DATE: 1915 March 8.

COUNSEL: Adair Roche, K.C., and Raeburn (with them I. H. Stranger, for J. A. H. Wood, serving with His Majesty’s Forces), for the appellants.
Maurice Hill, K.C., and F. D. MacKinnon, K.C., for the respondents, were not called on.

SOLICTORS: For appellants: Downing, Handcock, Middleton & Lewis, for Bolam, Middleton & Co., Sunderland.
For respondents: Parker, Garrett & Co.

JUDGES: Viscount Haldane L.C., Lord Dunedin, Lord Atkinson, Lord Parker of Waddington, and Lord Parmoor.

Ship – Loss of Cargo by Fire – Fire caused by Unseaworthiness – “Actual fault or privity” of Owners – Merchant Shipping Act, 1894 (57 & 58 Vict. c. 60), s. 502.

By s. 502 of the Merchant Shipping Act, 1894, the owner of a British sea-going ship shall not be liable to make good to any extent whatever “any loss or damage happening without his actual fault or privity” where any goods or merchandise taken in or put on board his ship are lost or damaged by reason of fire on board the ship.

A cargo of benzine on board ship was lost by a fire caused by the unseaworthiness of the ship in respect of the defective condition of her boilers. The shipowners were a limited company and the managing owners were another limited company. The managing director of the latter company was the registered managing owner and took the active part in the management of the ship on behalf of the owners. He knew or had the means of knowing of the defective condition of the boilers, but he gave no special instructions to the captain or the chief engineer regarding their supervision and took no steps to prevent the ship putting to sea with her boilers in an unseaworthy condition:–

Held, that the owners had failed to discharge the onus which lay upon them of proving that the loss happened without their actual fault or privity.

Decision of the Court of Appeal [1914] 1 K. B. 419 affirmed. APPEAL from an order of the Court of Appeal affirming a judgment of Bray J. (1)

The appellants were the owners of the steamship Edward Dawson. By a charterparty dated February 23, 1911, the ship was let on time charter to the Anglo-Saxon Petroleum Company for nine, twelve, or fifteen months at the option of the charterers. Under this charterparty she loaded a cargo of 2011 tons of benzine at Novorossisk in Russia for carriage to Rotterdam. The respondents were purchasers of this cargo and

(1) [1914] 1 K. B. 419.

[*706] indorsees of the bills of lading. On October 1, 1911, whilst in the course of her voyage from Novorossisk to Rotterdam the ship and her cargo were destroyed by fire. The respondents brought an action against the appellants for damages for loss of the cargo.

By their points of claim the respondents alleged the failure to deliver the cargo. Alternatively they alleged that the ship was unseaworthy at Novorossisk by reason of the defective condition of her boilers and that owing to this unseaworthiness the ship with her cargo was driven ashore and lost.

The appellants by their points of defence admitted the failure to deliver, but relied on s. 502 of the Merchant Shipping Act, 1894 (1), as relieving them from liability, and they denied the allegation of unseaworthiness. The respondents by their points of reply denied that the cargo was lost by fire within the meaning of s. 502 and alleged that it was lost by perils of the sea occasioned by the unseaworthiness. Alternatively they alleged that if the cargo was lost by fire the fire was occasioned by the unseaworthiness. In the further alternative they alleged that by the terms of the contract of carriage the appellants had precluded themselves from relying on the protection of the section; but in the circumstances it became unnecessary for the Court to determine this question.

The Edward Dawson was a steel screw oil tank steamer. She had two boilers and each boiler had three furnaces. Her average speed was about seven knots. She was built in 1890 for a French firm and was classed in the first division of the Bureau Veritas. She was supplied with new boilers in 1896. In 1897 she was purchased by the appellants, who then expended 6500l. upon her. The managers of the appellant company were another company, John M. Lennard & Sons, Limited, and the managing director of that company was John M. Lennard, who

(1) Merchant Shipping Act, 1894, s. 502: “The owner of a British sea-going ship, or any share therein, shall not be liable to make good to any extent whatever any loss or damage happening without his actual fault or privity in the following cases; namely, –

“(i.)

Where any goods, merchandise, or other things whatsoever taken in or put on board his ship are lost or damaged by reason of fire on board the ship;….”

