Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) 22 NSWLR 1

Court: NSW Court of Appeal

Judges: Gleeson CJ, Kirby P; Mahoney JA (dissenting)

Date decided: 19 February 1991

This note only deals with the question of incorporation of exclusion clauses. See the High Court case for the important authority on total failure of consideration, restitution, and damages for disappointment. See the full text of this case for discussion of unconscionability under the [Contracts Review Act (NSW)].

This case was overturned in the High Court of Australia (Baltic Shipping Co v Dillon (1993) 176 CLR 344). Special leave was not granted, however, to appeal the decision that certain exclusion clauses did not form part of the contract.

Dillon ('a fifty-three year-old widow') put a deposit down on a cruise, and received a booking form, which was expressly stated that the contract of carriage would be formed at the time the tickets were issued, and would be subject to conditions printed on the tickets and available for display at the cruise offices. The information provided said nothing as to the substance of the terms and conditions. Dillon paid the balance of her fare, received the ticket a month and a half later, and embarked on the cruise two weeks after that. The boat sank, and, after a lengthy process, Baltic admitted liability, but sought to rely on the exclusion clause.

Chief Justice Gleeson (as he then was) saw “no justification for disregarding the stipulation in the booking form that the contract of carriage would be made only at the time of the issue of ticket to the respondent”1), which meant that the 'conventional analysis' in Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837 that the ticket is only an offer, did not apply.2) It also meant that the conclusion of the High Court in Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 did not apply - the contract could not have been formed at the time that the booking form was issued, or at the time that the balance was paid.3)

This construction of the contract had serious implications for the incorporation of the exclusion clause:

The fact that the contract was made when the ticket issued and not, for example, after the respondent received it and had been given an opportunity to read and consider its terms, is significant. It is an important aspect of those ticket cases that yield to the conventional analysis that the corollary of the proposition that a contract of carriage comes into existence only when the passenger has received the ticket and been afforded an opportunity to consider its terms is that in such circumstances it is fair to treat the carrier as having done what was reasonably necessary to bring all the terms to the attention of the passenger and to treat the passenger as bound by those terms. The same does not apply, however, where it is the issue of the ticket by the carrier, rather than the passenger's uncomplaining acceptance of it after having had an opportunity to read it, that brings the contract into existence.((7-8))

This rather literal reading of the stipulation by Baltic about when the contract would be formed meant that the 'offer' was the payment of the remainder of the fare, and the 'acceptance' was the issuing of the ticket. It follows, therefore, that sufficient notice of the terms must be given /before/ the ticket was received, and not on the ticket itself.4) Chief Justice Gleeson held, accordingly, that

Up to that time the only information the respondent had about conditions of carriage was that contained in the booking form. In view of the subject matter and content of the relevant limitation clauses I do not regard that as adequate to bring those particular clauses to the notice of the respondent.((8))

His Honour continued:

I refer particularly to what was said by Lord Denning MR in [[Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163]] at 170. It may well have been sufficient notice of many of the terms and conditions of carriage to have informed the respondent (in the booking form) that there were detailed terms and conditions and that if she were interested in what they were she could inspect a form of ticket at a CTC cruise office. However, I would not regard such a statement as adequate notice of the existence of clauses significantly limiting the appellants common law liability in events such as those which occurred in the present case. In my view it is the fact, and extent, rather than the precise mechanics, of the limitation that are of primary importance.
Accordingly, I do not regard the limitation clauses as forming part of the contract of carriage.((8-9))

It has to be noted that if the question of contract formation had been treated as one of law, or had Baltic remained silent, it may be that the 'conventional analysis' would have prevailed, and it would then have been necessary to examine the ticket issued to determine whether it provided adequate notice. The fact that the contract was deemed concluded at the time the ticket was issued meant that notice on the ticket was not sufficient, just as occurred in Oceanic Shipping.

