1. Bailment

Bailment sits in the middle of mercantile law. It is how the common law deals with warehouses, carriers, repairers, hirers, pledges, and a friend who borrows a book. The same idea covers a buyer who has goods on sale or return and has not yet accepted or rejected them: until then, that buyer is a bailee. Atari Corporation (UK) Ltd v Electronics Boutique Stores (UK) Ltd is the modern example.

The short definition is this. A, the bailee, lawfully receives possession of goods from B, the bailor, for some purpose. A loan of a book is a bailment. So is leaving goods to be stored, carried, repaired, hired out, or pledged as security.

Bailment is its own source of duties

Where the bailment comes out of a contract, the contract sits alongside the duties that come from the relationship of bailor and bailee. There does not have to be a contract. A gratuitous bailment is one example. A sub-bailment is another. If the bailor agrees, the bailee may hand the goods to someone else. That person becomes the sub-bailee of the original bailor even though those two never contracted with each other. Morris v C W Martin & Sons Ltd and The Pioneer Container are the authorities.

The rights of bailor and bailee can be worked out in tort. The cases go further. Bailment also creates duties that are not simply contract and not simply tort. There is a cause of action in bailment. Lord Goff said so in The Pioneer Container. Lord Judge CJ said the same in Yearworth v North Bristol NHS Trust. Bell's point, in the essays collected by Palmer and McKendrick, is that bailment has not been swallowed by the law of tort.

A bailor may also have to repay a bailee who spends money in an emergency to protect the goods. The Winson and The Kos are the cases.

Holt CJ's six sorts

The old classification is Holt CJ's, in Coggs v Bernard in 1703. He set out six sorts, mainly so as to explain why a person who is trusted with goods comes under a duty.

The first is depositum. Goods are delivered to be kept for the bailor. Nothing is to be done with them. Southcote's Case is the old instance.

The second is commodatum. Useful goods are lent to a friend for nothing, to be used, and the same thing must be given back. "In specie" means the same chattel, not a substitute.

The third is locatio et conductio. Goods are left with the bailee to be used by him for hire. The lender is the locator. The borrower is the conductor.

The fourth is vadium, a pawn or pledge. Goods are delivered as security for money the bailor has borrowed from the bailee.

The fifth is delivery so that the goods can be carried, or so that work can be done on them, for a reward paid by the person who delivers them.

The sixth is the same carriage or work done for nothing. That was the bailment in Coggs v Bernard itself.

Textbooks often collapse these six into two. A bailment is either gratuitous, such as lending this book to a friend without charge, or it is for reward, whether the bailor pays or the bailee pays. Warehousing, carriage, hire, hire-purchase and pledge are bailments for reward. It can also matter whether the bailment is for a fixed term or whether the bailor can end it at will.

What the six sorts leave out

Palmer's criticism is that Holt CJ was describing the obvious, agreed, everyday bailments. The list says nothing about bailments that grew up later, and by leaving them out it suggests they are not bailments at all. That is a failure to foresee, not a failure to notice something already in the cases of 1703. The bailments left out include finding, a wrongful or mistaken seizure, a mutual loan, distress by a landlord, a finance company calling in its security, the relationship between an owner and a sub-bailee, and a bailment that benefits both sides but is not a direct bargain and does not involve a reward paid one way or the other.

Some ordinary modern transactions are also hard to fit: hire-purchase, a conditional sale under a retention of title clause, a railway ticket that must be given up at the end of the journey, a solicitor keeping a will, a manuscript sent to a publisher, and a tool handed to a workman so that he can do the job.

None of the later attempts at a complete classification is entirely satisfactory. The two-way split, gratuitous or for reward, is the one students are expected to use, with the warning that it does not decide every case.

Three requirements

A bailment in the ordinary sense needs three things. Possession must be transferred. Ownership must stay with the bailor, or at least not pass to the bailee. The bailee must consent.

Possession must pass

Without a bailee in possession there is no bailment. Putting goods on another person's land is not the same as putting them into his hands.

In Ashby v Tolhurst the owner left a car in a private car park. The attendant negligently let a thief drive it away. The car-park owners would not have been liable in tort for a mere failure to stop a theft. They would have been liable if they were bailees. The Court of Appeal held they were not. The owner had not transferred possession.

Tongue v RSPCA is the same point in a different setting. The RSPCA went onto a farmer's land to look after emaciated cattle. That did not make them bailees of the cattle.

