Appeal No 274 of 1964
Appeal from the judgment and decree dated November 3 1960 of the Madras High Court in CCC Appeal No 61 of 1957
A K Sen V Bhagat and D N Gupta for the appellant
section T Desai Kesawlal and R Ganapathy Iyer for the respondent
The Judgment of the Court was delivered by Subba Rao J
The appellant Ellerman Bucknall Steamship Company Ltd hereinafter called the shipowners are a limited liability company incorporated under the law in the United Kingdom carrying on business as common carriers by sea
They own a ship named CITY OF LUCKNOW
Messrs Best  Co Ltd having their office at Madras are the local agents of the shipowners
Sha Misrimal Bherajee the respondent herein hereinafter called the buyer entered into two contracts with the British Mercantile Company Limited New York herein after called the seller for the purchase of Fresh Monsanto Polystyrene Injection Moulding Power not reground in granueles manufactured by Monsanto Chemical of New York
In respect of the first contract the purchaser placed two indents dated December 26 1950 and December 27 1950 for the said stuff of value of Rs 13500 and Rs 6750 respectively
The buyer entered into a second contract with the seller for the purchase of 24 drums of the same material of the value of Rs 16000 under an indent dated January 23 1951
In respect of the first contract and indents the 94 buyer opened and confirmed an irrevocable Letter of Credit No 4748 dated December 28 1950 for US 4535 plus war risk with the Eastern Bank Limited
In regard to the second contract he opened another irrevocable Letter of Credit No 5012 dated January 31 1951 for US 3330
As the said Bank had no branch of its own at New York it arranged with the Marine Midland Trust Company of New York for payment of the bills that might be presented by the seller in New York
Pursuant to the said contracts the seller delivered to the shipowners certain consignments in reused fibre drums
The bills of lading issued by the shipowners described the drums simply as drums
After taking a letter of indemnity to cover against any loss the shipowners issued clean bills of lading
The seller negotiated the bills of lading with the Marine Midland Trust Company New York and obtained payment of US 699875 under the letters of credit
Thereafter the bills of lading were forwarded to the Eastern Bank Limited Madras and the buyer paid to the said Bank a sum of Rs 33012 5 9 against the said letters of credit
When the shipment arrived it was discovered that the goods sought to be delivered did not answer the description given in the documents
Indeed  the drums contained only coal dust and factory shavings
The buyer took appropriate proceedings against the seller in the American courts and realized a sum of Rs 13604 9 0
Thereafter he instituted the present suit in the City Civil Court Madras for the re covery of a sum of Rs 23760 15 6 against the Bank as well as the shipowners
To that suit the Bank was made the 1st defendant and the shipowners the 2nd defendant
Broadly stated the basis of the claim against the Bank was that though under the letters of credit the Bank had the authority to pay only against clean bills of lading it paid against unclean bills of lading
The cause of action against the shipowners was that they made a misrepresentation that the bills of lading were clean whereas in fact they were not so with the result acting on that misrepresentation the agent of the Bank paid against the said bills of lading which it would not have done had it known the real facts
The learned City Civil Judge held that the bills of lading were clean ones but in respect of one of the letters of credit the Bank should not have accepted the shipping documents which related only to a part of the goods contracted for
On that finding the learned Judge held that the Bank was liable to refund the amount paid only under one of the letters of credit
As against the shipowners he came to the conclusion that even if the bills were not clean the Bank would nevertheless have paid the amount as the terms of the letters of credit were comprehensive enough to authorize such payments
In the result he dismissed the suit against the shipowners but decreed it in part against the Bank
The Bank and the shipowners preferred appeals to the High Court against the said decree insofar as it went against each of them
95 The appeals were heard by a Division Bench of the Madras High Court
The learned Judges of the High Court came to the conclusion that the shipowners with the knowledge that the bills of lading would be negotiated gave at the request of the seller clean bills of lading while as a matter of fact only unclean bills of lading should have been given
They further held that the purchaser was damnified as on the basis of the misrepresentation found in the bills of lading the Bank paid the amount against the shipping documents which it would not have done if it had known that the bills of lading were unclean
In the result they gave a decree for the entire suit claim against the shipowners
They allowed CCCA No 61 of 1957 against the shipowners but dismissed it against the Bank
CCCA No 54 of 1957 the appeal filed by the Bank was allowed
The shipowners have preferred the present appeal against the decree given by the High Court against them