[*707] was the registered managing owner of the ship. Lennard did not give evidence at the trial.

In February, 1911, the ship was repaired at Liverpool to the requirements of the Bureau Veritas surveyor, Mr. Viehoff; and her class was extended for twelve months to March 31, 1912, but subject to the pressure of her boilers being reduced from 160 lbs. to 130 lbs. She then proceeded under the time charter to various ports in the Mediterranean and returned to Thames Haven in June, 1911. There had been trouble with her boilers during this voyage. Before the arrival of the ship at Thames Haven the charterers sent a letter to the appellants complaining that there was something greatly wrong with her engines and boilers and urging that they should be put in thorough working order, and in July, 1911, the appellants ordered new boilers and stipulated that they should be ready by the middle of November. On her arrival at Thames Haven the boilers were examined by a foreman boilermaker named Clarke, representing the general marine superintendent of the ship, Mr. Smaling. Clarke reported that the repairs necessary were of a miscellaneous but not very serious character. No instructions were given by Lennard or the appellants either to Smaling or to Clarke, nor was the charterers’ complaint communicated to them. The repairs were done by Fletcher & Sons, Limited, a responsible firm, under the directions of Clarke and were limited to repairing existing leaks. The evidence showed that the normal life of a boiler if well cared for was from sixteen to eighteen years and the normal life of a set of tubes about ten years. The ship then proceeded to New York, and from New York to Barcelona and from Barcelona to Novorossisk, and during all this time the trouble with the boilers continued and increased. The master made no communications on this matter either to the appellants or to Lennard. On her arrival at Novorossisk there was a very large accumulation of salt in the boilers owing to leakage, and the crew spent two days cutting out the salt. After loading her cargo of benzine the ship left Novorossisk for Rotterdam, and before she reached the English Channel the two centre furnaces were completely salted up so that they had become useless, and two tubes in the boilers had burst. Shortly after passing Dover on September 30, 1911, the ship [*708] encountered a strong north-westerly gale with a heavy sea. At 3.30 P.M. the captain brought her head to the wind as he considered it dangerous to approach the Dutch coast. At 11 P.M. a tube in the port boiler burst. The fires of that boiler had to be drawn to allow the tube to be plugged, and the ship was rapidly driven to leeward. About 2 A.M. the fires were relighted, and about 3 A.M. the full pressure of steam which the two boilers and four furnaces could raise was obtained, but the ship still continued to be driven to leeward owing to the want of sufficient steam power to face the gale. At 5.30 A.M. she grounded on the Botkill Bank, and after bumping on the bank several times she got off, but about 7.40 A.M. she finally grounded in the Scheldt near Flushing. The stranding of the ship injured the tanks to such an extent that some of the benzine escaped, and the vapour of the escaping benzine coming into contact with the combustion chambers of the boilers caused an explosion which resulted in the loss of the ship and cargo.

Bray J. found that the vessel on leaving Novorossisk was unseaworthy by reason of the condition of her boilers, that the fire and consequent loss of the cargo were caused by the unseaworthiness, and that the loss did not happen without the actual fault or privity of the owners. He accordingly gave judgment for the respondents for an amount to be ascertained, which amount was subsequently ascertained at 13,500l. In the Court of Appeal the appellants did not contest the finding of Bray J. as to unseaworthiness, but contended that neither the unseaworthiness nor the stranding caused the fire, and that the fire and loss of the cargo occurred without the actual fault or privity of the appellants.

The Court of Appeal by a majority (Buckley and Hamilton L.JJ., Vaughan Williams L.J. dissenting) affirmed the decision of the learned judge.

1915. Feb. 26; March 1, 8. Adair Roche, K.C., and Raeburn (with them I. H. Stranger, for J. A. H. Wood, serving with His Majesty’s Forces), for the appellants. The main defence to the action is s. 502 of the Merchant Shipping Act, 1894. Unseaworthiness in respect of the boilers is admitted, but there is [*709] nothing to connect the loss of the cargo with that unseaworthiness. The loss occurred without the actual fault or privity of the appellants. The manager Lennard was not aware of the unseaworthy condition of the boilers, nor had he the means of knowledge. He was entitled to rely on the certificate of the Bureau Veritas and upon the subsequent repairs, which were not found by Bray J. to be insufficient. But assuming that Lennard was to blame, the manager’s fault or privity is not the fault or privity of the owner. It must be actual or personal fault or privity: Virginia Carolina Chemical Co. v. Norfolk and North American Steam Shipping Co. (1); Ingram & Royle v. Services Maritimes du Tr?port (2); The Fanny (3); The Warkworth. (4)