The same goods must come back

At the end of the bailment the bailee must redeliver the same chattel. If A receives wheat or oil from B on terms that A may hand back the same quantity of identical goods, not those goods, title has passed to A. A's duty is to pass title back. That is not a bailment. South Australian Insurance Co v Randell is the Privy Council case. Dyson LJ made the same point in Wincanton Ltd v P & O Trans European Ltd.

Some pipeline contracts work the same way. The duty is not to carry a particular quantity of oil or gas along the pipe. It is to accept a quantity at one end and to discharge an equivalent quantity at the other. There is no bailment.

The difference matters if the person in possession becomes insolvent. In Chapman Bros v Verco Bros & Co Ltd a grain company took wheat into store and promised only to deliver equivalent wheat later. When the company failed, the original owner had an unsecured claim and received nothing.

The relationship can still be a bailment so long as the person in possession has not become the owner. A buyer under a reservation of title clause may hold as bailee, even with power to sell or to use the goods in manufacture, until that power is used. Robert Goff LJ said so in Clough Mill Ltd v Martin.

Commingled goods can also be bailed. The bailee does not have to hand back the particular grains or litres. The duty is to account to each owner for a quantity. In Mercer v Craven Grain Storage Ltd farmers delivered grain to a storage society. Each farmer's grain was mixed with the rest, and the mass was always being added to and drawn from. The agreement said the grain remained the property of the grower. The House of Lords held the society was a bailee. Devani v Republic of Kenya treats stored oil in a tank farm in the same way.

The bailee must consent

For an ordinary bailment the bailee must agree to take possession. If goods arrive by mistake, as in AVX Ltd v EGM Solders Ltd and Elvin & Powell Ltd v Plummer Roddis, the recipient is an involuntary bailee. The duty is not the ordinary bailee's duty. It is, on the traditional view, only a duty to act in good faith towards the goods.

Must the bailor also consent? The old books, Pollock and Wright among them, said bailment rested on mutual consent. The modern English view is different. A person who voluntarily takes possession of goods belonging to another owes at least the main duties of a bailee at common law, whether or not the owner agreed. Palmer states that principle. The Pioneer Container adopts it.

Cargo owners in the United States shipped goods towards Hong Kong. The carrier employed a sub-carrier for the last stage, from Taiwan to Hong Kong. The sub-bailment contained an exclusive jurisdiction clause. The question was whether the owners were bound by a contract they had not made.

Lord Goff put the dispute in one sentence. Is the bailor's consent a prerequisite of a bailment? Writers such as Bell say yes. On that view, an owner who wants to hold a sub-bailee liable as bailee must take the sub-bailment as a whole, because he either consented to those terms or, by suing, ratified them. Palmer and Professor Tay say no. A person who voluntarily takes another's goods into custody holds them as bailee. He can rely on the terms of the sub-bailment against the owner only if the owner consented to those terms.

English law, and with it the law of Hong Kong, takes the second view. It follows Morris v C W Martin and York Products Pty Ltd v Gilchrist Watt & Sanderson Pty Ltd. A sub-bailee voluntarily takes the goods of a person other than the immediate bailor only if he has sufficient notice that someone else is interested. By taking the goods he then assumes, towards that other person, the responsibility of a bailee. The duties are not unfair, because the sub-bailee can still rely on terms the owner actually or ostensibly authorised. If the intermediate bailee had no authority, the sub-bailee may have a claim against that bailee for breach of warranty of authority.

Mance LJ later put the same idea in East West Corporation v DKBS 1912. What matters is not contract. It is the bailee's consent. The essence of bailment is the bailee's voluntary possession of another's goods.

The bailor's side of the story still matters in one way. The bailee owes bailment duties only to people he knows might be bailors. If he does not know the bailor exists, there is no bailment. In Marcq v Christie Manson & Woods an auctioneer took a painting from X and did not know it had been stolen from Y. The Court of Appeal held there was no bailor and bailee relationship between Y and the auctioneer.

The duty to take care

The central duty is to take reasonable care of the goods. The old question is whether that standard changes because the bailment is free or paid.

Houghland v R R Low (Luxury Coaches) Ltd is the leading modern case. Mrs Houghland and her husband joined a coach at Southampton on the way back from Jersey. Their suitcase went into a locked boot. The coach broke down at Ternhill. It stood unattended in the dark for about three hours. A relief coach came. The passengers themselves moved the luggage, without supervision. The relief boot was locked. At Hoylake the suitcase was gone. The trial judge treated the driver as a gratuitous bailee and gave judgment for £82 10s 11d.

