United Kingdom House of Lords Decisions

LORD WARRINGTON OF CLYFFE .—I have had the advantage of reading the opinion which is about to be delivered by my noble and learned friend Lord Atkin, and I concur in it; and I am asked to say that my noble and learned friend LORD DUNEDIN also concurs.

LORD ATKIN .—The present appeal arises in an action in which the respondents, a Russian firm of flax merchants, claim against the appellants, a firm of shipbrokers at Dundee, damages for wrongfully delivering a quantity of flax and tow, the property of the respondents, to one Henry William Renny, a flax merchant of Dundee. The Lord Ordinary, Lord Fleming, decided in favour of the appellants, the defenders. On appeal, the Second Division of the Court of Session, by a majority, reversed the decision of the Lord Ordinary, and granted a decree in favour of the pursuers. The defenders have appealed.

The transactions in question took place in 1917 and 1918. The action was not begun until 1927, and the trial took place in 1929. In the meantime most of the parties principally engaged had died, and many documents had in ordinary course of business disappeared. Nevertheless, sufficient evidence remains, and was adduced at the trial, to enable the material facts to be ascertained and the rights of the parties to be determined

with substantial accuracy. In 1917 the pursuers, Messrs Kolbin, were carrying on business in Russia as flax and tow merchants. Both commodities were in great request during the war. This country had at an early stage proceeded to regulate the supply of flax and tow under the Defence of the Realm Regulations. By an Order of 21st March 1916 no person might deal in Russian flax or tow except under licence from the War Department, and by Order of 3rd March 1917 the Army Council gave notice that they took possession of all Russian flax and tow in stock in the United Kingdom, and intended to take possession of all Russian flax and tow which might thereafter arrive in the United Kingdom. The Army Council had established a Flax Office at Dundee, the headquarters of this trade in the United Kingdom. The manager of this office under Sir James Beattie was a Mr Mackenzie, since deceased, who seems to have conducted the arrangements on behalf of the War Office with the goods in question. The War Office had also by arrangement with the then existing Russian Government establised a representative, Captain Proctor, at Archangel, the Russian port of export. His duties were, so far as flax destined for the United Kingdom was concerned, either to buy flax outright for the British Government or to see that it was consigned to approved quarters. The latter goods were free goods, that is to say, were not at the time put at the disposal of the War Office. They remained the property of the shipper or the consignee as the case might be; but the shipment was subject to the approval of Captain Proctor. To accomplish his duties in these respects he was provided by the Russian Government with an export licence, which had the effect of enabling him to control the export of flax from Russia to the United Kingdom. During the relative time there was also established at Archangel a branch of the United Shipping Co., an English company. They acted at Archangel as shipbrokers or agents for various lines of steamships, including the Ellerman Wilson Line, the owners of the s.s. "Altai," in which the goods in question were ultimately shipped. They also acted as forwarding agents for Russian merchants. In the latter capacity they had acted for some time for Messrs Kolbin & Co. That firm had for some time past been shipping flax and tow to the United Kingdom and in particular to Dundee. Their correspondent in that city was Mr Henry William Renny, himself a flax merchant, who had on several previous occasions bought flax from Messrs Kolbin. He does not appear at any time to have acted as their broker in selling flax for them, although no doubt he had paid charges for them; the transactions were sufficiently numerous to entail a running account between him and them.