[LORD ATKINSON referred to Wilson v. Dickson. (5)]

In the case of a company the persons responsible would be the board of directors. There is a distinction between the board, who have the general management and control of the company, and a person appointed by the board or by the company at general meeting to do a particular class of acts: Smitton v. Orient Steam Navigation Co. (6) Lennard had the supreme control of the technical management of the ship, but he was nothing more than an agent of the appellant company. He was not the alter ego of the company. He did not represent the company in the sense of making his fault the fault of the company. The case of a company is analogous to the old case of a sixty-fourth owned ship. Sleeping ownership is recognized by law and is in the interest of public policy, and s. 502, which is a reproduction of similar provisions in older Acts, expressly exempts a sleeping owner from responsibility. The object of the section is to restrict the doctrine of respondeat superior within certain defined limits.

Maurice Hill, K.C., and F. D. MacKinnon, K.C., for the respondents, were not called on.

VISCOUNT HALDANE L.C. My Lords, in this case the appellants have, at all events, the satisfaction of knowing that their case has been excellently argued by both the learned counsel who have appeared for them at your Lordships’ Bar.

(1) [1912] 1 K. B. 229.

(2) [1913] 1 K. B. 538, at p. 544.

(3) (1912) 28 Times L. R. 217.

(4) (1883) 9 P. D. 20.

(5) (1818) 2 B. & Ald. 2.

(6) (1907) 12 Com. Cas. 270.

[*710] The case, which we have now heard fully and as to which we do not think it necessary to trouble the respondents’ counsel, is shortly this. The Edward Dawson was a tank steamer designed for the carriage of oil in bulk. She was chartered by her owners, the appellants, on a time charter to a company known as the Anglo-Saxon Petroleum Company, and in the course of her employment she proceeded to Novorossisk in the Black Sea. There she loaded in bulk 2011 tons of benzine, and the bills of lading, six in number, were indorsed by the Anglo-Saxon Petroleum Company to the Asiatic Petroleum Company, who are the respondents in this case. My Lords, the benzine has been lost, and the respondents have brought an action against the appellants to recover damages for the loss of their cargo.

Now the story of the case is in outline this: The Edward Dawson was built in 1890, as I have said, for the carriage of oil in bulk, and in 1907 she was bought by the appellants, who spent a good deal of money upon her, and proceeded to use her for certain voyages. In January, 1911, after she had been for a good while at sea, she was overhauled at Birkenhead, and the Bureau Veritas, a well-known agency which issues certificates and keeps a list for the purpose of showing the condition of ships, gave a certificate through Mr. Viehoff, who was their agent at Birkenhead, to the effect that she would have a satisfactory character for another twelve months, but only on condition that her boiler pressure was reduced from 160 to 130 lbs. My Lords, that obviously made a great deal of difference to the energy developing limits of capacity of the ship. Subsequently to that she proceeded on what has been described in the course of the argument as a round voyage. She went to Thames Haven, and at Thames Haven certain repairs were done under the superintendence of a Mr. Clarke to her boilers; she proceeded to New York, and from New York to Barcelona, and after various intermediate voyages she came to Novorossisk in the Black Sea, where she loaded the cargo of benzine of which I have spoken. She left Novorossisk, and the unsatisfactory condition of her boilers soon became manifest. These boilers leaked; they leaked salt water into the central furnaces, the furnaces became silted up with salt, so that their capacity was diminished, and the result [*711] was that when the ship on her way back passed the Straits of Dover and came into the North Sea she was not in a condition to develop such power as was desirable in the event of her encountering heavy head weather. My Lords, she found herself on October 1 off the Dutch coast near the mouth of the Scheldt. There was a gale blowing, and she hove to and set her head against that gale to prevent herself from being driven on to the lee shore, but she was driven. She first of all grounded on the Botkill Bank, and then she grounded again in the mouth of the Scheldt. Her port of destination was Rotterdam, but she was by this time a good way away from Rotterdam at the mouth of another river which lies south of the Maas, on which Rotterdam is situated, namely, the Scheldt, and in the Scheldt, as I have observed, she took the ground again. She does not appear to have been under adequate control. She had, among other things, burst a tube, which was not unlikely, having regard to wear and tear in excess of the length of life of tubes, which was given in the evidence as only ten years, and to the general condition of her boilers. She burst a tube, she took the ground, she was unable to get off the ground, she bumped, and as the result of bumping the benzine got loose from the tanks, the deck bulged, the tanks were probably cracked, anyhow the benzine began to get into the furnaces, and the result was a conflagration. It was suggested that if the flame had been extinguished by the injection of water, this might have been prevented, but I do not think the evidence upon that point at all satisfactorily established that that could have been secured, or, at any rate, that the operation could have been properly carried out.

