China Pacific S.A. v. Food Corporation of India

China Pacific S.A. v. F.C.I

(Agency, Necessity)

 FACTS:

The defendant cargo owner chartered a vessel to carry a cargo of wheat from a US port to Bombay.

• January 21, 1975: The vessel got stranded on a reef in the South China Sea 420 miles from Manila.
  January 22: The ship’s managing agents signed a salvage agreement as agent for the cargo owner. The goods (wheat) being perishable, the salvors stored it at their own expense.
• February 25: Salvors intimated the whole incident to the cargo owner but no reply was made.
• April 24: The ship owner abandoned the voyage and notified the cargo owner accordingly.

Subsequently, the cargo owner accepted responsibility for the salvors’ storage charges for the period from April 24 to August 5, 1975, but it refused to pay the storage charges incurred by the salvors between February 10 and April 24, 1975. The salvors claimed those expenses in an action against the cargo owner. Cargo owner disclaimed their liability to reimburse for the time when the first barge-load of salvaged wheat arrived in Manila (Feb 10) untill the abandonment of the ship(Apr 24).

ISSUES:

1. To whom the cargo was deliverable at the termination of the salvage services?
2. Whether, on salvors obtaining possession of the cargo from the ship-owner the relationship of the salvors to the cargo-owner was that of a bailee or sub-bailee?

CONTENTIONS:

Salvors:

They are entitled to reimbursement because-

1. They had implied authority from the cargo owner to take care of the cargo, from the terms of Lloyd’s form.
2. They were bailee of the said cargo.
3. They acted as agents of necessity on behalf of the cargo owner.
4. Cargo owner were duty-bound both at common law and under Lloyd’s form to accept redelivery which they failed to do.
5. In contradiction with general law of restitution, cargo-owners were unjustly enriched at the salvors’ expense.

Cargo Owners:

1. Ship-owner, being the bailee of the cargo, (not the cargo owner) was liable to reimburse the salvor because, untill the contract remained unterminated, the immediate right to possession was vested in ship-owners and the cargo was deliverable to them only. Reasons being-
   • shipowner has the right to retain possession of the cargo and to complete the voyage with it.
   • cargo owner is obliged to allow the shipowner to preserve his right to possession
   • shipowner has an obligation to look after and care for the cargo for at least so long as the contract of carriage exists
   • The cargo owner has a right to look to the shipowner for the performance of that obligation of care and/or preservation                    of the cargo.
2. In storing the cargo the salvors had merely been preserving their lien for salvage and, therefore, that they could not recover their expenses (came up in Court of Appeal)
3. Even if the salvors were bailee, they had no correlative right to claim reimbursement because neither a bailee for reward nor a gratuitous bailee has any such right to indemnity.

HELD:

Commercial Court (Lloyd J.) (favoured salvors)

1. (w.r.t. B) Salvors were bailees and not sub-bailees, but that it would make no difference if they were sub-bailees).
2. (w.r.t A,C & D) Accepted these contentions
3. (w.r.t. E) Although  the English courts do not accept as a general proposition that a person is entitled to remuneration or recompense merely because he has conferred a benefit on another, there is one exception- where there is a preexisting relationship between A and B and where A performs services for the benefit of and/or at the implied request of B which (a) B has an opportunity to reject but fails to reject, (b) B knows were not intended to be performed gratuitously and (c) B would have had to engage some other to perform, then the law imposes an obligation on B to pay A reasonable remuneration for such service. The salvors satisfied all the conditions of the given exception and were entitled to succeed under the general law of quasi-contract or restitution.
4. (w.r.t 1^st and 2^nd contention of the cargo-owner) Rejected this contention

Court of Appeal (Reversed Lloyd J’s judgement)

1. (w.r.t. B) The bailee’s right to be paid “depends on there being something which can properly be called an element of necessity.
2. ( w.r.t C) Inability to obtain instructions was not or might not be sufficient to create agency of necessity.
3. (w.r.t. E) no reference to this issue.
4. (w.r.t 1^st & 2^nd  contention of the cargo-owner) Accepted these contentions.

 House of Lords

1. (w.r.t. B)  No element of necessity is required. It is sufficient that the bailee acts reasonably in pursuance of his duty to take reasonable care of the goods. It thus accepted this contention.
2. ( w.r.t C) Wheat being a perishable cargo and the cargo owner being unwilling to give instructions, it was clearly necessary for the salvors to take reasonable steps to store and preserve the wheat that they had salved. It thus accepted this contention
3. (w.r.t. E) salvors are entitled to recover the agreed sum from the cargo owner (together with interest), subject to the lien point.
4. (w.r.t 1^stcontention of the cargo-owner) The cargo was deliverable to the cargo owner and not to the shipowner, whether or not the shipowner had abandoned the voyage because:
   • numerous form of bills of lading and such contracts exist.
   • salvors may not know whether the voyage has been lawfully abandoned or not
   • The Lloyd’s form was made directly between the cargo owner and the salvors (privity)
   • cargo owner will always be interested in the preservation of the cargo, whereas the shipowner may not be
5. (w.r.t 2^nd contention of the cargo-owner) the salvors stored the cargo for the benefit of its owner. They received security for their salvage claim (Apr 23), but continued to store the cargo at their expense until the cargo owner finally accepted delivery of it (between June and August). If they had been storing the goods merely in order to maintain their lien for salvage, they would have stopped doing so as soon as they obtained security. Alternatively the principle that the lienor cannot charge the owner of the goods for the cost of exercising the lien applies only to possessory liens and not also to maritime liens. Although no doubt the salvors would have been reluctant to allow the wheat to leave Manila before security in respect of their claim for salvage had been put up, they could, if asked to do so by the cargo owner, have given up possession of the wheat (and their possessory lien) secure in the knowledge that they could, if necessary, exercise their maritime lien against it before it left Manila. In the further alternative, if it were held that the expenses were the expenses of maintaining the salvors’ maritime lien, the salvors would contend that they fall within clause 5 of Lloyd’s form and are recoverable thereunder. It further suggested that when a lienor incurs reasonable expenses in the proper exercise of his lien he should be entitled to recover those reasonable expenses from the owner of the goods liened.

Lord Simon of Glaisdale

Except to the holding that there never was an agency of necessity he concurred with Diplock. On the point of lien he considered it unnecessary to come to any conclusion, where interests are manifold or motives mixed.