The plaintiff/appellant (Indian Bank Ltd) sued the first defendant (Freudenburgs & Co (Ceylon Ltd)) as the agent and the second defendant (Sri Lanka Shipping Co Ltd) as the owner of the ship SS Mahalakshmi for the non-delivery of certain consignments of chillies and onions shipped on the vessel from Tuticorin for delivery in the port of Colombo and in respect of which the plaintiff/appellant was the holder of the original bills of lading. The chillies were consigned to Meenakshi Stores and the onions to Starline Trades. The District Judge entered judgment in favour of the plaintiff in respect of the onions but not the chillies, as the delivery orders alleged to have been issued by the first defendant in respect of the chillies were not produced in the case and in his view, the plaintiff had not proved, on a balance of probabilities, that the first defendant gave any authority or issued any document to enable the release of the two consignments of chillies. The plaintiff/appellant appealed against that part of the judgment denying it damages in respect of the consignment of chillies.

Held: (1) The first defendant was liable for the loss caused to the plaintiff.
(2) (Vythialingam J dissenting) Although the first defendant's servants issued the delivery orders without production of the bills of lading to persons who, to their knowledge, were other than those entitled under the bills of lading to receive them, the second defendant is not liable for the non-delivery of the goods as it was protected by the exemption clause in the bills of lading. The plaintiff had failed to show any fundamental breach of his contract of affreightment committed by the second defendant to disentitle it of the benefit of the exemption clause.
(3) A party to a contract may be precluded from relying upon an exemption clause where such parties have been guilty of a fundamental breach of contract or of a breach of a fundamental term. A fundamental breach disentitling the party from relying on an exemption clause occurs if an act amounting to a complete departure from the contract is done which can be imputed to the contracting party itself as opposed to an act for which the contracting party is vicariously responsible as having been committed by one of its servants.

The second defendant also raised the issue of the time bar under the Hague Rules, arguing that in this case the goods 'should have been delivered' at the very latest by the first week in December 1959 and that after the first week of December 1960 the carrier was therefore discharged from all liability in respect of the loss or damage to the goods under art 3.6 of the Hague Rules. Since this action was filed on 17 May 1961, there was no liability on the part of the carrier. This issue and three others were tried as preliminary issues of law and were decided against the defendants by the trial Judge. The defendants appealed from that order and the Supreme Court affirmed the order of the District Judge and dismissed the appeal. HNG Fernando CJ, with Wijayatilake J agreeing, held in Alagasunderam Chettiar v The Indian Bank Ltd (CMI253) that the Rule relied on did not apply to a case where the carriage contemplated in the Bill of Lading has been duly completed by the discharge of the shipment consigned to Ceylon, but applied only in relation to the stage of loading, handling, storage, carriage, custody, care and discharge of the goods. Nor was the time limitation in art 3.6 applicable to a case where the carrier or its agent has caused a complete misdelivery of the goods to some person other than the person entitled to delivery. In doing so the Supreme Court affirmed its earlier decision to the same effect in the case of Sri Lanka Shipping Co Ltd v The Indian Bank Ltd (CMI254) which it was invited to hold had been wrongly decided.

In this appeal the second defendant's counsel sought to revisit the correctness of that decision. The Court held, however, that the parties were bound by the decision of the Supreme Court and that it was unnecessary to reconsider the applicability of the time bar in art 3.6 of the Hague Rules.