My Lords, in that state of things the loss of the cargo took place, and the case came before Bray J., who tried it, and Bray J. found a number of facts. He found these facts after hearing the evidence on both sides, and I think that his findings of fact were justified. They were these: The first was that the ship when she left Novorossisk was unseaworthy by reason of defects in her boilers. The second finding of fact was that the stranding on the Botkill Bank, just off the mouth of the Scheldt, was caused by the want of steam, which in its turn was caused by the unseaworthy condition of the boilers; and he found the same causes as [*712] regards the subsequent stranding in the Scheldt itself. Then in the third place he found that the loss was not caused by any negligence or want of precautions on the part of the engineers, because he does not find it proved that anything they could have done could have altered the consequences. He found that the loss of the cargo was caused by the unseaworthiness of the ship due to the condition of the boilers. Then there are other findings which are findings of mixed fact and law. One of these is that the duty of supervision remained with the managing owners, and that the fault of the managing owners was a fault that affected the company itself.

My Lords, that last question gives rise to the real question of law which occurs in this case. Taking the facts to be as the learned judge has found them, what is the consequence as regards the liability of the appellants? The appellants are a limited company and the ship was managed by another limited company, Messrs. John M. Lennard & Sons, and Mr. J. M. Lennard, who seems to be the active director in J. M. Lennard & Sons, was also a director of the appellant company, Lennard’s Carrying Company, Limited. My Lords, in that state of things what is the question of law which arises? I think that it is impossible in the face of the findings of the learned judge, and of the evidence, to contend successfully that Mr. J. M. Lennard has shown that he did not know or can excuse himself for not having known of the defects which manifested themselves in the condition of the ship, amounting to unseaworthiness. Mr. Lennard is the person who is registered in the ship’s register and is designated as the person to whom the management of the vessel was entrusted. He appears to have been the active spirit in the joint stock company which managed this ship for the appellants; and under the circumstances the question is whether the company can invoke the protection of s. 502 of the Merchant Shipping Act to relieve it from the liability which the respondents seek to impose on it. That section is in these words: “The owner of a British sea-going ship, or any share therein, shall not be liable to make good to any extent whatever any loss or damage happening without his actual fault or privity in the following cases; namely, – (i.) Where any goods, merchandise, or other things whatsoever [*713] taken in or put on board his ship are lost or damaged by reason of fire on board the ship."

Now, my Lords, did what happened take place without the actual fault or privity of the owners of the ship who were the appellants? My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. That person may be under the direction of the shareholders in general meeting; that person may be the board of directors itself, or it may be, and in some companies it is so, that that person has an authority co-ordinate with the board of directors given to him under the articles of association, and is appointed by the general meeting of the company, and can only be removed by the general meeting of the company. My Lords, whatever is not known about Mr. Lennard’s position, this is known for certain, Mr. Lennard took the active part in the management of this ship on behalf of the owners, and Mr. Lennard, as I have said, was registered as the person designated for this purpose in the ship’s register. Mr. Lennard therefore was the natural person to come on behalf of the owners and give full evidence not only about the events of which I have spoken, and which related to the seaworthiness of the ship, but about his own position and as to whether or not he was the life and soul of the company. For if Mr. Lennard was the directing mind of the company, then his action must, unless a corporation is not to be liable at all, have been an action which was the action of the company itself within the meaning of s. 502. It has not been contended at the Bar, and it could not have been successfully contended, that s. 502 is so worded as to exempt a corporation altogether which happens to be the owner of a ship, merely because it happens to be a corporation. It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondeat superior, but somebody [*714] for whom the company is liable because his action is the very action of the company itself. It is not enough that the fault should be the fault of a servant in order to exonerate the owner, the fault must also be one which is not the fault of the owner, or a fault to which the owner is privy; and I take the view that when anybody sets up that section to excuse himself from the normal consequences of the maxim respondeat superior the burden lies upon him to do so.