The argument of Mr A K Sen learned counsel for the appellant may broadly be placed under the following three heads 1 While the respondent based his cause of action on a breach of contract the High Court gave the relief founded on deceit 2 under common law or contract the appellant had no duty or obligation to make a statement in the bills of lading that the drums were old ones and therefore the non mention of that fact could not have misled the Bank into paying against the shipping documents under the letters of credit and 3 the bills of lading were clean ones for the oldness or newness of drums had no real impact on the contents thereof for both were equally suitable containers of the articles to be supplied
Mr section T Desai
learned counsel for the respondent while made a faint attempt to sustain the decree of the High Court on the basis of breach of contract seriously sought to support it on the doctrine of deceit
He argued that there was a fraudulent misrepresentation by the appellant in collusion with the seller to the effect that the bills of lading were clean while in fact they were not and that acting on that misrepresentation the Bank through its agent at New York paid the amount to the seller under the letters of credit against the shipping documents which it would not have done if such a misrepresentation had not been made
He countered the contentions of the learned counsel for the appellant that the High Court gave a decree on a cause of action different from that on which the plaint was based
The first contention turns upon the pleadings as well as on the conduct of the parties during the trial and the appeal
A perusal of the plaint discloses that the 2nd defendant was sought to be made liable both in contract and in tort
Paragraph 9 of the plaint reads thus if the first defendants state that they acted on the terms of the bills of lading and are therefore protected the plaintiffs 96 also charge that in any event the second defendants are liable for issuing the bills of lading without disclosing the true state of facts and for inserting statements in the bills of lading which are now admitted to be untrue
The plaintiffs also charge that the defendants are precluded from denying the correctness of the statement in the bills of lading as regards the apparent good order and condition as mentioned in the bills of lading
The plaintiffs charge that the second defendants and the shippers acted collusively with a view to enable if possible the shippers to obtain moneys against goods which were not the goods agreed to be sold and which were not consigned according to the contract
The very fact that the second defendants have obtained an indemnity for issuing the bills of lading without disclosing the real state of facts would show their consciousness that they were not right in issuing the bills of lading in the terms they did and whatever their rights as against the shippers may be on the indemnity the plaintiffs are not concerned with the same but the second defendants are liable to the plaintiffs to make good the loss resulting by reason of a representation acted on by which the plaintiffs have been damnified
This passage in the plaint contains all the necessary allegations to sustain a claim in tort
It is clear therefore that the claim of the buyer against the shipowners was also based upon the misrepre
sentation made by the latter in the bills of lading
In the written statement the appellant denied the allegations in para 9 of the plaint and stated that there was no secret arrangement between them and the seller in regard to the goods or the containers
The shipowners also denied that they inserted any untrue statement in the bills of lading acting in collusion with the seller to enable the latter to obtain money against the bills of lading
Issue 6 framed by the learned City Civil Judge reads Did the second defendant act bona fide throughout in issuing the bills of lading and in taking an indemnity from the shippers
The judgment of the learned City Civil Judge discloses that the question of misrepresentation by collusion was argued and the learned Judge held that the Bank was not misled as under the letters of credit it had to pay the amount against the bills of lading whether clean or unclean
Before the High Court also the question of misrepresentation by the shipowners was expressly raised and was accepted by it
We cannot therefore agree with the contention of the learned counsel for the appellant that the High Court had made out a new case which was not raised in the plaint indeed the claim on the basis of misrepresentation was made in the plaint denied by the appellant in the written statement and argued in both the courts below
There are therefore no merits in the first contention
97 On the question of the appellant s liability to the buyer in contract we are satisfied that there is no basis for it
Indeed learned counsel for the respondent did not seriously press the point though he did not give it up altogether
A bill of lading serves three purposes viz i it is receipt for the goods shipped containing the terms on which they have been received ii it is evidence of the contract for carriage of goods  and iii it is a document of title for the goods specified therein
The contract of the shipowners in the bill of lading is that they will deliver the goods at their destination in the like good order and condition in which they were when shipped
In terms of the contract the shipowners delivered the goods to the buyer in the drums
The consignee incurred damages not because of any defect in the drums but because the seller sent goods different from those he had agreed to sell to him