President Kirby (as he then was) also took Baltic's own text as an indication of intention in order to analyse the time at which the contract was made:

This made it plain that the booking document was not the contract of carriage. Instead, that contract would arise “only at the time of the issuing of tickets”. At that stage, unless the passenger took certain initiatives of her own, she would have had no knowledge of, or opportunity to influence, the conditions and regulations printed on the tickets.((24))

His Honour then continued to consider whether the invitation to seek out further terms and conditions at the cruise offices was sufficient. As in previous cases, it was the unusualness of the clauses which required special attention be drawn to them:

The fact that they were available to passengers at CTC Cruises offices scarcely amounted to a sufficient compliance with the appellant's responsibility to bring unusual conditions at least to the notice of passengers such as the respondent before they would be bound by them. There were a number of unusual conditions in the subject of terms and conditions. They included (by cl 26) reference to “units of account” and “special drawing rights” as defined by the International Monetary Fund. They also included (by cl 27) a duty of passengers to “observe and obey all notices and by-laws of the Soviet Ministry of Merchant Marine displayed on board the ship”. They included the limitation of liability for damage expressed not in a dollar sum (which might have been understood) but in terms of the “units of account” which would mean nothing to the ordinary passenger. Thus the liability in respect of death or personal injury was limited to the odd sum of 46,666 units of account. The liability in respect of loss or damage to luggage was limited to 833 units of account per passenger per carriage. There were other unusual terms and conditions. Yet these are the terms and conditions which, by the express language of the agent's booking form were purportedly fixed upon the passenger “at the time of the issuing of tickets”. The passenger would have no knowledge of precisely when that time would come about. He or she would have no effective say in the terms then purportedly imposed. In answer to the rhetorical question of Lord Parmoor, I would say that there was more, before the time fixed, that the carrier could have done to bring the unusual provisions at least to the notice of the passenger. At the very least it could have drawn to attention, on its booking form, the fact of the limitation of liability for personal injury and damage to luggage. By doing so it would alert passengers to the obligation to make their own, adequate arrangements. This was not done.((24-5))

His Honour concluded that the limitation of liability was not incorporated in the contract:

The result is that, applying what I take to be the approach sanctioned by the High Court in //[[Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197|Oceanic Sun Line Special Shipping Inc v Fay]]//, the contract of carriage here came into force at the time appointed and notified in the booking form. Yet at that time the respondent had not had a reasonable opportunity to see and agree to the terms and conditions which the appellant sought subsequently to impose upon her by the delivery of the passenger ticket. Once the contract was made, it was not open, without fresh agreement, for further terms and conditions to be imposed by the unilateral action of one contracting party. Thus the mere presentation by the appellant to the respondent of the passenger ticket with its terms and conditions would not fix the respondent with acceptance of those terms and conditions, simply because thereafter she began the cruise. She was entitled, in law, to take the view that she would be issued with a ticket which would contain no unusual provisions, specifically no provisions of which she was not on notice limiting the appellant's liability to her. She was entitled to regard the subsequent purported imposition of such conditions upon her by unilateral acts of the appellant as wholly ineffective. Almost certainly, the respondent gave no thought to these matters. It is probably only bored lawyers or travel executives who, in the solitude of a ship or airline cabin, actually read the fine print of terms and conditions such as those relied upon by the appellant here.

Justice Mahoney distinguished the question of formation from the question of incorporation. His Honour held that

After payment of the balance of the fare, what remained was the formal issue of the ticket. The effect of the issue of the ticket was, on the alternatives that I have suggested, either that the defendant, by issuing it, had contracted to carry the plaintiff or that the pre-existing condition of the contract to carry the plaintiff had been fulfilled or otherwise ceased to operate. On either view, it was at that point that the plaintiff had the right to be carried. And, on either view, the contract of carriage was “subject to the conditions and regulations printed on the tickets”.
Upon this analysis, the contemplation of the documents, as such, was that the contract of carriage was subject to the terms and conditions on the ticket. And, of course, the tickets contained the terms and conditions on which the defendant relies.((45))

His Honour distinguished this case from Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197, where the contract was finalised before the ticket was issued, with the conclusion that ““if the contract is made when the fare is paid, the ticket cannot alter the parties' contractual rights and obligations”.”5) His Honour held that, unlike that case

in the present case, when on 6 December 1985 the plaintiff paid the fare, she had the booking form issued on 9 November 1985 and that form stipulated that the contract of carriage for travel “will be made only at the time of the issuing of tickets and will be subject to the conditions and regulations printed on the tickets”. Therefore, if the documents are to be given their ordinary effect, there was either then no contract of carriage or, if the plaintiff was contractually entitled to have a contract of carriage finalised by the issue of tickets at a later date, that to which she was entitled was a contract“subject to the conditions and regulations printed on the tickets”. There was therefore no question of adding terms and conditions to a contract already made.((45-6))

Justice Mahoney set out the importance of contractual limitations of liability:

It is understandable why a carrier may desire to specify with particularity the terms on which he will contract. The limitation of the circumstances in which liability is to be accepted may be, from the point of view of the carrier, desirable. Some of the circumstances under which liability may accrue may be outside the control of the carrier. An act of war has conventionally been recognised as such. The act of a lunatic or a terrorist may not be preventable by the carrier. And, in respect of those circumstances which the carrier may control, he may desire to have insurance. The court is, I think, entitled to know that frequently insurers divide into specific categories the risks which they are prepared to insure and, in respect of risks which they are prepared to insure, categorise them according to their risk experience and for other reasons for the purpose of fixing premiums. And the limitation of the quantum of damages may legitimately be desired: the court may know that a Bophal or a Lockerby disaster may otherwise destroy a carrier or his insurer.((46))

His Honour noted his distaste for rewriting bargains, and criticised the earlier decisions:

As I have suggested, it will in the ordinary case be clear that the carrier intended to offer to carry or to carry the plaintiff only on the terms set forth in the relevant conditions. Where, in the ticket cases, the courts have held the terms and conditions not to be part of the contract, what they have, in result, done is two things: they have held that the plaintiff has accepted an offer which did not include the terms and conditions, that is, an offer which the carrier did not make. And, secondly, they have held the carrier to have made a contract it did not intend to make, with consequences which it would not have been prepared contractually to accept.((46-7))

After distinguishing the automatic ticket parking cases and the more egregious 'red hand' cases (dicta of Lord Denning in J Spurling Ltd v Bradshaw [1956] 1 WLR 461, His Honour continued:

It is clear that, as I have suggested, it was the subjective intention of the company that they should. This was made apparent by the booking acknowledgment, the booking form, and the terms of the tickets themselves.
There are, in my opinion, no sufficient reasons why the Court should lean against that result. As I have said, there are reasons of commercial importance why a person who enters into contracts of carriage or the like, with inter-connected contracts to multiple parties, should be able to formulate and identify his obligations and the extent of them. There are reasons why he may legitimately stipulate for the limitation of his liability or the quantum of it. I am conscious that, though there be an ordered procedure involving carefully drafted forms, the conduct of those for whom the carrier is responsible may put those things aside. This may be done expressly or the conduct of those for whom the carrier is responsible may be such that it would be, to the reasonable person, unjust to hold the passenger to that for which the carrier stipulated. But there was, in my opinion, nothing in the conduct of the travel agent or of the company which was of this nature. I do not think that it was argued that there was. The travel agent did not, in specific terms, orally draw attention to the existence of terms and conditions in the contract of carriage, to that I shall refer. But, that apart, there was nothing which, I think, warranted the putting aside of the procedure and the documents which the company had set up. The matter therefore is to be determined according to what a reasonable person would take from what happened and the documents that were presented to the plaintiff.
One matter which is of particular significance for this purpose is, in my


pinion, that the documents given to the plaintiff indicated, at all stages, that there were terms and conditions of the contract of carriage.6)

His Honour concluded that

unless the obligations of the parties are to be determined on the basis that the plaintiff, as a reasonable person, was not expected to read the booking form or, in due course, the tickets, the fact that the contract of carriage offered contained the relevant terms and conditions was, in my opinion, plain.It was, I think, suggested in argument that in practice persons do not read written documents and that therefore should not, at least in this case, be bound by the terms of them. With respect, I do not accept this conclusion. I do not know whether documents of this kind are habitually read: I do not think that judicial notice can be taken of such a matter. There was detailed evidence as to the plaintiff's reading of the documents in the present case. I incline to the view that she did read the relevant documents. But it is, I think, not necessary to base my conclusion upon that. If she did not, she cannot, in my opinion, call that in aid to change what was the offer which the company made to her and which she accepted.
In my opinion therefore the terms and conditions relied on formed part of the contract of carriage.((50))

In this way, Justice Mahoney distinguished the other ticket cases. The time at which the contract was formed was immaterial, because at the time that it was formed, it must have been formed subject to the conditions that were printed on the ticket. It was immaterial that Dillon had not yet seen the ticket; the offer clearly stated that it was subject to some terms and conditions. Further, the liability clause was not so egregious that it had to be singled out with special attention - rather, it was a common form of organising the carrier's insurance and risk. His Honour was not prepared to accept a proposition that the reasonable person would not read the terms and conditions or the warning that the offer was subject to terms and conditions, and therefore there were no grounds upon which to displace the intention of the offeror.

1) , 2) , 3)
Oceanic Sun Line, 227
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