A dramatic turn …
Analysis shows that there is an abundant authority, originated between the eighteenth and first half of the nineteenth century, for saying that breach of implied or express provision not to deviate in contracts of affreightment was never unequivocally considered as a breach of such a character which gives to one party unfettered right to put the contract at an end. The carrier’s liability for damage or loss of the goods sustained due to deviation was subject to gravity of the breach and in modern terms such provision in contract would be treated as an innominate term. However, two later authorities Balian & Sons v Joly, Victoria & Co Ltd (1890) 6 TLR 345 and Joseph Thorley Ltd v Orchis SS Co Ltd  1 KB 660 made a dramatic turn in legal vision of the problem, which is difficult to reconcile with all previous law on the subject. It was actually suggested and approved that deviation made "the whole bill of lading was gone", that it displaces "the express contract, independently of question whether the deviation had any bearing on the particular loss complained of by the cargo owners." Paradoxical effect of these decisions was that while contract was wiped out as it had never been, i.e. void ab initio, an injured party was nevertheless able to recover damages under this never-existed contract. was probably if not the first, then one of the main stones which formed the base of the doctrine of fundamental breach.
Professor Martin Dockray observes in "Deviation: a doctrine all at sea?"  L.M.C.L.Q. 76 at p.88, that Balian case deserved very little attention in legal printed media of 1890th, but:
…despite this modest start in life, the case came in time to be regarded as establishing the rule, broader and more general than the law applied in Davis, that a carrier who unjustifiably deviated from route could not thereafter rely on any term of the express contract of carriage under which the goods were loaded. The case—which cannot have taken more than an hour or two to decide – has left a mark on the law which is still visible today.
The case itself, as it was proceeding from the trials to the Court of Appeal, forms a puzzle of difficult to understand decisions when small company operating four coasters in coastal trade between Greece and Smyrna was held liable under bill of lading contract for damage to the goods suffered on their arrival to London.
After in-depth study of political and economic background surrounding Balian case, Professor Dockray suggests that heated debate between the cargo interests and the shiponwers over idea of reforming bills of lading which ended in 1884 with humiliating defeat of the cargo interest, was an important part of the background to the decision in Balian. Lord Esher judgment was dictated by the thoughts that the duty to follow the contractual route was important, that steamship bills of lading were often unfair and that legislative reform was unlikely.
In Joseph Thorley shipowners committed deviation from contracted voyage but nevertheless delivered the goods (cargo of beans) to destination undamaged, therefore deviation did not conduce to the loss suffered by the cargo owner. The loss happened during discharging of the cargo of beans, when it had been damaged through admixture with a poisonous earth called terra umber, a large quantity of which had been carried on the ship as ballast. The cargo owners were consequently unable to make use of the beans. The jury found that the terra umber and the beans were properly stowed on the ship, and separated, and that the admixture of them and damage resulted was caused during the discharge of the ship. The jury assessed the damages at 240£. Stevedores being employed by the shipowners, the cargo interests brought in an action to recover that loss. The shipowner claimed protection under exception clause contained in bill of lading. As report says the cargo owners did not know of the deviation till after they had obtained discovery of documents in the case. After discovery of deviation they put forward an argument that deviation displaced contract and the shipowners were not entitled to rely on the provisions of the exception clause. Channell J at first instance on the authority of Balian v Joly, Victoria & Co. (1890) 6 TLR 345 gave judgment for the cargo owners.
In argument before the Court of Appeal it was successfully contended by the cargo owners, that the principle established by Lord Mansfield in Lavabre v Wilson stating that the effect of deviation is to substitute a different voyage for that originally contracted between the parties, applies to contracts of affreightment. It was broadly alleged that on the principles which have been laid down in Davis v Garrett and other decisions on the subject the deviation prevents the defendants from availing themselves of the exception clause. But no any other decision apart from Davis v Garrett was named.