Therefore the shipowners were not liable for any damages to the purchaser on the basis of breach of any of the terms of the contract
No further elaboration on this point is called for as finally this point was not seriously pressed by the learned counsel for the respondent
Now we shall consider the main point raised in the appeal namely the liability of the appellant in tort
Before we advert to the question of law it would be convenient to notice the relevant facts
Exhibit A 1 dated December 26 1950 the indent placed by the buyer with the seller in respect of Fresh Monsanto Polystyrene Injection Moulding Powder of value of Rs 13500 
The packing was to be in new fibre drums each containing 250 lbs
Exhibit A 2 is another indent dated December 27 1950 placed by the buyer with the seller
The quantity required thereunder was of the value of Rs 6750 and the packing was to be in new fibre drums each containing 250 lbs
Exhibit A 5 is the third indent dated January 23 1951 for the same goods worth Rs 16500 with similar terms
The buyer opened two letters of credit Exs
B 1 and B 2 with the Eastern Bank Limited Madras for US  7625
Exhibits B 28 and B 29 are the letters written by the Eastern Bank Limited Madras to the Marine Midland Trust Company New York to open letters of credit for payment of the bills that might be presented by the seller
Exhibit B 1 reads We hereby authorise and request you andor your Agents andor Representatives at New York to open a confirmed and irrevocable bank credit in favour of Messrs British Mercantile Company Limited etc and to make payment or payments thereunder on our behalf  against documents purport ing to be invoices shipping specifications Bills of Lading and Policies andor Certificates of Insurance covering Marine and War Risks 
We agree that this credit is subject to USA regulations and practice 98 Exhibit B 2 is also a similar letter of credit
Clause 3 of exhibit 28 reads  Clean on Board Bills of Lading in complete sets of at least two signed copies to be made out to the order of the Eastern Bank Limited
or to order blank endorsed and marked by the shipping company Freight paid 
 Exhibit B 29 also contains similar recitals
It will be seen that though the words clean on board bills of lading are not found in exhibit B 1 and B 2 but in the directions given to the Marine Midland Trust Company New York the said words are clearly found
The following relevant recitals are found in a sample of the bills of lading Received in apparent good order and condition from British Mercantile Company Limited City of Lucknow to be transported by the good Vessel City of Lucknow to sail from the Port of New York for the East Indies    
Total 21 packages said to weigh 9920 lbs
said to be marked and numbered as below weight gauge measurement contents conditions quality and value unknown statements of same herein being made solely on shipper s declaration and this bill of lading not to be deemed any evidence thereof to be delivered as provided hereunder liability as carrier to end without notice in like good order and condition at Madras or so near thereto as the vessel may safely get unto order of the Mercantile Bank of India Limited or to his or their Assigns       The bill of lading gives the number of packages as 21 drums and under the column description of goods it states Polystyrene Powder
The Mate s receipt given to the seller on the arrival of the goods at the wharf for being carried by SS City of Lucknow describes them is being packed in refused drums
The seller gave an indemnity bond to the shipowners and the material part of it reads We shall be obliged by your granting us Clean Bills of Lading for the under mentioned goods Mate s receipt being claused Reused Drums and in consideration of your so doing we undertake to pay on demand all freight andor General and particular Average andor charges there may be thereon to indemnify you and each of you against all claims andor demands which may be made against you or any of you in respect of the undermentioned goods and to hold you harmless from any and all consequences that may arise by your granting such clean BL and acting thereon including losses damages costs or any other expenses which you or any of you may sustain or incur by reason of the premises or in any way relating thereto
 99 After obtaining the said indemnity bond the shipowners issued the bill of lading wherein instead of reused drums only drums was mentioned
It will be seen from the said documents that according to the indents the seller had to pack the goods in new fibre drums
that the Bank opened letters of credit for payment against bills of lading that the Marine Midland Trust Company of New York the agent of the Eastern Bank Limited Madras opened letters of credit whereunder payments could be made only against clean bills of lading that in the Mate s receipt given to the seller on the arrival of the goods at the wharf for being carried by SS City of Lucknow the drums were described as reused drums and that thereafter after giving indemnity against any loss to the shipowners in the bill of lading the drums were not described as reused drums but only as drums
The learned City Civil Judge on the said documents gave the following findings lm0
Thus if the Bills of Lading were unclean certainly the banks would not have paid the money to the shippers
