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The Trader's Dilemma: The Basics of Bailment (Part I)

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Note: The following document explains some basic concepts of bailment as they relate to the trading of goods. In sale of goods transactions, traders are involved in a complex web of legal relationships with various parties who handle the goods from the time the goods leave the vendors' hands until the goods reach the purchasers. For instance, who is responsible for the goods when they are transported from the vendor to the purchaser? The common law of bailment, as well as international conventions and local statutes, define the rights and obligations of owners and carriers of goods. The following passages will highlight some of the issues that traders may wish to consider. Please be aware that this is not an exhaustive discussion of the law of bailment in Hong Kong or in the international arena.

What is bailment?

Bailment is the transfer of possession of goods from one party, the bailor, to another party, the bailee, under an obligation that the goods are returned to the bailor or handled according to the directions of the bailor. In most trade situations, the vendor of the goods is the bailor and the carrier of the goods is the bailee. Often, traders and carriers work under bailment contracts, however such contracts are not required for bailment relationships to arise in common law.


What are the duties of a bailee in common law?

once the bailor transfers the possession of the goods to the bailee, the bailee assumes certain duties with respect to those goods. A bailee is under a duty to take reasonable care of the goods. The requisite standard of care varies with the circumstances of each case. The bailee has the burden of disproving negligence or, in some situations, that he is not liable under an exemption clause. A court would likely consider the following circumstances in determining whether a bailee has been negligent:


    1. Subject matter of the bailment. If the bailee knew that the subject matter of the bailment was of high value, a court would be inclined to impose a high duty of care on the bailee.

    2. Nature of the bailment. If a bailee receives payment or some other benefit for his/her services, the bailee would owe a high degree of care to the bailor.

    3. Skill of the bailee. Where a bailee who holds himself out to have a particular skill or a certain level of skill, a court would likely expect a high duty of care on the part of the bailee.

In the context of trading, a relatively high duty of care would likely be expected of carriers of goods because they are usually paid for their services, they know the value of the goods they are transporting, and they hold themselves out to be in the business of carrying goods.


A bailee also has a duty to use reasonable efforts to assist in the recovery of goods that are lost under his care.

Obviously, a bailee cannot convert goods for his own use. A bailee may be liable for an employee or an agent who steals the goods while he is acting in the ordinary course of employment.

Note: A bailee may be exempt from liability for negligence if the contract of bailment contains an exemption clause.


What are the responsibilities of different types of carriers of goods?

Different types of carriers are governed by various statutory instruments, as well as the common law of bailment.


• Carriage by Air

Air carriers are usually liable for loss, damage or delay, as any other bailee. International instruments also delineate the obligations of air carriers. Most airlines are members of the International Civil Aviation Organisation, and the International Air Transport Association. These organisations govern international aviation issues, including the carriage of goods. The Warsaw Convention establishes standards for the international carriage of goods. Under the Convention, an air carrier is liable for damage, loss, or delay attributable to its carriage of the goods concerned. An air carrier can be exempt from liability if it can establish that the air carrier and its agents took all possible steps to prevent the loss, or it was impossible to avoid the loss.

• Carriage by Road

Most road carriers are governed by the general principles of bailment. Road carriers can exclude their liability or limit their liability with exemption clauses in contracts. Owners of the goods are liable for the freight of the goods, and they can sue carriers for damage, loss, or delay.


• Carriage by Ship

Most shipping countries have adopted international shipping conventions such as the Hague Rules and the Hague-Visby Rules. These statutory instruments impose obligations on the carrier to have a "seaworthy vessel" and to take reasonable care and due diligence in carrying cargo.


One of the key duties of a carrier is to exercise due diligence in making sure that the vessel is "seaworthy". A "seaworthy" vessel is one that is fit for carrying the type of cargo in question.


A carrier must also exercise due diligence with respect to equipping the vessel with necessities, ensuring that the vessel's chambers are suitable for carrying the cargo in question, and employing competent personnel on the vessel. A carrier must handle cargo with reasonable care during the course of carrying cargo. A carrier must also carefully handle, move, load, store, carry, maintain, and unload the cargo.

 

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