Having thus introduced the dramatis personce, it is necessary to state the facts that give rise to this dispute. By December 1917 Messrs Kolbin had transmitted to the United Shipping Co., as their agents, for shipment to England, the flax and tow in question. The Shipping Co. arranged through Captain Proctor for shipment by the s.s. "Altai," then in Archangel chartered by the Ellerman Wilson Line, the owners, to the British Government. The original bill of lading is not forthcoming, but a contemporaneous copy shows that the goods were shipped by Captain A. Proctor through United Shipping Co. "unto order of War Office for account of A. S. Kolbin & Sons or to his or their assigns." There is a further provision that the Master "hath affirmed to two Bills of Lading—one of which being accomplished the others to stand void." The legal effect of this description of the shipper and the consignee has given rise to some discussion; but, after consideration of Captain Proctor's evidence, I think that the result is reasonably plain. Captain Proctor was not intended by anyone to be the shipper. His name was used to indicate that the goods in question were shipped under his licence. The true shippers were the United Shipping Co., acting as agents for A. S. Kolbin & Sons, who were the actual principals. As far as the consignees were concerned, Captain Proctor made it clear that the goods were "quite free unsold and unallocated," adding "but the War Office by the wording of this copy of the Bill of Lading would have the title to make for the shipper whatever terms they thought fit in realising these goods," a qualification which is no doubt correct on the footing that the War Office took up the bill of lading and acquired the goods under it. Captain Proctor further went on to say that he pointed out to the owner of these goods that he could only realise them at a price to be fixed at the discretion of the War Office, which seems to be the practical result of the Orders made under the Defence of the Realm Regulations. Being asked whether that was the reason why the bill of lading was taken "unto order of the War Office for account of A. S. Kolbin & Sons," he said it might have been for that reason only, or it might also be that he considered the War Office the best trustees for his goods; and explained the latter answer by saying that an agent representing the shipper might have the disposal as the salesman of the goods through the War Office if the shipper so desired, because, if Kolbin for instance reckoned that the War Office was the best trustee for his goods and for the sums that would be at his credit after they were realised, then he might have addressed them to the War Office only for that reason. It appears to me to be the result of the evidence as a whole that the goods remained free goods the property of Kolbins, that they chose the designation of the consignee, and that there was no bargain with Proctor, as representing the War Office, that the War Office should take possession of the goods on arrival as trustee for Kolbins. If the War Office did choose to assume such a trust by receiving the bill of lading and acting on it, then no doubt they were bound, and not otherwise.

There is, however, no evidence that the War Office ever had even communicated to them notice of this consignment, much less that they ever received a bill of lading. Captain Proctor has no recollection of having received one of the two to which the Master affirmed; but one bill of lading was given to Simeon Kolbin, the representative of the actual shippers, for he had it in his possession until his death in 1920, and thereafter it was in the possession of his brother Vassili, and was apparently destroyed by a fire at the town of Kotebrutsch in 1926. In these circumstances it appears to me that the property in the goods remained with Kolbins, and that the ship had possession of the goods for the Kolbins, but was authorised to deliver possession to the War Office if the War Office claimed possession under the bill of lading. The War Office never became possessed of the bill of lading, and were not parties to any transaction which entitled them to receive the bill of lading. It seems to follow that the ship at all times held the possession of the goods for the true owner, the Kolbins, subject of course to the lien for freight.

On 21st March 1918 the "Altai" arrived at Dundee; by 4th April discharge was completed. No one produced the bill of lading for the goods. Kinnear & Co. were acting as ship's agents at Dundee. Mr Kinnear caused the goods to be warehoused with warehousemen … Dundee in his firm's name; he did not adopt the provisions of the Merchant Shipping Act enabling the goods to be warehoused under a stop for freight. The freight in fact amounted to about £2500. In the meantime Mr Kinnear had got into touch with Mr Renny, as a person who had previously had dealings in Kolbins' goods. Renny cabled and wrote to Kolbins for instructions; but those communications never reached Kolbins in consequence of the disturbed condition of Russia at the time. The only communication passing between Renny and Kolbin which is known to have reached its destination at this particular time is a cable from Kolbin to Renny of 7th June, requesting Renny to cover fire insurance flax, and stating that he had still flax "here" and inquiring as to prices. Renny's answer, dated 7th July, quoting War Office prices and quoting his own commission of 3 per cent, was apparently received by Kolbins in April 1920, and was not answered. By this time Mackenzie, for the War Office, was interesting himself in the goods. He had seen the goods on the wharf, and had told Renny that he probably would be wanting the flax; on 8th June he had obtained particulars of the quantities; and on 26th June he wrote to Renny:

"We propose to take over your consignments ex‘Altai’ at prices mentioned, but want to hear in due course that you confirm, when we shall be pleased to receive delivery order and pro forma invoice so that we may make you payment to account."

On 10th August the Flax Office wrote to Renny:

"We have to advise you we are to requisition the consignments of flax and tow you hold on the terms set forth in our letter of the 26th June. Will you kindly now hand us delivery order and provisional invoice, when we shall make you payment to account."