In fact it was for the very purpose of enabling the shippers to obtain monies from the banks that they wanted clean Bills of Lading and were prepared to give letters of indemnity to the shipping company
With such description in the Bills of Lading it is extremely doubtful whether even the under writers would have insured the goods as required under the letters of credit
If the shippers had not produced either clean Bills of Lading or Certificates of Insurance as required under the letters of credit then certainly the shippers could not have realised the money from the bank
Thus the second defendants have certainly helped the shippers in this matter by suppressing the real condition of the goods from the Bills of Lading
 The High Court agreeing with that finding held the shipowner with the knowledge that the bills of lading would be negotiated gave at the request of the seller clean bills of lading while as a matter of fact only unclean bills of lading should have been given
The question is whether on the said facts and the findings given by the courts below the purchaser could maintain an action for deceit against the shipowners
Deceit is a false statement of a fact made by a person knowingly or recklessly with the intent that it shall be acted upon by another who does act upon it and thereby suffers damage see A Text book of the Law of Tort by Winfield 5th Edn at 6 379
In order to make the shipowners liable for deceit the first ingredient to be satisfied is that they knowingly issued a clean bill of lading when it should not have been given with intent that on that basis payment would be made to the holder of the bill under the letters of credit
In order to come to a correct conclusion whether the ingredients of the definition of deceit have been satisfied in the present case it is necessary to know the exact scope of the following three terms letters of credit bill of lading and clean bill 100 of lading
The said three expressions are evolved in the law merchant to facilitate international trade
The origin and importance of letters of credit in the international commerce has been stated by Denning L J in Pa via  Co APA vs Thurmann Neilsen1 as follows The sale of goods across the world is now usually arranged by means of confirmed credits
The buyer requests his banker to open a credit in favour of the seller and in pursuance of that request the banker or his foreign agent issues a confirmed credit in favour of the seller
This credit is a promise by the banker to pay money to the seller in return for the shipping documents
Then the seller when he presents the docu ments gets paid the contract price
The conditions of the credit must be strictly fulfilled otherwise the seller would not be entitled to draw on it But when issuing banker has no branch in the relevant country where the beneficiary operates the services of an intermediary banker may be requisitioned
The intermediary banker may be asked to advise the beneficiary of the credit or may be asked to add his confirmatory undertaking to it
In the latter event the beneficiary has the promise of both the bankers
As letters of credit are issued or opened on conditions on which the request is made the banker can only negotiate the shipping documents if the conditions are strictly complied with
If for instance the mandate of the buyer is that the banker shall pay on a clean bill of lading the banker can only honour a clean bill and not an unclean one
When a purchaser specifically directs the banker to pay against a clean bill of lading the condition for payment is an obvious one
But when a credit calls for bills of lading without any qualification in normal circumstances it means clean bills of lading see British Imex Industries Ltd vs Midland Bank Ltd2
A clean bill of lading is defined in Halsbury s Laws of Eng land 3rd Edn Vol 2 at p 218 as one which does not contain any reservation as to the apparent good order and condition of the goods or the packing
Carver in his book British Shipping Laws Vol 2 Part 1 in para
82 explains the expression good order and condition thus The general statement in the bill of lading that the goods have been shipped in good order and condition amounts if it is unqualified to an admission by the shipowner that so far as he and his agents had the opportunity of judging the goods were so shipped
If there is no clause or notation in the bill of lading modifying or qualifying the statement that the goods were shipped in good order and condition the bill is known as a clean bill of lading
 Decisions have held that the condition refers to external and apparent condition and quality to some thing which is usually not 1  at 88
2  a 551 101 apparent at all events to an unskilled person see Compania Naviera Vasconzada vs Churchill  Sim1
The words like quality and measure unknown found in Compania Naviera Vasconzada vs Churchil  Sim1 weght contents and value unknown in The Peter der Grosse1 weight quality condition and measure unknown in The Tromp3 were held to be not qualifying words
In The Restitution Steamship Co Ltd vs Sir John Pirie and Co1 it was held if you insert in the margin of a bill of lading weights quantities or anything that is not contained in the bill of lading itself that is not a clean bill of lading
If such words found a place in the body of a bill of lading they would not have the effect of making the bill an unclean one we do not see how their mention in the margin would make a difference
But we need not express our final opinion thereon as in the present case the words are found in the body of the bill itself