Finally, the Court of Appeal was much influenced by dicta of Lord Esher in Balian & Sons v Joly, Victoria & Co Ltd (1890) 6 TLR 345, that the fact of deviation was a complete answer to the defence so set up, as having the effect of displacing the provision in the contract. Balian case is clear illustration of critical observation of P. Atiyah that often it is very difficult to understand why the law adopts one course rather than another. It happens when the judges fail to articulate clearly the reasons which motivated them in making decisions but rather explaining their decisions by placing the case in a certain legal category and then applying the rules appropriate to that category. Thus initial categorization of the case often is the crucial part of the decision.
The Court of Appeal in Joseph Thorley relaying mostly on far-reaching dicta of Lord Esher in Balian, categorised the case as governed by the same principle which applies to the breach of warranty of seaworthiness in contracts of insurance. Footing on this categorisation the court held that duty not to deviate goes to the root of the contract and is a condition precedent to the right of the shipowner to put the contract in suit. It was not reasoned why, contrary to all previous authorities, deviation became to be considered not as a partial but a full failure of consideration. The case was clearly not of a kind where deviation put an end to the whole object the freighter had in view when chartering the ship, the main object of the contract was not affected in any way by the deviation. Lack of justification and direct controversy with general principles of treating deviation in contracts of affreightment established in numerous preceding authorities (discussed in Mutual promises, Substance and manner and Wrongful act in operation and force) assigned to both these decisions a number of question marks.
1) On analysis of a number of earlier authorities (Christie v Secretan (1799) 8 TR 192, Hartley v Buggin (1781) 3 Doug 39, Cole v Shallet (1797) 3 Lev 41, Havelock v Geddes (1809) 10 East 555, Bornmann v Tooke  Camp 376, Davis v Garrett (1830) 6 Bing 716, Freeman v Taylor  EngR 921; (1831) 8 Bing 124) it is difficult to see why deviation ought to produce the same result as a breach of seaworthiness warranty in insurance contracts. Effect of unseaworthiness in marine insurance has been radically different from that of deviation in contracts of affreightment. Seaworthiness was considered to be a condition precedent, since unseaworthiness made the ship incapable of performing her voyage, consequently leaving the underwriter’s without consideration, and if the consideration fails, the obligation fails. Moreover since seaworthiness relates to the state of the ship at the commencement of the risk, breach of this warranty discharges the underwriter from liability on the policy, ab initio (see more on Seaworthiness page). On the other hand, in cases of deviation under charterparty or bill of lading contract, especially when the goods were delivered to the destination, notwithstanding the owner’s neglect, the consideration cannot be said as wholly failed because the charterer had some use of the vessel, accordingly charterer has a right to such damages as he can prove he has sustained from the owner’s breach.
The obvious difference in approach to warranties of seaworthiness and deviation between the law of marine insurance law and shipping law is vividly illustrated by decision of Tindal CJ in Mount v Larkins (1831) 8 Bing 108 and Bucknill J in The Europa  P 84. In the former case Tindal CJ justified termination of insurance contract in case of deviation on the footing that deviation brings into existence a "new" voyage, which is "a voyage at a different period of the year, at a more advanced age of the ship". Generally, neither age of ship, nor season of the year are of such importance to the charterer that to entirely deprive him of the benefits of the contract, therefore above mentioned characteristics of "new" voyage completely irrelevant to any obligation which shipowner undertakes under the contract of carriage. Now in The Europa case the learned judge avoided analogous categorisation and distinguished Joseph Thorley to defeat an argument of cargo owners, that seaworthiness is a condition precedent in a contract of affreightment, to the extent that, if the ship be unseaworthy, the shipowner is reduced to the position of a common carrier, and liable for all damage occasioned to the cargo, even if such damage be solely caused by an excepted peril, and not by the unseaworthiness.
2) While the law of bailments restricts application of common law exclusions when loss could be prevented by exercising due care by the bailee for reward, however this rule was never extended to risks expressly excluded and which were not related to his wrongful act.
