19 Mar 2013

International Transport, Trade & Energy, Case Note 1, Vereeniging Meat Packers (PTY) Ltd v Lykes Lines Ltd LLC

Practice Area(s): Shipping & Logistics |

Case No. AR265/2010 KwaZulu-Natal High Court, Pietermaritzburg (on appeal to the full court against the judgment of Swain J in Case No. A11/2006 KwaZulu-Natal High Court, Durban)

We acted in this matter for Lykes Lines Ltd LLC ("the Plaintiff shipping line").  During 2006 the Plaintiff shipping line instituted action against Vereeniging Meat Packers (Pty) Ltd ("the Defendant") in the Durban and Coast Local Division (as it then was) of the High Court of South Africa, for payment of the sum of US$ 21,601.25 for breach of a contract of carriage.  The breach was the Defendant's failure to return a shipping container to the Plaintiff shipping line.

The bill of lading evidencing the contract of carriage contained the following provision:

"If Containers supplied by or for the Carrier are unpacked at the Merchant's premises, the Merchant is responsible for returning the empty Container in working condition with interiors brushed and cleaned.  The Container must be returned to the point or place designated by the Carrier within the time prescribed failing which the Merchant will be liable for all resulting direct, incidental and consequential damages including demurrage, detention and per diem charges, however designated."

It was common cause that the Defendant, as the holder of the bill of lading, was bound by its terms in its capacity as "the Merchant".  It was also common cause that the container had not been returned to the Plaintiff shipping line.  The truck transporting the container from the port of Durban to the Defendant's premises in Vereeniging, had been hijacked en route and the container stolen.

The container in question was not owned by the Plaintiff shipping line.  It was on lease to a subsidiary of the same holding company of which the Plaintiff shipping line was also a subsidiary.  The lease agreement provided for a replacement value for the container of US$ 21,000 if it was damaged beyond economical repair, lost or destroyed. 

The court of first instance (in Durban) found that two issues arose for consideration:

  1. whether the Plaintiff shipping line had established that it had suffered a financial loss occasioned by the loss of the container; and
  2. whether the Defendant was liable to compensate the Plaintiff shipping line for the loss suffered.

The court answered both issues in the affirmative and granted judgment in favour of the Plaintiff shipping line.  In finding for the Plaintiff, the court relied on, inter alia, the oral evidence of the Plaintiff shipping line's Director of Operations regarding an "internal arrangement", in terms of which any loss of a container on lease by the holding company's subsidiary leasing company to the Plaintiff shipping line, would be paid for by the holding company, which would then recover the amount paid from the Plaintiff shipping line.

The Defendant appealed against the judgment of the court of first instance, to the full court in Pietermaritzburg.  The full court overturned the judgment of the court of first instance.  The full court found:

  1. that the written document evidencing the "internal arrangement" had not been produced at the trial and that the court of first instance ought to have found the oral evidence of the Plaintiff's Director of Operations inadmissible;
  2. that the Plaintiff shipping line had pleaded a case based on the value of the container not the declared value referred to in the lease agreement;
  3. that even if the Plaintiff shipping line was liable to its holding company for payment of the sum of US$ 21,000, it did not follow that the Plaintiff shipping line was entitled to sue for the loss;
  4. that the Plaintiff shipping line's claim was one for "special damages", that it had failed to prove that its damages were within the contemplation of the parties and so had failed to prove the quantum of the claim.

The full court, with respect, erred in its findings in a number of respects, in particular its finding that the Plaintiff shipping line's damages are by nature "special damages".  The unfortunate effect of this finding is that a shipping line will now be precluded from recovering its actual damages in respect of leased containers.  Such claims will be determined with reference to the proved market value of the particular container, at the time of the loss.

It is standard practice within the shipping industry that if a leased container is lost or damaged beyond repair, a "'declared value" (as reflected in the lease agreement) is payable to the entity from which the container is leased.  It is also standard practice, around the world, that the shipping line recovers such "declared value" as damages from the Merchant.

Given the importance of these principles to the Plaintiff shipping line, and to the shipping industry as a whole, the Plaintiff shipping line applied for, and was granted, special leave to appeal against the judgment of the full court, by the Supreme Court of Appeal.  The appeal was argued in the SCA in February this year and judgment was reserved.