Renny was obviously in a difficulty. He had no authority from Kolbins to receive the goods from Kinnear, or to fix the price with the War Office. On the other hand, if the transaction did not go through him, there was a substantial commission at stake, and he would not handle the price, a very substantial sum of £27,000. He wrote a letter, dated 12th August, to Mackenzie, which sought to protect himself as against Kolbin, and at the same time indicated that he was prepared to put the matter through. "I have your favour of 10th inst., and note contents. It must of course be clearly understood that all responsibility for the requisitioning of Messrs A. S. Kolbin & Sons' flax and tow ex s.s. ‘Altai’ rests with you, and that any claims he may put forward should he consider the price you fixed inadequate, and should he desire to be compensated for loss of interest, warehouse and insurance expenses while the goods will be stored here, will be dealt with by you. With reference to our conversation of to-day, it is agreed that you are to pay £150 overhead for the flax should its assortment prove to be [details inserted]. I shall let you have delivery order and provisional invoice on Wednesday." About the same time Renny arranged with Kinnears that they should hand over the goods to him against a bank guarantee indemnifying them against all losses occasioned thereby. On 14th August the Commercial Bank of Scotland gave the necessary indemnity, limiting the liability to £29,000. Thereupon, on 14th August, Kinnears gave a delivery order for the goods to Renny, and on 16th August Renny gave a delivery order to the Flax Office, and received a cheque on account on 17th August for £27,500. We have not copies of the provisional invoices referred to in the Flax Office letter of 17th August enclosing the cheque, but, if they were in the form of the invoices dated 18th September 1918, they omitted the name of the party to whom the War Office were debtors. On 26th August Renny appears to have paid Kinnears the outstanding freight and charges amounting to £2671, and on 18th September he received from the Flax Office a final cheque of £419, which settled the account. Nothing further happened for some time. In 1922 or 1923 Vassili Kolbin got into communication with Renny, and procured some small advances of £100 at a time. Renny did not inform him that he had £27,000 of the firm's money in his possession. A suggested explanation is that Renny had reason to suppose that it would be injurious to Kolbin if the Russian Government became aware that there was a large sum to his credit in England. In 1925 Renny became financially embarrassed, and in March 1925 he executed a trust-deed for his creditors, for whom a dividend of 8s. in the £1 was available. The Kolbins appear to have made a claim against the trustee as creditors, but it was expressed to be without prejudice to the present claim; and before this House it was not suggested that it operates as a defence to the action. On 5th December 1927 the present action was begun.