3) Even if deviation be a condition precedent, decision of the court failed to consider the rule saying that, it would be unjust to destroy a contract in toto where one party has derived some advantage by the other party having to some extent performed the agreement. Chitty in second edition of Law of Contract, 1834, at p.574 says:
… in such case, the agreement shall stand; the defendant must perform his part thereof, and must seek in a cross action a compensation, in damages, for the plaintiff’s default. … A contract for freight cannot, it seems, be rescinded, if the consignee has received the goods, and has therefore derived some benefit from the carriage, although the goods were damaged by the negligence of the carrier beyond the amount of the freight.
Shields v Davies (1814) 4 Camp 119
4) Although it is difficult to disagree with rationale suggested by Prof. Dockray that behind Balian and Joseph Thorley decisions was a general feeling of contemporary audience that shipowners’ protection under contracts of carriage was not in line with commercial needs then existed; but it can be also noted that there was another answer view that the men of business have their reasons to contract on what later might be seen as an unreasonably large exceptions, expressed by Sir Montague Smith in the Privy Council case Moore v Harris:
No doubt this condition may bear hardly on consignees, but so also may the very large exceptions to the responsibility of the shipowner inserted in the body of this bill of lading. Certainly no reason for narrowing the scope of the condition can be gathered from the general tenor of the instrument, when is manifestly framed throughout with a view to exempt the shipowner (as far as could be foreseen) from liability for damage. It may be that this has been done to an unreasonable extent, but the plaintiffs are merchants and men of business, and cannot be relieved from an improvident contract, if it really be improvident. Possibly in shipping under bills of lading thus framed, the merchant gets a corresponding advantage in a lower rate of freight.
Ability of the courts to overcome any evident disproportion and injustice in shipping contracts without application of radical rules is sufficiently evident from celebrated decisions in Leduc v Ward (1888) 20 QBD 475 and in Glynn v Margetson & Co  AC 351, [1891-4] All ER Rep 693. Moreover, there was nothing notably unjust in bill of lading contracts considered in Balian and Joseph Thorley. In the latter case shipowners agreed to provide their own stevedores to discharge the vessel but expressly exempted themselves from liability for loss arising from negligence of stevedores in discharging the ship. Obviously, this part of bargain was proportionally drafted from risks/liabilities apportionment view: the cargo owners benefited since there was no need for them to look for and employ stevedores in discharge port, but loss caused by stevedores must have fallen on their shoulders as a part of bargain concluded.
An adjective ‘fundamental’, which was later widely in use, was also introduced by Fletcher Moulton LJ in Joseph Thorley as a characterisation of marine deviation as a breach, at p 669:
The cases show that, for a long series of years, the courts have held that a deviation is such a serious matter, and changes the character of the contemplated voyage so essentially, that a shipowner who has been guilty of a deviation cannot be considered as having performed his part of the bill of lading contract but something fundamentally different; and therefore he cannot claim the benefit of stipulations in his favour contained in the bill of lading.
No clear rule was pronounced by the Court of Appeal, why the damage which was not caused by, or occurred during, the deviation could not be exempted by express provisions in the contract. There was also no direct authority on this issue because in Balian & Sons v Joly, Victoria & Co Ltd (1890) 6 TLR 345, which decision the court applied, the goods were damaged during deviation, same as in Davis v Garrett. It also was not discussed that the responsibility of the carrier, as such, ceases when the goods have reached their place of destination, and the control of the carrier over them, in the character of a carrier, has terminated.
Even if based on the doctrine of condition precedent, decision of the court have had to consider the rule saying that, it would be unjust to destroy a contract in toto where one party has derived some advantage by the other party having to some extent performed the agreement: in such case, the agreement shall stand; the defendant must perform his part thereof, and must seek in a cross action a compensation, in damages, for the plaintiff’s default. The owner was exempted from liability for loss arising from negligence of stevedores employed by them in discharging the ship, therefore loss caused by stevedores must have fallen on the shoulders of the cargo owner as a part of bargain he had concluded. Remarkably this artificial approach was never employed again in any of later deviation cases until decision of the House of Lords in Hain Steamship Company Ltd v Tate & Lyle Ltd  2 All ER 597, where it was once more necessary to displace contract to remove protection of express clauses.
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