Guðmundur Baldvinsson purchased two cars from the plaintiff. The plaintiff claims that the value of the cars, a total of EUR 74,756, has not been paid. The defendant arranged for the transport of the vehicles from Cuxhaven, Germany, to Iceland. The transport took place on the basis of an agreement between the parties. The transport documents used were standard sea waybills. According to both sea waybills, the consignor of the vehicles was the plaintiff and the named consignee was Baldvinsson.

On 15 December 2006, Baldvinsson was given documents to clear customs. He declared that payment would be made before the end of December that year. After the delivery of the documents, the plaintiff's representatives became aware that Baldvinsson's financial situation was extremely bad. The plaintiff therefore sought security from Lýsing hf, who was financing the purchase.

On 18 December 2006, the plaintiff requested that the defendant not release the cars from customs as they were unpaid, and that they should not be delivered except in consultation with the plaintiff. The defendant received confirmation that a 'memo' had been placed on the shipments in question in the case and that the vehicles would not be delivered until further instructions were received. Nonetheless, on 19 December 2006, the cars were delivered to Baldvinsson after customs clearance.

The plaintiff's claim was based on the fact that the defendant's employees had made serious errors and that the defendant was liable to the plaintiff for all their consequences.

The defendant based its claim for exoneration on the fact that the damage was not attributable to events for which it was responsible, neither on the basis of the sea waybills nor the provisions of the Shipping Act/Siglingalög No 34/1985 (the Act) or other laws. The plaintiff was authorised to assign the consignee's rights by writing a notice to that effect on the waybills before the defendant accepted the vehicles for transport to the country. It did not do so and the defendant therefore delivered the cars to the named consignee according to the content of the waybills. Otherwise, it would not have fulfilled its contracts on the basis of the sea waybills and would have become liable to the named consignee of the cars for any damage he may have suffered as a result of the defendant's non-performance.

The defendant further argued that, even if it were assumed that the plaintiff had the authority to request that the defendant not hand over the cars, that request was received too late by the defendant. After the documents in question were submitted to customs, the matter was effectively out of the defendant's hands.

The defendant alternatively referred to arts 68-75 of the Act, in particular art 70.2 [which implements art 4.5.a of the Hague-Rules]. With reference to the weight of the cars, compensation under the first sea waybill can never exceed SDR 4,450, and according to the second SDR 3,600, or its equivalent in ISK on the date of payment. Compensation cannot be paid for indirect or consequential damage as stated in cl 8(ii) of the terms of the waybills. Finally, the defendant relied on the fact that the damages should be reduced due to the plaintiff's own fault: art 68.4 of the Act [art 4.2.i of the Hague-Visby Rules].

The District Court held that the sea waybills required the defendant to deliver the cars to Baldvinsson, subject to the fulfillment of the conditions for customs clearance, which he completed. It is irrelevant that the defendant's employee believed that the plaintiff had the authority to stop the delivery of the vehicles, and the plaintiff must have been aware that the request conflicted with the parties' agreements under the provisions of the sea waybills. The defendant's liability to the plaintiff has not been demonstrated in any way.

The plaintiff appealed to the Supreme Court.

Held: Appeal upheld.

It is undisputed that the basis of the contractual relationship between the parties regarding the transport of the vehicles, which took place in two parts, was not a traditional bill of lading, but rather sea waybills issued by the defendant and entitled 'Combined Transport Sea Waybill Copy'.

The front of the sea waybills contain the following clause:

The Shipper shall be entitled to transfer right of control of the cargo to the Consignee, the exercise of such option to be noted on this Sea Waybill and to be made no later than the receipt of the cargo by the Carrier.

The parties dispute the meaning of this provision. In the Icelandic translation by a certified translator, the provision reads as follows:

The Shipper shall have the right to transfer right of control of the cargo to the Consignee and the exercise of this right shall be indicated on this sea waybill no later than the receipt of the cargo by the Carrier.

The defendant, on the other hand, believes it is more correct to translate the provision as follows:

The sender is authorised to assign the recipient's rights over the cargo subject to/provided that such authorisation is granted and recorded in writing on the bill of lading before the carrier receives the cargo.

This clause of the contract will be deemed to provide for the shipper's authority to transfer control of the cargo to the consignee, provided that this is done in the manner provided for. It will be inferred from this that the shipper retains control of the cargo until its delivery if the bill of lading does not endorse such transfer. It is not disputed that there was no endorsement of transfer on the bills in this case.

It is not disputed that a declaration of transfer was not written on the sea waybills used for the transport of the cars. It must therefore be considered that the consignor, the appellant, had control of the cargo and was able to give instructions regarding its disposal, including those relating to delivery. Accordingly, the appellant was entitled to notify the defendant that it was not permitted to deliver the vehicles to the recipient in the manner that it did. The defendant, who was bound by such notification, confirmed that it had taken measures to prevent their delivery. The defendant's delivery of the vehicles was in breach of the obligation it had thus undertaken. The defendant is liable for the damage it has caused the appellant by these breaches of obligations under their transport contracts. It is irrelevant here that the plaintiff has provided the consignee with documents to pre-register the vehicles and clear them for customs, as well as a statement of a grace period for their purchase price. The plaintiff's loss due to the defendant's delivery of the vehicles amounts to their unpaid sales price of EUR 74,756.

The defendant requests in the alternative that the plaintiff's claim be significantly reduced and that compensation be determined in accordance with the provisions of arts 68-75 of the Act. It contends that art 70.2 of the Act on the limitation of the shipowner's liability results in compensation for the plaintiff never being able to exceed 8,050 SDRs.

However, the defendant's delivery of the vehicles, contrary to its obligation not to do so, constitutes gross negligence on its part. The defendant must have been aware that it was likely that the appellant would suffer damage as a result. The defendant cannot therefore, under art 70.6 of the Act [which implements art 4.5.e of the Hague-Visby Rules], as that provision has been interpreted in case law, invoke the limitation of liability in art 70.2 of the Act.