Eastern, agent for sea carrier Damco, issued 3 'on board' bills of lading to shipper Seda in July/August 1995 for the carriage from Seoul (Korea) to Rotterdam of a total of 44 containers, each containing 460 aluminium folding ladders, which were bought by Seda from MWW on a C&F basis. Payment of the shipments was arranged via a documentary credit issued by MWW's bank. Of the first shipment (16 containers on Sea Progress) only 9 containers actually contained cargo, which containers are released by Damco to MWW's forwarding agent against presentation of the bills of lading. No containers with ladders were in fact loaded on board the other two vessels, HY Challenger and HY Pioneer. Some time later it was established that fraud had been committed by Seda which had induced an employee of Eastern to make up and issue false bills of lading, whereby both Seda and the employee knew that a significantly lower number of containers, or indeed no containers with ladders would be tendered for shipment. MWW claimed damages from Damco on the basis of breach of contract and unlawful act (tort). 

Held: The Court of Appeal did not err where it ruled that Damco as carrier would be 'bound' towards a third party bill of lading holder in good faith to the contents of bills of lading that mention goods which were not in fact received for shipment, because Damco, by having an agent issuing these bills of lading in its name, has created the appearance, also in this case of fraud, that the goods mentioned in the bills of lading were in fact received on board. In that respect it should be considered that Eastern, as agent of Damco, was generally authorized to sign and issue bills of lading on Damco's behalf, and also that attributing the consequences of the fraud to Damco fits the statutory framework in which, from the viewpoint of fairness and of the demands of trade, considerable weight is attached to the protection of third parties who in good faith have acquired rights with regard to bills of lading.

The Court did not err either where it ruled that under art 6:172 of the Dutch Civil Code (DCC) Damco is vicariously liable in tort towards MWW for the fraud committed by an employee of Eastern which represented Damco when issuing the bills of lading in question.

The exception to liability contained in art 4.5.h of the Hague-Visby Rules (art 3:388 para 7 DCC) aims to protect the carrier from bad faith of the shipper. This exception therefore does not apply with respect to a carrier who had knowledge of the falsity of the shipper's statement or, as in this case, to whom such knowledge should be attributed.