Scruttons Ltd v Midland Silicones Ltd
House of Lords
Citations:  AC 446;  2 WLR 186;  1 All ER 1;  2 Lloyd’s Rep 365; (1962) 106 SJ 34;  CLY 2842.
The respondents were consignees of a bill of lading. The cargo was a drum of chemicals. The contract limited the carrier’s liability to £179 per package in the event of loss, damage or delay. The appellants were the stevedores responsible for unloading the cargo from the vessel. Their contract with the carrier specified that they should have ‘such protection as is afforded by the terms, conditions and exceptions of the bills of lading’.
During the unloading process, they negligently dropped and damaged the drum, losing £593 worth of chemicals. The respondents sued the appellants in tort for the £593 of loss. The appellants accepted liability for negligence. However, they claimed that they could take advantage of the carrier’s limitation clause.
- Could the appellants take advantage of the limitation clause, despite apparently not being a party to the contract?
The House of Lords held in favour of the respondents. On the facts, the carrier had not acted as the appellants’ agents when making the carriage contract. Therefore, there was no privity between the appellants and respondents. There was no evidence of an implied contract between the parties either. The word ‘carrier’ did not include stevedores, so there was no indication that the limitation clause in bill of lading was intended to benefit the stevedores.
This Case is Authority For…
Only a person who is a party to a contract can sue and be sued upon it. Similarly, only a contract party can take advantage of any defences or limitations claimed within a contract. This is the rule of privity of contract.
In the modern era, a third party may be able to take advantage of the Contracts (Rights of Third Parties) Act 1999 to enforce the terms of a contract. There was no equivalent provision at the time this case was decided.
Lord Reid noted that there are three instances in which the House of Lords (now the Supreme Court) can depart from its ratio in previous cases:
- Where the ratio of the case is obscure and difficult to decipher;
- If the case is out of line with other authorities;
- Where the ratio of the case is much wider than necessary for the decision.
Lord Denning dissented. He questioned the validity of the privity of contract rule as a matter of historical precedent, explaining that it arose before negligence was an independent tort. He relied on a precedent in which the House had allowed stevedores to sue in this kind of case. The other Lords dismissed the case as obscure or inconsistent, and departed from it.
Lord Denning also thought that the appellants could rely on the clause in their own contract with the carrier which entitled them to the same defences as the carrier. This was because he considered the carriers to be the bailees of the respondents’ goods. Bailees can enter into contracts concerning the goods which bind their owners. All that it required is that the contract is of a kind which the owner implicitly consented to. Lord Denning therefore thought that the respondents were bound by the limitation clause in the contract between the carrier and the appellants.