Editorial Committee of the Cambridge Law Journal

Contract, Bailment and Third Parties. AgainAuthor(s): Andrew TettenbornSource: The Cambridge Law Journal, Vol. 53, No. 3 (Nov., 1994), pp. 440-443Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge LawJournalStable URL: http://www.jstor.org/stable/4507977 .

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440 440 The Cambridge Law Journal The Cambridge Law Journal [1994] [1994]

is required and it means what it means in the general law of contract. But what is that?

Unless there is fraud (Edgington v. Fitzmaurice (1885) 29 Ch.D. 4S9, 483 per Bowen L.J.), the rule of the general law of contract for operative misrepresentation is that the inducement must be causal in the sense of decisive (see Edgington (p. 481 per Cotton L.J.) apd Halsbury's Laws of England (4th ed.) vol. 31 para. 1079); that but for the misrepresentation the person misled would not have made the contract at all or, at least, not on the same terrns (P1llsford v. Richards (1853) 17 Beav. 87, 96 per Sir John Romilly). If sChe would have entered the contract even had he known the true facts", the misrepresentee has not been sufficiently induced and cannot rescind the contract (Treitel, The Law of Contract (8th. ed., 1991) pp. 302-303).

So, much of what the insured lost on the first question of influence has been given back to him by the decision on the second question of inducement. In particular, the defence of non-disclosure is less "technical" and more difficult for the insurer to mount, if, as it seems, the insurer must be able to produce the actual underwriter, and his credibility and competence will be exposed to scrutiny. Moreover, the decision is a small shift back from a law of contracts to a law of contract; and it gives new importance to an old point of general contract law.

MALCOLM CLARKE

CONTRACT, BAILMENT AND THIRD PARTIES-AGAIN

X PUTS his goods into Y's hands; Y puts them in the hands of Z, who fails to take care of them. Two things are clear on the authorities:

(a) At least if Z is aware that the goods belong to someone other than Y, X can sue him direct as sub-bailee (see Gilchrist Watt, etc. v. York Products [1970] 3 All E.R. 825). (b) At least if X consented to Y sllb-bailing the goods to Z on terms, Z can if sued by X invoke the terms agreed between himself and Y: although not a party to any arrangement between Y and Z, X cannot sue on the bailment to Z without accepting it in toto, warts and all (Morris v. Martin [1966] 1 Q.B. 716).

But the words "at least ift', as usual, are awkward, and at least three niggling questions remain to bother practitioner and student alike:

Question 1: Is Z still liable to X if he is not aware that the goods are X's and thinks (reasonably) that they belong to Y himself? Question 2. Can Z invoke the terms of his contract with Y against X if X did not consent to Y entrusting the goods to him on those terms?

is required and it means what it means in the general law of contract. But what is that?

Unless there is fraud (Edgington v. Fitzmaurice (1885) 29 Ch.D. 4S9, 483 per Bowen L.J.), the rule of the general law of contract for operative misrepresentation is that the inducement must be causal in the sense of decisive (see Edgington (p. 481 per Cotton L.J.) apd Halsbury's Laws of England (4th ed.) vol. 31 para. 1079); that but for the misrepresentation the person misled would not have made the contract at all or, at least, not on the same terrns (P1llsford v. Richards (1853) 17 Beav. 87, 96 per Sir John Romilly). If sChe would have entered the contract even had he known the true facts", the misrepresentee has not been sufficiently induced and cannot rescind the contract (Treitel, The Law of Contract (8th. ed., 1991) pp. 302-303).

So, much of what the insured lost on the first question of influence has been given back to him by the decision on the second question of inducement. In particular, the defence of non-disclosure is less "technical" and more difficult for the insurer to mount, if, as it seems, the insurer must be able to produce the actual underwriter, and his credibility and competence will be exposed to scrutiny. Moreover, the decision is a small shift back from a law of contracts to a law of contract; and it gives new importance to an old point of general contract law.

MALCOLM CLARKE

CONTRACT, BAILMENT AND THIRD PARTIES-AGAIN

X PUTS his goods into Y's hands; Y puts them in the hands of Z, who fails to take care of them. Two things are clear on the authorities:

(a) At least if Z is aware that the goods belong to someone other than Y, X can sue him direct as sub-bailee (see Gilchrist Watt, etc. v. York Products [1970] 3 All E.R. 825). (b) At least if X consented to Y sllb-bailing the goods to Z on terms, Z can if sued by X invoke the terms agreed between himself and Y: although not a party to any arrangement between Y and Z, X cannot sue on the bailment to Z without accepting it in toto, warts and all (Morris v. Martin [1966] 1 Q.B. 716).

But the words "at least ift', as usual, are awkward, and at least three niggling questions remain to bother practitioner and student alike:

Question 1: Is Z still liable to X if he is not aware that the goods are X's and thinks (reasonably) that they belong to Y himself? Question 2. Can Z invoke the terms of his contract with Y against X if X did not consent to Y entrusting the goods to him on those terms?

