From the hire of company cars to the shipping of goods, the term ‘bailment’ encapsulates one of the most common forms of legal relationship for those operating a business.
Patrick Jenkins, commercial dispute resolution expert in our litigation department, says that ‘bailment is also a term which is often unfamiliar even to those who are unwittingly subject to its rules, that is, until a dispute arises.’ He explains the rules around this unfamiliar term and what can be done to manage the risks effectively.
Bailment defined
At its most basic, bailment is a legal relationship which arises in circumstances where one person is in possession of goods belonging to another. The goods must be tangible items such as cars, cargo and equipment, so this does not relate to intangible assets such as debts or intellectual property rights.
In order for such a relationship to arise, a person (the bailee) must voluntarily and consensually take possession of movable goods from the bailor, who retains ownership.
A typical example would be where a car hire company delivers one of its vehicles to a specialist mechanic for repair. The mechanic receives the vehicle from the car hire company so that the repairs can be carried out. It is expected that the mechanic will receive payment for the services provided, but ownership of the vehicle will remain with the car hire company at all times.
Another example may be where a manufacturing business allows a shipping company to collect goods from a distribution centre so that those goods can be delivered to a customer. Although ownership of the goods would never pass to the shipping company, they would be entitled to payment for the provision of their services. In return, the manufacturing business would have certain expectations as to how those goods are treated while in transit. These expectations are reflected in the law governing bailment
These two examples demonstrate the numerous circumstances in which a bailment relationship can be implied.
The obligations
Once you have entered into a relationship which involves bailment, it is important to understand the obligations on both sides in order to avoid a dispute and to protect the business if a dispute should arise.
If you are the owner of the goods, the car hire company or the manufacturing company in the scenarios above, you must:
pay for the services provided by the company in possession of your goods, if such terms have been agreed;
take back possession of the goods when agreed, or within a reasonable period of time; and
be responsible for any harm caused by any defect in the goods, for example, if the manufacturer’s shipment in the scenario above is found to be contaminated and causes an employee of the shipping company to fall ill from handling the goods, the manufacturer could be found to be in breach of its bailment obligations.
For the company in possession of the goods, the mechanic or the shipping company, they must:
act reasonably in taking care of the goods;
perform the task for which the goods were initially supplied; and
make the goods available for collection by the owner at the requisite time.
These terms are implied by the law but can be varied by contract or statute. If a dispute does arise, you should consult a dispute resolution solicitor to establish the position and the full range of obligations affecting your business.
Bailment disputes
Disputes usually arise if either party is considered to be in breach of its obligations arising from the bailment in question. For example:
if the shipping company informs the manufacturer that the goods were damaged in transit as a result of unusually adverse weather conditions, there may be a dispute as to whether this constitutes a breach of the bailment terms on the part of the shipping company; or
if the car hire company delays collecting the vehicle on the basis that it is not happy with the quality of the repairs undertaken by the mechanic, they may demand that the repairs are improved, while the mechanic may seek to charge an additional fee for storage until the vehicle is collected.
There are a range of claims which can be brought against the offending party, including:
breach of contract where the bailment is contractual in nature;
breach of bailment;
unjust enrichment, where one party receives an unjust reward at the expense of another. For example, where the mechanic in the scenario above returns the vehicle to the car hire company later than agreed as he has been using the vehicle to make deliveries of car parts to customers in return for a fee.
It is important to note that the above actions are but a few of those available to an aggrieved party under the terms of a bailment. The complex nature of this area of law and broad range of potential actions underline the importance of any dispute being referred quickly to a specialist solicitor.
In the event that your claim is successful, there are a number of remedies available which can include;
a payment of damages;
a requirement that the defendant take certain actions to rectify the situation; and
the grant of an injunction.
In most cases, the legal costs would be paid by the losing party and as such the risks of a claim can be significant.
Potential problems
There are a number of problems which can arise from a bailment dispute and your solicitor will be able to advise on the best way of solving these without escalating to litigation.
For example, if the owner of the goods fails to collect them, how can the person dispose of those goods? Can the person in possession charge for storage or sell these items?
The answer to such questions will depend entirely on the circumstances of each individual case and the potential risk for your business.
As specialists in dispute resolution, we can provide tailored advice to ensure that you take the most appropriate steps to reduce the risk to your business and to ensure that you are fully aware of your obligations and the options available to you.