Eurymedon, the [1974] UKPC 1

Stevedores negligently damaged cargo while unloading. A bill of lading, to which they were not a party, contained an exemption clause extending protection to them. The Privy Council held the stevedores could rely on the clause, creating a binding contract through their performance.

Facts

A valuable drilling machine was shipped from Liverpool to Wellington, New Zealand, under a bill of lading issued by the carrier. The contract of carriage, evidenced by the bill of lading, was between the shipper (the consignor) and the carrier. The bill of lading contained Clause 1, a ‘Himalaya Clause’, which sought to extend the benefit of all defences and immunities from liability that the carrier had to its servants, agents, and any independent contractors it employed. The appellants, a firm of stevedores (the New Zealand Shipping Co. Ltd.), were engaged by the carrier to discharge the cargo. During unloading, the stevedores negligently dropped and damaged the drill. The consignees of the drill, A. M. Satterthwaite & Co. Ltd., sued the stevedores in tort for the damage. The stevedores sought to rely on the time-bar and limitation of liability provisions within Clause 1 of the bill of lading, arguing they were protected despite not being a direct party to that contract.

Issues

The central legal question was whether the stevedores, as a third party to the contract of carriage between the shipper and the carrier, could invoke the protection of the exemption and limitation clauses in the bill of lading. This engaged two fundamental principles of contract law:

1. Privity of Contract: Could a third party (the stevedore) take the benefit of a clause in a contract to which it was not an original party?
2. Consideration: If the stevedore could be considered a party to a contract with the shipper, had any consideration moved from the stevedore to the shipper to make the shipper’s promise of immunity enforceable?

Judgment

The Judicial Committee of the Privy Council, by a 3-2 majority, allowed the appeal, holding that the stevedores were entitled to rely on the limitation clause. Lord Wilberforce, delivering the majority judgment, provided a detailed analysis to give effect to the clear commercial purpose of the clause. He accepted the framework proposed by Lord Reid in the earlier case of Scruttons Ltd. v Midland Silicones Ltd. [1962] A.C. 446, which set out four conditions for a third party like a stevedore to be covered by an exemption clause:

1. The bill of lading must make it clear that the stevedore is intended to be protected.
2. The bill of lading must make it clear that the carrier, in addition to contracting on its own behalf, is also contracting as agent for the stevedore.
3. The carrier must have authority from the stevedore to act as agent (or the stevedore must later ratify the carrier’s action).
4. Any difficulties about consideration moving from the stevedore must be overcome.

Lord Wilberforce found all four tests were satisfied. He construed the arrangement as a form of unilateral contract. The bill of lading was an offer by the shipper to the world (or specifically to the stevedore), through the agency of the carrier, that anyone who unloaded the goods would receive the benefit of the exemption clause. The stevedore’s act of performing the service of unloading the goods constituted both the acceptance of that offer and the provision of consideration, thereby creating a direct, binding collateral contract with the shipper.

In a commercial case, empiricism may be the watchword, but it must be an empiricism which is not anarchic or random… the court is not looking for a plausible solution on a case by case basis, it is looking for a principle. And the search for a principle was narrowed in this House in the Midland Silicones case to the agency argument.

The bill of lading brings into existence a bargain initially unilateral but capable of becoming mutual, between the shipper and the [stevedore], made through the carrier as agent. This bargain is to be governed by the terms set out in the bill of lading… The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the [stevedore] should have the benefit of the limitations and immunities set out in the bill of lading.

Implications

The Eurymedon is a landmark decision in contract law, representing a significant judicial effort to circumvent the perceived commercial inconvenience of the strict doctrine of privity of contract. By employing the concepts of agency and unilateral contract, the Privy Council created a legal mechanism to give effect to ‘Himalaya clauses’, which were becoming standard in shipping contracts. The ruling acknowledged the commercial reality that a network of actors is involved in the international carriage of goods and that the parties intended for liability protections to extend down the chain. While the Contracts (Rights of Third Parties) Act 1999 has since provided a more direct statutory route for third parties to enforce contractual terms in many circumstances, this case remains a crucial example of judicial creativity in adapting common law principles to meet commercial needs and uphold the intentions of contracting parties.

Verdict: Appeal allowed.

Source: Eurymedon, the (BAILII: [1974] UKPC 1