But it is said that the omission of the adjective new qualifying the word drums or indeed the addition of the adjective old to qualifying the same would not necessarily make the bill any the less a clean bill if old drums were suitable vehicles for conveying the articles supplied therein
The newness or the oldness of the container the argument proceeded was not decisive of its suitability for in the main it depended upon its condition and contents
This argument as a proposition of law appears to be sound
In The Tromp3 potatoes to the knowledge of the defendants  master who signed the bill of lading were shipped in wet bags and in a damaged condition
The court held that as in the bill of lading the potatoes were described as shipped in good order and condition which rep resented the external condition of the bags the defendants were estopped from denying that the bags were dry when shipped
But it would be noticed that the packing in that case was defective and that was the main cause for the rotting of the potatoes and therefore the bill of lading was not a clean one
In Silver vs Ocean Steamship Co Ltd1 damage was caused to frozen eggs as the can wherein they were packed were gashed perforated or punctured and the eggs were insufficiently packed
So the court held that having given a clean bill of lading the shipowner was estopped from proving that the cans were not in apparent good order and condition
In Brown Jenkinson  Co Ltd vs Percy Dalton London Ltd1 orange juice was shipped in barrels
Some of the barrels were old and frail and some were leaking
Yet the shipowners gave a clean bill of lading
They were estopped from denying that the barrels were in apparent good order and condition
These decisions establish that good order and condition of packages depends upon the suitability of the packages for the 1LR 2 LR1876lp414
3LR 1921 p 337
4 5LR19301 KB416
6 102 particular goods or articles packed therein and other relevant circumstances of each case
What is the real scope and legal effect of the statement in the bill of lading that the goods were shipped in good order and condition We have already noticed that a bill of lading with such a statement which does not contain any further reservation or qualification is known as a clean bill of lading
The said words are affirmation of a fact
It is an admission creating an estoppel as between the shipowners and an endorsee who on the faith of that admission has become endorsee for value of the bill of lading
The shipowners are estopped from denying that the goods and the packages were not in good order and condition
The estoppel applies only where the bad condition is discernible on a reasonable examination of the containers having regard to their contents
Any qualification of the said affirmation must only refer to the external and apparent condition of the containers see The Skarp1 Silver vs Ocean Steamship Co Ltd Companies Naviera Nazconzada vs Churchill  Sim1 and The Tromp4
It is not necessary to consider the said decisions in detail as the principle is well settled
Now let us look at the relevant facts of the present case
It was one of the terms of the contract between the seller and the buyer that the goods should be packed in new fibre drums
The standard of good order and condition of the packages was agreed upon by the parties to the contract
The shipowners knew that condition as the Mate s receipt disclosed the same
If the drums had been mentioned as old in the bill of lading the said bill would not have been a clean bill
Though the apparent condition of the drums was old the shipowners made an assertion that they were not old drums ie they gave a clean bill
This representation was obviously intended in collusion with the seller to enable him to operate upon the credit with the Bank
This collusion is also apparent from the indemnity bond they took from the seller to guard themselves against the consequences of the said representation
All the elements of deceit are present
The decision in Brown Jenkinson  Co Ltd vs Percy Dalton London Ltd1 is apposite
There the defendants had a quantity of orange juice which they wish to ship to Hamburg
The plaintiffs as agents of the owners of the vessel on which the orange juice was to be shipped informed the defendants that the barrels containing the orange juice were old and frail and that some of them were leaking and that a claused bill of lading should be granted
The defendants required a clean bill of lading and the shipowners at the defendants  request and on a promise that the defendants would give to them an indemnity signed bills of lading 1LR1935134
2 3 4 5 103 stating that the barrels were shipped in apparent good order and condition
The defendants pursuant to their promise entered into an indemnity whereby they undertook unconditionally to indemnify the master and the owners of the vessel against all losses which might arise from the issue of clean bills of lading in respect of the goods
The barrels when delivered at Hamburg were leaking and the shipowners had to make good the loss
The plaintiffs sued the defendants under the indemnity the benefit of which had been assigned to them
The defendants refused to pay alleging that the contract of indemnity was illegal because it had as its object the making by the shipowners of a fraudulent misrepresentation
