Legal Case Summary
Scruttons Ltd v Midland Silicones Ltd [1961] UKHL 4; [1962] AC 446
House of Lords, 6 December 1961
Contract law – privity – limitation of liability – stevedores – agency
Facts and proceedings
A drum of silicone diffusion pump fluid was shipped from New York to London by United States Lines. The bill of lading contained provisions limiting the carrier’s liability to US$500 per package unless the shipper declared a higher value before shipment and had it entered in the bill. It also incorporated provisions of the United States Carriage of Goods by Sea Act 1936. No higher value was declared.
The goods became the property of Midland Silicones during the voyage. Scruttons, a firm of stevedores, had a separate agreement with the carrier to discharge its vessels in London. That agreement said Scruttons would receive the protection afforded by the terms, conditions and exceptions in the bills of lading.
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After discharge, Scruttons negligently dropped the drum while lowering it onto a lorry for delivery to Midland Silicones. The loss was £593 12s, substantially more than the £179 1s equivalent of US$500. Midland Silicones sued Scruttons in negligence.
Scruttons admitted its negligence but argued that it could rely on the carrier’s contractual limit. The trial judge, Diplock J, and the Court of Appeal rejected that defence. Scruttons appealed to the House of Lords.
Issue
Could stevedores who were not parties to the bill of lading use its limitation clause against the cargo owner? This required the House to consider the wording of the clause, privity of contract, and whether agency or an implied contract supplied a different basis for protection.
The majority’s reasoning
The House dismissed the appeal by four judges to one. Viscount Simonds, Lord Reid, Lord Keith and Lord Morris rejected Scruttons’ arguments; Lord Denning dissented.
First, the relevant references to the carrier did not include the stevedores. Both the incorporated statutory provisions and the bill’s contractual wording protected the carrier, not every independent contractor it employed. The express power to appoint stevedores did not turn them into carriers.
Secondly, the majority applied the rule that a stranger to a contract could not take advantage of its provisions against a contracting party. Lord Reid rejected the suggested distinction between suing on a contract and relying on it defensively. Scruttons could not obtain a contractual defence merely because it was performing work which the carrier had promised to undertake.
The separate stevedoring agreement did not resolve this difficulty. It governed Scruttons’ relationship with the carrier; Midland Silicones had neither made that agreement nor known its terms. Its protection clause could not, by itself, limit the cargo owner’s claim.
Nor had the carrier contracted as Scruttons’ agent when making the bill of lading. There was nothing establishing that the carrier intended to act on behalf of the stevedores as well as itself. The majority also found no basis for implying a separate contract between Scruttons and Midland Silicones. Knowing that stevedores would handle the cargo did not amount to agreeing to restrict their liability.
Scruttons relied on Elder, Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] AC 522, where shipowners had received protection under a bill of lading. The majority distinguished that case. It did not establish a general rule extending a carrier’s contractual immunity to every servant, agent or independent contractor.
Lord Reid’s agency observations
Lord Reid nevertheless identified circumstances in which an agency argument might succeed:
- The bill of lading would need to make clear that its limitation provisions were intended to protect the stevedore.
- It would also need to show that the carrier contracted for that protection as the stevedore’s agent.
- The carrier would need authority from the stevedore, although Lord Reid left open whether later ratification might suffice.
- Any difficulty concerning consideration moving from the stevedore would need to be overcome.
He added that affecting the consignee would require the relevant operation of the Bills of Lading Act 1855. These were observations about a possible agency arrangement, not findings that Scruttons had satisfied those conditions. Its argument failed on the actual documents and facts.
Lord Denning’s dissent
Lord Denning would have allowed the appeal. He took a broader view of the earlier carriage cases and emphasised the commercial allocation of risk. He also considered that the cargo owner had impliedly authorised the carrier, as bailee, to employ stevedores on the same limited-liability terms. On that reasoning, Scruttons could rely on the protection in its own stevedoring agreement. The majority did not accept that approach.
Outcome
Scruttons remained liable for the full loss rather than the US$500 limit, and its appeal was dismissed with costs. The decision distinguishes a contractor’s promise to protect a subcontractor from an effective restriction on the rights of the person whose goods the subcontractor damages.