On appeal the coach company said that a gratuitous bailee is liable only for gross negligence, and that gross negligence had not been found. Ormerod LJ doubted that the bailment was gratuitous at all. He also doubted that "gross negligence" means anything useful. The standard is the standard the circumstances of the particular case demand. Sorting every bailment into a watertight box, free or paid, ignores how many different arrangements there are. Willmer LJ and Danckwerts LJ agreed.

Sutcliffe v Chief Constable of West Yorkshire follows Houghland. Otton LJ said no distinction is to be drawn between a gratuitous bailment and one for reward. The standard is the one the circumstances require.

The point is not completely closed. Holt CJ in Coggs v Bernard thought different bailees might owe different duties. The Privy Council in Port Swettenham Authority v T G Wu & Co still distinguished a paid bailee from a gratuitous one. In The Winson Lord Diplock said the lower standard of a gratuitous bailee was too well established to need citation. There is also a good practical argument for holding a paid or professional bailee to a higher standard. Bell makes that argument. For a student answer, state Houghland and Sutcliffe as the Court of Appeal's test, and note that the older distinction has not been formally buried.

When the duty becomes strict

Usually the bailee is not an insurer. Two situations are different.

A common carrier is strictly liable for loss or damage unless it was caused by act of God, inherent vice, or act of the Queen's enemies. Lord Sumption said in Volcafe Ltd v Cia Sud Americana de Vapores SA that this is of little importance today, because few if any modern carriers are still common carriers.

The other case is deviation. The bailee is strictly liable if he departs from the agreed bailment. Storing the goods somewhere other than the agreed place is a deviation: Lilley v Doubleday. Handing them, without authority, to a third person is a deviation: Edwards v Newland & Co. So is wrongly refusing to return them, or negligently failing to return them, when the bailor asks for them at the end: Mitchell v Ealing London Borough Council. Carrying them by a route other than the agreed route is a deviation, unless the deviation did not cause the loss: Morrison & Co Ltd v Shaw, Savill and Albion Co Ltd.

Deviation has further effects. It is a repudiatory breach, so the bailor may demand the goods at once. If it is a blatant disregard of the bailor's interests, it can be conversion: Garnham, Harris and Elton Ltd v Alfred W Ellis (Transport) Ltd. At common law the bailee also generally loses the protection of any exclusion clause: Gibaud v Great Eastern Railway Co.

The involuntary bailee

The traditional rule is that an involuntary bailee is not liable for mere negligence. In Howard v Harris a theatre manager was not liable for losing an unsolicited script. His only duty, on that view, is not to destroy or damage the goods on purpose. Bramwell B said so, obiter, in Hiort v Bott, and Elvin & Powell is to the same effect. That duty can include getting rid of goods that reasonably seem unwanted: Robot Arenas Ltd v Waterfield.

There is a minority view. Palmer argues that an involuntary bailee should owe a duty of care, but an undemanding one, because he never agreed to have the goods. Arden LJ considered that debate in Da Rocha-Afodu v Mortgage Express Ltd. In a problem, set out both views and say which facts make the duty light.

Who must prove fault

Once the bailor proves that the goods were delivered and were not returned, or were returned damaged, there is a prima facie case. The bailee must then prove that the loss or damage happened without fault.

Houghland is again the case. The suitcase was on the coach at Southampton and was not on the coach at Hoylake. That was enough to call for an answer. A prima facie case is rebutted by evidence, not by argument. The coach company did not prove what happened to the suitcase, so it did not prove that whatever happened was not its fault.

Ormerod LJ took the same rule from detinue. Bankes LJ in Coldman v Hill said that if a bailee is sued in detinue, it is a good answer that the goods were stolen without any default on his part. The bailment itself proves only that the goods were in his hands and were not given back. It is then for him to prove both the theft and the absence of fault. Willmer LJ added that it does not matter whether the claim is put in detinue or in negligence. Either way the burden of rebuttal is on the bailee.

