New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon)
Privy Council (New Zealand)
Citations:  AC 154;  2 WLR 865;  1 All ER 1015;  1 Lloyd’s Rep 534; (1974) 118 SJ 387;  CLY 3532.
Ajax Machine Tool sold a drilling machine to Satterthwaite, for delivery on board a ship called the Eurymedon. The carriers were Federal Steam Navigation. Federal Steam Navigation was a wholly-owned subsidiary of the stevedores – New Zealand Shipping. New Zealand Shipping worked for Federal Steam Navigation in loading and unloading ships. Federal Steam Navigation had general authority to enter into contracts on New Zealand Shipping’s behalf.
Satterthwaite arranged the shipping contract. Carriers under this kind of contract are required to issue a bill of lading to the consignee. In this case, that was Satterthwaite. Federal Steam Navigation sent the bill of lading to New Zealand Shipping to deal with as its agent. New Zealand Shipping passed the bill over to Satterthwaite.
The bill of lading incorporated the Hague-Visby Rules as set out the Schedule to the Carriage of Goods by Sea Act 1924. Article III, r.6 of these Rules provide carriers immunity against all liability unless the claimant sues within a year of the damage. This bill of lading further stated that this immunity applied to the carrier’s servants and agents.
A stevedore negligently damaged the drilling machine while unloading it. Satterthwaite sued New Zealand Shipping for damages. New Zealand Shipping argued that the claim was barred by the one-year limit in the bill of lading. Satterthwaite argued that:
- The exclusion clause did not cover loading and unloading; and
- The stevedore could not rely on the exclusion clause because they were not a party to the contract (the carrier was).
- Did the exclusion clause cover loading and unloading?
- Had Satterthwaite made any offer to New Zealand Shipping, and had New Zealand Shipping accepted any offer?
- Had the stevedore provided sufficient consideration to be a party to any contract?
The House of Lords held in favour of New Zealand Shipping. The claimant agreed to exempt the carrier’s agents, servants and independent contractor from liability in relation to the performance of the whole carriage contract, including loading and unloading.
The Lords also held that Satterthwaite made a unilateral offer to New Zealand Shipping when it agreed to exempt Federal Steam Navigation’s workers from liability. This was because the carrier was acting as the stevedore’s agent in relation to that clause. New Zealand Shipping accepted this offer when it loaded the goods. Loading goods for Satterthwaite’s benefit was sufficient consideration to make the stevedore a party to the agreement.
This Case is Authority For…
At common law, a third-party (someone who has not provided consideration) cannot sue or be sued on a contract even if it is made for his benefit. This can be overcome, however, if one of the people negotiating the contract acts as the third-party’s agent and the third-party provides consideration for the agreement.
Where a person is under a legal obligation to complete work for X, they normally cannot rely on a new promise to complete the work as consideration for further agreements with X. However, they can rely on a promise to complete the work as consideration for an agreement with Y.
This is the reason why the stevedore’s work in loading the goods was valid consideration. Although New Zealand Shipping were likely already obliged to load the goods under their agreement with Federal Steam Navigation, they had no pre-existing duty to Satterthwaite.
Viscount Dilhorne dissented. He did not agree that Satterthwaite’s assent to the exclusion clause was an open offer to enter into a contract with any person Federal Steam Navigation got to do the work. Such an offer would likely require clear and express language. Satterthwaite agreed to be in a contract with Federal Steam Navigation only.
Lord Simon of Glaisdale also dissented. He thought the exclusion clause did not make sufficiently clear that Federal Steam Navigation were acting as New Zealand Shipping’s agent. He also found it strange that the stevedores essentially claimed to be in a contract containing one clause: the exclusion clause. This strangeness indicated that this was not what the parties intended. Additionally, Lord Simon found it difficult to see how loading the goods was consideration for a promise to let them have the benefit of the exclusion clause if they loaded the goods.