of law under English law and therefore where a cargo transit meets the requirements the carrier, and cargo interests, will be bound automatically by the provisions of the Rules, despite what the contract of carriage said.

The following section of the Hague Visby Rules, at Article IV (1), will then prevent any attempt to escape the limits by issuing proceedings in tort: 'The defences and limits of liability provided for in these Rules shall apply in any action against the carrier in respect of loss or damage to goods covered by a contract of carriage whether the action be founded in contract or in tort.'.

Let us say that a towed vessel enters a towage contract with a tug which contains a clause essentially noting that the tow will not take any action against the tug for damaged caused to the tow by the tug during the towage operation (part of a 'knock for knock' clause). The tug arrives and in the opinion of the tow negligently collides with the tow's hull, in such a way that it causes significant damage to it. In the circumstances the owner of the tow may wish to bring a legal action against the tug owner for compensation. However under the terms of their contract such an action would not be allowed. 

The tug owner may therefore enquire whether they can simply bring a basic negligence action in tort, stating their case at common law; that the tug was another vessel on the river and therefore owed a duty of care to all other vessels there, and that it breached that duty when it damaged the vessel's hull. On the face of it there is no reason why such a claim should not succeed in tort, but unfortunately for the tow owner in these circumstances the tortious claim would probably not be considered in a legal vaccum, i.e. the court would also look to the contractual relationship. In other words, if the tug owners adduced evidence of the towage contract clause, stating that no such action would be brought against the tug, then the court would likely allow this to bar the claim in tort. 

The case which comes to mind is "Henderson v Merrett Syndicates Ltd", in which Lord Scarman essentially noted that he was happy for a Claimant to have a choice of causes of action, except where the claim in tort would be "so inconsistent" with the contractual position, that it should not be allowed. Scarman LJ held: 'I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him subject only to ascertaining whether the tortuous duty is so inconsistent with the applicable contract that…the parties must be taken to have agreed that the tortious remedy is to be limited or excluded.' 

Essentially this upholds the freedom for commercial parties to be as flexible as possible when negotiating contract terms. However it is important to note that were the contract not between two similar commercial parties the courts may consider such an exclusion an unfair contract term and refuse to let it affect any claim in tort.

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* This is not to say that a party who was unable to bring a claim in contract might not wish to bring a claim in bailment. Say where the owner of the goods at the time of their damage had no right to claim under the contract of carriage because that right has been transferred to another party. However, in these circumstances there would be no 'concurrent liabilities' as the shipowner would not technically have a liability in contract to this Claimant. 


Anonymous 26 November 2015 at 06:44  

Extremely useful, answered my question exactly

Anonymous 14 November 2017 at 21:37  

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