The court held that the shipowners by making in the bill of lading a representation of fact that they knew to be false with intent that it should be acted upon were committing the tort of deceit and that the defendants  promise to indemnify the shipowners against loss resulting from the making of that representation was accordingly unenforceable
The only difference on facts between that case and the present one is that in that case the barrels were not only old and frail but also some of them were leaking
But there as here the shipowners made a representation of fact which they knew to be false with intent that it should be acted upon
If so it follows that the High Court was right in holding that the appellant was liable in damages for the loss incurred by the respondent
Learned counsel for the appellant sought to raise three fur ther points namely i the shipowners were not bound by the representation made by the ship s mate ii the bill of lading was governed by the American law and not by common law and iii the plaintiff buyer having obtained a decree against the seller in the American court could not maintain the present suit for damages
The first point was not raised till now and therefore we can
not permit the learned counsel to raise it for the first time before us
The second point namely what is the American law is a question of fact
We have not got sufficient material on the record to know what the American law on the subject is
We cannot therefore permit the appellant to raise this point either
The third point is also one not pressed in the courts below and therefore does not call for our decision
In the result the appeal fails and is dismissed with costs
Appeal dismissed


Summary:
The respondent entered into two contracts with the B Company sellers of New York to purchase certain chemicals and in pursuance of the contracts placed three indents for the material in December 1950 and January 1951
The indents specified that the materials were to be packed in new fibre drums
The respondent thereafter opened and confirmed irrevocable letters of credit to be negotiated by his bankers  agents in New York
These agents were authorised to make payment to the sellers against clean on board bills of lading
When the sellers shipped the goods by one of the appellant s vessels the Mate s receipt given to the sellers on the arrival of the goods at the wharf described them as being packed in refused drums
The sellers then approached the appellant with a request to grant them a clean bill of lading as against the reference in the Mate s receipt to refused drums
Upon the sellers furnishing the appellant with an indemnity bond against any claims etc the appellant issued them a clean bill of lading which described the drums simply as drums
The sellers then negotiated the bills of lading against the letters of credit and obtained payment of the contract price
When the shipment arrived in India it was discovered that the drums contained only coal dust and not the chemicals ordered
The respondent took appropriate proceedings against the sellers in the American Courts and recovered part of his loss
He then instituted the present suit against the bank and the appellant
The Trial Court dismissed the claim against the appellant but decreed the suit in part against the bank
However the High Court on appeal held that the appellant with the knowledge that the bills of lading would be negotiated gave at the request of the seller clean bills of lading though only unclean bills of lading should have been given
It therefore held the shipowners responsible for the loss caused to the respondents and allowed a separate appeal filed by the bank
On appeal to this Court it was contended on behalf of the appellants that while respondent had based his cause of action on a breach of contract the High Court had given relief founded on deceit
that under common law or contract the appellant had no duty or obligation to make a statement in the bills of lading that the drums were old ones and that the bills of lading were clean ones for the oldness or newness of drums had no real impact on the contents thereof as both were equally suitable containers for the materials to be supplied
93 HELDi There was no merit in the contention that the High Court gave relief founded on deceit whereas the respondents cause of action was based on a breach of contract
It was clear from the pleadings that a claim on the basis of misrepresentation was made in the plaint denied by the appellant in the written statement and argued in the Courts below
96 G H iiThe High Court was right in holding that the appellant was liable in damages for the loss incurred by the respondent
It was one of the terms of the contract between the seller and the buyer that the goods should be placed in new fibre drums
The standard of good order and condition of the packages was agreed upon by the parties to the contract
The shipowners knew that condition as disclosed by the Mate s receipt
If the drums had been mentioned as old in the bill of lading that bill would not have been a clean bill
Though the apparent condition of the drums was old the shipowners made an assertion that they were not old drums ie they gave a clean bill
This representation was obviously intended in collusion with the sellers to enable them to operate upon the credit with the Bank
This collusion was also apparent from the indemnity bond they took from the sellers to guard themselves against the consequences of the said representation
All the elements of deceit were therefore present
102 D F Case law reviewed