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C.L.J. Case and Comment 441

Supplementary: Does it make any difference to either of the above if Y did not physically take possession of the goods at all, but (in the manner of, for example, a forwarding agent) merely made arrangements for Z to take possession direct from X?

The answers-or some of theman be found in the Privy Council's decision in The Pioneer Container [1994] 2 All E.R. 250.

The defendants' Taiwanese vessel, the KH Enterprise, collided and sank in the South China Sea while en route from Taiwan to Hong Kong. Two groups of cargo-owners (there was a third, but it need not concern us) brought proceedings in Hong Kong by arresting a sister- ship of the KH Enterprise. The first, the "Hanjin plaintiffs", had engaged other carriers, Hanjin, to transport goods from the US to Hong Kong via Taiwan; under the contracts between them and Hanjin, the final leg from Taiwan could be and was sllb-contracted to the defendants. The "Scandutch plaintiffs" were in the converse position: they had contracted with Scandutch for carriage from Taiwan to Europe via Hong Kong, and Scandutch had, pursuant to their contracts, entrusted the cargo to the defendants for the initial stage of the journey.

The owners of the KffiI Enterprise applied in Hong Kong to stay proceedings on the basis that their contracts with Hanjin and Scandutch contained a Taiwanese exclusive jurisdiction clause. The cargo owners retorted that they were not party to those contracts and hence could not be bound by the clause.

The Privy Council held for the defendants. And not surprisingly: the plaintiffs had, they held, consented to their cargo being sub- bailed on terms including the jurisdiction clallse, and conversely the shipowners had known that the cargoes belonged to them and not to Hanjin and Scandutch. It followed from (a) and (b) above that the plaintiffs could sue, but only subject to the terms on which the shipowners had undertaken the carriage.

Nevertheless, Lord Goff (to his credit) then proceeded to deal with the more difficult questions posed above.

The answer to Question 1, he said, was No. A bailee only incurred liability to a bailor or owner he knew about: it followed that if Z above believed that Y, the person who handed him the goods, was the owner of them, he was entitled to act on that belief; it was to Y alone that he owed any duty.

Now, there is a good deal of common sense in this. It is certainly just that Z should not be liable to X to a greater extent than he would have been liable to Y had Y been the owner. If Y lends Xss car to Z saying that he is the owner and giving Z permission to use it for stock- car racing, it would indeed be monstrous were Z to be liable to X, whom he has never heard of, for damage caused thereby (pace Awad

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The Cambridge Law Journal [1994] 442

v. Pillai [1982] R.T.R. 266). And, indeed, the law has long said precisely this in the analogous case of conversion. A bailee who innocently deals with, or alienates, goods on his bailor's orders is not liable to the true owner even if his bailor was in fact in possession of the goods unlawfully. Again, by parity of reasoning if Z chooses to exclude or limit his liability to the soi-disant owner Y, there is little to be said for making him liable in a greater amount to X.

Nevertheless, to say that Z is never liable to X if he does not know of his existence is, with great respect to his Lordship, going a little far. Suppose he does something to the car without Y's consent which would make him liable in full to Y were he the owner for example, he negligently crashes it, or allows it to be stolen. Sued by Y, he can (thanks to section 8 of the Torts (Interference with Goods) Act 1977) now say to him: "You suffered no loss because it wasn't your car." If Lord Goff is right to say that he cannot be sued by X either, it seems to follow that he is liable to no-one: the person who was owed the duty suffered no loss, and the owner who suffered the damage was owed no duty. Which is, at the very least, an odd result.

Question 2, which Lord Goff then turned to, is more tricky, since both X and Z can present what looks an overwhelming case. Thus Z can plausibly say "I should not be affected by the state of affairs between X and Y, which I may not even have known about: therefore I shou}d be able to rely on the terms I agreed with Y whether or not X agreed to them" sentiments that had convinced Donaldson J. in 1976 (see Johnson Matthey v. Constantine Terminals [1976] 2 Lloyd's Rep. 215). But X, conversely, can argue with equal conriction: "I never assented to any terms agreed between Y and Z; I am not a party to any agreement with Z; therefore I should not be bound"--a view espoused by Lord Denning M.R. in Morris v. Martin, above.

Faced with the choice, Lord Goff inclined to accept Lord Denning's opinion, and to see the issue from X's point of view. And rightly so, it is submitted. The reason is this: Z does not have to accept the goods as bailee. If he does so knowing of the existence of X, he is ex hypothesi on notice that there may be terms agreed between X and Y limiting the latter's authority. It is surely not unfair that in such circumstances he should take the risk of such limitations.

Turning to the suppIementary question, this again did not arise on the facts of TE2e Pioneer Container, since both Hanjin and Scandutch were found to have taken possession of the cargoes, at least for a time. Nevertheless, Lord Goff opined that it would have made no difference even if they had not, and had acted merely as middlemen.