The defenders can only justify their action in handing over the property of the pursuers to Renny in one of two ways, by establishing authority from Kolbins or by establishing authority from the War Office. Direct authority from Kolbins there was none, but it was said that Renny had been held out by Kolbins as their agent to receive the goods, or, alternatively, that Kolbins had ratified what purported to be the agency of Renny. There is no evidence at all of holding out, and there appears to be no evidence that the circumstances were sufficiently known to any member of the Kolbin firm so as to lead to the conclusion that they ratified the conduct of Renny. The remaining question is, Can the defenders rely upon the authority of the War Office? The rights of the War Office, it was contended, existed under the bill of lading, and also and independently under the Defence of the Realm Regulations. I have already pointed out that the War Office took no rights under the bill of lading; they never received it, and they never accepted the position, into which the bill of lading sought to put them, of trustees of the flax for Kolbins. If one were to speculate, one would assume that Kinnears (who, from the manifest alone, knew that the War Office were named as consignees) would have advised Mackenzie of this fact, and that the latter, either because he had not received the bill of lading, or because he was not prepared at the time to pay the substantial freight and take possession of the goods, declined at the time to assume possession. The one certain fact is that the War Office never made any claim to the goods under the bill of lading or any contract with Kolbins. The defenders cannot rely on any authority under this head. The Defence of the Realm Regulations appear to me equally to afford no aid to the defenders. The relevant powers of the War Office over war material were derived from two regulations, 2 B and 2 E.* By 2 B it is provided that "it shall be lawful for the … Army Council … to take possession of any war material… . Where any goods, possession of which has been so taken, are acquired by the … Army Council … the price to be paid in respect thereof shall in default of agreement be determined by the tribunal by which claims for compensation under these regulations are … determined. If after the … Army Council … have issued a notice that they have taken or intend to take possession of any war material … any person having control of any such material … (without the consent of the Army Council) … deals with it in any way contrary to any conditions imposed in any licence, permit, or order, he shall be guilty of an offence against these regulations." 2 E. "The … Army Council may by order regulate the … delivery of … or other dealing in, any war material … and if any person refuses to … deliver any article the … delivery whereof is regulated by any such order, he may be required by the … Army Council … to sell it on the terms … subject to which the sale … is authorised by the order and to deliver it to them or to any person or persons … named by them." The effect of these provisions is that the Army Council may take possession of war material wherever they find it, and, unless they come to an agreement as to the price with the true owner or his authorised agent, will have to pay for the goods an arbitral price. There is no power authorising the Army Council to require a person in the possession of war material to deliver it to a third person so that they may take possession of it from the third person and agree a price with him. Regulation 2 E does not appear to apply, as there appears to be no order regulating the delivery of flax, and, if there were, the ultimate power of the Army Council is only to require the person in possession to sell and deliver it to them or their nominee. Applying these considerations to the present case, it is reasonably clear that, while the Flax Office might have taken possession of the goods while in the possession of Kinnears or in the warehouse, they would then have remained liable to pay Kolbins a price to be fixed by the competent tribunal. They could not have required Kinnears to deliver the goods to Renny in order that they might "requisition"—that is take possession of—the goods under the regulations from Renny, and agree the price with him. That they did in fact "requisition"

from Renny, and from Renny alone, is made plain from the documents to which I have referred. Why they chose to take this course, especially with the warning contained in Renny's letter of 12th August, it is impossible now to ascertain. Mackenzie's death and the non-existence of the records makes it fairer not to speculate. But, as between the War Office and Kinnears, we have the undoubted fact that there is no trace of any action by the War Office indicating an intention to requisition the goods in the possession of Kinnears. We know that they treated the goods as in Renny's disposal, and asked for an invoice and delivery order from him. We were invited to hold that, but for the lapse of time, some link could have been supplied which would have established that Kinnears, in delivering to Renny, did so in pursuance of powers, exercised or threatened, of the Flax Office. The answer is that we know that in fact the goods were requisitioned from Renny, and that the War Office had no powers short of requisition which would have justified Kinnears in delivering as they did. It is therefore of no assistance to invoke the well-known principle, expressed by Lord Halsbury in Bain v. Assets Co., —"that at this distance of time every intendment should be made in favour of what has been done as being lawfully and properly done." No doubt from a financial point of view Mr Kinnear was satisfied with the transaction. He probably was made aware that the Flax Office approved the transfer to Renny; he got rid of the liability of the goods and got paid his substantial freight; and he had a bank indemnity which appeared to cover him. But the delivery was in fact quite unauthorised, and, when the true owner challenged the transaction, it appears to me that the only effective protection is the guarantee of the bank.

On the assumption that the delivery was wrongful, the appellants put forward the contention, which appears to have found favour with the Lord Ordinary, that the true owners had suffered no damage. The goods, it is said, must have come ultimately into the possession of the Flax Office; this was a delivery to the Flax Office only one step removed, i.e., through Renny; and, if the War Office wrongfully paid Renny, they still remained liable to pay over again to Kolbins; and, but for the Indemnity Act, would still remain liable. There are two sufficient answers to this contention. One is that, but for the delivery to Renny, the Flax Office would have had to requisition the goods from Kinnears direct, in which case the price would have been fixed by the tribunal, and the War Office would have held the amount for the true owner, to whom, Indemnity Act or no Indemnity Act, they would undoubtedly have paid it. The other answer is that, if the bailee of goods deals with them contrary to his mandate, he takes the risk of damage to them when in unauthorised possession. Here, owing to the delivery of the goods to Renny, Renny disposed of them to the War Office, and the price has vanished, and no claim is now open against the War Office. The result of the wrongful dealing with the goods is the loss of the entire value, and the person who wrongfully dealt with them is liable for that loss.