Volcafe applies the same rule to carriage by sea under the Hague Rules. Containerised coffee shipped from Colombia to Germany arrived damaged by condensation. Article III rule 2 required the carrier to take reasonable care. Article IV rule 2(m) excused inherent vice, unless the carrier's negligence let that vice cause the damage. The evidence did not show how much absorbent paper had been used. The Supreme Court held the carriers liable as bailees. They had to prove inherent vice and that they had not been at fault. They proved neither.

Lord Sumption rejected the argument that the burden of disproving negligence exists only because a common-law bailee is under a strict duty to redeliver. The common-law duty is a duty of care, except for the largely theoretical case of the common carrier. The law has always combined that duty with a burden on the bailee to disprove negligence. Article III rule 2 is the same. Nothing in the Hague Rules changes a contract of carriage by sea from what it is: a bailment for reward on terms.

The practical result, in any carriage claim, is that the claimant proves the goods were taken over in good condition and delivered damaged, or not delivered. The carrier must then prove a cause for which it is not responsible. Gosse Millerd Ltd v Canadian Government Merchant Marine Ltd is the older statement of that rule. Ulster-Swift Ltd v Taunton Meat Haulage Ltd and Port Swettenham Authority are further examples of the reversed burden.

Sub-bailment

A bailee can create a further bailment. A carrier subcontracts part of the transit. A repairer sends the goods to a specialist. There is usually no contract between the owner and the sub-bailee. There are still duties in bailment, owed by the sub-bailee directly to the owner, if the sub-bailee knows the goods are not the immediate bailee's alone.

Is the owner bound by the sub-bailment?

In The Pioneer Container the Privy Council held that a sub-bailee who knows the goods are not the bailee's can rely on a term of the sub-bailment if the bailor expressly or impliedly consented to that term, or if the bailee had ostensible authority to include it. The term in that case was an exclusive jurisdiction clause. The same principle covers an exception clause, as in Morris v C W Martin and York Products, and a term allowing the sub-bailee to deal reasonably with uncollected goods, as in Sang Stone Hamoon Jonoub Co Ltd v Baoyue Shipping Co Ltd.

Can the owner use the sub-bailment?

Yes, in two situations.

The first is authority. If the bailee had the owner's consent to contract with the sub-bailee on particular terms, and those terms are meant to govern the relationship with the owner as well as with the bailee, the elements of a collateral contract are present. There is privity through the bailee's agency, and there is consideration if the terms can benefit each side. Lord Phillips MR said so in Sandeman Coprimar SA v Transitos y Transportes Integrales SL.

The second is the Contracts (Rights of Third Parties) Act 1999. If a term in the contract between bailee and sub-bailee is expressly or impliedly for the owner's benefit, the owner may enforce it under that Act. A subcontracted carrier of frozen meat who promises the main carrier to hold a temperature, and then fails, may be sued directly by the owner for the loss.

Can the sub-bailee use the main contract?

A sub-bailee may take the benefit of a clause in the head contract, such as an exemption, but only if the clause, properly read, covers him. The Mahkutai is the cautionary case. Since 1999 the same result can also rest on section 1(6) of the Contracts (Rights of Third Parties) Act 1999.

If the sub-bailee speaks for himself, for example by issuing a shipping note direct to the bailor, that note wins where it conflicts with the contract between bailor and bailee. Rix LJ said so in Lotus Cars Ltd v Southampton Cargo Handling plc.

Who pays for the sub-bailee's fault?

The bailee is presumptively liable for the sub-bailee's negligence even if the bailee was not personally careless. Lord Denning MR stated that in Morris v C W Martin. In carriage and warehousing this is why the owner can sue the person he contracted with, and does not have to find out which hand in the chain was at fault.

How to use this in a problem

Start with the three requirements. Did possession pass? Did ownership stay behind? Did the person in possession consent? If any answer is no, say why there is no ordinary bailment, and then ask whether the person is an involuntary bailee or a converter.

If there is a bailment, name the sort only if it helps. Say whether it is gratuitous or for reward, and whether it is for a term. State the duty as reasonable care in the circumstances, and cite Houghland. If the facts show a deviation, say that liability is strict and that exclusion clauses fall away.

Then put the burden in the right place. The claimant proves delivery and loss or damage. The bailee proves a cause for which he is not responsible, and that he was not at fault.

If a third person is involved, separate three claims. The owner's claim against the head bailee, including for the sub-bailee's fault. The owner's claim directly against the sub-bailee, which needs notice of the owner's interest. And any term of the sub-bailment, which binds the owner only if he authorised it.