And again, in general this makes very sound sense. The equities between X and Z are precisely the same whether or not Y momentarily took possession of the goods: it would be, to say the least, awkward if

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C.L.J. C.L.J. Case and Comment Case and Comment 443 443

the result differed merely because the parties took the convenient

course of having X deliver directly to Z. (Compare the similar position

under section 25(1) of the Sale of Goods Act 1979, where it has been

held to make no difference whether goods are delivered by the seller

to the buyer and by him to the sub-buyer, or collected directly from

the seller by the sub-buyer: Four Point Garage v. Carter [1985] 3 All

E.R. 12.) The only slight difficulty remaining is that the position of Z

now apparently differs according to whether he is a bailee of the goods

(when he can rely on the terrns of his contract with Y, assuming X has

assented to them) or whether he merely works on the goods without

taking possession of them (when he cannot: if he coulds cases like

Scruttons v. Midland Silicones [1962] A.C. 446 would have been

decided differently). But such distinctions are perhaps to be expected

sn the common law: bailment has always provided a useful let-out

from the more awkward rules of privity of contract, but in the absence

of it the latter must presumably prevail.

ANDREW TErrENBORN

CONTRACT TO SELL UNASCERTAINED GOODS NO PASSING OF PROPERTY,

NO EQU}TABLE OR RESTITUTIONARY RELIEF

OVER a thousand members of tlle public in New Zealand were

persuaded by colourful sales literature to buy gold from Goldcorp

Exchange Ltd. as an investment. Goldcorp promised to deliver the

gold at any time on seven days' notice, or to buy it back from the

customer at a currently advertised price, and meantime to store

the gold for the customer free of charge. Each customer, on paying

the price of his purchase, was given a certificate in which he was

described as the "owner" of the gold he had bought; and the company

promised to hold stocks of gold sufficient to answer all of its

commitments. But the gold was described as being held "on a non-

allocated basis", and in fact no gold was ever appropriated to any

particular contract, nor were the company's stocks maintained at

anything like the level needed to meet its obligations. Furthermore, it

had given its bank a floating charge which was secured over all its

assets, including its stocks of gold. When the bank appointed receivers,

and the customers learned not only that the company had insuflicient

gold in hand to meet its commitments, but also that the bank

asserted a prior right to what gold the company did have, they were

understandably very indignant, and took their claims to court. The

case, originally known and reported as Liggett v. Kensington [1993] 1

N.Z.L.R. 257 (J5.Z.C.A.), eventually reached the Privy Council, whose

ruling is reported as Re Goldcorp Exchange Ltd. [1994] 3 W.L.R. 199.

the result differed merely because the parties took the convenient

course of having X deliver directly to Z. (Compare the similar position

under section 25(1) of the Sale of Goods Act 1979, where it has been

held to make no difference whether goods are delivered by the seller

to the buyer and by him to the sub-buyer, or collected directly from

the seller by the sub-buyer: Four Point Garage v. Carter [1985] 3 All

E.R. 12.) The only slight difficulty remaining is that the position of Z

now apparently differs according to whether he is a bailee of the goods

(when he can rely on the terrns of his contract with Y, assuming X has

assented to them) or whether he merely works on the goods without

taking possession of them (when he cannot: if he coulds cases like

Scruttons v. Midland Silicones [1962] A.C. 446 would have been

decided differently). But such distinctions are perhaps to be expected

sn the common law: bailment has always provided a useful let-out

from the more awkward rules of privity of contract, but in the absence

of it the latter must presumably prevail.

ANDREW TErrENBORN

CONTRACT TO SELL UNASCERTAINED GOODS NO PASSING OF PROPERTY,

NO EQU}TABLE OR RESTITUTIONARY RELIEF

OVER a thousand members of tlle public in New Zealand were

persuaded by colourful sales literature to buy gold from Goldcorp

Exchange Ltd. as an investment. Goldcorp promised to deliver the

gold at any time on seven days' notice, or to buy it back from the

customer at a currently advertised price, and meantime to store

the gold for the customer free of charge. Each customer, on paying

the price of his purchase, was given a certificate in which he was

described as the "owner" of the gold he had bought; and the company

promised to hold stocks of gold sufficient to answer all of its

commitments. But the gold was described as being held "on a non-

allocated basis", and in fact no gold was ever appropriated to any

particular contract, nor were the company's stocks maintained at

anything like the level needed to meet its obligations. Furthermore, it

had given its bank a floating charge which was secured over all its

assets, including its stocks of gold. When the bank appointed receivers,

and the customers learned not only that the company had insuflicient

gold in hand to meet its commitments, but also that the bank

asserted a prior right to what gold the company did have, they were

understandably very indignant, and took their claims to court. The

case, originally known and reported as Liggett v. Kensington [1993] 1

N.Z.L.R. 257 (J5.Z.C.A.), eventually reached the Privy Council, whose

ruling is reported as Re Goldcorp Exchange Ltd. [1994] 3 W.L.R. 199.

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