The pursuers therefore appear to me to have established an original

liability in the defenders to make good their loss. There remains the question whether the delay in making the claim affords a defence. On this point the Lord Ordinary was in favour of the pursuers. After discussing the relevant facts, he says:

"I do not think it can fairly be said against the pursuers that, having knowledge of their rights and the means of enforcing them, they have unreasonably lain by to the prejudice of the defenders."

This conclusion was adopted by the majority of the Second Division, and appears to me to be well supported by the evidence. I think it disposes of the defence of mora.

A remaining question involving a substantial sum of money is whether the pursuers are entitled to recover interest in respect of the value of the goods, which has been found to be £23,559, 12s. 9d. It seems to be established that, by Scots law, a pursuer may recover interest by way of damages where he is deprived of an interest-bearing security or a profit-producing chattel, but otherwise, speaking generally, he will only recover interest, apart from contract, by virtue of a principal sum having been wrongfully withheld and not paid on the day when it ought to be paid—Carmichael v. Caledonian Railway Co. The majority of the Second Division have decreed interest at bank rate to the pursuers from 18th September 1918, accepting the view that the capital sum involved was wrongfully withheld by the defenders from that date. I am unable to accept this view. It is true that the defenders parted with the pursuers' goods on or about that date; but they neither received the price nor were at any time entitled to receive the price. If they had remained in possession of the goods, it is probable that the Flax Office would have requisitioned them; but, in that case, Kinnears would not have received the price; and, so far as one can see, no price or compensation could have been quantified except by the compensation tribunal. At what date, in the circumstances, that would have taken place it would be impossible to speculate. Nor is there any reason to suppose that, in the circumstances, the compensation tribunal would have awarded interest in addition to value.

I see no reason why the pursuers should recover more than £23,559, 12s. 9d. On the other hand, as the pursuers are not to recover interest in this proceeding, there appears to be no reason why they should assign to the defenders so much of their right to claim against the trust-estate of Renny as relates to interest on the principal sum. The appeal should be allowed, and the interlocutor of the Court of Session, dated 20th March 1930, should be varied so as to read:

"Find that the pursuers, on assigning to the defenders their right to claim against the trust-estate of Henry William Renny, so far as it consists of a claim for the principal sum of £23,559, 12s. 9d., but reserving to the pursuers their claim against the said trust-estate for interest in respect of such principal sum, are entitled to decree against the defenders for the sum of £23,559, 12s. 9d."

The words "with interest at bank deposit-receipt rates from 18th September 1918" should be omitted; otherwise the interlocutor should be affirmed. As the appellants have been successful in substantially reducing

the decree, but have failed in the main dispute, I am of opinion that there should be no costs to either party in this House.

LORD THANKERTON .—I concur in the opinion which my noble and learned friend Lord Atkin has just read.

LORD MACMILLAN .—I also concur.

S. "Eduard Woermann."

LORD WARRINGTON OF CLYFFE .—I have had the advantage of reading the opinion which is about to be delivered by my noble and learned friend Lord Atkin, and I concur in it; and I am asked to say that my noble and learned friend LORD DUNEDIN also concurs.

LORD ATKIN .—The facts in this case are simple, and, as I believe your Lordships have no doubt that the decision of the Courts below was correct in decerning in favour of the pursuers, a detailed discussion of them is unnecessary. The litigants in the present case appeared on the scene in the s.s. "Altai" action. The material date is later. In September 1919 the Soviet forces were approaching Archangel, which was about to be evacuated by the Allies. The appellants (defenders), the United Shipping Co., had in Archangel in warehouse a quantity of flax and tow which had been delivered to them in the course of their business as shipping agents by the respondents (pursuers), Messrs A. S. Kolbin & Sons, for eventual shipment to England. They had a lien on the goods for warehouse and other charges which were continuing. They were unable to communicate with the pursuers, and they resolved to get the goods away as soon as possible. They shipped them in the s.s. "Eduard Woermann," taking bills of lading in their own name as shippers and making the goods deliverable to Messrs Ellerman Wilson Line, Hull, or to his or their assigns. The Ellerman Wilson Line were managing the ship for the Ministry of Shipping. The goods were discharged at Ports-mouth in November 1919, railed to Hull, and warehoused there in the defenders' name. At this time the price of flax and tow was high, and the defenders prudently resolved to sell. In March they communicated with Mr Renny of Dundee, whom they had ascertained to be familiar with Messrs Kolbin's goods, and made inquiries as to whether he would undertake the sale, and what price was likely to be realised. Mr Renny wrote back on 23rd March:

"As you are aware, I act as agent for Messrs Kolbin in the United Kingdom, and have effected the sale of all goods shipped to this country by them. I therefore consider the correct course is to hand over the goods to me for disposal on behalf of Messrs Kolbin. I shall of course give you an indemnity against any claims which may be made upon you in respect of these goods."

The defenders replied that they would be pleased to hand over the goods on condition that Renny gave a banker's indemnity and undertook not to part with the proceeds until the defenders agreed. Renny accepted the conditions as to the indemnity, but demurred to the undertaking to hold the proceeds, which the defenders withdrew. Renny thereupon sold the goods at a high price, gave the banker's indemnity, and paid the defenders their charges at Archangel and in England; and on 25th May the defenders shipped the goods to Renny at Dundee.

That the defenders were in the position of negotiorum gestoresis common ground. What measure of care is required from a negotiorum gestor in respect of goods over which he assumes control has been the subject of much discussion. Culpa lata, levis, levissimahave been assigned their own boundaries, although to define them in particular cases has proved no easy task. In my humble opinion the more scientific treatment of the problem is not to predicate different degrees of negligence, but to concentrate on the duty, breach of which constitutes negligence. The duty is to take reasonable care in the circumstances, and will vary in each case, but, having been discharged, negatives any negligence, lata, levis, or levissima. In the present case the defenders received custody of the goods in the course of a mercantile transaction. In the course of their business as forwarding agents they acted in an emergency as reasonably careful business men in shipping them to England, and warehousing, and in deciding to sell. They were, in fact, protecting not only the interests of their owners, but also their own interests, which were involved by charges and freight to the extent of about £2000 on a sale value of about £6000. In my opinion the Lord Ordinary is correct in saying that their duty was to take such care as a business man might reasonably be expected to take, in similar circumstances, to protect the owners' interest. This is the view also accepted by the Lord Justice-Clerk. If this test is applied, there appears to me to be no doubt as to the result. The defenders abandoned their care of the goods by handing them over to the absolute control of Renny. That they might have employed Renny as an agent to sell for them may be assumed. But in that case Renny would have had to account to them for the price, for which they would be accountable to the true owners. But the defenders did far more than this; in effect, on condition that they received their charges, they washed their hands of any further responsibility for the goods, and handed them over to a third person who was to be at liberty to deal with the price as he pleased. If they were deceived by Renny's representations as to his agency, that is their misfortune; but they had no justification for acting in such a matter on representations which they took no steps to verify, and for which there was, in fact, no foundation at all. I think it clear that the pursuers are entitled to recover the amount decreed by the Lord Ordinary, but, for similar reasons to those already given in the "Altai" case, I think that the pursuers are not entitled to recover interest.

I think, therefore, that the appeal should be allowed, and that the interlocutor of the Second Division, dated 20th March 1930, should be varied accordingly. As in the "Altai" case, the assignment by the pursuers to the defenders of their claim against Renny's estate should be limited to an assignment of so much of their claim as is for the principal sum, which in this case is £3400. The words "with this variation that interest due to pursuers should be at bank deposit receipt rates from 23rd June 1920" should be omitted. The interlocutor, therefore, should run:

"Adhere to the said interlocutor, with this variation, that the pursuers, upon assigning to the defenders their right to claim against the trust-estate of Henry William Renny, so far as it consists of a claim for the principal sum of £3400, but reserving to the pursuers their claim against the said trust-estate for interest in respect of such principal sum,"

omitting the words "that interest due to the pursuers should be at bank deposit-receipt rates from 23rd June 1920"; and otherwise should be affirmed. There should be no costs of the appeal.

LORD THANKERTON .—I agree.

LORD MACMILLAN .—I concur.