The plaintiffs time chartered the defendants' vessel Albacruz under a five-year time charter on the Shell Time B form. The defendants owned two tank vessels, the Albacruz, and its sister ship, the Albazero. The Albazero was arrested by the plaintiffs in respect of their claim against the defendants arising out of the total loss of the Albacruz and its cargo of crude oil. The plaintiffs claimed the full value of the cargo and issued a writ in rem within 12 months of its loss.

At the time of the loss, the property in the cargo no longer lay with the plaintiffs, but rather with the indorsees of the bill of lading, Raffinerie de Petroles SA (RBP). Despite this, the plaintiffs contended that the defendants were in breach of the charterparty, and that that breach caused the total loss of the cargo. Furthermore, it was irrelevant whether the plaintiffs were at the time of the loss the owners of the cargo or the persons immediately entitled to its possession, or whether at that time title, or right to possession, or risk had passed to another party. Therefore, the plaintiffs argued that they were entitled to recover the full value of the lost cargo from the defendants.

The defendants argued that, on the assumption that there was, in fact, a breach of the charterparty by them, the plaintiffs were not entitled to recover the full value of the cargo because they were not the owners of that cargo, nor were they the persons immediately entitled to its possession at the date of the loss, nor was the cargo then at their risk. They were entitled to nominal damages only.

It was accepted that, assuming the defendants had breached the contract, RBP would have a valid claim against the defendants upon the bill of lading because the bill of lading had incorporated the Hague Rules. However, RBP did not start proceedings or seek to join in the action within the 12-month time limit prescribed by the Hague Rules. Therefore, it was accepted that any claim by RBP under the bill of lading was now time-barred.

The Court of Appeal found that the plaintiffs were entitled to claim against the defendants for the full value of the cargo, whether or not the property or risk was with them at any material time. This was because there was a special contract in existence between the consignor and the carrier which preceded the necessity of showing ownership in the goods. This decision was appealed to the House of Lords.

Held: Appeal allowed.

The cargo owners were not parties to the action because they had lost their right to claim under the bill of lading owing to the prescription of the claim pursuant to art 3.6 of the Hague Rules.

Dunlop v Lambert (1839) 6 Cl & F 600 established the rule that privity of contract sufficed to entitle a consignor to bring suit against the carrier and to enable it to recover substantial damages, whether or not it had sustained them. With the passing of the Bills of Lading Act 1855 (UK), the rationale of the rule in Dunlop v Lambert could no longer apply to cases where the only contract of carriage to which the shipowner is a party is that contained in a bill of lading, and the ownership in the goods passes to the consignee or indorsee named in the bill of lading by reason of consignment or indorsement.

Furthermore, any holder of a bill of lading for valuable consideration could rely on the doctrine of estoppel to exercise its right of suit because the bill of lading would be conclusive evidence against the shipowner of the shipment of the goods described in it. Additionally, the rule would not apply to contracts for carriage of goods that contemplate that the carrier will also enter into separate contracts of carriage with whoever subsequently becomes the owner of the goods pursuant to the original contract. A charterparty, whether it be a voyage or time charter, which provides for the issue of bills of lading covering the carriage of particular goods shipped on the chartered vessel is such a contract.

While it is generally the case with a voyage charter that the terms of the charterparty are incorporated into the bills of lading issued under it by the shipowner, the identical nature of the contractual rights of the parties under the charter with those of the parties under the bills of lading does not mean that the shipowner, by entering into the charterparty, intended to accept concurrent liabilities to be sued for the same loss or damage by the charterer and by the consignee or indorsee of the bill of lading. Moreover, there would be no sensible business reason for extending the rule to cases where the contractual rights of the charterer under the charterparty are not identical with those of the bill of lading holder whose goods are lost or damaged.

However, under time charters it happens in many cases that there are considerable differences between the contractual rights of the charterer under the charterparty and those of the bill of lading holder under the bill of lading. In the absence of a clause paramount in the charterparty, the limit upon the amount recoverable per package under the Hague Rules would not be applicable to claims under the charterparty, nor the one-year prescription period; and the exceptions from liability under the charterparty might be different and either more or less extensive than those of the bill of lading.

The complications, differences and injustices that may arise from the co-existence of rights of suit to recover under separate contracts of carriage which impose different obligations upon the parties to them a loss which a party to one of those contracts alone has sustained, provide compelling reasons why Dunlop v Lambert should not be extended to cases where there are two contracts with the carrier covering the same carriage and under one of them there is privity of contract between the person who actually sustains the loss and the carrier by whose breach of that contract it was caused.