Case: Ellerman &amp; Bucknall Steamship Co. Ltd Vs. Sha Misrimal Bherajee

1. 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 and Co. Ltd., having their office at Madras, are the local agents of the shipowners2. Sha Misrimal Bherajee, the respondent herein, hereinafter called the buyer, entered into two contracts with the British Mercantile Company Limited. New York, hereinafter called the seller, for the purchase of Fresh Monsanto Polystyrene Injection Moulding Powder (not reground) in granules 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 Rs. 13,500 and Rs. 6,750 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. 16,000 under an indent dated January 23, 1951. In respect of the first contract and indents the buyer opened and confirmed an irrevocable Letter of Credit No. 4748 dated December 28, 1950, for U. S. $ 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 U. S. $ 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 ship-owners 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 U. S. $ 6998.75 under the letters of credit. Thereafter, the bills of lading were forwarded to the Eastern Bank Limited, Madras, and buyer paid to the said Bank a sum of Rs. 33,012-5-9 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. 13,604-9-0. Thereafter, he instituted the present suit in the City Civil Court, Madras, for the recovery of a sum of Rs. 23,760-15-6 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 facts3. 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 them4. 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 C. C. C. A. No. 61 of 1957 against the shipowners but dismissed it against the BankC. C. C. A. 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.

Court's reasoning:
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 misrepresentation 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 ladingThe 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 contention15. 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 bankers16. 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 for bills of lading without any qualification, in normal circumstances it means clean bills of ladingIf 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 out final opinion thereon, as in the present case the words are found in the body of the bill itself18. But it is said that the omission of the adjective "new" qualifying the word "drums" or indeed the addition of the adjective "old" to qualify 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 soundWe 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 containers21. 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 Mates 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,. i.e., 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 present22. The decision in (1957) 2 QB 621, is apposite. There, the defendants had a quantity of orange juice which they wished to ship 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 stating that the barrels wee "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 barrel 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 barrel 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 respondent24. The first point was not raised till now and, therefore, we cannot permit the learned counsel to raise it for the first time before us25. 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 is the American law on the subject. We cannot, therefore, permit the appellant to raise this point either26. The third point is also one not pressed in the Courts below and, therefore, does not call for our decision10. 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 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 form those he had agreed to sell to him. Therefore, the shipowners were not to 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.