Legal Case Summary

New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154

When performance of an existing duty to third party can be consideration.

Facts

The appellants were stevedores engaged as independent contractors to unload machinery from a ship. The contract between the respondent machinery owners and the carriers contained a limitation clause. This said that no servant or agent of the carrier would be liable for any damage unless an action was brought within one year. The stevedores negligently damaged the machinery while unloading it. The respondents brought an action outside the one year limitation period. The appellants claimed the clause prevented the respondents from suing them.

Issues

The issue was whether the stevedores could take the benefit of the time limit specified in the clause in the agreement between the carrier and the owners. Against this it was argued that under Midland Silicones Ltd v Scruttons Ltd [1962] AC 446  a contract between two parties cannot be sued on by a third person even though the contract is for the third party’s benefit.

Decision / Outcome

The Privy Council held that the stevedores could rely on the clause. The bill of lading was initially a contract between the owner and the carrier. However, the clause’s wording was designed to cover all the parties involved in the carriage of the goods, including the stevedores. The respondents obtained the benefit of a directly enforceable action against the stevedores. The stevedores gained the benefit of the time limit. The stevedores had done the work in reliance upon this. Therefore, they had supplied sufficient consideration, even though they were only doing what they had already contracted to do with a third party.