Well, my Lords, in that state of the law it is obvious to me that Mr. Lennard ought to have gone into the box and relieved the company of the presumption which arises against it that his action was the company’s action. But Mr. Lennard did not go into the box to rebut the presumption of liability and we have no satisfactory evidence as to what the constitution of the company was or as to what Mr. Lennard’s position was. The memorandum and articles of association were not put in. The only evidence was that of the secretary, Mr. Simpson, who told the Court that he was secretary not only to the company but also to the managing company, and the inference to be drawn is that the officials of the two companies were very much the same and transacted very much the same business. Under the circumstances I think that the company and Mr. Lennard have not discharged the burden of proof which was upon them, and that it must be taken that the unseaworthiness, which I hold to have been established as existing at the commencement of the voyage from Novorossisk, was an unseaworthiness which did not exist without the actual fault or privity of the owning company. My Lords, if that is so, then the judgment of the majority of the Court of Appeal and of Bray J. was right.

My Lords, there is another point which I have not entered upon, because it was not touched upon in the Court below, and that is the question as to whether the terms of the charterparty are such as to exclude the operation of s. 502 altogether. That question remains intact. It is not necessary to deal with it in this case and I therefore pass it by.

My Lords, for the reasons which I have given, I move that this appeal be dismissed, and dismissed with costs. [*715] LORD DUNEDIN. My Lords, I concur, and I have but little to add to what the noble and learned Lord on the woolsack has said. It appears clearly from the facts, and indeed eventually was admitted by the appellants’ counsel, that the loss which had its final outcome in the fire was really due to a set of defects in the steam power in the boilers which constituted unseaworthiness. In the Court below at the trial the principal controversy seems to have turned upon whether the fault in allowing the vessel to be unseaworthy was a fault committed by the captain at Novorossisk or was the fault of J. M. Lennard, the registered manager of the ship. I agree with what my noble and learned friend has said that the true view of the facts is that the fault was the fault of Lennard. But before your Lordships’ House the chief argument has been, admitting that it was the fault of J. M. Lennard, whether that was actual fault or privity in the sense of s. 502 of the Merchant Shipping Act. The real question therefore turns upon what is to be the application of the words there used to a metaphysical conception like an incorporated company who cannot act directly themselves.

My Lords, I do not know that a case will ever arise in which that will need to be treated as a purely abstract proposition. I do not think it arises in this case, and I certainly incline to the opinion that it will be found always to depend upon the particular facts of the case. If I was bound to decide affirmatively in this case, I should be inclined to think that there was enough known about Lennard to show that, to use the appellants’ learned counsel’s own phrase, he was the alter ego of the company. He was a director of the company. I can quite conceive that a company may by entrusting its business to one director be as truly represented by that one director, as in ordinary cases it is represented by the whole board. I am quite sure that you cannot at least put as a general proposition in law that it is true that nothing will ever be the actual fault or privity of an incorporated company unless it is the actual fault of the whole board of directors. But, my Lords, I think the true criterion of the case is that which was found and applied by Hamilton L.J., that the parties who plead this 502nd section must bring themselves within its terms; and therefore the question is, have the company [*716] freed themselves by showing that this arose without their actual fault or privity? I think they have not. Lennard may have been deputed by the company to do all these things, or again there might have been liability upon the ground that Lennard had told the whole body of directors and that they knew and sent him the money, and so on. Anyway they have not discharged the onus which was upon them, and I therefore concur in the motion which has been made by my noble and learned friend on the woolsack.

LORD ATKINSON. My Lords, I concur.

LORD PARKER OF WADDINGTON. My Lords, I concur.

LORD PARMOOR. My Lords, I concur.

Order of the Court of Appeal affirmed and appeal dismissed with costs.

Lords’ Journals, March 8, 1915.